Mark Cuban’s Audacious Cure for High-Priced Drugs

MARK CUBAN GRINS. “I’m the luckiest guy in the world,” he says. It’s mid-March and he’s on a stage in front of a thousand fans at SXSW with tech founder Falon Fatemi of the new audio-video entertainment platform Fireside talking about, well, just about everything: why everyone should get a crypto wallet, how the metaverse will change media, what TikTok means for pro sports. And, little surprise to anyone who’s watched him on Shark Tank or run into him on Twitter, Cuban has well-developed thoughts on each.

Ever since he sold his startup Broadcast.com to Yahoo for $5.7 billion in 1999 and became an instant billionaire, Cuban has followed his curiosity into a wild array of fields, from health care to fintech to media, consumer products, and, of course, sports. Where others might have settled into a comfy life as an NBA owner/playboy, he became a kind of super-entrepreneur, not only investing in a diversified portfolio of startups, but getting deeply involved in some as well, even co-founding a few .

Cuban describes his process as “ready, fire, aim.” He plays up the whole just-a-lucky-kid-from-Pittsburgh thing. But to anyone who works closely with Cuban, he’s more like a determined kid from Pittsburgh who still identifies with his blue-collar roots. Associates marvel at how hard he works, how deeply he likes to research and understand complicated systems. “People don’t realize how technical he is,” says Fatemi, whose new app for creators Cuban co-founded with her, after having invested in her last company, an AI startup called Node.

But while his collaborators admire what Fatemi calls “a bias toward action,” he’s hardly firing blindly. “It’s still being really smart about what actions you are taking and what money you are spending and where you are firing,” she says. A prime example was right onstage with Cuban at SXSW, in orange block letters on the front of his blue T-shirt: MARK CUBAN COST PLUS DRUG COMPANY. That’s the name of the startup that represents perhaps the biggest entrepreneurial swing he has taken since Broadcast.com. Once upon a time, Cuban was prescient in recognizing that streaming would upend live entertainment, but it’s been a couple of decades since he’s had a similarly transformative take. And it didn’t happen overnight. Some three years ago, Cuban got an email from a 33-year-old radiologist named Alex Oshmyansky, with the subject line “Cold pitch.” It was one of many he gets daily. (Cuban is famous for answering cold emails; see “How to Get Mark Cuban’s Attention.”) Oshmyansky wanted Cuban to invest in a pharmacy he was starting to custom-make generic drugs and skip the layer of middleman wholesalers and so-called pharmacy benefit managers, which are typically responsible for heavy markups.

“Mark saw a huge societal problem with a pretty direct solution: Just make and sell medicines for less,” Oshmyansky recalls today from his home base in Dallas. Cuban’s instinct was to see if Oshmyansky’s idea could be bigger. He responded to the email and began peppering Oshmyansky with questions. What could he do if money were no object? Rather than custom-make drugs for individual patients, what would it take to buy or make lots of drugs at scale? What kinds of professional resources would be important? What kinds of relationships? On what timeline? “Sometimes, he actually directly came up with ideas to do much more, such as building a manufacturing plant in Dallas,” says Oshmyansky.

This all happened back in early 2019–and by the following year Cuban had not only invested in Oshmyansky’s idea but also signed on as a co-founder of a now much more ambitious company. No longer was this–as Oshmyansky had once envisioned–a noble nonprofit. Now it was a for-profit enterprise bent on buying or manufacturing as many different drugs as possible, distributing them at the widest scale possible, and offering the lowest prices possible and total price transparency. Three years of relationship-building and research later, the company started selling medicine early this year.

By the time Cuban sat onstage at SXSW in mid-March, Cost Plus Drug had 110 drugs available for purchase, direct-to-consumer on its website, for a fraction of prices elsewhere–with ambitions to offer thousands. The prices are based on nothing more than a 15 percent markup over the drug’s cost–plus a flat pharmacy labor fee of $3. The savings can be remarkable. Consider imatinib, an oral chemotherapy drug sold under the brand name Gleevec: Thirty 400-milligram tablets that cost $120 to $150 at mainstream retail pharmacies, including Costco and Walmart–and nearly $800 at CVS and $2,400 at Walgreens, according to GoodRx. At Cost Plus, the same amount of the drug goes for less than $50. The company has similar deals on many more common medications, such as the generics for Celebrex, Cipro, Flomax, Lipitor, Tamiflu, Wellbutrin, and Zoloft. “Pretty much the drugs that we have, if we have yours, cost less than your co-pay,” he told the audience in Austin, to a round of applause and hoots.

Cost Plus offers a head-slappingly simple solution to a problem that’s given politicians and pundits fits for years. It doesn’t yet accept insurance–Cuban has high hopes that it will–and it might not solve the problem of runaway health care costs at their root. But it solves an immediate and large part of the problem for many people, and in so doing might end up muscling the industry toward a more fundamental solution. What might one day be Cuban’s biggest financial success might also make his biggest impact on the world.

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With his Mavericks steaming toward the playoffs and Cost Plus Drug causing a stir, Cuban was busier than usual this spring, but he took time to discuss the new company’s approach to unlocking value–and opportunity–by dismantling an industry’s convoluted cost chain.

