Why a Chemist association has asked SEBI to reject the PharmEasy IPO

In a letter to the Securities and Exchange Board of India (SEBI), Delhi-based South Chemists and Distributors Association (SCDA) has asked the regulator to reject the initial public offering (IPO) of PharmEasy on the grounds that online pharmacies are not legal under Indian law.

API Holdings, the parent company of PharmEasy, filed its draft red herring prospectus (DRHP) for an IPO with SEBI on November 10. The company is seeking to raise Rs 6,250 crore from its fresh issue portion. In addition to delivering medicines, PharmEasy also provides teleconsultation, lab tests, and other healthcare services.

This development once again brings to light the uncertainty surrounding the online health sector due to the lack of proper regulations. The government in August 2018 published a draft policy to regulate e-pharmacies, but these are yet to be finalized.

MediaNama has reached out to PharmEasy for a statement and will update this story once we get a response.

Why is SCDA objecting to PharmEasy IPO?

• E-pharmacies not legal under Indian law: SCDA argues in its letter that e-pharmacies are not legal under Indian law and that SEBI should not give approval to such a business and give it “a cloak of legality.” SCDA further states that online pharmacies must comply with the regulatory framework in place for traditional pharmacies such as the Drugs and Cosmetics Act, which states that “prescription medicines and drugs can be sold only through a licensed retailer under strict supervision.”
• Delhi High Court 2018 order prohibits the online sale of medicines without a license: SCDA stated that the Delhi High Court on December 12, 2018, passed an order prohibiting the online sale of medicines without a license. This order is still in effect, SCDA noted. Furthermore, the Drugs Controller General of India has written to the State Drug Controllers on multiple occasions asking them to ensure compliance with the direction issued by the Delhi HC and there is a contempt petition pending before the court against various e-pharmacies that continue to operate in violation of the order, SCDA added.
• Government still considering regulations: SCDA cited evidence from an affidavit filed by the Ministry of Health and Family Welfare in Delhi HC that states “at present the Drugs and Cosmetics Act, 1940 and Rules 1945 have no provision on the online sale of drugs” and “the issue relating to online sale of drugs is presently under the consideration of the Government.”
• Anti-competitive concerns: SEBI said that it has filed a detailed complaint with the Competition Commission of India regarding API Holdings’ engagement in various anti-competitive activities in the pharmaceutical market including practices like cash burn and vertical integration.
• Significant harm to investors:  Because of the possibility that authorities can prohibit online pharmacies or have various changes to how they are regulated at any time, there can be significant losses to investors, SCDA stated.
• Sets a bad precedent: “If API Holdings can be listed on the Indian stock exchange, then in future any company dealing with the sale of banned substances under India’s laws can also be listed,” SCDA submitted.

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Will SCDA’s arguments appeal to SEBI?

PharmEasy has previously argued in the Madras High Court that it acts as an intermediary to connect customers with registered retail pharmacies and that it does not stock, sell or distribute any drugs, but merely provides delivery services. In response to this argument and arguments made by other online pharmacies, Madras HC in 2019 stayed its earlier order which banned the online sale of medicines.

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SCDA has also previously written to the Competition Commission of India (CCI) objecting to PharmEasy’s merger with MedLife and acquisition of Thyrocare. But the antitrust watchdog went ahead and approved the MedLife deal anyway. CCI has also approved Reliance’s acquisition of NetMeds and Tata’s acquisition of 1MG, two of the largest online pharmacies in the country. Given this, it is not sure if SCDA’s arguments will hold any water with SEBI. Besides, the Indian government is actively working on digitizing all aspects of the healthcare sector through the National Digital Health Mission (NDHM) and there are provisions for e-pharmacies in this blueprint as well.