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PharmEasy: A tryout's journey through tests to the Thyrocare takeover

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PharmEasy's acquisition of Thyrocare is being touted as not just the coming-of-age of a startup but the becoming of a behemoth as well. An outcome of the all-direction consolidation taking place with digital startups right at the heart of it all.

PharmEasy: A tryout's journey through tests to the Thyrocare takeover
'PharmEasy, PharmEasy… Take it easy PharmEasy!'
The peppy jingle from the e-pharmacy player's 2018 advert showed an elderly man celebrating savings on his medicine bill by dancing to the playful version of the famous AR Rahman song, 'Urvashi, Urvashi...Take it easy Urvashi!'
Just a pun: PharmEasy is not taking it easy when it comes to its ambition. In a one-of-its-kind deal, PharmEasy is going to become the first unicorn to acquire a publicly-listed Indian company.
Through a subsidiary, its parent company API Holdings is all set to acquire a 66 percent stake from promoters of diagnostic chain Thyrocare Technologies for over Rs 4,500 crore. API's subsidiary and acquirer - Docon Technologies - will also make an open offer for an additional 26 percent stake.
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PharmEasy's acquisition of Thyrocare is being touted as not just the coming-of-age of a startup but the becoming of a behemoth as well. An outcome of the all-direction consolidation taking place with digital startups right at the heart of it all.
BYJU's purchase of 33-year-old Aakash, Groww's deal for 20-year-old Indiabulls Mutual Fund and BharatPe's bid for 38-year-old beleaguered PMC Bank - these startups are bringing alive the dead cliche: age is just a number.
Currently, the six-year-old PharmEasy works with a network of 80,000 pharmacies and 6,000 doctors. The acquisition will bring into its fold the crucial third component - Thyrocare's chain of 3,300 diagnostic centres across 2,000 towns and cities in India.
"It is a perfect complimentary strength to complete a digital-led holistic healthcare platform in India that can cover information, consultation, tests and treatment," said Siddharth Shah, co-founder and CEO of API Holdings.
Now, the IPO-bound startup can possibly carry a 'profitable' proposition to retail investors. Through public listing, the company plans to raise Rs 3,000-3,700 crore at a valuation of around Rs 21,800 crore ($3 billion), according to The Economic Times.
"API Holdings is planning an IPO in 12-18 months and this acquisition will beef up our portfolio ahead of the listing," said Shah.
An Action-Packed Year
India is churning out unicorns at a record pace with 16 startups making an entry into the elite club so far this year. PharmEasy is one of them.
In April, it became the first e-pharmacy unicorn after raising $350 million at a valuation of $1.5 billion in Series E funding led by Prosus Ventures and TPG Growth.
In May, PharmEasy completed its acquisition of fellow e-pharmacy player Medlife for an undisclosed amount. In a blog post, the company informed that Medlife would discontinue operations with its customers and retail partners onboarded to PharmEasy platform from May 25 onwards.
Bringing Medlife into its fold, PharmEasy now claims to be India's largest medicine delivery platform. Before the acquisition, it is said that four players - PharmEasy, Medlife, 1MG and Netmeds - accounted for nearly 85 percent of the market.
Two weeks into June, Facebook co-founder Eduardo Saverin's investment arm B Capital picked up a minority stake for an investment of $20 million. The deal pushed up PharmEasy's valuation to $1.8 billion, turning it into the most-valued and well-funded e-Pharmacy company in the country.
Earlier this month, former managing director and CEO of HDFC Bank Aditya Puri joined the board of parent company API Holdings. Now, as June draws to a close, PharmEasy has added the established Thyrocare to its multi-stack platform.
Conglomerates, Cash & Consolidation
PharmEasy’s acquisitions come at a time when Reliance Retail, Tata Group and Amazon have dipped their feet into the fast-growing e-pharmacy sector, especially during the pandemic.
While Reliance acquired a majority stake in Chennai-based Netmeds for Rs 640 crore last August, the Tata Group has signed a definitive agreement to buy out a 65 percent stake in New Delhi-based 1MG.
This is a key trend that showcases the 'SuperApp' race as conglomerates shrug off the old cloak and dress up with the digital debonair while saving time and innovation costs through quick acquisitions.
On the consolidation that’s taking place within the space, Siddharth Shah said, "PharmEasy is humbled by the fact that it is the last man standing in this ecosystem."
