India: Evolution Of E-Pharmacies In India – Booming Present, But An Uncertain Future

Last Updated: 18 July 2018
Article by Sarthak Sarin and Bharat Gupta

Most Read Contributor in India, July 2019

A. Introduction

The e-commerce sector has grown exponentially over the last decade and has revolutionised the interplay between internet and commerce worldwide. The growing infiltration of internet and mobile phones coupled with the intrinsic convenience to indulge in retail activities online indicates that this sector is not only unrelentingly expanding in developed countries but is also contagiously spreading to developing geographies and markets as well.

India is not aloof from this unprecedented growth story and the Indian e-commerce industry is estimated to grow at a compounded annual growth rate of 34% till 20201 and is projected to be worth $ 119 billion by 20202. Interestingly, this sector attracts larger revenue contribution from Tier I, II and III cities in India vis-à-vis the eight metro cities; with southern India leading with the majority share of the entire Indian e-commerce market3. While online travel and ticketing continues to be the predominant driving force behind the growth of this industry in India, the online market for the sale of pharmaceutical drugs in India ("E-pharmacy") has (of late) stimulated considerable attention from investors. The reason being that the Indian pharma retail market is valued at approximately INR 1000 billion, with E-pharmacy having the potential to capture a 5-15% share in this market.4

However, given the sensitive nature of the pharmacy business and the overwhelming layers of the compliance obligations that engulf the various aspects of the sale and storage of pharmaceutical products; the rise of E-pharmacy activities in India has unfortunately been viewed with suspicion by the local regulatory authorities and consequently has been marred by controversies. However, many of these controversies and the ensuing regulatory interference have stemmed from several public health concerns, such as, increased risk of self-medication by the patients including drug misuse and addiction, sale of counterfeit/substandard medicines without any accountability and poor storage conditions in complete disregard of the applicable laws and regulations5.

In this light, this article explores the legal challenges that consume the E-pharmacy business including the reforms that are required in the existing compliance framework to ensure proper regulatory supervision and control of this e-commerce venture going forward.

B. Overview of the Legal Framework

As on date, India does not have any special or specific legal regime which governs E-pharmacy and the regime governing the conventional model of pharmacy business (i.e. through offline sale) is applicable to E-pharmacy as well. This has also been clarified by the Office of Drugs Controller General (India) through its notification dated 30 December 2015 ("Notification")6. The Notification categorically mentions that the Drugs and Cosmetics Act, 1940 ("DCA") does not distinguish between the conventional and over the internet sale/ distribution of drugs and accordingly the provisions of Drugs and Cosmetics Act, 1940 ("DCA") must be complied by E-pharmacy companies as well.

However, before we analyse the impact of the application of the existing legal framework to E-pharmacy business, it is imperative to understand the different business models in which an E-pharmacy business is typically structured. Like any other e-commerce enterprise, E-pharmacy is structured as a marketplace, as a B2C (business to consumer) direct retail platform (i.e. the inventory model) or a combination of both. In a marketplace model, E-pharmacy is conducted on a platform (say a website such as Amazon.com), which acts a facilitator for the sale of medicines and drugs by pharmacies/chemists to end consumers. The products sold on the platform are owned by the pharmacies/chemists and the marketplace acts as a mere intermediary between the pharmacies and the consumers in the matter of price discovery, promotional offers and logistics. On the other hand, in an inventory model, a pharmacist/chemist sells the products that are owned by such pharmacist/chemist online to the end consumers through its own website/app (such as Medicart).

Given this background, it is now noteworthy to assess the challenges that can arise on account of the blind application of the existing legal regime that governs the sale and storage of drugs in India to E-pharmacies.

1. Drugs and Cosmetics Act, 1940 and Drugs and Cosmetics Rules, 1945

The Drugs and Cosmetics Act, 1940 ("DCA") read along with the Drugs and Cosmetics Rules, 1945 ("DCR") regulates the sale, distribution and storage of drugs and other pharmaceutical products. Some of the key legal provisions as set out in DCA and DCR which are relevant from the standpoint for our discussions herein are as follows: (a) the manufacture and sale of the prescribed drugs without a license is prohibited7; (b) the premises (where drugs are stored or from where sale/distribution takes place) are required to be equipped with adequate storage facilities to preserve the properties of drugs and further needs to be licensed in respect of certain classes of drugs8; (c) certain drugs can only be sold through a pharmacy, which pharmacy needs to fulfil certain prescribed requirements in connection with equipment, furniture and measurements9; (d) the supply or compounding of a certain class of drugs can be done only under the personal supervision of a registered pharmacist or pursuant to a prescription of a registered medical practitioner (and such supply has to be strictly in terms of the prescription)10; (e) the prescription is required to be stamped / a noting is required to made on the prescription by the seller11; and (f) for certain classes of drugs, the seller is not allowed supply any other preparation even if the said substitute contains the same substances.12

