Bitter Pill: India’s ePharmacies are shackled by regulatory inertia

The Economic Times, October 31, 2020

By Sidharth Narayan and Udai S Mehta

The words of Ajit Pai, Chairman, Federal Communications Commission (FCC), United States of America, “Entrepreneurs are constantly developing new technologies and services; but too often, they’re unable to bring them quickly to market for consumers because regulatory inertia stands in the way”, appear to be quite apt for the ePharmacy industry in India. Projections estimate that ePharmacies in India will tap about 70 million households by 2025. Its market in India is expected to reach $3.6 billion by 2022, from $512 million in 2018. However, the absence of clear and optimal regulations in defining/promoting ePharmacies in India is threatening to leash such potential ePharmacies.

A recent white paper released by an industry body in India highlighted the various benefits of ePharmacies for consumers, regarding convenience of ordering medicines through mobile phones, and greater accessibility of hard to find medicines or essential medicines in rural areas.

EPharmacies can also help in raising awareness amongst consumers by providing value added information to them (i.e. side effects of medicines, availability of cheaper substitutes etc.), while also making medicines available at cheaper rates owing to economies of scale achieved by the platform/sellers.

The ePharmacy model also has the potential to help regulators in reducing counterfeit medicines by enabling back-tracking of the medicines supply chain right down to the manufacturer. Having all its purchase orders backed by prescriptions, ePharmacies also reduce risks of self-medication or drug abuse.

Regarding existing pharmacies, ePharmacies help them cater to a wider consumer base through their platform, opening the window to greater revenue, while also helping them digitise their business processes, such as inventory planning and forecasting.

The utility of ePharmacies was amplified during the nationwide lockdown on account of the COVID-19 pandemic, as it enabled a safer buying experience for consumers, by allowing them to order medicines from the comfort of their home, instead of risking going to physical pharmacies for the same during days of the pandemic.

This gave the market a further boost, as India’s 50 ePharmacies (employing over 30,000 people), which were serving 3.5mn households in the country pre-lockdown, saw about 2.5x growth during the lockdown period, as they began catering to around 8.8 million households. Notably, over 50% of these new households belonged to non-urban cities. This surge in orders also resulted in employment generation, as ePharmacies look to hire thousands of more personnel for last mile delivery of medicines.

Considering such growth potentials, big firms have also entered the market, either through their own platforms (such as Amazon Pharmacy) or acquiring stake in leading startups (such as Reliance Retail Ventures Limited acquiring majority stake in Netmeds, and Flipkart partnering with 1MG). Smaller players such as Medlife and PharmEasy are also consolidating through mergers.

Despite the benefits, there exists regulatory uncertainty in defining/promoting ePharmacies. Prevailing laws such as the Drugs and Cosmetics Act, 1940, Pharmacy Act, 1948, Information Technology Act, 2000, Drugs and Cosmetics Rules, 1945 (the Rules). have not defined regulations for online sale and monitoring of pharmaceutical medicines adequately.

The government proposed amendments to the Rules for defining/regulating ePharmacies in August 2018. However, these are yet to be notified. The absence of clear rules pertaining to ePharmacies has led to legal battles on the validity of operating ePharmacies in India. Adding to the uncertainty were opposing orders from the Delhi High Court which banned the sale of drugs online, and the Madras High Court which allowed ePharmacies to operate. Following these orders, in November 2019, the Drugs Controller General of India had prohibited the sale of medicines through unlicensed online platforms, till the Rules were notified. Notably, ePharmacies had been battling litigations across multiple other High Courts as well–Mumbai, Calcutta and Patna. All had directed the government to notify the Rules.

In December 2019, it was reported that the Ministry of Health and Family Welfare had revised the draft Rules, which allowed ePharmacies to partner with traditional brick and mortar pharmacies to only deliver drugs to consumers, and not to stock medicines. The Ministry of Home Affairs had allowed the delivery of pharmaceuticals through eCommerce during the lockdown imposed on account of the COVID-19 pandemic. Following suit, 19 state governments also released separate orders, recognising medicine delivery through eCommerce as an essential service. However, in the current form, the draft Rules don’t recognise “platforms or marketplaces” that enable sellers to sell drugs online. The regulatory uncertainty puts a cloud over existing players who operate with this business model currently and completely discourage new investments in that space.

Considering larger firms entering the ePharmacy business, and owing to the prevailing regulatory gap in defining/legitimising ePharmacies, the All India Organisation of Chemists and Druggists (AIOCD), which represent more than 850,000 pharmacies in India, recently requested Prime Minister Narendra Modi to ban ePharmacies in the country, until clear Rules regarding them are notified.

We must note that AIOCD and its affiliates have been found to be indulging in anti-competitive activities on several counts by the Competition Commission of India. Here, AIOCD perhaps fears that ePharmacy propagation will water down their control over supply and distribution of drugs, and are hence prompted to create hurdles in their deployment, to protect their vested interest.

Be as it may, such regulatory and legal uncertainties are hurting ePharmacy players, who have already invested millions of dollars in their businesses. The regulatory inertia is leashing the potential of e-pharmacies in India, discouraging them of growth and innovation. Fear of public places is still hurting the retail sector, and pharmacies are sharing the blow. To emerge from the impact of COVID-19, MSMEs and pharmacies will see great prospects in online marketplaces. However, in the context of pharmacies, the present regulatory uncertainty for ePharmacies can play a discouraging factor for digitization.

The Prime Minister in his Independence Day speech highlighted the vision of India’s Digital Health Mission, and that vision included ePharmacies. An enabling regulatory environment is the need for the hour, to help realize that vision and encourage pharmacies for digitization. Accordingly, it becomes imperative for the government to notify the proposed amendments to the Drugs and Cosmetics Rules, 1945, to unleash the potential of ePharmacies in India.

(Sidharth Narayan, Assistant Policy Analyst and Udai S Mehta, Deputy Executive Director, CUTS International.)

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