Dealing drugs for 15%
On the finer points of Texas business law, generic drugs, and what people are happy to pay in exchange for great prices
The Mark Cuban Cost Plus Drug Company sounds more like the premise of a "Saturday Night Live" sketch than a public-benefit company, but the celebrity business builder is staking his good name on the success of the operation. The online pharmacy is a real thing, despite its most unassuming name, and it might just set up a template for other capitalists to follow.
■ As a legal structure, the company is not an LLC or an "Inc." Under Texas law, it is a "PBC" -- a public-benefit corporation, a for-profit company, but one that is required to act to balance the interests of shareholders with those of the public and of other parties -- like customers.
■ The company describes its pricing structure as part of its mission: The actual cost of the pharmaceutical, plus a 15% markup, plus a flat-rate pharmacy preparation fee and shipping. It is the 15% markup that is most interesting.
■ A 15% profit margin is neither monopoly-fat nor razor-thin. It lies somewhere comfortably between "modest" and "generous", in a range where no reasonable customer is going to complain about the markup. Aside from the truly hard-core communists, everyone understands that a business has to turn a profit in order to remain in operation. And 15% margins are self-evidently enough to attract a backer like Cuban, who has access to just about any investment opportunity a person could want.
■ Cuban is almost certainly telling the truth when he says the mission of the venture is rewarding in a way that additional money alone is not. But even if he looked at it strictly as a profit-making venture with no psychic reward attached, a venture with a perpetual 15% profit margin would be a reasonably attractive one.
■ Whether or not others choose to mimic Cuban's choice of the PBC corporate form, it would do a lot of social good for capitalists with some managerial expertise (or other innovative advantages) to apply their skills to entering other flawed markets where a flat-rate profit margin of 15% would be just fine as an investment -- neither spectacular nor dowdy -- and where customers would be legitimately delighted to pay the "cost plus" profit margin.
■ Not every social problem requires a government intervention. As Cuban observes, fixing a problem can present a market opportunity. And as others have observed, the government itself would be better off as a customer -- to the tune of $3.6 billion. There's no shame in making a fair profit, and there may well be a surplus of honor if that margin is 15%.