The Research on How Biotech Laws and FDA Approvals Affects Abnormal Returns in Biotech Firms

Abstract

This study uses event study to examine the relation between the approvals of FDA and abnormal returns for listed OTC and emerging biotech companies in Taiwan Our research finds that there are positive and significant cumulated abnormal returns due to the FDA approval news announcement by collecting news from Taiwan Economic Journal It shows that whether the drugs are approved or not matters for investors As for the long period of verification the middle stages including the phase 1 testing phase 2 testing phase 3 testing and facility inspection have higher positive cumulated abnormal returns than IND application and drug approval stages Phase 3 testing is the highest among them It implies that the investors are more willing to invest in the periods that have more chances to have positive abnormal returns due to the high fail rate of drug verification Moreover the government in Taiwan enacts “The Development of Biotech and New Pharmaceuticals Industry Act” on July 4 2007 providing tax reduction for R&D and VCs They are crucial for the development of biotech industries in Taiwan This research classifies all the news events by six stages of FDA approvals and contains a regression model The result shows that the higher R&D expense the company is willing to spend the higher stock price it will have generating positive abnormal returns When it comes to VC even though they are an indispensable source of capital it will generate negative abnormal returns because of investors’ behavior

Date of Award	2014 Jul 5
Original language	English
Supervisor	Hua-Wei Huang (Supervisor)