“We all know people who have had to ration their prescriptions. That should never, ever happen.”

Let’s start with the market you’re entering with Cost Plus Drug. Why are drugs otherwise so expensive? Can you give us a brutally honest assessment?

I’m still learning the details. But what I have found fascinating is that the manufacturers are not the bad guys they are made out to be. And that includes some of the insulin manufacturers.

There are companies called pharmacy benefit managers that are the gatekeepers to all the prescriptions paid for by insurance companies. If the drug manufacturers want their drugs prescribed, they have to play the game the way the pharmacy benefit managers want it played. Which means setting artificially high retail prices, paying rebates back to the PBMs, and more, to stay approved. As a result, the PBMs have the most power in the industry. Not the manufacturers. To make things worse, the PBMs are already vertically integrated into insurance companies and the largest pharmacy chains. So they are able to leverage their economic power at the expense of patients.

Can you explain, in a nutshell, how Mark Cuban Cost Plus Drug Company does it differently?

Our goal is to be the low-cost provider for all drugs that we are able to sell. We sell at our cost plus 15 percent. And we are currently building our own manufacturing plant in Dallas with the goal of getting our costs lower and expanding our inventory to thousands of drugs.

Why has this not been done before?

It’s not typical for a company to start off by saying, “We are not raising money, and we are not trying to maximize profits”–particularly given the amount of capital required to start a business like this and the three-plus years with no revenue it has taken us to develop the required relationships.

If we wanted to maximize profits as most companies do, we’d have to work with insurance companies and the largest pharmacy benefit managers. Their rules and economics would allow us to get far bigger and more profitable, but would require us to sell at higher prices. We chose not to work with them and to proceed independently.

As a wealthy person, you probably don’t experience the same frustrations with the cost of health care that many Americans do, so I’m curious how this issue hits home for you.

I have not had a recent experience. But I have had to pass up medical care in the past because I didn’t have insurance and couldn’t afford the required care. I’ve had to go to dental clinics that were used to train students to get root canals. And if you see my hands, my pinkies face the wrong directions because I couldn’t afford medical care for rugby and basketball injuries.

But this isn’t driven by personal experiences. We all know people who have had to ration their prescriptions or choose between food or shelter and their drugs. That should never, ever happen. We hope to change it.

Is there a way this model changes the wider pharma market–nongenerics, for instance?

We’ll grow from our current inventory to thousands of generic and branded drugs. Will it cause others to change how they do business? I think so.

When will the Dallas manufacturing facility you’re building start operating?

We hope to be open before year’s end. And we will make as many drugs as we can. The good news is that we have room to expand if need be.

Will Cost Plus ultimately be able to work with insurance?

Yes, we hope to. We have created a PBM that will be rebate-free and low-cost. That allows us to work with insurance companies if they want to work with us. This also allows us to work with self-insuring companies and other organizations, like unions.

What are the biggest obstacles that have arisen since you started on this path?

The time it takes to build trust that we are real, well-financed, and will do what we say we will do. We have been doing this for about four years, but didn’t launch until January 19 of this year.

What are the regulatory hurdles and your strategy for clearing them?

There are licensing and regulatory requirements we have to follow. We follow the same rules that everyone does. This is not a startup that is trying to avoid regulations or licensing requirements. Just the opposite. We make sure we dot every i and cross every t.

After Oshmyansky emailed you, what did you want to know about the idea, and him, before you got involved?

I wanted to know if we could disrupt the industry and be the low-cost provider at scale. As he went through the requirements and the costs and the timeline, I got more interested. Part of the process was co-founding Cost Plus Drug. With my funding and guidance, it allowed Alex to go out and make the deals and commitments that built trust. Plus, Alex is incredibly smart and detail-oriented. He has the exact right skill set and background to work on this. He is the exact right partner for this company.

From an entrepreneurial perspective, the story of Cost Plus is inspiring, because it’s tackling a seemingly intractable problem. Talk about the process of seeing entrepreneurial solutions to those kinds of problems.

Most times, these efforts don’t work. You push up against the incumbents and at some point you realize either you have hit an insurmountable roadblock or you have to be able to raise hundreds of millions, or billions, of dollars–and that kills the company. The beauty is we had the capital, patience and willingness to start small and push for impact more than profits. Most companies don’t have that luxury.

Are there other seemingly intractable problems that you think are ripe for that kind of patient-capital approach?

I think this approach can extend into hospitals. Besides there being waste, the economic goals are not in sync with the goals of keeping healthy patients. There is zero transparency on costs and even pricing. The misalignment of hospitals and insurance companies to optimize for profits rather than health is ripe for disruption. [A hospital company] won’t be able to scale as quickly as Cost Plus Drug has, because of the brick-and-mortar requirements. But it is time for it to happen.

How much of your time and energy is going to Cost Plus today?

Quite a bit. But the better news is Alex and [trusted Cuban deputy] Ryan Kline have put together an amazing team. They do all the day-to-day work. I work on strategy and financial elements.

Cost Plus seems like a kind of legacy project for you. How much are you willing to put into it?

From the May/June 2022 issue of Inc. Magazine

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