1. ¹is a PhD student at the Department of Econometrics and Business Statistics, Monash University. Her research interests are in the area of financial valuation of biotechnology companies and the comparison of theoretical valuation models to market valuation. She works for a fund management firm.
2. ²is Professor in the Department of Econometrics and Business Statistics, Monash University and Associate Dean (Research Quality) in the Faculty of Business and Economics, Monash University. His broad research interests are in the area of financial econometrics with a particular emphasis on asset pricing and risk estimation.

Correspondence: Robert Brooks, Department of Econometrics and Business Statistics, Monash University, PO Box 197, Caulfield East, Victoria, 3145, Australia, Tel: +61 39903 2178, Fax: +61 39903 2007, E-mail: Robert.brooks@buseco.monash.edu.au

Revised 15 May 2006.

Abstract

The biotechnology and life sciences sectors are a source of major source of growth in the economy. However the valuation of companies in the sector is problematic owing to the long lead times and uncertainty associated with product development. This paper explores the use of the price earnings ratio as a tool for portfolio construction and valuation. Our results suggest this is a poor tool, although this may be due to being constructed over a time horizon that is too short.