Does innovation in obesity drugs affect stock markets? An event study analysis.

OBJECTIVE This study empirically analyzes the effects of public information about the pharmaceutical R&D process on the market valuation of the sponsoring firm. We examined the market's response to scientific news and regulatory decisions about an antiobesity drug, rimonabant, and the effects on the sponsoring company (Sanofi-Aventis) and its incumbent competitors (Abbott and Roche). METHODS Event study methodology was used to test the null hypothesis of no market response. We covered the full life cycle of rimonabant (1994-2008), using a data set of daily closing price and volume. RESULTS The results suggest that scientific news in the initial stages of the drug R&D process (i.e., drug discovery, preclinical and clinical trials) had no significant effects. However, news related to regulatory decisions, such as recall or safety warning, had significant negative effects on the company's market value. No spillover/contagion effects on competitor firms were detected. CONCLUSION Market reactions occur at the time when the regulator takes decisions about drugs. Scientific news, even those of high-impact, may pass unnoticed.