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In what is now a monthly ritual, Neha Dugar uploads her in-laws’ medical prescriptions onto an app on her phone, makes an online payment, and gets their blood pressure and diabetes medications delivered home. Until not so long ago she always bought them at a local pharmacy, but the pandemic nudged her to order online. “It is convenient, saves time, and offers great discounts,” she says.
Like Dugar, lakhs of Indians now buy medical supplies from online platforms such as PharmEasy, Netmeds and 1 mg, which are collectively known as e-pharmacies. Since 2014-15, when the first few players such as PharmEasy appeared on the scene, e-pharmacies have proliferated steadily, attracting significant attention and investment.
Pegged at around $2.7 billion in 2021, the Indian e-pharmacy market was projected to grow at 63 per cent annualised rate between 2020 and 2025, according to Research and Markets, a forecasting firm.
Vijay Chawla, Partner and Head, Life Sciences, KPMG India, says e-pharmacies score over traditional retailers and their limited stock as they allow consumers to buy from organised online channels.
Private equity and venture capital funds have invested over $2.6 billion in online pharmacies till date, according to Tracxn, a market data intelligence firm. In 2021 alone, $857 million flowed in. “Due to the convenience they provide, online pharmacies witnessed a rise in popularity during the pandemic,” says Neha Singh, Chairperson and MD of Tracxn.
Conglomerates like the Reliance and Tata groups cottoned onto the growth opportunity and acquired majority stakes in Netmeds and 1mg, respectively. E-commerce giants like Amazon and Flipkart have their own pharmacy sections.
Yet, the e-pharmacy sector as a whole is not in the pink of health as it battles regulatory hurdles, offline competition, and funding and distribution bottlenecks.
Revenue-loss tango
In 2023, as funding for e-pharmacies reduced to a trickle — at just $10.2 million across two deals so far — it was seen as a reflection of not just the funding winter in the wider start-up ecosystem, but also the many challenges the sector faced.
Although large e-pharmacy players registered significant revenue growth in the past few years, they are still to find a path to profitability. For example, the consolidated revenues of API Holdings, which runs PharmEasy, rose to ₹5,729 crore in FY22 from ₹2,335.27 crore in FY21, even as its consolidated losses jumped to a whopping ₹4,043.10 crore from ₹641.30 crore. The company also withdrew its pre-IPO draft papers in August 2022, barely a year after filing it.
Once valued at $5 billion, PharmEasy now looks to raise more funding at a 90 per cent markdown of its valuation. Similarly, for Tata 1mg, while the consolidated gross sales more than doubled to ₹627 crore in FY22, from ₹309.37 crore in FY21, its consolidated losses widened to ₹526.14 crore in FY22, from ₹314.22 crore in FY21.
Regulatory challenges
As worries grew over e-pharmacies operating without licences, selling medicines without prescriptions, or selling fake medicine, the government moved to crack the whip.
In August 2018, the government proposed regulations that required e-pharmacies to obtain a licence from the Central Drugs Standard Control Organisation; comply with guidelines related to drug safety, quality, and authenticity; and maintain records of all transactions. In September 2018, under the direction of the Delhi High Court, it briefly banned online sale of medicines only to revoke it in December after the ban was challenged by e-pharmacies.
Another interim ban was imposed in December 2019, this time by the Madras High Court, after the final draft of the ‘Drugs and Cosmetics Amendment Rules, 2018’ was released. A larger bench stayed the ban a month later. Finally, in October 2021, guidelines for e-pharmacies were released, but they do not carry the force of law yet.
In February this year, the Drugs Controller General of India issued show-cause notices to 20 e-pharmacies for alleged contravention of laws. Meanwhile, the Delhi High Court gave the Centre more time to appraise it of the outcome of its consultations with stakeholders on the draft rules.
“The government is working on new regulations, but there will be ambiguity until then. We believe there will be no drastic measures like banning of online pharmacies,” says Neha of Tracxn.
Retail rivalry
Flush with private equity money, e-pharmacies offered hefty discounts to garner market share. The All India Organisation of Chemists and Druggists (AIOCD), a lobby of over 12 lakh pharmacists, alleged that e-pharmacies were burning capital to kill competition, adversely impacting nearly 7 crore people.
“The margin given to offline stores by the National Pharmaceutical Authority (NPA) is 10 per cent to wholesaler and 20 per cent to retailer... how will we compete with 25-40 per cent discount?” bemoans JS Shinde, President, AIOCD. “If retail offline chemists die out, this industry will become a duopoly... then who will supply medicines in the rural area?” he adds.
The CEO of a leading e-pharmacy, who declined to be named, pooh-poohs such claims. “Aren’t hospital chains like Apollo or Aster or hybrid players like MedPlus selling medicines through their various arms? Why single out just e-pharmacy? The market is big enough for all kinds of players and business models,” he says.
“The industry is growing nicely and eventually it will become profitable.”
KPMG’s Chawla shares this optimism, pointing to estimates that the e-pharmacy market in India will see a compounded annual growth rate of 20-30 per cent over the next several years.
“With the continuous ease of doing business in India, coupled with government schemes focused on healthcare and other digital initiatives, we expect e-pharmacies to grow significantly. Further, the large untapped potential in tier II/III cities, and an increase in investments in the overall infrastructure and logistics channels could present a huge opportunity for e-pharmacies,” he says.
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