Is Pharma going the grocery way?
India’s domestic pharmaceutical market is estimated at US$ 42 billion in 2021 and likely to reach US$ 65 billion by 2024 and further expand to reach ~US $ 120–130 billion by 2030.
Branded generic medicines are typically 30%–80% cheaper than originator equivalents. Unbranded generic drugs though are a completely different story. If pricing of Jan Aushadhi Scheme is anything to go by, they are on an average 40-50% cheaper than the cheapest branded generic and about 85–95% cheaper than the most expensive branded generic drug.
Hospitals account for about 38% of the pharma sales. Retail pharmacies (online & offline) account for the remaining $25Bn. Unorganized retail accounts for 57% of pharma sales (91% of retail sales). Organized retail sales contributes to 3% of pharma sales (5% of retail sales) while e-pharmacies have witnessed significant growth to account for 2% of pharma sales (3% of retail sales).
Pharma Industry itself is facing headwinds of change.
Regulatory Challenges — Government is actively considering a move from brand based prescription to molecule based prescription. This will have a huge impact on non branded generics market share.
This also means the power to influence sales shifts from the doctor to the pharmacies who can then push brands that offer a higher margin to them. e-pharmacies with a wider product catalogues will offer customers the power to compare pricing across the brands and make a choice accordingly.
This would also result in private labels gaining prominence. One can already see this trend picking up in OTC space especially in nutraceuticals, hygiene , baby & mother care products space. Retail chains and e-pharmacies are already in the process of building their own private labels. One can also see players like Genric Aadhar setting up their own franchise pharmacies looking to mimic the JanAushadhi model.
About 17–18% of Pharma market is under price regulations. This share is expected to go up in the future.
Pharma companies will look to adopt a hybrid approach.
> They will be coming out with unique drug cocktails that can ensure that prescriptions are still unique to their product offerings and can still leverage the medical representative and doctor network to drive sales.
> There will be more patient focused marketing with an emphasis on quality of the branded generics vis-a-vis unbranded generics to shape patient buying decisions.
> There will also be push to build own sales channel (online & offline) to play a bigger role in influencing patient purchase decision. The ball has already been set rolling by the acquisition of AWACS from AIOCD and Phamarack by DigiHealth platform of ABCD Technologies owned by a consortium of India’s top pharmaceutical majors, including Sun Pharma, Cadila Healthcare, Lupin and and Torrent Pharma. The acquisitions give DigiHealth historical sales data at a distributor and retail level using which they can build their distribution and pharmacy business.
B2B players — B2B players like Ascent Health and Entero Healthcare have made significant greenfield investments and a series of acquisitions to build a nationwide supply chain to cater to both hospitals and pharmacies. GPOs like MedikaBazaar and Stratmed are focused on the hospitals and B2B players like Udaan have doubled down on their focus on serving the pharmacies.
All these players are using industry expertise, technology and billions of dollars in investment offering and easy single channel procurement options to hospitals and pharmacies, a wide enough product catalogue accompanied by deep discounted pricing by using purchasing power to squeeze margins from phama manufacturers. They are also building thier own private labels.
Omni-Channel play — Reliance is doubling down in the pharmacy space leveraging its Netmeds acquisition and building a strong offline pharmacy footprint. All existing Reliance retail outlets will soon have Netmeds pharmacy corner as well. This can help them have a much bigger slice of the retail pie and establish Netmeds as brand to reckon with in the online and offline space.
Organized retail chains with pan India presence like Apollo (2500+ outlets), MedPlus (1400+ outlets), regional players like Sevana Medicals, Neeti Stores, Guardian Pharmacy (200 outlets) Gurgaon, Hyderabad-based Hetero Pharmacy (285 outlets) and new entrants like Aster Pharmacy in Kerala are planning rapid expansion in offline stores and enhancing user experience with e-pharmacy offerings.
So how does the pharma story pan out?
Are there lessons to be learnt from the way grocery is moving. Upcoming regulations can see a commoditization happening in the Pharma market. Can we see an Reliance Retail / Udaan / Zepto / BigBasket model work in this space?
More importantly, how does this impact the unorganized sector comprising of 800,000 pharmacies and over 65,000 distributors? What can they do to survive the onslaught of well funded players who are using technology to slowly edge them out?
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