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STOCKING UP

Investors are keen to grow Africa’s online pharmacies despite slow consumer adoption

Workers arrange drugs at a pharma shop
Reuters/Nneka Chile
Stacking up nicely
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Being recommended to a celebrity and getting praise on social media can be validating for a small business delivering essential services. Take the case of Famasi Africa, an online pharmacy. In April, Nigerian-Sierra Leonean musician and actor Di’Ja turned to them after searching and failing to find an antibacterial prescription medicine in eight physical stores in Lagos. Satisfied with Famasi’s service, she pledged to use them again in the future.

“People saw her tweets and said they would try us,” Umar Faruq Akinwunmi, a Famasi co-founder who leads product and growth, told Quartz. Though still in beta with 250 regular users, the company has started on-boarding more from the 10,000 people on its waitlist, Akinwunmi said.

Beyond celebrities, investors, and regulators are paying more attention to African startups that help consumers to find and order medicines online. Over the past year, they have offered milestones that strengthen the foundation for the sector’s take-off.

mPharma and co are getting more money

In January, Ghanaian company mPharma announced a $35 million equity and debt raise, the largest yet by an African startup in the online pharmacy value chain. Nigeria-based Remedial Health followed suit a month later with $1 million in seed funding and joined the winter batch for Y Combinator’s accelerator program. Last November, DrugStoc (also based in Nigeria) raised $4.4 million from investors that included the German Investment Corporation (DEG).

Indeed, 36% of all external funding raised by 83 companies in this sector across Nigeria, Ghana, Kenya, and Uganda happened within the last 12 months. That is according to a new report by Salient Advisory, a consultancy, on the state of innovation in health products distribution in Africa. More than half (58%) of funding in this sector over the past year has been led by African investors, the report says, suggesting that a local pool of money is emerging to drive growth.

Majority of the funding for African online pharmacy startups is in the form of equity rather than debt or grants, a sign that commercial investors are interested in this space. But any of these can be valuable for startups in the nascent sector.

And so it may be good news that the Bill and Melinda Gates foundation is leading a $7 million initiative to give grants to 60 “promising early and growth-stage” companies in this sector. Salient Advisory, whose report is funded by the foundation, will coordinate the initiative in partnership with the Nigeria and Rwanda-based Co-Creation Lab and a few other organizations. Special attention will be paid to women-led ventures.

“Most companies in this sector that now attract equity investments benefitted earlier from grants that helped them prove their models and made them more viable to commercial investors,” Remi Adeseun, Salient Advisory’s director for Africa, told Quartz.

Demand and innovation are at basic levels

The Gates foundation’s program could spur new online pharmacies or versions of e-commerce platforms like Jumia, Konga, and Copia Global that are already delivering medicines in Africa.

But would-be founders should know that consumers are not yet ordering over-the-counter and prescription products from online pharmacies at a large scale, per Salient Advisory’s report. The covid-19 pandemic may have boosted appetites for online shopping but medicines—with their low margin for error—may be a product category where buyer-seller familiarity is required, unlike say fashion or electronics.

“The future of healthcare distribution in Nigeria will certainly involve more consumers ordering medicines online but we believe that will primarily happen via existing pharmacies and Patent and Proprietary Medicine Vendors, rather than a warehouse to customer model,” Samuel Okwuada, CEO and co-founder of Remedial Health, told Quartz.

His company provides a mobile app for neighborhood pharmacies and PPMVs to maintain stock and manage patient records. Those pharmacies and vendors “have built relationships and trust with their customers over the years and operate as part of an effective distribution network,” providing assurance and accountability to customers.

“As the market matures, I’m sure more opportunities to layer distribution networks that will serve consumers on top of these structures will emerge but we are still in the early stages of that process,” Okwuada said.

Additionally, only four new companies were founded in the online pharmacy sector in the past 12 months. “The question is if the effect of covid on spurring innovation in health startups will last further,” says Yomi Kazeem, a Salient Advisory consultant (and a former Quartz reporter.)

And why is digital innovation in this sector focused more on wholesaling, rather than on other aspects of the value chain like directly linking manufacturers to consumers?

“The kind of partnerships required to have more impact from an innovation point of view at the top of the supply chain do not yet exist,” Kazeem says. As such, startups start at the wholesale level where barriers are lowest.

But simply setting up a website to sell drugs might even become a crowded scene soon. In Nigeria, retail pharmacy chains—HealthPlus, MedPlus, and Nett Pharmacy—are catching up to the ‘digitized pharmacy’ play by launching their own websites to reach more customers.

Growth is possible

and

regulation will create clarity

That said, startups like Remedial Health started small—as a private label business that contracted Indian companies to manufacture products for sale to Nigerian pharmacies—and pivoted upwards.

“We have built significant relationships with more than 100 pharmaceutical manufacturers and suppliers, including GSK, Pfizer, and Astrazeneca, as well as Nigeria’s Orange Drugs, Emzor, and Fidson Healthcare,” Okwuada said.

mPharma will spend some of its $35 million to hire engineers to build infrastructure that will help pharmacies manage operations. Besides these two, there’s an ecosystem of startups providing product data services, like Chekkit’s drug authentication service aimed at consolidating decades-long progress against fatalities from counterfeit drugs in Nigeria.

And speaking of authentication, the increased activity in this sector has moved regulators to take steps towards consumer safety, without blocking innovation. Online pharmacy regulations are going into effect in Nigeria (pdf) and Ghana (pdf) this year. Ghana’s policy creates a government-run, centralized e-pharmacy platform to oversee online pharmacy transactions. Uganda and Kenya are at advanced stages of developing theirs.

Salient Advisory’s report last year advocated for national regulation. To go further, this year’s report pushes for a multi-country regulatory working group that will help governments learn from each other. It may take decades to mainstream a culture of ordering medicines online in Africa (an exact timeline is “a tough call,” Adeseun says) but it is never too early to lay the groundwork.

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