ALEX OSHMYANSKY: One of our initial big challenges was just getting the pharmaceutical companies to work with us because the big cartel basically says — I mean, they’re not supposed to, it’s grossly anti-competitive — but everyone tells us they do. Like, “Don’t do business with Cost Plus Drugs, or we won’t buy your product anymore.”

I saw Mark Cuban had a public Gmail, and I was like, wow. I shot him a line, and surprise, surprise, he got back in like five minutes. We had a brief dialogue, and he invested a small amount of money to start with, and now he’s a true operational co-founder.

He wants to, what he says is, F up the industry.

BOB SAFIAN: That’s Alex Oshmyansky, CEO of Cost Plus Drugs, which he co-founded with Mark Cuban. Cost Plus Drugs received the 2024 Rapid Response award at this year’s Masters of Scale Summit for quickly and effectively disrupting the pharmaceutical industry.

Alex has an amazing backstory — from heading to college at age 13, to getting advice from OpenAI founder Sam Altman, to cold-calling Mark Cuban.

But what’s most impressive is how he’s managed to dramatically cut prescription drug prices, something decades of public policy have failed at. So let’s get to it. I’m Bob Safian, and this is Rapid Response.

SAFIAN: I’m Bob Safian, and I’m here with Alex Oshmyansky, the co-founder and CEO of Cost Plus Drugs. Alex, thanks for joining.

OSHMYANSKY: No, thank you for having me.

How Cost Plus Drugs can sell prescription drugs at a cheaper cost

SAFIAN: Cost Plus Drugs sells thousands of drugs at cost, plus 15% for shipping, right?

That’s the plus part?

OSHMYANSKY: So we do our true cost, and that’s the big innovation, if you want to call it that, about our company. We reveal what we purchase all the drugs for. We add a 15% margin for ourselves, a $5 fee to pay our pharmacist, $5 for shipping and handling, and then that’s the total cost of the drug.

SAFIAN: So, like, I’m on a statin. A statin prescription can cost $200 somewhere else.

You guys, it’s like $5. How do you make that work financially?

OSHMYANSKY: One of the big things that’s unknown about our pharmaceutical distribution chain is there’s effectively a cartel of three companies, these so-called pharmacy benefit managers.

The way they do this is very, very complicated, but the bottom line is they buy all the drugs, they mark them up as much as they want, and then they resell them. They accomplish that through effectively being a form of payment processor for insurance companies. But, yeah, if you just go around the system, sometimes the price reductions can be radical.

It’s estimated at least 30 to 40% of all drug spending goes to the pockets of the pharmacy benefit managers. There are drugs we sell on our site for $20 or $30 for a month’s supply that if you tried to get through your insurance with a high deductible plan, you would be asked to pay $3,000 to $4,000 out of pocket.

Yeah, it’s insane. It’s criminal. And that’s not hyperbole. They will say, actually, the list price of this drug is $10,000 for a month’s supply. So actually, we’re getting you an amazing deal at $3,000. That’s a 70% discount. How amazing are we? Meanwhile, if you go to the drug manufacturer and just say, can we buy this from you?

Yeah. The true price is closer to $20 to $30 for that same month’s supply. And yeah, very proud that actually exposing that practice. The Senate actually questioned the CEOs of the big PBMs on it. And now there’s an office of the inspector general investigation.

How Martin Shkreli inspired Alex Oshmyansky

SAFIAN: You and I were talking earlier, you’re a physician. You became animated about these cost issues as a physician yourself. How did this pop up to you to be like, this is something I’m gonna turn my life towards?

OSHMYANSKY: I think every single physician has had patients injured by not being able to afford their medications, family members.

I’m a radiologist by training, but I was working with a pulmonologist on a research project at one point, and one day he came in incensed because two of his patients had died over the same weekend. They both needed a drug called Bosentin, which was then generic, long off patent, but still cost $10,000 for a month’s supply.

And you’d think that’d be enough to get me sort of started on this, but, kind of the straw that broke the camel’s back was: do you remember this character, Martin Shkreli? The pharma bro.

SAFIAN: He ended up spending some time behind bars, yes.

OSHMYANSKY: For unrelated securities fraud. You know, in retrospect, maybe he did more to lower drug costs than anybody else by starting Mark and me on this track.

