Of course the seduction was mutual. The researchers were dazzled by Wall Street's overheated advances. Many of them couldn't shed their
academic prudery fast enough. As Teitelman points out, they "began to think of Wall Street not as a grim Golgotha, but as a Golconda ... a legendary city where everyone who passes through got rich."' It should be no surprise that the industry soon became infatuated with Wall Street's rapturous murmurings, relegating all its other high-minded goals behind the development of the most marketable. toweringly profitable products it could think of-human pharmaceuticals. Drugs.
Imagine Marlon Brando and Maria Schneider getting married at the end of Last Tango in Paris, settling in and trying to make it work, and you get some idea of the outcome. Boredom, recriminations, verbal cru- elty, abandonment-not a pretty sight. Wall Street's well-publicized dissatisfaction with biotech, and the industry's subsequent squandering of its future vision in a blizzard of compromises and short-term deal making, is a perfect paradigm for the sort of self-destructive plunder on which the bull market of the eighties so far has fed successfully. That it should have happened with such a young industry, so filled with promise, makes biotech's dissolution all the more troubling.
Gene Dreams is built around the story of one company, Seattle-based Genetic Systems. Like many biotech firms, Genetic Systems was more a result of money pursuing science than the other way around. For example, the first public offering of another biotech company, Genentech, in October 1980 was so mindboggling-50 minutes after the first one million units hit the market at $35, they were trading for a record $89 a share-that it set off a latterday gold rush. Scores of investors suddenly dropped everything in search of talented researchers with interesting ideas. One of those investors was a 28- year-old stockbroker and part-time musician named David Blech. Reading around, Blech discovered the as-yet-uncommercialized field of monoclonal antibodies, a class of highly specific cell killers that can be bred selectively in laboratory mice. The implications were vast, especially against cancer, where the problem
with most drugs is that they kill not only tumor cells, but vital tissue as well. With his brother Isaac, Blech contacted a cancer researcher named Robert Nowinski who had reported curing leukemia in mice by pumping them full of monoclonals. By the following June, the Blechs had each parlayed an initial investment of $60,000, their association with Nowinski, and some quick positioning as a leader in developing monoclonal-based cancer therapies into a paper profit of $14 million. The company, Genetic Systems, had no revenues, no profits, and no products, and, though Wall Street had
blithely consented not to ask about any of this, or precisely how the company planned to make money once it had something to sell, anyone paying attention knew it would be at least a decade before the firms would have a marketable cancer drug-if ever. The leap of faith here, propelled in large part by the talismanic attachment to cancer, was prodigious even by Wall Street's fickle standards. One by one, the realities of living with Wall Street took over. When investors discovered only belatedly that drug development is a highly risky venture, taking a huge up-front
commitment of cash-about $150 million-and time-10 years or more-their lust for biotech issues froze. Meanwhile, the companies, now up and running, needed huge infusions of new capital to cover what in many cases had become alarming "burn rates"-the amount of money consumed by start-ups before they're self-sustaining. Naturally this led to a pyramiding of financing schemes, and, more importantly, a series of deals and compromises that, as Teitelman correctly points out, forced Genetic Systems to sacrifice virtually all its early goals just to stay in business. With a cancer cure too far off and too costly, Genetic Systems switched to a short-term strategy of fighting sexually transmitted diseases like herpes. It was hardly the sort of inspired goal most investors were looking for in a low-performing risk stock. ("Cancer had the intellectual rigor of Susan Sontag and her Illness as Metaphor," Teitelman writes, herpes, the breathless sensationalism of the local news, Dear Abby, Cosmopolitan, and the Playboy Philosopher.") To bring in revenue, the company signed licensing deals with several big drug companies, which satisfied its short-term needs for cash, but ensured that when it finally had a product to sell, most of the income would go to its partners. Desperate, the firm ultimately abandoned its drug program in favor of manufacturing diagnostic kits, which are cheaper to design and take much less time to be approved by the Food and Drug Administration. In fewer than five years, Genetic Systems went from being a selfstyled firebrand in two concurrent revolutions-cancer therapy and the overthrow of the big drug companies-to a small, chronically stretched underachiever whose main product was a quick test for an annoying, though hardly life-threatening, venereal disease. This fall was not atypical. And as the industry shifted its gaze from cancer to lesser diseases, it also turned from research to paper wars. Everywhere biotech firms that a few years earlier had been trumpeting wonder drugs, were now trying to impress investors with how aggressively they sued each
other over patents with no proven commercial value. It didn't matter what a company could do, but what it could imply. Powerful self-justifications were required to compromise on so many fronts in such a short period of time, and Genetic Systems undertook them with a vengeance. Unsurprisingly, its answer came from Wall Street. Lexerage. The changes were not really changes, but instruments for leveraging success. VD (the reasoning went) was only temporary, to fund the work in cancer. Diagnostics were only a stop-gap, until the company had therapeutics to show. If the company had to license its patents on other monocionals, it was only to make enough money to give the diagnostics a chance of success. If, if, if," Teitelman writes. "With each if, the odds mounted. More attention came to focus on ways not of making money, but of raising money. Playing the game required cash." This is what Wall Street had neglected in its earlier enthusiasm. It was one thing to have a new technology, which, after all, is all that biotech is. It was another to lock elbows with the major drug companies in a brawl over market shares. Never in all the grand speculation about biotech overtaking the medical market had there been more than passing attention paid to the necessity of fielding huge expense-account- driven sales forces, making inroads into the highly conservative world of hospital purchasing, or any of the other enormously expensive tasks involve in turning products into money. When it came down to it, most biotech companies simply couldn't afford to compete. So they were left with three choices: license their discoveries to the big drug companies, which were capable of marketing them but would also seize the lion's share of their profits; fold; or look for a buyer. So much for idealism. By 1985, the year Eli Lilly began selling the first genetically engineered human therapeutic, Genentech's human insulin, Genetic Systems was on the block. It was eventually sold to Bristol Meyers for $294 million, not as much as some other companies fetched but still a bonanza, given its
problems. What the buyout meant to Genetic Systems was that it no longer had any hope of becoming what it had promised: an independent drug company specializing in revolutionary cancer treatments. At best it would be a small satellite of questionable value in someone else's organization. Its meaning to Bristol was slightly less clear. Teitelman speculates it bought the start-up mainly to ensure that no one else would-a hedge. Teitelman believes it's ironic that the big winner in all this was Wall Street, as "the scent of takeovers began to bring investors back to biotechnology." That's the one place I disagree. Wall Street's way to profit from biotech's failure isn't ironic, but absolutely predictable, given its current taste for scavenging. Wall Street lives on talk. It was the talk of miracles that led it to biotech in the first place. But even more than miracles, as Teitelman notes, Wall Street thrives today on takeovers. Miracles are iffy, but with buyout rumors, it doesn't matter whether they happen or not. As Teitelman writes, "Even if nothing happens, takeover talk is good for business. Stocks trade hands, brokers start racking up commissions, investment bankers start selling deals again, financial printers start putting in overtime, and journalists sniff around for new trends. Takeovers provide a jump start for the market on cold winter days. So the conventional wisdom went, and so it was to be."
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|Article Type:||Book Review|
|Date:||Sep 1, 1989|
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