On this day in economic and business history ...
One of the most successful accidents in history happened on Sept. 28, 1928. That morning, Alexander Fleming returned to his lab in the basement of London's St. Mary's Hospital to discover that he'd accidentally left open a Petri dish containing bacterial cultures. The dish had been contaminated with mold overnight, and to Fleming's surprise, this mold inhibited the growth of his bacteria. The mold, part of the genus Penicillum, became the foundation of a new field of modern medicine -- antibiotics.
It would be years before the discovery was commercialized. The first dose of penicillin, manufactured by Merck (NYSE:MRK), was given to an American patient in 1942. Its success led to a deluge of production -- by the end of 1943, 21 billion units had been produced (about 4.2 million times the dosage given to the first patient).
A single share of Merck's stock, bought for $25.75 on the anniversary of Fleming's discovery in 1942, grew into a trove of 1,298 shares worth nearly $42,000, eight decades after Fleming walked into his lab to discover the unexpected benefits of forgetfulness. However, it was Pfizer (NYSE:PFE) that became penicillin's greatest champion. The pharmaceutical giant began mass-producing penicillin in 1944, two years after going public. As with most things produced in 1944, the bulk of Pfizer's penicillin supplies were destined for soldiers in Europe. Pfizer may have benefited more than Merck from the production of penicillin: Its market cap of $125 billion in 2008 (the 80th anniversary of Fleming's discovery) represents annualized growth of 15% from its 1942 IPO onward, even though this date occurred in the middle of a devastating economic crash.
Both Merck and Pfizer eventually earned placement on the Dow Jones Industrial Average (DJINDICES:^DJI) as a result of their commercialization of penicillin, which was the first modern pharmaceutical-grade drug to be produced in mass quantities.
Razors and blades, day one
King Camp Gillette founded the American Safety Razor Company on Sept. 28, 1901, with a capitalization of $500,000. While working as a salesman at bottle-cap manufacturer Crown Cork and Seal, Gillette had come to the conclusion that selling disposable necessities would make for a phenomenal business model. Razors were an ideal product to manufacture in disposable format. As Gillette would later say, "There is no article for individual use so universally known or widely distributed."
However, coming up with an effective disposable razor was no easy feat. Creating blades thin enough to affix to a handle but inexpensive enough to produce in the millions required some crafty metallurgical work. In the end, Gillette improved on late-19th-century safety razor designs by replacing the common forged-steel blades then in use with a removable stamped steel blade. The design earned a patent in 1904, a year after production officially began on the razor-and-blade set, which initially retailed for $5 -- imagine paying $300 for a new set of Mach V razors and you'll have an idea of how much this was worth to Gillette's first customers.
Despite the high price, Gillette -- the company's name had been changed to Gillette Safety Razor in 1902 -- sold nearly 91,000 razors and nearly 124,000 blades in its first full year of production. Sales surpassed 70 million blades a decade later. Any American man of military age who wasn't already familiar with Gillette got his first disposable shave during service in World War I, when the U.S. government supplied every soldier with a Gillette field razor set.
Gillette grew to become one of the world's largest consumer-products companies over the course of the 20th century. It expanded beyond its dominant razor market into stationery, deodorant, dental hygiene, batteries, and other products. Procter & Gamble (NYSE:PG) acquired Gillette for $57 billion in 2005, a purchase price 11.4 million percent greater than its founding capitalization. Even when adjusting for inflation, Gillette earned an enormous premium over its day-one valuation: its real gain from founding to buyout was 410,000%.
Space, the profitable frontier
On Sept. 28, 2008, Elon Musk's Space Exploration Technologies, better known as SpaceX, became the first private corporation to send a liquid-fueled rocket into orbit. The company's Falcon 1 rocket met with orbital success on its fourth try after taking off from a remote atoll 2,500 miles southwest of Hawaii. The event was made all the more impressive by the fact that SpaceX's engineers had identified the cause of the third launch failure within days and had built a new rocket in seven weeks, a far shorter turnaround time than that achievable from the major aerospace contractors.
This historic success led to a rush of interest in SpaceX's rockets. Four years later, the company had booked more than 40 scheduled launches and had grown in size to more than 3,000 employees, which is almost a fifth the size of NASA's workforce.
A billion-dollar first
The boom in Standard Oil stocks on the Curb and "over the counter" yesterday carried prices so far forward that stock of the Standard of New Jersey as it existed before the dissolution was worth more than $2,000 a share. The highest price for the stock before the Supreme Court decree was put into effect five years ago was $750. Applying yesterday's value of old Standard Oil shares, with the equity of subsidiary companies intact, the market worth of the company's original capital stock was close to $2,000,000,000. This makes John D. Rockefeller, founder and largest stockholder of the company, almost certainly a billionaire.
-- The New York Times, writing after the close of business on Sept. 28, 1916.
The reports of Sept. 28, 1916, mark the first time in history that any one individual was credited as a billionaire. This remarkable feat occurred in spite of Rockefeller's having already gifted some $200 million of his vast fortune to charity. The best way to understand the scope of this fortune is to examine it against the national economy -- in 1916, nominal U.S. GDP was $50.1 billion, which meant that Rockefeller's net worth equaled 2% of the entire American economy. If any present-day plutocrat were as rich as Rockefeller, he or she would command a fortune of approximately $325 billion.
Rockefeller had formed Standard Oil in 1870, and his initial stake in the company was then worth $300,000. For almost five decades, Rockefeller's net worth had grown at a rate of 19.3% per year, or 19.8% if you add his charitable donations back in. It's an impressive growth rate, but not unprecedented in the history of public markets -- Altria (NYSE:MO) produced similarly impressive annualized gains for the same length of time in the latter half of the 20th century.