Pricing Mechanisms for Multi-Indication Drugs

Multi-indication drugs pose pricing challenges, affecting therapeutic benefits and patient access. We model how a manufacturer strategically chooses clinically eligible patient populations for each indication, recognizing that broader populations increase demand but reduce expected therapeutic benefits and thus allowable prices. We identify mechanisms that induce the manufacturer to maximize total benefit while ensuring profits cannot exceed benefit generated: indication-specific prices equal to expected benefits, population-weighted uniform prices, and two-part tariffs. This holds when indications are introduced simultaneously or sequentially, provided prices fully adjust as indications are added. Price caps distort patient selection, explaining empirically observed strategies.