Markets giveth. Markets taketh away. So goes the shakeout in biotechnology. But while it's easy to mope about what went wrong--"avaricious" venture capitalists, naive entrepreneurs, ill-advised testing shortcuts--the reality is that the impending consolidation is the best strategy for the long-term health of this still-promising industry.
For too long, biotech has lived in a financial dream world, with stocks trading on little more than "a perception of an expectation." With over 1,000 companies in the field, many of them one-product concerns, technology and capital have become stretched extremely thin. Instead of generating a stream of new biotech products, the industry has produced more failures than successes.
Hence the winnowing. Only a quarter of the existing biotech bunch are expected to survive. But new technologies won't be lost. They'll come to rest in companies with the resources to develop them--larger biotech players and the pharmaceutical giants. Although drug biggies are notorious for being bureaucratic, they must now find a way to nourish the entrepreneurial sparks propelling biotechnology. Alliances such as the one between Roche Holdings and Genentech have shown it can be done.
The second stage in the biotech revolution is about to begin. The markets placed bets, spreading capital widely to increase the odds of success. Now the markets are separating the winners from the losers. The markets worketh.