- Indian pharmaceutical market and the importance of retail pharmacies
- Propelling e-pharmacy model in India
The Indian pharmaceutical market was valued at $36.7 Bn in 2018 and stood as the 3rd largest market in terms of the volume and 13th largest in terms of the value. It is estimated to grow $55 Bn by 2020 at a CAGR of +12% from 2015 to 2020, amid rise in ageing population and chronic diseases, rising disposable incomes and increasing awareness among others (Source: Invest India, IBEF). A low production cost, which is about one-third that of the US and almost half that of Europe gives India a competitive edge as a manufacturing destination.
Approximately half of the Indian manufactured drugs are exported to more than 200 countries in the world, while the other half is used for domestic consumption. The Indian pharmaceutical industry is highly fragmented with ~24,000 drugs and APIs manufacturers, out of this a majority are unorganised.
For all domestic consumptions, Indian retail pharmacies are the dominant distribution channel with more than 85% share of the overall pharmaceutical sales in India. Retail pharmacy refers to retail channels which sell prescription and over the counter drugs along with FMCG products as well as certain generic testing services such as blood testing, sugar testing, etc. According to IBEF, the Indian retail pharmaceutical sector is estimated to reach $59 Bn (2023) from $25 Bn (2017), growing at a CAGR of 15% (2018-23).
Like manufacturers, retail pharmacy market is also highly fragmented in the nation. Unlike the USA where the top three retail pharmacy chains hold 82% of the market share, India currently has over 850,000 offline pharmacy retail stores with no dominant retail chain in terms of the market share. According to the Research and Markets, these traditional brick and mortar retail pharmacies are currently responsible for ~99% of the pharmaceutical sales, while online pharmacy or e-pharmacy contributes ~1% of the total therapeutic sales.
An online pharmacy or e-pharmacy is a pharmacy that operates over the internet, where customer can buy drugs and services online and receive medicines at their doorsteps. Thus, online pharmacy is more convenient as patients can order prescription drugs from anywhere within a short period of time and receive them without going anywhere.
Online pharmacy market in India is at a very nascent stage as compared to the other developed economies and the major developing economies. Positively though, these online pharmacies are slowly gaining attention in the e-commerce industry space, both by the government and consumers, with its impressively growing market penetration rate. In recent years around 250 online pharmacies have sprung up in the country. According to Frost & Sullivan, the e-pharmacy market in India is estimated to grow at an exponential CAGR of 63% and reach $3.6 bn by 2022 from the current $512 million market (2018). Moreover, according to NetMeds, the e-pharmacy presently accounts for ~1.5-2% of the total pharma sale and by looking at the rapid growth that the industry is seeing today the penetration level can go to over 10% by 2023.
Several factors are propelling the e-pharmacy market in India. These are other than ease of use, time and cost savings. Further, these pharmacies are also providing value-added products and services like appointments for a doctor consultation, e-consultation, e-diagnostic services among others. These services are helping these firms to become an end to end healthcare service providers, especially in those areas where specialised doctors are unavailable or travel for consultations is a constraint for patients. Growing internet penetration, various e-healthcare initiatives by the government like Ayushman Bharat, increasing health insurance penetration, accessibility in remote areas, cost savings on bills and doorstep delivery within a short time is increasing popularity of the online pharmacies over offline retail pharmacies among consumers. There are many players which have gained attention and popularity such as Netmeds, PharmEasy, Medlife, 1MG, LifeCare among others over the last few years in this space.
Moreover, online pharmacies not only offer better pricing than offline stores, but they also have a system in place for validation on prescriptions through a licensed pharmacist. Further, they have a regular supply of drugs related to chronic and rare diseases, which local pharmacist might find difficulty to stock because of the high cost involved in procurement. Though e-pharmacies are also having their challenges; some are related to online buying like missing items, price difference or incorrect pricing, receipt of substitutes or different brand’s medicine, delay or refusal or cancellation of order and/or payment, unresponsive customer care, etc., while some concerns also arise related to underlying operations like:
- Lack of physical evaluation
- Misuse of a prescription, especially in narcotic and psychotropic drugs, schedule X drugs, etc.
- Lack of understanding of the medical history if buying from different online pharmacies
- Lack of cold chain logistic services and moreover, it is exorbitantly expensive for rural areas
- Lack of data security
- Illegal e-pharmacy websites selling contaminated, adulterated or expired medicines
- Unregulated sale of medicines
- Lack of specific governing regulations related to e-pharmacy
However, with solutions like centralised e-prescription services, technology advancement for strong security measures and specific regulations; online pharmacies are tackling challenges in order to gain the share in the retail pharmacy market.
Legal framework in India and the challenges ahead
Currently, there are no specific regulations governing e-pharmacies in India and this is a major growth inhibitor for the online pharmacy market in India. All online pharmacies are operating as per the Drugs and Cosmetics Act, 1940 (D&C Act); Drugs and Cosmetics Rule, 1945 (D&C Rule); Pharmacy Act, 1948; and Information Technology Act, 2000 (IT Act). The Union Health Ministry in August 2018 came out with draft rules on the sale of drugs by e-pharmacies to regulate the online sale of drugs and patients’ accessibility to genuine drugs from authentic online websites. However, this draft is still awaiting formalisation and finalisation.
In December 2018, the Delhi High Court ordered a complete ban on the online pharmacies across India as it was strongly opposed by over 800,000 traditional chemists on the grounds that online sales are illegal and easy availability of drugs can lead to its misuse. However, in the same month, the Madras High Court acted on an appeal filed by a group of online pharmacy companies to suspended the ban till a decision is announced and thus, gave some relief to these entities. But the growth road is not as straight going forward. Online pharmacies offer heavy discounts to consumers to gain the market share, but aggressive drug price control mechanism by the government (like it has done for the essential bulk drug and their formulations by fixing and regulating prices) will put pressure on pharma companies, which ultimately impact their margins adversely. This discount strategy might not be possible to continue in the long-run.
Furthermore, e-pharmacy is not only competing with traditional pharmacies but also with the government-operated Jan Aushadi Kendra, which is a new initiative by the government, this offers discounted drugs and medicines. Additionally, the adequate supply chain for timely availability of medicines, especially in Tier 2 and rural areas is also a challenge for e-pharmacies, which require more capital infusion and cash burn for technology and continued availability of medicines at a discount.
However, the market has a huge potential because of its model of access to medicines much faster, core convenience and real savings for consumers. The sector is lucrative for investors, who have fuelled $711 Mn during 2018 and $189 Mn in 2019 (up to date) in online pharmacies (Source: venture intelligence). Specific regulation for online pharmacies is the need of the hour, this will allow them to operate under regulated ecosystem benefiting both e-pharmacies and consumers in the long-run. Though brick and mortar stores will retain its dominant position, synergy will emerge with the right ecosystem, suitable and propitious policies with the desired scale of investments. Televisory believe that once the specific regulation will be finalised, there will be more and more online players in this untapped market with immense potential in the future. Amid all this, consumers will always be more important than online or offline pharma retailers when it comes to drugs.