Bengaluru: Online medicine delivery startups, such as PharmEasy, 1mg, Netmeds and LifCare, are racing ahead of the pack by raising large sums of capital and putting pressure on their peers to either keep raising cash or sell out.

PharmEasy recently raised more than $50 million in two tranches, while 1mg is in advanced talks to close a $60-80 million round, according to two people familiar with the developments. Netmeds, which recently secured $35 million, is in talks with investors to raise more money, another person familiar with the matter said. LifCare raised around $11 million in July from the likes of Saif Partners and Nexus Venture Partners.

Investor bullishness in this sector comes in the wake of the union health ministry issuing in September draft rules on the sale of drugs through e-pharmacies with final regulations expected by the end of this month. However, according to a Times Of India report, Delhi high court ordered on Wednesday a ban on the sale of online medicines by e-pharmacies, making it a risky investment.

“This (e-pharmacy) business requires a lot of capital—they need to spend heavily on brand marketing and discounting. Netmeds and PharmEasy are even sponsoring cricket events," said an investor in the sector, requesting anonymity. “These three players (Netmeds, 1mg and PharmEasy) are pretty much on the same level and now the race is to determine who is the market leader—who will potentially receive a large cheque of over $100 million."

PharmEasy and Netmeds are estimated to be burning large amounts of cash as they have become aggressive in their efforts to gain market share in the last 6-12 months, the people cited above said.

Netmeds said it currently does not have any fundraising plan. Prashant Tandon, founder of 1mg, declined to comment on the company’s fundraising talks, citing “market speculation". PharmEasy chief executive Dharmil Sheth said the company has raised about $50 million and has been growing four-fold each year in the last two years.

The e-pharmacy market has the potential of growing to more than $1 billion. However, online pharmacies now comprise a mere 1% of overall medicine sales.

India’s pharmaceutical sector was valued at $33 billion in 2017 and is expected to grow at a compounded annual growth rate of 22.4% over 2015–20 to reach $55 billion, according to India Brand Equity Foundation.

“The pharmacy market is a significantly large opportunity with space for multiple players, different types of business models and new players," said Tandon of 1mg. “What will differentiate the winners would be the ability to understand the nuances of this space, the ability to build consumer trust and the maturity to navigate this fast emerging space with responsibility and processes that work at scale."

Other players in the online pharmacy space include Sequoia Capital-backed HealthKart, Matrix Partners backed-Myra, mChemist, CareOnGo, MedsOnWay, and EasyMedico, which have raised smaller sums. Investors said some of them will have to sell out as PharmEasy, 1mg, Netmeds and LifCare have accumulated formidable war chests.

E-commerce giants Flipkart and Amazon India, as well as food delivery platform Swiggy and online grocery startup BigBasket, are also evaluating an entry into medicine delivery, opening up possibility of buyouts.

“Online medicine delivery in India has become a well-contested space between the top 2-3 players who are scaling up to expand and penetrate nationally in a deeper way," said Anup Jain, managing partner at Orios Venture Partners.

“The market potential is substantial and the path to profitability is much quicker because the model makes access to medicines faster, more convenient and gives real savings to consumers. The next unicorn is expected to emerge from the e-pharmacy sector."

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