Amazon in talks to buy Medplus, India’s No. 2 pharmacy chain

Pankaj Mishra Jayadevan PK July 17, 2018 6 min

Amazon is looking to open yet another battlefront in India by buying into a pharmacy chain as the Jeff Bezos-led US retailer pursues its ambition to become the everything store.

The retail giant is in early talks to invest in Medplus, the second largest Indian pharmacy chain founded by Madhukar Gangadi, a Wharton graduate, according to two sources. The largest pharmacy chain in India is Apollo Pharmacy.

“There have been preliminary discussions between Amazon and Medplus…Too early to call it a deal. But what’s confirmed is Amazon’s serious intent to build a definitive pharmacy play in India,” a source aware of Amazon’s plans told FactorDaily. The source, from the venture capital industry, did not wish to be identified as his company is involved in helping Amazon with these deals.

The online pharma industry relatively new in India. But like with other sectors upended by Amazon in the past, offline presence is going to be at the centre of its gameplan. Medplus, founded in 2006, runs over 1,400 stores across 12 Indian states.

The Indian pharma market has been growing at a fast clip even on a large base of over Rs 1.2 lakh crores.

As per company filings, MedPlus booked revenues of Rs 1726 crore in 2015-16 and Rs 1361 crore the year before that. The company posted profits of Rs 9 crore and Rs 7.46 crore respectively in those years. Financials for 2017 aren’t yet available.

On Monday, we’d reported that Amazon’s biggest Indian rival Flipkart has held discussions with online pharma companies: Gurgaon-based 1mg and PharmEasy from Mumbai. Other significant players in the space include private equity backed Netmeds and Medlife.

“There are active conversations going on with potential pharma chains…..with at least two of them. One of them is Medplus,” said a second source on Amazon’s plans.

India’s pharma business, typically, has higher margins compared to other consumer products and buyers are not used to discounts – making it a relatively lucrative business for ecommerce companies to enter. “Both (Flipkart and Amazon) are looking at bottom line growth in a very significant way,” said Harish Bijoor, a brand and business strategist.

In January this year, Mint reported that Gangadi had raised about $115 million in debt from Goldman Sachs to buy out private equity investors in the company. After the buyout, Gangadi owns 90% of the company.

At the time of publishing, Gangadi had not responded to text messages for comments. An Amazon spokesperson said, “…as a company policy we do not offer comments on what we may or may not do in the future.”

We’ll update the story if we hear from Gangadi.

Amazon’s move comes barely a month after it announced intentions of getting into the pharmaceuticals space by acquiring PillPack, an online pharmacy for about $1 billion. The PillPack deal wiped out $15 billion in Pharma stocks.

Earlier in June, Amazon hired renowned Harvard surgeon and writer Atul Gawande, as the chief executive of its healthcare joint venture with Berkshire Hathaway and JPMorgan. That move also led to a fall in share prices of insurance companies, underscoring investors’ faith in Amazon.

In India, besides retail, Amazon has already made an entry into fintech by investing in insurance companies, lenders and also developing its own payments ecosystem. India’s healthcare industry, the lending ecosystem and also the insurance industry is beginning to get digitised with a push from the government. A growing breed of health-conscious Indians are also generating demand in the preventive healthcare space which is expected to top $100 billion by 2020. 

This is not Amazon’s first attempt at running an online pharmacy. Way back in 1998, the company started Drugstore.com along with other .com companies such as Pets.com, Gear.com and Wineshopper.com. “Almost all of them went down in flames, though during the collapse of the dot-com bubble in 2000, and by then, Bezos had his own problems and possessed neither the temperament nor the time to try to save them. The company lost hundreds of millions on these investments,” Brad Stone wrote in his 2013 book The Everything Store.

But over the years, the US market has rewarded Amazon for making outsized bets even as it punished competitors — captured by the “Death by Amazon” index of stocks exposed to Amazon.

The chart shows how until 2015, the market believed that these companies could win against Amazon and their stock outperformed the S&P 1500 index. After late 2017, these stocks have underperformed the S&P index.  Amazon’s share price started outperforming the S&P 500 index in the same period. From about $750 in January 2017, it’s now at $1,570. The company’s market cap stands at about $889 billion, making Bezos, the richest man in modern history with a fortune of over $150 billion.

The markets have rewarded Amazon because of its ability to take on industry after industry, ranging from books to cloud computing, and become a leader in the space. But India’s pharmaceutical industry, though large, may not be easy.

The Bespoke Death By Amazon Index.

Drugs worth Rs 10,215 crore (about $1.49 billion) were sold in India in the month of June 2018, according to data from The All India Organisation of Chemists and Druggists (AIOCD). That’s a growth of 8.6% from the same month last year. About Rs 119,641 crore (about $ 17.5 billion) worth of drugs were sold in India in 2017 and that’s expected to grow to $55 billion by 2020.

India’s competitive pharmacy market is mostly run by traders who are opposed to online sales of medicines. In May last year, chemists rallied by the AIOCD, went on a strike to oppose online sales of medicines. The organisation has over 8 lakh members, many of whom have close political ties.

Jagannath Shinde, president of AIOCD, said the 8.5 lakh chemists and pharmacists who are members of his organisation were against online sales of drugs in India. “Yes, we know that Amazon is trying to get into online pharmacy. We are planning an agitation on August 1 to 14. If the government doesn’t listen to our demands, we will go into a work-to-rule mode opening our shops only eight hours a day,” he said.

Companies such as “Amazon and Flipkart will burn capital to acquire customers. What will happen to the more than one crore of people employed by pharmacies,” he asked. He also listed drug sales based on fake prescriptions, habit forming medicine sales, and counterfeit drugs among the reasons that AIOCD is opposed to the online sales of drugs in India.

India’s health ministry has plans to amend the Drugs and Cosmetics Rules, 1945, to regulate online pharmacies. Companies that sell drugs online will have to register with a central organisation and won’t be allowed to sell narcotics, psychotropics and tranquillisers, as per draft rules formulated by the government.

Visuals by: Rajesh Subramanian

               
Updated at 10:23 am on July 17, 2018  to add comments from Jagannath Shine, president of AIOCD.
Updated at 10:45 am on July 17, 2018  to add a quote by brand consultant Harish Bijoor.
Updated at 02:42 pm on July 17, 2018  to add Amazon's response that it wouldn't offer comments for this story.

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