In this podcast, Motley Fool host Chris Hill caught up with Mark Cuban to discuss:
- Why he's able to sell a leukemia drug for thousands of dollars less than competitors.
- Stocks he bought during the pandemic.
- Advice for potential NFL owner Jeff Bezos.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on Nov. 20, 2022.
Mark Cuban: Insulin is a good talking point. The manufacturers talk all the time about how their net price, how their net revenues per vial of insulin has dropped continuously over the past half-decade to decade, while the price to consumers as unfortunately gone up for insulin. Everybody gets upset about the price of insulin, but it's not the manufacturer that typically sets the retail price.
Chris Hill: I'm Chris Hill and that's Mark Cuban. You may know him from Shark Tank or is the longtime owner of the Dallas Mavericks, but he's also disrupting part of the healthcare industry. I caught up with Mark to talk about his new online pharmacy business. How some incentives in the healthcare industry are misaligned. His advice for Jeff Bezos, if Bezos really wants to become the owner of an NFL team.
Let's talk about cost-plus drugs. I want to get into the nuts and bolts of this business. But I have to start at a much higher level, Mark. I guess my first question for you is, why would you take this on? You can do anything you want in the world of business, and you have decided to attack a garden that is riddled with thorns. There are beautiful flowers in this garden, but there are so many thorns in the prescription drug industry. Why did you decide to take on this challenge?
Mark Cuban: Because I can. Really though it's 2022 in the United States of America and we still have people having to choose between medication, food, rent, necessities, and that's just wrong. When you look at any industry and you see that it's opaque, you see that it's dominated by a few key players. You see that there's no trust whatsoever, you see that their pricing is variable depending on where you show up and when, that's just an industry that's ripe to be disrupted. It really didn't seem like it was a big task, just an expensive task. I mean, it's really straightforward. At cost-plus drugs.com, we have a very simple mission to be a low-cost provider of medications. We recognize that medications really on our product though. What our product is is trust. Because if you think about the whole healthcare system and your own personal experiences, you trust your doctor, at least hopefully you do.
But anyone or anybody else that you have to write a check to, you don't trust them at all. You don't know what you're going to spend. You don't know if there are going to be surprises, you don't know what you're going to get or not get. If you think about your experience with prescriptions, you are at your doctors and they tell you, you need this medication and you don't talk about cost. You don't talk about much of anything. The only thing the doctor ask you is what pharmacy do you use? Then when you go to the pharmacy, you really don't know what you're going to pay. Maybe you've got a phenomenal insurance program where there's no co-pays, but tens of millions of people are either uninsured, underinsured or have high deductible or high co-pay including Medicare. When you're in that set of circumstances going to a pharmacy or using mail order for your medications, whatever it may be, its nerve racking and nobody had any control. I saw that and doctor we saw that as an opportunity to create a change.
Chris Hill: You talked at the beginning about how this is an expensive challenge and one of the expenses I have to believe is building awareness because I was thinking as you were talking about the last time I needed medication, I was thinking about that point in the process where the doctor says, and what pharmacy do you use? How do you and your team go about building awareness for cost-plus drugs other than having conversations with people like me?
Mark Cuban: Other than that, we really spent zero on marketing. Obviously, I have a big platform on social media and can do interviews anywhere and everyone I do. But the reality is, I'll give you an example. There's a drug called Imatinib, which is for leukemia. Some people literally get that what your pharmacy routine show up at the pharmacist and Imatinib for 30 days was several thousand dollars and we sell it now, we've lowered our price several times. I think we're in the 41, I forget the exact price, but it's like 41, $51.
When you have that dramatic of price savings for patients, everybody who has leukemia that uses this drug, they're in the same Facebook groups, they're online talking to each other. They're communicating with their doctors and telling them how much money they save, who in turn tells other patients, if you've seen cost-plus drugs, you got to check it out. Word of mouth and being viral is enormous for us because when you got your medication, I take the Lovaza trend, which is the generic of centroid for hypothyroidism and I'm always telling people, when I hear that they've got it, you got to go to cost-plus drugs because it's going to be $5.60 if you take the same strength as I do versus the $200 I was paying a year ago.
Chris Hill: There are others in this space as well. I think about a business like GoodRX. When I think about the alternatives to the traditional pharmacy system, one of the places my brain goes is to what is the reaction of the CVS and Walgreens of the world? In sense I'm sure you've heard from them, what has been the reaction from the traditional pharmacy system?
