Angeles. We benefited from the comments from several participants at these meetings as well as those from an anonymous referee. ' For an early analysis of this law, see Henry Grabowski & John Vernon, Longer Patents for Lower Imitation Barriers: The 1984 Drug Act, 76 Am. Econ. Rev. Papers & Proc. 195 (1986).
This study investigates the returns to R&D for 100 new drugs introduced into the United States during the decade of the 1970s. In contrast to prior studies, it incorporates several significant structural changes that have occurred in the pharmaceutical industry during the 1980s. These include higher real drug prices and a greater degree of generic competition. A major finding is that the return on R&D for the average new drug is approximately equal to the 9 percent industry cost of capital. However, the performance of new drugs introduced during the latter half of the 1970s was markedly better than that of early 1970s introductions. This latter finding is consistent with the more rapid rate of industry growth in real R&D expenditures. The study also finds that the variation in returns is highly skewed, with only the top 30 drugs covering mean R&D costs on a fully allocated basis. Finally, it is shown that real drug price increases in the 1980s were necessary for the average new drug introduction to recover its R&D costs.pharmaceuticals, drugs, R&D, returns, risk
This study finds that the mean IRR for 1980-84 U.S. new drug introductions is Il.l%, 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. @Jr 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 iu analyses based on accounting data.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.