The Sample and Data
The biotechnology industry of 225 publicly held companies provides the population of firms for this investigation (Burrill & Lee, 1993). The sample from this population was limited to firms which went public after 1982. Thus, the initial sample was limited to 218 firms. These firms were then contacted by phone requesting of copy of the prospectus from their IPO. A total of 108 companies provided a full or partial prospectus representing 48% of the total population of public biotechnology firms in 1993.
To test for potential biases in this sample we compared the average total assets and average total liabilities of the firms in our sample in 1992 to the average total assets and liabilities reported by Burill & Lee (1993) for all 225 public firms. Our sample averaged $11,123,000 in total assets and $3,515,000 in total liabilities. Burill & Lee (1993) reported the average total assets and total liabilities of the 225 public biotechnology firms in 1992 as $11,377,000 and $3,313,000 respectively.
The data used in our analysis was gathered from (1) the prospectus for each of the initial public offerings by the firms in our sample, (2) Ernst and Young's industry annual reports on the biotechnology industry , and (3) the Actions database published by The North Carolina Biotechnology Institute providing a detailed bibliography of the press coverage of firms in the biotechnology industry.
IPO Value. Given this paper's focus on the IPO's role in providing capital to entrepreneurial firms, we defined the value of a firm's IPO as the amount of capital from the offering which is actually transferred to the firm and its owners. This was calculated by subtracting the underwriter's fees from total value of the capital raised by the initial public offering.
Founding School. The founding schools of the firm's in our sample were determined by analyzing the history of the firm and the founders provided in the prospectus for the firms IPO's. The company history frequently mentioned the source of the basic research upon which the firm was founded. In addition, in the biographies of the top management team, key personnel and scientific advisory board, provided in the prospectus, the founders are clearly enumerated. Based on this information each firm was coded with the name of a founding institution or in the cases where there were no academic attachment a zero was entered.
Once the list of founding schools was created we turned to the six editions of the Gorman Reports for the ratings of the top 10 medical schools or biochemistry graduate schools. The Gorman reports were produced in 1982, 1985, 1987, 1989, 1991 and 1993. We used the ratings from the edition of the Gorman report which was current during the year of the firm's IPO. We then created a 0,1 variable which was coded as 1 if the firm was founded based on research at a top 10 institution and 0 otherwise. Thirty four firms were founded out of top 10 institutions.
New Alliances. This variable is coded '1' if the firm had entered into a new alliance with a pharmaceutical of chemical company during the year prior to the IPO. This data was collected from the prospectus of the firm's IPO.
Number of articles about the firm. This variable is a count of the number of articles about the specific firm which appeared in the business and industry press in the year prior to the IPO. The Actions Database of Biotechnology Firms was used to collect this data. This database provides a comprehensive record of public information for the biotechnology industry. To measure the degree of institutional recognition at the time of the IPO, the amount of public information generated by the firm in the twelve months up to and including the month of the IPO was collected from Actions. The records for each individual firm were categorized by type as either from the business press (ex. © New York Times, Wall Street Journal, Business Week), from industry and technical publications, or from company reports and press releases. The records from the business press and the industry press were totaled to create the measure. Thirty seven percent of the firms in the sample had no articles during the time period and one firm had eleven articles appear in the press during the time frame.
Number of articles about the industry. This variable is a count of the number of articles about the biotechnology industry or any firm in the industry which appeared in the business and industry press in the year prior to the particular firm's IPO. The Actions Database of Biotechnology Firms was used to collect this data.
Number of Regional Biotech Centers. This variable is a count of the number of regional biotech centers in operation during the calendar year in which the firm issued its IPO. The data was gathered from The Institute for Biotechnology Information's 1995. Directory of Biotechnology Centers, Ninth Edition.
Number of drugs approved by the FDA. This variable is a count of the number of in-vivo drugs developed using biotechnology which were approved by the Food and Drug Administration in the year prior to the firm's IPO.
Size. The total number of employees of the offering firm was used to control for the influence of size on IPO value. The number of employees was measured prior to the IPO. These figures were reported in the prospectus of each of the initial public offerings. A logarithmic transformation was used to control the skewness of the distribution.
Percentage of Equity. To control for the effect of the difference
in the percentage of the total equity of the firm offered in the
IPO we included the percentage of the total equity sold during the IPO
in the equation as a control. This data was collected from the prospectus
of the firm's IPO.