The Role of Private Equity in Life Sciences

In a roundtable published in this journal a year ago, there was a clear consensus that the R&D function in big pharma was inefficient and in need of major restructuring, possibly through increased investments by venture capital and private equity firms. In this discussion, an accomplished group of industry practitioners begins by looking at the prospects for both venture capital and private equity to play meaningful roles in financing early- and mid-stage drug development. In so doing, they explore questions like the following:

• • Are there ways for big pharma and biotech to reduce “science risk” and make R&D funding more profitable and attractive to venture capital and private equity—and perhaps even hedge funds?
• • What roles do you see for specialty PE firms like Symphony Capital and Paul Capital, which are now bundling mid-stage development assets and securitizing royalties?

Then the panelists turn to the broader life sciences industry and consider the outlook for leveraged private equity transactions involving marketed products, late-stage development, and services. Here they consider issues like the following:

• • Will PE be attracted to less-R&D-intensive activities like medtech and generics?
• • Have the recent consolidation through mergers and reorganization of big pharma into decentralized business units created opportunities for carve-outs of certain businesses?

For big pharma and life sciences companies in general, the answers to such questions point to greater specialization and focus achieved partly through strategic alliances with venture capital, private equity, and even hedge funds, and involving marketed products and services as well as early-stage drug development.     

An analysis of the impact of timberland, farmland and commercial real estate in the asset allocation decisions of institutional investors

We examine the effects of including timberland, farmland and commercial real estate in a mixed asset portfolio with stocks, government bonds and T-Bills. Using both smoothed and unsmoothed returns (as per Geltner [Geltner, D. (1993). Estimating market values from appraised values without assuming an efficient market. Journal of Real Estate Research, 8, 25-345.]) and both constrained and unconstrained allocation assumptions (as per Eichhorn, Gupta and Stubbs [Eichhorn, D., Gupta, F., & Stubbs, E. (1998). Using constraints to improve the robustness of asset allocation. Journal of Portfolio Management, Spring, 41-48.]), we employ Markowitz portfolio optimization and find widely varying allocation outcomes. However, timberland entered nearly all portfolios, accounting for large percentages in several scenarios, while farmland entered only low-risk portfolios. At lower risk levels, commercial real estate dominates the real estate allocation but as acceptable risk levels rise, timberland supplants commercial real estate as the primary component of the portfolio's real estate allocation.     

The impact of business group affiliation on stock price informativeness: Evidence from an emerging market

This paper examines the relationship between business group affiliation and stock price informativeness in an emerging market setting. We use stock price synchronicity as a measure, and study the impact of group affiliation ‐specifically the extent of affiliation, ownership structure and existence of group bank‐ on firm specific information content. Results reveal that the amount of firm‐specific information capitalized into stock prices tends to be lower (higher) when the firm is group‐affiliated (unaffiliated), indirectly (directly) owned, and affiliated group has (does not have) a group bank. Additionally, the extent of group affiliation maintains a non‐linear relationship with synchronicity, suggesting that the perception of higher versus lower levels of group ownership differs.     

The impact of the minimum driver licensing age on mobility in New Zealand

In the year to August 2002, 15% of the New Zealand road toll was attributed to 15–19 year-old drivers. This is the highest percent of casualties by any five-year age group, with the motor vehicle accident risk peaking at 16 years of age. New Zealand has the highest road accident statistic for this age group in the motorised world. It has been proposed that the driver licensing age be raised from 15 to 17 years of age. A 1998 Parliamentary Select Committee rejected the final proposal of a minimum driver licensing age of 16, on the grounds that such a rise would disadvantage rural youth through less accessible employment, educational facilities, social, and recreational activity, due to inadequate transport alternatives. This paper presents the results of research that examined the impact of the minimum driver licensing age on youth mobility. High school students were surveyed through interviews, questionnaires and travel diaries. It was concluded that the social benefits of raising the minimum driver licensing age to 17 years of age outweighed the social benefits of the status quo, as only minimal number of essential trips were totally dependent on youth acquisition of a driver licence.     

The impact of tourism on poverty in South Africa

This paper evaluates the potential impact of tourism on poverty in South Africa on the basis of recent survey data on international tourism spending patterns. It looks at three scenarios, using an applied general equilibrium model. The main finding is that the poor benefit very little in the short term from additional tourism income. A further finding is that domestic and international tourist expenditure affect the economy differently; both markets are therefore important. In essence, the research confirms that tourism receipts can be used as a tool to alleviate poverty, but in South Africa this must be supported by policies that focus on the labour market and human resource development.     

Parenting Orientations as Antecedents of Children's Violent Videogame Play

The study investigates caregiver influence on children's playing of violent videogames. Based on theory, the investigation develops and tests a model that links parental socialization tendencies to children's violent videogame play. Results from a national sample of 237 caregiver–child dyads suggest that while the primary caregivers' tendencies toward warmth and restrictiveness likely lessen children's play levels of violent videogames, their predispositions toward anxious emotional involvement tend to increase play. Moreover, results suggest that these relationships are mediated by caregiver mediation of videogames.     

Evaluating Instream Flows for Recreation: Applying the Structural Norm Approach to Biophysical Conditions

Instream flow can affect recreation quality and is a major issue on rivers where humans manage flows through dams and diversions. The structural norm approach offers a theoretical and methodological model for collecting, organizing, and analyzing evaluative information that relates flow and recreation quality. This article reviews work from several flow-recreation studies that have used this approach, extending it beyond social impact contexts and illustrating its adaptability to other natural resource issues. The article reviews the general structural norm approach and how it has been adapted to examine instream flows for recreation, and provides a list of studies that have utilized it. A review of methods issues describes study types, question formats, and purposive sampling. A review of key findings focuses on incremental relationships between flows and recreation quality, differences in evaluations by craft, skill level, or type of opportunity, the concept that recreation opportunities occupy niches in the flow regime, and emerging hypotheses about relationships between flows and aesthetics.     

The effect of debt capacity on the long-term stock returns of debt-free firms

This article examines the long-term stock market performance of debt-free firms with high and low levels of debt capacity to see whether they are different. We use Fama and French’s (1993) three-factor and Carhart’s (1997) four-factor models to examine the subsequent 1, 2, 3, 4 and 5-year stock returns of firms that stayed debt free for 3- and 5-year periods. We measure debt capacity as the expected asset liquidation value of a firm, which is proxied by the firm-level tangibility measure defined by Berger, Ofek, and Swary (1996). We find that regardless of the level of debt capacity, zero-debt firms generate positive abnormal returns in the long run after controlling for key risk factors. We also find support for the notion that preserving debt capacity in the form of higher tangibility reinforces the positive abnormal returns over and above the effect of a zero-leverage policy.