E-pharmacies: Opportunities amidst uncertainties

by Nandini Agarwal

The Indian pharmacy market is in the midst of exciting times. While on one hand, online pharmacy is fast catching fancy of the investor, on the other hand, it is facing resistance from brick and mortar retailers demanding a ban on online sale of medicines. The Government is yet to come out with a regulatory regime for online pharmacies.

The Indian pharmacy market (domestic prescription) is a huge market estimated at ~USD 15 bn (as per All India Organisation of Chemists and Druggists) in 2016 and expected to witness a long term strategic growth of 15% p.a. While online pharmacies currently account for a miniscule portion of the total market, activity in the segment is gaining traction. As many as 60 online pharmacy delivery startups have mushroomed over the past two years (as per Traxcn). Key players include 1mg, Netmeds, PharmEasy, Zigy, mChemist.

Brick-and-mortar stores, concerned about the rise of online pharmacies, have demanded that online pharmacies be banned as they operate outside the purview of Drugs and Cosmetics Rule 1945. The All India Organization of Chemists & Druggists (AIOCD) also called for a nationwide strike on October 14, 2015 with ~850,000 brick-and-mortar drug retailers shutting their shop to express concerns over the booming online drug retail business.1

The sale and distribution of drugs in the country is regulated by the Drugs and Cosmetics Rules, 1945 (D&C Rules). The key provisions of the rules are as below:

• Medicines can be sold only by a registered pharmacy that has retail license. Even over-the-counter (OTC) drugs can be sold only by licensed retailers

• It is mandatory for the customer to have a prescription for the medicines signed by a Registered Medical Practitioner (RMP). Over the Counter products can be sold without prescription

• The pharmacy should also have a registered pharmacist on payroll. All the medicines that go out for delivery has to be verified and certified by the registered pharmacist

• Clear guidelines on the sale of Schedule H and Schedule X drugs, which are ‘restrictive drugs’ and can be sold only on the prescription of a registered medication practitioner and adhere to the rules mentioned in the act

The members of AIOCD contented that online pharmacies are by-passing these rules which will lead to widespread drug abuse and counterfeit drugs. However, as per online players, they are resisting as e-pharmacies pose a threat to the large brick-and-mortar stores. Online pharmacies, operating with low costs, are able to pass discounts to customers who are increasingly shifting to online as a preferred means of purchase.

I strongly feel it is a fight between the big organised players and small stores, who empowered with technology, are giving tough competition to the large players. There have been violations in the offline space too. For example, a drug such as Crocin also needs a prescription, but no one asks for it. – Dharmil Sheth, Founder of PharmEasy, a Mumbai-based online marketplace for small mom and pop medical stores.

In response to the representations by AIOCD, the Drug Consultative Committee has constituted a sub-committee to propose new framework for the regulation of online pharmacies in India. In December, the committee issued a circular not imposing any ban but seeking strict adherence to the Drugs and Cosmetics Act and Rules.

What are the key areas of concern online pharmacies are battling with?

As a current practice, online pharmacies mandate customers to upload a scanned copy of the prescription before drugs can be delivered. The question arises as to whether a scanned copy or electronic form of prescription meets the requirements of being ‘signed’ by an RMP.

Further, the D&C Rules also require that the registered pharmacist, under whose supervision drugs are dispensed, makes a note that the drug has been dispensed on the prescription itself so that the prescription is not over-dispensed. It is tough to make such a note over a scanned or electronic copy of a prescription.

Another challenge is related to the place of sale. As per the laws, the sale of drugs must take place at the licensed premises approved by the licensing authority. In case of online sale, it is tough to ascertain whether the sale took place at the chemist shop or the customer’s house.

Despite the inherent challenges in complying with the law, e-pharmacies have significant advantages:

• Increased convenience and access: The e-pharmacy is convenient and significantly improves the access of medicines for the patients. The access of medicines is difficult for a significant number of people in the country, especially when one is sick

• Improved availability: Offline pharmacies can only keep limited inventory. E-Pharmacies can improve the availability of the drugs with the use of technology and access to Inventory of multiple stores at a time. Even tier II/III cities and rural villages can have access to the latest medicines

• Improved affordability for customers: The operating costs (real estate, inventory etc) for e-pharmacies are less than the brick-and-mortar pharmacies. They can pass on some of these cost benefits to the consumers. The websites also offer generic alternatives to most medicines; online buyers can thus expect significant savings

