Chinese online retail giant Alibaba has increased its focus on the healthcare sector as China gears up to open the $161 billion prescription drug market to online pharmacy operators. The e-commerce behemoth announced Wednesday that it had agreed to move its online pharmacy operations into its Hong Kong-listed affiliate. The Hangzhou-based company and its affiliate Alibaba Health Information Technology Limited have reached a $2.51 billion deal for the asset injection.

Alibaba

Alibaba Health to become a consolidated subsidiary of Alibaba Group

Alibaba’s chief operating officer Daniel Zhang said in a statement that Alibaba Health will acquire 100% of the Tmall-based online pharmacy business. The Hong Kong-listed company will issue shares and convertible bonds to fund the deal. Shares will be priced at HK$5.28 each. Under the agreement, Alibaba Health will become a subsidiary of Alibaba Group.

Currently, the Jack Ma-led company owns 38% stake in the healthcare affiliate, but their ownership will increase to 53% after the deal. The two companies expect to close the deal in the third quarter of this year. The deal will enable Alibaba Group to build a strong healthcare ecosystem that can use its big data, e-commerce and other technologies to boost the supply chain.

Online pharmacies in China can sell only over-the-counter drugs, medical devices, contact lenses and other products. Soon, they will also be able to sell prescription drugs. Currently, hospitals control about 75% of drug sales in China. The company’s Tmall marketplace has 186 licensed online pharmacies. They generated 4.74 billion yuan in gross merchandise value (GMV) last fiscal year.

Alibaba Health already testing a smartphone app

The deal is yet to be approved by independent shareholders of Alibaba Health. The asset injection will help Alibaba Health strengthen its position when it enters the online prescription drugs market. The Hong Kong-listed company is also testing a smartphone app to let buyers quickly fill prescriptions. Customers will be able to upload photos of prescriptions using their smartphone cameras, and check availability and prices at nearby pharmacies.

Last week, the e-commerce giant also proposed to inject some of its entertainment-related businesses into Alibaba Pictures.