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 is on a stage in entrance of a thousand followers at SXSW with tech founder Falon Fatemi of the brand new audio-video leisure platform Fireside speaking about, effectively, nearly every part: why everybody ought to get a crypto pockets, how the metaverse will change media, what TikTook means for professional sports activities. And, little shock to anybody who’s watched him on Shark Tank or run into him on Twitter, Cuban has well-developed ideas on every.

Ever since he bought his startup ­ to Yahoo for $5.7 billion in 1999 and have become an instantaneous billionaire, Cuban has adopted his curiosity right into a wild array of fields, from well being care to fintech to media, client merchandise, and, after all, sports activities. Where others might need settled into a comfortable life as an NBA proprietor/playboy, he grew to become a form of super-entrepreneur, not solely investing in a diversified portfolio of startups, however getting deeply concerned in some as effectively, even co-founding a number of.

Cuban describes his course of as “ready, fire, aim.” He performs up the entire just-a-lucky-kid-from-Pittsburgh factor. But to anybody who works intently with Cuban, he is extra like a decided child from Pittsburgh who nonetheless identifies together with his blue-collar roots. Associates marvel at how arduous he works, how deeply he likes to analysis and perceive difficult techniques. “People don’t realize how technical he is,” says Fatemi, whose new app for creators Cuban co-founded together with her, after having invested in her final firm, an A.I. startup referred to as Node.

But whereas his collaborators ­admire what Fatemi calls “a bias toward action,” he is 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 main instance was proper onstage with Cuban at SXSW, in orange block letters on the entrance of his blue T-shirt: MARK CUBAN COST PLUS DRUG COM­PANY. That’s the title of the startup that represents maybe the largest entrepreneurial swing he has taken since Once upon a time, Cuban was prescient in recognizing that streaming would upend dwell leisure, however it’s been a few a long time since he is had a equally transformative take. And it did not occur in a single day. Some three years in the past, Cuban received an e mail from a 33-year-old radiologist named Alex Oshmyansky, with the topic line “Cold pitch.” It was one in every of many he will get each day. (Cuban is legendary for answering chilly emails; see “How to Get Mark Cuban’s Attention.”) Oshmyansky needed Cuban to spend money on a pharmacy he was beginning to custom-make generic medication and skip the layer of center­man wholesalers and so-called pharmacy profit managers, that are usually liable for heavy markups.

“Mark saw a huge societal problem with a pretty direct solution: Just make and sell medicines for less,” Oshmyansky recollects in the present day from his residence base in Dallas. Cuban’s intuition was to see if Oshmyansky’s thought might be larger. He responded to the e-mail and started peppering Oshmyansky with questions. What might he do if cash have been no object? Rather than custom-make medication for particular person ­sufferers, what would it not take to purchase or make numerous medication at scale? What varieties {of professional} sources can be necessary? What sorts 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 occurred again in early 2019–and by the next yr Cuban had not solely invested in Oshmyansky’s thought but additionally signed on as a co-founder of a now rather more bold firm. No longer was this–as Oshmyansky had as soon as envisioned–a noble nonprofit. Now it was a for-profit enterprise bent on shopping for or manufacturing as many various medication as doable, distributing them on the widest scale doable, and providing the bottom costs doable and complete value transparency. Three years of relationship-building and analysis later, the corporate began promoting drugs early this yr.

By the time Cuban sat onstage at SXSW in mid-March, Cost Plus Drug had 110 medication obtainable for buy, direct-to-consumer on its web site, for a fraction of costs elsewhere–with ambitions to supply 1000’s. The costs are primarily based on nothing greater than a 15 p.c markup over the drug’s cost–plus a flat pharmacy labor payment of $3. The financial savings may be exceptional. Consider imatinib, an oral chemotherapy drug bought beneath the model title Gleevec: Thirty 400-milligram tablets value $120 to $150 at mainstream retail pharmacies, together with Costco and Walmart–and practically $800 at CVS and $2,400 at Walgreens, in accordance with GoodRx. At Cost Plus, the identical quantity of the drug goes for lower than $50. The firm has related offers on many extra frequent medicines, such because 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 informed the viewers in Austin, to a spherical of applause and hoots.

Cost Plus presents a head-slappingly easy resolution to an issue that is given politicians and pundits suits for years. It does not but settle for insurance–Cuban has excessive hopes that it will–and it may not resolve the issue of runaway well being care prices at their root. But it solves a right away and enormous a part of the issue for many individuals, and in so doing would possibly find yourself muscling the trade towards a extra basic resolution. What would possibly someday be Cuban’s greatest monetary success may also make his greatest impression on the world.

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With his Mavericks steaming towards the playoffs and Cost Plus Drug inflicting a stir, Cuban was busier than regular this spring, however he took time to debate the brand new firm’s method to unlocking worth­–and opportunity–by dismantling an trade’s convoluted value chain.

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

Let’s begin with the market you are coming into with Cost Plus Drug. Why are medication in any other case so costly? Can you give us a brutally trustworthy evaluation?

