India’s Big Eight Make Digital Leap With Two Acquisitions
Deals For AIOCD AWACS, Pharmarack
Executive Summary
In an unprecedented move, eight of India’s top pharma companies, including Sun Pharma, Cipla, Torrent and Lupin, have set up a common vehicle for digitization initiatives. Having acquired local market research firm AIOCD AWACS and B2B platform Pharmarack, could the mandate extend to other services?
In a landmark move, eight of the top Indian pharmaceutical companies have jointly set up a vehicle to drive digitization initiatives in the healthcare system. Two acquisitions were announced in as many days by their joint venture ABCD Technologies LLP, soon to be renamed IndoHealth Services LLP, but experts believe much more action is to follow.
The partners - Sun Pharmaceutical Industries Ltd., Cipla Limited, Torrent Pharmaceuticals Ltd., Lupin Limited, Dr. Reddy's Laboratories Ltd., Mankind Pharma Ltd., Zydus Cadila and Alkem Laboratories Limited - each acquired a 12.5% stake in ABCD Technologies.
Subsequently, the entity’s wholly owned subsidiary DigiHealth Technologies LLP purchased ownership stakes in leading Indian market research firm AIOCD Pharmasofttech Awacs Pvt. Ltd. (AWACS) and integrated local B2B healthcare platform Pharmarack Technologies Pvt Ltd.
Kedar Upadhye, global chief financial officer at Cipla, told Scrip:“It’s an industry efficiency improvement initiative. These are initial steps to see how we build digital and analytics capabilities throughout the value chain. The AWACS database and the Pharmarack platform complete the acquisitions and after this it will largely be organic growth.” (Also see "'Touchless Plants' To Virtually Trained Workforces - Indian Cos Share Digitalization Tips" - Scrip, 2 Mar, 2021.)
“Pharma companies acquiring data management companies has consistently happened, such as Roche buying Flatiron Health, Pfizer collaborating and buying a stake in 23andMe.” – Salil Kallianpur, former EVP, GlaxoSmithKline India.
An announcement to stock exchanges said ABCD Technologies is being set up “towards facilitating good distribution practices in support of the National Digital Health Mission of the Government of India.” The acquisitions will allow the partners greater visibility of the distribution chain and would aid direct sales to large buyers like hospitals. Besides, the platforms could be used to assist the government’s generic drug distribution schemes, experts feel.
Significantly, the eight corporate partners are members of the influential Indian Pharmaceutical Alliance, a body that is playing an increasingly important role in industry-government interface and in 2020 was pivotal in getting the sector the leeway needed to keep operating during the nationwide lock-down. (Also see "Who’s Hired? IGBA Names IPA’s Jain As Chair" - Generics Bulletin, 11 Jan, 2021.)
Positive For Data Gathering, Distribution
Experts feel the move will improve the gathering of market intelligence and streamline distribution and Cipla's Upadhye assured Scrip that the services of AWACS would continue to be available to the industry. One expert noted “AWACS gathers data via a patch, which is a software installed in the stockists’ system. Around 35,000 to 45,000 stockists refuse to allow the patch to be installed and the company has to rely on data that is provided by these stockists."
"With top companies now owning AWACS, no stockist will dare refuse the patch as these companies would be doing business with over 90% of them. Once that happens, a lot more data can be collected and processed efficiently.”
“There is absolutely no restriction for anybody to subscribe to the database [of AWACS]. In fact, the more subscribers, the better for the business model to be viable.” – Kedar Upadhye, Global CFO, Cipla
Besides, AWACS has products that can provide multiple benefits to companies -for example, Optential quantifies the business potential of a sales territory and Optipoint captures invoices generated by a stockist. “Optential can help companies decide how many marketing representatives are needed to optimally service a territory. Gathered and used properly, data can even drill down to which doctor prescribes the maximum amount of a company’s product,” he added.
The deals will positively affect distribution, which has for long been ripe for disruption, Salil Kallianpur, a former executive vice-president at GlaxoSmithKline plc in India, told Scrip. Sales data provided by AWACS as of now covers less than 1% of the universe of wholesalers and retailers in India. “There is huge scope of improvement there and as more of the distribution universe is onboarded, data streams will expand and become more accurate. This creates invaluable business intelligence and will assist in operational efficiency for pharma companies,” he explained.
AIOCD Pharmasofttech Awacs Pvt. Ltd. (AWACS) Deal
- Pharma company consortium has acquired 66.02% stake. Acquisition of further 33.44% expected to be completed over the next few months, subject to fulfilment of certain terms and conditions. Remaining 0.54% likely to be acquired after five years (FY2026-27).
- Cost of acquisition of 100% stake nearly INR750m ($10.2m).
- AWACS was owned by All Indian Origin Chemists & Distributors Ltd (AIOCD Ltd) in a joint venture with Trikaal Mediinfotech Pvt. Ltd.
Pharmarack Technologies Pvt. Ltd. Deal
- Acquisition of 91.8% stake in Pharmarack expected to be completed by 30 April 2021 by purchase of shares from multiple existing shareholders in various lots. Remaining 8.2% shareholding likely to be acquired in multiple tranches over next five years.
