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Going Public When You Can in Biotechnology

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Author Info
Michael R. Darby
Lynne G. Zucker

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Abstract

Scientist-entrepreneurs prominent in biotech and other high-technology industries view going public not as a cost-effective source of capital but as a cross between selling a now-proven innovation and winning a lottery. Unlike most empirical IPO analyses confined to those firms that go public, we study substantially all the non-public biotech firms founded up through 1989. The probability that one of these firms goes public in any given year increases with the quality of the firm's science base (use of recombinant DNA technology, number of articles by star scientists as or with firm employees, number of biotech patents), the percentage of eligible firms going public the year the firm was founded as a strategy indicator, recent biotech returns as an indicator of a hot market, and whether or how many rounds of venture capital has been obtained. The same key factors increase the expected proceeds raised from IPOs, but the quality of the firm's science base plays a more dominant role. All firms going public try to look like the next Genentech, but only those with the strong science base necessary for success attract large investments.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8954.

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Date of creation: May 2002
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Handle: RePEc:nbr:nberwo:8954

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Find related papers by JEL classification:
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Lynne G. Zucker & Michael R. Darby & Marilynn B. Brewer, 1999. "Intellectual Capital and the Birth of U.S. Biotechnology Enterprises," NBER Working Papers 4653, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Griliches, Zvi, 1990. "Patent Statistics as Economic Indicators: A Survey," Journal of Economic Literature, American Economic Association, vol. 28(4), pages 1661-1707, December. [Downloadable!] (restricted)
    Other versions:
  3. Lynne G. Zucker & Michael R. Darby & Maximo Torero, 2002. "Labor Mobility from Academe to Commerce," Journal of Labor Economics, University of Chicago Press, vol. 20(3), pages 629-660, July. [Downloadable!]
    Other versions:
  4. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August. [Downloadable!] (restricted)
  5. Aghion, Philippe & Tirole, Jean, 1994. "The Management of Innovation," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 1185-1209, November. [Downloadable!] (restricted)
  6. Stephan, Paula E & Everhart, Stephen S, 1998. " The Changing Rewards to Science: The Case of Biotechnology," Small Business Economics, Springer, vol. 10(2), pages 141-51, March. [Downloadable!] (restricted)
  7. Lynne G. Zucker & Michael R. Darby & Jeff S. Armstrong, 2003. "Commercializing knowledge: university science, knowledge capture and firm performance in biotechnology," Proceedings, Federal Reserve Bank of Dallas, issue Sep, pages 149-170. [Downloadable!]
    Other versions:
  8. repec:fth:harver:1473 is not listed on IDEAS
  9. Zucker, Lynne G & Darby, Michael R & Armstrong, Jeff, 1998. "Geographically Localized Knowledge: Spillovers or Markets?," Economic Inquiry, Oxford University Press, vol. 36(1), pages 65-86, January.
  10. Zucker, Lynne G & Darby, Michael R & Brewer, Marilynn B, 1998. "Intellectual Human Capital and the Birth of U.S. Biotechnology Enterprises," American Economic Review, American Economic Association, vol. 88(1), pages 290-306, March. [Downloadable!] (restricted)
  11. Michael R. Darby & Qiao Liu & Lynne G. Zucker, 1999. "Stakes and Stars: The Effect of Intellectual Human Capital on the Level and Variability of High-Tech Firms' Market Values," NBER Working Papers 7201, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Henry G. Grabowski, 2003. "Patents and new product development in the pharmaceutical and biotechnology industries," Proceedings, Federal Reserve Bank of Dallas, issue Sep, pages 87-104. [Downloadable!]
  2. John V. Duca & Mine K. Yücel, 2003. "Exploring the economics of biotechnology: an overview," Proceedings, Federal Reserve Bank of Dallas, issue Sep, pages 3-10. [Downloadable!]
  3. Rebecca S. Eisenberg, 2003. "Reaching through the genome," Proceedings, Federal Reserve Bank of Dallas, issue Sep, pages 105-115. [Downloadable!]
  4. Lynne G. Zucker & Michael R. Darby & Jeff S. Armstrong, 2001. "Commercializing Knowledge: University Science, Knowledge Capture, and Firm Performance in Biotechnology," NBER Working Papers 8499, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Michael R. Darby & Lynne G. Zucker, 2003. "Growing by leaps and inches: creative destruction, real cost reduction, and inching up," Proceedings, Federal Reserve Bank of Dallas, issue Sep, pages 13-42. [Downloadable!]
    Other versions:
  6. Pierre Giot & Armin Schwienbacher, 2003. "IPOs, Trade Sales and Liquidations: Modelling Venture Capital Exits Using Survival Analysis," Finance 0312006, EconWPA. [Downloadable!]
    Other versions:
  7. Frank R. Lichtenberg, 2003. "The benefits to society of new drugs: a survey of the econometric evidence," Proceedings, Federal Reserve Bank of Dallas, issue Sep, pages 43-59. [Downloadable!]
  8. Michael S. Lawlor, 2003. "Biotechnology and government funding: economic motivation and policy models," Proceedings, Federal Reserve Bank of Dallas, issue Sep, pages 131-146. [Downloadable!]
  9. Timothy F. Howe, 2003. "Financing biotechnology research: a firsthand perspective," Proceedings, Federal Reserve Bank of Dallas, issue Sep, pages 119-130. [Downloadable!]
  10. Malcolm Gillis, 2003. "Harnessing new technologies for the 21st century," Proceedings, Federal Reserve Bank of Dallas, issue Sep, pages 63-75. [Downloadable!]
  11. Cassiman, Bruno & Veugelers, Reinhilde & Zuniga, Pluvia, 2007. "Science linkages and innovation performance: An analysis on CIS-3 firms in Belgium," IESE Research Papers D/671, IESE Business School. [Downloadable!]
  12. C. Thomas Caskey, 2003. "The convergence of disruptive technologies enabling a new industrial approach to health products," Proceedings, Federal Reserve Bank of Dallas, issue Sep, pages 77-84. [Downloadable!]
  13. Raine Hermans & Ilkka Kauranen, 2003. "Intellectual Capital and Anticipated Future Sales in Small and Medium-sized Biotechnology Companies," Discussion Papers 856, The Research Institute of the Finnish Economy. [Downloadable!]
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