The impact of innovation on the profitability of the biotech industry

Camille Loir () and Bertrand Groslambert ()
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Camille Loir: SKEMA Business School – Université Côte d Azur, France
Bertrand Groslambert: SKEMA Business School – Université Côte d Azur, France

Economics Bulletin, 2023, vol. 43, issue 3, 1286 - 1297

Abstract: Since the 1970s, advances in biotechnology have rarely translated into profitable financial opportunities. The recent breakthrough in immunotherapy seems to have turned the tide and improved the productivity growth. We study the impact of this innovation on the profitability of the biotech industry. Constructing a new dataset of cancer biotech initial public offerings (IPOs) and using recent observations on the probability of success in the drug development process, we find that the median return on equity in the cancer biotech industry has increased from 11 percent to 15 percent. This is a noticeable improvement but it is not yet sufficient to significantly increase the inflow of early stage investors. The financial constraints in this sector are still important.

Keywords: Financing of innovation; Venture capital; Investing; Performance measurement; Asset-backed securities; Simulations; Biotechnology industry; Cost of capital (search for similar items in EconPapers)
JEL-codes: G3 O3 (search for similar items in EconPapers)
Date: 2023-09-30
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