2. Drugs and Magic Remedies (Objectionable Advertisements) Act, 1954

The Drugs and Magic Remedies (Objectionable Advertisements) Act, 1954 ("DMRA") regulates, inter alia, advertisements which suggest the cure to certain specified diseases and conditions for which there are normally no accepted remedies and therefore, the DMRA serves as an additional compliance on advertisements by E-pharmacies. Pertinently, while in the context of an inventory based e-commerce model, the obligation to ensure compliance with the terms of DMRA would undoubtedly rest on the pharmacy concerned, in case of a marketplace E-pharmacy model, would the liability of the marketplace in case of any breach of DMRA by the seller extend beyond the contours of Section 79 of the Information Technology Act, 2000. The FIR against Snapdeal in May 2015 for the alleged contravention of Sections 18, 22(1)(cca) and 34 of the DCA read with Sections 3, 4 and 9 of the DMRA and the ensuing court battle before the Delhi High Court is the perfect example that demonstrates the challenges and the legal risks an intermediary (i.e. a marketplace E-Pharmacy) can be exposed to for any breach of DCA and DMRA by a seller that is retailing on the intermediary's e-commerce platform. The arguments that were advanced on behalf of Snapdeal before the Delhi High Court resonate with the defences that have been put forth by FICCI in its consultation paper titled "FICCI Stakeholder's Consultation on Online Sale of Drugs and Medicines".13 Amongst the other points that have been raised in the defence of E-pharmacies, FICCI has argued that the companies that are engaged in marketplace E-Pharmacy should be treated as intermediaries and "been kept outside the purview of other trade related laws for the products which are specifically sold through the intermediary platform. Such trade related laws, although apply to the third party buyers and sellers".

3. The Pharmacy Act, 1948 and Pharmacy Practice Regulations 2015

The Pharmacy Act, 1948 ("Pharmacy Act") prescribes for the constitution and composition of a council at the central and state level, to regulate the profession of pharmacy in India in addition to prescribing the educational qualifications for pharmacists. Section 42 of the Pharmacy Act provides that no person other than a registered pharmacist shall compound, prepare, mix, or dispense any medicine on the prescription of a medical practitioner. This statute is relevant in the context of those E-pharmacies which deal with sale of drugs which are required to be compounded, prepared, mixed, or dispensed by a pharmacist. At the same time, the Pharmacy Council of India has framed the Pharmacy Practice Regulations, 2015 which inter alia, prescribe the obligations and duties of the pharmacists in connection with the preparation and dispensation of drugs, maintenance of records, patient care, patient secrecy and patient counselling.

4. Self- Regulation Code of Conduct for the E-pharmacy Sector

On 21 November 2016, the Federation of Indian Chambers of Commerce and Industry had announced the launch of the "Self- Regulation Code of Conduct for the E Pharmacy Sector" ("Code of Conduct") which formulates the highest professional standards and proper safeguards to ensure that consumers' health and safety is not compromised14. Some of the notable regulations as formulated under the Code of Conduct are as follows (a) prohibition on the processing of Schedule X and other habit forming drugs by E-pharmacy entities (which activity is currently allowed under the DCA and DCR after filing of the appropriate forms and payment of the prescribed fees15); (b) requirement to partner with the government for any recall of medicines based on the details communicated by the appropriate authorities. While this code dos not have a legal force, we are of the view that the key regulations that are proposed under the Code of Conduct should be adopted by the Government for the regulation of E-pharmacies.

C. Challenges and Concerns

A plain reading of the key provisions of the DCA and DCR unequivocally suggests that the overarching legislation for the regulation of pharmacies is agnostic to the way an E-pharmacy is structured. In other words, DCA and DCR, which have been enacted keeping in view the challenges and risks underlying the operations of a traditional brick-and-mortar pharmacy, cannot be relied upon (at least in its existing form) to regulate the operations of E-pharmacies. The reason is simple - the existing legal framework lacks the teeth to ensure / monitor continuous compliance on part of a business venture that virtually just needs a computer machine (or even a tablet) to provide access to scheduled medicines and drugs to the public. Having said that some other key challenges and concerns that arise in the backdrop of the application of the existing legal regime to E-pharmacies are as follows:

