How Mark Cuban Plans to Dunk on the Drug Industry

The email’s subject line began with two words: “Cold pitch.” When Alex Oshmyansky hit send, he doubted he’d hear back from the recipient, Mark Cuban. The Dallas billionaire has said he deletes the vast majority of the pitch messages he gets, as many as one thousand each day. And Oshmyansky’s message, like most of those that end up in Cuban’s trash folder, was asking for an investment—in a company called Osh’s Affordable Pharmaceuticals.

To Oshmyansky’s surprise and delight, however, the Mavericks owner and Shark Tank star responded. Cuban told the then-33-year-old radiologist that he was intrigued by the concept, which had already attracted $1 million in funding. Osh’s Affordable Pharmaceuticals was set up to buy generic drugs from their manufacturers and sell them directly to pharmacies, leapfrogging what Oshmyansky has called the “monopolistic middlemen in the supply chain.”

Cuban had loftier ideas, which he hammered out with Oshmyansky through a weekly email exchange over the course of months. Oshmyansky “didn’t sell me,” Cuban told Texas Monthly by email. “I sold him on doing more and thinking bigger.” That approach led to the quiet creation, in May 2020, of the Mark Cuban Cost Plus Drug Company. Emerging publicly in January of this year—and unveiling its full plans in November—the Dallas-based venture aims to buy, package, distribute, and even manufacture low-cost versions of many expensive generic drugs, while offering “radical transparency” about prices. And it aims to quickly operate on a scale Oshmyansky thought would take him years to achieve.

Cost Plus spent most of this year with just one drug in its portfolio, but in November, the company rolled out plans for ninety-three more. It expects to build a network of distribution and manufacturing sites throughout the country. The first is under construction in Dallas’s funky Deep Ellum neighborhood, on track to be up and running next year. “The very grandiose long-term goal is to fundamentally change the way the pharmaceutical industry operates,” Oshmyansky said.

Others have tried to upend the drug business before, without widespread success. But Cuban and Oshmyansky are taking a novel approach. After pivoting from its original strategy to act as a nonprofit, Cost Plus is now organized as a public-benefit corporation. That means it’s for-profit: it plans to charge a 15-percent markup on every drug it sells, but it claims its social mission of improving public health is just as important as the bottom line. “I could make a fortune from this,” Cuban said. “But I won’t. I’ve got enough money. I’d rather f— up the drug industry in every way possible.”

On a rainy fall day, not far from Deep Ellum Brewing Company, Oshmyansky opens the door of a construction trailer on the site of what will, in September 2022, become his company’s first 23,000-square-foot manufacturing facility. Ambling out and swinging his arm wide as he offers a handshake, Oshmyansky doesn’t exude Cuban’s brand of boardroom bravado. Even as the company’s CEO, he works a telehealth shift on Saturday nights, interpreting medical scans sent digitally to his home in Dallas. Tall and sporting partly translucent Warby Parker frames that separate his beard from his shaved, balding head, he seems like the kind of guy who’d crush you at trivia and then apologize for it.

And he would crush you at trivia. Growing up outside Denver with parents from Ukraine and Moldova, Oshmyansky started college on an accelerated track at age thirteen, while still in high school, studying to become a particle physicist before changing course at around sixteen. String theory, he decided, did not present enough real-world opportunities to help people. After less than a year on campus, he graduated from the University of Colorado Boulder in 2003, at age eighteen, with a bachelor’s degree in biochemistry.

Four years later, he founded his first company. Oshmyansky was then completing the second half of a joint MD/PhD—the MD from Duke University, the PhD in mathematics from the University of Oxford, where he studied on a Marshall Scholarship. During that period, he somehow carved out time to create and sell door handles that dispensed hand sanitizer, which he marketed to hospitals. (The company, now Ohio-based OpenClean Technologies, is still in business, though Oshmyansky left its board last year.) In 2014 he even took night classes for a year at the University of Baltimore School of Law. After all that education, he wondered if he’d ever put his biochemistry degree to use. “It turns out I now use it extensively every day,” he said, leaning back in a plastic chair inside the construction trailer that doubles as his office.

It wasn’t just his smarts that prepared Oshmyansky to run Cost Plus. It was also something one might not expect from an otherwise mild-mannered radiologist: rage. In 2013, two years after Cuban’s Mavericks won the NBA championship, Oshmyansky experienced his first deep distaste for the drug business. He was in his fourth year of residency at Johns Hopkins University, working with a pulmonologist who had two patients in need of a drug called bosentan, which treats pulmonary arterial hypertension. The need was urgent, but the drug was expensive—a single course of treatment could cost $10,000. Neither patient could afford that, so they applied for financial assistance. While waiting for approval, both died. “I was mad about it for a long time,” Oshmyansky said. 

