Alibaba has written itself a prescription to take advantage of the booming online health care market in China, consolidating its online pharmacy business into its own medical affiliate.
The eCommerce giant announced this week that it has reached an agreement to transfer the pharmacy operations of Tmall, Alibaba’s online marketplace, to its publicly listed Alibaba Health Information Technology Limited (“Alibaba Health”). The deal, which Bloomberg reports is valued at $2.5 billion, will give Alibaba Group approximately 53 percent equity ownership of Alibaba Health (or about 54.6 percent if the bonds fully mature), up from its current ownership stake of 38 percent.
With the integration of Tmall’s pharmacy business, Alibaba Health decidedly strengthens its position in China’s online health care industry and expands the reach of its services throughout the country. Bloomberg notes that China is currently experiencing a rise in chronic conditions such as diabetes and heart disease, which has brought to light an urgent need for the improvement of the country’s medical infrastructure.
“Health care will be a strategically important growth area for our ecosystem in the years to come, and we have a strong competitive advantage in this area,” said Daniel Zhang, chief operating officer of Alibaba Group, in a press release. “Health care is especially important to Chinese consumers, and we expect that this integration will enable Alibaba Group to build a health care ecosystem that can utilize eCommerce, big data and other technologies to improve the health care supply chain and ultimately provide users with a better health care experience.”
Analysts believe that Alibaba is making the right move at the right time. Mark Natkin, Beijing-based founder and managing director of Marbridge Consulting, commented to Bloomberg that the company “is particularly well positioned to bring greater efficiency to the health care industry, in terms of product sourcing, tracking the supply chain and offering greater transparency on pricing.”
The deal to transfer Tmall’s pharmacy operations to Alibaba Health — which is subject to approval by shareholders of the latter — is expected to be completed in the third quarter of this year.