Solving prescription drug pricing in the US with Cost Plus Drugs & Capital RX CEOs | E1518

Episode Summary

Executive Summary: This episode pairs two candid interviews that explain why U.S. drug pricing is broken and how startups are attacking it from different angles. Mark Cuban Cost Plus Drug Company CEO Dr. Alex Oshmyansky describes building a transparent manufacturing and distribution parallel to the existing supply chain, while Capital Rx CEO A.J. Loyakino details how PBMs use opaque spread pricing and formulary control to capture value. Both argue that transparency, vertical integration, and competition can lower prices now.

Main Topics: Cost Plus Drug Company's model and mission (Priority: 5/5): Dr. Oshmyansky explains how Cost Plus is building a transparent parallel supply chain: manufacturing select drugs, wholesaling, running mail-order pharmacy operations, and contracting with employers and insurers to deliver drugs at disclosed, low prices. PBMs, spread pricing, and opaque drug economics (Priority: 5/5): Both interviews argue that pharmacy benefit managers sit at the center of the pricing problem by hiding true prices, taking spread between payer and pharmacy, and using rebates and formulary placement to extract rent. Drug manufacturing, shortages, and fill-finish operations (Priority: 4/5): Oshmyansky outlines the company’s sterile fill-finish facility, 503B compounding, and FDA pathways, emphasizing that Cost Plus plans to make low-margin or hard-to-source injectable drugs, including pediatric chemo products. Capital Rx’s transparent PBM alternative (Priority: 5/5): Loyakino describes Capital Rx as a modern PBM that charges a flat admin fee instead of profiting from spread, uses NADAC as a benchmark, and passes through value to clients and patients. Market structure, consolidation, and incentives (Priority: 4/5): The conversation frames the drug industry as highly consolidated, with PBMs, wholesalers, and insurers becoming giant intermediaries that have captured most of the pricing power and forced manufacturers and patients into bad outcomes. Regulation versus startup-led disruption (Priority: 4/5): Both guests say government scrutiny is welcome but too slow; they believe immediate improvement will come from competitive startups that force transparency and better pricing, even if system-wide reform remains incomplete.

Key Arguments: U.S. drug pricing is not primarily a manufacturing-cost problem; it is a supply-chain and incentives problem driven by opaque intermediaries. PBMs often make money by taking a hidden spread between what payers pay and what pharmacies receive, rather than by adding clear administrative value. Transparency itself can reduce prices because it prevents intermediaries from capturing value through hidden markups and rebates. Cost Plus can lower prices because it removes layers of intermediaries and standardizes pricing for everyone, from insurers to uninsured patients. Manufacturing some drugs in-house, especially scarce or low-margin injectables, can address shortages and public health gaps that the market ignores. Capital Rx’s flat-fee model is designed to align incentives with clients rather than drug price inflation, and its technology automates administration to offset the loss of spread revenue. The system’s complexity and lack of visible price references are intentional features that allow rent extraction across retail, mail order, specialty, and formulary channels. Competition can work faster than regulation, but regulation and government oversight may still be necessary to reset market rules and pricing transparency. Even if a startup is disruptive, incumbents may try to buy it out or preserve the status quo, making outside capital and public support important. Drug pricing reform may require parallel supply chains and new administrative rails rather than incremental fixes to the existing one.

Data Points: Cost Plus founding year: 2018 - Dr. Oshmyansky says he founded the company in 2018 after years of frustration with drug pricing. Mark Cuban Cost Plus Drug Company tenure: 4 years - Oshmyansky says he has been CEO and founder for the past four years. On-site facility timeline: Expected completion in November - He says construction and CQV of the new manufacturing facility are tracking toward November. Public pricing markup: Cost plus 15% - Oshmyansky says the company will disclose cost inputs and charge X plus 15% for manufactured drugs. Imatinib website price: $39/month - He cites generic imatinib sold on Cost Plus for $39, versus much higher cash prices elsewhere. Imatinib insurer/pharmacy cash prices: $2,000 to $3,200 - Patients with high-deductible plans may be charged this amount at CVS/Walmart or similar pharmacies. Insulin co-pay example: About $100 - Oshmyansky says he personally pays roughly $100 co-pay for insulin despite knowing its underlying cost structure. Ohio Medicaid PBM spread share: 1 out of $3 spent - He references an Ohio AG investigation finding one-third of managed Medicaid spending went to PBM spread. Potential Medicare Part D savings: About 30% - He cites a Harvard study estimating savings if Medicare Part D used Cost Plus for the first 100 products. Estimated taxpayer savings: $3.6 billion - The host references the dollar-scale savings implied by the Harvard analysis. Insurance client savings estimate: 50% to 60% - Loyakino says independent consultants found Capital Rx could save commercial plans 50-60% on generic drug spend. PBM market concentration: 3 dominant entities - Loyakino identifies CVS/Caremark, Cigna/Express Scripts, and United/Optum as the big three. Self-insured threshold: Over 1,000 lives - Loyakino says entities above roughly 1,000 covered lives are typically self-insured. Share of marketplace controlled: 75% to 90% - He estimates the big PBMs control most purchasing power in the U.S. pharmacy market. Cash marketplace share: About 6% - Loyakino says roughly 6% of U.S. drug purchases are cash-market transactions where patients shop for better prices. Price change frequency: Brand drugs: about twice a year; generic drugs: monthly or quarterly - Loyakino says true drug prices are relatively stable, contrary to the appearance of constant changes. NDC-11 codes: Over 130,000 - He uses the number to illustrate how difficult price comparison is across package sizes, strengths, and formulations. PBM admin fee example: 25 cents per script historically - Loyakino says PBMs once charged a flat fee before moving to spread pricing. Largest pharmacy by volume: UnitedHealthcare and Express Scripts/Cigna - He argues PBM-owned mail-order operations are among the largest pharmacies in the country by volume. Capital Rx customer setup speed: Hours - He says his platform can set up new plans in hours, versus months for competitors. Capital Rx scaling: Over 10,000 life cases serviced implies eligibility for larger accounts - Loyakino says trust and track record must be built gradually in healthcare sales. Federal government drug price delta: Up to 150% - He cites a CR report showing large differences in net drug costs across federal programs.

Pivotal Quotes: "We are a parallel supply chain to the one that already exists." — Alex Oshmyansky: He explains how Cost Plus functions across manufacturing, wholesaling, pharmacy, and payer-facing channels. "There are no drug prices. Because this last step in the supply chain has really been defined by what's called spread pricing." — A.J. Loyakino: He describes how PBMs obscure the true price of drugs and profit from hidden spreads. "You have the ability to change the price at your sole discretion under a traditional PBM model to be anything you'd like." — A.J. Loyakino: He argues that price opacity creates near-unlimited pricing power for intermediaries.

Implications: The episode frames drug pricing reform as a transparency and competition problem. If these models scale, patients and payers could see immediate savings, while incumbents face pressure to abandon opaque spreads and rebates.