On the Valuation of ‘Big Pharma’s’ Research Pipelines
Independent thesis Advanced level (degree of Master (One Year)), 10 credits / 15 HE creditsStudent thesis
Background: Tougher demands from regulators on drugs efficiency and safety,governmental cost cutting and more complex areas of research, has led to that the importance of the pharmaceutical industry’s research pipelines are increasing. Even though the capital markets views on the pharmaceutical industry and its valuation is changing, the authors is not aware of any prior research that has been conducted on the topic of how the market reacts to clinical trial results or how security analysts valuates product pipelines.
Aim: This thesis aims to explain how security analysts valuate research pipelines and analyze whether the publication of clinical trial results significantly affects the pricing of multinational pharmaceutical companies.
Methodology: Three econometric models using an aggregate daily data sample of 27 years for five of the world’s largest pharmaceutical firms distinguish the price effects related to the publication of clinical trial results. Three interviews with security analysts map how security analysts value pharmaceutical research.
Results: Security analysts’ uses a combination of DCF and relative valuation when analyzing pharmaceutical firms. All interviewed analysts uses a risk adjusted net present value approach which is closely linked to the DCF approach, however, financial theory suggests that pipelines should be valuated with contingent claim models Analysts recognize that all compounds in Phase III and some Phase II projects has a impact on firm value. Clinical trials have a significant short-term impact on firm value. Phase III projects shows significant share price influence whilst early stage clinical trials do not, which shows that analysts are correct in focusing their valuation to later stage clinical trials. However, not all areas of therapy have a significant impact on firm value. Oncology is the only area of therapy where successes raises firm value, whilst failures in oncology and cardiovascular/gastrointestinal significantly lower firm value. Negative news about the research portfolio also tends to have a larger impact than positive news.
Place, publisher, year, edition, pages
2009. , 56 p.
Big Pharma, Clinical Trials, Econometrics, Valuation, Research and Development
IdentifiersURN: urn:nbn:se:liu:diva-52502ISRN: LIU-IEI-FIL-A--09/00497--SEOAI: oai:DiVA.org:liu-52502DiVA: diva2:283499
UppsokSocial and Behavioural Science, Law
Hägg, Göran, Univ lektorAsp, Inger, Univ adjunkt