Financial valuation of innovation in the biotechnology industry

The dissertation explores financial market valuation of innovation activity in the biotechnology industry. There are two main themes: financial market valuation of innovation and economic incentives for innovative research created by regulatory policy. The subject of the first chapter is financial market valuation of firm's knowledge assets and private returns to innovation in the biotechnology industry, where such assets appear to play key role in the commercial success of a product. The second chapter explores the impact of regulatory policy on the incentives for innovative research in rare-disease drugs area and provides evidence supporting recent theoretical results concerning patent design in sequential innovation setting. The final chapter investigates the relation between scientific advances in human genome research and dynamics of financial returns to innovation in biotechnology industry.; Following previous literature we view publicly traded biotechnology firm as a bundle of assets both tangible and intangible, whose values are determined in the financial market. We apply hedonic-type model to firm valuation, because in essence firm valuation is no different from valuation of other goods with heterogeneous characteristics such us homes or personal computers. Using databases on product development outcomes and regulatory status of various drugs in the U.S. biotechnology industry together with financial market data we estimate hedonic valuation models and test a number of hypotheses pertaining to the main themes of the dissertation.; The results suggest that financial market values drugs in product development stage as well the drugs already on the market. We also find that regulatory policy that extends effective patent duration seems to have a positive effect on innovation incentives for rare-disease drug development. Finally, we establish that financial returns to both R&D capital and drugs in various development stages have increased during the period of accelerated advances in human genome research.