  We propose a methodology to estimate the market value of pharmaceutical
drugs. Our approach combines an event study with a model of discounted cash
flows and uses stock market responses to drug development announcements to
infer the values. We estimate that, on average, a successful drug is valued at
\$1.62 billion, and its value at the discovery stage is \$64.3 million, with
substantial heterogeneity across major diseases. Leveraging these estimates, we
also determine the average drug development costs at various stages.
Furthermore, we explore applying our estimates to design policies that support
drug development through drug buyouts and cost-sharing agreements.
