Finally, Philly Has A Signature Industry To Kick-Start A Development Boom
Want to get a jump-start on upcoming deals? Meet the major Philadelphia players at one of our upcoming events!
What started in 2017 with one medical breakthrough is now poised to open the floodgates for an unprecedented development boom in Philadelphia.
In December 2017, the Food and Drug Administration approved the first-ever gene therapy process for treating a genetic condition. The applicant: Spark Therapeutics, a startup founded in 2013 by researchers from the Children's Hospital of Philadelphia.
Four months earlier, the FDA had given multinational pharmaceutical company Novartis approval for the first-ever cell therapy, which originated from the research of Dr. Carl June's laboratory at the University of Pennsylvania.
Together, two institutions located blocks from one another in Philadelphia's University City heralded the arrival of gene and cell therapy as a calling card of Philly's research community and as an industry attracting billions of dollars of venture capital, including a record-setting amount in last year's third quarter, according to the Philadelphia Commerce Department.
Gene and cell therapies are complex processes that require years of research to create and highly specialized labor to produce, but they treat conditions that were heretofore untreatable, and that makes them big business. The FDA is working to hire dozens of staff just to handle the anticipated wave of proposals on the horizon.
This year, the scientific advancements have inspired millions of square feet of planned life science development in the Philadelphia area.
Gene therapy is the process by which patients are administered a synthesized virus that contains specialized DNA to alter their genetic code. Doing so can stimulate the production of a crucial protein, shut off the production of a harmful protein or alter the protein that is produced.
Spark's first gene therapy treats an inherited retinal disease that causes certain types of blindness. It had taken in over $500M of investment by the time it won FDA approval.
Cell therapy takes living cells either from a patient or donor and introduces them back into the patient's system, where they then reproduce and perform a specified function. Dr. June's research focused on modifying a person's T-cells to attack a specific kind of leukemia. It also led to Time Magazine naming him one of the 100 most influential people in the world in 2018.
Another Penn researcher, Dr. James Wilson, developed the virus hosts that can transport gene and cell therapies to the right cells in a patient's body. He has licensed those viruses to 11 other companies, including Novartis, and recently founded his own startup on the back of $115M in Series A funding.
Spark is the anchor tenant for the first building in Brandywine Realty Trust and Drexel University's Schuylkill Yards megaproject, a redevelopment of the Bulletin Building just west of 30th Street Station that kicked off this month and is expected to be finished in 2020. Several other towers are still part of the plans, but nothing concrete has been made public to date.
Three blocks away, D.C.-based Republic Properties Corp. is planning an eight-story, ground-up life science building that will specifically target gene and cell therapy companies, at least in part. A mile west, University Place Associates has announced plans to build University Place 3.0 for cell and gene therapy, with the Wistar Institute as a partner and anchor tenant.
The appetite for development stretches beyond University City: In the Philadelphia Navy Yard, California-based Iovance Biotherapeutics will build a new 136K SF office, lab and production facility near where its manufacturing contractor, Chinese company Wuxi Apptec, already has a complex.
In King of Prussia, The Discovery Labs has already begun remaking GlaxoSmithKline's former headquarters into a 1.5M SF "life science coworking campus."
For a city that has seen precious few new nonresidential developments in the past decade, so much planned construction all at once is "breathtaking," UPA founder and CEO Scott Mazo said.
"As a developer and someone who lives in Philadelphia, life science right now seems like the opportunity that has been missed several times in the past,” Mazo said. "We’re getting calls from names all around the country, and we’re being considered as the top place in the country in terms of cancer and gene therapy research.”
For years, the Boston area has been the global mecca of life science, robotics and biotech. Its most popular submarket, Cambridge's Kendall Square, has a lab vacancy rate below 1% despite a robust pipeline of new construction. But for this specific niche, Philadelphia is ground zero.
"[Cell/gene therapy is] here, it's our signature industry, and it's evolving," UPA President Anthony Maher said.
As recently as late May at Bisnow's Philadelphia State of the Market event, Philadelphia developers such as PMC Property Group CEO Ron Caplan expressed doubt that life science innovation could produce the sort of job growth necessary to justify significant new development.
