Ali Health's regulator role in spotlight after pharmacy chain lawsuit

SHANGHAI (Reuters) - Alibaba Health Information Technology Ltd's 0241.HK role in a regulatory platform tracking drug sales was brought into the spotlight after a pharmacy chain said it had filed a lawsuit alleging the arrangement gave Ali Health an unfair advantage.

Hunan-based Yontinhe Group posted a notice on its website on Tuesday which said it was suing the China Food and Drug Administration (CFDA) over its electronic drug monitoring system, a platform that is operated by Ali Health.

The news drove Ali Health’s stock down 20 percent on Thursday over concerns the company could lose the right to run the platform, formally known as the Product Identification, Authentication and Tracking System (PIATS).

On Friday, Ali Health’s shares had rebounded about 7 percent in morning trading.

China is the world’s second largest pharmaceutical market behind the United States, and is a magnet for drug makers, hospital operators and medical device firms targeting a wider healthcare bill estimated to hit $1.3 trillion by 2020.

Yontinhe pointed out that Ali Health, an affiliate of e-commerce giant Alibaba Group Holding BABA.N, was itself a major player in online drug sales, creating a potential conflict of interest.

“Operating the electronic drug monitoring network means Ali Health can access and use detailed sales data of drug industry competitors like ourselves,” the pharmacy chain said in the statement on its website. “How can we and other drug companies have a chance to compete on an equal playing field?”

The CFDA and the Beijing court which it said had accepted the case could not immediately be reached for comment.

Ali Health said in a regulatory filing late on Thursday it was “monitoring the situation very closely”, adding the platform was operated by the firm, but actually owned by the CFDA.

“The Company is not a party to the litigation and has not received any notification from the CFDA to cease operation,” Ali Health said, referring to local media reports which said the regulator may take back operation of the platform.

Parent firm Alibaba declined to comment further.

Reporting by Adam Jourdan and John Ruwitch; Editing by Miral Fahmy