  1. Storage conditions: Before a pharmacy can undertake sale of drugs and medicines, it needs to obtain the requisite licenses under DCA. Such licenses are pegged to a particular physical store from where the sale is proposed to take place and/or where the drugs and medicines are proposed to be stored. Such premises are required to satisfy the prescribed standards in terms of hygiene, temperature control etc. However, as opposed to sale from a brick and mortar store, in case of online sale of medicines, it is very difficult to ensure that the medicine or drug is being delivered/sold from a licensed premise, as the consumer is not physically present to verify this. This in turn raises concerns as to conditions of the place wherein the drugs could be stocked by e-pharmacy to tackle costs.
  2. Misuse of prescription: At the same time, there is a risk of the same medical prescription being used multiple times for procuring drugs across different pharmacies (whether brick or mortar stores or E-pharmacies). This is especially a red flag in case of narcotic and psychotropic drugs, tranquilizers, habit forming drugs and Schedule X drugs.
  3. Regulatory machinery and supervision: Drug sale is regulated by state licensing authorities, which is feasible for brick and mortar stores, given they are expected to be approached by the consumers who reside within the vicinity of the location of the stores (and hence within state borders). However, such a model of regulation may not be feasible for E-pharmacies inasmuch as an online marketplace is accessible from any location or state, without there being any checks or control on cross border sales etc.
  4. Storage and transportation: Absence of a framework or guidelines ensuring the protection of the drugs and medicines at the time of storage and transportation. There is a possibility of pilferage, loss of potency and degradation of drugs and medicines during transportation to the consumer's house, especially if they are being transported over long distances or are of certain specification that requires safe handling, cold storage etc.
  5. Given the absence of any physical interface between the consumer and a pharmacist, concerns arise as to the compliance with the obligation of the provisions of Pharmacy Act and the regulations made thereunder on part of the E-pharmacies. One way to address this concern is to restrict the online sale of drugs to only over-the-counter medicines and other products that do not require compounding, preparation, mixing or dispensation from a pharmacist.
  6. There are also concerns with regard to the interface between a patient and a pharmacist in the matter of patient care, secrecy and counselling.

Besides the concerns listed above, it is also not clear if the legal implications for E-pharmacies will differ based on how they are structured. While there is no doubt that E-pharmacies following the inventory model and the pharmacies selling their products on an online marketplace will be required to ensure full compliance with the DCA and the rues made thereunder, it is debatable if an E-pharmacy operating on a marketplace model will also be required to comply with the DCA and consequently obtain a license thereunder. The reason being that the DCA regulates not only the "manufacture and/or sale of drugs", but it also regulates the "exhibition, offer for sale and distribution" of drugs. Accordingly, one can argue that an E-pharmacy operating on a marketplace model engages in "exhibit for sale" and/or "distribution" of drugs (if such E-pharmacy is also engaging in providing logistical support for the delivery of drugs and medicines to online customers) and hence is required to be registered under DCA. Interestingly, this was one of the objections that was advanced by Food and Drug Administration, Maharashtra in litigation against Snapdeal - that Snapdeal was engaging in exhibition and distribution of drugs and medicines without having obtained the relevant licenses under the DCA.

Furthermore, it is noteworthy that the Office of Drugs Controller General (India) had also constituted a committee to examine the issue of the online sale of drugs16. The committee in its report dated 30 September 2016 had concluded that the existing legal regime was inadequate and incompatible with the E-pharmacy business and consequently had made several recommendations for an amendment in the existing legal regime to ensure a strict supervision is maintained over the E-pharmacy business. A few significant recommendations were as follows:

  • creation of a national portal to act as the nodal platform for transacting and monitoring online sale of drugs;
  • geographical restrictions on the operation of E-pharmacies; and
  • restriction on the online sale of certain categories of drugs, namely, the narcotic and psychotropic drugs, tranquilizers, habit forming drugs and Schedule X drugs that are prone to being abused or misused.

D. The Road Ahead

Right from the advent of E-pharmacies in India, it appears that this enterprise has been viewed suspiciously by the regulator, even though the regulator had clarified that there was no restriction on online sale of drugs provided that it complied with the existing legal regime. It can be argued that while some of this suspicion is triggered by legitimate concerns about public health and safety, it seems that much of the protest has been fuelled by brick and mortar pharmacies17.

However, with an intent to acquire a bigger piece of this lucrative and potential e-commerce space, many E-pharmacies have made the protection of the interest of the online consumers as the backbone of their venture and are proactively introducing several layers of safety procedures (such as physical verification of the seller pharmacy and the storage room, stamping of the prescription and the verification of the patient ID at the time of delivery of the medicines, requiring the sale of certain class of drugs to be done only under the personal supervision of a registered pharmacist or pursuant to a prescription of a registered medical practitioner) to allay the alleged risks and concerns that are associated with the online sale of drugs. However, despite these efforts, with the absence of an apposite legal framework coupled with an effective monitoring and enforcement mechanism, neither are such legitimate E-pharmacies able to secure their footing in the market nor are the consumers fully confident of purchasing drugs and pharmaceutical products online.

