Skip to main content

Legal Capsule by Veyrah Law

COVID-19: Turning Point for Online Pharma

With the rapid advancement of the internet and movement of businesses online, it was only time before the pharmaceutical retail industry also joined the bandwagon. The pharmaceutical retail industry which has long been popular among investors also started to venture into providing online services (Online Pharma). This was due to the increased demand and tech-savvy clientele who preferred to order from the comfort of their homes. So, it was only natural that the Online Pharma sector bloomed during the Covid-19 pandemic and the ensuing lockdown. 

Online Pharma is high in demand due to better discounts, convenience, greater anonymity, accessibility in remote locations, easy home delivery, etc. These features have made it the preferable option over community brick and mortar pharmacies during the pandemic. This article explores the current regulatory regime surrounding Online Pharma and the opportunities in India that it presents for investors.

Online Pharma

Online Pharma is also popularly known as cyber pharmacy, e-pharmacy or virtual pharmacy. It essentially sells drugs, healthcare products or services such as full body checkup packages or lab testing. According to a report by Frost & Sullivan on E-pharmacy in India published in January 2019, Online Pharma industry in India was estimated to be around USD 512 Million in 2018 and further estimated to grow at a CAGR of 63% to reach USD 3,657 Million by 2022.

There are primarily 3 types of business models followed by Online Pharma: 

  • First, an inventory/warehouse-based model where vendors have their own centralized stockpiles around the country. Registered pharmacists check all prescriptions uploaded by a consumer on a website or app. Only once the prescription is approved, the medicine is shipped (Eg: Medlife and Netmeds).
  • Second, a market place based model where an online platform acts as a facilitator between the purchaser and a seller by collaborating with community pharmacies in a city. This helps to connect the local pharmacies with the consumers. Consumers choose medicines and upload electronic or scanned prescription on a website or app. Thereafter, the order is passed on to the licensed pharmacy, which verifies and then prepares the order (Eg: 1mg and PharmEasy).
  • Third, the generic e-commerce market place, like Amazon and Flipkart. In fact, Amazon India recently launched a new service called Amazon Pharmacy to sell prescription drugs, OTC medicines and basic health devices. However, there are various reports stating that the All India Organization of Chemists and Druggists (AIOCD) has opposed this launch by calling it illegal and a grey area in the Indian regulatory regime.

The regulatory regime

There is a lack of explicit guidelines to regulate and monitor e-pharmacies in India. Consequently, Online Pharma has relied upon a host of myriad regulations to run the business.

One of the main governing legislations is Drugs and Cosmetics Act, 1940 (D&C Act) which being a pre-independence law could obviously not have anticipated Online Pharma. The D&C Act is fairly onerous to the extent that among other restrictions it prohibits any person from manufacturing for sale or distribution or even to sell, stock, exhibit or offer for sale any drug without an issued license. The punishment for contravention includes both heavy monetary fine and imprisonment. The problem lies in the fact that the D&C Act doesn’t distinguish between physical and e-pharmacies and thus, urgently needs to be amended in line with the 21st century. But, in the meanwhile, existing players in this space should be mindful of the rigors of the D&C Act and build sufficient safeguards.

Under the Pharmacy Act, 1948, only a registered pharmacist is permitted to dispense any medicine on the prescription of a medical practitioner. The next question that comes to mind is whether such prescription must be in original or can a customer simply upload a scanned or electronic copy? The Pharmacy Practice Regulations, 2015 cover this aspect by defining a ‘prescription’ to include a written as well as an electronic direction from a registered medical practitioner, dentist, veterinarian, etc. Further, the definition of ‘electronic record’ under the Information Technology Act, 2000 includes data and images in electronic form. Thus, both scanned and electronic copies of prescriptions are covered. Again, the ambiguity arises as these regulations are silent on whether this prescription can be used to buy drugs from physical pharmacies only or online as well.

