Valuing Pharmaceutical Drug Innovations

Federico Ciliberto, Leland Farmer, Ekaterina Khmelnitskaya and Gaurab Aryal

No 20302, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We propose a methodology to estimate the market value of pharmaceutical drugs. Our approach combines the event study method with a discounted cash flow model that infers drug values from stock market responses to drug development announcements. We estimate the average value of a drug developed by small firms (those below the 95th percentile of market capitalization) to be $2.16 billion. At the preclinical stage, the risk-adjusted and present discounted average net value of drugs is $50 million. Leveraging these estimates, we also determine the expected drug development cost at the start of the discovery stage to be $38 million. We estimate values and costs for several therapeutic areas (e.g., neoplasm, infections) and explore applying these estimates to design policies that support drug development through drug buyouts and targeted preclinical interventions.

JEL-codes: G14 L65 O31 (search for similar items in EconPapers)
Date: 2025-05
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP20302 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:20302

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP20302

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().