The Clinical Value of Innovation

Abstract

The term “innovation” is used in a number of different ways in pharmaceutical regulation processes. In this chapter I address the question of what is meant by the term “innovation” in the context of the debate on new drug prices. I distinguish between lay and medical uses of the terms “innovation” and “innovative” then I identify three ways that pharmaceutical innovation generates a social surplus. First, clinical innovation, which is the “incremental effect” used in cost-effectiveness analysis and quantified for a specific clinical context and patient group. Resource innovation is the second source of surplus: innovation in the resources involved in supplying a given clinical benefit, for example, an oral version of an intravenous drug. Third, developing and manufacturing innovation, for example, innovation in the methods of manufacturing drugs. An analogy between clinical and economic concepts of value is noted. Clinical value of innovation, like economic value, is constrained by the best alternative strategy. The clinical value of a new drug’s innovation is its gross clinical effect (compared with no care) constrained by the opportunity cost (foregone health benefit) to the patient of not using the best existing therapy.