PharmEasy's Unicorn Status Endangered: What's the Scoop?

Online pharmacy startup PharmEasy has raised $216 million with a valuation haircut of whooping 90 percent at USD 710 million. The med tech  startup was last valued at USD 5.6 billion in 2021. The funding round was led by Ranjan Pai’s Manipal Education and Medical Group (MEMG) among other existing investors, according to a media report.

Why Pharmeasy’s Valuation Plunged By 90%?

Valuation markdowns seem to have become increasingly common in the current business climate especially for the startups. Amid concerns about corporate governance, layoffs, and other challenges, news of yet another startup experiencing a reduction in valuation shouldn't come as a shock. However, the case of PharmEasy was predicted much before today.

The medical technology company was burdened with debt and was in the process of raising USD 292 million, but at the cost of a 90 percent valuation drop.

What Does Valuation Markdown Mean for Pharmeasy?

A Unicorn is a business term used to define a startup with a valuation of over USD 1 billion. Pharmeasy’s valuation cut implies that PharmEasy might lose its unicorn status, with its valuation plummeting significantly below its previous valuation at the height of the pandemic.

PharmEasy-Byju’s crisis Same-Same?

The parallels between PharmEasy's predicament and Byju's struggles are striking. Like PharmEasy, the prominent edtech firm Byju's ventured into significant debt to finance acquisitions both domestically and internationally during the pandemic era. Now, faced with the challenge of debt repayment, Byju's finds itself in a tough spot, especially after postponing the listing of its offline tutoring arm, Aakash, due to unfavorable market conditions.

Once valued at a staggering USD 22 billion in 2022, Byju's has seen a dramatic decline in its valuation, plummeting by a staggering 95%. This downturn came as investors progressively reduced their stakes in the company through multiple rounds. The most recent blow came in February 2024, when global investment heavyweight BlackRock downsized its holdings in Byju's, further driving down its valuation to a mere USD 1 billion.

Who Are the Investors of PharmEasy?

Among investors, the MEMG family office led the round with Rs 800 crore, and Prosus, Temasek, and 360 One Portfolios invested Rs 221 crore, Rs 183 crore, and Rs 200 crore, respectively. CDPQ Private Equity, WSSS Investments, Goldman Sachs, and Evolution Debt Capital cumulatively participated with Rs 400 crore in new investment.

Why Was PharmEasy Desperate To Raise Funds Even With 90% Valuation cut?

The startup had reportedly been in the market to raise funds of around Rs 3,500 crore since August last year in an attempt to repay a debt it took from Goldman Sachs. In June last year, PharmEasy had defaulted on its loan terms with Goldman Sachs.

Last year too the firm saw its valuation shrinking several times. First the firm’s valuation was reduced by around 50 percent by its investor Janus Henderson. This was followed by Neuberger Berman also cutting PharmEasy’s valuation by 21.4 percent to USD 4.4 billion as of February 2023.

What Went Wrong At PharmEasy?

PharmEasy, once hailed as India's largest online pharmacy platform, has faced a tumultuous journey marked by ambitious expansions and debt accumulation. With notable backers such as Temasek, TPG Growth, Prosus (formerly Naspers), B Capital, and Fundamentum Partnership, the company garnered a substantial USD 1.2 billion investment over 16 funding rounds since its inception in 2014. In a strategic move, PharmEasy acquired Thyrocare Technologies, a profitable diagnostics chain, in June 2021, aiming to transition from low-margin drug sales to lucrative testing services, aligning with the booming healthcare market in India projected to reach USD 50 billion by 2025.

However, PharmEasy's aspirations collided with the harsh realities of India's pharmaceutical landscape. The market, dominated by branded generics and stringent government price regulations, posed challenges to profitability. PharmEasy attempted to bridge the gap between offline sellers and online consumers, leveraging direct partnerships with manufacturers and retailers nationwide. While achieving significant user growth, the company grappled with dismal unit economics exacerbated by thin margins and high operational costs.

PharmEasy pursued vertical integration post a USD 350 million fundraising in April 2021, acquiring regional distributors, ERP software firms, and even Thyrocare itself. However, this expansion spree, funded predominantly through loans, resulted in a staggering rise in net debt from Rs 262 crore to Rs 2,256 crore within a year. With deferred plans for IPO due unfavorable market conditions and end of online medicine demands post pandemic, PharmEasy found itself in a precarious financial position, compelled to seek further funding at a drastic 90 percent valuation markdown to meet looming debt obligations and pay off potential default scenarios.

Who Are the Founders of PharmEasy?

Founded in 2015, by Dharmil Sheth, Dhaval Shah, Harsh Parekh, Siddharth Shah, and Hardik Dedhia, PharmEasy was among the startups looking to go public. The startup had postponed its IPO plan after filing draft papers with market regulator SEBI. The firm filed DRHP in November 2021 and pulled back its listing plan in August 2022 citing tough market conditions.

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