Biotech Bubble

In the 1990’s the internet bubble came and left. Hundreds of technology companies were created for inventors, venture capitalists, and investors to try to cash in on the “next big idea”. The internet bubble was filled with different companies coming up with often creative and interesting ideas on how to make money through the internet. Some of the ideas were really good and some were really bad. I remember Kozmo.com in the early 1990’s that promised to deliver goods to people within an hour. This service was mostly for people that lived in New York and had busy lives. Although, in theory this sounds like a good idea in practice it was much harder to execute and ultimately led to the company’s failure in 2001 (only three years after being founded). Many of dot.com companies were like this in the early-mid 90’s. Companies had extremely high price-earnings ratios without making a penny of profit. A strategy like this leads to disaster. However, we did have some successes from the dot.com era including Amazon, EBay, and Google. These companies are still around and making profit. This type of creative destruction is good because the market rewarded the companies that did something right. The companies that weren’t prudent went out of business. This brings me to what I predict will be the next bubble…

For years the drug and biotech industry has been on the rise. One key area I see becoming changing rapidly is the genomics area. The Human Genome Project was a government project that was created to untangle the human genome. It is estimated that humans have more than 25,000 different genes. From my understanding mutations of these genes are what cause cancer, illnesses, and diseases. Since the human body is made up of millions if not billions of cells one tiny change can change these genes and cause a mutation. For instance, eating chocolate cake could “mutate” a gene. Obviously, just doing everyday activities could cause mutations in these genes. Another example is smoking. Smoking just 15 cigarettes a day mutates genes. Environmental factors also can play a role in gene mutation. What I think is really interesting is figuring out what genes cause what cancers. I think once biotech companies understand the patterns of the genes and can accurately figure out what mutations cause what cancers people will be rushing out to get tested to see if they carry certain genes. Many people talk about personalized medicine. I don’t think that personalized medicine will be taking a pill customized for a particular person, but rather having a genetic test in order to figure out how different medications and treatments could affect you. Right now the genetic testing is still in the early stages, quite expensive, and hard to tell if it is accurate. Over time the technology will improve, the quality of the results will increase, and the cost will decrease. However, this will provide and interesting situation for insurance companies. If someone were to get a genetic test and understand what they are predisposed to a certain condition would they be required to share it with their insurance company? Current law does not allow insurance companies to discriminate against people who get a genetic test performed. However, this leads to a problem because if someone gets a genetic test performed and they don’t have to share it with the insurance company it could lead the person to make certain lifestyle choices without informing the insurance company. This is also known as asymmetric information where one party has more information than the other party leading to an unfair advantage to one side.

One company Myriad Genetics sells testing equipment for doctors to test for certain things such as breast cancer, colon cancer, and most recently prostate cancer. One legal battle that Myriad has faced has been trying to get a patent on certain genes. For instance, Myriad owns the patent to the BRCA gene which a test to determine if a woman has breast cancer. If a woman wants to get tested for the BRCA gene she has to have the test done by Myriad Genetics since they own the right to the gene. This offers and interesting intellectual property battle between Myriad and other biotech companies. Could Myriad really own the right to a gene? It would seem as if they own the right to a gene it might induce other companies to enter the market and try to patent other genes for other cancers. It should be noted that the genetic tests from Myriad run in the thousands of dollars. However, I would assume insurance companies would pay for the test since it gives them a better idea about the true condition of the patient. I am excited though that we are at the infancy of this biotech process and truly believe breakthroughs will come within the industry that will help consumers and doctors. Right now tests can only show if we are predisposed to one gene. Just testing for one gene can cost hundreds to thousands of dollars. In the future, I could see testing for all genes (once scientists decode all 25,000 genes which could take a decade or more). After this is done, people can get a genetic test and see what they are predisposed to. This could maybe give the person incentives to change their lifestyle or behavior and see what clinical options are available to avoid trouble in future years. Hopefully, doctors can introduce this more preventative medical approach. Maybe in the future we could have experts on certain gene mutations. Even if drug companies stopped producing drugs tomorrow with the help of genetic testing doctors and scientists could figure out who responded better to certain medications and treatments which could greatly improve the quality of the diagnoses and deliver better results when compared to conventional processes. Time will only tell though which of companies in the biotech industry are here to say and which ones will be left in the dust.