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Alibaba Group’s Quest for China’s $100 Billion Retail Drug Market Stalls

Alibaba (BABA)

Alibaba Group Holding Ltd.  has sailed into headwinds in its plans to conquer China’s medical market by prescribing and selling drugs through an online platform. Chinese officials shut down a government-owned drug tracking system that was created and operated in partnership with Alibaba’s health-care division, Alibaba Health Information Technology Ltd.

Alibaba (BABA)

The news saw the unit’s shares take a hit, falling 14% to 4.10 Hong Kong dollars (HKD) on Monday, before rising slightly to close at 4.17 HKD Tuesday.

The system is owned by China’s Food and Drug Administration, which helps it monitor drugs’ manufacturing, regulatory, expiration and composition data. However, the FDA suspended the system due to complaints from pharmaceutical companies that are jittery over Alibaba’s involvement.

Meanwhile, the FDA has said that it is reviewing drug-monitoring rules to accommodate the dissenting voices, reported Wall Street Journal.

Alibaba teamed up with a private-equity startup linked with its founder, Jack Ma, known as Yunfeng Capital Ltd to purchase a controlling 54 percent share in Citic 21CN, which dealt in management of pharmaceutical products data. The new company, Ali Health, subsequently started dealing in Alibaba’s e-commerce sales of over-the-counter drugs.

It also created an app that links patients with hospitals and community doctors.

Cure for Country’s Ailing Healthcare Industry

Ali Health has touted itself as the cure for most problems ailing China’s health-care industry, which is characterized by overcrowding in public hospitals and too much reliance on drugs.

Data by management consulting firm Bain & Co. shows hospitals in mainland China rely on sales of drugs for 80 percent of their revenues, opening a loophole for corruption to thrive.

Ali Health ensures local pharmaceutical industry players maintain standards of drug safety as it strives to gain an early market lead over potential rivals should China allow retailers to sell drugs through online platforms.

This fact hasn’t escaped the eye of drugs firms, who have increasingly expressed dissatisfaction over Alibaba’s participation.

A provincial pharmacy chain Yontinhe Group sued China’s FDA in January, saying it was creating an uneven playing field by co-operating with Ali Health. It cited provision of big-data view of all medicines produced by all pharmaceutical firms in China to Ali Health as one area it was favoring the latter in, among other accusations.

Responding to Yontinhe’s claims, the FDA issued a statement on Jan. 26, saying that it backed the drug-monitoring system. Nonetheless, it appears to be responding to the complaints with its decision to seek views of all market participants concerning how to review the drug-monitoring system.

China’s prescription drugs market is estimated to register sales valued at $100 billion, according to a study by consultancy firm Deloitte.

Ali Health attributed its involvement in the tracking system for almost all the revenue of US$4.8m (37m HKD) it earned in the year through March 31, 2015. It says its role is to operate the system, while the FDA owns it in a partnership aimed at eliminating counterfeits in the Chinese health-care market.

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