Online pharmacies write prescription for growth

online pharmacies, german pharma market
A prescription for logistics. Source: Shop Apotheke

Two publicly listed online pharmacies are the virtually unassailable market leaders in Europe — and the only prescription is more expansion.

Swiss group Zur Rose, which owns the mail-order pharmacy brand Doc Morris, will likely exceed €1 billion ($1.17 billion) in sales this year. Shop Apotheke Europe, listed on the Frankfurt stock exchange but headquartered in the Netherlands, aims to achieve sales of €560 million in 2018. Both of these online pharmacies have grown via acquisitions, funded with capital raised on the stock market.

“In online pharma retailing in Europe, Shop Apotheke Europe and the Zur Rose Group are so far ahead that the other mail-order pharmacies can’t catch up with them,” said Tobias Brodtkorb, managing partner at consultancy Sempora.

Europe’s largest economy is an obvious target for both companies. “Our focus is on Germany right now,” said Ulrich Wandel, chief financial officer of Shop Apotheke Europe. “It’s the biggest market in Europe, and we’re an interesting partner for suppliers who are considering selling up rather than having to invest heavily in logistics.”

Attractive as it is, Germany is a complex and protected market: A pharmacist is only allowed to operate up to four drugstores, so large pharmacy chains such as Boots in the UK or CVS in the US just don’t exist. There is also a ban on non-pharmacists owning or even owning shares in pharmacies. That means online pharmacies can’t buy direct stakes in German pharmacies. Instead, firms tend to buy logistics firms or pharma wholesale suppliers.

online pharmacies, german pharmacy market

The shares in Zur Rose and Shop Apotheke, which have more than doubled since they went public in 2017 and 2016 respectively, briefly slumped in February when Germany’s conservatives and Social Democrats agreed in coalition talks to ban online pharmacies following a European Court of Justice decision in 2016. The court overturned a German law requiring foreign mail-order firms to stick to Germany’s set prices for prescription drugs.

Since then, foreign pharmacies have offered their German customers discounts on prescription drugs while German pharmacies can’t. German pharmacy associations have been lobbying the government to ban the online sale of drugs. But Health Minister Jens Spahn hasn’t taken action on this yet, and many experts said any such ban would contradict European law.

Even if the German government cracks down on online prescription drug sales, Zur Rose and Shop Apotheke aren’t likely to be worried. “The threat to the physical pharmacies isn’t the online trade in prescription drugs but the online sale of non-prescription drugs and cosmetics,” said consultant Mr. Brodtkorb.

Mr. Wandel of Shop Apotheke agrees. “The trend from offline to online is the future,” he said. He sees major growth potential in southern European countries such as Spain, Italy and France as well as in Germany.

Competition for European online pharmacies?

Investors have been so keen on the online pharmacies that they’ve been willing to overlook losses. Zur Rose last year posted a loss of 36 million Swiss francs (€31 million), and Shop Apotheke had a loss of €21 million.

But there’s a threat looming. “Amazon could become a dangerous competitor for all established mail-order pharmacies one day,” said Mr. Brodtkorb. The US online retail giant quietly started selling generic over-the-counter medicines last summer, and had plans to expand into prescription drugs that have since been put on hold. “The US company has the capital to buy its way into the market,” he said.

Shop Apotheke doesn’t expect Amazon to enter the German market in the foreseeable future, though. “For that they would have to buy a foreign mail-order pharmacy. We have clearly denied rumors that we’re in talks about this with Amazon,” said Mr. Wandel. “Besides, Amazon would be facing a very heterogenous market in Europe. At present the company has its hands full dealing with its US home market.”

Maike Telgheder is an editor specializing in the health, pharmaceutical and chemical industries. To contact the author: telgheder@handelsblatt.com.

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