The Market Return to Pharmaceutical Product Approval: Market Valuation of Firms: an Event Study

The stock and securities market should, ideally, react quickly (efficiently) in response to the public announcement of approval of new drug by the Food and Drug Administration (FDA) and the positive abnormal return may be expected for the sponsoring pharmaceutical company on and around the event date i.e. the day of the public announcement of the new drug approval for marketing. This study has found the mixed outcomes. Briefly, the findings are: (a) Existence of statistically significant positive abnormal returns (AR) for the day following the events. (b) The cumulative abnormal return (CAR) is statistically insignificant for the estimates of the pooled regressions and for some of the individual pharmaceutical companies. (c) No sign of information leakage ahead of the events. (d) Some individual pharmaceutical companies show the existence of statistically significant positive abnormal returns (AR) and the cumulative abnormal return (CAR) for event day and the day after (e.g. Novartis, Abbott, Schering Plough). These findings may play a significant role in the decision making process of mutually exclusive investments in the pharmaceutical products.