Tuesday, February 07, 2023

Mark Cuban Cost Plus Drug Company ("MCCPDC") PBC May Be Able to Say "Mission Accomplished" Even if Sales Stop Growing

On January 19, 2022, a startup called the Mark Cuban Cost Plus Drug Company ("MCCPDC") opened its doors to the American public as a new online pharmacy and generic manufacturing startup. Initially, MCCPDC was also planning to launch its own Pharmacy Benefit Manager, but it later scrapped those plans, instead announcing several PBM partnerships with some PBM startups which do not engage in "spread pricing", including on generic, biosimilar and "authorized generic" drugs. 

The company bears the name of its famous principal investor, multibillionaire Mark Cuban, who is perhaps best known as both owner of the NBA team the Dallas Mavericks, and also as co-star of TV's long-running (now in its 14th season) reality show "Shark Tank". However, the MCCPDC was blind-pitched in an email sent to Mark Cuban by the brilliant Dr. Alex Oshmyansky (see "Meet the Genius Who Convinced Mark Cuban to Sell Drugs", October 11, 2022, D Magazine, https://www.dmagazine.com/publications/d-magazine/2022/october/mark-cuban-cost-plus-drugs-alex-oshmyansky/). Mr. Cuban was persuaded by his idea—so much that he told Forbes he was willing to put his own name on the company, something Mr. Cuban says he had never done before. When MCCPDC began operations, the company initially offered a limited inventory of just over 100 generic meds, although some were offered in different doses (potencies).

Unique Feature: Being Organized as a Public Benefit Corporation (PBC)

The Mark Cuban Cost Plus Drug Company (MCCPDC) is legally organized as a Public Benefit Corporation (PBC), which means that the company isn't a non-profit, nor is it a for-profit entity whose sole mission is to maximize returns to shareholders at the expense of everyone else. Instead, it is organized as a Public Benefit Corporation, hence it is a for-profit entity which has a broader core mission than simply ever-higher returns to company shareholders, its mission includes business objectives to fulfill a broader societal mission and that mission must be used by the company to navigate critical business decisions. It is not simply attaining Board of Directors rubber-stamp approvals as it is with many other corporations. Being a PBC also enables it to get funding from venture capitalists which non-profits don't typically enjoy the benefit of. 

The reason is because PBC's must include in their charters one or more specific public benefits as their statement of purpose, as opposed to the typical boilerplate "any lawful purpose" language usually contained in most for-profit business charters. This embeds a PBC's core mission into its founding documents and provides the company with a core mission that the company must be guided by, beyond simply maximizing returns to shareholders.

Mark Cuban Cost Plus Drug Company's mission is written into the company's charter (see https://costplusdrugs.com/mission/index.html for more) which is "to dramatically reduce the cost of [prescription] drugs, but it is just as important to introduce transparency to the pricing of drugs so patients know they are getting a fair price." That part is truly unique, and the mission has potential to be disruptive to drug distribution system leeches (such as PBM's) who profit from preservation of the costly status quo by withholding information from key stakeholders.

Counting Medicines Offered by MCCPDC

During the year since the company formally began operations, the startup has steadily expanded the number of drugs it sells. As of September 2022, MCCPDC was selling approximately 350 unique generic prescription drugs that it said reflected manufacturer prices plus a 15% margin, a $3 pharmacy handling fee and $5 shipping fee (including the cost of the pill bottle, an envelope and cost of shipping) with the biggest cost add-on being the amount it spends to send a prescription package with a carrier such as USPS. 

In October 2022, Katie Couric Media reported (see https://katiecouric.com/health/mark-cuban-shark-tank-cost-plus-drugs/ for the article) that the company was offering more than 800 drugs and counting, and the company was serving more than a million consumers at the time. Still, it was unclear if those figures included the same generic drugs sold in different potencies, unique NDC numbers or something else.

Early forecasts predicted that MCCPDC could potentially offer anywhere from 1,700 to more than 2,000 prescription (primarily generics) drugs by the end of 2022. We simply don't yet know what the final number ended up being, or what the reports even mean when they cite a number of prescription drugs offered.

