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Has the Biotech Bubble Really Burst?

by C.G. Masi, Technology Journalist

Bill Haseltine, CEO of Human Genome Sciences, in his keynote address to the World Genomics Symposium in Atlantic City, N.J. on 19 September 2002 pointed out: "The general perception is that the promises of genomics have largely been much greater than reality."

In line with that perception, we have seen a rash of biotech company failures, project cancellations, and other signs that biotechnology is no longer the greatest thing since sliced bread. For example, on the same day Haseltine was delivering his speech, Syngenta decided to abandon their four-year-old research partnership with the John Innes Centre, which was intended to jointly develop new tools and techniques for crop research. Syngenta was part of AstraZeneca, which merged with Novartis in 2000. The research partnership was characterized by a Centre spokesperson as "a new and innovative way to try to encourage the takeup of scientific discoveries coming out of the public sector by commercial organizations." The public sector in this case being the John Innes Centre and the commercial organization being Syngenta. The reason given for the pullout was to "eliminate the overlap of expertise and resources."

A few days later six-year-old biotech startup Xanthon turned out the lights and shut their doors forever. They had spent that six years trying to roll out their nucleic-acid-identification technology. It worked well enough in the lab, but they were never able to scale it up to mass production. As one of their initial investors said: "When you tweak one end of the product, it hits everything else, and you have to tweak everything else. They could never get it to work out."

For the past few months, the news wires have been buzzing with these sorts of sad tidings. It's not the kind of news one expects about a technology that has been the darling of the venture capital community. Financial analyst Charles Duncan told of an incident not many years ago, when he heard an investor bark into his cellphone: "I don't care what they do. If they're genomics and they're in production, buy them."

But, is this dark mood a reasonable assessment of the facts? At the same time Xanthon was shuttering its facility, other companies were announcing research successes and new venture capital investments. The same day reports appeared saying "... young biotech companies in India are finding it exceedingly difficult to secure enough venture capital ...," a leading US-India venture capital firm, WestBridge Capital Partners, put up $4.6 million in first-round financing for Bangalore-based life sciences informatics company Strand Genomics. While Hazeltine was describing the general sentiment of disappointment with biotech results, biopharmaceutical developer CombinatoRx raised $40 million in second-round financing; and genetic-analysis tool developer Illumina signed a collaborative agreement with pharmaceutical giant GlaxoSmithKline.

There seems to be a cognitive disconnect going on: a mood of disappointment appears amidst encouraging news.

Several factors have come together to create this cognitive disconnect. Perhaps one of the most significant is overblown expectations. Hazeltine, who does not share the disappointed sentiment he reported, lays part of the blame at the feet of the leaders of the Human Genome Project. The fanfare surrounding the human genome map was so intense that nobody seemed to notice how little it meant by itself. "It would be like saying that we had gotten to the moon," he analogizes, "when we were only 20% of the way there."

Another factor is the result of faltering economies throughout the world. The so-called biotech "bubble" expanded during an extended period of economic expansion. In fact, the expansion of most high-tech endeavors (e.g., telecommunications, dot-coms) made biotech look almost dowdy by comparison. Just as all the other excesses that crept in during the boom time came back to bite us, it's no surprise that overblown biotech enthusiasm turned to ennui and even angst.

When investors all over the world are sitting on their cash, it's no wonder that biotech companies have a harder time getting funds. It's amazing that they attract any investment at all!

When giddiness fades, suddenly clear-eyed investors start thinking about cutting their losses. Firms that show no results tend to become history really fast.

Despite the words of gloom, biotech development has been anything but a bust. As Haseltine, pointed out later in his keynote address, genomics has already started to deliver exactly what was promised-new drugs. To those of us who understood what a hill biotech had undertaken to climb, the results so far aren't disappointing. They, in fact, have been phenomenal!

We have seen this scene play out many times in the past. In the early 1980s, for example, machine vision technology was supposed to revolutionize the way we did so many things. Wizened human inspectors with magnifying headgear were supposed to give way to sharp-eyed computers who never got tired. Robots would wander around unassisted without ever getting lost. Visually precocious vehicles would navigate around moving obstacles, making crashes a thing of the past. Instead, what we got was a sour taste when none of these miracles seemed to make it out of the lab.

Yet, machine vision has not failed its promise. It turned out to be one of those impossible things that the Seabees said would "take a little longer."

Machine vision was a whole lot harder to master than anyone in 1980 expected. Twenty years later-instead of the two or three that we imagined-machine vision systems are starting to fulfill their promise of giving eyes to all sorts of automatic systems.

Similarly, the journey from a human-genome map to the wonderful world of designer pharmaceuticals is longer than we were told. We were told that the map was the whole thousand-mile journey, whereas it was really only the first single step.

Those who believed the hype have been disappointed. Those who knew better have not.

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