Being recommended to a celebrity and being praised on social media can be a validation for a small business providing essential services. Take the case of Famasi Africa, an online pharmacy. In April, Nigerian-Sierra Leone musician and actor Di’Ja turned to them after failing to find a prescription antibacterial drug in eight brick-and-mortar stores in Lagos. Satisfied with Famasi’s service, she promised 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. While the company is still in beta with 250 regular users, the company has begun hiring more of the 10,000 people on its waiting list, Akinwunmi said.
In addition to celebrities, investors and regulators are paying more attention to African startups that help consumers find and order medicines online. They have offered milestones over the past year that solidify the foundation for the industry’s launch.
mPharma and co get more money
In January, Ghanaian company mPharma announced a $35 million capital and debt raise, the largest to date 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, including the German Investment Company (DEG).
Indeed, 36% of all external financing raised by 83 companies in this sector in Nigeria, Ghana, Kenya and Uganda took place in the past 12 months. This is according to a new report by Salient Advisory, a consultancy, on the state of innovation in the distribution of health products in Africa. More than half (58%) of funding in this sector has been led by African investors in the past year, according to the report, suggesting a local money pool is emerging to boost growth.
The majority of 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 each of these could be valuable to startups in the nascent industry.
And so it might 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 industry. Salient Advisory, whose report is funded by the foundation, will coordinate the initiative in partnership with the Co-Creation Lab based in Nigeria and Rwanda and a few other organizations. Special attention will be given to women-led enterprises.
“Most companies in this sector that now attract equity investments have previously benefited from grants that helped them prove their models and made them more viable for commercial investors,” Remi Adeseun, director of Salient Advisory for Africa, told Quartz.
Demand and innovation are at the grassroots level
The Gates Foundation’s program could boost new online pharmacies or versions of e-commerce platforms such as Jumia, Konga and Copia Global that already deliver medicines to Africa.
But potential founders should know that consumers are not yet widely ordering over-the-counter and prescription products from online pharmacies, according to the Salient Advisory report. The Covid-19 pandemic may have increased the appetite for online shopping, but drugs – with their low margin of error – can be a product category that requires buyers and sellers to be known, unlike, say, fashion or electronics.
“The future of healthcare distribution in Nigeria will certainly see more consumers ordering medicines online, but we believe this will mainly happen through existing pharmacies and suppliers of patent and proprietary medicines, 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 track inventory and manage patient records. Those pharmacies and merchants “over the years have built relationships and trust with their customers and operate as part of an effective distribution network,” giving customers security and accountability.
“As the market matures, I’m sure there will be more opportunities to put distribution networks that serve consumers on top of these structures, but we’re still in the early stages of that process,” Okwuada said. .
In addition, only four new companies were established in the online pharmacy sector in the past 12 months. “The question is whether the effect of covid on driving innovation in healthcare startups will last,” said Yomi Kazeem, a Salient Advisory consultant (and former Quartz reporter).
And why is? digital innovation in this sector focused more on wholesale than on other aspects of the value chain, such as directly linking manufacturers to consumers?
“The kind of partnerships that are needed to have more impact from an innovation perspective at the top of the supply chain do not yet exist,” says Kazeem. As such, wholesale-level startups start where the barriers are lowest.
But simply setting up a website to sell drugs could soon even become a busy scene. In Nigeria, the retail pharmacy chains – HealthPlus, MedPlus and Nett Pharmacy – are catching up with the ‘digitized pharmacy’ game by launching their own websites to reach more customers.
Growth is possible and regulations will create clarity
That said, start-ups like Remedial Health started small — as a private label company contracting Indian companies to manufacture products for sale to Nigerian pharmacies — and turned upward.
“We have established important relationships with more than 100 pharmaceutical manufacturers and suppliers, including GSK, Pfizer and Astrazeneca, as well as Orange Drugs, Emzor and Fidson Healthcare of Nigeria,” said Okwuada.
mPharma will spend some of its $35 million hiring engineers to build infrastructure that will help pharmacies manage their operations. In addition to these two, there is an ecosystem of startups providing product data services, such as Chekkit’s drug authentication service, aimed at consolidating decades-long advances against counterfeit drug fatalities in Nigeria.
Speaking of authentication, the increased activity in this sector has pushed regulators to move towards consumer safety, without blocking innovation. Regulations for online pharmacies will come into effect this year in Nigeria (pdf) and Ghana (pdf). Ghana’s policy is creating a government-run, centralized e-pharmacy platform to monitor online pharmacy transactions. Uganda and Kenya are at an advanced stage of development.
Last year’s report by Salient Advisory called for national regulations. To go further, this year’s report calls for a multi-country regulatory working group that will help governments learn from each other. It could take decades to mainstream a culture of online drug ordering in Africa (an exact timeline is “a tough decision,” Adeseun says), but it’s never too early to lay the groundwork.