Given these state of affairs, the Government has shown some initiative to encourage E-pharmacies. The Department of Pharmaceuticals, Government of India has formulated the "Draft Pharmaceutical Policy 2017", wherein it has recommended that E-pharmacies should be encouraged in the interest of consumers. This policy also envisages detailed guidelines for E-pharmacies in addition to recognising the potential for foreign direct investment in this sector.

At the same time, the news reports also suggest that the Government of India will soon be formulating regulations for governing E-pharmacies18. While the draft rules are not yet available in the public domain, one interesting proposal that is being mooted is to allow E-pharmacies to obtain a single registration from the Central Drugs Standard Control Organisation, instead of obtaining different registrations from each state where such E-pharmacy will operate. While it remains to be seen how these regulations will address the aforementioned identified concerns and challenges, the recent move on part of the Government to encourage this sector and to introduce a specific legal regime for governing online sale of drugs has been welcomed as a favourable step by E-pharmacies.

Footnotes

1. CII, 'e-Commerce in India A Game Changer for the Economy' (April 2016) 7 (https://www2.deloitte.com/content/dam/Deloitte/in/Documents/technology-media-telecommunications/in-tmt-e-commerce-in-india-noexp.pdf).

2. Richa Maheshwari, 'Indian ecommerce market to grow fastest globally over 3 years: Morgan Stanley' (The Economic Times, 18 February 2016) (http://economictimes.indiatimes.com/industry/services/retail/indian-ecommerce-market-to-grow-fastest-globally-over-3-years-morgan-stanley/articleshow/51031652.cms) .

3. IBEF, 'The Rise and Rise of E-Commerce in India' (January 2013) 7 (http://www.ibef.org/download/The-Rise-and-Rise-of-E-commerce-in-India.pdf).

4. Prabha Raghavan and J Vignesh, 'Why government's new draft rule could make or break e-pharmacies like NetMeds, PharmEasy', (Economic Times, 10 April 2018) (https://economictimes.indiatimes.com/industry/healthcare/biotech/pharmaceuticals/why-governments-new-draft-rule-could-make-or-break-e-pharmacies-like-netmeds-pharmeasy/articleshow/63690489.cms).

5. Prof Dr. A Marthanda Pillai and Dr. KK Aggarwal, 'IMA White Paper on Online Pharmacy' (IMA White Papers, 2015) (http://www.ima-india.org/ima/left-side-bar.php?scid=324).

6. Office of Drugs Controller General (India), Circular No. 7-5/2015/Misc/(e-Governance)/091 dated 30 December 2015.

7. DCA, Section 18(c); DCR, Rule 65.

8. DCR, Rule 62-B.

9. DCR, Rule 64.

10. DCR, Rule 65.

11. DCR, Rule 65.

12. DCR, Rule 65(11-A).

13. Federation of Indian Chambers of Commerce & Industry, 'FICCI Representation to Drugs Controller General (India) on Suggestive Guidelines for Reinforcing Due Diligence for Intermediaries' (2015) (http://ficci.in/spdocument/20602/FICCI-Representation-to-DCGI-Final.pdf) accessed 10 August 2016. (hereinafter, "FICCI Guidelines").

14. (http://ficci.in/pressrelease/2600/ficci-press-nov21-e-pharmacy.pdf).

15. DCR, Rule 59(2).

16. Office of Drugs Controller General (India), Circular No. 7-5/2015/Misc/(e-Governance)/091 dated 30 December 2015.

17. Prabha Raghavan, 'Now, chemists to take on e-pharmacies in court', (Economic Times, 7 July 2016), (https://economictimes.indiatimes.com/now-chemists-to-take-on-e-pharmacies-in-court/articleshow/53104818.cms); Laxmi Yadav, 'AIOCD opposes Kamble sub-committee's recommendations on e-pharmacy', (Pharmabiz.com, 6 February 2017), (http://www.pharmabiz.com/NewsDetails.aspx?aid=100185&sid=1)Shashidhar KJ, 'Pharmacist body calls for nationwide bandh protesting online pharmacies', (Medianama.com, 3 November 2016), (https://www.medianama.com/2016/11/223-online-pharmacy-bandh/).

18. Tabassum Barnagarwala, Maharashtra: Regulations soon for e-pharmacy (Indian Express, 4 May 2018) (http://indianexpress.com/article/business/business-others/regulations-soon-for-e-pharmacy-5162693/).

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at legalalerts@khaitanco.com

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