Partnership for online drug sales

Guangzhou Baiyunshan Pharmaceutical Holdings Co, a Hong Kong-and Shanghai-listed company, signed a strategic agreement with Alibaba Health Information Technology Ltd on Tuesday to support its online sales, officials at the pharmaceutical company said.

"The agreement is aimed at establishing online-to-offline market integration for Baiyunshan's medical products. Both sides will also explore opportunities to jointly boost medical services and the wider health industry," said Li Chuyuan, president of Guangzhou Baiyunshan.

Alibaba Health Information Technology drew investment last year from Alibaba Group Holding Ltd and Shanghai-based investment company Yunfeng Capital.

According to Li, Yunfeng Capital will invest up to 500 million yuan ($80.64 million) as part of a private placement by Guangzhou Baiyunshan, which aims to draw funding from the company's employees and other strategic investors.

Guangzhou Baiyunshan, a State-backed company, announced a private placement of nearly 10 billion yuan on Tuesday. It is the first time the company has sought to raise funds since its initial public offering in 1997.

"We are offering shares to introduce more strategic investors to help create new business models and boost development of online sales," Li said.

The placement will help boost the company's market capitalization to nearly 100 billion yuan, according to the company.

The company will invest another 4 billion yuan to boost development of its trademark Wang Laoji herbal tea and another 1.5 billion yuan in medical research and development.

In a statement on Monday, Guangzhou Baiyunshan said the online drug market was worth 4.3 billion yuan in 2013, but it only accounted for a fraction of the wider medicine market.

According to sinohealth.com, China's medical products are mainly sold in hospitals and retail stores, with online pharmaceutical sales only accounting for 0.4 percent of the total.

"It is far below the United States' level of around 30 percent. So there is plenty of room to grow for the online market," Li said.

Guangzhou Baiyunshan's shares rose by the daily limit of 10 percent in Shanghai on Tuesday, and by about 19 percent in Hong Kong.

Previous media reports said that China will soon allow online sales of prescription drugs, which would open a huge market to online pharmacy operators and retail chains.

"As a strategic investor, we are confident in the booming development of online sales of medical and health products," said Wang Yaqing, chief executive officer of Alibaba Health Information Technology.

Zhu Yikai, general manager of Yunfeng Capital, said the company's investment was prompted by Guangzhou Baiyunshan's strength in medical research and development.

"As a traditional medical research and manufacturing company, Guangzhou Baiyunshan has developed lots of trademark products, which will help provide competitiveness in the online market," Zhu said.

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