Our “Innovators Worth Watching” series spotlights interesting and potentially disruptive players across a spectrum of industries.
Watchers of the show Shark Tank, or fans of the Dallas Mavericks, know Mark Cuban as a household name. The billionaire with a big personality made his name in the media industry, but that’s not all he’s known for. He is also known for his generosity and philanthropy. Almost immediately after the NBA suspended games at the beginning of the COVID-19 pandemic, Cuban committed to continuing to pay the salaries of all American Airlines Center employees. And his Foundation provides tech bootcamps for disadvantaged high school students. These are just two examples of his philanthropic efforts.
Cuban’s latest venture, however, targets the health care arena. He recently launched the Mark Cuban Cost Plus Drug Company. Offering numerous medications “at cost plus a 15% markup,” his goal is to drastically lower the cost of medications for consumers while providing price transparency. But is this new venture a disruptive one? We put Cost Plus to our six question test to assess its disruptive potential.
1. Does it target people whose only alternative is to buy nothing at all (nonconsumers) or who are overserved by existing offerings in the market?
Yes. The high cost of medication has been one of the top health care issues for years, and remains so to this day. Reports of people skipping out on medication due to cost go back at least a decade. More recently, almost 30% of US adults said they did not take medication as prescribed because doing so was cost prohibitive. As a result, Mark Cuban’s pharmacy targets nonconsumers by targeting those who go without prescriptions because the current alternative is unaffordable.
2. Is the offering not as good as existing offerings as judged by historical measures of performance?
Yes. Cuban’s pharmacy only sells the generic versions of medications, not name-brand ones. Historically, name-brand prescriptions are considered the preferred option over generic medications. Name-brand drugs are referred to by the name given to the drug by the developing pharmaceutical company, while the “generic” is named after the drug’s active ingredient. In both the name-brand and the generic versions, the active ingredient is the same; it’s the inactive ingredients (dyes, preservatives, etc.) that differentiate their makeup. However, name-brand medications often carry more reputational weight, and therefore are considered “better” than generics, despite being far more expensive.
3. Is the innovation simpler to use, more convenient, or more affordable than existing offerings?
Yes. The pharmacy’s offerings are more affordable. The website directly states the cost savings per 30-day supply of each drug that they sell, when compared to the usual retail price. Some of the savings are extraordinary: one cancer drug available for purchase is showing upwards of $2500 in savings for a 30-day supply. Ordering medication online and receiving prescriptions through delivery is also more convenient for many people.
4. Does the offering have a technology that enables it to improve and capture a larger market over time?
No. While it is a digital pharmacy, there is nothing unique about Cost Plus’s technology. However, there is also no technological barrier to Cost Plus moving upmarket and expanding its offerings. Said differently, Cost Plus would be able to use its existing technology platform to offer an expanding list of generic drugs. The real disruptive potential comes through in its value network, which we get into in the below question.
5. Is the technology paired with an innovative business model that allows it to be sustainable?
Yes. The reason that Mark Cuban’s company is able to offer drugs at such a low cost is it operates its own pharmacy benefits manager. Pharmacy benefits managers (PBMs) are the entities that negotiate with drug manufacturers and pharmacies to manage prescription drug benefits for consumers. Instead of utilizing a PBM, Cost Plus cuts out the middleman and negotiates directly with pharmaceutical companies. This is why the pharmacy is able to offer medications at such a low price, allowing it to sell medication with just enough markup to keep the company running.
6. Are existing providers motivated to ignore the new innovation and not feel threatened by it at the outset?
Maybe. Mark Cuban’s name carries weight in several business-oriented circles. And drug pricing has been a top issue in health care for years. So his venture traction from consumers and, as a result, it may get attention from existing pharmacies. But this is just one of many ventures trying to curb medication costs. Several online pharmacy startups exist, tackling this issue from numerous angles: GoodRx, Blink Health, and Capsule Pharmacy, to name a few. As he is entering an already crowded space, Mark Cuban’s venture may get lost in a saturated market populated by a number of companies tackling the same problem. This could tempt today’s leading pharmacies not to consider it a threat. Alternatively, his convenient, highly affordable, easy to use, and transparent approach to pricing could be disruptive enough to attract enough of the consumer market to its site that incumbents take notice.
So where does that leave Cost Plus? While lacking a technological enabler that can sometimes be a hallmark of disruptive innovations, Cost Plus’ business model and value network give it disruptive potential. The company should be able to leverage its online platform to sell an expanding list of drugs, while continuing to keep costs low and expand access to a far broader audience than incumbent bricks and mortar pharmacies. I, for one, am excited to see the success of Cost Plus as it unfolds.
