| It’s a startup, so it’s an iterative approach. They launched with a setup that gets them into the market fast.
However, you are right in that this ain’t that big of a deal. Pharmacies pay the acquisition price for the drugs. Then, they make up a fictitious price (called the Usual & Customary price). The U&C is intentionally very high, because it forms the basis for negotiating with pharmacy benefit managers (PBMs). The Cuban-funded venture uses this as their price comp, calling it the “retail price”. However, the U&C price is only the retail price for one group of people: those without insurance who do not know of drug discount “cards” (nowadays mostly mobile apps such as GoodRx nowadays). Basically, anyone with insurance or a (free) discount card will get a hefty discount on the U&C (always compare the two before using insurance, as sometimes, the “regular” discount is higher than the insurance one). Just plug some of the expensive drugs into GoodRx et al to compare and you’ll find that in some geographies, the Cuban-funded co is cheaper, while in others, it is more expensive (drug discounts vary across pharmacy geo. locations). Pharmacies give non-PBM entities discounts bec they make money regardless.
Let’s say, you start an Rx discount biz. You can go to pharmacies and negotiate a discount plus a small margin for yourself. This is how GoodRx is making (lots of) money, for example. Now, the innovation with this new co is that previously, drug discount cards and pharmacies were usually two different parties. All they did was to partner with a mail order pharmacy, negotiate a discount (acquisition + 15% is the classic Costco pharmacy price btw), set up a website, and tell everyone “look at how much cheaper we are!”. The future vertical integration comes from taking this a step further and partnering with generic drug makers. I also suspect that at some point, they’ll start their own pharmacy. I’ve been waiting for GoodRx or another discount provider to bundle these 2-3 steps in the distribution chain, but they have never done this. Perhaps they worried about competing with their pharmacy customers, as their model is going wide, rather than deep, while this new Cuban-funded venture is going deep instead, partnering with a single pharmacy. Beats me why their pharmacy partner (or other such cos) wouldn’t just start adding their own discount biz. But perhaps they’re doing that and they had other reasons to do this… |