- 91.8% shareholding to be acquired for INR1.1bn, with cost of remaining shareholding linked to future performance of Pharmarack.
- Founded in 2015 by Amit Backliwal, Bhavik Parmar and Pradyumn Singh, Pharmarack has so far raised $3.7m in two funding rounds. Investors include IvyCap Ventures, Unicorn India Ventures and Patni Group’s Currae Healthtech Fund.
Pharmarack has created "last-mile" distribution capabilities that will be very useful for expanding the reach of generic medicines. “This could become a platform for the industry to partner with government schemes such as Pradhan Mantri Jan Arogya Yojana [the national health assurance scheme] and Jan Aushadi [a government cut-price generic drugs initiative], thus ensuring that e-commerce giants with super apps like Amazon, Tata and Reliance Jio do not elbow their way into the drug distribution business at the cost of pharma and AIOCD,” noted Kallianpur, who also runs a digital health consultancy. (Also see "India Unbranded Generics Plans An Industry Threat As Elections Loom?" - Scrip, 1 Apr, 2019.)
How far-reaching the impact of this alliance is will be decided by what it expects to achieve. At this point in time, it seems like a consortium that is consolidating the supply side by using technology-enabled tools to scale up distribution, inventory management, sales data and probably set up track-and-trace tools for anti-counterfeiting and cold chain management.
How this will substitute for physical infrastructure is still not clear and it's likely that the industry may use real-time data to inform government decisions on prioritizing drug distribution to enable last-mile delivery of generics to the right geographies, thereby optimizing costs of building the required infrastructure, Kallianpur noted.
Counter To E-Pharmacies?
Industry experts expect the new consortium/joint venture to expand its scope, perhaps venturing into e-pharmacies or e-distribution, and maybe even offering services like product registration and regulatory guidance.
“I think this could be the beginning of e-distribution of medicines. It will be ironical for AIOCD to get into this after terming e-pharmacies ‘illegal’. However, it will not surprise anyone in the least. It is well understood that the digital economy is almost all-encompassing and pharma distribution is no outlier,” Kallianpur observed. (Also see "Amazon Pharmacy Starting Up In India: What Pharma Could Gain Or Lose" - Scrip, 18 Aug, 2020.)
AIOCD Pharmasofttech AWACS Pvt. Ltd. is owned by All Indian Origin Chemists & Distributors Ltd. (AIOCD Ltd.) in a joint venture with Trikaal Mediinfotech Pvt. Ltd. AIOCD Ltd. in turn was set up by the All India Organisation of Chemists and Druggists (AIOCD). Given that members of the parent body, AIOCD, are engaged in the brick and mortar model of distribution, it had protested when US e-commerce giant Amazon launched its online pharmacy service in Bengaluru in August 2020.
“Companies have to get into e-tailing. Disruption is usually caused by those outside the industry. With Amazon and Reliance spreading their wings in the sector, existing players have to think of getting into this game,” said another industry expert. The Reliance group acquired a majority equity stake in Vitalic Health Pvt. Ltd. and its subsidiaries (collectively known as Netmeds) in 2020.
Asked by Scrip if the new venture would get into e-tailing, Cipla's Upadhye said “that’s not the purpose at this stage. It’s all about bringing efficiencies into distribution and the value chain.”
Field Force Rationalization, Higher Pricing?
While there are several positive outcomes to this development, some experts caution against rationalization of pharma companies’ field forces as their role in gathering market intelligence diminishes with higher digitization. They also point to the increased possibility of product prices being nudged higher as the top pharma companies get together.
“For the past over a year, medical representatives have not been able to visit stockists and get sales information the way they usually do. Since the pandemic is not going away any time soon, both their interaction with doctors and chemists will continue to suffer. Given the costs attached to the large field force that a typical pharma major maintains, some rationalization can be expected if they can’t do all that they are supposed to do,” said one observer.
Another dismissed this notion, saying that a medical representative’s role “extends far beyond data gathering” and while the pandemic has affected their functioning, it’s only a temporary setback. “Their strategic value to an organization will ensure that they are retained. There are nearly 60,000 brands of 20,000 manufacturers in a generic market. Who will generate the push needed for prescriptions? They [MRs] study the prescribing behavior of doctors and design the strategy in terms of promotion” he observed.
However, there is a possibility of the eight partners being able to extract favorable prices from hospitals serviced by Pharmarack and possibly push product prices higher.
“This move is encouraged by the NDHM [National Digital Health Mission] and will become an important component of the health stack. If this is true, then the government will be a strong partner in the venture and under its oversight, cartelization will become unlikely. This could be a way where pricing and distribution costs become more transparent and hence optimized,” said Kallianpur.
The stranglehold of AIOCD over pharma distribution might loosen considerably in exchange for pharma’s continuing patronage to their services, at the cost of considering e-pharmacies as an alternate partner. What we might see is a true expansion of the ‘health access pie’ that was hitherto never truly addressed, he noted.
It's pertinent that AIOCD Ltd. markets its own branded generic products in the country through its distribution network, acting in competition with not just its founder organization but also with pharmaceutical companies.