Alibaba Health Plunges After China Halts Drug Coding System

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Alibaba Health Information Technology Ltd. plunged after China said it will halt the implementation of a drug-coding system that’s developed and operated by the company.

Alibaba Health shares fell 14 percent to HK$4.14 in Hong Kong trading. The China Food & Drug Administration suspended the electronic coding system that identifies counterfeit medicines as it made draft amendments to existing rules, allowing the use of other methods of tracking medicines back to their origin, the administration said in a statement Saturday.

Alibaba Health, a subsidiary of billionaire Jack Ma’s Alibaba Group Holding Ltd., is focused on the pharmaceutical and health-care industries in China. “The company doesn’t currently have sufficient information to accurately estimate the impact on its financial results and operating performance,” Alibaba Health said in a statement to the Hong Kong stock exchange on Sunday. “There could be a material adverse impact on the company’s revenue, business and results of operations” if the China FDA announces other new regulatory policies, it said.

Revenue generated from the operation of the drug product identification, authentication and tracking system, or PIATS, accounted for almost all of the company’s revenue for the year ended March 31, 2015, Alibaba Health said in the stock exchange statement.

The company has not received any notice from the China FDA asking it to cease providing technical support and maintenance services for the tracking system, it said, adding that it will continue its operation of the system and and will work closely with regulators to continue such operations under their direction.

The coding system’s earnings potential has been an influential factor for Ali Health shares, which are listed in Hong Kong. The stock plunged 20 percent on Jan. 28 after local media reported China’s drug regulator planned to withdraw the company’s operating rights for the coding system, and rebounded 16 percent a day later after Alibaba Health said it had not received any notification from the authority to cease operations.

Alibaba Health will continue to develop its other main businesses, such as the construction of a medical services network and pharmaceutical e-commerce business, it said in the statement.

Alibaba Health’s unit Citic 21CN provides technical-and-maintenance services to the network, including the identification, authentication and tracking of drugs, it said in a Weibo post on Feb. 5. The company said that although the system has always been owned by the government, the services it provides help to identify counterfeits and resold drugs and deter illegal companies.

— With assistance by Hui Li

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