Do Biotechs Receiving Premiums from Corporate Partners Outperform Others?
Executive Summary
A look at biotechs that received an equity investment at a significant premium to market (20% or over).
Often in biopharmaceutical alliances, the licensee will make an equity investment in its biotech partner at a significant premium to the stock market price, in part to send a message to the market at large that it believes its partner is undervalued. But do public investors heed this message? Or more directly, are biotechs that have received an endorsement of this type from a large pharmaceutical partner perceived (and subsequently valued) any differently from the rest of the biotech sector?
We selected 11 biotechs that received an equity investment at a significant premium to market (20% or over) in alliances signed in 1995, and calculated the average closing prices on the last day of each month, starting in June 1995. We then plotted them against the last monthly closing of the NASDAQ Biotech index in the chart below.
From the striking similarity in the shapes of the curves, one has to conclude that Wall Street doesn’t significantly discriminate these companies from the rest of the sector. Looking individually at the biotechs that received premiums, however, some did indeed outperform the index: Biomatrix, for example, almost doubled from $6 to $11.75 for the period covered, while Sugen grew from $6.875 to $11.375.