Mark Cuban: They think we're just tiny and they ignore us, which is great. Exactly what we want to do. There are three big companies that own major insurance companies that own the big retail pharmacy chains, like CVS and Walgreens, etc. They also own these things called pharmacy benefit managers, along with many other things. They're literally top 20 in revenue size companies. They don't pay a ton of attention to us yet. But it's because they're vertically integrated that we have this opportunity because that enables them to distort prices, to play left-pocket, right pocket if I don't make it at the pharmacy, I'll make it at the PBM. If I don't make it at the PBM, I'll make it through our insurance company. To quote Jeff Bezos, their margin is our opportunity. I don't think they're paying attention to us yet. They know we exist. We've heard them say things to politicians and heard them say things to others. But it's going to be very difficult as these huge public companies to adapt as quickly as we can.
Chris Hill: You just touched on something that I was trying to get at in my opening preamble when I talked about, this is a beautiful garden with a lot of thorns in it. If you would come out in January and announced that you were starting a business and it was a national chain of pasta restaurants, there would be some in the restaurant industry who weren't thrilled about the competition, but it wouldn't get the attention of Capital Hill. Going into the prescription drug industry in any way, shape, or form is going to get the attention of the political world, and I'm sure part of what some of your competitors are saying is like, we've had a good system here that really fosters innovation. It's the profits that we make that are able to fuel innovation. If Mark Cuban has his way, it's going to kill innovation. I'm sure you've run into that line of reasoning. What is your response?
Mark Cuban: Believe it or not Chris. It bifurcates into these the manufacturers who do the R&D or purchase companies and get the FDA approvals and market the drugs. Then there's the big three companies that own the insurance companies, pharmacies, and PBMs. The big three with the PBMs, etc. They're at risk. The manufacturers actually, they see us as a benefit because this, the PBMs are asking for rebates in order to be able to make those drugs available to the pharmacies and on the formularies of the insurance companies and so the manufacturers see us as a plus because Insulin is a good talking point. The manufacturers talk all the time about how their net price, how their net revenues per vial of insulin has dropped continuously over the past half decade to decade, while the price to consumers has unfortunately gone up for insulin. Everybody gets upset about the price of insulin, but it's not the manufacturer that typically sets the retail price. It's the PBM.
It's these vertically integrated companies that go to the manufacturer and say, look, you have to set the retail price really high because we want you to be able to pay us rebates and we want to be able to tell some of these people, we do negotiations for big self-insured companies, the government, that you set the list price at a 1,000 and we're giving you 40 percent off, so that's 600. When the reality is on top of that, the insurance company is asking for an additional or PBM is asking for an additional rebate. There's all kinds of games may ship with the pricing. The manufacturers would love to be able to say, you know what cost-plus drugs will sell it to you at our net price. You just pass that on market it up 15 percent. Because realize when you go to cost-plus drugs.com and you see the drug that you're taking, a box of three and whatever, you're going to see what we pay, you're going see our cost. You're going to see our markup at 15 percent. You're going to see that we charged three dollars for a pharmacy dispense fee and five dollars per shipping. We're completely transparent. Manufacturers love that.
Chris Hill: I realized that this business has not yet reached its first birthday. Maybe this is an unfair question, but I'm going to ask it anyway. What do Years 2, 3 and 4 look like for cost-plus drugs for someone who is trying to get a sense whether it's a competitor or a potential investor who's hoping that someday this is a business that gets spun out into the public markets. Other than adding drugs to the platform, do you go into the manufacturing business yourself? Do you start aligning up more specific and deeper partnerships with the drug makers?
Mark Cuban: Yeah. It's a great question actually, and to answer your question. One, we're already building a manufacturing plant in Dallas for sterile. There are all kinds of shortages that occur with drugs, believe it or not. A lot of times they're very simple drugs, sterile water, Pitocin, things that are supposed to be regularly available. But because the markets aren't very big, the people who manufacturer them like to create shortages because they take some of their inventory and sell it at a much higher price. We're working with hospitals to say, OK, what are the most impactful drugs that run into shortages that are generic, not pill but typically injectable because that's most difficult for hospitals. We're literally are, are finishing up robotics driven manufacturing site in Dallas where we'll be able to make sterile water.
And when we've made as much as we need to for the hospitals in four hours switchover the robots, so then we can make Pitocin, make what we need to there, four hours later, boom. In terms of looking forward two or three years, if that market is as big as we think it is, and we're able to end shortages for drugs that hospitals need, particularly pediatric drugs, not only are we going to feel really good and make a little bit of money, but we'll be able to expand our capacity hopefully by 10X and buy some time so that the robotics get better, cheap or faster. That's Part 1. Obviously, we'll add more drugs, we'll get more into the branded drug right now we're primarily generics. We've got to deal with Roche for diabetic supplies which are branded, we're going to be adding significant number more. We're working on contracts there.
