💊 Mark Cuban is Disrupting Big Pharma

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Good morning! It's Thursday, April 4th. Today's post looks at Mark Cuban's Cost Plus Drug Company and how it's turning the pharmaceutical industry on its head.

THE FEATURE

💊 Mark Cuban is Disrupting Big Pharma

Mark Cuban has many feathers in his cap. From making one of the best trades of all time, buying the Dallas Mavericks, and starring in Shark Tank, Cuban is a legend. 

However, his most recent project might be what he's best remembered for. Founded in 2022, Cuban's Cost Plus Drug Company became profitable within a year and already has millions of customers— plus, it might forever change the cost of healthcare. 

The Founding Story

In 2018, Mark Cuban received an email from radiologist Alexander Oshmyansky entitled "Cold Pitch," in which Oshmyansky asked Cuban to invest in his pharmacy startup. The startup manufactured generic drugs and skipped the middleman wholesalers. 

A core part of that pitch was Oshymansky's belief that pharmacy benefit managers (PBMs) were the root cause of high-cost drugs. 

This piqued Cuban's interest as all his companies were self-insured and used a PBM for expert advice and price negotiation with drug manufacturers. So, he dug into it, and what he discovered blew his mind. 

He was spending $160K on healthcare for the Dallas Mavericks, which he could have purchased with Cost Plus's model for just $19,000. Around the same time, he was scheduling a CT colonoscopy that would cost $2K+ with insurance, but the walk-in cost for the same procedure was less than $500. 

So, he called up his employee benefits consultant, whose advice cost millions at $30 per employee per month, only to be gaslit and told he was actually getting a great deal. Unsurprisingly, he dropped the PBM consultant and invested big into Cost Plus. 

The notorious Big Three PBMs, CVS Caremark, Express Scripts, and Optum RX, control 80% of the market. Cuban pitch to employers is that they have been getting scammed for decades and should switch to Cost Plus: 

"If you're using a Big Three PBM, you are getting ripped off. Period. End of story."

The Business

Today, Cost Plus Drugs offers approximately 2,500 generic medications and plans to add every legally permitted drug to its portfolio.

Cuban's company has a completely transparent business model: a 15% profit for each order, a $3 pharmacy dispensing fee, and a $5 shipping fee. 

They can offer vastly lower drug prices by negotiating directly with ten different brand manufacturers (what PBMs claim to do but fail at). However, adding more manufacturing partners has been the company's "biggest challenge," as the big three PMBs are telling producers not to work with Cost Plus. 

Last week, Cost Plus took a massive step in circumventing that challenge entirely, opening a 22,000-square-foot manufacturing facility in Texas that will focus on producing whatever drugs there are shortages of.

Key Observation: Real Solutions Market Themselves

 A study from Brigham and Women's Hospital showed that Medicare would have saved $3.6B in 2020 if it had purchased generic drugs from Cost Plus. 

Those savings are largely from undercutting PBM competitors and their insane markups, but it's also because Cost Plus has a highly lean operation. For instance, they don't spend anything on marketing. 

Cuban spoke to this in a 2022 tweet: 

"Please help us spread the word. We WON'T SPEND A NICKEL ON MARKETING. WE COMPLETELY RELY ON WORD OF MOUTH. This allows us to price at such low prices." 

As Cost Plus continues to gain traction and add millions of consumers, it could become a primary driver in revolutionizing the American healthcare system into something far more affordable and sustainable. 

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