From diagnostics to video consultation, Netmeds is gearing up for a growth spurt

Netmeds is well known to most Indian cricket fans. After all, large logos of the online pharmacy company were emblazoned on cricket grounds during India’s matches in Ireland, New Zealand and the UAE in recent months. And with MS Dhoni as its brand ambassador, Netmeds has already built strong brand recall. But the Chennai-based company’s ambitions don’t end there.

Netmeds operates in a segment which arguably has the potential to be the next big thing in the e-commerce revolution. Online drug delivery is repetitive in nature and offers higher trade margins compared to other online businesses.

But while horizontal e-commerce has been booming in India, the nascent e-pharmacy sector has been stifled by the fact that it operates in a regulatory grey area.

The final notification of draft E-Pharmacy Rules, anticipated after the general elections in May, is expected to rev up growth in the sector by finally giving it legitimacy. And NetMeds is gearing up with a host of enterprising new projects.

For starters, it is all set to launch diagnostics and consultation services on the platform, a value addition it gained with the acquisition of online video consultation app JustDoc last September.

With internet connectivity and other barriers largely out of the way, the concept of telemedicine has been gaining ground in India.

Industry body Assocham has estimated that India’s telemedicine market will be worth more than $32 million by 2020. The ubiquitous force of new-age technology solutions such as artificial intelligence are pushing the boundaries of the scope of telemedicine, especially in countries like India where advanced healthcare is still an urban phenomenon. JustDoc empowers Netmeds with the expertise in video consultations in the healthcare, lifestyle and patient-counselling segments.

“For every Rs 100 spent in the healthcare system, Rs 50 goes towards hospitalisation, Rs 30 to pharma, about Rs 7-10 to diagnostics and the remaining Rs 10 goes to doctors,” Pradeep Dadha, founder and chief executive officer of NetMeds, told TechCircle.

“We wanted to try and add other services to tap that opportunity. We are adding consultations and diagnostics besides building a community. The idea is that people could then use NetMeds for other services as well,” he added.

Dadha, a fourth-generation entrepreneur from the Chennai-based pharmaceutical manufacturing company Dadha Pharma, set up NetMeds in 2015. The Dadha family ventured into the pharmaceutical retailing business in 1914 and then into drug manufacturing in 1972. The manufacturing unit, Tamil Nadu Dadha Pharmaceuticals Ltd, was later merged with drug maker Sun Pharmaceutical Industries Ltd in 1996.

“We have been in the pharmaceutical business for over 100 years. It’s in the family blood. At Netmeds, our essence is in medicine delivery, everything else is to improve the overall offering,” Dadha said.

Expansion drive

Netmeds.com is a fully licensed pharma portal offering authenticated prescription and over-the-counter medicine along with other health, wellness and personal care products. Users can order their medicines via its web portal and mobile app by uploading their prescriptions. A team of qualified pharmacists then verifies the prescription and prescribes the appropriate dosage accordingly.

Netmeds employs around 1,000 people -- about 450 directly and 550 indirectly -- across different verticals. It claims to have touched at least 75% of the pin codes in India. According to Dadha, 1.9 lakh people used the service last month.

Netmeds dials third-party logistics providers including India Post, Xpressbees, Delhivery, Ecom Express and a host of local players for delivery. Pharmaceutical products (prescription and non-prescription drugs) contribute to about 90% of its sales (in value terms).

The company currently has 13 warehouses spread across the country and it is in the process of adding seven more. “The idea is to keep building technology, infrastructure and try to improve various aspects of the business,” he said.

Netmeds has so far raised $99 million in venture capital funding across three rounds from marquee investors including OrbiMed, Tanncam. Sistema Asia Fund, MAPE, and Daun Penh Cambodia Group.

Now, it is aiming to expand Netmeds Pharmacy – its brick-and-mortar retail footprint – across the country. It is looking to set up 100 retail shops by the end of this year through the franchise model and plans to establish 1,000 franchises in five years.  

These stores will come up in locations ranging from metros like Chennai, Bengaluru, Mumbai and Delhi to tier 2 & 3 cities such as Surat and Ahmedabad in Gujarat, Pali in Rajasthan and Balurghat in West Bengal. The company has opened five stores already with the first one in Nanded, Maharashtra.

“We want to see first 10 stores running without any problems before we scale. It takes some time,” said Dadha. “Omnichannel is an important reason we got into offline stores. Secondly, it helps in terms of the entire strategy of eventually reaching every district in the country. We want to have a warehouse in every district to reduce the transit time.”

Netmeds wants to serve areas with acute needs — especially tier 3 and 4 towns where there is a dearth of pharmacies — through its supply chain infrastructure and hopes to offer medicines at lower prices for customers over time with better integration of its logistics, point-of-sale and merchandising systems.

“Currently, about 65% of our online business is coming from non-metros. The stores will offer access to medicines that may not be in stock locally, via our well-established supply chain, at lower prices,” said Dadha.

The next frontier for Netmeds is producing generic drugs, with the company planning to launch a number of private pharmaceutical labels.

“We are in the process of evaluating the opportunities and the products we would want to get into. As a family business, we have been manufacturers of drugs. It’s not a huge task to create a private label for us, but we want to get it done in the right way. We need to scale the business to a particular extent before we can branch into other areas,” he said.

Taking on the competition

The company is currently re-evaluating its options in the wake of the new foreign direct investment (FDI) regulations for e-commerce which prohibit companies from selling from their own inventories.

Dadha also said the company is completely moving away from a deep discounting strategy.

“Discounting is a very short-lived game. We have stopped talking about discounts altogether in our new campaigns. We are battling it [the new norms] by trying to innovatively manage and survive,” he said.

“The main difference between our model and our competition is that we are the only contribution-positive online pharmacy in operation today. We do not lose money on transactions while all others lose,” he added.

Netmeds’ net sales more than doubled to Rs 6.2 crore for the year through March 2018 from Rs 2.7 crore in the previous fiscal. However, its losses widened to Rs 59.5 crore in 2017-18 as compared to Rs 46 crore in the year-ago period.

Netmeds’ main rivals include Medlife, 1mg and PharmEasy.

A self-funded startup, Medlife started with online drug delivery and diversified into online doctor consultation and laboratory services.

1mg allows customers to order medicines and consult doctors. It also launched a service that lets users book diagnostic services and lab tests. The company record an eightfold surge in operating revenue to Rs 85.8 crore for 2017-18 while losses rose by more than three times.

TechCircle had reported recently that Gurugram-based 1mg was in the process of raising up to $60 million in its largest funding round till date.

Another online drug delivery platform is Mumbai-based PharmEasy. It also uses a tech-enabled lead-generation platform that helps customers get cheaper diagnostic tests and has raised close to $100 million in funding so far.