Alibaba Health drops China online pharmacy plans, blames complex regulatory environment

Exactly one year after Alibaba ($BABA) announced it wanted to integrate its pharmacy business into its health unit and sell more drugs online, the Chinese e-commerce giant has now dropped its plans citing growing concerns over its country's healthcare landscape. 

Alibaba's Jack Ma

Alibaba Health Information Technology (Ali Health) said in a filing last week that it had effectively terminated the proposal after failing to agree to terms before a deadline for the deal was up.

In April last year, Alibaba said it wanted to inject its pharmacy operations into Ali Health in a $2.5 billion deal to consolidate its healthcare enterprise and ride a boom in online health-related business, later testing a three-hour delivery of healthcare goods--including OTC drugs purchased online--across a number of China cities.

But since then the China FDA has grown increasingly cautious about the sale of online drugs, while Ali Health itself has come under fire for its role operating a government-linked drug tracking platform, according to a report by news service Livemint.

In the filing, published on April 1, the firm said the main reason for dropping the deal was because there are currently "substantial regulatory uncertainties in relation to the medical and healthcare industry."

The bigger problem was in fact China's FDA putting a moratorium on Ali Health's electronic drug tracking system after a lawsuit was filed by domestic pharmacy chains alleging it was gaining an unfair trade advantage over other drug sellers.

Ali Health has also seen sales fall after Hangzhou-based Alibaba last spring transferred its China online pharmacy business from Tmall to the unit, with its parent company also seeing a revenue drop as the economic slowdown in China at the end of last year hit customer confidence.

Life sciences companies face deeper problems as new regulations in recent months aimed at overhauling China's healthcare market are creating a more complex business environment for the industry.

This all comes as China's healthcare bill is estimated to hit $1.3 trillion by 2020--a figure the government is keen to get down.

- see the Live Mint story