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Capstan Therapeutics’ sale this year for $2.1 billion, the highest price paid for a private early-stage biotech company since 2022, was a triumph for its founders at the University of Pennsylvania.

Unfortunately for Philadelphia, the company is based in San Diego. Investors wanted an executive who lives there to be CEO.

Capstan was a miss for Philadelphia, said Jeffrey Marrazzo, who cofounded a high-profile regional biotech company, Spark Therapeutics, and is now an industry investor and consultant.

If Philadelphia had a bigger talent pool of biotech CEOs, “it would have and should have been here,” he said.

The company, which aims to treat autoimmune diseases by reengineering cells inside the body, most likely would have been sold wherever it was based, but keeping it here would have boosted the local biotech ecosystem, experts said.

The Philadelphia region has lagged behind other biotech centers in landing companies and jobs, but industry experts are working to close the gap and better compete with Boston, the San Francisco Bay Area, and San Diego.

According to Marrazzo and others, the Philadelphia region’s relatively shallow pool of top biotech management is a key challenge.

Big investors go to managers who have proven ability to deliver big investment returns, said Fred Vogt, interim CEO of Iovance Biotherapeutics, a California company with a manufacturing facility in the Navy Yard.

“They want the company to perform. They’ll put it in Antarctica, if that was where the performance would come from,” he said.

A positive sign for Philadelphia is Eli Lilly & Co.’s recent decision to open an incubator for early-stage biotech companies in Center City.

The Lilly announcement last month also reflects Philadelphia’s national biotech stature. It’s the fourth U.S. city to get a Lilly Gateway Lab, behind Boston, the San Francisco Bay Area, and San Diego.

Those places have far outpaced Philadelphia in the creation of biotech research and development jobs, even as the sector’s growth has slowed.

From 2014 through last year, the Boston area added four biotech research and development jobs for every one job added here, according to an Inquirer analysis of federal employment data.

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Penn’s role in Philadelphia biotech

Philadelphia’s reputation as an innovation center — boosters like to call the region “Cellicon Valley” — starts with the University of Pennsylvania, which has long been a top recipient of National Institutes of Health grants to advance scientific discovery.

Penn scientists’ 21st-century accomplishments include key roles in figuring out how to arm immune cells to fight cancer, fixing faulty genes, and modifying mRNA to fight disease.

Research at Penn has contributed to the creation of 45 FDA-approved treatments since 2013, according to the university.

“Penn discoveries help spark new biotech companies, but we can’t build the whole ecosystem in this area alone,” said John Swartley, Penn’s chief innovation officer. “Great science is just one ingredient. We also need capital, experienced leadership, real estate and manufacturing infrastructure, and strong city and state support.”

Penn was one of two Philadelphia institutions receiving more than $100 million in NIH funding in the year that ended Sept. 30. The other was the Children’s Hospital of Philadelphia.

By contrast, the Boston area was home to 10 institutions with at least $100 million in NIH grants, generating more spinoffs and jobs.

The Philadelphia region has a healthy number of biotech spinouts, but the biggest markets have more from a larger number of research institutions, said Robert Adelson, founder Osage University Partners, a venture capital firm in Bala Cynwyd.

That concentration of jobs and companies in the Boston area — where nearly 60,000 people worked in biotech R&D last year — makes it easier to attract people. By comparison, there were 13,800 such jobs in Philadelphia and Montgomery County, home to the bulk of the regional sector.

If a startup fails, which happens commonly in biotech, “there’ll be another startup or another company for me to go to” in a place like Boston, said Matt Cohen, a managing partner for life science at Osage.

Another challenge for Philadelphia: It specializes in cell and gene therapy, a relatively small segment of the biotech industry, whose allure to investors has faded in the last few years.

Such market forces shaped the trajectory of Spark, a 2013 Children’s Hospital of Philadelphia spinout that developed Luxterna, the first FDA-approved gene therapy, used to treat an inherited form of blindness. The promise of Spark’s gene therapy work for a form of hemophilia spurred its 2019 acquisition by Swiss pharmaceutical titan Roche for $4.8 billion.