But we got a little more clarity on November 22, 2022, when Becker's Hospital Review reported (see https://www.beckershospitalreview.com/pharmacy/mark-cuban-cost-plus-drugs-adds-82-drugs-to-portfolio.html for the article) that "Mark Cuban's online pharmacy now offers nearly 1,000 generics after adding 82 [more] drugs to its repertoire, the company said on November 21, 2022. The company now sells approximately 350 unique drugs, or nearly 1,000 total products when taking varying dosages of the same drugs into account."

As acknowledged, the discrepancies on the number of reported drugs MCCPDC actually sells depends upon whether the count is for truly unique products (for example, many would NOT consider 10 mg tablets different from 20 mg tablets of the exact same drug to be considered truly "unique" drugs sold), but we can safely say that that the company is on its way towards fulfilling its broader mission statement as a Public Benefit Corporation, which is broadly to ensure that "No American should have to suffer or worse—because they can't afford basic prescription medications". To put things into relevant context, it's helpful to remember that just over a year ago, the company did not even offer a single product!

According to a 2021 FDA Annual Report (see https://www.fda.gov/drugs/generic-drugs/office-generic-drugs-2021-annual-report/ for the report) published by the U.S. FDA's Office of Generic Drugs, the FDA had approved more than 10,000 generic drugs.

Alex Oshmyansky
But, as MCCPDC company co-founder Dr. Alex Oshmyansky revealed in an interview with D Magazine (which stands for Dallas Magazine, see https://www.dmagazine.com/publications/d-magazine/2022/october/mark-cuban-cost-plus-drugs-alex-oshmyansky/ for the article), telling the magazine that he found that many [generic] drugmakers actually prefer to work with his company because they eliminate the drug distribution system middleman who distort prices, including PBM's. 

That's great!

Indeed, journalist Teresa Carr reported in Salon (and elsewhere, see https://www.salon.com/2022/03/05/mark-cubans-new-pharmacy-business-and-the-future-of-pricing_partner/ for details):

U.S. prescription drug pricing typically works by using intermediary companies known as Pharmacy Benefit Managers, or PBM's, to negotiate rebates on behalf of insurers and, in turn, keep a sizable bounty for themselves. So, even though a PBM may negotiate 90% off the price of the cancer treatment imatinib (generic Gleevec) they play games with patient out-of-pocket prices keeping the difference for themselves. This enables Mark Cuban's company to offer a one-month supply of the same drug for just $47. Yet employers and people with high-deductible plans may still wind up paying about $3,200 monthly until their deductible is met—for a drug that costs about $35 to make, said Oshmyansky. The Mark Cuban Cost Plus Drug Company's strategy is to eliminate these middlemen. 

So far, the underlying Mark Cuban Cost Plus Drug Company's strategy of bypassing the greedy, self-serving middlemen appears to be working. 

Today, the Mark Cuban Cost Plus Drug Company (MCCPDC) sells all of the products in its online pharmacy at the lowest possible cash-prices with a fixed margin of 15% on every product it sells used to keep the company going. In fact, the company often makes a big deal on social media when it announces price reductions. In that way, MCCPDC operates similarly to some independent pharmacies whose goal has always been to serve the communities in which they operate, or even similar to some bigger retail rivals like Costco Wholesale do with its pharmacy operations (catch my previous post on that at https://blog.sstrumello.com/2023/01/costco-pharmacy-what-is-its-pharmacy.html for more). The underlying business model enables patients to simply bypass their own insurance companies to save themselves money to buy what should be less-costly generics, but frequently are not thanks to drug pricing arbitrage (catch my post introducing the term "arbitrage" at https://blog.sstrumello.com/2022/07/turning-pbm-arbitrage-on-its-head.html for more) of drug wholesalers and pharmacy benefit managers ("PBM's"). 

