Real Option Value and Path Dependence in Oncology Innovation

Cook, J.P.

Seminar Briefing
April 2014

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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.