teliklogo.bmpTelik, the Palo Alto biotech company, is a striking example of the sort of monstrous results our ecosystem in Silicon Valley can produce.

Just three years ago, Telik was hailed as one of the country’s most promising biotech stocks. But Tuesday, it lost nearly 71 percent of its market value when studies show its anti-cancer drug offers little benefit. See Mercury News story for summary.

How could this company, founded in 1988, have worked so long, gone public in 2000 and reached a stock value of more than $1 billion based only on promises? How could the company justify paying its chief executive a million dollars a year in the meantime? Why do public investors invest in a company losing $76 million a year, and getting deeper in red each year, when there is still no proof a drug actually works? Well, the answer is because our system is built on risk and faith, and that if investors are willing to bet on these companies — which presumably are bringing promising products to market — then they should have a right to do so. The logic: For every failure, there is supposedly a success.

It’s too early, however, to tell whether the stock gains from successful biotech companies will outweigh the losses of those that fail. We do know that investors had become more trusting. We looked at the reasons why in our report on Threshold Pharma, which saw its stock plunge when something similar happened. If there are more cases like Telik, younger biotech companies may have a harder time going public.