SAFIAN: Yeah. And it turns out he’s a very, very small fish in a much larger pond of people taking advantage of others, but yeah, that was the sort of triggering event.

The origins of Cost Plus Drugs

SAFIAN: Now, Cost Plus Drugs is officially called Mark Cuban’s Cost Plus.

OSHMYANSKY: Yeah.

SAFIAN: You came up with this idea. You didn’t know Mark? And you just sort of cold-call emailed?

OSHMYANSKY: So I originally started the company actually as a 501c3 non-profit. I went out sort of trying to raise funds for it for the better part of three, four years and failed spectacularly, did not raise a dime beyond what I put in myself. Eventually, I applied to Y Combinator for financing. The interview committee, actually Sam Altman was on mine. Sam said, “We like what you’re doing.

We’d like to get behind it. Do not think you’ll be able to raise enough as a nonprofit. If you reincorporate as a public benefit corporation, so a for-profit company, but with a registered public mission with the state, we’ll invest in you like we would in any other company.”

And after three, four years of no success, I was like, okay, whatever, let’s give it a shot.

Little bit embarrassed now to say I took corporate governance advice from Sam Altman, but it worked in my case. I was able to raise a small seed round, a little over a million dollars, which is not a lot in pharma dollars, but enough to get kicked up and off the ground.

And yeah, just totally on a whim. A couple of months after that, I saw Mark Cuban had a public Gmail. I was like, wow. I shot him a line, and surprise, surprise, Mark is incredible on email.

SAFIAN: He does respond to everything. We shouldn’t say that to everyone that’s listening here.

OSHMYANSKY: He doesn’t mind. [email protected]. He will get back to you.

I have no idea how he does it because I’m not that good on email. And like, what excuse do I have? But yeah, he got back in like five minutes, and we had a brief dialogue, and he invested a small amount of money to start with, and obviously became much more invested on several different levels.

Effectively the company became a very different thing after Mark got really heavily involved, and now he’s a true operational co-founder. He is very, very involved.

SAFIAN: So he’s, he’s not just kibitzing from the sidelines while he’s doing Shark Tank?

OSHMYANSKY: No, he’s taking customer service calls. Seriously. He’s a manic workaholic. Anytime I email him about any issue day or night, six in the morning, two a.m., within five to ten minutes, there’s a response. And yeah, he is deeply into the weeds on everything from website design and coding to our manufacturing plant and operations.

We’re communicating every hour about pretty much everything that happens.

He wants to, what he says is, F up the industry.

SAFIAN: You wanna do that too? You’re just not willing to use those words?

OSHMYANSKY: I’m not a billionaire, I can’t get away with it, but we get letters, emails every day from people who are like, “Hey, I was having to skip meals to afford my medicine. I thought I was going to die because I just couldn’t get my chemo. I thought I would have to sell my house. Real people who were being asked to pay $3,000 out of pocket for their chemotherapy, for their multiple sclerosis medication, and suddenly we can offer it for $20.”

Inside Cost Plus Drugs’ manufacturing process

SAFIAN: You started two years ago, right? You expanded to begin manufacturing your own drugs. So not just buying from manufacturers?

OSHMYANSKY: The manufacturing was a piece of it from day one because we always assumed to get the drugs at a low cost. The system’s so entrenched we’re going to have to make them ourselves.

Actually, the direct-to-consumer mail order piece was kind of an afterthought, believe it or not, because we were like, “Hey, this is a thing that’s relatively easy to do compared to setting up our own manufacturing.”

SAFIAN: So let’s do this first?

OSHMYANSKY: Yeah, let’s just do it on the side. It’ll be a public service because there are these patients that are fairly small communities that need these ultra-expensive medicines that we can reduce the cost by 99%.

Why not? Let’s. And we figured it’d be fairly limited. We launched it in January of 2022, and it just exploded faster than I think any of us could have predicted.

To your point on the statins. Actually, one of our top-selling drugs at first was a generic Rosuvastatin, and that kind of blew our minds because it’s a very cheap drug. Why were we selling so much of this? And it turned out, yeah, one of the big PBMs was adjudicating it at $200 for a month’s supply, a drug that cost literally a penny a tablet.

And now we have millions of people who are customers of our direct-to-consumer site, and still growing as fast as we can keep pace.

