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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.

Conclusion

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.

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