Waiting for the Revolution

Gene Dreams: Wall Street, Academia, and the Rise of Biotechnology, by Robert Teitelman, New York: Basic Books, 237 pages, $19.95

In the beginning the Biotechnology Revolution was supposed to either spawn the Andromeda Strain or develop the cure for cancer, depending upon who was making the predictions. After 10 years, it has done neither. What happened?

In this astute history of the biotech industry, business journalist Robert Teitelman throws barrels of cold water on the often overheated rhetoric that surrounds this young industry. "From its earliest days, biotechnology has been continually offered up, particularly to the investment community, as the next great technological revolution, a worthy successor to the triumphant march of the semiconductor and computer revolutions," writes Teitelman.

He examines the nexus where science, technology, and finance meet—Wall Street—to find out why the predicted revolution never materialized. Teitelman charts the fortunes of the biotech company Genetic Systems to illustrate the turbulent history of the industry.

The brave new world of biotechnology has its origins with Watson and Crick's brilliant discovery in 1953 that the double helix of deoxyribonucleic acid (DNA) is the carrier of genetic information in cells. The blueprint of life, DNA is the key to manufacturing proteins, enzymes, hormones, etc. In 1973, two molecular biologists, Stanley Cohen and Herbert Boyer, invented a way to transfer DNA from one organism to another. Genes from a cow could now be expressed in bacteria, theoretically paving the way to manufacture all sorts of biological molecules at will. By the end of the 1970s, many researchers believed that the technology was mature enough to commercialize. Thus began biomania.

In the 1980s—a period that may be remembered one day as the golden age of the entrepreneur—venture capitalists and molecular biologists launched scores of brand-new biotech startups. Newspapers and magazines were filled with glowing accounts of how the technology would momentarily usher in a New Age. The sky was the limit. Alas, it has not been so. "The realities of the marketplace, particularly the competition from larger, nonbiotechnological companies, proved far more difficult than any scientist, locked in a laboratory, could imagine," writes Teitelman.

Although biotech companies modeled themselves on entrepreneurial microelectronics companies, they were quite unlike them in one crucial way. Microelectronics firms such as Intel sought public financing only after they had developed products and were generating revenues. This traditional approach was jettisoned in financing biotechnology, ushering in what Teitelman calls "venture investing." Caught up in the speculative excitement, Wall Street investors, hoping to get in on the ground floor of the next IBM or Intel, ignored fundamentals like marketing, products, and manufacturing. Biotech companies were quintessential "story stocks," with little tangible to back them up.

Genentech's spectacularly successful initial public offering in 1981 signaled the beginning of the biotech frenzy. One million shares were priced at $35, but by the end of the first day of trading, the shares were selling for more than $70. Inspired by Genentech, stockbroker David Blech and his brother Issac decided to launch their own biotech company, Genetic Systems. David had faith in the idea that monoclonal antibodies might be the "magic bullet" which would cure cancer. Indeed, monoclonal antibodies do play a role in targeting tumor cells in the body by alerting the immune system to destroy them.

The Blech brothers scraped together some capital from their stockbroker father's retail customers. Money in hand, the brothers recruited charismatic academic researcher Robert Nowinski to head up Genetic Systems. Nowinski himself was looking for the deep pockets that private financing could provide him to support his research. Genetic Systems' business plan called for developing monoclonal antibodies for use as diagnostics which would later be leveraged into therapeutics against cancer. In June 1981, the Blechs plunged into the speculative tide sweeping Wall Street with only a prospectus in hand and came back with several million dollars.

Ultimately, what Genetic Systems proved to be best at was making deals, incessantly searching for more capital so that its research could go on. Although the company did develop and market several innovative diagnostic products, no profits were ever made. Finally, in 1985, it was acquired by the huge drug company Bristol Myers for $300 million—a nice round figure for its investors. "Although biotechnology had finally made some investors money—in the case of the Blechs and the early investors, a windfall—it was not about to drag American industry to a new capitalist millennium, not yet at least," asserts the ever-wary Teitelman.

So all right, already. So investors didn't get rich quick. Biotechnology has indeed not lived up to the millennial predictions of some of its early boosters, but that doesn't mean that it is destined forever to be an overhyped dud. Teitelman cites the skeptical Dr. Stephen Carter of Bristol Myers, who says flatly, "It is not going to create the miracles that have been advertised." Nevertheless, Carter continues, "You have to be absolutely crazy to believe that all of this basic science and understanding is not ultimately going to lead to important things." Without the infusion of the money raised on Wall Street, progress would have been much slower. Most of the money hasn't simply been wasted.

The entrepreneurial process does not often follow a steady, predictable path. New technologies rarely mature in just the way that experts predict. Forming a new company is a profoundly creative act, a leap into the unknown. The entrepreneur conjures jobs, buildings, and products out of nothing. It is little wonder that many fizzle.

"The most prominent reason why technological forecasts fail is that the people who make them are seduced by technological wonder," says marketing professor Steven Schnaars of the City University of New York. A passionate focus on technological wonder led many an investor to put his hard-earned dollars into biotech stocks.

Teitelman doubts that a new "Schumpeterian economic revolution" based on biotech will propel the world economy to ever greater productive heights any time soon. There is, nevertheless, room for optimism. Increasing numbers of biotech products are finally making it out of the lab. There are no panaceas, no magic bullets, but the medical armamentarium is growing and the law of the land is becoming clearer. While molecular biologists have a way to go before they completely understand the intricate operations of living cells, progress is being made in unraveling the mysteries of AIDS, cancer, and congenital diseases.

And, although Teitelman doesn't discuss it, steady progress is being made in agricultural biotechnology. It is true that the tomato that ate Cleveland is not in the offing. However, more-productive plants and animals, when they finally leave the labs for the fields, are likely to spark just the type of Schumpeterian economic revolution that Teitelman discounts. Just look what the relatively modest improvements achieved during the 1960s Green Revolution did for agricultural productivity in the Third World.

There it is again—that tiresome optimism just keeps creeping into any discussion about the future of biotechnology. In this highly readable and persuasive book, Teitelman adds a much needed cautionary note to the excessive enthusiasm which infects much of the discussion about the future of biotechnology. Nevertheless, Mr. Teitelman, the revolution will come.

Ronald Bailey is a staff writer at Forbes.