Chinese Breakthrough in Gene Therapy Research and the Implied Value of Competitive Advantage (iVCA©)
Posted: 13 Nov 2011
Date Written: November 12, 2011
Abstract
In 2003, China's State Food and Drug Administration approved the world’s first gene therapy drug Gendicine, a recombinant adenovirus for the treatment of head and neck squamous cell carcinoma, a common form of skin cancer. Long considered to be adept at replicating existing products, China was now, in a quite unforeseen leap forward, about to become the global leader in gene therapy technology and thereby to take its place at the forefront of cancer research. By the end of 2005, China had caught up with Europe in terms of the number of gene therapy drugs under development. We herein propose a simple market based valuation model, the implied Value of Competitive Advantage (iVCA©), with the aim of deriving the value of competitive advantage, using Chinese biotech firms as a case study.
To do this, we analyse the share prices of the three biotech firms that are engaged in gene therapy and listed on the Shenzhen Stock Exchange, namely Shanghai Kehua Bioengineering, Beijing SL Pharmaceutical and Anhui Anke. The proposed model calculates that the value of the total implied competitive advantage created by these three gene therapy firms exceeded CNY32 billion (over GBP 3 billion) at the end of 2010. This figure comprised over 90% of the total market capitalisation of the three firms. Thus the iVCA© model brings together economic and financial theory to enable managers to connect strategy and shareholder value creation, and to promptly measure and monitor the market-based appreciation of the competitive advantage of a firm.
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