tl;dr-
Read this fantastic piece by Olivia Webb for a great history lesson & background knowledge on Mark Cuban Cost Plus Drug Company (MCCPDC)
MCCPDC as it stands, is a public benefit corporation1 that consists of three separate components - 1) an online pharmacy2 (powered by Truepill3), 2) a pharmacy benefits manager (PBM)4, and 3) a drug manufacturer
Approaching the pharmaceutical industry from a B2C perspective (vs. the currently-dominant third-party reimbursement model) is not new;
Currently, Rx drugs make up an estimated $~298B burden on US healthcare payers5, which has resulted in increasing patient cost-share via high deductible health plans & other benefit designs6;
Higher patient cost-share directly results in lower access to pharmaceutical products by patients7, spawning in part manufacturers investing heavily in copay cards & other cost off-set solutions8;
These conflicting incentives (among many, many others) have led to massive system complexity, leading to companies such as Ro9, Hims & Hers10, etc. looking to create value by avoiding payer-reimbursement entirely via B2C models
However, what is new is the integration of drug manufacturing; MCCPDC is investing $11M into a pharmaceutical plan in Texas, with plans to become operationally ready by EOQ3 202211
With manufacturing, a PBM, and a front-end digitally-powered pharmacy, MCCPDC is poised to become a full stack drug manufacturer - an entity rarely seen currently given pharma reliance on distributors & other parts of the supply chain
Unifying manufacturer & distribution under a fixed margin model (i.e. ‘15% mark-up off of COGS’12) is strategically well-positioned for a few reasons; a) a (reasonable) bet that other entities in the supply chain will not seek to copy MCCPDC’s integration strategy due to cost; b) shifts the Rx drug market for certain indications to a B2C cost structure, reducing overall payer cost burden for care; c) potential future positioning for B2B plays (i.e. with hospitals for certain in-patient drugs, with pharma as contract manufacturers, etc.)
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After reading Olivia’s article (go read her content, seriously #notsponsored), I debated whether I should write anything about MCCPDC; there seems to be an endless amount of hot takes (and some cold ones) about the initiative. Then I saw this post by this healthcare industry professional essentially calling out favorable press for MCCPDC as being pure hype. To writ;
Certainly, Brian has a point - if you think about MCCPDC as just another B2C focused PBM or pharmacy, there are multiple companies who play in that domain space. Across 2022, I fully expect more and more pieces of thought leadership & content to be written discussing how MCCPDC can outcompete current B2C competitor solutions (i.e. better capabilities, better structure, smoother patient experience, big brand name + marketing know-how, etc.), how MCCPDC will not be able to outcompete current solutions (i.e. lack of expertise or relationships in healthcare, worse capabilities & cost structure, no room to make sustain given flat 15% margin, etc.) or how MCCPDC will be a nothing-burger (i.e. ‘things will stay the same,’ no real disruption, etc). However, where I think Brian - and many of the takes so far are prone to is the over-emphasis on MCCPDC as a virtual pharmacy & PBM (i.e. ‘the present’) and not what happens when you combine these two elements with manufacturing.
First, why would anyone want to combine manufacturing with distribution for healthcare? The reason is pretty simple - it theoretically is more efficient. Rather than having to navigate contracting processes with distributors or group purchasing organizations, a manufacturing is able to just push it out from the factory directly to the hands of its customers. Another area of efficiency is allows for more visibility into when & where the products are being used; one huge painpoint for many pharmaceutical companies is the inability to know where their product is once it leaves their factory and how & when it gets to point-of-care (without tons of legwork). This makes it challenging for pharmaceutical companies to efficiently adopt best-in-class approaches from manufacturers in other industries - tailoring sales or marketing strategy to geographic demand, or fostering greater patient centricity, or having better visibility into seasonality. That’s not to say that solutions for these use cases don’t exist - there’s a reason why many pharma have adopted huge advanced analytics teams to marry ex-factory sales data with point-of-care demand figures from IQVIA nBrx / Trx, etc. - but overall, everything is really inefficient compared to just doing everything together.
So second - why hasn’t this been done? Well, because all this stuff historically costs a lot of money - and distribution / supply chain is a low margin / high volume sort of business. To put it more simply, if you think about the financial value for a pharma company to do all of the above, it doesn’t make a lot of sense using technology from previous eras in human history from a cost perspective. You simply get more bang for your buck outsourcing it to a distributor who offers you (as pharma) a super low cost to distribute compared to doing it on your own because their business model is to do this as cheaply as possible.
