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E-pharmacy: Caught In A Logjam

Delay in formalisation of draft rules is causing confusion and panic among stakeholders of an otherwise booming e-pharmacy business

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In August 2018, the draft regulations defined an e-pharmacy as a “Business of distribution or sale, stock, exhibit or offer for sale of drugs through a web portal or any other electronic mode.” The draft rules had become necessary in the wake of the legal tussles and lawsuits opposing the spread of e-pharmacies in the country. Besides, since the laws then said nothing about e-pharmacies, a regulatory framework to govern this sector had become necessary to curb illegal and risky transactions.

Two years later, life for e-pharmacies has not gotten any better thanks to the bureaucratic web that has prevented the draft rules from becoming laws. In the absence of clear-cut laws, e-pharmacies have remained susceptible to legal challenges and hemmed in by uncertainties. 

At the forefront of the attack on the e-pharmacies is the All India Organisation of Chemists and Druggists (AIOCD), which contests that the deep discounts and offers extended by new-age pharmacies have adversely impacted the offline sales of medicines. 

Industry insiders say there are genuine fears of losing business to online players once big-boys like Amazon, Flipkart and others decide to enter this business ‘officially’. 

In 2018, Amazon acquired PillPack, a full-service plus an online pharmacy, for $753 million thereby gaining access to all major US-based pharmacy benefit managers like CVS Caremark, Express Scripts, Optum Rx, Prime Therapeutics, Cigna, MedImpact, and CastiaRX, among others. They can do the same in India too, experts say. 

The efforts of AIOCD and its members paid some dividend in December 2019 when the Delhi High Court banned the online sale of medicine by ‘un-licensed’ players thereby limiting the role of hundreds of online pharmacies. 

But around 50-plus e-pharmacies including Medlife, 1MG, NetMeds, PharmEasy and others continue to do online sale-purchase of drugs, medicines, etc. even today. How? Because they have physical medical stores that are licensed to sell drugs. “We are doing a business that is perfectly legal,” says Prashant Tandon, President of the Digital Health Platforms (DHP) and founder and CEO of 1MG, a leading e-pharmacy player. “To end the miscommunication and to bring in harmonisation, entrepreneurs like us decided to take this issue to the government to incorporate laws for e-pharmacy within the existing laws,” adds Tandon, who is also heading the FICCI e-Pharmacy Working Group that has been lobbying for enabling laws. 

“A clear policy will reduce the time and cost involved in filing petitions and litigation and put any kind of speculation around the operability and regulations to rest,” says Ananth Narayanan, Co-founder and CEO, Medlife. The lack of policy direction is holding the companies from moving forward into their businesses due to its repetition across the country, he adds.

On the new draft rules pending approval, Dharmil Sheth, CEO of PharmEasy says, “There won’t be any fly-by-night riders coming in the system and will clear illegitimate players from the market.” 

Pending the notification of official rules, the e-pharmacies are offering a host of services to the customer via mobile applications. These include online sales of medicines, FMCG products, consultation with docs, location of blood banks, and safekeeping of documents and records online, virtual doctors, home-based medical tests, among other things. 

Legal Tussle 

In the last four years, the 8 lakh-odd traditional medical shops under the banner of AIOCD have consistently protested against the proliferation of e-pharmacies in the country, and even taken the matter to various courts across different states. 

Thanks to their efforts, the Drug Controller General of India (DGCI) had formed a panel to look into the issue of online drug sales and even suggested the licensing of pharmacies three years ago. As per the draft guidelines which have yet to become law, e-pharmacies will need to register with the DCGI for a fee of Rs 50,000, which will be valid for three years.

Then, there are several stringent clauses that prevent e-pharmacies from selling narcotic drugs, tranquillisers, and Schedule X drugs. They also cannot advertise any drugs on their portals. Periodic inspections and stringent penalties for violators are prescribed. Basically, the e-pharmacy draft rules will now provide sector-specific e-commerce regulations so as to harmonise existing laws/ guidelines which is similar to FSSAI guidelines for e-commerce food operators, etc. Almost all the provisions of the draft rules, in fact, have been welcomed by the licensed e-pharmacies. So where is the problem? 

Caught in a Web

Industry insiders say a Group of Ministers (GoM) is examining the draft rules. But officials point to some additional related issues that require a sound regulatory mechanism to avoid future legal tussles.

