The $2 trillion life sciences market comprising novel platforms like gene therapy, gene editing, cell therapy, mRNA, immunotherapy, CAR-T and regenerative medicine continues to attract the lion’s share of healthcare venture capital investments. Philadelphia maintains a strong leadership position in life sciences, particularly in cell and gene therapy. In 2023, six of the 10 largest venture deals in Philadelphia were in the biotech and pharma sector, including Gilead Sciences’ subsidiary Kite Pharma’s acquisition of Tmunity, an immunotherapies development company, for $1.3 billion.
Philadelphia’s strengths in life sciences are attracting significant investor interest in the local economy and driving new innovation in both biotech and adjacent fields, such as robotics for lab work, AI-driven platforms for data analysis, and fintech solutions for the healthcare sector. The venture capital scene in Philadelphia, however, is playing catch-up as outside investors continue to serve as lead investors in local transactions.
Now, a high-flying attorney turned venture capitalist, Ajay Raju, is making a $100 million splash into his hometown’s burgeoning biotech scene. In this exclusive interview, we delve into Raju’s perspective on Philadelphia’s biotech investment landscape, the city’s unique strengths in gene, cell and mRNA therapy, and the challenges and opportunities that lie ahead for Philadelphia.
How does Philadelphia compare to more established biotech powerhouses like Boston and San Francisco? Raju’s thoughts on the city’s potential for growth offer invaluable insights for investors, entrepreneurs and policymakers alike.
Here’s a condensed portion of our expansive conversation with Ajay Raju:
The American Bazaar: Ajay, thanks for being here with us today. You’ve been observing the biotech scene for a while now and making significant investments in the sector recently. How would you describe the current biotech investment landscape, particularly in Philadelphia?
Ajay Raju: The biotech sector has been on quite a ride lately. During the 2021 bubble, funds were shooting pellets in the dark, hoping to hit a target. Now, they have become snipers, focused on specific targets and deploying fewer bullets.
VC funding for life sciences in the U.S. peaked in 2021 at around $40 billion. In 2023, it came down to $25.9 billion, a 28% year-over-year decrease. That’s not necessarily a bad thing. We’re getting back to more stable investment levels after the pandemic boom and correction.
In Philadelphia, we’re down from about $1.2 billion in 2021 to $800 million in 2023. Despite these funding challenges, three of our homegrown companies together raised almost $100 million last year.
Of course, Boston with around $8 billion or San Francisco with close to $7 billion in life sciences funding through 2023 are flying higher, but we’re carving out our own niche, especially in gene and cell therapy. Our role in developing mRNA technology for COVID-19 vaccines has really put us on the map. Investors are noticing and we expect a positive year-over-year variance for our city in the next 5-to-10-year period.
READ: 215 Capital invests $8 million in Medicus Pharma Ltd. (July 16, 2024)
Here’s another bright spot: The number of early-stage deals in Philly only dipped by about 3% year-over-year, with around 150 deals in 2023. That tells me something about the resilience of our early-stage ecosystem in Philly.
215 Capital recently launched a $100 million fund focused on biotech in Philadelphia. Is 215 Capital investing in Philadelphia-based companies only? Are you still investing in other sectors? Give us the latest on your firm and how it fits into the local ecosystem in Philadelphia.
215 Capital has gone through a major transformation since the days when you first started to cover us. Back then, 215 Capital was a pledge fund investing in tech and software-as-a-service deals. In the past four years, however, we have turned our attention from tech to the pharmaceuticals, healthcare and life sciences sectors and become an investment company with three verticals: an operation portfolio, an incubation platform and an investment fund. I think of these verticals in three buckets: yesterday, today and tomorrow.
The bulk of our Operations Portfolio was built yesterday—since 2020 for the most part. We now manage 16 companies with an aggregate valuation of $1.5 billion and historical revenues exceeding $500 million.
In the today bucket, we are spending the bulk of our time and resources on the Incubation Platform, building four companies from scratch and supporting them through their different growth stages.
As for tomorrow, our newly launched Togo PHL Fund has the mandate to deploy $100 million in new investments to support innovative companies developing novel therapies to cure deadly diseases. The PHL part of our fund name isn’t just a nod to “Philadelphia”; it stands for pharmaceuticals, healthcare and life sciences—areas where we’re looking to identify and support promising opportunities.
As for 215, we are based in Philadelphia, focused on homegrown companies but not confined by, or limited to, our geography. We have team members in the U.S., China, India and other locations, which allows us to tap into international deals, expertise and markets.
And the $100 million? How significant is that for the local biotech investment landscape?
$100 million is a teardrop in a rainstorm if you compare us to the bigger players and markets, but it is a start. One VC firm recently announced plans to raise $3 billion, and Goldman Sachs closed on a $650 million life sciences fund earlier this year, with $90 million already committed to five companies. So, we are still tiny in comparison.
READ: Ajay Raju: A law firm can be and do much more than conventional wisdom would have you believe (May 20, 2021)
Our fund’s Philadelphia focus distinguishes us from the larger players probably. We’re targeting homegrown opportunities. Most recently, we invested $8 million into a suburban Philly-based company, Medicus Pharma, and are lead investors to a few other local companies.