SAFIAN: Did you ever think like, “Oh, you know what, maybe we don’t need to do the manufacturing. Like maybe we can just keep riding what we’ve got going. We’ve got product-market fit, like let’s go.”

OSHMYANSKY: We actually have four different business lines. The grand scheme is that I like to say we use vertical integration for good instead of evil because anywhere we need to fit into the supply chain to fix the problems, we can sort of fit in there. So we have our manufacturing operation, and there we’re very focused on drug shortage products — so, products that you can’t get anywhere else.

I just came from the International Society of Pediatric Oncology Conference, and there, they estimate that there’s 120,000 children who die a year from not being able to get their chemotherapy around the world. And the thing is, the market is so distorted, the price of this drug is generally pretty cheap.

It’s needed in, relatively speaking, small quantities, so nobody wants to make the drug. So I like to say that our manufacturing makes the drugs that nobody else wants to make.

SAFIAN: Some manufacturing operations are like, “Oh, let’s do this because there’s a market for this.” You’re kind of doing it the other way around.

Like if there’s already a market and there’s already a manufacturer, we don’t have to worry. We worry about the places that are being neglected.

OSHMYANSKY: Exactly. So, we use robotic technology that uses what are called single-use disposable flow paths, which enable us to pivot from making one product to another very rapidly, in principle within four hours. And we actually just got a grant from DARPA to take that technology, augment it with AI, miniaturize it, and kind of put it in a pod.

So we can actually rapidly scale our manufacturing abilities around the world. And can put one of these automatic sort of manufacturing pods anywhere that there’s a drug shortage. And that’s sort of our initiative for the next 12 to 18 months.

SAFIAN: And when you talk about these robots, just for context, because I don’t know, people in their minds could think of robots from Hollywood movies, right? Like, what are these robots you meet? How big are they? Are they in their own rooms?

OSHMYANSKY: They’re in a hermetically sealed chamber. So these are robot arms, like when you see the videos of car factories, kind of like those. But they have to operate under conditions of perfect sterility.

So they’re actually in a sealed chamber that gets periodically sterilized by vaporized hydrogen peroxide. It’s very neat stuff. They make these robots that can operate under these conditions, that can mass-produce medications at scale.

Alex Oshmyansky’s journey from a physicist prodigy

SAFIAN: You’re a physician, you’re not an engineer. But you’re now in sort of the robot business, manufacturing business. It’s a lot new to have to master.

OSHMYANSKY: It’s a lot of fun. So when I was growing up, I was actually being fast-tracked towards being a high-energy particle physicist. Yeah, so I started college when I was 13 and was meant to be a string theorist, essentially.

I took a hard left turn at the last minute. I remember looking at, with all the wisdom of like a 17-year-old, the journal Nature had a cover story about, I think it was a string theory, M-theory concept that the universe is a 26-dimensional soccer ball. And I was like, okay, this is going nowhere. I want to do something that’s a little bit more substantive. I did wind up doing an M.D., Ph.D. The Ph.D. is in applied mathematics. And yeah, actually, now I’ve gone far down the like, like everybody else has, down the AI rabbit hole.

Scaling Cost Plus Drugs’ manufacturing operations

SAFIAN: Well, I don’t know. I don’t know everybody. It sounds like there’s a lot that happens between your ears that may not be able to happen between mine. How much of the automation and technologies like AI are about making the cost low enough?

OSHMYANSKY: That’s a component of it. A large part of it is just being able to, yeah, get the product out the door fast enough because the robots are just faster from an operations perspective. So we do use vendors. We don’t own the distribution robots ourselves. We use subcontractors, but they also have robotic pharmacy systems that they use.

SAFIAN: It’s all about speed. Even if you might have to invest a little more in the robotic equipment to begin with, that’s in the service of speed.

OSHMYANSKY: Exactly. We were struggling, I want to say, late 2022 because we were experiencing like 20 to 30% month over month growth for a prolonged period of time, which is they tell you scaling is hard. It’s really hard. Yeah, it’s a cliche for a reason, it really is challenging. There was a period where it was like a week or two delay with prescriptions going out and we were just scrambling to keep pace, which now we’re in a much better place, and the prescriptions go out in a day and a half on average.

The robotics, the automation, really helps just operationally keep pace with what has to happen.

