Orphan Drug Designations as Valuable Intangible Assets for IPO Investors in Pharma-Biotech Companies.

Philippe Gorry, Diego Useche

NBER Working Paper No. 24021
Issued in November 2017
NBER Program(s):Health Economics, Productivity, Innovation, and Entrepreneurship

Orphan Drug (OD) legislation has been implemented with regulatory and financial incentives to encourage drug innovation in order to treat rare diseases. This study aims to test whether OD Designations (ODD) granted by the Food and Drug Administration (FDA) to pharmaceutical and biotechnology start-up companies may be considered as relevant signals in attracting entrepreneurial finance and increasing the amount invested at the time of the Initial Public Offering (IPO) in the US stock markets. We found that the signaling power of ODD is positively and statistically significant for IPO investors in stock markets. Regression results also suggest that ODDs are stronger than patent applications in attracting IPO investors. Scholarly and policy implications are discussed in the light of the signaling theory and drug development policies.

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Document Object Identifier (DOI): 10.3386/w24021

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