How Alibaba Health offers a possible example for Amazon
Shanghai is 12 hours ahead of New York. Within the healthcare world, the fledgling Alibaba joint venture, Alibaba Health, may also be ahead of such U.S. counterparts as Amazon, Google and others. The race is dynamic and fluid. Or as one of my favorite philosophers, Yogi Berra said when asked what time it was responded, “You mean now?” It’s tough to track.
A major investment firm describes Alibaba Health as a joint venture/investment holding company engaging in pharmaceutical e-commerce, intelligent medicine and product tracking platform businesses in China. Alibaba Health is in start-up investment mode, with an accounting year ending March 31 and its most recent reported revenues relatively small by Alibaba standards — almost $357 million. The company has a B-to-C pharmacy arm through its TMall entity, as well as outsourced B-to-B centralized procurement and distribution.
Alibaba Health has turbo charged Chinese health care by completely rearranging the value chain. Previously, hospital pharmacies purchased their prescription drugs from doctors. Chinese doctors do not receive salaries commensurate with services provided and seek “gray income.” Enter rebates from pharmaceutical companies. In exchange for a doctor’s commitment to prescribe a certain prescription, a rebate was paid to the doctor. The doctor then sold the drug to the hospital at an inflated price, pocketing the rebate. E-commerce, led by Alibaba Health, is changing Chinese health care overnight literally and figuratively. No more rebates.
Alibaba Health’s acquisition activity in just the last few months spans products, services and even traditional retail operations. With the backdrop of Amazon entering brick-and-mortar by acquiring Whole Foods and its rumored interest in the retail pharmacy game and acquisition of PillPack last summer, there’s a parallel track with Alibaba Health. And the battle isn’t just within the United States and China. Amazon acquired the e-commerce platform souq.com in part to protect its Middle East turf. Meanwhile, Alibaba has launched its e-commerce platform, Lazada, in Southeast Asia. In September, the online platform Lazmall conducted a “9.9 campaign” with huge fanfare across six countries — Thailand, Indonesia, Malaysia, the Philippines, Singapore and Vietnam. The sale saw such key multinationals as Procter & Gamble and L’Oreal sign on.
On the domestic China front, parent Alibaba transferred Ali JK Nutritional products to Alibaba Health in early June for $1.4 billion in stock, increasing Alibaba’s stake in Ali Health from 48% to 56%. The division sells medical devices, healthcare products, adult products and healthcare services on TMall with annualized revenues of $3.2 billion from over 3,300 merchants. Later in June, a strategic collaboration agreement with Merck KGaA to develop patient-centric digital services was announced. This deal combines Alibaba Health’s online drug-tracking abilities with Merck’s knowledge in diabetes, thyroid and cardiovascular issues. Then, in August, Alibaba Health paid roughly $61.3 million for a 14.52% share of the 1,000-plus pharmacy chain Guizhou Ensure. An additional roughly $58.7 million capital contribution resulted in a 25% total company stake.
The healthcare battlefront includes content/service, retail and product. There will be more change and Alibaba Health will be at the forefront. Or, as my hero Yogi put it, the future ain’t what it used to be.
Ed Rowland is a Drug Store News Contributing Editor covering global issues. As the principal of Rowland Global LLC (www.rowland-global.com) he believes in the promise of global business and supports companies in their strategy, tactics and execution of international growth initiatives.
A major investment firm describes Alibaba Health as a joint venture/investment holding company engaging in pharmaceutical e-commerce, intelligent medicine and product tracking platform businesses in China. Alibaba Health is in start-up investment mode, with an accounting year ending March 31 and its most recent reported revenues relatively small by Alibaba standards — almost $357 million. The company has a B-to-C pharmacy arm through its TMall entity, as well as outsourced B-to-B centralized procurement and distribution.
Alibaba Health has turbo charged Chinese health care by completely rearranging the value chain. Previously, hospital pharmacies purchased their prescription drugs from doctors. Chinese doctors do not receive salaries commensurate with services provided and seek “gray income.” Enter rebates from pharmaceutical companies. In exchange for a doctor’s commitment to prescribe a certain prescription, a rebate was paid to the doctor. The doctor then sold the drug to the hospital at an inflated price, pocketing the rebate. E-commerce, led by Alibaba Health, is changing Chinese health care overnight literally and figuratively. No more rebates.
Alibaba Health’s acquisition activity in just the last few months spans products, services and even traditional retail operations. With the backdrop of Amazon entering brick-and-mortar by acquiring Whole Foods and its rumored interest in the retail pharmacy game and acquisition of PillPack last summer, there’s a parallel track with Alibaba Health. And the battle isn’t just within the United States and China. Amazon acquired the e-commerce platform souq.com in part to protect its Middle East turf. Meanwhile, Alibaba has launched its e-commerce platform, Lazada, in Southeast Asia. In September, the online platform Lazmall conducted a “9.9 campaign” with huge fanfare across six countries — Thailand, Indonesia, Malaysia, the Philippines, Singapore and Vietnam. The sale saw such key multinationals as Procter & Gamble and L’Oreal sign on.
On the domestic China front, parent Alibaba transferred Ali JK Nutritional products to Alibaba Health in early June for $1.4 billion in stock, increasing Alibaba’s stake in Ali Health from 48% to 56%. The division sells medical devices, healthcare products, adult products and healthcare services on TMall with annualized revenues of $3.2 billion from over 3,300 merchants. Later in June, a strategic collaboration agreement with Merck KGaA to develop patient-centric digital services was announced. This deal combines Alibaba Health’s online drug-tracking abilities with Merck’s knowledge in diabetes, thyroid and cardiovascular issues. Then, in August, Alibaba Health paid roughly $61.3 million for a 14.52% share of the 1,000-plus pharmacy chain Guizhou Ensure. An additional roughly $58.7 million capital contribution resulted in a 25% total company stake.
The healthcare battlefront includes content/service, retail and product. There will be more change and Alibaba Health will be at the forefront. Or, as my hero Yogi put it, the future ain’t what it used to be.
Ed Rowland is a Drug Store News Contributing Editor covering global issues. As the principal of Rowland Global LLC (www.rowland-global.com) he believes in the promise of global business and supports companies in their strategy, tactics and execution of international growth initiatives.