Orphan Drug Designations as Valuable Intangible Assets for IPO Investors in Pharma-Biotech Companies.
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.
We thank colleagues of GREThA, especially Francesco Lissoni, and conferences participants at DRUID2016 and NBER PPMf2017 conferences for helpful comments. This work was supported by a grant on “Rare Cancers & Orphan Drugs, innovation and Inequality” from INCa (#9580) to PG, and a Post-Doctoral Fellowship to DU from the French State in the frame of the “Investments for the Future” program IdEx Bordeaux (ANR-10-IDEX-03-02). The authors declare no conflict of interest. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
This work was supported by a Post-doc Fellowship to Diego Useche from the French State in the frame of the “Investments for the Future” program IdEx Bordeaux (ANR-10- IDEX-03-02)