Consolidation in the e-pharmacy space and the Reliance Industries game plan

The Netmeds acquisition will help it enter online drug sales, making it an integrated player. The firm has a ready customer base of 400 mn mobile users whom it could tap for its online health services

The online pharmacy sector is going through major consolidation. On Tuesday night, Reliance Industries (through Reliance Retail), which has identified this sector as one of the three key areas of growth (apart from agritech and edutech), bought over Netmeds. And in another development, PharmaEasy decided to merge with Medlife to create an entity valued at $1.2 billion, according to analysts.

According to Frost and Sullivan, the e-pharmacy market in India, which was worth about $512 million in 2018, is growing at a CAGR of 63 per cent and is expected to hit overall revenues of over $3.6 billion by 2022. E-pharmacy, in fact, could account for 15-20 per cent of pharma sales in the next 10 years.

Reliance is a relatively new entrant in the pharma tech space with JiohealthHub. Yet the offering has one big issue: while it provides services like health checkups, fitness trackers, labs tests and consultations online, it does not have an e-pharmacy business, which is clearly the main generator of revenues. The acquisition of Netmeds will fill up this huge vacuum in its offering, as one will now be able to order medicines online as well. It will also make Reliance an integrated player (from doctor consultation, diagnostics, fitness and e-pharmacy) locking horns with 1mg and Practo.

This limitation has also been a constraint to the numbers of subscribers it could garner. So, according to data from SimilarWeb for May 20, it only had 10,000 daily average users and one million downloads. In contrast, Netmeds, with over 5 million downloads, according to BoFa report, is the largest e-pharmacy player with a 30 per cent market share. Clearly, the acquisition would catapult Reliance to the top slot in this business in no time.

However, it is not clear whether Reliance will pursue with Netmeds' plan to set up 20 physical retail pharma outlets or just stick to the online model. Many analysts say it might go for an offline and online combination, just as it has been doing in its other areas of retail business.

The acquisition is also well timed. It comes at a time when Reliance Retail is geared up for a bitter battle in the e-commerce space with Amazon.com. The US company had just a few days ago announced that it is launching its own online pharmacy business. But Reliance clearly has the upper hand in this space now.

The other merger will also help in providing scale, which is critical to a business that has become highly competitive with too many players in the game. Based on July 2020 figures of Similar Web, PharmEasy currently has over 1.79 million visit on its app and PC (not daily average users). Yet, after its merger with Medlife, it will become a formidable player in the market nearly, doubling the number of visits to 3.6 million. For the uninitiated, PharmaEasy connects patients to local pharmacies and diagnostic centres through its integrated online platform. It offers users a choice of over 100,000 healthcare and OTC products across the country.

Sources close to Reliance say that in the e-heathcare space, the group is looking at leveraging its technology with its offline presence (it has hospitals). It obviously has a huge advantage over its rivals–-it is looking at leveraging its already large mobile customer base of over 400 million whom it will tap to become potential users of its online healthcare services.

The online pharma tech business has various models-–B2B commerce, which has players like Pharmarack, e-pharmacy, which is the most crowded but has equally large players such as Netmeds and PharmaEasy, preventive healthcare market, which includes companies like Curefit, and integrated players like Practo and 1mg mg which straddle the entire space, from e-pharmacy, to diagnostics, to doctor appointments to other areas. With Netmeds, Reliance is clearly poised to break into this segment.

The e-pharmacy industry, of course, had its fair share of regulatory challenges. Physical pharma stores have opposed them and gone to the government complaining that they are selling medicines without prescriptions in violation of rules. On November 19 last year, the DGCI ordered all states and union territories to ban the sale of medicines on unlicensed online platforms until the draft rules in this area are put in place. However, most online pharmacy players said the move wouldn’t affect them as they transact with customers through licesnsed offline pharmacies. In September 2018, draft rules were introduced for online pharmacies under which they are not allowed to distribute, sell, stock, exhibit or offer drugs for sale until they are registered. There has been no update on the final rules by the government.