Driven by that anger, he started drawing up plans to challenge the status quo of drug pricing. He didn’t get far. The industry is opaque, and step one was simply figuring out how the many players fit together. That’s no easy task, said Dr. Ashley Garling, a clinical assistant professor at the University of Texas at Austin College of Pharmacy. “There are so many fingers in the pie between the time that a medicine is created to the time that it gets to the pharmacy,” she said. “It goes through multiple channels, and each person is trying to get a piece.”

The companies that are involved tend to point those fingers at one another when assessing the blame for increasing drug costs. Pharmaceutical manufacturers, for instance, set the list prices of drugs (akin to a retail price), and they often argue that when they’re charging high prices, they’re doing so to recoup the high levels of investment they’ve made in research and development. That may or may not be entirely true, but drugmakers have also argued that their list prices are driven even higher to account for the widespread practice of offering rebates and discounts all along the supply chain.

A key role in that supply chain is played by pharmacy benefit managers. They negotiate deals with drugmakers on behalf of insurance companies and others, such as Medicare Part D or large employers, who pay for their services. Drugmakers often offer rebates or discounts to PBMs if the drugmakers want them to ensure that insurance companies cover certain medicines. Because PBMs keep a portion of these savings, critics say, these arrangements line PBMs’ pockets at the expense of the consumer. “They don’t really have an incentive to drive down prices for patients,” Garling said. Oshmyansky considers the rebates for PBMs to be “de facto bribes.”

Greg Lopes, a spokesperson for the Pharmaceutical Care Management Association, whose members are PBMs, disagrees. “PBMs are competing to offer the most innovative, efficient, and cost-effective services to clients,” he said. Health insurance plans and public programs including Medicare don’t have to work with the seventy PBMs in the marketplace, Lopes argues, but they do so because PBMs help them reduce costs for patients through rebates, a point widely disputed by experts. The association commissioned a recent report that claimed that PBMs save health plans and other payers between 40 and 50 percent a year, compared with what they would otherwise pay for prescription drugs.

Oshmyansky also has drug wholesalers in his crosshairs. Almost all the prescription drugs sold in pharmacies are supplied by wholesalers who buy drugs in bulk from manufacturers. Today, the three biggest wholesalers—AmerisourceBergen, Cardinal Health, and McKesson—control almost 90 percent of the U.S. market, according to the Kaiser Family Foundation. Oshmyansky believes wholesalers leverage their scale to mark up prices. He said individual wholesalers often offer an annual rebate to any pharmacy that buys most of its drugs from one of them, incentivizing that buyer not to pick and choose medications based on price alone. 

The Healthcare Distribution Alliance, which represents the wholesalers, argues that because wholesale drug distributors help bring drugs quickly and safely to market, they produce “$33–$53 billion in cost savings to the U.S. health-care economy each year.” However, many independent observers say wholesalers actually add to drug prices, though estimates of how much vary greatly.

Somehow, amid all the savings that companies along the supply chain insist they’re generating, prescription costs are rising rapidly. Since 2014, drug prices have increased 33 percent. That’s faster than for any other medical good or service, according to an analysis by GoodRx, which tracks prescription prices and provides drug discounts. This inflation is making it harder for Americans to afford the drugs they need—if they can get them at all. More than a third of U.S. adults say they or a member of their household were told in the past year that their insurance won’t cover a drug prescribed by their doctor, according to a 2019 poll for National Public Radio. When that happens, the poll found, nearly half of lower- and middle-income Americans don’t fill the prescription.

Statistics like those already had disturbed Oshmyansky when, in 2015, his anger hit full boil. That year, the then-32-year-old Martin Shkreli, the so-called pharma-bro CEO of Turing Pharmaceuticals, ordered a high-profile, controversial increase to the price of Daraprim, a drug that fights parasitic infections. He jacked it up more than 5,000 percent, from $13.50 to $750 a pill, and smirked his way through interviews about the decision. Oshmyansky felt “a sense of righteous indignation” about that. Angrier than ever at the pharmaceutical industry, he dove back into figuring out how to chop up the drug-selling chain. He sketched out a business plan that led to his founding Osh’s Affordable Pharmaceuticals, before eventually emailing Mark Cuban and moving from Denver to Dallas in 2019.

The first drug to hit the market from the Mark Cuban Cost Plus Drug Company was albendazole. It kills parasitic worms such as hookworms, which pose a threat to those in the poorest and most rural parts of the country. (One of the first studies of its kind in decades found hookworms in Lowndes County, Alabama, in 2017.) A onetime treatment of two tablets of albendazole will rid a victim of the parasites and the infection they cause when they latch onto the small intestine. But without insurance coverage, patients pay an average of about $225 a tablet—or $450 for a single treatment. (Lowndes County has a median annual after-tax household income of $30,036.)

