| This study explores the relationship between market entry and the creation of market value by using stock prices to measure the value created by product innovation in the U.S. biotechnology industry since the 1980s. The five milestone stages examined in this study include three stages of human clinical trials, the filing of a New Drug Application (NDA) or Biologic License Application (BLA), and the final product approval awarded by the Food and Drug Administration (FDA). The objective for the study is to detect evidence of value creation across this sequence of stages in the FDA approval process for new biology-based therapeutics. We accomplish this objective by measuring stock-price changes for an innovating biotechnology firm as it issues public announcements during the biological innovation's passage through each stage of the drug approval process. Because the U.S. biotechnology industry is dramatically spatially-organized, this study also tests whether value creation is influenced by the geographical locations. We explore the value-creation effects in five stages; however, owing to the restrictions on data availability, we examined the variation of the created market value in the FDA approval stage only by using a multivariate regression model. The factors, other than geographic clusters, that underlie our exploration of market value creation are attributes of the innovating firms and the innovative product. And to test our hypotheses, we employ the event study method and cross-sectional regression analysis.; Our findings indicate that value creation can be detected at stages of the drug approval process---Phase III and NDA/BLA filing even before market entry as signified by FDA approval. We offer evidence that supports the view that spatial factors register an impact on market-value creation. The other factors that exhibited a statistically significant effect on value creation at the market-entry level are firm age and firm size, whether the new drug (1) was the result of a joint-development process with another firm, (2) was an orphan drug on a fast-track approval schedule, (3) was being considered for its first indication, and (4) was being introduced by a firm concurrently with an established industrial brand value. |
