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Going Public When You Can in Biotechnology

  • Michael R. Darby
  • Lynne G. Zucker

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
Date of revision:
Publication status: published as Michael R. Darby and Lynne G. Zucker, “Real Effects of Knowledge Capital on Going Public and Market Valuation,” in Naomi Lamoreaux and Kenneth Sokoloff, eds., Financing Innovation in the United States, 1870 to the Present , Cambridge, MA: The MIT Press, 2007. [ISBN 0-262-12289-8, pp. 433-467]
Handle: RePEc:nbr:nberwo:8954
Note: CF PR
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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  1. repec:fth:harver:1473 is not listed on IDEAS
  2. Aghion, Philippe & Tirole, Jean, 1994. "The Management of Innovation," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 1185-1209, November.
  3. 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.
  4. Aghion, P. & Tirole, J., 1993. "On the Management of Innovation," Working papers 93-12, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Lynne G. Zucker & Michael R. Darby & Maximo Torero, 1997. "Labor Mobility from Academe to Commerce," NBER Working Papers 6050, National Bureau of Economic Research, Inc.
  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.
  7. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
  8. Zucker, Lynne G & Darby, Michael R & Armstrong, Jeff, 1998. "Geographically Localized Knowledge: Spillovers or Markets?," Economic Inquiry, Western Economic Association International, vol. 36(1), pages 65-86, January.
  9. 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.
  10. Lynne G. Zucker & Michael R. Darby & Marilynn B. Brewer, 1994. "Intellectual Capital and the Birth of U.S. Biotechnology Enterprises," NBER Working Papers 4653, National Bureau of Economic Research, Inc.
  11. Zvi Griliches, 1990. "Patent Statistics as Economic Indicators: A Survey," NBER Working Papers 3301, National Bureau of Economic Research, Inc.
  12. 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.
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