Dr. Rojelio Mejia, a clinician who works for Harris County’s public health system, says that’s too steep a cost for many of the low-income patients he works with. Mejia, who also serves as an assistant professor of pediatrics at the National School of Tropical Medicine at Baylor College of Medicine, in Houston, has seen patients get albendazole shipped from relatives in Mexico or go without it altogether. Mejia has even heard of patients opting for a much-cheaper hookworm medicine that’s intended for animals.

That’s exactly the kind of problem Oshmyansky wants Cost Plus to help solve. Earlier this year, the company found a manufacturer that could make albendazole. It donated the first 10,000 pills to Mejia’s team. Oshmyansky said he’s legally prohibited from discussing the exact price Cost Plus pays for albendazole, but noted that the drug can be purchased from a manufacturer for $5 to $10 a pill. After distribution costs and the 15 percent surcharge it plans to add to each drug it sells, Cost Plus offers albendazole at a wholesale price of $15 per pill. The company then recommends pharmacies sell each pill for $20—less than 10 percent of the current average price of the drug. The reason for the significant difference, Oshmyansky insists, is that Cost Plus enables its customers to avoid direct and indirect payments to middlemen in the supply chain.

In November, Oshmyansky and Cuban announced they would go well beyond albendazole, offering steep price reductions on 93 other drugs. These include the anti-inflammatory drugs colchicine and mesalamine, the blood-pressure medication lisinopril, generic forms of brand-name depression treatments that include Prozac and Zoloft, antibiotics such as vancomycin, and a chemotherapy drug called imatinib.

To get those drugs to market at the lowest possible prices, Cost Plus will serve multiple functions—manufacturer, distributor, pharmacy benefit manager, and online pharmacy. “The only way we could find a solution” to reducing prices, Oshmyansky said, “was to just have Cost Plus do everything.” When it believes wholesalers are responsible for much of the price markup on a drug, Cost Plus will play the wholesaler role—purchasing drugs directly from drugmakers and reselling them to pharmacies. By the end of 2022, the company wants to have two thousand such drugs on offer. When it believes manufacturers are driving prices too high, Cost Plus will make the drugs itself.

Meanwhile, the company will also operate an online pharmacy, selling directly to patients. In the case of albendazole, patients who buy from the Cost Plus pharmacy will pay the $15 wholesale price for each of the two pills in a standard dose, plus a $3 pharmacy charge, which will be standard on all medications. That’s $33 total for what might otherwise cost $450. For imatinib, Cost Plus’s price, with or without insurance, will be $47.40 for 30 pills at 400 milligrams. The average retail price of that dosage: $9,600.

With their expanded lineup of steeply discounted drugs, Oshmyansky and Cuban are taking on an industry that has extremely deep pockets and is vertically integrated, meaning there is shared ownership of many companies in the supply chain. For example, insurers UnitedHealth Group and Cigna own the PBMs OptumRx and Express Scripts, respectively. Another PBM, CVS Caremark, is a sister company of pharmacy CVS.

Because it’s backed by Cuban’s also-deep pockets, Cost Plus can “put some pressure on the major players,” Garling said. “However, they’re going to have the same issues with the big drug companies that other generic manufacturers would have. They will have lawsuits. They will have pay-to-delay tactics. That’s pretty common in the industry.”

The Mark Cuban Cost Plus Drug Company is not the first to try messing with the powers that be in prescription-drug sales. It’s not even the first Texan-backed company to try. In 2018 the foundation of Houston philanthropists Laura and John Arnold kicked $10 million toward Civica Rx, a nonprofit aiming to keep generic drug prices low. The company, now a collaboration of more than fifty health systems, has produced upwards of fifty generic medicines to date. Civica is a hospital-born approach that prioritizes drugs based on the needs of its hospital partners and guarantees those partners a certain volume.

Cost Plus is different. Its focus is on getting drugs directly to consumers through pharmacies—whether that’s its own pharmacy or others. What Oshmyansky is doing “goes beyond this albendazole donation,” Mejia said. “It strikes at something that could change the course of how we do medicine in the U.S.”

Shawn Shinneman is a freelance writer in Dallas whose work has appeared in D Magazine, on Longreads, and in the Dallas Business Journal.

This article appeared in the December 2021 issue of Texas Monthly with the headline “Dunking on Big Pharma.” This story originally published online on September 15, 2021. Subscribe today.