# Deals of a feather… Modelling latent classes in R&D collaboration data using finite mixture analysis

## TL;DR

This paper shows that public sentiment affects R&D collaboration deal values, especially for preclinical stage projects where uncertainty is high.

## Contribution

The study identifies latent classes in RDC data and shows how market behavior impacts deal valuation under knowledge asymmetry.

## Key findings

- Public sentiment significantly predicts deal value for 15% of the dataset.
- This effect is limited to Preclinical stage deals, indicating higher market sensitivity.
- Latent class analysis reveals behavior's influence on pricing in uncertain R&D contexts.

## Abstract

This work explores if behaviour-based asymmetries are likely to impact deal valuation in the life sciences by examining positive public sentiment as a proxy for market behaviour when negotiating under asymmetric conditions to examine heterogeneity in research & development collaboration (RDC) deal data. We use public sentiment as a proxy for behaviour along with stage of development-based RDC deal data to search for latent classes in the deal data using finite mixture modelling. The analysis reveals a nuanced picture: public sentiment emerges as a significant predictor of deal value, but only for approximately 15% of the data set. This subset exclusively includes firms in the Preclinical stage, where projects have moved past discovery but are yet to commence human studies. Interestingly, the research finds that sentiment’s impact on deal valuation is particularly pronounced in this stage, suggesting heightened market sensitivity. With recent research demonstrating that knowledge asymmetry and behaviour impact valuation volatility, we take this further by capturing latent classes within the data which demonstrates how behaviour is most influential in deal pricing considerations. We argue that our research demonstrates the impact of asymmetry and market behaviour on a subset of RDCs where products are known, but likelihood of success is difficult to determine.