India’s drug laws from the 1940s do not allow for e-commerce in medicine sales

If Zigy, the online pharmacy started by former Infosys senior executive and iGate CEO Phaneesh Murthy, were a person, the place where it died sometime towards the end of 2016 would now be a memorial.

A memorial dedicated to a fearless, though some would say foolhardy, pioneer that decided to run guns blazing into the thicket that was India’s pharmacy sector. In just over a year, it fearlessly took on the powerful offline lobby and outdated government regulations and expanded into five major Indian cities. And it almost made it.

Turning out to be bankrupt

Because what brought Zigy down, in the end, weren’t bullets from its foes, which it had many, but running out of money. Even after reportedly raising over $5 million.

If Zigy were a person, it’s tombstone would today read:

“Here lies Zigy. Ambitious, brave, foolish.

Because of losing its battle, it won the war.

R.I.P. 2015-2016.”

The ‘us’ here are online pharmacies, led by Zigy’s former competitors like 1mg and Netmeds. And the ‘war’ they won was when on 16 March, the union ministry of health put out a public notice to announce its stance on the sale of drugs—both offline and online. Over the next thirty days, the ministry’s inbox was flooded with mostly congratulatory emails, some apprehensive and one angry said a ministry official in confidence. And it is now busy formulating a policy incorporating the feedback, but its intention is clear—e-pharmacies have every right to sell drugs. And they’re here to stay.

The war Zigy won for e-pharmacies by losing its own battle for survival.

The hunted become friends

Like ride-sharing, e-commerce, Internet telephony and numerous other Internet-enabled businesses in India, e-pharmacies, too, came up before government policy created the space for them. Many came up around the 2014-2015 period. And they started growing, some slowly, some fast.

Till they appeared as threats on the radar of their powerful foes—the hundreds of thousands of small, offline pharmacies they were hoping to disrupt. Having seen sector after sector collapse to the onslaught of e-commerce, offline pharmacies were in no mood to roll over.

Using threats of shutdowns and lobbying, they went for the e-pharmacies’ jugulars. The $13.4 billion markets for drug sales was theirs alone.

On their spurring, and aided by ancient laws drafted in the 1940s, drug regulators in multiple big states then started going after online pharmacies. Maharashtra’s Food and Drug Administration filed FIRs against several e-pharmacies, including MeraPharmacy, mChemist, Pharmeasy, and their offline partners.

Similarly, in Karnataka, the Drugs Control Department decided to cancel the licenses of all online pharmacies in the state early last year. Although the licenses were later revoked, the lost momentum, time and resources in court cases cost these startups heavily.

By 2016, it did not matter if an e-pharmacy managed to successfully challenge the state drug regulator in the courts, as funding into the sector had fallen drastically. Data from Tracxn shows out of the $90 million invested in this sector over 2015 and 2016, $62.20 million was invested in 2015. The number fell sharply to $28.45 million in 2016. An example of that was Phaneesh Murthy-backed Ziggy. It stood its ground, fought and won the legal battle but found itself strapped of funds.

“Soon after an e-pharmacy was set up, it would run into issues with the association of chemists and local drug inspectors, who would come and harass the offline partner with a general statement that online pharmacy was illegal,” says Prashant Tandon, who became the president of the Indian Internet Pharmacy Association (IIPA) in October 2015.

Cornered by their brick-and-mortar competitors and authorities, the likes of Netmeds and 1mg had decided to form an association to secure the union government’s support.