Alibaba Health Announces Initiation of Handover Process for China's Pharmaceutical Electronic Supervision Network
Regarding the incident involving the Drug Electronic Supervision Network, Alibaba Health issued a statement following its initial announcement, indicating that it is in communication with the China Food and Drug Administration (CFDA) regarding the handover of the network. The issue came to a head prior to the Two Sessions, and a resolution is expected imminently; all eyes are on the outcome.
Appendix: Alibaba Health's Public Statement
Recently, there has been considerable public controversy regarding Alibaba Health’s assumption of operations and maintenance responsibilities for the Drug Electronic Supervision Network. In response, Alibaba Health officially issued an announcement stating that it has initiated the handover of the Drug Electronic Supervision Network system to the China Food and Drug Administration (CFDA). Seizing this opportunity, Alibaba Health wishes to engage in a clear and transparent dialogue with the public based on the information it possesses.
First, serious drug safety issues prompted the emergence of the prototype of the Electronic Drug Supervision Network in 2006.
Prior to 2006, drug safety issues in China were particularly severe. This period witnessed a series of egregious incidents in 2006, including the “Qiqihar No. 2 Pharmaceutical Co., Ltd. case involving the manufacture and sale of counterfeit drugs,” the “adverse event associated with Anhui Huayuan Bio-Pharmaceutical Co., Ltd.’s Clindamycin Phosphate and Glucose Injection (Xinfu),” and the “major counterfeit drug manufacturing and trafficking case in Anhui.” At that time, upon identifying counterfeit or problematic drugs, the government could only inform consumers through website announcements or news broadcasts. As a result, drug recall efficiency and rates were extremely low; it was not uncommon for individuals to suffer personal injury, or even fatalities, from consuming problematic drugs months after recall orders had been issued. Consequently, the former State Food and Drug Administration entrusted CITIC 21st Century, a subsidiary of the CITIC Group, with the construction and operation and maintenance of the Special Drug Monitoring Information Network System.
In 2008, the former State Food and Drug Administration (SFDA) expanded the scope of electronic supervision on the basis of the existing Special Drug Monitoring Information Network System, incorporating high-risk drugs—namely “blood products, vaccines, traditional Chinese medicine injections, and Class II psychotropic substances.” Starting in 2010, the SFDA continued to gradually include additional categories in the electronic supervision network, such as those listed in the “National Essential Medicines List” and “compound preparations containing special drugs.” Compound preparations containing special drugs refer to pharmaceutical products containing precursor chemicals such as ephedrine, exemplified by Contac.
Secondly, Alibaba acquired a stake in CITIC 21st Century Limited, the parent company of CITIC 21st Century Technology, aiming to leverage Alibaba’s technological capabilities to improve the operation of the Drug Electronic Supervision Network and unlock its greater social application value.
As the scope of drug coverage continued to expand, from early 2012 to late 2012, the processing capacity of the original Drug Electronic Supervision Network system, built on an IOE architecture, struggled to meet the electronic drug supervision needs of both the government and enterprises. Companies widely reported slow upload and processing times for documentation. During this period, CITIC 21st Century Technology initiated an upgrade from its IT architecture to a cloud computing architecture.
During CITIC 21st Century Technology’s overhaul of the technical architecture for the Drug Electronic Supervision Network, a tragic incident occurred in December 2013 wherein hepatitis B vaccines caused the deaths of newborns. Health authorities across multiple regions in China reported cases of newborns dying from respiratory failure after receiving hepatitis B vaccinations. To rapidly identify the problematic vaccines and prevent further incidents, relevant government agencies utilized data from the Drug Electronic Supervision Network to conduct an investigation. They swiftly traced the distribution and inventory of 44,030,686 doses across 198 batches in 27 provinces throughout China, enabling a timely recall. Compiling such a large-scale vaccine distribution report would have taken one month using traditional methods; however, thanks to the operational upgrades implemented by CITIC 21st Century Technology on the drug supervision network, the data query and compilation were completed within just three hours. This efficiency gained precious time in curbing the spread of problematic vaccines and saving lives.
In April 2014, Alibaba acquired a stake in CITIC 21st Century Limited, the parent company of CITIC 21st Century Technology, aiming to leverage Alibaba’s technological capabilities to improve the operation of the Drug Electronic Supervision Network and unlock its greater social application value. In October of the same year, CITIC 21st Century Limited was renamed Ali Health Information Technology Co., Ltd.
Since Alibaba Group acquired a stake in CITIC 21st Century Co., Ltd., AliHealth has invested nearly RMB 100 million despite ongoing losses to overhaul the technical architecture of the existing Drug Electronic Supervision Network based on cloud computing. This comprehensive reconstruction covered networking, storage, servers, caching, distributed frameworks, message distribution, load balancing, and security, thereby enhancing the system’s processing performance, scalability, and high availability. In 2014, after migrating to the cloud, the Drug Electronic Supervision Network passed the Level 3 Classified Protection of Cybersecurity assessment by the Ministry of Public Security, further safeguarding the security and stability of national industrial information and achieving a leapforward improvement in its technological capabilities.
In conclusion, the effective operation of the Electronic Drug Supervision Network benefits both the nation and its people. Alibaba Health is willing to hand over the established Electronic Drug Supervision Network system to the China Food and Drug Administration (CFDA) and welcomes the development of a drug traceability and supervision system that better aligns with market economy principles.
In January 2015, the China Food and Drug Administration (CFDA) issued a notice requiring comprehensive coverage of all drug varieties across the entire production and distribution supply chain. Over the past year, although the number of enrolled enterprises and the volume of drugs have increased rapidly, with the volume of stored regulatory code data nearly quadrupling, the average processing time for enterprise regulatory code inbound and outbound documents has been reduced by a factor of 20 compared to the previous period. This significant improvement is attributable to the comprehensive restructuring and optimization of the technical architecture of the national drug electronic supervision network, which has greatly enhanced efficiency and reduced costs.
