Essays on drug distribution and pricing models

Abstract

OF THE DISSERTATION Essays on Drug Distribution and Pricing Models by Kathleen M. Iacocca Dissertation Advisor: Dr. Yao Zhao This dissertation investigates distribution and pricing models for the U.S. pharmaceutical industry. Motivated by recent events in this industry, we explore three areas of the pharmaceutical supply chain in an effort to streamline the drug distribution channel and to understand the underlying market forces and the pricing structure of pharmaceutical drugs. First we present a mathematical model to compare the effectiveness of the resell distribution agreements (Buy-and-Hold and Fee-For-Service) and the direct distribution agreement (Direct-to-Pharmacy) for the U.S. pharmaceutical supply chain and its individual participants. The model features multi-period dynamic production-inventory planning with time varying parameters in a decentralized setting. While the resell agreements are asset-based, the direct agreement is not. We show that the Direct-toPharmacy agreement achieves the global optimum for the entire supply chain by eliminating investment buying and thus always outperforms the resell distribution agreements currently practiced in the industry. We also show that the Direct-to-Pharmacy agreement is flexible because it allows the manufacturer and the wholesaler to share the total supply chain profit in an arbitrary way. We further provide necessary conditions