Motley Fool Hidden Gems Investing - Mark Cuban on Drugs, Investing, and Advice for Jeff Bezos

Episode Date: November 20, 2022

The big three healthcare companies aren’t paying much attention to Mark Cuban’s new health care venture, Cost Plus Drugs. But their margins could mean a huge opportunity for the new start-up. Chris Hill caught up with 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 check out Mark's new business go to www.CostPlusDrugs.com Companies mentioned: WBA, CVS, NFLX, LYV, LVS, AMZN Host: Chris Hill Guest: Mark Cuban Producer: Ricky Mulvey Engineers: Dan Boyd, Austin Morgan, Tim Sparks Learn more about your ad choices. Visit megaphone.fm/adchoices

Insulin is a good talking point right so 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 you know half decade to decade while the price to consumers has unfortunately gone up for insulin so everybody gets upset about the price of insulin but it's not the manufacturer that typically sets the retail price. I'm Chris Hill, and that's Mark Cuban. You may know him from Shark Tank or as 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, and 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 do want to get into the what, 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? 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. 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. And so it really didn't seem like it was a big task, just an expensive task. I mean, it's really straightforward. You know, at costplusdrugs.com, we have a very simple mission to be the low-cost provider of medications. And we recognize that medications really aren't 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 you know if you're going there's going to be surprises you don't know what you're going to get or not get and if you think about your experience with prescriptions you know you're you're at your doctors and they tell you okay you need this medication and you don't talk about cost you don't talk about much of anything you know the only thing the the doctor asked you is what pharmacy do you use and then when you go to the pharmacy you really don't know

what you're going to pay. You know, maybe you've got like a phenomenal insurance program where there's no copays, but, you know, tens of millions of people are either uninsured, underinsured, or have high deductible or high copay, including, you know, Medicare. And so when you're in that set of circumstances, going to a pharmacy or using mail order for your medications, whatever it may be is nerve-wracking. Nobody had any control. I saw that, and Dr. Ash, my answer, we saw that as an opportunity to create a change. You talked at the beginning about how this is an expensive challenge. One of the expenses, I have to believe, is building awareness. 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? So, how do you and your team go about building awareness for cost plus drugs other than having conversations with people like me? Yeah, other than that, we really spend zero on marketing. And obviously, I have a big platform on social media and can do interviews anywhere and everywhere, and I do. But the reality is, I mean, I'll give you an example. There's a drug called imatinib, which is for leukemia. And some people literally, you know, get that, you know, what's 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. So I think we're in the 41,

I forget the exact price, but it's like $41, $51. And so when you have that dramatic a price savings for patients. Everybody who has leukemia that uses this drug, you know, they're in the same Facebook groups, they're online talking to each other, they're, you know, they're communicating with their doctors and telling them how much money they save, who in turn tells other patients, hey, have you seen Cosplus drugs? You got to check it out. And so word of mouth and being viral is enormous for us. Because, you know, when you got your medication, I take Levoxetrin, which is the generic of Synthroid for hypothyroidism. I'm always telling people, look, when I hear that they've got it, you've 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. 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? So, since I'm sure you've heard from them, what has been the reaction from the traditional pharmacy system? I mean, they think we're just tiny and they ignore us, which is great. That's exactly what we want them to do. There are three big companies that own major insurance companies that own the big retail pharmacy chains like CVS and Walgreens, et cetera. And they also own these things called pharmacy benefit managers, along

with many other things. They're literally top 20 in revenue size companies. And so 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. And, you know, to quote Jeff Bezos, their margin is our opportunity. And so, you know, I don't think they're paying attention to us yet. They know we exist. You know, we've heard them say things to politicians and heard them say things to others. But, you know, it's going to be very, very difficult as these huge public companies to adapt as quickly as we

can. Well, you just touched on something that I was trying to get at in my opening preamble when I talked about, you know, this is a beautiful garden with a lot of thorns in it. You know, if you would come out in January and announce that you were starting a business, and it was a national, you know, chain of, you know, 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 Capitol Hill. Going into the prescription drug industry in any way, shape, or form is going to get the attention of the political world. I'm sure part of what some of your competitors are saying is like, boy, 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 believe it or not chris um so it bifurcates into there's the manufacturers who who do the r&d or purchase companies and get the fda approvals and market the drugs and then there's the big three companies that own the the the insurance companies pharmacies and pbms the big three with the pbms etc you know they're at risk the manufacturers actually they see us as a benefit Because 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, you know, insulin is a good talking point, right?

