From the Lab to Wall Street

Abstract

This thesis examines the role of R&D-intensity in predicting underpricing in biotechnology IPOs during the Covid-19 pandemic years of 2020–2021. R&D-intensity, measured as R&D expenditures relative to market capitalization, is hypothesized to reduce information asymmetry, making valuations simpler and less prone to underpricing. Regression analysis reveals that R&D-intensity exhibits a negative coefficient in all the samples conducted and bears some statistical significance. The findings suggest that high R&D-intensity is linked to firms further along the product development pipeline, enhancing transparency and reducing valuation uncertainties. Furthermore, the analysis highlights differences in underpricing between the biotechnology and technology sectors. Finally, the thesis discovered that the presence of venture capital equity investments in biotechnology companies reduced underpricing. Further inquiries are recommended to explore the R&D and underpricing relationship in more detailed data sets during an extended time frame.