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PharmEasy Business Model: How PharmEasy Makes Money

The decade of 2010s will go down in history books as the decade the internet access proliferated across India. At the beginning of the decade, 92.57 million people were using the internet across the country. By the end of the decade, the number had swelled to 749.07 million.

The imminent rise in Internet usage led to the growth of innumerable Internet startups and disruption across industries. One of the first major industries to witness disruption was retail. 

The founding of Flipkart in 2007 led to a wave of new online shoppers. The Amazon entry in 2013 and the rise of competitors like Snapdeal set the wheels of the Indian e-commerce industry in motion. Two more startups, Zomato (founded in 2008) & Swiggy (founded in 2014), ensured Indians could discover restaurants and order food on the internet. 

Similarly, new startups propped up tackling different industries like transportation(Ola, Uber), Grocery(Grofers, Big Basket). The realization that medicines were not yet delivered online began to dawn up aspiring entrepreneurs close to 2014. As many as 60 e-pharmacies propped up in 2014 and 2015.

A few years later, most of these startups had failed. After the market matured, the three contenders running the e-pharmacy race were PharmEasy, Netmeds & 1mg. But Netmeds was acquired by Reliance Retail in 2020 & Tata Digital Ltd picked up a 55% stake in 1mg in June 2021, turning it into Tata 1mg. As of 2022, PharmEasy was the sole player of the three to be operating independently. Having also acquired Medlife in 2020 & planning to go public in 2022, PharmEasy seems determined to compete with the big players in coming years, at least as of now. 

Learning the PharmEasy story will, in some ways, also give us insight into how the e-pharmacy startups, in totality, exploited changing market dynamics, overcame market challenges, and brought about a behavioral shift among Indian consumers.

PharmEasy Growth Story

The founding of PharmEasy and competitors like Netmeds & 1mg was based on a simple premise — Indian pharmaceutical revenue was pegged at around $20 billion in 2015 and expected to grow to $65 billion in 2024, and the Indian consumer was getting comfortable with online shopping, even though convincing them to buy medicines online would take massive spending in marketing. Even if online pharmacies could capture as small as 10% of the expected revenue, it would mean an enormous return for investors. 

One of the biggest challenges PharmEasy faced in its early days was that consumers would not provide proper prescriptions. Due to this, the e-pharmacy players struggled to convert orders in sales. Selling drugs without a prescription was not an option because that would be immoral and illegal. E-pharmacies spent a large chunk of the money raised in their early days to improve patients’ awareness to upload proper prescriptions. 

By Dec 2015, PharmEasy had raised its series A round of $5 million. Around that time, over 1 lac users were shopping on the app every 45 days with an average ticket size of Rs 1500. E-pharmacies, including PharmEasy, offered heavy discounts to encourage consumers to buy medicines online in the early days. 

By July 2016, PhamEasy had expanded to seven cities to serve 20 cities by 2017. To grow rapidly, the company raised a series B round of $16 million in March 2017. Post the funding, PharmEasy went into blitzscale mode. Revenue tripled from Rs 33 crore in FY17 to Rs 116 crore in FY18. But as the income grew, losses mounted as well. Losses widened from Rs 48 crore in FY17 to Rs 97 crore in FY18. 

In Sep 2018, Pharmeasy raised a series C round of $50 million. Armed with the money to grow further, PharmEasy tried to improve unit economics and improve revenue to loss ratio.  

By 2019, Pharmeasy started taking baby steps to expand beyond medicine delivery to related services. The company went ahead and introduced the lab test at home segment and other healthcare products, levering its existing customer base. 

PharmEasy provides three primary services at the time of writing — online medicines, lab tests at home, and healthcare products. 

PharmEasy Business Model

PharmEasy makes money from four different sources: commission from pharmacies & healthcare product sellers, delivery fee on medicinal and healthcare products, selling advertising spots to pharmaceutical entities and healthcare brands, and selling lab tests. In FY20, Pharmeasy earned a revenue of Rs 637 crore but incurred a loss of Rs 100.7 crore. In FY19, the company made a revenue of Rs 340 crore, incurring losses of Rs 50 crore. 

Compared to 1mg, PharmEasy has been able to keep its losses in check. In FY19, 1mg made a revenue of Rs 240 crore while losing Rs 170 crore.

In total, PharmEasy has raised $1.6 billion since its inception. In 2022, PharmEasy is expected to go public,  with the company already having filed a draft red herring prospectus (DRHP) with Sebi for a Rs 6,250-crore public offering. After its last Rs 2,635.22-crore pre-IPO round in October, PharmEasy was valued at $5.6 billion (Rs 42,197.79 crore). The company intends to use the funds raised in three core areas — marketing and promotional activities, supply chain infrastructure, and fulfillment and upgrading its tech infrastructure. 

PharmEasy Acquisitions

Up until now, PharmEasy had acquired three companies — Medlife, Thyrocare & Aknamed. 

The acquisition of Medlife, one of PharmEasy’s competitors, happened when the e-pharmacy market was seeing a consolidation. While PharmEasy acquired Medlife in 2020, Netmeds was acquired by Reliance Digital in 2020, and Tata bought a majority stake in 1mg in 2020. In FY19, Medlife made a revenue of Rs 363 crore but incurred losses of Rs 404 crore. The negative revenue lo loss ratio must have played a big role in Medlife deciding to merge with a player having a better revenue to loss ratio. 

PharEasy’s acquisition of Thyrocare, India’s largest diagnostic test laboratory, helped PharmEasy expand its presence in the lab test space, increasing the number of touchpoints the startup facilitates in a patient’s healthcare journey. 

Other than Medlife & Thyrocare, PharmEasy also acquired Aknamed, a healthcare company striving to streamline the Indian healthcare supply chain, in Sep 2021. 

Going by PharmEasy’s recent acquisitions and how it has expanded its offering, one can expect it to become a platform that serves every single touchpoint across the lifecycle of a patient. 

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PharmEasy Business Model: How PharmEasy Makes Money
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PharmEasy Business Model: How PharmEasy Makes Money
Description
PharmEasy makes money from four different sources: commission from pharmacies & healthcare product sellers, delivery fee on medicinal and healthcare products, selling advertising spots to pharmaceutical entities and healthcare brands, and selling lab tests. In FY20, Pharmeasy earned a revenue of Rs 637 crore but incurred a loss of Rs 100.7 crore.
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WhatIsTheBusinessModelOf
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Muaaz Qadri
A Proud Computer Engineer turned Digital Marketer
Summary
PharmEasy Business Model: How PharmEasy Makes Money
Article Name
PharmEasy Business Model: How PharmEasy Makes Money
Description
PharmEasy makes money from four different sources: commission from pharmacies & healthcare product sellers, delivery fee on medicinal and healthcare products, selling advertising spots to pharmaceutical entities and healthcare brands, and selling lab tests. In FY20, Pharmeasy earned a revenue of Rs 637 crore but incurred a loss of Rs 100.7 crore.
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WhatIsTheBusinessModelOf
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