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In the last couple of years (2014-2016), many Online Pharmacies has started, some of them got funding as well, as large as USD 60 million. But, what we could see is, many of them are suffering drastically because of their cash burn in terms of discounts and heavy marketing, and not being able to figure out a way for break-even. Some of the funded startups have also shut down their operations in most regions, and others are trying to raise fresh round of funds for survival.

Heads-up - this is going to be long.. ;)

*What is the problem Online Pharmacy is solving* ?

Primarily, to solve the issue in regards to medicine availability - today in India medicines are mostly regionalised - out of more than 650+ branded manufacturers, only approximate 200+ manufacturers medicine are available in a state / city. This means, patients visiting different city for treatment or people migrating to a different city, are unable to get the medicine which was prescribed lack of availability in that locality.
High cost of branded medicines - in an offline pharmacy, one has to accept the medicine which is provided by pharmacist based on the prescription. There is no choice to go for an alternative generic medicine with same composition, which is available at much lower cost.
*When the above problems are real, and if the solution could be brought by online pharmacy - then there is no way it can fail*.! *Then why well funded online pharmacies are failing ? Before that, let's checkout the regulations as per Indian Law*

Rules as per Indian laws and regulations -

Laws for Pharmacies in India are derived from Drug and Cosmetics Act 1940, Drugs and Cosmetic Rules 1945, Pharmacy Act 1948 and Indian Medical Act 1956.

Medicines can be sold only by a registered pharmacy that has retail drug license and must have a registered pharmacist to disburse medicines.
Prescription is mandatory to purchase medicines and OTC (over-the-counter) medicines can be purchased without prescription.
Pharmacy can take orders over phone or internet, within their state where they have license. And the pharmacist should verify the prescription before handing over the medicines to the customer. In certain state like Maharashtra, the rules are even strict, the prescription needs to be sealed and signed before handing over the products.
The quantity of the medicines should not be provided more than what has been prescribed. Certain scheduled medicines need fresh prescription to obtain medicines every time and at the time of delivery prescription should be sealed so that it cannot be used again. Chronic medicines can be obtained again with the same prescription until the validity mentioned by the doctor.
Proper customer record including name of the patient, doctor and address needs to be maintained for every Schedule H and Schedule X medicines.
Selling banned or non-approved medicines is a crime.
Registered pharmacist at the pharmacy should verify and certify the medicines being delivered.
As per circular from - Office of Drugs Controller General (India) - dated 30th Dec 2015, "The Drugs and Cosmetics Rules, 1945 inter alia regulate the sale / distribution of drugs in the country. The Rules do not distinguish between the conventional and over the Internet sale/distribution of drugs. However, the provisions of the aforementioned rules have to be compiled in both cases."
If the laws / rules / regulations are clear as stated above, and if an online pharmacy follows them, then they are well within the legality. But the concerns for the failure is mainly due to the challenges in the operation within these boundaries - let's look at them below,

*Challenges of an Online Pharmacy* -

Prescription - Need for prescription, and verifying the authenticity of prescriptions. In certain regions & cases, as stated before, Online Pharmacy needs to obtain the physical prescription from the customer to seal & sign it, before delivering the medicines.
*Time* - In case of physical prescription obtaining, it involves time and effort, which increases the man-hours spent to fulfill an order. So more man-hours will increase the cost per order.
*Delivery timeline* - Medicines unlike other cosmetic products, requires faster delivery (within the given timeframe as the patient life is dependent on it). Chronic patient may be can wait for 1-3 days if they have stock, but non-chronic patient such as Acute or other normal cold-cough-fever etc. would need medicines immediately. So faster the delivery, it's increase in the cost of operation.
*Temperature controlled* medicines - Certain medicines requires temperature to be maintained during transit, and delivery within designated timeframe. Which increases the cost of logistics.
So, an online pharmacy has to find a way to operate overcoming the above challenges at lowest operating cost to be successful.

*Reasons for Online Pharmacy failures* -

Most of the pharmacies fail - mainly because of customer dissatisfaction due to delay in deliveries (this primarily happens because many Online Pharmacy calling themselves as Marketplace, primarily works on Inventory model - means the products are obtained in one region, and shipped to other places where they have received orders)
*High Cost of operation* - the reason to follow an Inventory model, is to obtain more margin as the cost of operation is very high due to the challenges stated above. And in Marketplace model, vendors / pharmacies are unable to pay more service fee, since the margins they get are very low. Hence, following the inventory model will increase the delivery time.
Hence, the above pointers are the primary reasons, why they are unable to create loyal customers, and achieve a break-even on the operational costs. And without achieving breakeven, the online pharmacy can survive only until they have funds, and without which they shut down eventually.
*How an Online Pharmacy can be successful* ?

Above challenges should be taken care, and operate within the legal framework
Better service - in terms of easy way to place order, delivery timelines, right medicines (unlike cosmetics there cannot be error of sending incorrect medicine), availability of medicines from across regions.
Formulate a way to earn more than what is being spent to fulfill an order (be profitable over all expenses)
*In summary*, Online Pharmacy is definitely trying to solve a real problem, but without real money (breakeven over operational expenses) and being unable to provide customer satisfaction - it cannot survive.

As Your Story stated - "Going back to the startup fundamentals of sustaining scale with real numbers and real revenues (and not just valuations), TechSparks 2016 is putting the focus on building real businesses, growing real consumers and having real revenues (not GMVs)".

Only a start-up which has a solution to achieve break-even without decreasing the level of customer satisfaction can survive and become successful - and that would be the one to be disruptive among Healthcare e-commerce / Online Pharmacy industry.!

Written by 
- Mohamed Javed, Founder & CEO, YScart.com (B2C Marketplace for Pharma Retailers) & YScart.biz (B2B Platform for Pharma Distributors)