• Other advantages including Enhanced services of Pharmacist (online chats etc), effective tracking of medicines purchased, medicine authenticity, increased information to customers

Real benefit of e-pharmacies is in the digitization of the data right to the delivery to the customer. Legitimate online pharmacies will bring in transparency, traceability and accountability in the system. – Rajiv Gulati, Co-Founder of mChemist, a Delhi-based online pharmacy

The benefits of e-pharmacies coupled with rise in ageing population and increasing internet penetration in emerging countries is driving the global online pharmacy market. The global e-pharmacy market was valued at ~USD 30 bn in 2014 and is expected to grow at a strong CAGR of 17.5% to reach USD 128 bn by 2023 (Transparency Market Research). North America leads the market with a share of 37% (~USD 11 bn). Asia Pacific region foresees strong potential for the growth of e-pharmacies owing to the large untapped market in emerging economies.

Leading US retail pharmacies such as CVS and Wallgreen have online pharmacy services in addition to a vast retail network of drug stores. We see this trend in India as well – Apollo Pharmacy, India’s largest pharmacy with 1,822 stores has launched online portal to sell medicines. Medplus, India’s second largest pharmacy chain with 1,350 pharmacies also launched its online pharmacy & general store, MedPlusMart.com, in 2015.

Increased investor interest in the segment even as the Government is yet to formulate guidelines for e-pharmacies

Online pharmacy is at a nascent stage in India but has the potential to become a large segment. It is estimated that online deliveries currently account for a meagre USD 10 million in size1. However, with adoption of e-commerce among Indian consumers and rising spends on healthcare, this category is likely to grow. With the huge potential the vertical holds, startups are witnessing heightened interest from investors.

In one of the largest funding in the space, Chennai-based online pharmacy marketplace, Netmeds.com, raised USD 50 mn led by Orbimed2. Netmeds.com is a fully licensed pharmacy that offers prescription and OTC medicine along with other health products.

1mg, the generic drug search business of online health product vendor Healthkart, was spun as a separate entity in April 2015 and raised USD 6 mn from investors including Sequoia Capital and Omidyar Network. The company raised a Series B round of USD 15 mn round (Rs 100 cr) and subsequently raised an undisclosed amount from HBM Healthcare. The company also acquired online homeopathic drug store Homeobuy for an undisclosed amount. Following the acquisition, Homeobuy will be rebranded 1mgAyush and deal in homeopathic and ayurvedic medicines.3,4

Other notable names include Zigy led by IT industry veteran Phaneesh Murthy. PharmEasy, an app only seller also plans to raise venture funding.

There are two operating models – market place model (where the company connects the consumer with a licensed partner pharmacy that fulfills the order) and online pharmacy (where the company holds a pharmacy license itself and sells online). While companies including Netmeds and mchemist are licensed pharmacies selling medications online, others such as 1mg, Zigy, PharmEasy are marketplaces. The companies, besides selling prescription medicines online, also sell a range of OTC, personal care and wellness products and offer other services. For e.g. 1mg connects with doctors and offers home pickup of diagnostic samples. Zigy offers Zigy Healthvault, an online medical health record system for storing healthcare records. Almost all websites offer discounts of upto 20% competing to build share in the high potential online pharmacy industry.

While early movers will have an advantage in a category which has the potential to become the next big e-commerce vertical, what will also determine the industry trajectory to an extent is the pending government decision on the e-pharmacy regulation in India. As per industry experts, stringent regulations can be a blessing in disguise as it will put a check on the illegitimate companies and enable to promote legitimate online pharmacies in India.

1. http://timesofindia.indiatimes.com/tech/tech-news/E-pharmacy-startups-bag-early-investors/articleshow/51098658.cms
2. http://economictimes.indiatimes.com/small-biz/startups/orbimed-leads-50-million-funding-round-in-online-pharma-marketplace-netmeds-com/articleshow/49537488.cms
3. http://www.livemint.com/Companies/k5MHZStJ1gLZ1mT3Uxem2K/1mg-raises-funds-from-HBM-Healthcare.html
4. http://www.livemint.com/Companies/bQYJq3PlYfLOhpHHJNo3NP/Healthkarts-1mg-acquires-Homeobuy.html

This article first appeared in the Medgate Today magazine on 14th September 2016.

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