Quite frequently, as many of its customers have discovered, the MCCPDC's out-of-pocket costs for the drugs are often even cheaper than insurance company co-pays would have been for the very same drugs. Indeed, academic research from University of Southern California has proven this to be accurate one-quarter (25.5%) of the time ("U.S. Consumers Overpay for Generic Drugs", By Erin Trish PhD, Karen Van Nuys PhD and Robert Popovian PharmD, May 31, 2022, University of Southern California, https://healthpolicy.usc.edu/research/u-s-consumers-overpay-for-generic-drugs/). This is especially true for anyone who has a deductible to satisfy before their insurance covers much of anything. If MCCPDC's prices are not lower, the patient always has the alternative to use their insurance/Medicare/Medicaid if that's cheaper for them. However, many patients (including me) find that it's easier to stick with MCCPDC even after satisfying their deductibles which ordinarily would put their PBM's on the hook to cover those drugs. The patients say that MCCPDC offers them an honest price, and there's no reason to switch back and forth between suppliers for a few months as long as they're getting a fair price.

(see https://www.motherjones.com/politics/2022/02/mark-cuban-cost-plus-civica-osh-affordable-pharmaceuticals-bir-pharma-drug-pricing-skrelli-scandal/ for more information)

Bypassing Drug Channel Middlemen is a Core Business Strategy to MCCPDC

Hence, it seems abundantly clear that a key component of MCCPDC dramatic cost-savings is accomplished by cutting out or simply bypassing the self-serving drug channel middlemen (including both drug wholesalers and PBM's, who are both responsible for most U.S. drug price inflation through a combination of list price inflation, brand-name drug rebate aggregation, and egregious "spread pricing" used to generate income for the PBM's on what should be low-cost generics). That's something Mark Cuban Cost Plus Drug Company is fundamentally disrupting with its business model.

Mr. Cuban told Axios: "Not everyone sets the goal of being the lowest cost producer and provider. My goal is to make a profit while maximizing impact." Note that Mr. Cuban did NOT say his aim was to become the most profitable drug company on earth, or to someday sell his company for mega-profits down the road. Part of the PBC objective is to "maximize impact" across society. The pharmacy role is essentially a 503(b) compounding pharmacy, focused on drugs that appear on the Food and Drug Administration's shortage list. Those are some unique aspects which differentiate MCCPDC from some other creative startups in the space, such as GoodRx.

For example, the MCCPDC venture is partially an online pharmacy for generic medications (it currently outsources Rx fulfillment right now to a third-party known as TruePill), but it is also a registered pharmaceutical wholesaler (such as McKesson, Cardinal Health or Cencora [which was formerly known by the cumbersome name of AmerisourceBergen]). It does all of those things internally, aiming to bypass the cost markups associated with each layer in the distribution system. MCCPDC is unique in that it cuts out the middlemen (collectively, insurance companies, PBM's, drug wholesalers, etc.) rather than relies upon those entities as most others in the prescription drug supply chain do, and can therefore offer price transparency for its customers. In particular, this differentiates MCCPDC from other entities like Amazon Pharmacy which cannot do under its current business model.

In June 2022, researchers from Harvard University published data showing that Medicare could have spent $3.6 billion less on generic drugs if they had bought the drugs from Mark Cuban Cost Plus Drug Company and insurers, including Medicare, could also benefit from the cost plus business model. In essence, the PBM business model which in recent years has been eviscerated through public research and it was further discredited by the Harvard study as well. 

However, of particular relevance is that other researchers outside of Harvard have since replicated key findings of the Harvard study, which proves it is not simply a one-off oddity designed to be used in sales pitches made to doctors (as most other pharma studies are), the Harvard finding is likely a reliable one. 

The Mark Cuban Cost Plus Drug Company business model does appear to be disruptive to the "business as usual" status quo in the pharmaceutical industry, which tends to have many entities which work tirelessly to ensure nothing ever changes (because it makes them so much money for doing practically nothing). Opaque PBM and drug wholesaler business practices are predicated upon withholding information from key stakeholders within the system, rendering the stakeholders unable to make informed decisions which directly impact what they're expected to pay. But when patients are expected to pay a portion, they are not quiet about whatever savings they achieve. Leveraging that positive word-of-mouth is a key part of the MCCPDC marketing strategy.

