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The Option Value of Innovation.

Julia Thornton Snider1, John A Romley2, William B Vogt3

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This summary is machine-generated.

This study introduces "option value" to health economics, recognizing future benefits from medical innovations. Incorporating this value significantly increases the cost-effectiveness of treatments like tamoxifen.

Keywords:
cancerinnovationmedicineoption valuepharmaceutical

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Area of Science:

  • Health economics
  • Medical innovation valuation

Background:

  • Traditional cost-effectiveness analysis (CEA) uses current life expectancies.
  • Existing CEA methods overlook future health gains from subsequent technological advancements.
  • This limitation may undervalue innovations that extend life for future treatments.

Purpose of the Study:

  • To introduce and define the concept of "option value" in health technology assessment.
  • To demonstrate a method for calculating option value within standard CEA frameworks.
  • To quantify the impact of option value on the assessed cost-effectiveness of health innovations.

Main Methods:

  • Conceptual framework development for "option value" borrowing from finance.
  • Application of the option value concept to cost-effectiveness analysis.
  • Proof-of-concept calculation using tamoxifen for breast cancer treatment.

Main Results:

  • Option value captures the benefit of surviving to benefit from future innovations.
  • Calculations show incorporating option value increased tamoxifen's estimated value by nearly 25%.
  • Specifically, value rose from $200,000 to $248,000 per patient initiating treatment in 1999.

Conclusions:

  • Option value represents a significant, previously unquantified, component of health technology value.
  • This concept is particularly relevant in rapidly advancing therapeutic areas.
  • Future CEA should integrate option value to more accurately reflect innovation benefits.