Linking Product Development Outcomes to Market Valuation of the Firm: The Case of the U.S. Pharmaceutical Industry*

The purpose of this research was to examine empirically the effects of new product development outcomes on overall firm performance. To do so, first product development and finance literature were connected to develop three testable hypotheses. Next, an event study was conducted in order to explore whether the changes in the stock market valuation of firms are influenced by the outcomes of efforts to develop new products. The pharmaceutical industry was chosen as the empirical context for the present study's analysis largely because the gate‐keeping role played by the Food and Drug Administration (FDA) provides a specific event date on which to focus the event study methodology. As such, this study's events were dates of public announcements of the FDA decisions to approve or to reject the New Drug Applications submitted by the sponsoring firms. Consistent with the efficient market hypothesis, this study's results show that market valuations are responsive strongly and cleanly to the success or failure of new product development efforts. Hence, one of this study's key results suggests that financial markets may be attuned sharply to product development outcomes in publicly traded firms. This study also finds that financial market losses from product development failures were much larger in magnitude than financial market gains from product development successes—indicating an asymmetry in the response of financial markets to the success and failure of new product development efforts. Hence, another implication of this study's results is that managers should factor in a substantial risk premium when considering substantial new development projects. The present study's results also imply that managers should refrain from hyping new products and perhaps even should restrain the enthusiasm that the financial community may build before the product fully is developed. The effect on firm value is severe when expectations about an anticipated new product are not fulfilled. Managers in effect should take care to build reasonable and realistic expectations about potential new products.     

A comparison of ranking,rating and reservation price measurement in conjoint analysis

This paper empirically compares the traditional preference measures of ranking and rating in conjoint analysis with a direct monetary measure of product value — reservation prices. Experimental results are as expected. While reservation prices do very well in terms of fit, they are inferior in terms of predicting choice on a holdout sample. In addition, surprisingly little difference is found in the performance of ranks and ratings.     

Innovation Leaders: How Senior Executives Stimulate, Steer, and Sustain Innovation by Jean-Philippe Deschamps

I am honored to have been chosen as the Journal of Product Innovation Management's ( JPIM 's) new book review editor. First and foremost, I want to thank Preston Smith for making the transition an easy one. Preston's experience and insights have helped bring me up the learning curve. His patience was much appreciated.
Second, managing the book review process is certainly more complicated than I had imagined but is fascinating nonetheless. As in the development of any product or service there are many people involved in the creation process, and considerable planning takes place prior to actual publication.
Last but not least is my admiration for our JPIM book reviewers. The care and effort taken to create the quality book reviews that meet JPIM 's high standards requires critical thought and experience in new product development. We will continue to make our book reviews insightful, critical, and practical for you, our readers.
Books reviewed in this issue:

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  Innovation Leaders: How Senior Executives Stimulate, Steer, and Sustain Innovation
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  Understanding A3 Thinking: A Critical Component of Toyota's PDCA Management System
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  Value Merchants: Demonstrating and Documenting Superior Value in Business Markets

     

Australia's coal seam gas boom and the LNG entry result

Queensland experienced extraordinary growth in booked 2P coal seam gas (CSG) reserves, rising from 3,400 PJ in 2005 to 41,200 PJ in 2013. Given annual domestic consumption of ca. 700 PJ/a, 2P reserves rapidly shifted from 14 to 72 years supply. Profit‐maximising firms sought to speed up commercialisation of reserves through the development of three liquefied natural gas (LNG) export plants at Gladstone. In this article, we present forecasts of Australia's east coast interconnected gas system with daily resolution using our dynamic partial equilibrium model. Modelling results show the rapid development of LNG plants combined with restrictive CSG development policies in NSW may result in unserved load from 2016. Relaxing development constraints or delaying construction of one LNG terminal by 1 year could have avoided the risk of Unserved Load events in the domestic gas market. Lessons can be learned from this CSG‐LNG boom scenario. Facilitating new gas supplies is the most efficient way of alleviating the impacts of the CSG‐LNG boom on domestic markets in the medium term. In the long‐term, Australian policymakers may consider the merits of a National Net Benefits Test to maximise welfare through appropriate coordination – as is done by policymakers in the USA – as opposed to protecting local industries through ‘domestic gas reservation policies’.     

Toward understanding household preference for consumption characteristics of millet varieties: a case study from western Niger

In this study, we evaluate the preference of consumers in Niger for different tuwo or couscous characteristics using a random utility‐based choice experiment, ordered probit analysis, and tree‐based partitioning. Data were collected through a structured survey administered at four sites. Preferences are estimated for three products (couscous, fermented tuwo, and nonfermented tuwo) made from five pearl millet cutivars. We provide relative valuation for different traits by type of product. Results show that product taste, color, and textural attributes are important, especially for tuwo and couscous. Probit and partitioning results show that taste and color are the first attributes that consumers use to distinguish more preferred millet food products from less preferred millet food products. This should provide some direction for millet breeding programs and food processing of millet.     

Modelling Deforestation and Land‐Use Change: Sparse Data Environments

Land‐use change in developing countries is of great interest to policy‐makers and researchers with diverse interests. Concerns about consequences of deforestation for global climate change and biodiversity have received the most publicity, but loss of wetlands, declining land productivity and watershed management are also problems facing developing countries. Analyses of these problems are especially constrained by lack of data. This article reviews modelling approaches for data‐constrained environments that involve discrete choice methods including neural nets and dynamic programming, and research results that link individual household survey data with satellite images using geographic positioning systems.     

Demand responsive transport: towards the emergence of a new market segment

This paper focuses on recent British experience with telematics-based Demand Responsive Transport (DRT) services in rural areas. In recent years, the ability of DRT concepts to provide efficient, viable transport services has been greatly enhanced by the use of transport telematics as demonstrated in a variety of environments across Europe. The success of British local authorities in winning substantial funding under the Rural and Urban Bus Challenge programmes for the implementation of DRT has resulted in widespread interest in flexible forms of transport. It is thus timely to evaluate the impact of this substantial investment. Drawing on the experience of a number of UK schemes, the paper assesses the reasons for the new-found success of what is becoming a relatively well-accepted mode by concentrating on a variety of factors including: service characteristics (particularly route flexibility, flexibility of booking method and pre-booking regime), emerging markets and the overall contribution of DRT to increased social inclusion and intermodality. Impediments to the development of DRT services are highlighted. The paper also discusses current research into the next generation of DRT services and concludes by identifying some key issues for policy-makers concerned with the future implementation of DRT services.     

The evaluation of demand responsive transport services in Europe

Over the last decade Demand Responsive Transport (DRT) services have grown in popularity for several reasons including: the shortcomings of conventional regular bus and taxi services; shortcomings of special transport services; and new developments in community transport. Traditional dial-a-ride services have often been criticised because of their relatively high cost of provision, their lack of flexibility in route planning and their inability to manage high demand. The potential for overcoming these limitations may be realised through the introduction of telematics-based DRT and this has been widely demonstrated, for example, in recent research funded by the European Commission (e.g. the DGXIII-funded SAMPO and SAMPLUS projects). This paper provides an introduction to the concept of telematics-based DRT services and presents the results of the evaluation of a set of DRT technologies and operations at urban and rural sites across Europe. The paper offers discussion in terms of the key issues that influence the introduction of DRT services.