Returns to R&D on new drug introductions in the 1980s.

This study finds that the mean IRR for 1980-84 U.S. new drug introductions is 11.1%, and the mean NPV is 22 million (1990 dollars). The distribution of returns is highly skewed. The results are robust to plausible changes in the baseline assumptions. Our work is also compared with a 1993 study by the OTA. Despite some important differences in assumptions, both studies imply that returns for the average NCE are within one percentage point of the industry's cost of capital. This is much less than what is typically observed in analyses based on accounting data.

R&D Costs and Returns to New Drug Development: A Review of the Evidence

© 2012 by Oxford University Press. All rights reserved.This article reviews the extensive literature on R&D costs and returns. The first section focuses on R&D costs and the various factors that have affected the trends in real R&D costs over time. The second section considers economic studies on the distribution of returns in pharmaceuticals for different cohorts of new drug introductions. It also reviews the use of these studies to analyze the impact of policy actions on R&D costs and returns. The final section concludes and discusses open questions for further research.