When Amazon acquired US-based e-pharmacy startup PillPack in 2018 in a deal valued at $753 million, it sent repercussions across the e-commerce sector. If Amazon was willing to invest this much, consumer habits were clearly shifting towards purchasing their medication online. The move was also a validation for several e-pharmacy startups in the Middle East and North Africa (Mena).
Egypt's e-pharmacy sector started gathering steam with the entry of digital pharmacy marketplaces Chefaa and Yodawy in 2018. Since then, both startups have drawn significant amounts of funding. Last year, Yodaway raised $7.5 million in a Series B round from a consortium of local, regional and global investors. Chefaa also managed to close a couple of rounds and is currently in the process of finalising its Series A round.
Convinced of the opportunity, Egypt-born telehealth and doctor-booking platform Vezeeta, also made an entry to the online medicine delivery business in 2020, right after raising $48 million in a Series D round. The three marketplaces together occupy a large share of the local sector.
"In 2018 and 2019, we were working on the proof of concept, increasing awareness of our product and fostering the notion that technology applications can be utilised in healthcare as well. In 2021, the sector has seen 3x growth on the back of the ongoing online buying frenzy accelerated by Covid-19," says Doaa Aref, CEO and co-founder of Chefaa.
The county's ever-expanding e-commerce market is the mantra of optimism being pushed in the digital medicine delivery business and one of its key drivers of growth. According to a report by Egypt-based consultancy firm BOOST consultancy, the value of total e-commerce transactions made in 2021 peaked at $100 billion. It forecasts that the sector will further grow by 30 per cent this year.
The increased adoption of online retail has led large pharmacy chains to invest heavily in digital efforts in an attempt to catch the interest of online buyers. As a result, digital sales are slowly taking large shares in the pharma retail value chain.
"[We] invested around EGP 20 million to improve the technical properties of our app. It is expected that online sales will comprise 5-8 per cent of our overall revenues over the upcoming period," says Ahmed Hassan Salem, CEO of Misr Pharmacies, adding that they plan to open new pick-up hubs to facilitate the delivery of medicine at a faster time to the customer.
Restraints and drivers
Despite this, the overall online penetration of digitally placed medicine orders through marketplaces has not reached 1 per cent of the overall pharmaceutical value chain.
"The vast majority of orders are placed offline. There are only 5,000 pharmacies out of 75,000 that use digital marketplaces to sell medicine. The market is a blue-ocean opportunity,” says Aref.
While the accelerated trend towards online ordering is the ultimate propeller of these marketplaces, the growth seen in this sector is largely fueled by customers' repeat purchases and retention selling.
"In this sector, It's easier to guarantee high rates of customer retention," says Aref. "For example, patients with chronic diseases require regular medication so they would keep purchasing the same items for longer periods of time. Also, there are Covid-19 patients [who] can’t go out and seek medication in person for them, so online ordering is no longer a luxury for them."
While there is room for more disruption, running a medicine marketplace may not shape up to be a scalable business model. For Salem, the biggest hurdle facing the growth of online medicine marketplaces is that "many still believe that the medicine delivery market works the same way the food delivery business does".
“Both businesses are completely different stories and there are a lot of factors involved that make the success metrics different in each market," says Salem. "Aggregating an order is not much of a big issue, but to deliver it at the right time to the right customer is the real deal.
"In food delivery, the courier is required to collect one or more items from one place and deliver them to the customer. In medicine, the customer may order one or many times that are not necessarily available in one pharmacy. So the courier is required to collect different times from different places, and this is where the operational inefficiencies may transpire. Small pharmacies might offer marketplaces higher profit margins per order; however, delivery fees would be high for them to afford," adds Salem.
Empowering small pharmacies and enabling them to reach a broader clientele has been part of the online medicine delivery marketplaces' mission. However, Salem expects that it will take a while until traditional pharmacies start warming up to digital channels.
Besides the not-so-attractive unit of economics, marketplaces also have to navigate a turbulent and uncertain economic landscape amid recent legal restrictions.
Last year, the Egyptian Pharmacy Syndicate filed a lawsuit against 12 marketplaces, among which a couple have been indefinitely suspended. These include 3elagi tech, which was acquired by pharmaceutical distribution firm Ibn Sina, and Sehtak, a subsidiary of Eva Cosmetics, a manufacturer of personal care products.
According to sources close to the matter, both were banned on the grounds of being directly related to medicine distribution companies, which would allow for unlawful monopolistic behaviour. Moreover, the Syndicate has learned that there are some marketplaces that directly source medication from inventory or utilise cloud pharmacies to distribute medicine to the downstream consumers without a prescription, going against the law which only allows licensed, physical pharmacies to sell medicine to customers.
But, the Syndicate has not clearly stipulated the reasons why some marketplaces are being put in the crosshairs nor has it come up with a set of policies to regulate the work of these marketplaces.
As a result of this regulatory uncertainty, a lot of small pharmacies are reluctant to shift to the online marketplaces out of fear of getting into trouble and being driven out of business. This could in turn impact the long-term growth of the sector and derail the transition of small and traditional pharmacies to the online realm.
"Times have changed now, and people will continue to buy online. The digital medicine sector is at the stage where Uber and Careem were six or seven years ago when they [had] not yet been regulated. There's a big difference between illegal and unregulated. And the sector is yet to be regulated," Aref explains. “The marketplaces themselves are no issue as long as they only serve mediator tech-driven tools that connect pharmacies and patients, I guess the Syndicate has no problem with that.”
Until policies are enacted to regulate the work of B2C marketplaces, the next wave of disruption in pharma is likely to take place in the supply chain.
Sohayb Baset, founder and sales manager at Ph store, a startup working to digitise pharma’s retail supply chain, recounts to Wamda that his startup was mired in a brief dispute with the Syndicate. “We also got called out by the Syndicate. They have been supportive of what we do upon learning that we are not a B2C marketplace and operate as a B2B marketplace," he says.
Ph store works to ease pharmacies’ access to a wider range of SKUs from medication and medical equipment. The platform also enables pharmacies to offer discounts for bulk sales on surplus inventory and sell it to fellow pharmacies. This way, the startup helps pharmacies avoid shortages and overages and enhance their inventory management.
"Historically, pharmacies tend to overstock medicines to ensure 100 per cent fulfilment. The problem arises when the demand dries up, resulting in pharmacies not being able to sell it and thereby incurring huge losses," says Baset.
In December 2021, the B2B sector saw US-based Aumet expand to the Egyptian market by acquiring Platform One, an asset-light startup that works to connect pharmacies to suppliers through a unified platform.
“[The pharmaceutical] sector remains typically a pen and paper one, and pharmacy owners spend a lot of time each day and go through a great deal of hassle to reach suppliers, this is where we saw the need for our product. We saw that the most pressing pain points facing pharmacies usually exist in logistics and supply chain,” says Osama Atroush, co-founder and marketing and data management director of Platform One.
The growing interest in the B2B pharmaceutical supply chain is greatly driven by the ongoing B2B e-commerce digitisation boom across the region. Last year, B2B marketplaces raised more than $225 million across 26 deals in the Middle East and North Africa, most of which were concentrated in startups focusing on the fast moving consumer goods (FMCG) segment. In Egypt, it was this segment that attracted the highest amounts of funding in 2021, with Maxab and Capiter being cases in point, both raised $40 million and $33 million respectively