This post was originally published on this site
Kristopher Koeller relies on two daily medications to keep his blood pressure under control. They’re both generics that have been on the market for decades–the kind of drugs that should be cheap. But when Koeller, age 47, a tech consultant in Raleigh, N.C., was filling those prescriptions at a local pharmacy a couple of years ago, he had no insurance coverage, and the $80 total monthly cost was a blow to his budget. Koeller, who also helps his mother pay for medications, food and other necessities, says he’d sometimes skip taking his blood-pressure drugs so that he could make ends meet–even though he knew he was putting his health at risk.
Then Koeller heard about a new online pharmacy called Mark Cuban Cost Plus Drug Co., which offers a 90-day supply of his two blood-pressure drugs, amlodipine and losartan, for a total of about $16, or a little over $5 a month–a 93% discount to what he’d been paying. With the drugs now much more affordable, Koeller said, he consistently takes them every day. And even though his employer now offers prescription-drug coverage, he said, he’s still using Cost Plus Drugs because it’s significantly cheaper than the cost through his employer’s plan.
“I will always sing the praises of Mark Cuban,” Koeller said of the online pharmacy. “It’s saving my life.”
While the name on Mark Cuban Cost Plus Drug Co.’s virtual door belongs to the billionaire Dallas Mavericks owner and Shark Tank star, there’s a much lesser-known figure who sparked its creation, steers its daily operations and “truly is a rocket scientist,” Cuban told MarketWatch.
Dr. Alex Oshmyanksy, a would-be string theorist, former pineapple farmer and radiologist, conceived of the original idea behind Cost Plus Drugs and convinced Cuban to back and promote it, formally launching the online pharmacy just last year with zero marketing budget. Oshmyansky then led Cost Plus Drugs as CEO, positioning it to sign up more than 1 million customers, rattling the stocks of major drugmakers and pharmacy benefit managers, and upending the pharmaceutical supply chain and the market for generic drugs. As a result, Oshmyansky lands on The MarketWatch 50 list of the most influential people in markets.
At age 38, Oshmyansky is no hard-charging corporate titan. He’s actually hoping others will copy the Cost Plus Drugs business model, because he’d be “more than happy to go back to being a radiologist,” Oshmyansky told MarketWatch. “If we can create change in the industry without doing it ourselves, absolutely that would be amazing. This stuff takes a lot of time and effort.”
The core idea is simple: Focusing largely on generics, Cost Plus Drugs prices medications based on what it costs to buy them directly from the manufacturer, plus a 15% markup, $5 to cover pharmacy labor, and shipping. Middlemen, such as the pharmacy benefit managers who manage prescription-drug benefits on behalf of insurers, employers and other payers, are cut out of the picture. The model results in some Crazy Eddie-style price insanity: Fingolimod, a generic for the multiple sclerosis drug Gilenya, can cost about $13,000 at retail pharmacies, but Cost Plus Drugs sells it for $295 plus shipping. If Medicare purchased generic drugs at the prices available from Cost Plus Drugs, it could have saved $3.3 billion in a single year, according to a study by researchers at Harvard Medical School.
But Cost Plus Drugs isn’t stopping there. This year, the company started working with brand-name drug manufacturers, including Johnson & Johnson
JNJ,
and Pfizer Inc.
PFE,
to offer a handful of products under the same cost-plus model. In the past year, the company has also signed up some sizable health plans and launched the “Team Cuban Card,” which lets customers pick up prescriptions at Cost Plus Drugs prices at grocery and independent pharmacies across the country. Now, the company is looking to sell drugs directly to hospitals and putting the finishing touches on a new manufacturing facility in Dallas, which will focus on producing drugs that are in shortage.
All this is prompting investors and industry analysts to have a hard think about the future of companies currently dominating the pharmaceutical supply chain. When Blue Shield of California said in August that it was dropping some CVS Health Corp. pharmacy benefit management services in favor of Cost Plus Drugs and Amazon.com Inc.’s
AMZN,
Amazon Pharmacy, CVS stock
CVS,
plunged more than 8% in a single day. Shares of PBM competitor Cigna Group
CI,
also got whacked. In June, after Cost Plus Drugs said it would offer Coherus BioSciences Inc.’s
CHRS,
Yusimry–a biosimilar for AbbVie Inc.’s blockbuster arthritis drug Humira–at a 90% discount to Humira’s list price, shares of AbbVie
ABBV,
and Humira biosimilar maker Amgen Inc.
AMGN,
hit new 52-week lows.
Cost Plus Drugs isn’t just cutting out the middlemen–it’s setting up klieg lights that show all their warts. Price breakdowns on the Cost Plus Drugs website highlight each drug’s cost from the manufacturer, plus the markup and fees. That level of clarity is brutal for prescription-drug middlemen, experts say, who have used fees, rebates, pharmacy clawbacks and other maneuvers to profit from an opaque system where no one seems to know the true price of a medicine.
