Monday, November 10, 2003

Biotech Bubble

We're blowing another bubble that is almost sure to burst. The media, money, state and city governments are chasing trendy biotech. "Smell the hype in almost every state. Economic development officials are certifiably mad," writes Al Lewis, The Denver Post, in a syndicated column a few days ago.

We remember the dot com bubble only a few years ago when you couldn't get money or media attention unless it was a dot com. It seemed like all the money went into these startups. Now you can't get any money because so much was lost in that bubble and the companies remaining are requiring continued investments to keep them going.

Karen Bernstein, Co-founder of BioCentury Publications is quoted by Lewis as saying "The bigger the bull market, the bigger the bear market that follows. I don't know if there is anyway to escape the cycle." Of course there is but we don't seem to have the patience for it. We can escape this vicious cycle by looking to the future, investing in proportion to the state of development of the technology and making sure that we've got the resources and the culture to support the long-term development.

Technology takes a long time to mature. Look at all the technologies that are driving a part of our economy now - the Internet, computers, telephones, satellites, wireless, fiber optics, etc. They're all more that 40 years old. And, we're still not sure that we're getting the payback at the national economy level for all of our investment in those technologies.

Some economists have suggested that it takes about 75 years for a technology to mature. The first twenty-five years, there is no impact on our productivity. The second twenty-five years, there is actually a negative impact on the economy as we invest in the diffusion of the technology and all the changes that accompany the new technology. It's in the last twenty-five years as technology experiences widespread proliferation that the increases in productivity are felt in the national economy.

To keep away from the bubble, we should adapt a balanced approach. In order to get productivity out of the information technologies, we should be investing and searching for innovations that enhance productive use of information. This requires a broader definition of innovation that just technology. It requires innovation in processes and procedures - the way we work, down to the fundamental definition of what work is.

In order to have technologies for the future, we need to invest in the new technologies now, but in proportion to what can reasonably be expected of them without being guided by short-term gains, or forcing developers to sell commercialization of nascent technologies. "Once the scent of IPOs hits the air, momentum investors and market manipulators will follow" writes Lewis.

If the goal is economic productivity, you have to ask yourself the question "How is biotech going to be the cornerstone of an economy - like steam and electricity was and information technology may be?" It seems to us that if economic productivity is the goal, biotech, nanotech and information technologies have to merge in someway - a formidable challenge.

Paul Schumann & Donna Prestwood

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