Risk and return in the biotech industry
International Journal of Productivity and Performance Management
ISSN: 1741-0401
Article publication date: 24 October 2023
Abstract
Purpose
Biotech companies stand as key actors in pharmaceutical innovation. The high risk and long timelines inherent with their R&D investments might hinder their access to funding, potentially stifling innovation. This study aims to explore into the appeal of biotech companies to capital market investors, whose financial backing could bolster the growth of the biotechnology sector.
Design/methodology/approach
This paper uses a dataset of 774 US publicly listed biotech firms to investigate their risk and return characteristics by comparing them to pharmaceutical firms and a sample of matched non-biotech R&D-intensive firms over the sample period 1980–2021. Tests show that the conclusions remain consistent across diverse methodological approaches.
Findings
The paper shows that biotech companies are riskier than the average firm in the market index but outperform on a risk-adjusted basis both the market and a matched group of R&D-intensive firms. This is particularly true for large capitalization biotech, which is also shown to provide a diversification benefit by reducing the downside risk in past crisis periods.
Originality/value
This paper provides insight relevant to the current debate about the overall performance of the biotech industry in terms of policy changes and their impact on small, early-stage biotech firms. While small and early-stage biotech firms are playing an increasing role in scientific innovation, this study confirms their greater vulnerability to financial risks and the importance of access to capital markets in enabling those companies to survive and evolve into larger biotech.
Keywords
Citation
Bruneo, H., Giacomini, E., Iannotta, G., Murthy, A. and Patris, J. (2023), "Risk and return in the biotech industry", International Journal of Productivity and Performance Management, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJPPM-04-2023-0179
Publisher
:Emerald Publishing Limited
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