Caplan's reasoning was based on the arduous, yearslong process of taking a gene or cell therapy from discovery through testing and clinical trials to FDA approval, and the relative scarcity of talent in that specific area of expertise.
Though a large portion of the announced developments has yet to break ground, the market seems destined to prove the doubters wrong in short order. PMC did not respond to requests for comment.
Mazo said he expects University Place 3.0 to draw demand for as much as three times the 240K SF building can hold. Republic Properties President Steven Grigg believes in the depth of Philadelphia's talent pool to sustain considerable industry growth.
"[There has been] a maturing of the process associated with this sort of medical treatment," Grigg said. "It’s really related to Philadelphia's clinicians, researchers and scientists ... [The] Philly marketplace has a large concentration and proven record for biotech or biology-related higher education facilities — significant universities, medical centers doing cutting-haedge research."
But the difficulties in building for such a specialized industry are real.
One of The Discovery Labs' main selling points is the infrastructure GSK left in place, allowing an accelerated readiness timeline for any interested tenants, TDL Executive Vice President of Development & Leasing Joe Corcoran told Bisnow. The 100K SF incubator within the complex will provide "infrastructure as a service," as TDL's trademarked phrase calls it, run by the Pennsylvania Biotechnology Center.
Other developers in Philly are depending on partners for advice on the design of buildings to support and attract tenants. Longfellow Real Estate Partners is handling life science development for Brandywine at Schuylkill Yards, and Republic was brought in as a development partner by life science investment firm/accelerator PHL Next Stage Med.
The JV was awarded a ground lease for the development site by SEPTA in late 2017, and has since come up with strategies for how to build for next-generation life science research and production.
"[The building will] have the FDA-level cell and gene therapy, which breaks into two floors, and you have your generic biotech, which has interstitial floors," Grigg said. "The challenge [is] how to execute so that you’re not producing something like an old industrial building, so that you have modern finishes with light and air. Laboratories of the future will involve building facilities that scientists and clinicians will want to work in. It’s not just providing something that feels like a basement space.”
University Place Associates will look to Wistar to guide its approach to the science at University Place 3.0, as well as use partnerships and connections the institute has developed with its neighbors and research contemporaries to bring in tenants.
"With our anchor tenant in Wistar, we can really think about the Series A tenants just getting started out," Maher said. "And in getting a discovery from bench to bedside, we are interested in how that process happens ... Wistar really has a vision of what’s happening today, and a vision for how they can lead in the Philadelphia ecosystem. So we want to allow them to influence us.”
To assist developers in understanding such a cutting-edge field with unique characteristics and needs, the Philadelphia Commerce Department is partnering with the city's pseudo-public development arm, the Philadelphia Industrial Development Corp., to compile a Philadelphia Lab Market analysis, which will "indicate existing real estate options and future pipeline," Commerce Department Director of Communications Kevin Lessard said in a statement to Bisnow.
"The City understands that this industry, more than others, is reliant on the availability of real estate options," Lessard said. "Wet lab space is to the life sciences as carbon fiber bicycles are to professional cyclists. Without a robust portfolio of lab space, there can be no influx of new companies or expansion of existing companies."
Much of the existing real estate to support fledgling life science companies, outside of the research institutions themselves, now is within University City Science Center's uCity Square project, including Spark Therapeutics, until its new building is ready. The newest building at uCity Square is already almost fully occupied after landing New Jersey-based Amicus Therapeutics' new research center.
As for the future pipeline, much potentially lies beyond what has been announced. UCSC already has plans for further buildings in uCity Square, and University Place 4.0 awaits when 3.0 is complete. The Navy Yard still has more space for development, and Brandywine and Drexel made it clear in statements at their ribbon-cutting of Schuylkill Yards' first component in early June that they anticipate life science to form a substantial portion of the demand for future buildings.
All those potential developments are theoretical at this point, and years away at least. But like the medical treatments at the heart of Philly's bright future, they seem a lot more realistic now than they did a few years ago.