The Mark Cuban Cost Plus Drug Company disrupts how pharma is marketed today by simply cutting the middlemen out of the equation, and it seems to be working for many. The company has a trial underway for insulin, limited thus far to Lilly's unbranded "authorized generic" version of Humalog (see https://costplusinsulin.com/ for details) which patients can buy from most any pharmacy with a coupon from Lilly at a price of $35/vial (as long as they're willing to not use their insurance to buy it). However, there is an expectation that as the half-dozen or more genuine biosimilars emerge starting in 2024, MCCPDC could switch suppliers on insulin and sell a wider spectrum of insulin products. Indeed, there is a small but growing chorus of academic researchers whose research concludes that perhaps it would be better for covered patients and employer health plan sponsors alike that generic/biosimilar/authorized generic drugs should be removed from insurance pharmacy benefits, effectively leaving PBM's to focus only on more-costly branded and "specialty" drugs (although the very designation of "specialty" drug was invented by the PBM industry, and should not be enabled IMHO). 

The argument is that patients may actually be better off bypassing insurance to buy many generic drugs. I have discovered that to be true for at least a handful of generic drugs (and yes, I did find MCCPDC offered the lowest prices on those). The PBM's now make so much on "spread pricing" on generic drugs they don't want to give that revenue-stream up, but patients can easily cut them out of the transaction completely (which is what I did). Their PBM price differences are often so glaring it is hard not to notice, and consumers are not shy when they boast about how much they saved by patronizing entities like MCCPDC to their friends, neighbors and co-workers about how much money they saved by cutting insurance out of the equation; that's self-inflicted damage that PBM's are doing to themselves, and its why USC research finds that about half the time, patients can save by simply paying cash for generic drugs

Will a Divided Congress Act on PBM's? It's Possible; But Only Time Will Tell.

Fascinatingly, on January 26, 2023, RollCall (a publication similar to Politico, except focused on what lawmakers in Congress are doing, rather than all of government) reported that (see https://rollcall.com/2023/01/26/drug-company-middlemen-likely-to-be-a-focus-in-118th-congress/) "members of Congress may soon be turning their fire on PBM's".

The article also reported: "We want to address the whole kit and caboodle," said Georgia Republican Rep. Earl L. "Buddy" Carter of Georgia (who is formally trained as a pharmacist), referring to the full suite of PBM business practices. He said that he and other lawmakers, including a number of Democrats, plan to soon launch what will be called a bipartisan "Patient Access Caucus" to focus on issues impacting access to healthcare. "That is going to be the first issue that we address: PBM's."

Finally, the RollCall article also quoted Republican Rep. James R. Comer of Kentucky, as the new chair of the House Committee on Oversight and Accountability, who added: "We're concerned about a lot of the decisions being made by the PBM's, the lack of transparency by many of the PBM's, the vertical integration by many of the PBM's, adding the committee would have hearings soon."

Readers may recall that nearly a year earlier, on May 5, 2022, the U.S. Senate Subcommittee on Consumer Protection, Product Safety, and Data Security chaired by Democratic Senator Richard Blumenthal of Connecticut held its own hearing entitled "Ensuring Fairness and Transparency in the Market for Prescription Drugs," and that hearing, PBM's were discredited (watch a recording of that hearing at https://www.commerce.senate.gov/2022/5/ensuring-fairness-and-transparency-in-the-market-for-prescription-drugs for more) and that proved very revealing to lawmakers.

Beyond that, the Washington Post reported (see https://www.washingtonpost.com/politics/2023/01/13/lawmakers-are-readying-fresh-attacks-pharmacy-middlemen/ for more): "Lawmakers have also called for and introduced bills aimed at prohibiting 'spread pricing' — which the PBM industry contends can be an important 'risk mitigation model' for PBM's — requiring public disclosure of the total amount of rebates which manufacturers pay to PBM's, and how much of that is then passed on to health plans (of course, many health plans towards the end of that money-tree routinely fail to pass ANY of that cash on to patients with deductibles, so lawmakers must  realize that also needs legislation). 

