Farmaè stands as the leading online retailer of Non-prescription Pharmaceuticals (OTC) and Beauty & Personal Care (BPC) in Italy. First half of 2020, Farmaè managed to grow active customers +117%, site visits +103% and orders 82.3% outperforming the underlying market and peers with a wide margin. Trading at below 1.5 x ev/sales (2021 estimates) I consider this microcap as one of the most exciting e-Commerce opportunities currently available world wide.

Online Pharmacies: a young market

Online pharmacies in Italy are a recent phenomenon: a decree from 2014 allowed businesses, holding a license, to sell non-prescription pharmaceuticals online. In Germany, however, similar regulation was passed already 16 years ago. In the UK, another market that was deregulated a long time ago, it’s forecast 22% of total OTC revenue will be generated through online channels this year. Put in context, Italy had a 4.5% penetration of ‘Online OTC/BCP’ in 2019.

OTC/BCP EU Online Penetration (Shop Apotheke, Annual Report 2019):

Some +80% of Swedes (aged 16-74) shopped online at least once in 2019 compared to only ~60% in Italy, according to Eurostat. In 2019, total country-wide consumption in Italy grew in-line with inflation (+1.5%) while eCommerce grew +15%. These are pre-Covid19 numbers and we know that C19 accelerated the shift to online.

“Italy has one of the lowest rates of e-Commerce penetration in Europe, but growth rates are robust. Interestingly, Italy is the only country to expect a doubling in percentage over the next five years (from 5% to 10%).”
CBRE Global Investors

CBRE forecast Italy to be the fastest growing e-Commerce in Europe the coming 5 years, as the Coronavirus forced a shift in consumer behaviour. Post-2024, Italy still has catch-up to do before reaching an EU-average.

If we look at consumer surveys it was the lowest penetrated countries that grew the most during C19, which is why I consider low e-Commerce penetration an opportunity - and not a threat.

With a population of 60 million and a GDP per capita of $33 000 Italy is the third largest market in Europe and Top10 in the world. Italian Personal Care, OTC and Beauty Products are all multi billion-euro industries. To give you a sense of market size, Italy’s yearly pharmaceutical sales (market value) equals Sweden, Denmark, Norway and Finland combined (EFPIA).

Italy’s total market size and current online penetration (Company Data, 2019):

We can conclude that Italy’s Online Penetration is low and one of the fastest growing in the EU. Data also indicate that the ‘Online OTC/BCP’ is still highly underserved when compared both to other product categories in Italy, and especially to other countries where online non-prescription drug sales are permitted. We know from other deregulated countries that consumers have a strong preference to buy these products online if available (Apotea, Shop Apotheke, etc.). Altogether several tailwinds working in favour Farmaè. I believe we’re looking at a high growth company in a high growth market hidden in a stagnate country. A setup that I’m very excited about.

Farmaè: market leader

Farmaè is the leading online retailer for Beauty and Personal Care (BPC) products and OTC medications in Italy.

Farmaè has a strong customer value proposition:

  • One-stop-shop: traditional pharmacies carry on average 7 000 SKUs vs. +40 000 SKUs at;

  • Attractive prices: prices on average are -31% lower compared to traditional pharmacies;

  • Convenience: automated warehouse with 24h fulfillment capabilities for large cities

Despite sophisticated international competition by listed peers Shop-Apotheke and McKesson, Farmaè has managed to grab +25% of the market, occupying the #1 spot (Company Presentation).

Founder and CEO Riccardo Lacometti (former country manager of drug distributor Walgreens Boots) launched the very same year Italy was deregulated - creating a first mover advantage. He currently owns 70,2% of the company. We know from research, irrespective of region and time period, that family owned companies almost constantly outperforms (link) on several metrics.

Farmaè built a new automated logistics warehouse of 5 000 sqm in late 2019. Going from semi-automated to fully-automated will further enhance the accuracy and efficiency of the fulfillment processes, reduce operating costs and improve profitability. The new automated warehouse will allow Farmaè to process up to 32 000 orders per day to an annual total capacity of €300 million in sales. As 9M YTD sales accounts to €47m we should be able to triple topline revenue before another capex-program is needed. Farmaè offers 24hr shipping to most big cities and is able to fulfill orders countrywide within 48hr.

Farmae expects to expand its product range to a total of 50 000 items (~ 40 000 today) as they enter the verticals, such as Pet Care. Although the pet care launch is still in its early innings, I’ll monitor it closely. Italy have one of the largest pet product markets in Europe and purchases are mostly still conducted offline.

Another company target is to reach 70 000 items marketed within 2 years, with the help of the newly launched site ‘Beautyè (launched early 2020). Brand positioning is similar to listed Swedish company

I believe this is a rational move in several ways. Logistics are set up and the warehouse expansion is complete. Year-long brand partnerships exists and the internally developed e-Commerce shop system is already in place. Most importantly, if Farmaè is to remain the largest e-Pharmacy in Italy they need to have a credible and distinct health-proposition. The end game ought to be customers of all ages use for health related products, as their first choice.

