Valuing biotechnology companies using the price earnings ratio

Abstract

The biotechnology and life sciences sectors are a source of major source of growth in the economy. However the valuation of companies in the sector is problematic owing to the long lead times and uncertainty associated with product development. This paper explores the use of the price earnings ratio as a tool for portfolio construction and valuation. Our results suggest this is a poor tool, although this may be due to being constructed over a time horizon that is too short.