Alibaba’s healthcare subsidiary aims to expand e-commerce operations despite losses

PUBLISHED : Thursday, 02 July, 2015, 5:31pm
UPDATED : Thursday, 02 July, 2015, 5:31pm

Alibaba Health Information Technology (Ali Health), which posted a wider net loss in its fiscal year ended March 31, is looking to ratchet up its business expansion after e-commerce giant Alibaba Group increases its shareholding in the Hong Kong-listed company.

Hangzhou-based Alibaba said in April it had agreed to transfer the operations of its online pharmacy business from Tmall, its business to consumer platform, to Ali Health for US$2.5 billion of newly issued shares and convertible bonds.

That would increase Alibaba's equity interest in Ali Health to 54.6 per cent from the current 38 per cent, assuming full conversion of the convertible bonds upon maturity. 

The deal is expected to be completed in the third quarter of 2015, subject to customary closing conditions.

In a regulatory filing on Thursday, Ali Health chief executive Wang Lei said the acquisition of the online pharmacy business would enable the company to expand into pharmaceutical and healthcare e-commerce activities. 

It would also broaden the scope of its product identification, authentication and tracking system (Piats) for the drugs industry in mainland China, he added.

"China’s healthcare market is characterised by its highly fragmented and long supply chain of healthcare products, as well as the lack of strong retail pharmacy presence in certain parts of the country," Wang said. 

"The group believes that this will provide great opportunities for technology and solution developers to help accelerate changes in how healthcare products and services are delivered in China."

Ali Health's prospects may appear rosy, but the firm still has plenty of work to do before it turns a profit. 

On Thursday it reported that its net loss in the 12 months to March increased 159 per cent to HK$101.5 million (US$13.1 million), up from HK$39.2 million a year earlier.

The wider net loss was largely attributed to higher sales and marketing costs, as well as administrative and product development expenses.

Revenue grew 35.3 per cent to HK$37.2 million, up from HK$27.5 million a year earlier, on the back of greater fee income generated by its Piats business from medical and healthcare institutions in mainland China.

Ali Health currently offers product tracking, recall, and enforcement information services to relevant authorities through its Piats operation. 

It also offers product tracking and logistics information services to manufacturers; and services to consumers for verifying product information and origins. 

Its Piats business is used for various products, such as drugs, food and beverages, cosmetics and agricultural produce. 

Once Alibaba completes its plan to merge its Tmall online pharmacy business with Ali Health, the latter will become a consolidated subsidiary of the multinational e-commerce services provider.

Ali Health was formerly known as Citic 21CN, a thinly traded and loss-making drug data services company. 

Alibaba and Yunfeng Capital, a mainland Chinese private equity company co-founded by Alibaba executive chairman Jack Ma, bought a controlling stake in Citic 21CN for HK$1.33 billion in January last year. 

The acquired company changed its name to Alibaba Health Information Technology after that transaction was completed.

The share price of Ali Health rose as high as HK$8.29 in early trading on Thursday. It finished down 2.36 per cent to HK$7.87.