In spring 2000, three events-two political statements by Bill Clinton and Tony Blair and a breakthrough announcement by Celera Genomics-had a major impact on biotechnology stocks. We analyze their effects over a comprehensive set of biopharmaceutical companies, using a composite return-generating model with an industry-specific patent-based factor. Our results show that stocks can be clustered according to their responsiveness to political and scientific events. Furthermore, we emphasize different impacts on the market value of intangible assets for each cluster, suggesting that growth options are valued with different criteria for therapeutics, and technology-based subsectors. Copyright (c) 2006 Financial Management Association International.
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Documents inThis study was conducted as part of the program "New Views on Firms' Investment and Finance Decisions" led by the National Bank of Belgium (NBB). We wish to thank Ron Anderson, Sophie Manigart and the team participants in the program. All remaining errors are our own.
Editorial DirectorJan Smets, Member of the Board of Directors of the National Bank of Belgium
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AbstractThis study investigates the relationship between the evolution of real options values and associated financing policies for Belgian companies in the sector of bio-industries.Each firm's situation regarding the relevant types of real options is stylistically represented through a scenario tree. The consumption of a time-to-build or a growth option is respectively considered as a success or a failure in company development. Empirically, several variables enable us to locate each company along the tree at any time. The study of transitions leads us to discover that failures tend to trigger higher leverage, unlike in the trade-off theory. Yet, the increases in debt maturity, in lease and in convertible financing confirm our predictions. Overall, we emphasize evidence of undercapitalization and ofproper, yet insufficient, use of hybrid financing by biotech companies.
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