Title: Valuing Pharmaceutical Drug Innovations

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 drug development announcements to identify the values and costs. Using data on announcements by firms and their daily stock returns, we estimate the average value of successful drugs at \$1.62 billion. At the discovery stage, on average, drugs are valued at \$64.3 million and cost \$58.5 million. The average costs of the three phases of clinical trials are \$0.6, \$30, and \$41 million, respectively. We also investigate applying these estimates to policies supporting drug development.