Leaving money on the table in venture-backed biotechnology IPOs
How do biotech stocks behave during the first day of trading?
How do they perform in the long-run period?
What is the link between first-day return and aftermarket performance?
This study examines these questions using a large sample of U.S. venture-backed biotechnology IPOs during 1980 through 2015. The analysis of first-day returns (underpricing) of venture-backed biotech IPOs reveals that considerable amount of money are left on the table, dwarfing the underwriter fees, and that these large first-day returns are concentrated in hot IPO market, such as the 1999-2000 genomics bubble and more recently in the years 2014-2015. The study provides different theoretical explanations to the underpricing phenomenon and discusses why venture capitalists may be willing to accept leaving money on the table. The analysis has implications for management, investment bankers, venture capitalists and investors.
For more details, see the full paper: http://commercialbiotechnology.com/index.php/jcb/article/view/757
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