The Government has recently made efforts to regulate Online Pharma by publishing the draft rules on Sale of Drugs by E-Pharmacy in August 2018 (Draft Rules). The Draft Rules define key terms like e-pharmacy, e-pharmacy portal and prescription. Under these Rules, prescription has been defined to include instruction from a registered medical practitioner to a patient, written by hand or in any electronic mode. Sadly, these Draft Rules are still not in effect.

Recently, the Ministry of Health and Family Welfare has issued the Telemedicine Practice Guidelines, 2020 (Guidelines). The Guidelines state that modes of communications for consultation shall include video (Skype / Face Time), audio and text based platforms (WhatsApp, telemedicine chat based applications, emails, etc.).

Investors also need to be mindful of foreign exchange regulations. Currently, 100% FDI under automatic route is permitted in marketplace model of e-commerce. However, FDI is not permitted in the inventory-based model of e-commerce that could constitute multi-brand retail. Interestingly, some start-ups operating an inventory-based model may have already received FDI, with the use of innovative corporate structures. However, these start-ups could also find themselves within the regulatory blowback that may arise due to Amazon’s entry into the Online Pharma space.

Lastly, the Government has recently launched the National Digital Health Mission on August 15, 2020 (NDHM). The NDHM aims to provide a unique health ID to citizens which will have details of the diseases, diagnosis, report, medication etc., in a common database through a single ID. The NDHM plans to soon integrate telemedicine and e-pharmacies which will empower individuals with accurate information to take informed decisions and increase accountability of healthcare providers.

Covid-19 impact

Online Pharma has certainly taken off post Covid-19, with no small measure of support from the Government. The FICCI Report on E-pharmacies at Covid-19 Frontline published in August 2020 states that pre-Covid there were 3.5 Million households using e-pharmacies in FY20; during Covid lockdown there were 9 Million in May 2020; and post-Covid an estimated 70 Million households will use e-pharmacies by FY25. Further, there have been investments worth approximately USD 700 Million in Online Pharma in FY20. Another report published by Practo states that there has been a 500% increase in online doctor consultations in India, between March 01, 2020 and May 31, 2020. Additionally, in-person doctor visits dropped by 67%.

The report published by Frost & Sullivan analyses various factors contributing to the growth of Online Pharma in India, such as: rapid internet penetration, initiatives by Government, increase in health insurances, changing disease patterns, changing FDI policy, growth in healthcare financing products, booming Indian economy, increase in domestic demand, etc.

Another recent trend that is noteworthy is of many big players acquiring majority stake in existing e-pharmacies.

Growth potential

Although the regulatory regime is a bit uncertain, there are various reports which show that Online Pharma is going to grow further by FY25. The FICCI report states that the e-pharmacy sector was cited as one of the best performing sectors during Covid-19 as per their in-depth interactions with leading investors in the Indian market. Keeping the above in mind, investors should also be mindful that there are various obstacles to be tackled by the Government like fake prescriptions, tampered, modified or repeated prescriptions.


The Draft Rules, Guidelines and NDHM, all show a positive shift by the Government towards Online Pharma. Hopefully, regulatory clarity will prevail soon as that is the need of the hour to help shape and stabilize the future growth of Online Pharma. In the meanwhile, despite the grey regulatory regime, Online Pharma has grown phenomenally and is definitely a sector for investors to keep an eye out for.

Ajay Joseph | Partner, Veyrah Law; Pooja Agarwal | Associate, Veyrah Law

Views expressed above are for information purposes only and should not be considered as a formal legal opinion or advice on any subject matter therein.

Popular posts from this blog

VC Interview: Shailendra Singh of Sequoia Capital India

In a recent interview to Venture Intelligence, Shailendra Singh discussed some of the firm’s newer investments in the early stage segment including in the online payments space, the progress at a few existing portfolio companies and the active role the firm is playing in helping its portfolio companies scale and succeed in India and globally. Prior to joining the firm in 2006, Singh was a strategy consultant at Bain & Company in New York and before that, an entrepreneur in the digital media industry. Venture Intelligence: How does Sequoia go about identifying potential early stage investments in India? Is there anything different you are doing today than, say, a couple of years back? Shailendra Singh: There is a lot more focus on technology investing and early stage investing. In general, as you might remember a few years ago, we were doing primarily growth investing but in the past 18-odd months, we have had a very strong focus on early stage and that’s continuing. In terms