SAFIAN: Let’s just pause for a moment: String Theory? Not my forte. Of course, neither is sterilization of robots via vaporized hydrogen peroxide.

Alex makes remaking the drug industry sound simple and logical. But he’s done more than build a better mousetrap. After the break, we’ll dig into how he’s re-engineered a marketplace and turned adversaries into allies. Stay with us.

[AD BREAK]

Before the break we heard CEO Alex Oshymansky talk about how and why he launched Cost Plus Drugs. Now he talks about the company’s consumer demand flywheel, what people misunderstand about Big Pharma, and how he balances patience and aggression. Let’s jump back in.

Scaling via word-of-mouth marketing

SAFIAN: Getting the word out that you had this new channel that people could get their medications at much cheaper costs, was that something you invested a lot in, or did it sort of happen organically?

OSHMYANSKY: Zero dollars. Zero dollar marketing spend. Of course, we have Mark and his platform, but honestly what drives our growth is just word of mouth. We tell all the vendors that come onto our platform, all the pharmaceutical manufacturers, the exact same thing will happen.

We’ll sell zero of your medication for like a month or so, and then we’ll sell out of all of it in a day. And then it’ll scale from there. And what we find triggers those events is social media. Like someone in their Facebook group for chronic myelogenous leukemia will realize, “Hey, I can get 30 imatinib instead of 2,000 imatinib through costplusdrugs.com.” They’ll post, and then suddenly it’ll spread like wildfire through that specific community. So we see that pattern happening again and again. So it really is all just driven by word of mouth.

Convincing the manufacturers despite the pharmacy benefit managers

SAFIAN: The manufacturers have you as a customer. They have the pharmacy benefit managers as a customer also?

Do they get pressure to, like, “Oh, don’t give it to those guys. Right?”

Like, do they try to get locked up?

OSHMYANSKY: Oh, no. I’ve been told over and over again… One of our initial big challenges was just getting the pharmaceutical companies to work with us because they, the big cartel, basically says — I mean, they’re not supposed to. It’s grossly anti-competitive, but everyone tells us they do. “Like, don’t do business with Cost Plus Drugs, or we won’t buy your product anymore.” So the first drug we had was actually in 2021, a product called albendazole, which was an anti-parasitic agent. Sold for $250 a tablet, we were able to get it for $5 a tablet.

But the company didn’t want to be associated with us. They said, “We’ll sell it to you, but you have to put your own private label on it.” It encouraged three other companies to give us 100 products that we could sell under their own name.

They were willing to take the risk. And yeah, that’s when the company properly launched in 2022. What we tried to sell to the pharmaceutical companies for the longest time is the cartel’s kind of a paper tiger, like they need you more than you need them.

And the irony is we’re a small company. We don’t have the negotiating leverage. We actually pay more for the drugs.

SAFIAN: Per pill?

OSHMYANSKY: Yeah. The pharmaceutical companies actually make more money selling through us than they usually do. So one of the questions we get a lot is, “Won’t this take away from research and development if you drive down the drug costs?”

No, ironically, in this new model of transparency, without all these mysterious actors obfuscating the true price of the drugs, the pharma companies wind up making more.

Can the government help regulate the price of drugs?

SAFIAN: You mentioned this earlier, there’s government inquiry into drug prices. It kind of seems like that stuff comes and goes, you know? Has there been any real progress?

OSHMYANSKY: I don’t think that policy change, regulation, legislation is really going to help.

As soon as they implement a policy designed to eliminate some bad practice, the PBMs have already moved on. Generally, everything that’s on discussion now for PBM reform on Capitol Hill is addressing the big scams that were in place five to seven years ago.

So really what we think is the solution is private sector reform, which is if the big fortune 500 companies, fortune 50 companies move away from the big PBMs and go to the smaller competition, we think the industry will suddenly have to reform of its own accord. So we have this weird coalition of people we help, which includes the most indigent members of society, but also kind of the most powerful, because who pays for most of the drugs at the end of the day? Large employers. It’s just, this stuff is so complicated. It’s so convoluted that, like, why would Mark Zuckerberg have to know about his employees’ pharmacy benefits? He has other stuff to worry about.

SAFIAN: Right, somebody else takes care of it.

