OBJECTIVES: Evaluate the pharmacoeconomic impact of seven-valent pneumococcal conjugate vaccine (Prevnar®) in a Canadian population, accounting for herd immunity effects in unvaccinated adults. METHODS: A cost-effectiveness analysis was performed to compare costs and outcomes attributable to invasive pneumococcal disease (IPD) and non-IPD in the periods before (1998-2001) and after (2003-2005) the introduction of Prevnar®. The main outcomes analyzed included total cases, quality adjusted life years (QALY), and total cost for health states bacteremia, meningitis, pneumonia, otitis media, myringotomy, and death. Outcomes were based on real-world epidemiology data from Calgary. Resource utilization was derived from a Canadian Institute for Health Information database and, as necessary, from the literature and expert opinion. All costs (in 2006 Canadian dollars) and outcomes were discounted by 3%. Analyses were conducted from both the societal and healthcare system perspective. Sensitivity analyses were performed. RESULTS: Reduction in disease outcomes, disease sequelae and cost-of-illness by health state was observed in the time period post-Prevnar®, across all age groups. The total cost of the vaccination program to the Canadian healthcare system (including herd immunity effects), from a payer perspective amounted to $74,682,790; this decreased to $46,197,274 from a societal perspective. The total number of illnesses avoided was 86,164. The incremental cost-effectiveness ratio (ICER) was $28,551 and $17,661 per additional QALY from the health system and societal perspectives, respectively. When herd immunity effects were excluded from the analysis, the ICER increased to $166,560 and $115,995 per QALY, respectively. Sensitivity analysis indicated that total cost and ICER results were most sensitive to changes in the epidemiology and cost of otitis media. However, these changes did not considerably impact the results, indicating a robust model. CONCLUSION: Consistent with previous findings, vaccination with Prevnar® is cost-effective. Administration of Prevnar® results in a substantial reduction in pneumococcal disease in vaccinated children and unvaccinated adults.