(FORTUNE Magazine) – Remember the great taxol debate? In the late 1980s, scientists established that the substance--found in the bark of the Pacific yew tree--was effective in treating ovarian cancer. Demand exploded (then as now, ovarian cancer was killing more than 12,000 women per year), but the supply was very iffy. The yews had never been highly valued (lumberjacks had long considered them to be a worthless weed), but they were sprinkled throughout the old-growth forests of the Northwest, the home of the northern spotted owl. Bark had to be stripped from three 100-year-old trees to treat a single patient. Environmentalists, fearful that pristine forests would be mowed down, lobbied to oppose the harvesting of Pacific yews.

The debate was an ugly one but of a type not unfamiliar in American life: two unattractive alternatives with no obvious solution or apparent room for compromise. In the taxol case, dying women were outraged that they might be denied a chance to live. Environmentalists were appalled that anyone would countenance the eradication of an entire species of tree--or owl--to prolong the lives of a few thousand humans. The debate reached its climax in 1991. SAVE A LIFE, KILL A TREE? read a headline in the New York Times. A cancer researcher, quoted in the Wall Street Journal, called it "the ultimate confrontation between medicine and the environment...the spotted owl vs. people."

When conundrums like this arise, it's hard to suggest that market forces--or, to put it more baldly, people's desire to make money--can help solve the problem. But it's true. In fact, what happened after taxol got its 15 minutes' worth of celebrity is a good example of how supply will be found or created if demand is powerful enough. But, inevitably, the solution to the taxol problem hasn't made the front pages. Why? It lacks the drama and conflict of the original debate.

It was clear right from the start that taxol would be a very big deal, financially as well as medically. Everything that's happened since then has added to its allure. Taxol, for instance, has also shown promise as a treatment for breast cancer. Some 182,000 new cases in the U.S. are reported per year, making this a far bigger potential market than ovarian cancer. Taxol has shown promise against lung cancer and may yet prove effective against other malignancies as well. The bottom line: By next year the market for taxol will reach $1 billion per year worldwide, according to Neil B. Sweig, a pharmaceutical analyst at Brown Bros. Harriman.

So what happened? Drugmakers and lumber companies studied the trees and the drug and began growing yews just as farmers grow potatoes. They found that a hybrid of European and Japanese yews (the common ornamental yew planted in front yards all over America) could produce a semisynthetic version of taxol. It also turned out that you didn't need to grow them for 100 years, and you could use the whole tree, not just the bark, to produce the drug. In 1993, Weyerhaeuser harvested the first batch of nursery-grown yews. Late last year, it cut down 12 million two-foot-high trees, ground them into sawdust, and shipped them off to Bristol-Myers Squibb for conversion into taxol. Another crop is growing today.

The government in 1992 granted what amounted to a five-year taxol monopoly to Bristol-Myers Squibb. The drugmaker got access to taxol research done at the National Cancer Institute, the rights to harvest Pacific yews on federal lands, and exclusive marketing rights for taxol. In return, Bristol-Myers Squibb undertook commercial development of the drug. One side effect of this transaction is that taxol has remained one of the most expensive anticancer drugs (the wholesale cost of the treatment, in a recent New England Journal of Medicine study, was $7,620, vs. $2,040 for standard chemotherapy).

But once that artificial constraint is removed next year and anyone can manufacture and sell taxol, the full forces of the market will be unleashed. Competition will intensify, and you can expect prices to fall and supplies to increase. Already Bristol-Myers Squibb's chief competitor, Rhone-Poulenc Rorer, is seeking government approval to market a related drug known as taxotere to treat breast cancer. Other drug companies are scouring the world for new sources of taxol and taxol-like substances. Biotech firms have been hard at work trying to extract taxol from a fungus found on taxol-producing yews. Arthur P. Bollon, chief executive of Cytoclonal Pharmaceutics in Dallas, claims that this will become the most cost-effective way of producing the substance. Finally, scientists are zeroing in on methods for producing synthetic taxol.

So don't worry too much about the primeval forests--or the spotted owl. And the next time the newspapers are full of a seemingly insoluble problem, consider what the market might do to help solve it.