OSHMYANSKY: Yeah, and then you hire a consultant, and the consultant gets paid on the back end by the PBMs. Basically, there’s this whole corrupted system to ensure that the big PBMs are kind of locked into place.

And if you can break that up from the private sector, that I think is the more meaningful reform.

Is Big Pharma to blame or the PBMs?

SAFIAN: The public narrative about Big Pharma is sort of like Big Pharma is bad, is ripping you off, and if I’m hearing you right, you’re sort of like, it’s not Big Pharma, it’s just these PBMs that are in the middle.

OSHMYANSKY: Big Pharma is certainly no angels, like they’re not innocents in all of this, but at least they make the drugs. When I talk to a big pharma CEO, they’re like, “We do all the R&D, we take all the flack from the public. We take all the legal liability, we do all the manufacturing, which I can vouch for is hard. Like, why do these guys get 30% off the top? That’s nuts.” So there’s actually no love lost between Pharma and the Pharmacy Benefit Managers.

SAFIAN: And in some ways, the rap against Big Pharma is kind of unfair.

OSHMYANSKY: A great example, actually. When they came up with the recombinant insulins, they were very expensive, but the price did drop pretty substantially. And Big Pharma was selling insulin for about $20 a vial.

But there were people literally dying because they couldn’t afford their insulin at the list price of $400 a vial. And yeah, that was pretty much entirely the fault of the PBMs.

Why Alex Oshmyansky still practices radiology

SAFIAN: Despite, or I should say, while you’re running Cost Plus Drugs, you still haven’t given up practicing radiology? Is that right? You still do that for a shift every week? Why is that?

OSHMYANSKY: Maybe it’s just sunk cost fallacy. Like, it was a long time to getting to be a doctor. Not giving that up. But, I do find it rewarding.

I find it grounds you because, you know, as an emergency radiologist, you’re making snap life and death decisions at a rapid pace. And it, I find, breeds discipline in decision-making. Because if you as a founder, you want to make decisions, you want to stick to it.

If there are bad consequences, so be it. The same thing applies to medical decision-making. There’s a quote from Sir William Osler, one of the founders of modern medicine, that they taught me in my surgical internship orientation, which is “the essence of medicine is the assumption of responsibility,” which means you have to take ownership for the patient.

And you have to make the decisions and live with the consequences. Because most of the time, not making a decision at all is worse. So, yeah, I find it just breeds discipline that I have to apply within the company.

SAFIAN: It’s like a weekly reminder of what’s most important.

OSHMYANSKY: Exactly, exactly.

Alex’s educational journey

SAFIAN: I read that while you were in residency as a doctor, you attended night school to study law too.

OSHMYANSKY: I did that for one year.

SAFIAN: Why?

OSHMYANSKY: I just thought it was neat. I just thought it was interesting. I’m exceptionally nerdy.

SAFIAN: Is it useful at all?

OSHMYANSKY: Oh yeah, it’s super useful.

The first-year curriculum was like contracts law and civil procedure, which actually for business is pretty helpful.

All these legal terms of art that you don’t get intimidated by anymore. I had previously run a start-up and gotten kind of fleeced by lawyers, and I wanted to at least know enough.

SAFIAN: So this is something else I read. I read that until fourth grade you were in special needs classes?

OSHMYANSKY: That’s right.

SAFIAN: It seems a little hard to believe given obviously all the things you’ve achieved since then.

OSHMYANSKY: I’m from Denver, Colorado originally, but my parents are from the former Soviet Union, and I grew up speaking only Russian. So when I went to school, I was put in a second language English class, which was taught in Spanish.

So I was a little bit slow on the pickup. I remember it was me, a kid who spoke Arabic, Gibran, and a Christian who spoke Tagalog, who was Filipino. We just kind of shrugged our shoulders at each other in the back of the class, wondering what’s going on here?

And eventually I had one of these life-changing teachers in the fourth grade who was like, “Oh, maybe he’s not slow, maybe he’s just Russian.” He took extra effort to help me learn English and speak it without an accent. And, yeah, eventually he was like, “Okay, well, now that you speak English, take this math test. Take this math test.” Oh, you’re not slow. You’re a genius. And I was like, oh, if you say so, I don’t know. It’s amazing how much of your life trajectory is just what people tell you you’re good at when you’re eight years old.

The patience required to get through the bureaucracy of healthcare

SAFIAN: A friend of yours said that your superpower is being able to put up with tedious bureaucracy.

