Returns to innovation constitute a major component of social welfare. To evaluate innovations and their diffusion over time, requires use of a methodology that isolates their precise effect on welfare. This is particularly important in the pharmaceutical industry where rapid innovation occurs and drug development costs are high. In this study, I formulate an empirical methodology that quantifies patient welfare benefits from pharmaceutical innovation in the U.S. antidepressant market. The antidepressant market has experienced an impressive stream of innovations over the last three decades and available data on antidepressants are exceptionally rich and accurate. While evaluating pharmaceutical innovation in antidepressants, I uncover and address the moral hazard issue that arises due to the existence of prescription drug insurance coverage. The study estimates large patient welfare gains due to innovation and helps explain a detected divergence between social and private patient benefits by the existence of insurance.