I’m nonetheless studying the small print. But what I’ve discovered fascinating is that the producers are usually not the unhealthy guys they’re made out to be. And that features a few of the insulin producers.

There are corporations referred to as pharmacy profit managers which can be the gatekeepers to all of the prescriptions paid for by insurance coverage corporations. If the drug producers need their medication prescribed, they need to play the sport the way in which the pharmacy profit managers need it performed. Which means setting artificially excessive retail costs, paying rebates again to the PBMs, and extra, to remain authorized. As a end result, the PBMs have probably the most energy within the trade. Not the producers. To make issues worse, the PBMs are ­already vertically built-in into insurance coverage corporations and the most important pharmacy chains. So they can leverage their financial energy on the expense of sufferers.

Can you clarify, in a nutshell, how Mark Cuban Cost Plus Drug Company does it in a different way?

Our objective is to be the low-cost supplier for all medication that we’re capable of promote. We promote at our value plus 15 p.c. And we’re at the moment constructing our personal manufacturing plant in Dallas with the objective of getting our prices decrease and increasing our stock to 1000’s of medicine.

Why has this not been completed earlier than?

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

If we needed to maximise earnings as most corporations do, we would need to work with insurance coverage corporations and the most important pharmacy profit managers. Their guidelines and economics would enable us to get far larger and extra worthwhile, however would require us to promote at larger costs. We selected to not work with them and to proceed independently.

As a rich particular person, you in all probability do not expertise the identical frustrations with the price of well being care that many Americans do, so I’m curious how this problem hits residence for you.

I’ve not had current expertise. But I’ve needed to move up medical care previously as a result of I did not have insurance coverage and could not afford the required care. I’ve needed to go to dental clinics that have been used to coach college students to get root canals. And should you see my fingers, my pinkies face the flawed instructions as a result of I could not afford medical take care of rugby and basketball accidents.

But this is not pushed by private experiences. We all know individuals who have needed to ration their prescriptions or select between meals or shelter and their medication. That ought to by no means, ever occur. We hope to alter it.

Is there a means this mannequin adjustments the broader pharma market–nongenerics, as an illustration?

We’ll develop from our present stock to 1000’s of generic and branded medication. Will it trigger others to alter how they do enterprise? I feel so.

When will the Dallas manufacturing facility you are constructing begin working?

We hope to be open earlier than yr’s finish. And we are going to make as many medication as we are able to. The excellent news is that we have now room to broaden if want be.

Will Cost Plus finally be capable of work with insurance coverage?

Yes, we hope to. We have created a PBM that might be rebate-free and low-cost. That permits us to work with insurance coverage corporations in the event that they need to work with us. This additionally permits us to work with self-insuring corporations and different organizations, like unions.

What are the largest obstacles which have arisen because you began on this path?

The time it takes to construct belief that we’re actual, well-financed, and can do what we are saying we are going to do. We have been doing this for about 4 years, however did not launch till January 19 of this yr.

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

There are licensing and regulatory necessities we have now to observe. We observe the identical guidelines that everybody does. This shouldn’t be a startup that’s making an attempt to keep away from rules or licensing necessities. Just the alternative. We be sure that we dot each i and cross each t.

After Oshmyansky emailed you, what did you need to know concerning the thought, and him, earlier than you bought concerned?

I needed to know if we might disrupt the trade and be the low-cost supplier at scale. As he went by the necessities and the prices and the timeline, I received extra . Part of the method was co-founding Cost Plus Drug. With my funding and steerage, it allowed Alex to exit and make the offers and commitments that constructed belief. Plus, Alex is extremely sensible and detail-oriented. He has the precise proper talent set and background to work on this. He is the precise proper associate for this firm.

From an entrepreneurial perspective, the story of Cost Plus is inspiring, as a result of it is tackling a seemingly intractable downside. Talk concerning the means of seeing entrepreneurial options to these sorts of issues.

Most instances, these efforts do not work. You push up towards the incumbents and sooner or later you notice both you’ve hit an insurmountable roadblock or you’ve to have the ability to increase tons of of thousands and thousands, or billions, of dollars–and that kills the corporate. The magnificence is we had the capital and persistence and willingness to start out small and push for impression greater than earnings. Most com­panies haven’t got that luxurious.

Are there different seemingly intractable issues that you simply assume are ripe for that form of patient-capital method?

I feel this method can lengthen into hospitals. Besides there being waste, the financial objectives are usually not in sync with the objectives of protecting sufferers wholesome. There is zero transparency on prices and even pricing. The misalignment of hospitals and insurance coverage corporations to optimize for earnings somewhat than well being is ripe for disruption. [A hospital company] will not be capable of scale as shortly as Cost Plus Drug has, due to the brick-and-mortar necessities. But it’s time for it to occur.

How a lot of your time and power goes to Cost Plus in the present day?

Quite a bit. But the higher information is Alex and [trusted Cuban deputy] Ryan Kline have put collectively an incredible group. They do all of the day-to-day work. I work on technique and monetary components.

Cost Plus looks like a form of legacy venture for you. How a lot are you keen to place into it?

From the May/June 2022 problem of Inc. Magazine

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