Alibaba Health Acquires Tmall's Medical Devices, Health & Adult Products Business for HK$10.6 Billion to Further Integrate Pharmaceutical E-commerce Operations

VCBeat (WeChat ID: vcbeat) reported that on the morning of May 29, Alibaba Health announced it had formally signed an agreement with Alibaba Group to acquire Tmall’s medical device and health products, adult products, and medical and health services businesses for approximately 1.828 billion Alibaba Health shares, valued at HK$10.6 billion.

The medical devices and health products, adult products, and medical and health services businesses acquired by Alibaba Health this time hold immense potential. The announcement disclosed that as of March 31, 2018, the annual gross merchandise volume (GMV) of the aforementioned businesses had reached RMB 20.561 billion, involving 85.5 million active buyers and over 3,300 resident merchants, including well-known brands such as Omron, Yuwell, Johnson & Johnson, Bausch + Lomb, and Durex.

The announcement stated, “Alibaba Group remains committed to supporting the Company’s development as its flagship platform in the healthcare sector and will continue to explore various models of collaboration to help the Company achieve its objectives.” Following last year’s acquisition of the Tmall platform’s “Blue Hat” health supplement business, Alibaba Health has once again acquired Tmall’s medical device and other related businesses within just one year. This move is not only attributable to Alibaba Group’s recognition of Alibaba Health’s specialized pharmaceutical and healthcare operational and integration capabilities, but also reflects the maturation of timing driven by multiple factors, including policy and market conditions.

Currently, Alibaba Health’s e-commerce business segment comprises a comprehensive system that includes Alibaba Health’s self-operated businesses, third-party operation services for the Tmall pharmaceutical category, and pharmaceutical O2O (online-to-offline) services. Since assuming third-party operation of the Tmall pharmaceutical category in September 2016, this business has become one of the fastest-growing segments on Tmall. The fiscal year 2018 performance announcement released by Alibaba Health in mid-month showed that the combined gross merchandise volume (GMV) of products in the Tmall pharmaceutical category operated by Alibaba Health and the e-commerce platform service business for the health food category acquired by Alibaba Health exceeded RMB 30 billion. Revenue from e-commerce platform services reached RMB 171 million, representing a year-on-year increase of 324.1%.

Meanwhile, leveraging the Alibaba ecosystem, Ali Health has cultivated a stable user base in the pharmaceutical and healthcare sector. Data disclosed in its performance announcement shows that by the end of the fiscal year, the annual active consumers of Ali Health’s online self-operated stores, which have been operating for just over a year, reached 15 million. Additionally, the number of active users who have authorized and activated the personal health management tool “My Health” on Mobile Taobao has reached 28 million. Furthermore, Ali Health’s vaccine service platform now covers thousands of vaccination sites across more than 100 cities, with health education reaching nearly 200 million people. The integration of categories such as medical devices will help Ali Health continue to move towards refined and specialized operations, thereby providing more comprehensive services to meet the precise needs of health-conscious users.

From a policy perspective, in December last year, the former China Food and Drug Administration issued the Measures for the Supervision and Administration of Online Sales of Medical Devices, providing policy support for third-party platforms to retail medical devices. Meanwhile, the market environment for pharmaceutical e-commerce has become increasingly mature, with more consumers willing to purchase health and medical products via the Internet. Taking the 2017 Double 11 shopping festival as an example, transactions on Tmall’s Health Pavilion exceeded RMB 100 million within just three minutes; within six minutes, sales reached RMB 300 million, representing a year-on-year increase of 361%. In the first hour, sales in the medical device category surged by 300% compared with the previous year.

Analysts pointed out that this acquisition will facilitate Alibaba Health’s further integration of its existing pharmaceutical e-commerce operations, extend its services to a broader range of participants in China’s healthcare industry, and generate more substantial platform service revenue for the company. As stated in the announcement: “Alibaba Health believes that the acquisition of the target business will further solidify its position as the flagship pharmaceutical and healthcare platform under Alibaba Group. It will enable the incorporation of a wider array of e-commerce merchants into the online pharmaceutical and healthcare community, thereby enriching the ecosystem, and create organic synergies with the Company’s three major business segments—namely, healthcare products and services, smart healthcare and health management services, and product traceability platform services—while delivering more stable and sustainable revenue growth.”