PharmEasy IPO Is Facing Heat From Traders

Confederation of All Indian Traders has objected to IPO of API Holdings Ltd., the parent of PharmEasy, citing violation of law.

<div class="paragraphs"><p>A pedestrian wearing a protective mask walks past a Chemist Warehouse Group pharmacy in the Brunswick suburb of Melbourne, Australia. (Photographer: James Bugg/Bloomberg)</p></div>
A pedestrian wearing a protective mask walks past a Chemist Warehouse Group pharmacy in the Brunswick suburb of Melbourne, Australia. (Photographer: James Bugg/Bloomberg)

Two pharmacies are seeking to list on India’s bourses. One of them is facing heat from the country’s largest retailer association.

MedPlus Health Services Ltd. has already launched its initial public offer. API Holdings Ltd., the parent of PharmEasy, filed its prospectus but may run into rough weather as the Confederation of All Indian Traders has objected to its IPO citing violation of law.

In a letter to the Securities and Exchange Board of India, CAIT has alleged the company’s business model is based on “gross illegality”. Joining forces with the South Chemist & Distributors Association, that made similar allegations in a letter dated Nov. 15, CAIT has based its allegations on the legal limbo surrounding online sales of medicines.

It has cited a 2018 order by Delhi High Court that banned the online sale of medicines till the central government drafts rules for licensing such sale.

The company's IPO filing disclosed that writ petitions were filed against the online sale of medicines before the Delhi and Madras high courts by the South Chemists and Distributors Association and the Tamil Nadu Chemists and Druggists Association, respectively. But an interim stay was issued on appeal against the Madras High Court's decision, and a the company filed a response before the Delhi High Court. Both the cases are pending.

CAIT also alleged that the company is selling medicines without a licence, since there is no license for online sale under the current rules and regulations.

API Holdings said in the DRHP that the Draft Drugs and Cosmetics (Amendment) Rules, 2018, include certain provisions applicable to the company for regulation of sale of drugs by epharmacies and also provide for their registration. Any unfavourable regulatory changes may increase compliance burden, leading to a change in business model and the company could face fines and penalties.

CAIT also raised objection to the mention of Thyrocare Technologies Ltd. as a subsidiary of API Holdings in the draft prospectus.

According to Thyrocare's Sept. 2 exchange filing, Docon Technologies, a subsidiary of API Holdings, agreed to acquire 71.22% in the diagnostics chain. The deal is subject to usual regulatory clearances.

That acquisition has yet to receive approval from the Competition Commission of India, the trades' association’s letter said.

According to the DRHP, the company may be affected by the competition law in India as it governs all mergers and share acquisitions. “We are not currently party to any outstanding proceedings, nor have we ever received any notice in relation to non-compliance with the Competition Act," the company said. Any enforcement proceedings initiated by the CCI in future, or any adverse publicity that may be generated due to scrutiny or prosecution by the CCI may affect our business, financial condition and results of operations.”

PharmEasy, currently India’s largest online pharmacy, plans to raise Rs 6,250 crore through the public offering. Its current suite of products and service offerings include not just taking online orders of medicines but also offering teleconsultation, diagnostic tests, and software services. The company has around 2.5 crore registered users on its platform, as stated in the DRHP.

To be sure, SEBI has a disclosure-based regime for companies looking to raise funds through IPOs. As such, SEBI doesn’t give any explicit approvals for an IPO, but it only provides observations on the IPO prospectus filed with the regulator.

Emailed queries to Pharmeasy remained unanswered.

CAIT, in its letter, claims that investor wealth worth billions is at stake if the IPO were approved by SEBI.

Yet, it remains unconcerned about the MedPlus IPO. Hyderabad-MedPlus is an omnichannel pharmacy comprising 2,326 stores. That’s saved it CAIT’s ire.

“Their business is significantly different from mere e-pharmacies,” Praveen Khandelwal, secretary general, CAIT, told BloombergQuint. “In the prospectus, Medplus has clearly stated that it is governed by the drug regulatory laws. It has necessary licenses to operate in the market. Unfortunately, PharmEasy’s business model is subject to being left unregulated. They do not have any license on their own to stock, exhibit or offer for sale drugs under the Drugs and Cosmetics Act, 1940. The government has already clarified this in an affidavit before the Delhi High Court.”

This isn't the first time that CAIT has complained about PharmEasy or other online pharmacies.

In August, the traders' body had written to Commerce and Industry Minister Piyush Goyal alleging that the e-pharmacy companies like Pharmeasy, Medlife, Tata-owned Tata 1Mg and Reliance-owned Netmeds are operating against the provisions of the Drug & Cosmetics Act, 1940. The current regulation, it said, does not permit home delivery of medicines for which a prescription “in original” is required. But these companies, CAIT alleged, were violating the laws.

“We still stand for not allowing any company for online sale of medicines as it's in contravention of the law. If need be, CAIT will not shy away from taking it to the streets across the country to lead a much stronger movement,” Khandelwal said.

It also highlighted that the online pharmacies were hampering business of lakhs of small medicine retailers and chemists by offering deep discounts to consumers. "This practice can prove extremely detrimental to the sustenance of brick-and-mortar retailers."

That is the at the core of CAIT’s battle, not just with online pharmacies but all online retailers. In the past, the group has locked horns with major e-tailers like Flipkart and Amazon amid growing competition in India’s retail market.

The powerful body, which represents eight crore traders and 40,000 trading associations, was also instrumental in lobbying for the new draft e-commerce rules, where the amendments are focused on anti-competition practices, protectionist policies and increased compliance burden on e-commerce entities.