Thesis Abstract

The Pharmaco-economics of Combination Therapies: A Study of the Effects of Component and Market Factors on Combined Therapy Price

(By Sundar Subramaniam)

Submitted to the Harvard-MIT Division of Health Sciences and Technology on May 12, 2006 in
Partial Fulfillment of the Requirements for the Degree of Master of Science in Biomedical Enterprise

For a growing number of indications, combination therapies are becoming increasingly common due in part to their superior efficacy, as compared to monotherapies. In fact, in the case of infectious diseases such as AIDS and tuberculosis, combination therapies are now the standard of care. With the emergence of drug-device combinations, genetic testing, and individualized medicine, this trend towards combination therapies is likely to continue to grow.

In this context the pricing of combination therapies is a critical component that needs to be understood by medical practitioners, payers and policy makers. There are three factors to consider in the pricing of combination therapies: the characteristics and structure of the market in which the combined product is sold, the absence or presence of market exclusivity, and the prices of the components of the combined product, when sold individually. When one or more of the components of the combined product has market exclusivity, additional factors such as exclusionary bundling, tying, and double marginalization may come into play.

In this thesis I discuss combination therapies, describe the factors that can affect the pricing of combination therapies, and then attempt to identify the relationships among component pricing, market forces, market exclusivity and the pricing of combination therapies.

To illustrate these relationships empirically, I will analyze data from a sample of unified combined drugs, a subset of combination therapies.

The results of this analysis are consistent with a hypothesis that, for combination drugs with a patented ingredient, the elimination of double marginalization by efficient transfer pricing and economic and exclusionary bundling, lowers the price of the unified combination drug relative to the price of its constituents.

Thesis Supervisor: Ernst Berndt
Title: Professor of Applied Economics

Thesis Co-supervisor: Frank Douglas
Title: Health Sciences and Technology

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