This year, Roche laid off more than half the company’s workforce as part of a restructuring and a rethinking of treatments for blood diseases that it had been developing.

The company still employs about 300 in the city, a spokesperson said, and work continues on its $575 million Gene Therapy Innovation Center at 30th and Chestnut Streets in University City.

The long arc of biotech

A handful of companies dominated the early days of U.S. biotech. Boston had Biogen and Genzyme, San Francisco had Genentech, San Diego had Hybritech, and Philadelphia had Centocor. All of them started between 1976 and 1981.

Centocor started in the University City Science Center because one of its founders, virologist Hilary Koprowski, was the longtime director of the Wistar Institute. Centocor’s first CEO, Hubert Schoemaker, moved here from the Boston area, where he had gotten his doctorate at the Massachusetts Institute of Technology.

Centocor was one of the nation’s largest biotech companies when Johnson & Johnson bought it for $4.9 billion in 1999. Its portfolio included an anticlotting drug called Reopro and Remicade for Crohn’s disease.

Another drug still under development at the time of the sale, Stelara, went on to become J&J’s top-selling drug as recently as 2023 with $10.9 billion in revenue. Stelara, approved to treat several autoimmune disorders, remains a testament to Centocor’s legacy.

Despite its product success, Centocor didn’t have the same flywheel effect of creating new companies and a pipeline of CEOs as peer companies did in regions outside of Philadelphia.

“There are a lot of alums of Centocor that are really impressive, but they seem to have wound up elsewhere,” said Bill Holodnak, CEO and founder of Occam Global, a New York life science executive recruitment firm.

Among the Centocor executives who left the region was Harvey Berger, Centocor’s head of research and development from 1986 to 1991. He started a new company in Cambridge, Mass.

At the time, the Philadelphia area didn’t have the infrastructure, range of scientists, or management talent needed for biotech startups, he said.

Since then, he thinks the regional market has matured.

“Now, there’s nothing holding the Philadelphia ecosystem back. The universities, obviously Penn, and others have figured this out,” Berger said.

Conditions have changed

Penn’s strategy for helping faculty members commercialize their inventions has evolved significantly over the last 15 years.

It previously licensed the rights to develop its research to companies outside of the area, such as Jim Wilson’s gene therapy discoveries and biochemist Katalin Karikó and immunologist Drew Weissman’s mRNA patents. Now it takes a more active role in creating companies.

Among Penn’s latest spinouts is Dispatch Bio, which came out of stealth mode earlier this year after raising $216 million from investors led by Chicago-based Arch Venture Partners and San Francisco-based Parker Institute for Cancer Immunotherapy.

Dispatch, chaired by Marrazzo, is developing a cell therapy approach that uses a virus to attach what it calls a “flare” onto the cells it wants the immune system to attack.

Marrazzo said in July that he wasn’t going to be involved in Dispatch if it wasn’t based largely in Philadelphia. As of July, 75% of its 60 employees were working in Philadelphia. Still, Dispatch’s CEO is in the San Francisco Bay Area.

The Philadelphia region is increasingly well-positioned for the current biotech era, said Audrey Greenberg, who played a key role in launching King of Prussia’s Center for Breakthrough Medicines about five years ago. The center is a contract developer and manufacturer for cell and gene therapies.

“You no longer need to move to Kendall Square to get a company funded,” she said, referring to Cambridge’s biotech epicenter. “You need good data, a credible translational plan, experienced advisers, and access to patient capital, all of which can increasingly be built here.”

Greenberg now works as a venture partner for the Mayo Clinic, with the goal of commercializing research discoveries within the health system’s network of hospitals in Minnesota, Arizona, and Florida.

She plans to bring that biotech business to the Philadelphia region.

“I’m going to be starting my companies all here in Philadelphia, because that’s where I am. And I know everybody here, and everybody I’m going to hire in these startups that are going to be based here,” she said.