By Shashidhar KJ and Nikhil Pahwa
Healthcare startup 1mg last month raised Series B funding worth $16 million from Maverick Capital Ventures and existing investors Sequoia Capital and Omidyar Network. 1mg started as HealthKartPlus, a medical information repository, before it was hived off from HealthKart, and evolved into a marketplace for medicines.
In conversation with MediaNama, Prashant Tandon, CEO and founder of 1mg, talks about how the business works, the regulatory environment, and how the online pharmacy business works.
On the usage of funds
“Our last funding was one year back and now we’re looking to expand our operations. We’re in around 12 cities and we want to go to around 30 cities by the end of next year. The diagnostics and doctor appointment services we provide are in limited cities.We will be expanding that. Then there is going to be significant investments in our products and analytics. We’ve also started providing doctor consultations online. We’re also looking at other areas that makes sense for our consumers online.”
How 1mg plans to expand to new markets
“We will first find the vendors who will cover the inventory of the city. We identify the large partners we want to work with. Then we get into the legal agreement with them. Then they will share the list of the entire inventory they have so that we can map it into our system. So that would take a week. After that we need to take care of the logistics and make sure the vendor can make deliveries etc. We will also have to hire a local guy in the city to manage the vendor partners.
After that it’s all marketing. The first thing we do is that we make the city live on the website and the app. We start building orders organically. The app we have, is used for information nationwide, so users in the city we’re expanding get push notifications and emailers that we are now live in your city. Depending on the city, we will do offline campaigns through newspapers, health camps. But a majority of our marketing is digital.
The difference between HealthKart and 1mg
“Healthkart is a separate business and I am on the support level and not in the operational level. Sameer Maheshwari, my cofounder, runs Healthkart.”
It is more of nutrition consumer brand today which has products for muscle gain, protein supplement and weight loss brands. Their demographic is a younger crowd and it’s business is a mass marketplace where it sells products related to nutrition. 1mg has a different demographic in terms of consumer base. It is for people who are looking for medical information and help. Chronic diseases, hypertension, diabetes, asthma, osteoporosis. And by definition, it is a slightly older demographic.
Chronic is 70% of our business. Chronic is where the model makes the most sense. Online is relevant maximum in chronic medication where it is a predictable month after month purchase.
When there are pharmacies around every corner, why would anyone buy online?
“We started solely as an information platform for medicine where we showed people that these are the alternatives for the same drug. It also showed a lot of information on side effects, facts etc. Then our consumers started asking us if we have all the information, then why can’t I buy.”
“Buying medicine is reasonably unevolved or unorganized process. Delhi has around 50,000 pharmacies and each pharmacy cannot hold more than 4-5k medicines and drugs. It’s very common to go to 2-3 pharmacies to get everything on your prescription. If you see the market too, the pharmacies are next to each other. We provide a one stop shop solution.”
Building trust with selling medicine online
“Another thing about buying medicine, is that there is a lot of suspect product. Some of the medicine is fake, expired or poorly stored. We made sure that the people we partner are authentic people, that they have computerized billing and inventory management. We can find out what batch number and when it was made etc.”
“We started as a credible information source where people can find medicine better. So, most of our consumers have been using the app for information before the transaction part. The other part of building trust is how you behave. How the experience was for the first time users determines if they will order from you again. In our case, we come from a background where we understand customer expectations. For example, people would trust an Amazon of a Flipkart more than a neighbourhood electronics seller.”
Why doctor appointments, and how does it differ from Practo?
“What healthcare consumers require at a very base level is medicine, diagnostics care and doctors. So we are providing everything a consumer needs in an integrated manner.
I think the focuses of our business (Practo and 1mg) is very different. We’re not integrated at the doctor level. The primary customer for us is the consumer. The more interesting part of our business is the online consultation. We launched that recently and that is getting a very good response. The online consultations happens on chat and not on video.
Generally, people want answers to simple questions or second opinions. Right now 40-50% of the queries are related to dermatology and skin.
