Given the rising cost of health care, it is no longer sufficient to demonstrate the safety and efficacy of a medical intervention. A medication must have exhibited economic benefit as well. Pharmaceutical manufacturers are faced with the challenge of when and how to conduct pharmacoeconomic (PE) evaluations to satisfy third-party drug formulary decision-makers. A wide variety of study designs and methodologies are available to assess economic benefit during drug development. Choosing the best strategy is a complex process. To illustrate the usefulness of decision analysis for strategic planning in drug development, a model was created to compare the cost–benefit of three PE design options: (1) add-on to a phase III safety and efficacy randomized controlled clinical trial (RCT), (2) stand-alone phase IIIb trial and (3) a post-marketing phase IV observational study. Although this model does not represent all the factors involved in a complicated drug development decision, the exercise may facilitate the decision process by rendering the inputs and probable consequences of various options more transparent to the decision-maker. Thus decision analysis can be a useful tool for preparing a sensible development strategy or uncovering deficiencies in an existing plan. © 1997 John Wiley & Sons, Ltd.