Biotech IPOs: Pipeline Characteristics As Key Drivers Of Underpricing

Open Access
Shpakova, Anastasiya
Area of Honors:
Bachelor of Science
Document Type:
Thesis Supervisors:
  • Laura B Field, Thesis Supervisor
  • Brian Spangler Davis, Honors Advisor
  • Joseph Randall Woolridge, Faculty Reader
  • biotechnology
  • IPOs
  • underpricing
  • finance
This thesis explores the relationship between fundamental firm characteristics and underpricing of recent biotechnology initial public offerings (IPOs). I examine both product- related characteristics and key financial statistics available to primary investors that may have influenced underpricing. I hypothesize that pipeline characteristics such as development stage of key assets, number of compounds in the pipeline and target therapeutic area of research, play an ultimate role in underpricing of biotechnology IPOs. Nonfinancial metrics may have a capacity to better represent uncertainty associated with biotechnology firms. Standard valuation methodologies may not be able to fully capture risks associated with the offerings, given the critical importance of trial results and pipeline progress for the firms in the subsector. In addition, the lack of historical financial data complicates preparation of quantitative analyses. The goal of the thesis is to determine which firm-specific characteristics affect underpricing of biotechnology companies most. Given recent changes in the regulatory environment associated with the Jumpstart Our Business Startups Act (JOBS Act), I conduct my study using the sample of biotechnology companies that went public after the enactment of the Act on April 5, 2012. Based on my findings, I conclude that companies with early-stage products have more underpricing. Furthermore, exposure to certain therapeutic areas such as genetic disorders and aesthetics also results in considerably higher underpricing compared to other therapeutic areas. The analysis provides sufficient evidence that pipeline characteristics have a significant impact on underpricing comparable in magnitude to key financial metrics. Additionally, I prove that concerning indicators, such as absence of earnings, do not have a significant impact on underpricing of biotechnology IPOs.