Pradeep Dadha is a busy man these days, re-laying the platform of his epharmacy, Netmeds.com, and preparing for a major expansion into India’s small towns and cities. The company, founded in 2010, delivers medicines ordered online across 12,000 pin codes in India, but it, like other e-pharmacies, has been operating in a regulatory grey zone that cast a cloud over the legality of the business model.
Not anymore, believes Dadha, as the e-pharma sector’s extensive lobbying finally seems to be bearing results. The government, according to them, is at last ready to acknowledge the online pharmacy sector and, at least in principle, agreed to give a serious hearing to their key demands. That’s good enough for Dadha to begin charting out plans for growing his business. “We are now busy setting up the infrastructure and foundation so that when the regulatory clearances come we can cater to larger volumes. We should be ready,” said Dadha, chief executive of Netmeds, which is planning a chain of offline stores as well.
Two years ago, the company secured one of the biggest venture capital investments in India’s e-phama sector when it raised $50 million in funding led by US-based private equity firm OrbiMed.
The Indian pharmacy market is humongous, estimated by industry to be about Rs 1.2 lakh crore in size. The online pharmacy market, estimated to be a fraction of that at Rs 700-800 crore, has been plagued by regulatory hurdles that are now showing signs of easing. “There is nothing is illegal today about e-pharmacies,” said Ramprasad M, executive chairman at investment bank MAPE Advisory Group, an early investor in Netmeds. “As long as you are operating in conjunction with the Information Technology Act and the Drugs and Cosmetics Act, you are a good business.”
India’s more than 200 e-pharmacy startups including 1mg, PharmEasy and Myra are hoping to see light at the end of the tunnel with the government, according to them, taking a pro-active stance on their demands over the past one-and-half years. “We are in active conversations with multiple departments of the government, including the health ministry, the IT ministry and the (Department of Industrial Policy and Promotion). We have been assured that by the end of this year everything will be streamlined,” said Prashant Tandon, CEO at Sequoia Capital-backed 1mg, which recently acquired Varanasibased medicine delivery startup Dawailelo to scale up operations in small cities.
Tandon heads the India Internet Pharmacy Association that has been lobbying to convert regulation in favour on internet-based pharmacy ventures. He recently was a part of the Health and Nutrition Group at a Niti Aayog event in Delhi where Prime Minister Narendra Modi sought suggestions from startup CEOs. A key demand of e-pharmacies has been for the government to harmonise all laws that apply to the sector and communicate that through a single notification. “The government has taken a very positive stance on that,” said Tandon.
What is also encouraging for the sector is that e-pharmacies find a mention in the Niti Aayog’s three-year roadmap. The draft pharmaceutical policy released by the government recently also validates e-pharmacies, said Tandon. The scenario was rather bleak only a year ago, when e-pharmacists complained of harassment by drug inspectors and local Food and Drug Administration (FDA) authorities, who were not sure of the legality of selling medicines online.
“Initially, regulation was a concern because the FDA is a state subject and we were facing heat from FDA authorities who were not able to understand the e-pharmacy business. But now, since a lot of clarifications have come from the government, the heat has gone and FDA authorities have stopped harassing us,” said Tushar Kumar, CEO at Medlife, which recently invested $30 million to expand operations across 100 cities in a year. The company is also exploring the franchisee route with local pharmacies with an aim to have 100 franchisee partners in top cities in the next few years. The biggest area of concern for e-pharmacies has been parity of treatment with offline pharmacists, a large number of whom are yet unorganised and, according to them, dispense medicines without prescriptions. E-pharmacists say they tend to go over and above the law to comply with regulations and yet face heat from the authorities.
“If we had been working the way offline pharmacies work, growth would have been 100% more because 45-50% of our orders are rejected due to invalid prescriptions. This doesn’t happen in the offline world. Growth has been a little slower because of adhering to strong regulations,” said Dharmil Sheth, cofounder of PharmEasy, which operates a hyper-local delivery model in partnership with about 200 offline pharmacies. The company operates in seven cities and has plans to scale up to at least 50 cities by the end of next year.
To tackle the issue of lack of parity and solve the menace of fake medicines, the health ministry in March recommended a website to electronically register every stakeholder in the pharmaceutical industry— manufacturers, distributors, and offline and online retailers—and record details of every sale executed through them. Online pharmacies have welcomed the proposal but the All India Organisation of Chemists and Druggists is opposing it citing infrastructure constraints such as sketchy internet connectivity and poor electricity supply faced by small stores across the country.
“We are opposing online pharmacies,” said Jagannath Shinde, president of AIOCD. “All habit-forming drugs can easily be sold online. (The government) first needs to strengthen the drug regulatory system in India.” “The onus is now on the (Drug Controller General of India) to come up with a policy that recognises and defines online marketplaces. That will a big step towards making e-pharmacies fully legal,” said a government official on condition of anonymity. “There is no central body governing e-pharmacies, which also needs to be resolved soon,” the official said. There are other hurdles that entrepreneurs say need to be addressed, particularly those that restrict epharmacies from scaling up smoothly.
These include the requirement to obtain licences from FDA in multiple states for delivering medicines and the requirement for e-pharmacies to have a physical presence in all the states they operate in. The startups are demanding a unified licence that will allow them to deliver medicines pan-India. “Interstate restrictions defeat a lot of value for customers. As of today, we do not do interstate shipments… (but) in every state (we operate in) we make shipments through multiple partners,” said Tandon of 1mg. E-pharmacy startups are now awaiting a clear mandate from the government that will allow them to dispense medicines based on an uploaded image of a prescription. The wait doesn’t seem to end.
“It is something (the government has) agreed to but that is not on paper yet,” said Kumar of Medlife. In the meantime, several epharmacy startups are chasing growth by expanding into related businesses such as diagnostics and telemedicine, which again is a grey area since there is no specific law governing it. The regulatory easing-up, even if not on paper, is drawing in the investors after a lull last year. So far this year, seven e-pharmacy startups have secured a combined $39 million in funds from investors, as compared with 11 startups raising about $33 million in all of 2016, according to Tracxn.
1mg in June raised $15 million in series-C funding from HBM Healthcare Investments and existing investors Sequoia Capital, Maverick Capital and Kae Capital. PharmEasy in March closed a $17-million series-B fundraise from Bessemer Venture Partners, Orios Venture Partners, Aarin Capital and other investors. And Myra in April raised an undisclosed amount from Matrix Partners and Times Internet, the digital arm of the Times Group that publishes The Economic Times. “One area that has troubled investors is regulation,” said Tarun Davda, managing director, Matrix Partners, India.
“Last year, there was lot of ambiguity on what kind of licences are required, whether (the business model) is legal, and whether uploading of prescriptions can be done. However, in the last few months, there has been a lot of clarity.”