Imagine finding out that there is a drug on the market for your terminal disease. The only issue, however, is the million-dollar price tag preventing you from receiving your life-saving medicine.
In a previous article of mine, I have written about these “million-dollar therapies” coming down the pipeline. Drugs such as Danyelza, a medication for neuroblastomas in the bone, cost over a million dollars. To many, this may seem like a cruel irony: how will the large majority of patients in need of this medicine be able to afford it? Yet, in an industry where 90% of drugs fail, the 10% of drugs that enter the marketplace 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 turned over by the 10% of successful drugs went back to drug manufacturers who took the initial production risk. However, in a system littered with middlemen known as Pharmacy Benefit Managers (PBMs) that overcharge on prescription drugs, the drug profits are lining the pockets of middlemen rather than their manufacturers. This cycle has made not only million-dollar therapies unaffordable but also common medications such as Insulin, which 7 million American diabetics depend on daily.
Recognizing the burdens imposed by skyrocketing drug prices, new policy initiatives are taking a swing at 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. Moreover, in early July, California Governor Gavin Newson announced a state budget of $100 million to manufacture its Insulin. While the effectiveness of such policies remains to be seen, one billionaire entrepreneur and investor has already cast ripples across the pharmaceutical industry.
Mark Cuban, co-founder of the online pharmacy Cost Plus Drugs, believes “some 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 get their medication.” Drugs costing manufacturers just cents to make are being marked up by over 1000%, placing them out of patients’ hands.
Voicing his frustrations on the lack of transparency in the industry, Cuban believes the markup on common drugs is primarily due to PBMs seeking to turn over the maximum profit. Launched earlier this year, Cost Plus Drugs is based on a direct-to-consumer model where the company negotiates directly with manufacturers, effectively side-stepping PBMs. Once bought from a carrying manufacturer, Cost Plus sells the drug with a 15% markup off of the wholesale price, a $3 pharmacy labor charge, and a $5 shipping fee, as stated on their website. In line with Cuban’s emphasis on transparency, all drugs sold on the site compare what it costs to buy the medicine on Cost Plus Drugs versus 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 taking necessary prescription and buying groceries.” Another user raves, “@costplusdrugs Zolmitriptan through Medicare $2,288 for two months – through CostPlusDrugs $32.40 per month. Thank you!”
While largely positive, the company has faced criticism of its offerings, particularly with the overwhelming emphasis on generic drugs over brand-name drugs. Brand-name drugs are marketed by pharmaceutical companies that own the patent to the drug. These companies are provided regulatory exclusivity from the FDA on a 20-year patent. During this time, the manufacturer can sell the drug at a high price to recoup and make a profit from their investment. However, when the exclusivity of the drug ends, other companies can produce generic versions that contain the same active ingredients and dosage as the brand name. Unlike the countless generic drugs offered on Cost Plus, the more expensive brand-name drugs are not found on the site.
“[The] challenge is getting drug manufacturers to sell us,” Cuban points out. Because drug patents give companies exclusive selling rights, the manufacturers can sell these drugs at whatever price they want. And because PBMs are contractually obliged to share their earnings with insurance companies, drugmakers profit from their drug being on an insurance formulary. Pharmacies like Cost Plus Drugs, however, cannot offer formularies. Hence, drugmakers have no incentive to provide rebates to the company. As a result, several brand-name drugs remain out of reach for Cost Plus Drugs.
In a previous interview with CNBC Make It, Cuban conceded that Cost Plus Drugs is “actively working on the problem.” In the meantime, the company is continuing its mission “to turn the pharmaceutical industry upside down,” lessening the cost of life-saving generic drugs tenfold. Even cheaper medicine is expected from the company, as a manufacturing facility is being built in Dallas, Texas, towards the end of the year. Perhaps more significantly, Cost Plus Drugs serves as a proof-of-concept in re-thinking the decades-old pharmaceutical industry. With the growing advancements in genetic therapies, the sky’s the limit for the company.
Thank you to Sohum Phadke for additional research and reporting in this article. I’m the founder of SynBioBeta, and some of the companies that I write about, are sponsors of the SynBioBeta conference and weekly digest.