**The billionaire Mark Cuban wants to change the face of generic drugs.
**Biopharma CEOs say his company Cost Plus Drugs could remove costs from the distribution system.
**But getting to a size where it could take over the industry will be challenging, they added.
Mark Cuban is looking to make drugs cheaper for patients.
The billionaire entrepreneur is backing Mark Cuban Cost Plus Drugs Co., which buys medicines directly from drug manufacturers and then sells them to patients with a set 15% markup, plus pharmacy fees. The approach's simplicity, combined with Cuban's "Shark Tank" fame, has set the healthcare industry abuzz.
Insider spoke with six drug-industry leaders about how they felt about Cuban's initiative. If it's successful, Cost Plus Drugs can shine a light on the complexities of drug pricing and remove costs from the distribution system, pharmaceutical and biotech CEOs told Insider. While executives generally applauded the startup as "a really great idea," they said it would be difficult to scale to a point where it could take over a big-enough segment of the industry.
Cuban told Insider in an email that he believed the company's pricing transparency was "an absolute positive for patients." The company started its pharmacy services last year and quickly racked up over 1 million accounts, Cuban told Insider recently. Cost Plus Drugs is already having some issues getting bigger after a vendor the company relied on to ship its drugs had issues keeping pace with orders, Insider's Blake Dodge reported, citing a former employee of that vendor.
The model might be challenging to scale, biopharma CEOs say
Christophe Weber, Takeda
Christophe Weber, the CEO of the Japanese pharma giant Takeda. REUTERS/Issei Kato
In 2018, Dr. Alex Oshmyansky, Cost Plus Drugs' founder, sent a cold email to Cuban, who decided to back the entire initiative. Cost Plus Drugs is focused on bringing down the price of generic medications, which no longer have patent protections but can still be expensive.
Several CEOs who run drug companies highlighted the difference between the generics industry and the branded-drug industry. Drugmakers spend hundreds of millions, if not billions, to bring a drug through lengthy and risky clinical trials to approval. Generic drugs, on the other hand, have typically been sold for years and are past the point of recouping that investment.
Christophe Weber, the CEO of the Japanese pharma giant Takeda, said a pricing model based on cost was more relevant for generics but "completely irrelevant" for research-and-development-based drugmakers researching new treatments because of this difference between branded drugs and generics.
For branded drugs, the price of a medication is often influenced by the need to make a return on the investment. Bristol Myers Squibb CEO Giovanni Caforio said he didn't agree that using manufacturing costs was a good way to determine a medicine's price.
"I'm always very skeptical of taking the perspective that you look at manufacturing costs as a way of articulating the value of medicine because our ability to invest in research and development to deliver the next one is what drives the managing expectations in our industry," Caforio said.
One of the biggest challenges for Cuban will be scaling his company, Novartis CEO Vas Narasimhan said. The Swiss pharma giant oversees Sandoz, one of the largest generic-drug manufacturers in the world, which has scaled to reach about 500 million patients a year. By comparison, Cuban's company has about 1.7 million accounts.
"Cost Plus, it sounds alluring, but if you want to do this for the scale that we need to do it, you need to generate returns for the capital you put forward," Narasimhan told Insider.
Cuban told Insider that while it wouldn't be easy, he believed the company could keep growing to more patients, in large part, because it's "removing a lot of unneeded bureaucracy and supply chain intermediaries" through its approach.
All three of the Big Pharma CEOs — Weber, Caforio, and Narasimhan — added that they were unfamiliar with the specifics of Cuban's company.
If successful, Cost Plus could 'collapse layers' in a complex system
But Cost Plus Drugs' efforts could remove the distribution system's costs, which ultimately make treatments more difficult to access.
Cognito CEO Brent Vaughan told Insider that if Cost Plus Drugs was successful, it could "collapse layers" in a complicated system where prices are affected by groups that work between the manufacturer and patient — like pharmacy-benefit managers and wholesalers. Cognito is a biotech startup testing a medical headset for Alzheimer's disease that's in midstage trials.
"What Mark is showing people is that so much of the costs have nothing to do with the manufacturer," Vaughan said.
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