“Regulations for telemedicine and e-prescription is in the works too. Current laws allow discretion to the doctor whether they want to give the patient a written prescription or not. Because of ambiguity in current laws, medicines are being ordered online without a prescription where the customer can simply tick a box authorising a call from the doctor on the medicines ordered. Whether the call is happening or not, whether a digital record of it is being maintained or not are still grey areas,” says an industry insider. 

But e-pharmacy companies say fixing telemedicine or e-prescription is a separate issue from selling medicine online. 

AIOCD members are contesting the online sale of medicine citing the risk factor. “Some websites may sell fake, expired, contaminated, unapproved or unsafe products that are dangerous for patients and which might put their health at risk. Rules for selling drugs in India are based on the Drugs and Cosmetics Act, 1940, Drugs and Cosmetics Rule, 1945 and Pharmacy Act, 1948, and these were written prior to the arrival of computers and India does not legalise the online sale of medicines,” says one of the petitions from AIOCD members before a court a few years ago. 

But e-pharmacies maintain that brick-and-mortar pharmacies are the “real reason for public health safety issues” as several of them operate “without qualified pharmacists, selling medicines without prescriptions and failing to maintain a record of drugs sold to each patient”. The tussle continues. 

Advantage e-pharmacy?

Initially, e-pharmacies were delivering medicines to the doorsteps at discounted prices. With growth and expansion now they are also offering online doctor consultation, health blogs, health insurance, home-based diagnostics, among others. 

“The current ecosystem pivots around a mobile application that acts as a facilitator between customers, pharmacies and manufacturers to purchase and process orders of medicines either through a marketplace or an inventory model or an omnichannel player,” says Sanjay Singh, Partner, Deal Advisory, National Head, Life Sciences Sector, KPMG India. 

According to Charu Sehgal, Partner, Lead – Life Science and Healthcare, Deloitte India, “E-pharmacies are filling an important void in the current healthcare system’s reach and affordability.” It is therefore, the experts argue, very important for the government to encourage the sector, especially when it is in its nascent stage. 

Medlife, one of the leading players in the e-pharmacy business is selling drugs only against an authentic prescription, like many of its peers. They deliver the medications within 24 hours, duly stamped by a registered and approved pharmacist. The company is serving customers in 29 states and 4,000 cities fulfilling over 25,000 deliveries daily. Currently, they have one national and five regional laboratories and over 350 phlebotomists helping bring diagnostics to patients’ homes.

PharmEasy, another leading name in this space, is operating in over 1,000 towns and cities across India. They deliver the medicines within four hours via local delivery boys. This solves the problem of customers facing issues like accessibility and availability. They are also bridging the gap by connecting patients, doctors and pharmacies. And, 1mg has collaborated with local brick-and-mortar stores to reach the last mile and are selling their own over-the-counter products. 

Worried Investors? 

Despite the lack of regulatory clarity, the e-pharmacy segment within the healthcare sector has attracted over Rs 4,000 crore in investments with another Rs 2,000-3,000 crore of additional investments expected once the rules are notified. So what are the investors looking for? 

“They are looking for a business which can grow significantly large sooner. And they can get healthy returns. Globally, investors are investing in digital health as it is one of the hottest sectors and the last sector to feel the impact of technology,” says Tandon of 1MG. And he is correct in his assessment. After all, the healthcare sector in India is mostly unorganised with a lot of inherent deficiencies. “Considering the stickiness of the industry amongst consumers, recurring spends, average order value, demand for quality medicines are just a few of the reasons investors are flocking to the segment,” explains Ankur Pahwa, Partner and National Leader – e-commerce and consumer internet, EY India. 

Consolidation Galore 

That existing players continue to strengthen their online business is evident from a spate of acquisitions. Recently, Medlife acquired Bengaluru-based online medicine delivery startup Myra, which specialises in two-hour deliveries. It also acquired EClinic24/7, adding chat and video-based doctor consultations to its existing portfolio. Medlife has also partnered with Fortis Hospitals for running their offline pharmacies. 

Rivals are active too. While PharmEasy has merged with Ascent Health for its distribution, and laboratory logistics, 1MG has acquired Lab For Sure. 

Chennai-based Netmeds, another weighty company in the space, acquired JustDoc, an online video consultation app. This has helped it venture into healthcare services, diagnostics and consultation. In March 2019, it also acquired health tech startup KiViHealth, a clinic management platform providing cloud-based, AI-powered tools for effective doctor-patient interaction. 

Now, all eyes are on the upcoming meeting of the e-pharmacies, the health ministry and other stakeholders, the outcome of which may lead to the speedy formalisation of draft rules. That is the industry expectation for now at least.

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