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Real Option Value and Path Dependence in Oncology Innovation

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  • Joseph P Cook

Abstract

Based on an OHE Lunchtime Seminar, this publication addresses a persistent issue: how to adequately reward innovation through the pricing of new medicines given the limitations of the information available at launch. As the author points out, oncology drugs in particular often follow the path of incremental innovation, proceeding in steps towards realising their full potential in treatment -- and even cure. The publication describes the importance of taking future value into consideration in the initial assessment to encourage and spur progress in innovation. The perspectives of the innovative company and the patient are discussed as well the implications for cost-effectiveness and comparative-effectiveness assessments.

Suggested Citation

  • Joseph P Cook, 2014. "Real Option Value and Path Dependence in Oncology Innovation," Seminar Briefing 000077, Office of Health Economics.
    • Handle: RePEc:ohe:sembri:000077
    as

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    File URL: https://www.ohe.org/publications/real-option-value-and-path-dependence-oncology-innovation/attachment-398-real-option-value-cook-2014/
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    References listed on IDEAS

    as
    1. Joseph Cook & Joseph Golec & John Vernon & George Pink, 2011. "Real Option Value and Path Dependence in Oncology Innovation," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 18(2), pages 225-238.
    2. Tomas J. Philipson & Gary Becker & Dana Goldman & Kevin M. Murphy, 2010. "Terminal Care and The Value of Life Near Its End," NBER Working Papers 15649, National Bureau of Economic Research, Inc.
    3. John A. Vernon & Joseph H. Golec & Joseph A. Dimasi, 2010. "Drug development costs when financial risk is measured using the Fama–French three‐factor model," Health Economics, John Wiley & Sons, Ltd., vol. 19(8), pages 1002-1005, August.
    4. Golec, Joseph & Hegde, Shantaram & Vernon, John A., 2010. "Pharmaceutical R&D Spending and Threats of Price Regulation," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 45(1), pages 239-264, February.
    5. Z. John Lu & William S. Comanor, 1998. "Strategic Pricing Of New Pharmaceuticals," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 108-118, February.
    6. Frank R. Lichtenberg, 2014. "Has Medical Innovation Reduced Cancer Mortality?," CESifo Economic Studies, CESifo Group, vol. 60(1), pages 135-177.
    7. DiMasi, Joseph A. & Hansen, Ronald W. & Grabowski, Henry G., 2003. "The price of innovation: new estimates of drug development costs," Journal of Health Economics, Elsevier, vol. 22(2), pages 151-185, March.
    8. Tomas J. Philipson & Gary Becker & Dana Goldman & Kevin M. Murphy, 2010. "Terminal Care and The Value of Life Near Its End," NBER Working Papers 15649, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

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    • I1 - Health, Education, and Welfare - - Health

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