Mark Cuban took over the pharmacy benefit managers and disrupted health care in America forever

Imagine discovering that there is a drug on the market for your terminal illness. The only issue, however, is the million dollar price tag that prevents you from getting your life-saving medicine.

In a previous article of mine, I have written about these “million dollar treatments” being completed. Drugs like Danyelza, a drug for bone neuroblastoma, cost over a million dollars. To many, this may seem like a cruel irony: how will the vast majority of patients who need this drug be able to afford it? However, in an industry where 90% of drugs fail, 10% of the drugs that enter the market must be priced high to ensure the industry’s profitability.

Intuitively, this makes sense: with high risks come high rewards. It wouldn’t be so bad if the profits made from the 10% of successful drugs went back to the drug makers who took the initial manufacturing risk. However, in a system filled with middlemen known as Pharmacy Benefit Managers (PBMs) who overcharge for prescription drugs, drug profits line the pockets of middlemen, not their manufacturers. This cycle has made not only million-dollar treatments unaffordable but also common drugs like insulin, which 7 million American diabetics depend on every day.

Recognizing the burdens imposed by skyrocketing drug prices, new policy initiatives are taking a spin on the issue. Signed by President Biden in mid-August, the Inflation Reduction Act of 2022 outlines several provisions to lower prescription drug costs, including price negotiations with the federal government and requiring drug companies to pay rebates to Medicare. In addition, in early July, California Governor Gavin Newson announced a state budget of $100 million for the production of his insulin. While the effectiveness of such policies remains to be seen, one billionaire businessman and investor has already made waves in the pharmaceutical industry.

Mark Cuban, co-founder of online pharmacy Cost Plus Drugs, believes that “certain industries just need to be disrupted.” Speaking with him at the Life Itself conference hosted by Dr. Sanjay Gupta and Marc Hodosh, Cuban noted that “people are dying because they can’t take their medication.” Medicines that cost manufacturers mere cents to make are marked up over 1000%, putting them out of the hands of patients.

Expressing his frustration with the lack of transparency in the industry, Cuban believes markup on generic drugs is largely driven by PBMs seeking to maximize profit. Cost Plus Drugs, launched earlier this year, is based on a direct-to-consumer model where the company deals directly with manufacturers, effectively bypassing PBMs. Once purchased from a carrier manufacturer, Cost Plus sells the drug at a 15% discount off the wholesale price, a $3 pharmacy labor fee and a $5 shipping fee, according to its website. In keeping with Cuban’s emphasis on transparency, all drugs sold on the site compare the cost of buying the drug at Cost Plus Drugs against its retail price at other companies, and customers couldn’t be happier.

One Twitter user wrote: “@CostPlusDrugs has been a lifesaver for many of my patients… They no longer have to decide between getting their needed prescription and grocery shopping.” Another user chimes in, “@costplusdrugs Zolmitriptan via Medicare $2,288 for two months – via CostPlusDrugs $32.40 a month. Thanks!”

Although largely positive, the company has faced criticism for its offerings, particularly its overwhelming emphasis on generics over brand-name drugs. Brand-name drugs are marketed by pharmaceutical companies that hold the patent for the drug. These companies are granted regulatory exclusivity by the FDA with a 20-year patent. During this period, the manufacturer can sell the drug at a high price to recoup and make a profit on its investment. However, when the drug’s exclusivity expires, other companies may produce generic versions that contain the same active ingredients and dosage as the brand name. Unlike the countless generic drugs offered at Cost Plus, the most expensive brand-name drugs are not found on the site.

“[The] The challenge is getting the drug makers to sell to us,” Cuban points out. Because drug patents give companies exclusive selling rights, manufacturers can sell these drugs at whatever price they want. And because PBMs are contractually obligated to share their profits with insurance companies, pharmacists benefit from having their drug on an insurance formulary. Pharmacies like Cost Plus Drugs, however, cannot offer prescriptions. Therefore, pharmacists have no incentive to provide discounts to the company. As a result, several brand name drugs remain unavailable to Cost Plus Drugs.

In a previous interview with CNBC Make It, Cuban admitted that Cost Plus Drugs is “actively working on the problem.” Meanwhile, the company continues its mission to “turn the pharmaceutical industry upside down,” cutting the cost of life-saving generic drugs tenfold. Even cheaper drugs are expected from the company, as a manufacturing plant is being built in Dallas, Texas, towards the end of the year. Perhaps most importantly, Cost Plus Drugs serves as a proof of concept in rethinking the decades-old pharmaceutical industry. With the increasing advancements in genetic therapies, the sky is the limit for the company.

Thank you Sohum Phadke for additional research and reference to this article. I am the founder of SynBioBeta and some of the companies I write for are sponsored by it SynBioBeta Conference and weekly summary.

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