Healthy Skepticism Library item: 1027

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Publication type: news

Carr G.
Climbing the helical staircase
The Economist 2003 Mar 27
http://www.economist.com/surveys/displayStory.cfm?story_id=1647556

Full text:

“IT HAS not escaped our notice that the specific pairing we have postulated immediately suggests a possible copying mechanism for the genetic material.” With these ironic words, James Watson and Francis Crick began a biological revolution. Their paper on the structure of DNA, published in NATURE 50 years ago next month, described the now-famous double helix. It showed that the strands of the helix complement each other. It inferred, correctly, that either strand of the helix could thus act as a template for the other, allowing the molecule to replicate itself. And it suggested that because the four types of nucleotide sub-unit of which each strand is composed can be arranged in any order, a single strand could act as a message tape telling a cell which proteins to make, and therefore what job to do.

As another Francis pointed out four centuries ago, knowledge is power.

Sir Francis Bacon’s philosophy of turning scientific knowledge to practical advantage eventually delivered the wealth of the industrial revolution. That technology was based mainly on the physical sciences.

Now the discoveries made by Dr Watson, Dr Crick and their numerous colleagues, successors, collaborators and rivals are starting to be commercialised as well. Biotechnology is beckoning.

It promises much: more and better drugs; medical treatment tailored to the individual patient’s biological make-up; new crops; new industrial processes; even, whisper it gently, new humans. A few of those promises have been delivered already. Many have not. Some may never be. Some may raise too many objections.

But the field is still in its infancy, and commercialising the edge of scientific research is a hazardous business. False starts have been more frequent than successes. The businessmen-scientists who are biotechnology’s entrepreneurs often seem driven by motives more complex than a mere desire to make money, especially when they are trying to find treatments for disease. And, at the moment, there is virtually no money for new ventures, leading sceptics to question whether the field has a future at all. But that is to confuse short-term problems with long-term potential. This survey will endeavour to cover both, though with greater emphasis on the potential than on the problems. Still, the problems are real and should not be ignored.

CORNUCOPIA OR WHITE ELEPHANT?

Biotechnology has been through funding crises before, but almost everyone seems to agree that this is the worst one yet. Capital to finance new ventures has pretty well dried up. Stockmarket flotations have stopped, and over the past three years the share prices of publicly quoted companies have declined so much that many firms are worth little more (and sometimes less) than the cash they have in the bank. Some are threatened with delisting.

It is true that all shares, and shares in high-technology companies in particular, have done badly. But it is odd that the biotech sector has been punished so severely. For those firms that aspire to be drug companies, the risks have always been high. As John Wilkerson, of Galen Associates, a health-care investment company in New York, puts it, “A biotech company is a pharma company without sales.” Only a tiny fraction of potential drugs make it through the hazardous process of clinical trials and regulatory approval. But that has always been the case. And the rewards can be high, too. Demand for the drugs that do make it is pretty much guaranteed. Medical need is not tied to the economic cycle. Share prices may have got silly at the end of the 20th century, but biotechnology is not dotcommery. Nothing fundamental has changed.

A plausible explanation for the current doldrums, offered by Stelios Papadopoulos, vice-chairman of SG Cowen, a New York-based arm of the Societe Generale bank, is that in biotechnology fundamentals do not really count. Mr Papadopoulos points out that the fund managers who drove the biotech boom of the late 1990s were themselves driven by bonuses that depended less on how their funds did in absolute terms than on how they did relative to each other. To get a big bonus, managers had to beat the average.

In those circumstances, buying volatile, speculative shares looked like a one-way bet. If they went up, so did your pay packet. If they went down, you were little worse off than if you had bought something safe.

And few shares were more speculative than those of a biotechnology company with a handful of wannabe drugs that might fail in clinical trials or be turned down by the regulators. Nevertheless, the fund managers’ demand for such “high-beta” stocks pushed up the market for new issues, turning rising prices into a self-fulfilling prophecy. The effect was felt all the way along the chain, from the venture-capital funds to the “angels”—the rich individuals, often themselves successful biotech entrepreneurs, who put up seed money to convert promising ideas into business plans.

In a falling market, the incentives for fund managers are different.

Safe, “low-beta” stocks are seen as the way to stem losses and outperform colleagues. That creates feedback in the opposite direction, making for another self-fulfilling prophecy. In the absence of stockmarket flotations, venture capitalists are left without an “exit strategy” other than a trade sale to a big pharmaceutical company, which is unlikely to be financially attractive. That means they will stop looking for any new businesses to back and start reducing the numbers already on their books.

As a result, many firms now hanging on by their fingertips are going to drop off the cliff. Some will fall because they have flaky business plans. Some will go because they failed to stock up on money at the top of the market, when it was being given away by the lorryload. A few may be brought down by scandal, for biotechnology has not been entirely free of unsavoury practices such as insider dealing.

For the bold investor, though, such conditions present a buying opportunity. Forward Ventures, a venture-capital firm based in San Diego, believes that firms which have a clear idea of the products they intend to make, and have ways of generating revenue on the slow road to developing them, are worth gambling on. Those that just want to do biological research in the hope that something marketable will turn up are not. Conversely, those that have a range of potential products based on the same technological platform are particularly attractive.

Eventually, Forward’s partners reckon, someone will come up with a new blockbuster drug, investors will wish they had got a piece of the action and the whole cycle will start all over again.

THE OLD RED, WHITE AND GREEN

Leaving better medicine to one side, biotechnology has other things to offer too. Many experts in the field categorise its divisions by colour. Red is medical, green is agricultural and white is “industrial”—a broad and increasingly important category that includes making advanced enzymes with a wide variety of uses, and will soon embrace the biotechnological manufacture of plastics and fuel.

Green biotech, too, has its problems. In parts of Europe, in particular, it is beleaguered by militant environmentalists and doubtful consumers. White has so far remained too invisible to the general public to have stirred up any trouble. That may soon change.

Several chemical firms plan to market biotech plastics and artificial fibres on the back of their biodegradability and the fact that they are not made from oil, thus emphasising their environmental friendliness.

That should help the makers gain the moral high ground on which producers of genetically modified (GM) crops missed out.

There is one other class of biotechnology. In one sense it is a subset of red, but it is more than that. This is the (as yet hypothetical) biotechnology of manipulating people. Human cloning and genetic engineering are the techniques that dare not speak their names. They are already under assault even though neither yet exists.

This survey will examine the practicality and ethics of manipulating people in its final chapter, but first it will look at the grubbier business of products and money, and how to make both of them. On the medical side, most of the innovation has been done by small firms. Big pharmaceutical companies, which increasingly tend to buy, rather than generate, novelty, have been getting less of a look-in. But in the fields of green and white biotech, big firms are often the innovators too.

Perhaps the biggest question this survey will try to answer is this: will biotechnology remain a niche business, or will it become ubiquitous—as widespread (yet invisible) as the products of the chemical industry are today?

In the 1870s, the science of chemistry was in much the same position as biology is now. It had recently acquired a coherent theoretical framework, the periodic table, which may not have answered all the questions but at least suggested which of them it was sensible to ask.

The equivalent for biology is genomics, because a creature’s genome is, in a loose way, its own private periodic table of possibility. The industrial chemistry of the 1870s was likewise similar to today’s biotechnology. Then, chemists were applying their new, systematic knowledge to a limited range of applications such as dyes and explosives. Existing biotechnology is similarly limited in range.

Nowadays, though, it is hard to reach out and touch something which industrial chemistry has not touched first. In a hundred years or so, will the same be true of biotechnology?