Relative Price & Value of pre-Phase III Pipelines for the 23 Largest Drug & Biotech Companies – Updated View


Using patent data, we estimate the relative ‘true economic’ value of companies’ pre-phase III (aka ‘hidden’ pipelines), and then compare these estimates to the apparent market capitalization of these same pipelines. Since inception (November of 2012), our portfolios of stocks whose hidden pipeline misvaluations imply ≥20% relative share price gains has appreciated at 1.5x the rate of a comparator portfolio containing all 22 companies analyzed (equal-weighted 1.5x; cap-weighted 1.5x)

Capital markets misvalue pre-phase III (i.e. ‘hidden’) pipelines for an obvious reason: they’re hidden, at least to conventional methods of valuation. Careful analysis of patent data gives us an opportunity to see what’s hidden, and to determine whether it’s fairly valued

On average, roughly 35 percent of the largest drug and biotech (by market cap) companies’ share prices are linked to these companies’ ‘hidden pipelines’, i.e. to projects in phase II and earlier stages of development

The percent of share price explained by a company’s hidden pipeline ranges from 5 to 69 percent. The apparent economic value of the innovation in these companies’ hidden pipelines spans a similarly broad range, but in many cases the capitalization of a company’s pipeline will be low versus peers even though its pipeline contains more innovation than peers, or vice versa

Because of large misvaluations in hidden pipelines, shares of VRTX, BMY, and SNY all appear at least 20 percent undervalued. Conversely shares of ALXN, BIIB, CELG, GILD, NVO, and REGN all appear at least 20 percent overvalued (SHPG also appears >20 percent overvalued, but will be dropped from the peer group going forward, as it is rolled into ABBV)

For more information on this, and related R&D productivity metrics covering the 22 largest publicly-traded companies (by R&D spending) please visit

For our full research notes, please visit our published research site

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