Ambit tops League Table for Transaction Advisors to Private Equity deals in 2019

Ambit Corporate Finance topped the Venture Intelligence League Table for Transaction Advisor to Private Equity Transactions for the year 2019. Ambit advised PE deals worth $2.4 Billion (across 4 qualifying transactions) during the period. Citi ($1.1 Billion across 2 deals) and  Avendus  ($969 million across 12 deals) took the second and third spot. Edelweiss Financial Services ($758 million across 9 deals) and  PwC  ($708 million across 15 deals) completed the top five in 2019.  The  Venture Intelligence League Tables , the first such initiative exclusively tracking transactions involving India-based companies, are based on value of PE and M&A transactions advised by Financial and Legal Advisory firms. Ambit Corporate Finance advised the $1.9 Billion buyout of Pipeline Infrastructure from Reliance Industries   by Brookfield Asset Management  and the IFC and I Squared Capital-backed   Cube Highways' acquisition of Delhi-Agra Toll Road from Reliance Infrastructu

ChrysCapital, Motilal Oswal PE & Sequoia named PE-VC Firms of the Decade

Press Release ChrysCapital, Motilal Oswal Private Equity and Sequoia Capital India have been named the top Private Equity & Venture Capital investors in India during the last decade, as part of Venture Intelligence’s APEX Awards. The Venture Intelligence “Awards for Private Equity Excellence” (APEX) is dedicated to celebrating the best that the Indian Private Equity & Venture Capital industry has to offer.  While ChrysCapital won the “Private Equity Investor of the Decade” award, Motilal Oswal Private Equity was feted as India’s “Growth Capital Investor of the Decade”. The Indian arm of the storied Silicon Valley VC firm, Sequoia Capital, was named the country’s “Venture Capital Investor of the Decade”. The APEX Awardees are selected based on both Self Nomination by the participating PE-VC firms as well as "crowd sourced" nominations and voting from the Limited Partner, PE-VC and advisory communities. (The main criteria were Exit Track Record, New Fund Raises & Fo

Inventus, Sixth Sense, Blume & Norwest win Apex'20 Venture Capital Awards

Inventus Capital Partners, Sixth Sense Ventures, Blume Ventures and Norwest Venture Partners were voted the top Venture Capital investors in India during 2019. The Venture Intelligence “Awards for Private Equity Excellence” (APEX) is dedicated to celebrating the best that the Indian Private Equity & Venture Capital industry has to offer. Other 2019 winners in the VC segment included  Axilor Ventures which was voted   the  Accelerator of the Year for the second year running, 3one4 Capital (VC Fund Raise of the Year) and Innoven Capital (Venture Debt firm of the Year). The APEX Awardees are selected based on both Self Nomination by the participating PE-VC firms as well as "crowd sourced" nominations and voting from the Limited Partner, PE-VC and advisory communities. (The main criteria are Exit Track Record, New Fund Raises & Follow-on Funding Rounds for Portfolio Companies).    " It is an honour to be recognised by entrepreneurs and investors as

Jio deals help PE investments climb 12% in H1'20 to $18.8 B

Press Release With Reliance Industries' communications unit Jio Platforms attracting 51% of the investment value, Private Equity-Venture Capital (PE-VC) investments in India rose 12% during the first 6 months of 2020 to $18.8 Billion (across 341 deals), shows data from  Venture Intelligence , a research service focused on private company financials, transactions and their valuations. Investments totaling over $9.5 Billion in Jio by a troop of global private equity firms, following social media giant Facebook's $5.7 Billion mid April investment in the company, helped overall PE-VC investments better the $16.8 Billion (across 503 transactions) invested during the same period in 2019. (Note: These figures include Venture Capital investments, but exclude PE investments in Real Estate).   Jio Platforms' $9.5 Billion Private Equity haul (excluding Facebook’s strategic investment) was led by Middle Eastern and American investors with KKR, Saudi Arabia's Public Invest