What’s changed, however, is technology. As healthcare moves beyond physical sites of care of hubs for drug delivery with the advent of mail-order, virtual pharmacy store fronts, and drone-powered remote delivery13, the cost for setting up a direct-to-patient distribution chain is getting smaller. Over time, you’ll reach a point where the value of owning that distribution - i.e. the data, the ability to drive closer to the patient experience, the sales / marketing improvements, etc. - will overtake the cost of owning it yourself. Basically, at some point, it just makes sense for you (as pharma) to begin exploring a shift away from the current supply chain for something that is more directly controllable and gives you better data to drive further value.
Seeing this future world, here’s my bet as Mark Cuban, broken down into some easy steps;
I’m going to create a company that in one platform integrates the entire manufacturing process & drug delivery into a single full-stack (i.e. Catalent + Truepill + ExpressScripts).
I’m going to select therapeutic areas not by how commoditized they are - which is where current PBM models shine! - but by how easy they are to manufacture and capture a big customer base of patients by severely undercutting current prices.
I’m going to then simultaneously expand to other easy-to-manufacture TAs and explore new technologies to increase my ability to manufacture more complex therapeutics.
I’m going to then offer my services to all innovator companies - the Pfizers, the Modernas, the Genentechs, and say ‘you guys focus on innovating & discovering new products - and when you’re ready, we will be your partner to get those products directly to patients with the data you need to market & commercialize with a resolution & efficiency beyond what you can imagine today.’
Everybody wins!
Of course, not everybody wins - current business models focused on optimizing performance in a disconnected pharma supply chain world (i.e. PBMs, distributors, GPOs, contract manufacturers, etc.) will not win. However, pharma wins - direct to patient connection & distribution at hopefully a lower cost. Payers win - MCCPDC can using their low cost, provide a direct way to shift payer reimbursement spend onto customers without jeopardizing patient compliance. Patients win - lower cost. Of course, MCCPDC wins by being the center or harbinger of a new infrastructure component in healthcare delivery. Finally, Mark Cuban himself wins - because his legacy will be leaving behind a transformative change in US healthcare in a way that many other companies & super smart individuals have tried, and failed. Let’s not pretend that’s not a really nice benefit.
While I enjoy overheating my brain to see into the future, I will say much of this will depend on two things. The first one, to the surprise of no one, is execution; you have to go do all of the steps above well to make this happen. The second one, however, is the bet that current distributors, contract manufacturers, and PBMs will not take this same approach of building full-stack drug manufacturing + drug delivery. At first blush, this is a reasonable bet - much of the business model in this space is high volume low margin, which means the management teams of these companies (and their investors) would likely balk at the capital expenditure & level of internal disruption needed to pull this off for potentially little return (by their measures). However, the flip side to this is that there are certainly other future-oriented strategists in these companies as well - and maybe, this has been in the cards for them already with capabilities already being explored & developed. Plus, nothing’s stopping the companies sitting on a ton of cash (i.e. Amazon) to just buy something that will compete against MCCPDC more directly. It’s blue ocean now, but in healthcare - as in all things - things are true until they’re not.
We’ll just have to see how it turns out. Oh, and Mark and Alex - if you’re looking for a strategist, hit me up. I’d love to chat. (#blatantselfpromo)
-WY
https://www.hutchlaw.com/blog/whats-the-difference-between-a-public-benefit-corporation-and-a-b-corp-certification
https://costplusdrugs.com/
https://www.fiercehealthcare.com/digital-health/mark-cuban-s-drug-company-launches-pharmacy-claims-to-offer-striking-savings-generic
https://www.costpluspbm.com/
https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical
https://www.healthsystemtracker.org/brief/increases-in-cost-sharing-payments-have-far-outpaced-wage-growth/
https://www.vox.com/policy-and-politics/22276166/us-health-insurance-out-of-pocket-costs-research
https://www.physiciansweekly.com/drug-cost-offsets-seem-to-take-some-pressure-off-patients-wallets
https://ro.co/
https://www.forhims.com/blog/hims-hers-a-model-for-better-care-through-patient-engagement-and-telemedicine
https://dallasinnovates.com/mark-cuban-drug-czar-mavs-owner-is-launching-an-online-pharmacy-to-help-solve-skyrocketing-prescription-costs/
https://www.npr.org/2022/01/24/1075344246/mark-cuban-pharmacy
https://magellanhealthinsights.com/2020/01/27/drone-to-door-the-ascent-of-the-airborne-pharmacy/
Great article! I wonder how easy acquisition of patients on this new platform will be.