We’re not alone. There were 151 early-stage deals in Philly during 2023, just 20 fewer than 2021’s historic high. Philly is on the map and money is paying attention.
Given Philadelphia’s growing prominence in biotech, how does the city’s biotech scene compare to more established hubs like Boston or San Francisco?
That may not be a fair comparison just yet. Philadelphia and Boston were once considered twin cities, but today, if you think of us as twin cities, Boston would be Arnold Schwarzenegger and we’d be Danny DeVito. But that doesn’t mean we’re out of the race.
There is a huge gap between our ecosystem compared to Boston and the Valley. Boston and San Francisco are playing in a different league right now. They attract billions in investments from the largest funds, have mature lab spaces and real estate infrastructure, a coordinated public-private partnership, a skilled labor force and momentum. For example, people are flocking to Boston, willing to pay $110 per square foot in rent compared to our $65 per square foot rents because markets like Boston and the Valley are still Mecca.
But, our market is growing and growing fast. We pulled in $1.4 billion in NIH funding in 2023, which was sixth most in the country. A lot of that is thanks to powerhouses like Penn Medicine and CHOP.
215 Capital is betting on Philly because of Penn Med and our universities. Period. Nearly 4,000 graduates in Biological and Biomedical Sciences in 2021 helps us rank sixth among the top 25 U.S. markets for life sciences research talent. Over 15 years, Penn alone has produced 93 founders who’ve started 80 companies and raised $1.1 billion. Drexel University has created 45 founders, 40 companies, with $5.1 billion raised. We are growing as a region because of the talent coming out of these institutions.
Also, we have a cost advantage. The cost of living in Philly is only about 5% above the national average. Compare that to Boston at 50% higher or New York at 128% higher. That will matter as entrepreneurs attract talent to run a startup on a tight budget.
You have shifted your investment focus from tech and real estate to biotech. How did you initially become aware of and get involved in the biotech investment landscape? What drove this change, and how does it tie in with your larger vision for Philadelphia as a civic cheerleader and philanthropist?
It wasn’t a planned strategy. We stumbled into this biotech world through the Germination Project, a civic leadership incubator that I co-founded in 2014. For the past 10 years, Penn Medicine has hosted an annual boot camp for our incoming leadership fellows. A “Who’s Who” of Penn Medicine present at this boot camp, and I got exposed to Penn Med’s scientific superstars through these boot-camp sessions. Around 2016, I became a full-time apostle of Penn Med, joined its Scientific Research Council and started to dig into the amazing labs at Penn Med developing novel research to cure deadly diseases.
But, the road that led us from learning about Penn superstars to deploying meaningful investments in biotech companies was not a straight line. Our earlier civic work focused on the bottom of the pyramid issues, mainly health inequities. Philadelphia is a tale of two cities.
It is America’s poorest big city that is also home to the world’s leading scientists and innovators. Just consider Penn Medicine’s geographic catchment, the four adjacent neighborhoods, Cobbs Creek, Mill Creek-Parkside, Paschall-Kingsessing and Haddington-Overbrook. These neighborhoods rank 37th, 43rd, 39th and 38th respectively out of 46 Philadelphia neighborhoods in health outcomes. Median household income in these neighborhoods is around $30,000, the unemployment rate is 21%, 46% of the children live in poverty, and violence is much higher compared to other parts of Philadelphia. Intervention is desperately needed for these neighbors, especially around health needs and outcomes. Some of our earlier civic work focused on issues such as chronic disease prevention, maternal health and food access.
Over time, this broader civic interest in learning about health inequities turned into a narrower focus on cancer. Cancer is America’s second-leading killer, claiming 600,000 lives yearly—that’s 1,300 deaths daily. That’s a dark tunnel of despair.
But, we noticed light breaking through this darkness because of the work being done at places like Penn. Cancer rates are finally plummeting. New therapies, better screening and innovative treatments are turning the tide.
Seeing this progress, four years ago, we decided that we can be more than just civic cheerleaders and social workers—we can join the fight as investors, actively supporting the research and innovations that are changing the landscape of cancer treatment. That’s when we started to deploy meaningful investments into biotech companies.
Four years in the biotech sector seems like a lifetime these days, and the markets have seen both irrational exuberance and cautious optimism. What is your investment strategy in the current climate?
Our approach has evolved. We’re much more selective now, focusing on opportunities we believe can make a significant impact. Let me describe this in three parts: our portfolio strategy, market trends and our overall approach.
First, our portfolio companies have wonderful, unique science and novel clinical entities, but they’re gas guzzlers needing constant capital infusion. We are actively raising capital for a few of our portfolio companies right now, including Avstera Therapeutics, in addition to making our own follow-on investments.
As for market trends, we are seeing an increase in partnerships and licensing agreements among larger life sciences companies. This trend is shaping our strategy. About 70% of U.S. clinical trials in 2023 were in Phase 1 or 2. That’s a lot of early-stage activity that needs funding and support. It’s where the action is, and we’re positioning ourselves accordingly.
