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A billionaire wants to shake up the US drug market

meYes there are One thing guaranteed for Americans to pay attention to is Cheap Viagra. On June 2, a firm owned by Mark Cuban, a billionaire investor (as well as a judge on “Shark Tank,” a TV show for budding entrepreneurs, and the owner of a nba basketball team), caused a stir by lowering the price of the blue pill, whose patent expired two years ago, from several dollars to 11 cents. It was one of 87 drugs that the Mark Cuban Cost Plus Drug Company added to its growing assortment of cheap, off-patent drugs. A new study finds that Mr. Cuban’s prices could have saved Medicare, a federal health plan for the elderly, $3.6 billion worth of drugs worth $9.6 billion he had purchased in 2020.

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Drugs in America are notoriously expensive. In 2019, prescription drug spending reached $1,126 per citizen, double the figure in other wealthy counties (see chart). Critics like Mr. Cuban seek to shake things up. He intends to offer thousands of cheaper drugs by the end of the year. His company buys them directly from manufacturers and sells them to consumers at cost, plus a 15% markup and a $3 pharmacy fee. The idea is to make drugs affordable for the 31 million Americans who lack health insurance and many more whose policies force them to pay high prescription fees. Patients have thanked him on social media for slashing the cost of drugs to treat conditions ranging from heartburn to cancer.

Cuban is not the only one who has lost patience with the current US setup. CivicaScript, of Lehi, Utah, is also trying to lower the price of generics. In March it said it would make generic insulin for no more than $30 a vial, compared with $300 for current brand-name versions. Meanwhile, at the innovative and proprietary end of the market, eqrx and Checkpoint Therapeutics are developing new cancer and immunology drugs with the explicit intent of undermining existing expensive Big Pharma therapies.

Competing on price seems like an obvious thing to try in America’s expensive drug market. The lack of such competition suggests that obstacles stand in the way.

Some of these are practical. Certain off-patent drugs take years to copy, manufacture, test, and gain regulatory approval. Insulin, a complicated biological molecule, is one of them. Having shouldered the expense of copying and certifying its insulin, CivicaScript may find that incumbents, who have long since recouped their development costs, simply drop the price of their brand name products to undercut it. Ned McCoy, head of CivicaScript, insists this would make him happy; the company’s goal, he says, is to bring about a change in the market. The firm is configured as a public benefit corporation that does not seek profit but rather a “positive impact on society.” But you can’t do that if you go bankrupt.

In the US market for patent medicines, the inventor of the drug has great pricing power, which has pushed up prices. The development of new therapies is a costly research challenge, clinical trials, and regulatory hurdles. Too often it ends in failure. Risks can be reduced by choosing well-understood diseases. However, to be successful in the long run, eqrx will have to make up for what it loses in margin with volume, observes Daniel Chancellor of Informa Pharma Intelligence, a research firm. The same applies to others who choose this model, such as Checkpoint. The British government has indicated that it would make large-scale purchases of eqrxof cancer drugs if they gain regulatory approval. While this won’t help American patients in the short term, it’s good news for the company if it helps ramp up production.

The final problem is that any drug seller who undermines the incumbents becomes a target for them to purchase. It’s easy to imagine a pharmaceutical giant launching a takeover bid for the company and, if successful, simply raising prices to what the market will bear, which in the United States is much more than eqrx wants to charge. After buying a biotech startup that had developed a hepatitis drug in 2011, a large drugmaker, Gilead, charged far more for the treatment than its target had planned.

On June 13, Goldman Sachs, an investment bank, noted that the market was undervaluing the drugs it was developing. eqrX. On the subject of being acquired, eqrx’s boss, Melanie Nallicheri, cryptically comments that the company has thought about how “not to let that happen” but declines to elaborate. Mr. Cuban shares the sentiment: “I don’t have a reason to sell…I can afford to absorb the losses that come with starting the business.” CivicaScript has also made itself an unappealing investment by ceding control of much of what it can do to a second nonprofit sister company, Civica. The poison pill, it seems, has a place in the pharmaceutical business.

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