In the meantime, in compliance with the requirements of the China Food and Drug Administration (CFDA) and the National Health and Family Planning Commission (NHFPC), Alibaba Health has developed various functions and applications better suited for regulatory oversight and collaborative investigations, thereby making drug supervision more efficient and convenient. Leveraging the statistical analysis capabilities provided by the Electronic Drug Supervision Network, drug regulatory authorities and health commissions at all levels can investigate and penalize illegal and non-compliant activities during drug production and distribution. In 2015, during unannounced inspections organized by the CFDA, a large volume of returned drugs was identified through electronic surveillance. Currently, electronic supervision has become a key tool for drug regulatory agencies in overseeing drug distribution.
Following a decade of construction, expansion, and upgrading, the Drug Electronic Supervision Network project was essentially completed in the second half of 2015. Subsequently, the China Food and Drug Administration (CFDA) and Ali Health initiated preliminary discussions on the subsequent operation and maintenance plan for the network. After issuing a clarification announcement, Ali Health and the CFDA held talks regarding the handover of the Drug Electronic Supervision Network construction project. Currently, the CFDA and Ali Health have established a joint working group to discuss the system handover process. They will formulate specific details for the comprehensive transfer of the system, including the phased timeline for the handover and the operational and maintenance business model during the transition period.
The rampant proliferation of counterfeit goods has caused significant distress to society as a whole, while the widespread circulation of fake medicines inflicts substantial losses on the nation and its people. Alibaba Health believes that pharmaceuticals are special commodities directly impacting public health and safety. The effective operation of the Electronic Drug Supervision Network has raised the barriers for counterfeit and second-hand drugs to enter the distribution market, serving as a deterrent to non-compliant enterprises and providing stronger safeguards for all compliant companies engaged in pharmaceutical and healthcare businesses.
Therefore, Alibaba Health is willing to contribute to adapting the Drug Electronic Supervision Network to the era of internet big data, while also welcoming a drug traceability and supervision system that better aligns with the principles of a market economy.
TIPS: Milestones of Alibaba Health’s Drug Electronic Supervision Network:
During the 2015 “Two Sessions,” Xie Zilong, Chairman of Laobaixing Pharmacy Chain Co., Ltd., submitted the “Proposal on Transferring the Drug Electronic Supervision System to the Unified Management of the China Food and Drug Administration to Ensure Information Security.”
In 2015, Zhao Biao, President of Hongxiang Yixintang Pharmaceutical (Group) Co., Ltd., published several articles, including “The Futility of Drug Electronic Supervision Codes,” “Drug Electronic Supervision Codes Cost Consumers an Additional RMB 30 Billion Annually in Medication Expenses,” and “Recommendations for Adjusting the Drug Electronic Supervision Code System,” criticizing Alibaba Health’s drug electronic supervision code system for hindering the healthy development of the industry.
After New Year’s Day 2016, an article titled “Ten Reasons Why Alibaba and Baidu Are Still Struggling to Master the Big Health Sector” by Shen Yang, President of the Health Online Media Branch of the China Medical Pharmaceutical Materials Association and Visiting Professor at the School of Social Sciences of Soochow University, rapidly circulated on WeChat Moments. The article pointed out vulnerabilities and potential risks in Alibaba Health’s electronic regulatory code system.
On January 26, 2016, Hunan Yangtianhe Pharmacy Enterprise Group Co., Ltd. (hereinafter referred to as “Yangtianhe”), in its capacity as the plaintiff, held a press conference in Beijing. Its legal representative, Li Neng, delivered remarks outlining the reasons behind Yangtianhe’s lawsuit against the China Food and Drug Administration (CFDA) and publicly disclosed the complaint.
On January 27, 2016, The Paper reported that Sun Xianze, Deputy Director of the China Food and Drug Administration (CFDA), announced at a meeting held by the agency on that day that the CFDA would reclaim the operational rights to the National Drug Electronic Supervision Network, which had previously been entrusted to Alibaba Health. Following this announcement, Alibaba Health’s stock price plummeted by 20.29% to HK$3.34 on January 28.
On January 28, 2016, at 9:30 p.m., Alibaba Health issued an urgent clarification announcement. The statement addressed recent media reports quoting a senior official from the China Food and Drug Administration (CFDA) as saying that the operational rights to the Drug Electronic Supervision Network would be revoked. The company clarified that it was not a party to the litigation involved and had not received any notice from the CFDA to cease operations of the Drug Electronic Supervision Network.
On January 29, 2016, three listed pharmacy chains—Laobaixing Pharmacy, Yixintang, and Yifeng Pharmacy—issued a joint statement opposing the current electronic drug supervision code policy, denouncing it as unlawful, unreasonable, and unfair.
On February 2, 2016, Shandong Yanxitang Pharmaceutical Chain Co., Ltd. (Top 100 Chain), Zhejiang Tiantianhao Grand Pharmacy Chain Co., Ltd. (Top 100 Chain), and Shijiazhuang Xinxing Pharmacy Chain Co., Ltd. (Top 100 Chain) published statements regarding the electronic drug supervision code on their respective official websites and WeChat public accounts.
On the night of February 4, 2016, Alibaba Health’s official Weibo account issued a statement, reiterating that Alibaba Health served solely as the technical and operational support provider for the Electronic Supervision Code, and that ownership and management rights of the Electronic Supervision Code had always remained with the government.
On the morning of February 23, 2016, Alibaba Health issued an announcement stating that it had initiated the process of handing over the Drug Electronic Supervision Network system to the China Food and Drug Administration (CFDA).