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Comparing long-term value creation after biotech and non-biotech IPOs, 1997-2016
Ekaterina Galkina Cleary1, Laura M McNamee2, Skyler de Boer3
1Department of Mathematical Sciences, Center for Integration of Science and Industry, Bentley University, Waltham, Massachusetts, United States of America.
Plos One
|January 6, 2021
Summary
Biotechnology (BIOTECH) companies
Area of Science:
- Biotechnology
- Financial Markets
- Investment Analysis
Background:
- Biotechnology companies often have unique financial profiles, including high research and development (R&D) expenses and initial losses.
- The perceived risk of investing in biotechnology is a significant consideration for investors.
Purpose of the Study:
- To compare the financial performance and value creation of publicly traded biotechnology companies against non-biotech companies.
- To assess whether biotechnology investments present a disproportionately higher risk compared to other sectors.
Main Methods:
- A comparative analysis of 319 biotechnology companies and matched non-biotech control companies that underwent initial public offerings (IPOs) between 1997 and 2016.
- Evaluation of financial structure, market capitalization growth, shareholder value, net value creation, and return patterns.
Main Results:
- Biotechnology companies exhibited higher R&D expenses and initial losses but similar market listing durations and acquisition frequencies compared to controls.
- Both cohorts showed comparable market cap and shareholder value growth (over $100 billion) by 2016.
- Biotechnology companies had lower net value creation ($93 billion vs. $411 billion) but shared a similar high-risk/high-reward return profile.
Conclusions:
- Value creation in biotechnology post-IPO is comparable to non-biotech companies at similar stages.
- Investments in biotechnology do not inherently present a disproportionately higher risk than other sectors.
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