Competitive Landscape

As demonstrated by other companies in countries where the online pharmacy channel is already developed, BPC and OTC products are excellent suited for mail delivery:

  • Long shelf-life and high value products;

  • High average number of orders per client;

  • Low return rates;

  • High conversion rate.

Long shelf life and high value products: BPC/OTC products are typically light and small compared to other product categories (electronic, apparel). This implies lower storage, handling and shipping costs per order. Despite a lower average receipt compared to other e-Commerce product categories, BPC/OTC products command a higher value per kg shipped. Furthermore, a novelty face-cream or perfume rarely goes out of style and expiration dates usually span years.

(Shop-Apotheke SAE:GR, Presentation):

Low return rates: On average, global return rates stand at ~30% of all products purchased online. Because of all the obvious reasons, the apparel industry is the worst performing sector where ~50% of purchases are returned. OTC/BCP is in the single digit %, according to Shop-Apotheke. Even if SA is understating the return rate, it does make logic: you’ve probably bought the same brand of painkillers all your life, and; returning a used perfume or face-cream is usually against the terms of sale.

High conversion rate: BPC/OTC products show higher conversion rates compared to the apparel sector, signalling lower customer acquisition costs. More interestingly, though, is the age cohort the BPC/OTC sector allures. We often praise e-Commerce for its ability to capture the wallets of Zoomers. With BPC/OTC we finally have a vertical capturing the wallets of Boomers…

Five years into deregulation Farmaè remains the market leader, growing active customers +117% YoY (H1 2019 vs. H1 2020). Company data is supported by data from Similarweb, Alexa Traffic Rank, Trustpilot and Google Trend Analytics.

(Competitor Shop Farmacia is the listed company Shop-Apotheke (SAE:GR) and LLoydsfarmacia is the listed company McKesson (NYSE:MCK). All the rest are local companies.)

Trustpilot number of reviews and average score.

Being the market leader is great, however, it is not essential to the investment case.

Long Runway: With almost 20 000 pharmacies, Italy’s pharmaceutical market equals that of Scandinavia alone. 95% of purchases are still conducted offline via brick-and-mortar stores. The online-share will inevitably trend toward EU-averages and there’s enough TAM for several online merchants to prosper.

Sweden’s community pharmacy market grew 3.4% in 2019 while Online grew 30%. Over a decade after Sweden deregulated, online pharmacy sales still continue to compound at a double-digit rate. (Swedish Pharmacy Association, 2020)

Not a winner-take-all market: is a household favourite in Sweden, growing revenues +35% 2019. It is also one of the most desired IPOs for 2021. The listing will be nothing but a blockbuster and I can’t see it trade below Lyko (ev/sales +3). However, it only commands 8% of the Swedish market (offline included). Market leadership is great, but it’s not explicitly needed for either 1) running a viable and profitable business or 2) stock performance.

Farmaè: the numbers

Before I starting throwing numbers I’ll provide you with a small cheat-sheet below:

Farmaè has managed to compound Sites Visits and Products Sold at 60,6% and 81.7% CAGR. If you put your attention to the 2020-06 results, the growth shows no signs of deceleration YoY.

Last quarter Zalando grew site visits with 26% and had a Conversion Rate of 3,4%. Farmae almost doubled its site visits YoY and still managed to convert at a rate of 3,55%.

Farmaè has managed to compound Revenue at 70,3% CAGR, all while Italy has been stagnate for over a decade. As with Site Visits, Orders, etc. there is no signs of slowing down year to date.

Profits, at this stage, is not of major importance for my buy-thesis. However, I might add that Mr. Lacometti managed to stay EBITDA-positive since the beginning. Also, a friendly reminder that warehouse-capex is finished and Farmae should be able to 3x revenue before another capex program is initiated.

My thesis will instead be about trajectory and relative valuation. 9M YTD revenue is up 72% to 47,1 €M. To be prudent, let’s assume growth decelerates to 55% for 2020(e). Let’s further assume Farmaè is unable to grow at previous rates and that growth slows down to only 40% 2021(e) and 25% 2022(e). With these cautions assumptions it would be trading < 1 EV/S next year.

If we look at peers the valuation dislocation becomes very clear. It’s the fastest growing but still trades at a -50% discount. Please observe these are only estimates and not facts.

Final words. The sector is going through a lot of M&A and would it be ridiculous to envisage a international player want to leap-frog competition and acquire the market leader? With a market cap of just € 85m one could skip 5-6 years of brand-building and warehouse capex. Whatever the answer to that question might be, I hope it doesn’t happen. I’m looking to join Mr. Riccardo Lacometti and his 70% ownership in this company as he takes on 95% of the OTC/BCP market, that is still offline.

Thank you for reading,

Alexander Eliasson

Long 6% of portfolio @ €15.2


- I own shares (I’m obviously biased and this article is most certainly biased)
- Before investing please read all chapters regarding “Risks” in the Annual Reports
- Do your own due-diligence before investing
- I will own shares at a minimum of 30 days after publishing this article