Mark Cuban’s new online pharmacy venture – the Mark Cuban Cost Plus Drug Company (“Cost Plus Drug”) – will not help overcome the biggest obstacle to drug affordability in America, which is drug company monopolies on patented brand name prescription drugs. When only one company makes a drug and can charge as much as the market will bear, which is the case in the United States, the prices are often outrageous, with several treatments exceeding half a million dollars. For clarity, Cost Plus is not even trying to take that on. Its focus is the generic drug market and how to charge the lowest prices on off-patent drugs. There, I believe the company is on to something good.
The message of the company is not dissimilar to the ones we hear from left-leaning consumer rights organizations. A letter from Mark Cuban on the company’s website states:
“We started Mark Cuban Cost Plus Drug Company because every American should have access to safe, affordable medicines…No American should have to suffer or worse – because they can’t afford basic prescription medications.”
Cuban refers to “basic prescription medications.” In using that phrase, he must mean off-patent, generic drugs that should be affordable, because that’s how generic drug competition is supposed to work. Indeed, when many people think about generic drugs, lower prices come to mind. Initially, when a generic version of a brand name drug first becomes available, the savings are only about 20% off the brand since there’s only one competitor. It’s only after several generic pharmaceutical manufacturers enter the market that serious price competition kicks in. According to the FDA, the entry of six competing manufacturers often results in a generic version that is 95% less expensive than the brand version. So, why do we need Cuban’s Cost Plus?
While there are many highly affordable generic drugs, for a variety of reasons, there are far too many expensive generic drugs: such as when the market for the drug is very small; competitors making the same drug buy each other out; and supply problems due to manufacturing safety issues lead to little competition. Pharmaceutical companies also engage in anti-competitive behaviors to prevent generic availability, such as”pay-for-delay” schemes where a brand name company will pay a generic drug company not to launch a lower cost version of a drug. In fact, sometimes there are no generic versions for years, even after a brand name drug goes off patent. Finally, the way in which drug companies, health insurers, wholesalers, pharmacies, and pharmacy benefit managers interact in the marketplace often leads to inflated generic drug prices, because everyone wants a cut.
Enter Cuban’s Cost Plus Drug. By removing as many layers of profit seeking from the supply chain as possible, especially the insurance market, which often creates higher copayments for drugs that would be cheaper paying outside of insurance, Cuban seeks the lowest possible generic drug prices.
One of those drugs is imatinib (generic Gleevec). Imatinib treats certain types of cancers, specifically leukemia. Its average retail price, according to GoodRx, is $10,186.80 for 30 pills. With a GoodRx discount card, however, you can get it for $119.23. A 98% discount. The thing is that pharmacies, and maybe GoodRx, too, are profiting off the comically lower price of $119.23 (versus over $10k!). Mark Cuban’s online pharmacy is offering the drug for $47.10, 60% lower than GoodRx’s price. That’s even cheaper than foreign online pharmacy prices, including in India.
The above is just one good example. It’s offering much lower prices on dozens of generic drugs. Thus, even though Cuban’s new venture doesn’t take on Big Pharma, as in brand name drugs, if its mission is successful, generic drugs, which account for 90% of prescriptions filled, will be cheaper!
Mark Cuban’s new drug company is really the brainchild of Dr. Alex Oshmyansky, a radiologist. According to Oshymansky, as a doctor, he had experiences with patients who died because they could not afford certain off-patent prescription drugs. Likewise, he was bothered by the greed of Martin Shkreli, the “Pharma Bro” who famously increased the price of a life-saving drug from $13.50 to $750 per pill overnight. It’s noteworthy that Oshymansky also has a Ph.D. in mathematics.
Dr. Oshymansky decided to start a non-profit drug company that manufactured drugs and sold them at prices people could afford. He realized, correctly, that pharmacy benefit managers were often the middlemen of the drug supply chain that served to push up prices, against their stated purpose of negotiating them down. Unable to raise enough money to make his ideas work as a non-profit organization, Dr. Oshymansky decided to make the venture private. Eventually, he sent Mark Cuban a cold email with his ideas and it worked! Cuban apparently liked what he was hearing. What was once called Osh Affordable Pharmaceuticals is now the Mark Cuban Cost Plus Drug Company. Today, the company is a public benefit corporation, which means that Cost Plus Drugs must have public interest goals built into its business operations and models.
Mark Cuban’s celebrity is being used to market two central ideas for drug affordability. One, end the profit margins of the traditional pharmacy benefit manager model. Two, vertically integrate the entire pharmaceutical supply chain process.
It’s already old news that the company launched an online pharmacy called Cost Plus Drugs. There, the company sells generic prescription drugs directly to patients at low prices generally not available anywhere else. What’s less talked about is that the online pharmacy is “powered by” a company called True Pill. True PIll appears to be the actual pharmacy service provider.
A few weeks before launching its online pharmacy, the company launched its own PBM. The message of the Cost Plus PBM is: “We hate PBMs: So we made a better one. Meet the Mark Cuban Cost Plus PBM.” How will that work? The company refers to its PBM as a patient benefit manager – not PHARMACY benefit manager – to show that they are working for the patient, not the pharmacy. The message is that its patient benefit manager will provide transparency and, unlike traditional PBMs, will genuinely bring down drug prices.
The company also has its own pharmacy wholesaler and this may explain how they are keeping prices so low themselves but also working with TruePill to power their retail pharmacy experience. In a radio interview, Dr. Oshymansky said they are private labeling generic drugs made by other companies. Those private labeled drugs have their own NDC (national drug code) numbers and operate outside the insurance market. These FDA-approved drugs are probably made in India at very low cost, imported by the wholesaler, and then distributed by retail through online pharmacy orders powered by TruePill. This is my guess at how things work.
As stated in the beginning of this article, all entities on the supply chain take a cut of the generic drug sale, which jacks up the price. In the final analysis, Mark Cuban’s drug company venture has a wholesaler, a PBM, and an online retail pharmacy partner. They are in the midst of building a drug manufacturing plant in Texas. That will be the culmination of the vertical integration concept toward lower cost generic drugs. I wish them luck!