How much of what you’ve learned and applied is about patience and how much is about aggression?

OSHMYANSKY: A lot more of it is about patience. Medicine specifically and healthcare broadly is a lot of entrenched bureaucracy.

When you see companies like Amazon or Google attempting healthcare initiatives, and they flame out and go away after a little bit, you’re kind of like, “Oh, I know what happened here.” They got caught in a million pages of red tape and just decided to move on to the next project.

A lot of it is just putting up with, “We have to file form 15 B and subsection C in order to get approval from this city regulatory body before we go to the state regulatory body.”

SAFIAN: I could see someone who clearly picks up on a lot of new things quickly, feeling a little bit like, “God, this is so stupid. Why is this done this way?”

OSHMYANSKY: Yeah, I’ll take credit for that as my superpower of just being able to put up with it. It’s on a very different time horizon than technology moves.

SAFIAN: You know that if it could move a little faster, you get to help that many people that much faster.

OSHMYANSKY: It’s like a Chinese finger trap, where if you pull too hard, it doesn’t work.

The future of Cost Plus Drugs

SAFIAN: When you see how far Cost Plus Drugs has gone, it’s gone pretty far pretty fast, and where you sort of hope it will land, how far along that journey are you?

Are you 30% along the journey? Are you 3% along the journey?

OSHMYANSKY: I think 3% is fair. We’ve still got a long way to go. I remember Sam was just starting OpenAI around the time that I was in Y Combinator. And he had a thing that it’s hard for humans to conceptualize scaling laws, like how quickly if you grow exponentially, it winds up adding up over time, like the human brains just not programmed to be able to understand that.

And yeah, that’s very much happened with us. And I think we’re still on that exponential trajectory, not just of metrics volume or whatnot, but also of the amount of substantive change we’re making to the system.

CVS Caremark, one of the big three PBMs, put out a cost plus program. And I was like, ah, subtle. They even used our company colors, which I was like, nice.

They definitely feel like they have to respond to us. And yeah, hopefully, it does drive more long-term meaningful change. My view is that in classic economic theory, where you have an opaque market, the winners are not the buyers or the sellers; they’re the people that broker information in between.

You see that happening in healthcare like crazy, where the opacity is a feature, it’s not a bug because they’re able to create enormous arbitrage opportunities based on the opacity in the system.

Actors on both sides of that, the pharma companies, the hospitals, the physicians, the providers realize, “Hey, actually, we’ve been told that hiding our prices is good for negotiations. Actually, it’s just the opposite, we’re getting taken advantage of.” And as that sort of mindset and knowledge spreads, hopefully, it’ll bring more meaningful transparency to the status quo.

What’s at stake for you and Cost Plus Drugs?

SAFIAN: What’s at stake for you and Cost Plus Drugs right now?

OSHMYANSKY: Right now, our big program is getting not just the generic manufacturers to work with us. So we have pretty much every generic drug available now.

The next step is getting the big branded companies to work with us as well. We’re making inroads there, Johnson and Johnson, Bayer, Pfizer on various products. It’s moving along.

We also sell drugs in bulk to health systems. Institutional clients, independent pharmacies, doctors, clinics, offices, health systems. We just started that earlier this year.

And actually, that’s our fastest-growing piece of the business at the moment, and I think we’ve got some very exciting stuff in the background that, you know, we can’t talk about quite yet but hopefully, in the next 3-6 months we should be able to make some major announcements as well.

SAFIAN: Well, Alex, this is great. Thank you so much for sitting down to talk about it.

OSHMYANSKY: Thank you so much, Bob. Appreciate it.

You don’t have to be a genius, like Alex clearly is, to glean great insights from his story. I love that he’s curious about new technology, from robotics to AI. I love that he’s fearless about asking for help, whether from Sam Altman, Mark Cuban, or a healthcare CEO. And I love how he blends opportunistic action with long-term vision. Cost Plus Drugs didn’t plan on being a direct-to-consumer business, but when demand took off, he went with it. At the same time, he hasn’t stepped back from his big-picture mission to transform the drug industry. That mix has enabled both momentum and impact. There’s clearly more to come too. We’ll keep watching, and sharing with you what we learn. I’m Bob Safian. Thanks for listening.