Intellectual Property and the Valuation of Biotechnology Companies: Gen-Dex Versus Dow Jones

Abstract

The role of intellectual property (IP) as an important value determinant is widely recognized. This article tries to quantify the role of IP in companies valuation by comparing a sample of biotechnology companies (46 companies included in the Genetic Engineering New Index: GEN-dex) to the companies included in the Dow Jones Index. Conventional wisdom suggests that the biotechnology sector will derive more significant portion of its value from IP. The article proposes a measure for the significance of IP in the determination of value, which is named the IP Intensity. Comparing the distribution of IP Intensity in the two samples demonstrates that this measure is a useful tool for the analysis of value determination.

JEL Classification: G12, G14