After its own acquisition-spree backed by investor cash, PharmEasy's arsenal now looks well-stocked for the battle against rival e-pharmacies Tata Digital's 1MG and Reliance's Netmeds - all wanting a larger bite of the e-health market, which RedSeer says will expand at a CAGR of 68 percent to hit a value of $16 billion by 2025.
In the words of 1MG's co-founder Prashant Tandon, "The battle lines are clear. The players here now are here to stay."
Not An Easy Start
About six years ago, the situation looked entirely different. PharmEasy's founders Dharmil Sheth and his doctor-friend Dhaval Shah saw 'the fragmentation within India's healthcare ecosystem' and thought of an idea to bring together patients, doctors, pharmacies and testing centres onto a single platform. Staring at the size of the problem, they asked the most important question of all, "Where do we start?"
In 2015, Dharmil and Dhaval noticed that most of the household spend on healthcare goes into medicines. So, they came up with an online drugstore. "That's how PharmEasy as a concept came about," explained Dhaval Shah in an interview with CNBC-TV18 in 2018.
They got off the mark. If they could get consumers to start using the app through savings on medicines, then eventually it would enable them to expand by adding more layers such as doctor consultations and diagnostics - the other two legs of the e-health tripod. But, there was still time for that.
PharmEasy was itching to test its product beyond its backyard market - Mumbai. But, protests broke out. Nearly 8.5 lakh chemists pulled down their shutters and took to the streets with black armbands and placards.
They urged the government to ban e-pharmacies saying that these startups were not only a threat to their livelihoods but also 'proponents of health hazards', which left unchecked would lead to a proliferation of spurious and addictive drugs.
Still, the first of the investors came with cheques and handed PharmEasy its Series A funding of $5 million in 2016. One among those four initial investors was Rehan Yar Khan of Orios Ventures. Recently on CNBC-TV18, he recalled the early days of the startup saying, "PharmEasy was doing a few thousand rupees in revenue per month when we invested."
PharmEasy was not alone in attracting early-stage investments. That year, online pharmacies received a total funding of $28 million split among PharmEasy, Netmeds, 1MG and several other players. However, funding for the sector faced the threat of drying up as the environment lacked one thing investors value dearly: regulatory certainty.
On this issue, Dharmil told CNBC Awaaz, "Without government recognition, there is always a question mark. Local and state bodies keep asking questions because of which investor sentiment may go down. Hence, we want the government to acknowledge this model." But, the central government was yet to make up its mind.
Growth, Government & Grievances
By 2017, PharmEasy was operational in 7 cities with 2 million households, 700 doctors and 100 offline retailers onboarded. Existing investors returned to the table with Series B funding to the tune of $17-18 million. "The second round of funding helped us spread geographically and get customers on the platform," said Dharmil. Later, the two founders went on to feature in the Forbes 30 under 30 list for 2017.
While accolades poured in for PharmEasy, criticisms flowed in equal measure. On their part, online pharmacies were struggling to self-regulate. Regulatory bodies noticed banned drugs on the platforms, customers complained of delayed or faulty deliveries and chemists protested business-killing discounts of up to 70 percent. PharmEasy engaged in industry-wide consultations with the government for recognition and regulation. No luck.
On the business front, PharmEasy continued to grow and attract investments. In 2018, it raised $50 million in Series C funding led by Eight Road Ventures. In this round, Infosys co-founder Nandan Nilekani made an investment, following former colleague Mohandas Pai, who was already an existing investor.
At the time, the company claimed to be posting 3 to 4 times growth in revenue annually with the expansion of its medicine distribution network to 20,000 pin codes in the country. That included deliveries in the far-flung Andaman & Nicobar Islands, according to some reports. However, most of the revenue - about 80 percent - still came from medicine sales with doctor consultation, home diagnostic tests and subscription-based services yet to take off.
Given the deep discounts on drug sales and intense fight for market share in an expanding sector, e-pharmacy was hardly a profitable business. As it is in e-commerce, digital payments and food delivery aggregation - the cash burn via offers turned e-pharmacies into loss-making units.
By this time, the 'Take it easy PharmEasy' television commercial was on the air as the marketing spend went up to acquire more customers.
The Paranoia Of Petitions
Some buoyancy returned to the market after the government at last released the draft guidelines. E-pharmacies welcomed the step as the disparate parties in the ecosystem - doctors, testing labs, pharmacies and the platform itself - were each governed by its own regulator and set of laws. The draft guidelines essentially said, "Register yourself, validate prescriptions and bar-code every drug in the inventory." But, it was yet to be brought into legal effect.
