Returns to R&D on new drug introductions in the 1980s.
Abstract
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.
Type
Journal articleSubject
CommerceCosts and Cost Analysis
Data Collection
Drug Industry
Drugs, Investigational
Health Policy
Income
Research Support as Topic
United States
United States Food and Drug Administration
United States Office of Technology Assessment
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Show full item recordScholars@Duke
Henry G. Grabowski
Professor Emeritus of Economics
Professor Grabowski specializes in the investigation of economics in the pharmaceutical
industry, government regulation of business, and the economics of innovation. His
specific interests within these fields include intellectual property and generic competition
issues, the effects of government policy actions, and the costs and returns to pharmaceutical
R&D. He has been publishing research papers for over four decades, from his earlier
work, “The Effects of Regulatory Policy on the Incentives
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