RETURNS TO RESEARCH-AND-DEVELOPMENT ON NEW DRUG INTRODUCTIONS IN THE 1980S

This study finds that the mean IRR for 1980-84 U. S. new drug introduc tions is 11.1%, and the mean NPV is 22 million (1990 dollars). The dis tribution of returns is highly skewed. The results are robust to plaus ible changes in the baseline assumptions. Our work is also compared wi th a 1993 study by the OTA. Despite some important differences in assu mptions, both studies imply that returns for the average NCE are withi n 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.