Most doctors don’t know the cost of the drugs they prescribe, and “what’s worse is that most patients have no idea how much they will be charged for a new prescription drug until they try to pick it up from the pharmacy,” said Dr. Hussain Lalani, a primary care doctor, Harvard health policy researcher and co-author of the study on Medicare’s potential savings using Cost Plus Drugs prices. When patients do come face to face with prescription drug costs, they recoil: More than 80% of U.S. adults say the cost of prescription drugs is unreasonable, and about 30% of adults report not taking their medicines as prescribed because of the cost, according to health policy research nonprofit KFF.
Cost Plus Drugs’ straightforward pricing also lets employers, other payers, and academic researchers compare prices and get a clear picture of “how distorted the pricing in the mainstream market is,” said Erin Trish, co-director of the University of Southern California’s Schaeffer Center for Health Policy and Economics. “Five years ago that was unimaginable.” In that way, Cost Plus Drugs is “having a much broader impact in terms of shaking up the dynamics of the industry,” Trish said, and stirring up louder calls to reform the system. The company is “sparking conversation,” Trish said, “and sparking outrage.”
A meeting with Sam Altman, a cold pitch to Mark Cuban
In the shark tank: Mark Cuban replied to Alex Oshmyansky’s cold email pitch in about five minutes.
Getty Images for Vox Media
Oshmyanksy didn’t set out to be a prescription-drug rabble-rouser. A biochemistry major, he earned his undergraduate degree at the age of 18. Early on, he wanted to be a high-energy particle physicist. But then he saw a scientific journal article comparing the universe to a soccer ball with many dimensions–and rolled his eyes. “This isn’t going to have any material impact on the world,” he remembers thinking. “I should do something else.”
The Littleton, Colo., native went on with his academic fireworks, earning a PhD in math from Oxford University and his medical degree from Duke University. When he became a radiologist, he said, he saw some bad health outcomes caused by high drug prices. But what really sparked his entrepreneurial journey, he said, were the 2015 headlines about “pharma bro” Martin Shkreli, who became known for jacking up the price of a lifesaving medication and was later convicted of securities fraud.
Oshmyansky got together with some doctor colleagues, he recalls, and “very naively said, ‘hey, let’s create a nonprofit pharmaceutical company. We’ll make the drugs, sell them at cost, it will be great.’”
Fundraising was a challenge. Oshmyansky applied to Y Combinator, the Silicon Valley startup accelerator, which supports some nonprofits. When Oshmyansky went for an interview with Y Combinator, he said, he was told his venture was very capital intensive and couldn’t get off the ground as a nonprofit.
But a key figure turned up for his interview, he said, and took the time to talk with him afterward about a path forward: Sam Altman, who at the time was president of Y Combinator and is now CEO of OpenAI, creator of chatbot ChatGPT. Altman, Oshmyansky said, talked with him about converting his enterprise from a nonprofit to a public benefit corporation–a for-profit entity that commits to supporting a public benefit. Oshmyansky took the advice, and was able to raise over $1 million. Altman did not respond to requests for comment for this story.
Then in 2018, Oshmyansky got an even bigger break. On a whim, he said, he sent a cold email pitch to Cuban. “He got back to me within like five minutes,” Oshmyansky said.
The investor and TV personality had already been working on some healthcare related projects, Cuban told MarketWatch, and “when Alex emailed me, I was looking for new approaches to healthcare and reducing the cost of care. His proposal was a way to reduce the cost of meds, so I was interested.”
The two got into a dialogue, with Cuban proposing the transparent, cost-plus pricing model and initially investing about $250,000. Oshmyansky’s mastery of his subject matter and enthusiasm for adding sunlight to drug pricing ultimately gave the investor the confidence to dive in, Cuban said. “We complement each other well,” Cuban said. “He knows how to deal with anything medical, technical, mathematical, pharmaceutical you can throw at him. He has an insane breadth of knowledge.”
In 2020, the company was formally christened Mark Cuban Cost Plus Drug Co., to take advantage of the celebrity investor’s name recognition. “Originally Alex was discussing who we should hire for marketing and advertising, and I told him, ‘no one,’” Cuban said, adding, “my platform and more importantly word of mouth would drive all sales.”
But Cuban’s name–and money–didn’t mean the company could quickly win over drugmakers. “It was very difficult to convince pharmaceutical companies to work with us,” Oshmyansky said, because even the generic drugmakers were reluctant to reveal their pricing publicly on the Cost Plus Drugs site.
To get to its initial launch in early 2021, Oshmyansky said, the company had to take a stealth approach, purchasing a large quantity of their first product, albendazole, a treatment for parasitic worm infections, and private labeling it with Cost Plus Drugs’ own brand to shield the drugmaker’s identity. Success with albendazole convinced a handful of other drugmakers to work with Cost Plus Drugs, Oshmyansky said, and a year later the company introduced an online pharmacy offering 100 drugs.
Oshmyansky assumed it would be a “niche service,” he said, serving a relatively small population of patients affected by ultra-high-cost generic drugs. But then, “it exploded,” he said, with more than 1 million people signed up for accounts and growing consistently 20% to 30% every month. Being immersed in the pharmaceutical world for so long, he said, “I lost perspective on how many patients are getting ripped off,” he said, not just on high-cost generics, but “on their normal everyday drugs.”
