Title: Valuing Pharmaceutical Drug Innovations: An Event Study Approach

Abstract: We measure the $\textit{value of pharmaceutical drug innovations}$ by estimating the market values of drugs and their development costs. We rely on market responses to firms' drug development announcements to identify the values and costs. Using announcements by public U.S. pharmaceutical firms and their daily stock returns, we estimate the average market value of a successful drug at \$1.62 billion. At the discovery stage, drugs are valued at \$64.3 million, whereas their expected development cost is \$58.5 million, on average. Furthermore, we estimate the costs of the three phases of clinical trials at \$0.6, \$30, and \$41 million, respectively.