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Like most trades, time spreads have a maximum loss for the
buyer. As a buyer, you can only lose what you have spent. If you
paid $1.00 for

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

the spread then your maximum potential loss is
that $1.00. If you bought the spread for $2.00, then $2.00 is
the maximum potential loss.

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

>
The buyer of a time spread will be purchasing the out-month
option while selling the nearer month option of the same strike
in a o

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

e-to-one ratio. Since the out-month option will have more
time until expiration than the nearer month option, the
out-month option will cos

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

t more. This means the buyer will be
putting out money (debit spread) which makes sense. The buyer
can only lose the amount of money they s

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

ent to purchase the
spread. Thus the buyer’s maximum risk is the cost of the spread.

The buyer can profit in several ways. First and

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

foremost, being
a time spread, the buyer can profit by the passage of time.
Options are wasting assets. So as the nearer month option decay

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

away more quickly than the outer-month option, the spread widens
(increases in value) and the buyer sees a profit.

Second, impl

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

ied volatility can increase. As implied volatility
increases, the out-month option, which the buyer is long,
increases in value more quickl

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

(due to its higher vega) than
the nearer month option which the buyer is short. This will
force the spread to widen or increase in value,

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

which again is
profitable for the buyer.

Third, the buyer can make money due to stock price movement. As
stated before, a time s

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

pread’s value is at its maximum when the
stock price and the spreads strike price are identical
(at-the-money). You could have an increase

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

n value if you owned
an out-of-the-money or in-the-money time spread, and the stock
moved either up or down toward your strike. As the stoc

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

k moves
closer to your strike, the spread will expand and increase in
value creating a profit for you, the buyer.

The buyer’s ri

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

ks are obviously the opposite of the rewards. You
can not stop or reverse time so the buyer of the spread can
never be hurt by time.
<

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

br> Implied volatility, however, can decrease as easily as it can
increase. A decrease in implied volatility will decrease the
value of th

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

out-month option (which the buyer is long) faster
than it will decrease the value of the nearer month option
(which the buyer is short) du

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

e to the higher vega of the
out-month option. This will narrow the spread thereby creating a
loss for the buyer.

In the same way

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

that stock movement in the right direction can
be profitable for the buyer of a time spread, stock movement in
the wrong direction can be c

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

ostly. As the stock moves away from
the spread’s strike, the spread decreases in value. That will
create a loss for the buyer of the spread

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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