Gongol.com Archives: June 2022

Brian Gongol

June 28, 2022

Business and Finance Dealing drugs

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%.

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