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Institute Report
Measuring Returns on Investment in Biopharmaceutical Innovation
The Changing Economics of Developing New Medicines, 1991-2020
Nov 09, 2026
Report Summary:
Biopharmaceutical innovation requires substantial investment years before a medicine earns revenue, and the economics of that investment have become more challenging.
This report assesses global lifetime revenues, operating costs, taxes and capitalized R&D costs for 825 novel medicines launched in the United States between 1991 and 2020. It finds that commercial outcomes are highly uneven and increasingly heterogeneous and concentrated. At the same time, R&D costs have risen nearly ten-fold over thirty years and the percentage of drugs with a positive return has dropped to an all-time low.
Revenue has extreme heterogeneity and uncertainty: Across the three decades studied, 44% of medicines generated less than $1 billion in lifetime net present value revenue, while about 10% generated more than $10 billion and accounted for 56% of total revenue.
The cost of developing a new medicine has risen sharply. Base-case capitalized R&D cost increased from approximately $366 million for medicines launched in 1991 to more than $3.2 billion in 2020. These estimates are based on a novel combination of multiple peer-reviewed studies and represent the first time-series estimate of R&D costs, where previous academic estimates all refer to eras or decades.
Positive returns have fallen to 1 in 10 in the latest periods. Across all launches studied, only 28% are estimated to generate a positive lifetime economic return. The share fell from approximately half of medicines launched in the early 1990s to fewer than one in ten among medicines launched from 2016 to 2020.
An estimated 1% of drugs which enter human trials make a positive economic return. With fewer than 10% of compounds entering human trials reaching the market, and only about 10% of recent launches producing a positive return, only about 1% of compounds entering human trials ultimately generate a positive financial return.
These trends have important implications for policies affecting development costs, competition, commercial lifecycles and incentives for future research.
Key Messages
- Commercial success is highly concentrated. Forty-four percent of medicines generated less than $1 billion in lifetime revenue and together contributed only 4% of total revenue. By contrast, about 10% generated more than $10 billion and accounted for 56% of total revenue. Roughly three-quarters of all lifetime revenue was generated by 174 medicines.
Exhibit 11: Share of medicines and lifetime revenue by revenue band, showing the concentration of value among a small number of medicines.
- Development costs have risen much faster than typical revenues. Base-case capitalized R&D cost per new medicine increased from about $366 million in 1991 to more than $3.2 billion in 2020. The minimum lifetime revenue associated with a positive return rose from $1.4 billion in the 1991-1995 cohort to $11.9 billion in the 2016-2020 cohort.
Exhibit 7: Capitalized R&D cost by launch year, showing the increase from $366 million in 1991 to more than $3.2 billion in 2020.
- Positive lifetime returns have become increasingly rare. Across the full 30-year period, 28% of medicines generated a positive lifetime economic return after accounting for operating costs, taxes, R&D investment and the time value of money. The share declined from approximately 50% in the early 1990s to fewer than 10% for medicines launched between 2016 and 2020.
Exhibit 22: Lifetime returns by launch cohort and decile, showing the decline from five positive-return deciles in 1991-1995 to only the top decile in 2016-2020.
- Most recent launches do not recover average development and operating costs. For approximately 90% of medicines launched from 2016 to 2020, projected lifetime revenue is insufficient to cover estimated costs. The average medicine in this cohort is projected to fall about $1.7 billion short of total operating and R&D costs.
Exhibit 25: Index of Average net present value of lifetime revenue, costs and R&D success rates by launch cohort 1991-2020
- Only about 1% of compounds entering human trials produce a positive financial return. Fewer than 10% of compounds entering development reach the market, and only about 10% of recently launched medicines achieve a positive return. The proceeds from this small group help support investment across the broader research ecosystem.
- Returns vary widely across therapy areas and medicine types. Immunology had the highest rate of positive returns at approximately 65%, while oncology was 25%, antibacterials 18% and orphan medicines 16%. These differences reinforce that high levels of scientific activity or clinical need do not necessarily translate into positive economic returns.
- Policy choices can affect already-fragile innovation economics. Rising R&D costs, declining development success rates, greater competition and shorter effective commercial lifecycles have raised the threshold for a positive return. Policies affecting revenue during later lifecycle years should be considered in the context of the long time needed to recover development investment.
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