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Pharma industry set for a shakeup!

The Indian e-pharmacy market seems to have emerged as the investor’s choice having recorded USD 700 million investments in FY20.

August 2020 has changed the face of the Indian pharmacy market. Online pharmacy is no longer a shadow of a threat to be tackled in webinars and forums. The almost-5 percent share in the Rs 150,000 pharmacy market is poised for a gigantic leap.

Amazon’s entry through Bengaluru, Reliance Retail Venture’s acquisition of 60 percent equity-stake in NetMeds’ Vitalic Health and PharmEasy’s filing for a merger with Medlife, with Ascent Health in the fray indicate that the drug distribution business is in for a shuffle. Flipkart too has announced its plans to enter this space, and have its own private label too. Aside from these four players, 1mg and Apollo Pharmacy are a force to contend with.

Market dynamics
The Indian e-pharma market from USD 360 million currently has been pegged at USD 2.7 billion by 2023. Currently there are more than 50 e-pharmacy startups in India, which were delivering medicines to 3.5 million households before COVID-19 struck. However, during the COVID period, the sector caters to 8.8 million households, poised to 70 million households by FY25, according to a recent whitepaper by FICCI. This is in the backdrop of a USD 29,829.714 million in 2019 global e-pharmacy market, projected to grow at a CAGR of 25.67 percent to reach USD 117,500.247 million by 2025.

The online pharmacies in India with national or regional presence are restricted to a few cities. Most may be operating with lower costs and sustain with a hybrid model–last-mile bridge from the local retail pharmacies and delivering orders to patients, unlike a centralised warehousing-based model followed by larger online pharmacies, a route which very likely both, Reliance and Medlife-PharmEasy, may opt for. There are three business models in operation-marketplace, inventory-led hybrid (offline/online) and franchise-led hybrid (offline/online)-depending on the way the supply chain is structured.

Online pharmacies are hoping to gain on their operating margins. At present, traders take 28 percent margin–8 percent for wholesalers and 20 percent for the retailers. This gives significant flexibility to online pharmacy, which keep a margin of roughly 4 percent and pass on the benefits to the customers in the form of discounted prices. With nearly 75 percent medicines out of the purview of government price controls, it gives a vast reserve for them to shore up sales.

Challenges galore
The e-pharmacies continue to seek a level playing field. The country has not had a regulatory mechanism for online sale of drugs and the laws governing the brick-and-mortar pharmacy business are applicable to the e-pharmacies as well. The operations of many players were ordered shut numerous times over the years by courts and governments, both state and central.

Online pharmacies continue to operate as marketplaces and cater to patients as a platform for ordering medicines from sellers that adhere to the Drugs and Cosmetics Act and Rules of India. The D&C Act does not distinguish between conventional and online sale of drugs.

As per Section 18(c) of D&C Act, 1940 to be read with Rule 65, only a licensed retailer is entitled for the sale of drugs and that too on the basis of prescription of a doctor only. Rule 65 stipulates sale of drugs under the supervision of a registered pharmacist which also involves signing of the bill and stamping of the prescription by the pharmacist and the doctor. Other regulations, like the Information Technology Act and the Narcotic Drugs and Psychotropic Substances Act, also apply. But as the existing laws are vague on the issue, there are rampant sale of prescription drugs by the e-pharmacies in contravention to the prevailing laws of the country.

Protests from offline pharmacies. The All India Organisation of Chemists and Druggists (AIOCD), a representative body of 850,000 chemists and 40,000 distributors across the country has been up in arms against online selling, and outright calls it illegal. With the national network of distributors and retailers under its fold, the association wields a strong clout over the pharmaceutical industry. The pharma companies do not want to compromise their relations with the powerful trade association that could impact sales negatively.

AIOCD complained that as an industry and trade association, it is concerned for people that they may face similar fate which others in other industries like telecom and retail have faced. “We wonder how Reliance’s shareholders will feel knowing that their favorite company has entered a business which is still not allowed under the laws. It is pertinent to mention here that this move will not only threaten the livelihood of millions of our citizens, but will also create monopoly in a perfect competition market and of course create concentration of wealth while taking it away from our citizens and putting it in Reliance Industries’ pocket.

Home delivery of medicines was never allowed under the D&C Rules until recently when the Union Health Ministry, in the wake of COVID-19 situation, came out with notification allowing door delivery’ of medicines, only by neighborhood shops. We sincerely hope that you will rethink your move and save millions of our citizens from getting unemployed,” stated AIOCD president JS Shinde.

Dr B R Jagashetty, former National Advisor (Drugs Control), Union Health Ministry, has advised the government not to delay the final regulations on e-pharmacy, especially in the wake of the launch of the National Digital Health Scheme under which e-pharmacy model is set to play a pivotal role in home delivery of medicines based on ethical prescriptions.

With COVID-19 accelerating India’s shift toward digital healthcare and the regulatory uncertainty over e-pharmacies starting to fade, the focus now shifts to bloodshed in the marketplace!

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