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      Stock Market Returns and Clinical Trial Results of Investigational Compounds: An Event Study Analysis of Large Biopharmaceutical Companies

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      PLoS ONE
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          Abstract

          Background

          For biopharmaceutical companies, investments in research and development are risky, and the results from clinical trials are key inflection points in the process. Few studies have explored how and to what extent the public equity market values clinical trial results.

          Methods

          Our study dataset matched announcements of clinical trial results for investigational compounds from January 2011 to May 2013 with daily stock market returns of large United States-listed pharmaceutical and biotechnology companies. Event study methodology was used to examine the relationship between clinical research events and changes in stock returns.

          Results

          We identified public announcements for clinical trials of 24 investigational compounds, including 16 (67%) positive and 8 (33%) negative events. The majority of announcements were for Phase 3 clinical trials (N = 13, 54%), and for oncologic (N = 7, 29%) and neurologic (N = 6, 24%) indications. The median cumulative abnormal returns on the day of the announcement were 0.8% (95% confidence interval [CI]: –2.3, 13.4%; P = 0.02) for positive events and –2.0% (95% CI: –9.1, 0.7%; P = 0.04) for negative events, with statistically significant differences from zero. In the day immediately following the announcement, firms with positive events were associated with stock price corrections, with median cumulative abnormal returns falling to 0.4% (95% CI: –3.8, 12.3%; P = 0.33). For firms with negative announcements, the median cumulative abnormal returns were –1.7% (95% CI: –9.5, 1.0%; P = 0.03), and remained significantly negative over the two day event window. The magnitude of abnormal returns did not differ statistically by indication, by trial phase, or between biotechnology and pharmaceutical firms.

          Conclusions

          The release of clinical trial results is an economically significant event and has meaningful effects on market value for large biopharmaceutical companies. Stock return underperformance due to negative events is greater in magnitude and persists longer than abnormal returns due to positive events, suggesting asymmetric market reactions.

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          Most cited references14

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          The productivity crisis in pharmaceutical R&D.

          Advances in the understanding of the molecular basis of diseases have expanded the number of plausible therapeutic targets for the development of innovative agents in recent decades. However, although investment in pharmaceutical research and development (R&D) has increased substantially in this time, the lack of a corresponding increase in the output in terms of new drugs being approved indicates that therapeutic innovation has become more challenging. Here, using a large database that contains information on R&D projects for more than 28,000 compounds investigated since 1990, we examine the decline of R&D productivity in pharmaceuticals in the past two decades and its determinants. We show that this decline is associated with an increasing concentration of R&D investments in areas in which the risk of failure is high, which correspond to unmet therapeutic needs and unexploited biological mechanisms. We also investigate the potential variations in productivity with regard to the regional location of companies and find that although companies based in the United States and Europe differ in the composition of their R&D portfolios, there is no evidence of any productivity gap.
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            Quantifying Trading Behavior in Financial Markets Using Google Trends

            Crises in financial markets affect humans worldwide. Detailed market data on trading decisions reflect some of the complex human behavior that has led to these crises. We suggest that massive new data sources resulting from human interaction with the Internet may offer a new perspective on the behavior of market participants in periods of large market movements. By analyzing changes in Google query volumes for search terms related to finance, we find patterns that may be interpreted as “early warning signs” of stock market moves. Our results illustrate the potential that combining extensive behavioral data sets offers for a better understanding of collective human behavior.
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              Web Search Queries Can Predict Stock Market Volumes

              We live in a computerized and networked society where many of our actions leave a digital trace and affect other people’s actions. This has lead to the emergence of a new data-driven research field: mathematical methods of computer science, statistical physics and sociometry provide insights on a wide range of disciplines ranging from social science to human mobility. A recent important discovery is that search engine traffic (i.e., the number of requests submitted by users to search engines on the www) can be used to track and, in some cases, to anticipate the dynamics of social phenomena. Successful examples include unemployment levels, car and home sales, and epidemics spreading. Few recent works applied this approach to stock prices and market sentiment. However, it remains unclear if trends in financial markets can be anticipated by the collective wisdom of on-line users on the web. Here we show that daily trading volumes of stocks traded in NASDAQ-100 are correlated with daily volumes of queries related to the same stocks. In particular, query volumes anticipate in many cases peaks of trading by one day or more. Our analysis is carried out on a unique dataset of queries, submitted to an important web search engine, which enable us to investigate also the user behavior. We show that the query volume dynamics emerges from the collective but seemingly uncoordinated activity of many users. These findings contribute to the debate on the identification of early warnings of financial systemic risk, based on the activity of users of the www.
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                Author and article information

                Contributors
                Role: Editor
                Journal
                PLoS One
                PLoS ONE
                plos
                plosone
                PLoS ONE
                Public Library of Science (San Francisco, USA )
                1932-6203
                2013
                7 August 2013
                : 8
                : 8
                : e71966
                Affiliations
                [1]Faculty of Arts and Sciences, Harvard University, Cambridge, Massachusetts, United States of America
                Tel Aviv University, Israel
                Author notes

                Competing Interests: The author has declared that no competing interests exist.

                Conceived and designed the experiments: TJH. Performed the experiments: TJH. Analyzed the data: TJH. Wrote the paper: TJH.

                Article
                PONE-D-13-24215
                10.1371/journal.pone.0071966
                3737210
                23951273
                b59c3851-3e92-4f87-a071-e2f674643196
                Copyright @ 2013

                Hwang. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

                History
                : 6 June 2013
                : 8 July 2013
                Page count
                Pages: 8
                Funding
                TJH was supported by the Cordeiro Research Fellowship of the Interfaculty Initiative in Health Policy and a research grant from the Center for American Political Studies, both at Harvard University. The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript.
                Categories
                Research Article
                Biology
                Biotechnology
                Drug Discovery
                Medicine
                Clinical Research Design
                Clinical Trials
                Phase I
                Phase II
                Phase III
                Drugs and Devices
                Drug Research and Development
                Drug Discovery
                Drug Licensing and Regulation
                Drug Marketing
                Non-Clinical Medicine
                Health Care Policy
                Drug Policy
                Science Policy
                Research Assessment
                Research Funding
                Corporate Funding of Science
                Research Integrity
                Science Policy and Economics
                Social and Behavioral Sciences
                Economics
                Health Economics
                Pharmacoeconomics

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                Uncategorized

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