As noted, Mark Cuban Cost Plus Drug Company initially intended to operate as its own PBM, but the company later abandoned that plan when it signed contracts with several PBM startups which do not engage in "spread pricing". Opportunities there remain, and other PBM's which it can still do business with remain, such as the startup CapitalRx (which has a coupon-generating website/app called the CapitalRxAdvantage savings program open to anyone), although that PBM engages in selective spread pricing, maybe not on generic drugs, so the devil is in the contract details.

The Washington Post added: "Meanwhile, Republicans will 'prioritize making health-care costs and prescription drugs more affordable,' including working on actions related to PBM's, per a House Energy and Commerce spokesperson."

High-profile Congressional hearings tend to make news, but unless lawmakers actually use the info. revealed in those hearings to implement changes, nothing changes (and PBM industry trade group Pharmaceutical Care Management Association ("PCMA") knows that, and it selectively bankrolls candidates to ensure there will always be a divided Congress where nothing ever happens when it comes to PBM legislation). But, the implication seems to be that in spite of Republican's razor-thin control of the U.S. House of Representatives (they have just an 8-vote majority, which means that under parliamentary rules, committees are required to be bipartisan) there is at least potential for bipartisan action on new governance of PBM's, something the secretive industry has pretty much been able to avoid for decades. 

And, thanks to agreements Republican House Majority Leader Kevin McCarthy of California made with the House Freedom caucus, giving up some of his power as House Leader to the very chamber he supposedly controls, it remains possible the concessions Mr. McCarthy made with that particular faction of his caucus could also potentially be leveraged by other House members (such as Buddy Carter) in order to potentially force a House vote on PBM legislation, which was not necessarily something Kevin McCarthy had envisioned from the more moderate members of his own caucus. But thanks to his agreements with the holdouts who refused to vote for him as House Majority Leader, that could potentially be on the table now, and the Senate already has provisions in several bills to govern PBM's which could potentially be negotiated into law. Right now, all of that is speculation. 

U.S. House of Representatives Remains a Proverbial Wild-Card

The House remains a proverbial wild-card considering how much Speaker Kevin McCarthy had to give of his own power in order to unite a disjointed caucus to officially name him as House Speaker, and because the "red wave" never happened during the midterm elections (see https://www.usnews.com/news/elections/articles/2022-11-09/the-red-wave-that-wasnt for more), McCarthy's party now only has the narrowest of margins to accomplish anything, and with the Senate controlled by Democrats and a Democrat with the veto pen, little is expected of the House. Most of what the House actually does will require bipartisan agreement (and votes), so they're trying to rearrange committee members from Democratic House members whom they think they'll be able to persuade into going along with whatever the Republican majority wants on things such as intelligence, but the composition of other House committees remains unchanged. Instead, they are focused on useless hearings and studies to placate their voter base.

High-profile ejections of some House Democrats from key House (intelligence) committees have made headlines, but it's less clear how more mundane committees (such as those with potential to address healthcare and PBM reforms) might align in this new, still uncharted environment. Recall that two previous Republican House leaders ended up quitting in frustration (including both former House Speakers Paul Ryan and John Boehner), so Rep. McCarthy's leadership is by no means assured for the next two years.

House Members Who Support PBM Reform Could Use McCarthy Concessions to Advance a Vote on PBM Reform. Maybe.

On drug pricing, PBM's engaging in "spread pricing" on cheap generic drugs was previously something PBM's were formerly able to freely use for their own benefit. But with the advent of new tools, "spread pricing" used on generics is crumbling underneath the PBM's, as more patients discover how much their own insurance PBM's are ripping them off on generics. Patients are voting with their dollars. They can save a lot by paying cash at Costco, MCCPDC, Amazon and/or by using GoodRx and similar coupons, which collectively enable a new dynamic, whereby PBM's former air-tight control is eroding. Consumers aren't shy about telling other people how much they've saved by bypassing their insurance. MCCPDC marketing is done entirely on social media. 

Right now, MCCPDC sales are growing robustly. These things open sales opportunities for startups such as Mark Cuban Cost Plus Drug Company. And, the PBC mission statement plays a role here: if it disrupts pharmaceutical marketing and loses sales, MCCPDC will still be able to say: "mission accomplished". That is a new, and previously non-existent market dynamic.

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