That's Part 2. Part 3 is we're putting together an affiliation of independent pharmacies and grocery chains, so that in addition to getting from costplusdrugs.com as mail-order, you'll be able to pick it up locally so that, if it's amoxicillin, let's say, and you need it quickly because you have an infection, you may not be able to wait five to seven days with cost-plus drugs via mail order, but with an affiliate network of independent pharmacies, then you'll be able to just go pick it up. If there's any independent pharmacists out there, go to our Twitter page and DM us and we'd love to work with you. Those are some of the big changes, and then we're coming out with a benefit card that your employer will be able to use so that when you have a prescription, your employer will pay less, which will save them money and hopefully eliminate your copay. You can take that and buy directly from us using mail order or from one of our affiliated pharmacies.
Chris Hill: I'm assuming as you were thinking about building this business, one of the thoughts that went through your mind beyond the unfairness of the prescription drug market for consumers was just the misaligned incentives. How the PBMs don't really have their incentives aligned with the customers. I'm curious if you see that playing out in other industries, if there are other industries that you look at and you think, well, I'm focused on this in the world of prescription drugs, but that industry over there, it kind of seems like the same dynamics at play.
Mark Cuban: Yeah, other parts of healthcare for sure, or the low-hanging fruit because again, there's so much uncertainty as a patient when you go to an emergency room, when you're in the hospital, when you're having a procedure done. And there are a lot of marketplace solutions that people are offering. Hey, if you know you're going to get your hip replaced, just shop it or, if you know you're going to have some other operation, you can go to a hospital website and see the cash flat price versus the insurance price. If I get CT colonoscopy instead of the old Roto-Rooter version, I just went to my hospital website and saw what the cash price was and it was through the insurance and my company that I self-insure, it was cheaper just to give them a credit card then to do it through our insurance plan. There's a lot of misaligned incentives there. Again, when it comes to hospitals in particular, there is so much administration cost associated with insurance companies, what they call payers, that there are going to be ways to dis aggregate the insurance side of the business and hopefully cut the cost to run emergency rooms and hospitals. But that's not going to be tomorrow, that's 10 years away. But it certainly, hopefully on our roadmap.
Chris Hill: You have owned the Dallas Mavericks for more than 20 years. You know what it means, not just to own a professional sports team in America, but also what it is like to be in a room with other owners of other teams. Here in the Washington DC area it's being widely reported that the local football team might be up for sale and that one of the people who might be interested in buying is something you mentioned earlier in our conversation, Jeff Bezos. What advice would you have for Jeff Bezos if he becomes one of a few dozen owners of an NFL team?
Mark Cuban: It's not like any other business. Jeff is in the public eye and he knows what it's like to be in the public eye. Even though he's not see all. Let's just talk in reference to Amazon. The Wall Street Journal might do an article every few months on social media. They'll be something all the time. But the reality is in sports, there's 17 games plus playoffs in the NFL, but during the off-season everybody cares about it. It's just a continuous drumbeat of interest. Fans are so passionate that if Amazon had a down quarter and it was struggling, people will accept it and understand it, people are not accepting or understanding in sports.
Chris Hill: You just bought a pickleball team. Skeptical sports fans who have a lot of viewing options, but sell me on pickleball, I guess that's my question. Why am I watching professional pickleball?
Mark Cuban: Because it's fun. Ping pong on a tennis court. They're super athletic and it's a sport that anybody can play, anybody can be OK at, it's like basketball or softball versus baseball or, where there are sports that anybody can participate, but the pros are at a whole different level. When you go to watch one or you watch it on TV or streaming, the level of athleticism and quickness and hand-eye coordination and quickness is insane. I'm not saying it's going to replace basketball or football, but it's really a fun sport to watch in person and it's not so bad on television.
Chris Hill: You can watch him on Shark Tank, but I think you'd rather you just go to costplusdrugs.com and check out his latest business venture. Mark Cuban, thank you so much for being here.
Mark Cuban: Thanks so much, Chris, I really enjoyed the interview.
Chris Hill: If you want to check out Mark's new business venture, just go to costplusdrugs.com. As always, people on the program may have interest in the stocks they talk about. The Motley Fool may have formal recommendations for or against, so don't buy yourselves stocks based solely on what you hear. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.
