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Can Mark Cuban鈥檚 Low-Cost Drug Company Disrupt the Pharma Industry? | WSJ - YouTube
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- [Narrator] In January,
billionaire investor Mark Cuban
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launched a low-cost online drug company.
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- The goal is to (beep)
up the pharmacy industry,
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and I'm sorry for my language, right?
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Our business model's very, very simple.
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Our goal first that drives everything
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is to be the low-cost providers
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for medications to patients.
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- [Narrator] The company
sells over 200 generic drugs
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in partnership with a digital pharmacy.
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Prescription drug prices remain out
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of reach for many Americans
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who pay among the highest
prices in the world.
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So more private market
players are stepping in.
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This leukemia medication
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goes for about $2,000 at many pharmacies.
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Cuban's company sells
it for as lot as $17.10.
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- Patients want the medication they need
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at the lowest possible price.
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Period, end of story.
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That's not what
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these vertically integrated
companies are providing.
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They may say so but that's
not what's happening.
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- [Narrator] Still, the Mark
Cuban CostPlus Drug Company,
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or CostPlus, faces challenges
in a consolidated drug market.
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It also remains limited in
the medications it can offer.
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So how is Cuban's company able
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to offer such steep discounts?
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Which patients will benefit the most?
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And could businesses
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like his actually disrupt
the healthcare industry?
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There's usually not a straight line
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between the list price
a drug maker charges
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and the price patients pay
at the pharmacy counter.
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The drug supply chain can be complicated,
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containing multiple parties
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who all negotiate to purchase,
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sell and provide rebates for drugs.
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Cuban's business model works in large part
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by circumventing this drug pricing model.
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- America, unlike other rich countries,
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doesn't really give the government a role
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in negotiating prices on
behalf of its citizens.
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It is a much more fragmented market.
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So you have all of these
individual players trying
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to negotiate prices on
behalf of other employers,
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and no real sort of insight
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into how much the other guy is paying.
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- [Narrator] One way CostPlus is able
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to lower the price of
prescription medication
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is by removing insurance plans
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and healthcare industry middlemen,
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known as pharmacy
benefit managers or PBMs.
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Nearly 80% of US prescriptions are managed
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by three PBMs.
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PBMs manage prescription drug benefits
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on behalf of health insurers
and large employers.
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They use their purchasing power
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to negotiate rebates and
discounts from drug manufacturers
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but they don't always pass
along the savings to consumers.
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- And so what they'll do is
they'll go to say a Pfizer
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and say you charge X amount
of dollars for this drug
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but we would like to get a 15% rebate
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that you'll pay us back off of the drug
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as a discount and which
we will then pass along
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to our clients.
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One of the criticisms
that they've received
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is that PBMs also tend
to keep a percentage
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of the rebates that they
negotiate from manufacturers.
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The higher the drug prices go,
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the larger the rebates
that they'll receive
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and that they'll negotiate,
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and hence, the more money
that they'll get to keep
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at the end of the day.
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- [Narrator] The Pharmaceutical
Care Management Association
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represents pharmacy benefit managers.
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In a statement, its spokesperson said,
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"PBMs pass the vast amount
of rebates negotiated
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from drug manufacturers
along to employers,
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health plans and others
sponsoring health insurance."
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To get around these inflated drug costs,
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CostPlus cuts out third-party PBMs
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by making it a cash-only pharmacy,
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meaning no health insurance
plans are allowed.
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But for some drugs,
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like the leukemia pill
we showed you earlier,
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it can be cheaper to pay out of pocket
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at Cuban's pharmacy than going
through an insurance plan.
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- Insurance companies want you to work
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within their world.
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So their logic is look, if you want access
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to all of our customers,
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you're gonna have to play the game,
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which is what other companies
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that have tried to do the same
thing we're doing have faced.
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And so we're just saying nope,
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we're not gonna play that game.
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- [Narrator] So how exactly
are CostPlus drugs priced?
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The company sets it rates
by negotiating directly
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with the drug manufacturer
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and then adding a 15% markup,
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a $3 fee for pharmacy labor
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and a $5 shipping cost.
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- The goal is to be very transparent
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and that's exactly what we do
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and that transparency we think
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is our most effective marketing.
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- [Narrator] Some CostPlus medications
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are more than 10 times cheaper
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than those sold elsewhere.
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Because CostPlus doesn't accept insurance,
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uninsured or underinsured individuals
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may benefit the most from
the low-cost options.
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- For people who don't have insurance,
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oftentimes, they get
charged the highest prices
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because they don't have
anybody negotiating
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on their behalf like
insurance companies do
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and like PBMs do.
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- [Narrator] Still, there are limitations
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to the CostPlus business model.
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- Right now, they're
really targeting people
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who don't have insurance for generic drugs
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and that's a relatively small part
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of the overall market.
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Also, generic drugs typically
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aren't the biggest cost
problems for people.
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It's really brand name drugs
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that don't have any competition.
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- [Narrator] At the same time,
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CostPlus faces challenges
in adding new medications
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to its website.
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- You have to do the deals
with all the manufacturers
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and there are manufacturers who are afraid
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to work with us
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because they're afraid they'll lose
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those big pharmacy benefit managers
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who are doing a lot of business with them.
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So we have to overcome that hurdle.
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- [Narrator] To expand its offerings,
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CostPlus is launching its
own pharmacy-benefit manager.
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Once operational, its PBM
could allow the company
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to offer more low-priced medications
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and eventually provide their services
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to those with health insurance plans.
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- We're not gonna distort
retail or wholesale prices.
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We're not gonna ask for rebates.
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To be a pharmacy benefit manager,
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you have to carry enough drugs
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and right now, we don't have enough drugs
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to be a full-service
pharmacy benefit manager.
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We hope by the end of the
year to be past 1,000.
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- [Narrator] The company is also planning
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to become an all-in-one
pharmaceutical supplier,
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combining manufacturing,
wholesale distribution
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and pharmacy services all under one roof.
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Right now, CostPlus is building a facility
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in Dallas, Texas to
manufacture certain drugs.
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Meanwhile, the Biden
administration's Social Spending
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and Climate Bill, currently
stalled in Congress,
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includes several provisions meant
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to rein in drug makers' pricing power.
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- The Build Back Better
Plan included a number
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of provisions around drug prices.
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Probably the most significant of which
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included things like allowing Medicare
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to negotiate prices for certain medicines
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and that would have been a real watershed
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because that hasn't ever existed before
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and as of now, we haven't
seen a big push to try
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to get those drug pricing
provisions passed.
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- [Narrator] While there is
still no long-term solution
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to the problem of high
drug costs in the US,
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Cuban's business could
offer consumers more choices
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in a fragmented market.
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- I think it's too soon
to say or really to know
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whether or not the Cuban
pharmacy's having an impact.
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A big thing will be
whether they can expand
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into brand name drugs,
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which they can't manufacture or buy
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through multi-source manufacturers.
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I think the question is is
whether they can keep going
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for the long haul and
gain more market share,
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and as they do that, that will
give them more opportunity
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to disrupt the market.
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(pensive music)
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