Indian online pharmacy startups attract investor interest despite regulatory concerns

Zigy co-founder Hemant Bhardwaj hired three law firms just to ascertain if the business of online pharmacies was legal. Photo: Hemant Mishra/Mint

It’s a $18 billion market set to grow to $55 billion by 2020 and it’s finally beginning to get the kind of attention from investors and entrepreneurs those numbers warrant—despite uncertainty over the legality of the business itself.

The business is online pharmacies, and according to start-up data tracker Tracxn, so far, the sector has attracted $92.6 million funding with over $70 million coming only in 2015.

Almost 31 start-ups were launched last year, with the major chunk of investment announced by Netmeds ($60 million), followed by 1MG ($6 million) and Zigy ($3.2 million).

Investors include IT industry veteran Phaneesh Murthy (in Zigy) and global healthcare fund Orbimed (in Netmeds).

Some of them are no doubt taking heart from the Indian drug controller’s approach. In December, the Drug Controller General of India formed a seven-member panel to look into the issue of online drug sales.

“We are very clear on this issue; we want this technology in the country because our aim is to ensure that patients get quick service and of the right quality. We want to see how the issue can be addressed without compromising on safety. There are chances of abuse of technology as well that we want to plug,” said G.N. Singh, Drug Controller General of India (DCGI).

This is a tricky sector, admits Hemant Bhardwaj, co-founder of Zigy, adding that he and Murthy hired three law firms in 2014 just to ascertain if the business was legal.

“It is largely about the interpretation of law. The Pharma Act had no clarity on electronic copy of a prescription. However, the IT Act says that any digital copy of a document will be valid if there is an original copy which can be presented at the time of verification,” said Bhardwaj, adding that he launched Zigy only after getting a green signal from the law firms.

The company, which runs a marketplace model, doesn’t own a pharma retail licence.

“If you are working as a marketplace, you are working on the licence of one of your vendors. Inventory is not held by the marketplace, it is held by the vendors,” said Bhardwaj.

That’s the same model followed by Netmeds (Netmeds Marketplace Ltd).

“If you look at e-commerce firms such as Flipkart, the bill is generated by WS Retail or other vendors. It is the same philosophy that works here, but in this case, the vendor needs to be an authorized licensed retailer to do so,” said Pradeep Dadha, founder and chief executive officer of Netmeds.

The company has made India Post its logistics partner for delivery.

It works with wholesalers and retailers on a commission basis and sells chronic medicines apart from nutritional products. It sells drugs after receiving a scanned copy of the prescription.

Earlier this month, it also forged partnerships with online doctor booking and consultation sites Lybrate Inc. and Doctor Insta Pvt. Ltd to serve their customers.

Most online pharmacies do not sell Schedule X medicines such as sleeping pills.

Zigy operates across five cities and has tied up with local vendors to comply with the law, which doesn’t allow drugs prescribed in one state to be sold by a pharmacist in another.

With more customers willing to shop online for just about anything, and smartphones facilitating such transactions, the timing is just right for online pharmacies, say entrepreneurs.

“We were waiting for the opportune time. The moment we saw people were buying spinach and okra online, we knew the market was ripe for us,” said Dadha of Netmeds.

And with smartphones, “clicking a picture of the prescription is easy”, said Prashant Tandon, co-founder of 1MG.

Industry experts estimate the market to be generating 3,000-4,000 orders on a daily basis.

The regulator’s positive stance has made companies and investors comfortable with the business models.

“The sector offers great business potential. Online sale of medicines is not a new concept. But in India, till we entered, there were hardly any online pharmacies with serious intent,” said Murthy, former chief executive of iGate Corp.

Much like in e-commerce, discounts are prevalent, although they rarely exceed 20%.

Still, that’s been enough to provoke the strong pharma retail lobby to protest the entry of online pharmacies.

The All India Chemists and Druggists Organization (AICDO) protested in October, accusing online pharmacies of taking away their business by offering deep discounts. The association also claimed that these firms would lead to a deterioration in the quality of medicines as they need to be stocked at specified temperatures.

Online firms, however, have now formed a lobby of their own called the Indian Internet Pharmacy Association (IIPA).

In an attempt to level the playing field, the DCGI issued a fresh circular on 30 December saying that, “the rules do not distinguish between the conventional and over the Internet sale of drugs”.

It, however, added that there will be a “strict vigil” on the online sale of medicines and action would be taken against companies if they are found to be in breach of regulations.

Also Read: Healthcare-focussed OrbiMed closes sixth VC fund at $950m

Doctor Insta gets $500k from Rishi Parti, Brahmax

India: Netmeds.com raises $50m funding led by US-based OrbiMed

India: PE firm Everstone Capital in talks to invest $60m in pharmacy delivery startup Dial Health

This article was first published on Livemint.com

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.