Winning over drugmakers and tackling medication shortages
Heather Wittman, age 39, of Wauzeka, Wisc., is serious about being 100% compliant with the medications she needs to manage her rapid cycling bipolar disorder. Years ago, when she was uninsured and couldn’t afford her medications, she was hospitalized and only survived because an emergency-room doctor gave her free samples, she said. “I don’t have a choice” about taking the drugs, she said. “Not taking them doesn’t just ruin my life and what ability I have to work but also makes everyone around me miserable.”
But one of Wittman’s medications, Latuda, can cost well over $1,000 in retail pharmacies–and she’s now losing her Medicaid coverage because of an income change, which will cause her drug costs to “go through the roof,” she said. So she’s working to transfer her prescriptions over to Cost Plus Drugs, which offers a 30-day supply of her dosage of lurasidone, a Latuda generic, for $17. “It’s disgusting that these medications are so expensive,” she said. “I’m stoked to have found Mark Cuban’s site.”
Companies that have broken the industry mold by teaming up with Cost Plus Drugs say they’re stoked too–because their risk-taking has been amply rewarded. Capital Blue Cross late last year became the first health insurer to work with Cost Plus Drugs, and the collaboration has exceeded expectations, according to the insurer’s vice president of pharmacy strategy and services Samir Mistry, in “saving members and employer groups money–in some cases, lots of it.” Members are generally seeing discounts of 30% to 40%, Mistry said, or as much as 98% on generic oncology and specialty drugs.
“‘My platform and more importantly word of mouth would drive all sales.’”
Cost Plus Drugs has inspired some highly unconventional moves among pharmaceutical companies. TheracosBio, a privately held drugmaker based in Marlborough, Mass., spent about 12 years developing diabetes drug Brenzavvy, which was approved by the U.S. Food and Drug Administration early this year. The company could have launched Brenzavvy with a list price of about $500 and still undercut competitors like AstraZeneca PLC’s
AZN,
Farxiga and Boehringer Ingelheim and Eli Lilly & Co.’s
LLY,
Jardiance–both blockbuster drugs that have been selected for the first round of Medicare drug price negotiations. Instead, TheracosBio launched Brenzavvy through Cost Plus Drugs, which sells the medicine for $49.85 plus shipping.
Many patients stop taking SGLT2 inhibitors–the class of blood-sugar-lowering drugs that includes Jardiance, Farxiga, and Brenzavvy–because of the cost, said TheracosBio president and CEO Brian Connelly. ThereacosBio was looking for a way to launch Brenzavvy where “we weren’t just selling at a low cost and having the folks in the middle grab more profit” without benefiting patients, Connelly said. Distributing the drug through Cost Plus Drugs, he said, “sets the price in the market. If other distributors are trying to premium-price the product, it won’t sell.”
The effort to cut the fluff out of brand-name drug prices sets Cost Plus Drugs apart from the crowd, said Antonio Ciaccia, CEO of drug pricing research nonprofit 46brooklyn Research. “Nobody is doing that,” he said. And “from a payer’s perspective, that’s where the pain is.”
Cost Plus Drugs isn’t fixing all of the world’s prescription-drug affordability problems. When Blue Shield of California announced its partnership with Cost Plus Drugs this summer, for example, the insurer said it would still work with CVS for specialty drugs–which account for a disproportionate share of spending, USC’s Trish said. And while there’s increasing appetite in the private sector to experiment with renegades like Cost Plus Drugs, “no HR person gets fired for going with Optum,” –the giant PBM owned by UnitedHealth Group Inc.
UNH,
Trish said.
The company’s timeline for opening its Dallas manufacturing facility has also been extended repeatedly as it works to meet stringent sterility standards and other regulatory requirements. “We’re so close,” Oshmyanksy said, adding that he hopes the facility will be open by the end of this year. “The testing has just taken longer than we hoped.” The facility will focus on making sterile injectable drugs, which are critical to the care provided in emergency rooms and intensive care units but are often in shortage. The plant is designed to quickly pivot from making one product type to another, so it has the flexibility to address drug shortages as they arise, Oshmyansky said.
Oshmyanksy designed the plant to be expandable, Cuban told MarketWatch, adding that he’s particularly excited about the facility “putting a dent into drug shortages and maybe eventually ending them.” That’s a tad optimistic, drug-supply experts say. The facility “will put a dent” in drug shortages, “but the car’s a little bigger than that dent,” said Stephen Schondelmeyer, professor of pharmaceutical economics at the University of Minnesota’s College of Pharmacy. “We need 30 more Mark Cubans.” That said, according to Schondelmeyer, the facility’s “state-of-the-art technology and ability to pivot and address injectables that are often in shortage will be a major contribution to the market.”
For Oshmyansky, the main motivation to stay in the game comes at the company’s weekly all-hands meeting, when the team reviews notes from customers. They often say things like, “‘I thought I was going to have to sell my house to afford this medication,’ ‘I was skipping meals to be able to afford this medication,’ ‘I thought I was going to die because I couldn’t afford my chemotherapy,’” Oshmyansky said. “Insane stories. And it doesn’t just happen periodically. Every week we get a string of these. It really is that individual impact on people’s lives which keeps us going.”
