Alibaba health firm's shares jump 29%

Company seen as important for its online OTC drug sales license

Hong Kong-listed CITIC 21CN Co, a subsidiary of CITIC Group and originally an IT data and content service provider, saw its shares spike on Wednesday, after it was renamed Alibaba Health Information Technology.

The share price of the firm soared 28.61 percent to HK$4.99 ($0.64) at market close on Wednesday, after its announcement to symbolize its dedicated service in the healthcare sector on late Tuesday.

The information service provider has entered into an agreement with Alibaba to use Alibaba's name as long as the Internet juggernaut holds a stake of no less than 30 percent in it, according to a statement it posted on the Hong Kong bourse Tuesday.

Alibaba and Yunfeng Fund, set up by Alibaba's founder Jack Ma Yun, invested HK$1.33 billion in January for 54.3 percent of the health information provider.

"The operation of the firm [Alibaba Health Information] is independent and it just uses Alibaba's name," a PR officer of Alibaba Group told the Global Times Wednesday.

Alibaba Health Information was not immediately available for comment when reached by the Global Times by press time.

Apart from the brand awareness of Alibaba, the share price rally shows that investors are bullish on the prospect of the e--commerce of pharmaceutical products, Zhang Yi, CEO of iiMedia Research, told the Global Times on Wednesday.

China currently allows online sales of over-the-counter (OTC) drugs by over 200 brick-and-mortar drugstores and very few licensed third-party e-commerce platform providers.

Alibaba Health Information Technology is the first licensed third-party service provider for online drug sales, enabling Alibaba Group to use its license to sell medicine through yao.tmall.com.

Other platform license holders are e-commerce platform provider 800pharm.com and Wal-Mart Stores Inc-invested online grocery store YHD.

Apart from being a licensed online drug dealer, the company is reportedly also the sole provider of electronic identification codes for essential medicines, "which is the most valuable part of the firm," Wang Xin, global partner and managing director of consulting firm Frost & Sullivan China, told the Global Times Wednesday.

The electronic identification code enables healthcare authorities to identify, monitor and trace pharmaceutical products through production and distribution to ensure authentication and drug safety.

"Following the growing concern over the safety of medical -products on the national level, the promotion of the group's business of product identification, authentication, and tracking system [PIATS] has been well-recognized and supported by the relevant governmental departments," the company said on its website.

The company has been suffering losses due to heavy spending on developing the PIATS system over the past few years.

"This means the firm possesses a complete set of drug data from production to distribution, which has greater growth potential in online and off-line markets," Wang wrote in a note obtained by the Global Times.

However, it remains uncertain whether the healthcare authorities will choose Alibaba Health Information as the only electronic identification code provider, he wrote.

Drug authorities are working on a regulation for food and drugs sold online, which is expected to be unveiled in early 2015 and symbolize a green light for the online sale of prescription drugs, China Securities Journal reported Tuesday.

"Once the prescription drugs are allowed to be sold online, it will dramatically boost the sector, as prescription drugs account for the majority of total drug sales," Hu Feiqin, a senior brand manager of 800pharm.com, another licensed healthcare e-commerce platform, told the Global Times Wednesday.

An open door for online sales of prescription drugs is estimated to generate a market value of 1 trillion yuan ($163 billion) compared with the OTC market which is worth 200 billion yuan, according to reports.

Unlike many other consumable products such as books or computers, prescription drugs are very demanding in terms of warehousing and logistics as they have a direct influence on people's lives and health which requires greater caution in handling, according to Huang Donglin, a principal consultant of China National Pharmaceutical Industry Information Center.

"A patient must have a doctor's prescription for non-OTC drugs. Without electronic prescriptions, it will be difficult for online drug retailers to judge the eligibility of patients for such drugs," Huang told the Global Times on Wednesday.

Other challenges for online sales of prescription drugs include integrating medical insurance schemes into an e-commerce platform for reimbursement purposes and setting up an effective drug recall mechanism, Huang said.