Valuing biotechnology companies: Does classification by technology type help?

Abstract

This paper explores whether conventional financial ratios can be used for portfolio construction in the biotechnology sector after the companies are classified into groups based on technology platforms such as DNA, biochemistry and bioprocessing technologies. We find some success in the use of financial measures after the classification is made indicating that they do a better job when comparing like firms. Appropriate risk adjustment is, however, critical to determining if superior performance is attained. This remains a challenge due to the difficulties in finding appropriate risk measures for the sector.