The ePharma Industry
A look at the nascent, fast-growing space in India — projections, favourable factors, challenges and opportunities…
The pandemic has kick-started and accelerated a number of disruptions to the traditional modus operandi. While some industries have benefited during this period, others have had to figure out ways to stay afloat. One sector that’s received a fillip from the ongoing black swan event is ePharma. The global ePharma market is expected to reach $244 billion by 2027 from $69.7 billion in 2019, a 17% CAGR.
ePharma encompasses a wide variety of services, but fundamentally, customers can purchase medicines via a digital platform. Diagnostics, ePrescriptions, health insurance are other avenues that can feature under this umbrella. Along with eConsultations and telemedicine, ePharma is a part of the online medicine and healthcare sphere. Traditional retail brick-and-mortar pharmacies possess quite a few inefficiencies. Low profit margins, poor inventory management which results in customers travelling to multiple stores to get all their medicines, improper recording of transactions and botched billing are some challenges that ePharma can directly address.
The Indian market houses over 50 ePharma players including 1mg, Practo, NetMeds and PharmEasy and has a reach of nearly 22,000 pincodes. Despite ePharma being a nascent sector here, growth seems to be on a steep incline. At a CAGR of 18%, India’s share of the global ePharma pie is expected to touch $18 billion by 2027. The Union Home Ministry’s designation online delivery of medicines as an essential service indicates the relevance of the industry, especially during times like these.
The Indian ePharma market has been pretty dynamic in the recent months and multiple factors from the supply-side are benefiting growth:
Activities and Deals
The past few months have accommodated a plethora of activities in the ePharma space with fundraising, acquisitions, mergers and general consolidation of the fragmented sector. Reliance’s majority stake purchase in NetMeds, PharmEasy’s merger with MedLife, Amazon’s foray into e-Pharma in India are all creating waves. Further, TPG has announced interest in purchasing stake in PharmEasy and the Tata Group is looking at a purchase of 1mg. In terms of fundraising, FY20 has witnessed $700 million in ePharma investments in India from investors including Sistema Asia Fund, Omidyar Network, the Bill and Melinda Gates Foundation and Sequoia.
Optimization Opportunities
The heavy steeping of technology in various parts of the ePharma business model offers multiple opportunities for cost optimization, efficient inventory management, predictive and planned logistics setups and automation.
The enormous amounts of data that can be utilized for analysing demand trends, understanding which products work and which don’t can help in tailoring inventory and cutting unnecessary costs. Customers also tend to be sticky here, especially for periodic drug purchases, making the lifetime value of each customer high.
All these cost reductions for companies can then translate into lower costs for end consumers and, thus, better adoption.
In addition to supply-side activity, demand for ePharma services is improving…
Improving Accessibility and Awareness
Access to healthcare has been a primary focus area for development and the improving healthcare infrastructure, greater penetration of health insurance and coverage (especially since the pandemic) and rising awareness regarding available finance options and medical facilities are some factors favouring the pharmaceuticals industry in general. Price reductions due to cost optimization from the companies’ end can enhance financial access and affordability.
Increasing internet and smartphone penetration has served as a shot in the arm for eCommerce as a whole and ePharma’s market potential seems to be on the rise too. By 2025, nearly 970 million people are expected to be connected to the internet. The Digital India Initiative which aims to provide internet access to all parts of the country and enable citizens access online services serves as an added boost.
Greater Acceptance and Percolation
People have been steadily warming up to online shopping and the pandemic has accelerated this trend. 2020 has seen a lot of first-time online shoppers accessing various eCommerce platforms for items ranging from electronics to groceries. While online purchase of goods like groceries and staples was never first preference for a lot of people, lockdowns and supply crunch have turned the tide. This, along with the push towards digital payments, has resulted in an increasing comfort in online shopping for essentials and greater trust in eCommerce. Online purchase of medicines has, thus, also seen a rise.
Further, the Government has been introducing numerous eHealth services over the past few years which have routinely induced familiarity in accessing medical and health-related services through online channels for a lot of people. The National Health Portal, Online Registration System, Janaushadhi Sugam App, the recent Aarogya Setu App, the proposed National Digital Health Mission and the Health ID are some examples. Such familiarity and trust, once built into a large group of people, will enable online players to easily tap into the market.
Ease of Use
The comfort, convenience, variety and price transparency afforded through online channels proffers good incentives to the end user. Subscription services for recurring purchases, scheduled deliveries, easy logins and payment setups, consistently improving UI/UX and app features are making the process of buying medicines a breeze. And, of course, one also gets to bypass the added hygiene concerns involved in physically visiting pharmacies during these times. These benefits are particularly pronounced for elders and very ill people who might not be able to physically travel to stores that may, in a lot of cases, be located a significant distance away.
Changing Customer Requirements
Incidence of non-communicable diseases is on the rise and more and more people are actively seeking medical help and support to combat the same. Some of these diseases require periodic doses of medicines and serve as ideal cases for ePharma adoption as scheduled deliveries, subscription models, nudges, reminders and potential discounts would serve as good add-ons to the consumers while helping companies streamline their logistics and manage inventory better.
However, not everything’s rosy…
Challenges
e-Pharma companies must surmount considerable challenges that currently hinder widespread adoption and growth. Trust deficits around delivery of medicines, quality and safety concerns, supply chain and transport logistics to remote pincodes, concerns around data privacy and misuse of sensitive health records are some areas that ought to be addressed. Players also need to address the need for faster deliveries in case of emergencies and figure out ways to avoid misuse and indiscriminate use of certain prescription drugs without compromising on privacy. And there’s also the overarching regulatory environment that needs clarity.
Regulatory Hurdles
There are three main models adopted by ePharma players: the marketplace model, inventory model and the hybrid model (employing a mix of both).
Currently, companies operating as a marketplace fall under the oversight of the IT Act. They just serve as platforms via which customers can purchase medicines from dealers possessing licenses and who comply with the Drugs and Cosmetics Act and Rules.
Those following an inventory model have certain licences and are governed by rules including the Drugs and Cosmetics Rules. The Narcotic Drugs and Psychotropic Substances Act also applies. Clearly, there’s a lack of coherent and uniform rules here.
The Draft ePharmacy Rules was brought into the picture in 2018. Accordingly, an ePharma company is one which is in the ‘business of distribution or sale, stock, exhibit or offer for sale of drugs through web portal or any other electronic mode’ and such firms must obtain a registration certificate from the licensing authority. The rules are yet to be notified and this lack of cogent rules and the resulting confusion has resulted in a number of petitions and court orders hindering operations of several players
Opportunities
Regardless, one cannot deny how the pandemic has opened the doors to the wide variety of opportunities that can be tapped in the ePharma space. The potential for improving the country’s healthcare infrastructure and enhancing accessibility for the people is enormous.
Participants can further innovate by incorporating technologies like drones for logistics and blockchain for record keeping, prevention of counterfeits and monitoring transaction and tax fulfilment. They can look at ways to enhance the knowledge of customers by providing information regarding the medicines, interesting titbits regarding its history etc. Differentiating factors would include quality of the platform interface, customer care functionalities, vernacular support and innovative marketing. Added services like booking doctor appointments and diagnostics services are being provided by some players already. Omnichannel models and partnerships with offline stores can further add benefits both to companies and to consumers.
Effective use of the data accumulated through ePharma can enable efficient healthcare policy making. There’s immense scope for ePharma players to partner with various Government initiatives in the healthcare space to facilitate last-mile delivery and execution.
In conclusion, the ePharma space is all set for huge growth and, once there’s clarity with respect to the regulations, its progress would be a major factor in ushering in a new normal in healthcare.
