The nuts, bolts and bottlenecks of setting up an e-pharmacy in India

Online drug sellers are set to disrupt the brick-and-mortar retailer, provided they are willing and able to meet a difficult, albeit reasonable regime of compliance

Few would disagree that selling drugs online is a killer of a business that has the potential to literally change the way in which prescription drugs and other formulations are dispensed in the country. Yet, setting up an e-pharmacy has become much more complex than, say, establishing an online business selling consumer goods or financial services. The key reason for this is the highly ethics-driven regulatory environment in which an e-commerce pharma enterprise resides -- or is likely to reside in once the new rules kick in.

The existing scenario

It isn't as if e-pharmacies have not been existing in India. As a matter of fact, one of the first in this space is LifCare, which was set up in 2015. It caters to about 300,000 patients suffering from illnesses like diabetes, cardiac conditions, hypertension and renal failure, who require ongoing medication. LifCare uses intelligent technology and data science to automate medicine refills so patients never miss a dose (Click here to read the story).

In the year that just went by, India's online pharmacies attracted as much as $140 million (Rs 980 crore) from domestic and foreign investors, across 10 deals, making it the largest mop up by the sector since 2013. The biggest deals included $65 million (Rs 450 million), mopped by PharmEasy, and $35 million by Netmeds (Click here to read the story). 

The deals took place even as regulatory challenges threatened to derail the business model towards the end of the year. Yet, the sector is unlikely to remain isolated from a regime of compliance for too long, and may have to pull up its socks in order to stay relevant. Let's explore why.

Intervention of the courts 

The story in the south: While brick-and mortar pharmacists and their online counterparts have been at loggerheads the past few years, the friction was exacerbated following a nationwide strike late September 2018 by the former, who were protesting a move by the Centre to regularise e-pharmacies. The government, on its part, was complying with a Madras High Court order to come out with draft rules and regulations for online pharmacies. These rules haven't yet become law (Click here to read the story).

In a leg up for the conventional pharmacists, a single-judge ruling of the Madras HC in December 2018 disallowed the online sale of drugs by unauthorised e-pharmacies, and called upon the Centre to notify rules for the functioning of e-pharmacies no later than January 31, 2019.

But on January 2 this year, the Madras High Court formally stayed this single-judge order after provided temporary relief by suspending it in late December 2018 (Click here to read the story). However, a senior counsel appearing for Netmeds, one of the companies that sought the stay, while confirming the order, said that while the ban has been stayed by the High Court bench, the single judge's direction to the central government to notify the rule before January 31 remains in force.

The Delhi drama: On December 12, 2018, the Delhi High Court banned the functioning of e-pharmacies and directed the Delhi and Central governments to ensure compliance with its order. The matter will come up on hearing on January 8. Till then the online pharmacies continue to function.

The All India Organization of Druggists and Chemists (AIOCD), the national body representing 800,000 pharmacies, is nevertheless elated that a PIL (public interest litigation) filed by Delhi-based dermatologist Dr Zaheer Ahmed has led to the ban. 

Ethics and patient safety

E-commerce is an exciting new frontier, but while getting consumer goods at the click of a mouse is a convenience junkie's delight, dispensing medicines needs guidelines. In this context, at least some of the arguments put forth by Ahmed in the PIL and supported by AIOCD are valid. 

Dispensing medicine through e-pharmacies needs stringent controls and inspection that the government is not geared up for currently. The issues that need to be addressed here include, but are not limited to:

1. The mushrooming of fake and illegal pharmacies over which the government would have little control 

2. Scanned copies of prescriptions that aren't necessarily genuine and which could, in any case, be used uploaded times on different sites to access medicines. Prescription-based cough medicines with alcohol content, for instance, are often used as a hallucinogens and are easy to access online.

3. Ahmed's PIL also talks about the larger problem of self-medication and use of products like diet pills, libido enhancers, cosmetic fillers, sleeping pills and even abortion kits sold online on the strength of fake prescriptions. 

4. Substitution of drugs and sale of spurious products. 

5. The four problems above are exacerbated by the presence of a number of unregulated delivery services that have entered the business as well. Their only job is to pick up the medicine from pharmacies and deliver it to the patient. The business model of such set-ups is asset light, run without warehousing, stock maintenance or clear responsibility to the patient. “With no law defining who an e-pharmacy is, the business is dangerous for patients,” Says Sandeep Nangia, organizing Secretary, AIOCD.