Even as the online drugstores were rejigging operations to meet regulations, rulings from two High Courts - Delhi and Madras - nearly put a cork on the sector. While the Madras High Court later relented by resting the fate of these companies in the hands of the government, the Delhi High Court insisted on e-pharmacies getting a licence akin to the one a chemist secures to sell medicines. "Otherwise, you are illegal," the court said.
In response, the e-pharmacies protested saying that they were an online marketplace and must not be required to get a licence. "We are like Swiggy, who does not have to get a restaurant licence to deliver food. Similarly, we deliver medicines," they said and continued to operate.
While some consumers grew suspicious, clearly investors were unfazed by the regulatory battles of the company. In 2019, PharmEasy raised $220 million in Series D funding led by Temasek Holdings and Canadian pension fund CDPQ. This was the single-largest round of funding raised by an e-pharmacy at the time. After just four years of operations, PharmEasy's valuation had shot up to $700 million. The platform now reached 710 cities in India, but more importantly, it had unseated 1MG in terms of transaction volumes, as per a KalaGato report.
By the end of 2019, the e-pharmacies continued to operate in a regulatory grey area facing repeat petitions in courts in different states all the while standing by their position that they were fully compliant.
In FY20, PharmEasy doubled its revenue to Rs 637 crore. Its losses doubled to Rs 100 crore, according to documents reviewed by MoneyControl. Another key development: PharmEasy merged with its parent company API Holdings, which led to the induction of three new co-founders: Siddharth Shah, Hardik Dedhia and Harsh Parekh.
The Virus Brings The Pandemic
March 24, 2020 - the day India went under its first lockdown, e-pharmacies read a notification from the union home ministry. Along with brick-and-mortar drugstores, delivery of medicines through e-commerce was mentioned as an 'essential service'. This led to 19 state governments declaring e-pharmacy as essential during the COVID-19 lockdown. Needless to say, there was 'an unprecedented surge in demand' for this service.
Before the pandemic, only 3.5 million households were ordering medicines online. In a report released after three months of lockdown, the Federation Of Indian Chambers of Commerce and Industry (FICCI) said there was approximately a growth of 2.5 times or 8.8 million in the number of households using e-pharmacy services in India. Going by the demand, the report also projected that e-pharmacies may reach more than 700 million households by 2025.
In just three months, the landscape had changed for companies like PharmEasy as it started adding customers in non-metro cities during the period. As the pandemic forced offline touchpoints to move online, so did pharmacy shift to e-ordering as people feared queuing up outside medical stores. Many first-time users took to ordering medicines on the phone during lockdown - a big incentive for an industry that had been burning cash in adding new customers via offers and advertising in the pre-pandemic era.
The Indian e-pharmacy market had already seen approximately $700 million worth of investments flowing in during FY20. During the pandemic, the sector has drawn increased interest not only from investors but also from large conglomerates like Reliance Industries and the Tata Group. Explaining the trend, the long-term investor in PharmEasy, Rehan Yar Khan of Orios Venture said, "The market is the large opportunity here."
PharmEasy's Growth During The Pandemic
During the pandemic, PharmEasy doubled its customer base to 12 million customers. The company also recorded a 2x growth in the number of drug retailers added to the network going from 40,000 to 80,000. "In terms of gross merchandise value, we have grown 80 percent in the last year," said Siddharth Shah, co-founder & CEO of API Holdings.
In FY21, the company witnessed a 10x demand for thermometers, oximeters, vaporisers, sanitisers, masks and gloves. It also recorded a close to 400 percent increase in sales of immunity boosters. (A controversial issue as many e-pharmacy platforms gave out free immunity packs even though there is no evidence to suggest it acts effectively against COVID-19.)
During the second wave, PharmEasy's daily active users surged 2 times as well to the current count of 17 million. Currently, it serves over 1 million patients for their pharmacy and diagnostics needs, conducts over 3 lakh consultations, and issues over 1 million digital prescriptions on a monthly basis.
By the end of this year, PharmEasy wants to expand its network of pharmacies from the current 80,000 to 1,20,000 across 100 cities in India. Compare this with the company's reach in 2017: Operational in 7 cities with 100 offline partners.
Now, There is a YouTuber community that caters to newbies who wish to know which 'online medicine app' is the best. There are tutorials on how to get extra cashback and discounts along with free offers on medicines. One can also find videos titled 'PharmEasy vs Netmeds vs 1MG: Who Is Best?' This is the real battle. Only time will tell who wins it.