In many phase II clinical trials, it is essential to assess both efficacy a
nd safety. Although several phase II designs that accommodate multiple outc
omes have been proposed recently, none are derived using decision theory. T
his paper describes a Bayesian decision theoretic strategy for constructing
phase II designs based on both efficacy and adverse events. The gain funct
ion includes utilities assigned to patient outcomes, a reward for declaring
the new treatment promising, and costs associated with the conduct of the
phase II trial and future phase III testing. A method for eliciting gain fu
nction parameters from medical collaborators and for evaluating the design'
s frequentist operating characteristics is described. The strategy is illus
trated by application to a clinical trial of peripheral blood stem cell tra
nsplantation for multiple myeloma.