So 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. So 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 $1,000 and we're giving you 40% off.

So that's $600 when the reality is, you know, on top of that, the insurance company is asking for an additional or PBM is asking for an additional rebate. And so there's all kinds of gamesmanship with the pricing. The manufacturers would love to be able to say, you know what, Cost Plus Drugs, we'll sell it to you at our net price. And you just pass that on, market it up 15 percent. Because realize when you go to costplusdrugs.com and you see the drug that you're taking, the voxethrin, whatever, you know, you're going to see what we pay. You're going to see our cost. You're going to see our markup at 15%. You're going to see that we charge $3 for a pharmacy dispense fee and $5 for shipping.

So we're completely transparent. Manufacturers love that. I realize that this business has not yet reached its first birthday. so maybe this is an unfair question, but I'm going to ask it anyway. What do years two, three, and four look like for Cost Plus Drugs, for someone who is trying to get a sense, whether it's a competitor or an 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 the manufacturing business yourself? Do you start lining up more specific and deeper partnerships

with the drug makers? Yeah, it's a great question, actually. And to answer your question, one, we're already building a manufacturing plan in Dallas for sterile. There are all kinds of shortages that occur with drugs, believe it or not. And 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 manufacture 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, okay, 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. And we literally are

finishing up a 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, switch over the robots so then we can make Pitocin, make what we need to there four hours later, boom. And 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 going to feel really good 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 cheaper faster so that that's part one 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 roast for diabetic supplies which are branded we're going to be adding significant number more we're working on contracts there so that's part two Part three 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 penicillin, 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 costplusdrugs via mail order. But, you know, with an affiliation, an affiliate network of independent pharmacies, then you'll be able to just go pick it up. And if there's any independent pharmacists out there, go to our Twitter page and DMS and we'd love to work with you. So those are some of the big changes. And then we'll be coming up. we're coming out with a benefit card that you'll be able to, your employer will be able to use so that when you have a prescription, you know, your insurance will be, your employer will pay

less, which will save them money and hopefully eliminate your copay. And you can take that and buy directly from us using mail order or from one of our affiliated pharmacies. I'm assuming as you were thinking about building this business, One of the thoughts that went through your mind, beyond sort of 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, you know, 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. Yeah, I mean, other parts of healthcare for sure are 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, you know, hey, if you know, you're going to get your hip replaced, just shop it. Or, you know, if you know, you're going to have some other operation, you can go to a hospital website and see the cash price versus

the insurance price. Like if I get a C, I got a CT colonoscopy instead of the old Roto-Rooter version. And I just went to my hospital website and saw, you know, what the cash price was. And it, and since, you know, it was through the insurance of my company that I self-insure, it was cheaper just to give them a credit card than to do it through our insurance plan and so there's a lot of misaligned incentives there and i think where this really and 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 disaggregate 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's certainly hopefully on our roadmap. 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, D.C. 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 someone 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? 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 ceo let's just talk in reference to amazon you know the wall street journal might do an article every few months you know on social media there'll be something all the time um but the reality is in sports there's you know 17 games plus playoffs in the nfl but you know during the off season everybody cares about it and so it's just a continuous drumbeat of interest. And fans are so passionate that, you know, if Amazon had a down quarter or struggling, you know, people will accept it and understand it. People are not accepting or understanding in sports. You just bought a pickleball team. Skeptical sports fans who have a lot of viewing options. Sell me on pickleball. I guess that's my question.

Why am I watching professional pickleball? Because it's fun. I mean, you know, it's table tennis ping pong on a tennis court and they're super athletic and it's a sport that anybody can play anybody can be okay at but the level it's like basketball or softball versus baseball or you know where there's sports that anybody can participate um but the pros are at a whole different level and when you go to watch one or you watch it on tv or streaming that the level athleticism and quickness and hand-eye coordination and quickness is insane. So I'm not saying it's going to replace basketball or football, but it's really a fun show. It's really a fun sport to watch in person, and it's not so bad on television. 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. Thanks so much, Chris. I really enjoyed the interview. 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, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Chris Hill. Thanks for listening. We'll see you tomorrow. Thank you.