Lastly, our overall approach: We’re keeping a close eye on M&A and pharma partnerships as exit strategies because the IPO market has cooled due to high interest rates and market conditions.
The political climate can greatly impact investment decisions. How are you navigating these waters, particularly in the biotech sector?
We’re in an election year, which always brings uncertainty. The fog of election is still thick, and our world will change significantly depending on who’s in power.
In general, however, we are seeing more spending on pharmaceuticals, and rare diseases still lack cures. 2023 was a top year for FDA drug approvals, with 55 new drugs approved, and almost 25% in cancer.
We’re cautious but not overly conservative. Regardless of presidential politics, we are looking for companies with solid science and clear market potential, particularly those that could help fill the gap left by the upcoming patent cliff in big pharma.
Tell us about your recent investment in Medicus Pharma. What made a company like Medicus Pharma stand out as an opportunity in today’s market?
Three things stood out for us when we considered Medicus.
First, their approach. They’re tackling basal cell carcinoma—that’s the most common form of skin cancer—with a novel approach. What caught our eye was their focus on improving an existing treatment platform.
Second, the market opportunity. The scale of the opportunity here is significant. Skin cancer is by far the most common type of cancer. We’re looking at about 5.4 million basal and squamous cell skin cancers diagnosed each year, with approximately 80% of these being basal cell cancers. That represents a substantial addressable market.
Third, the innovation factor. Medicus’s subsidiary, SkinJect, is developing a pioneering non-invasive treatment using a patented dissolvable microneedle patch. This technology delivers chemotherapeutic agents directly to tumor cells, which is a promising innovation in the field.
Your thoughts seem to come packaged in three buckets, so I am anticipating a three-part answer. In general, what insights can you share about traits that successful companies and individuals must have to attract the attention of investors like 215 Capital?
That sounds like a challenge. Ok, I will give a three-bucket answer, but I’ll use a basketball analogy—specifically, using rebounding as an example.
First, think about a guy like Wilt Chamberlain. He dominated the boards mainly because he was more athletic than everybody else, had long arms, was tall and had the physical gifts to dominate other players. In the business world, these are the companies and individuals who are already blessed with capital, resources and a strong market position. It helps if you’re already at home plate and don’t have to run the bases.
Second, timing is crucial. Charles Barkley comes to mind. The Round Mound of Rebound didn’t have Wilt’s physical resources, but he mastered the timing of his jumps. For companies, it’s about deploying the right solution at the right time when people have problems. Think about Airbnb and Uber leveraging the shared services platform during the 2008 recession when people were looking to monetize spare rooms or cars.
Lastly, it’s about research and positioning. Dennis Rodman is the perfect example. He would study tapes of shooters like Larry Bird and position himself for his rebounds accordingly because he knew how the shots would spin off the backboard. In business, this means looking at lots of data, developing unique insights from that data, and then using that to position yourself effectively in the market.
So, the three buckets are resources, timing and positioning. We look for these traits in companies and individuals when making our bets.
That’s a great analogy. Let’s look ahead. Do you have a vision for Philadelphia’s biotech scene? How do you see it evolving over the next few years?
We addressed some of this already. Philadelphia has incredible potential, but we face challenges that we need to address systematically.
First, we need a more robust funding environment. Great science needs funding to go from bench to bedside to shelves. A Ferrari with an empty gas tank, stuck on a country road, is of limited use. Many of our best companies leave for racetracks like Boston and the Valley to really hit top speed.
Second, infrastructure is key. As of 2023, we have around 24 million square feet of life sciences space with another 2.5 million under construction. That makes us the fourth largest market in the U.S. It’s significant, but look at Boston and San Francisco—they each have about 50 million square feet, with a combined 20 million under construction. So, we have room to grow, and we’ve got a cost advantage to leverage.
Third, education is crucial. We’re in the top five U.S. markets for life sciences research talent. Last year, we produced around 4,000 graduates in Biological and Biomedical Sciences. That’s about 6% of the top 25 markets. We’re right on Boston’s heels.
But it’s not just about the numbers. We need to ensure our early education pipeline produces a workforce ready for the biotech industry. Here, I’m not talking about college graduates who become scientists and researchers. We need technicians, regulatory experts and business professionals who understand the unique challenges of this sector. Our public schools are struggling, and we need a skilled workforce if our sector wants to hire local, homegrown talent.
Looking ahead, I see continued growth in our gene and cell therapy sectors, increased focus on biomanufacturing, more collaborations between academia and industry, and more anchor companies establishing a presence here.
I’m optimistic about Philadelphia’s biotech future. We have the talent, infrastructure and innovative spirit. We are tired of being a city that used to be great. We want to be a factory where the future is being invented. It helps to have Penn Medicine on our home court. Penn Med is Wilt, Barkley and Rodman wrapped into one. We are loaded with generational talent at Penn Med.
Thank you for sharing your insights and vision for Philadelphia’s biotech future. I am still trying to make sense of some of your analogies. Always a colorful conversation, Ajay.
Thanks. One of these days, I will learn how to speak without the crutch of analogies. Grateful for the conversation.