The doctor appointments has around 82,000 doctors registered. Consultations, we are right now expanding our base. We have around 35 doctors who are actively responding to queries. Since this is an nascent business, we are not monetizing at this stage.
Ensuring checks and balances in medicine delivery
“You have to choose the right quality of partner. Secondly, you have to ensure that these prescriptions are being monitored. Ours is not an open indiscriminate marketplace where everyone can come on board. We select vendors and they have to comply with our requirements.
Our requirements are that they need to have full computerized billing with end-to-end tracking. They have to have a minimum inventory of 15,000-20,000 stock keeping units (SKUs). That means only the large mom-and-pop stores are who we work with. We do not work with pharmacy chains. All of them need to be working with an authorized distributor with the brands they sell.
In pharmacy, the law is very stringent for those who are breaking the rules. The problem is that half the market works on cash and nobody gets caught. In our system, we are very clear that everything will be traced and tracked and if there is any mistake, we would certainly work with the authorities and let them know what happened and this is where it came from.
The problem with cash economy leads to lack of visibility. And that is what causes the problems. People don’t feel scared of selling low quality and counterfeit drugs.”
On the Drugs Controller General of India (DCGI) placing a ban on online pharmacies …
“In my view, we are fully compliant. We have the platform where people can upload their prescription where it is shared with a third party pharmacy. The pharmacy then dispenses and does the delivery. On top of that we add more checks and balances to make sure even they don’t make a mistake.
Firstly, medicine which has potential for misuse, essentially things like narcotics, sleeping pills, codeine syrup etc, they come under schedule X drugs. We don’t allow any schedule X drugs to go through our platform and schedule X1 will need a prescription.
So we have a team of pharmacists who screen the prescriptions. We flag down what we’re not comfortable fulfilling and then the pharmacy partner, who has the legal authority to dispense the medicine, will do so based on his judgment.
The thing about the pharmacy space is that there is a problem around regulation, but it’s actually about compliance. A lot of regulation exists, but it’s not understood or complied with. A lot of players take this casually and take orders out of prescription. They dispense the medicine without a bill or a pharmacist in the premises. Those kind of things need to be taken care of in this sector.”
On pharmacy associations saying online pharmacies sell counterfeit medicine, and on recalls
“The pharmacy associations themselves do not have any systems or desire to track medicines. Almost everything they have said are problems for the pharmacy industry because there is lack of accountability across all levels. That’s what we’re trying to address. Whether it is traceability or quality.
The associations said that if there is a drug recall today, then nobody knows how to get the online players to comply. The thing is that, we know a person’s address, phone number and actually recall it from the consumer. In offline, they’re not able to find which retailer bought it. By recording and monitoring the supply chain right up to the consumer, we are in the best position or the only position to implement the spirit of what pharmacy distribution should be.”
What about intermediary liability for online pharmacies? (Editor: Intermediary liability means that the marketplace isn’t held accountable for what is sold on it, because they’re just a marketplace, not the vendor. This is called a safe harbour. If the intermediary knows what is being sold, they’re liable. More here)
“The safe harbour provisions should apply. Having said that, we do recognize that we are in a sector where we cannot assume or behave irresponsibly. We have to assume some responsibility. As we discussed before, it’s all about trust. So both from a legal and consumer perspective, I think the safe harbour provisions should be there.
As far as the medicines are concerned, the pharmacist in the store dispenses them according to the Drugs and Cosmetics Act and they are the final decision maker. Of course we would be liable if we are showing wrong information or misleading consumers.”
What if someone mixes up an order and needs to change it?
“We don’t take returns, unless there is a genuine mix up. Ideally, that is not supposed to happen. In drugs, you can’t give out a prescription that says something else. If our pharmacy partner still made a mistake and gives something else, then we will take it back. We don’t have a warehouse for reverse logistics and it goes back to the pharmacy partner.”
Would 1mg do a B2B software to manage inventory to help seed the marketplace?
“We haven’t looked at that, but we do consider that. We haven’t made any plans to get into that. Right now we’re speaking to a bunch of the existing players and integrate with us. We just need to integrate their API into our software and we don’t need to make it ourselves.”