6. The issues of confidentiality, safe transport and who actually takes responsibility, as net pharmacies ship medicines across state lines is something the DCGI needs to address as well. 

The AIOCD feel the government hasn't sufficiently defined its regulatory and supervisory role in the amendment to the Drugs and Cosmetic Act of 1940. While all the issues raised are valid, given the frenzy of joining the online bandwagon, not only have e-pharmacies with little or no experience sprung up with very little investment, even wholesalers are joining the melee. 

The e-pharmacy potential 

Despite all this, e-pharmacy isn't a proposition that can easily be written off. A FICCI report released in 2016 says online medicine sales currently make up less than one per cent of the total business of domestic pharmaceutical dispensation worth $15 billion (Rs 1.05 trillion), and growing at a CAGR of 9.5 per cent. But this could go up to Rs 20,000 crore, or a staggering 20 per cent of the overall current market level, as early as next year. Currently e-pharmacies are one per cent of the pharmacy business.

That's miniscule compared to the United States, where the the e-pharmacy business is already over $30 billion and growing at over 17 per cent year on year. But that is still big business in India, and enough to give to the country's 800,000 retail chemists a scare. This is more so because e-pharmacies are hitting them where it really hurts by targeting chronic patients, offering substantial discounts and maintaining a database of regular customers. Little wonder then, that the brick-and-mortar stores are worried their customers will move to the convenience of online. 

Notwithstanding these reservations and fears, e-pharmacies is the logical route to growth for the business. Niti Aayog, in its recently released 'Strategy for New India @75', has specified that e-pharmacy is a route to reaching medicine at a cheaper cost and greater speed to the patient. In fact, it has directed that e pharmacies sell products at rates 20-40 per cent lower than those offered by conventional establishments.

The road ahead

According to the proposed DCGI guidelines, a Central Licensing authority will be set up, which will register a company that seeks to sell or dispense medicine through a web portal or any electronic means as per the prescription. Permission for retail sale is to be taken from the state authority where a company stocks its products. The e-pharmacy, on receipt of a prescription on its portal, will have a registered pharmacist who will verify the details of the patient and  the registered medical practitioner, and arrange to dispense the drugs as per the instructions of such a practitioner. The draft regulations require an e-pharmacy’s to employ a 24x7 helpline manned by the pharmacist for customer support. It also disallows the sale of drugs specified under the Narcotic Drugs and Psychotropic Substances Act, 1985 (61 of 1985), tranquilizers and other drugs specified in Schedule X of Drugs and Cosmetics Rules, 1945.

Apart from being licensed by a central authority, the e-pharmacy has to be a registered retailer in the state in which it sells its wares as well. This is being done to cut out the courier companies or delivery services. The e-pharmacy license has to be renewed every three years and its premises open to inspection every two years by a team of officers authorised by the Central Licensing Authority, with or without the experts in the relevant field or the officers authorized by the concerned state licensing authority. 

“We are happy and pleased with the order posted by the Division Bench of the Madras High Court staying the sale of online medicines till further orders." Says Pradeep Dadha, founder and CEO, Netmeds.com. He addeed that the bench has made observations which validates the work that has been put in for the last three years. As part of the observations, the bench recognized that mechanisms are in place to prevent any real abuse of process by the online pharma sector. One of the most pertinent observations made was that the Central Government is not opposed to online pharmacies, and is actively putting in place systems for regulating the sales.  The bench also observed that online sales have been going on without any problems for a long time, and shutting down this nascent industry would be detrimental to patients as  people are not always in a position to go out to buy medicines. 

Netmeds  reaches medicines to as many as 19,000 pin codes across 950 cities in the country. Netmeds, among the largest online e-pharmacist, has 13 warehouses in Chennai, Hyderabad, Mumbai, Pune, Ahmedabad, Delhi, Raipur, Kolkata and Guwahati and has permission from each state authority.

At a broader level, much hinges on the level of compliance e-pharmacies in general are able to achieve. As in any other business, those who got in to make a quick buck will go out the way they came in. But one can safely anticipate the entry of more serious and seasoned players in an industry that is just about beginning to discover its wings.

PE/VC investments in top e-pharmacies, 2016-2018

Company Investment

Practo 

234.0 Medplusmart 213.0 Myra 128.8 PharmEasy 108.5 Netmeds 99.0 HealthKart/ 1mg 83.1 Lifcare 17.0 Medsonway 0.6 Medlife International@ NIL * In million dollars; @ Firm is bootstrapped; Source: Crunchbase and primary research, news and websites