(Beijing) – China's drug safety body will stop cooperating with Alibaba Group Holding Ltd. on a system intended to ensure medicines are authentic from production to patient, a person with knowledge of the matter says.

Sun Xianze, a vice director of China Food and Drug Administration (CFDA), met with representatives of 20 pharmacy and drug companies and wholesalers on January 27 to announce the decision involving a subsidiary of the e-commerce behemoth called Alihealth, a person who attended the meeting told Caixin.

Earlier in 2014, the CFDA and Alihealth launched the system, which saw drug companies and pharmacies use bar codes linked to an official database in a bid to make sure drugs were authentic.

China has grappled with the problem of fake medicine for years. The CFDA said as recently as January 26 that it found 20 wholesalers had been selling unlicensed drugs since 2014. It did provide the names of the medicines.

Many people in the industry had opposed the new system because they said it did little to prevent the spread of fake drugs. Others complained about the extra costs to their firms.

Sun said at the meeting that the CFDA will continue pushing for the bar code authentication system, but would pick a non-profit institution as its partner, the source who spoke to Caixin said.

Alihealth said it could not comment on the matter because the CFDA had not made a public announcement.

On January 26, Yangtianhe Pharmacy, a company based in the central province of Hunan, filed a lawsuit against the CFDA in Beijing No. 1 Intermediate People's Court that argued the administration broke the law by partnering with a for-profit company to create the system.

Yangtianhe's president, Li Neng, told Caixin that the CDFA was using the authentication system to collude with a company so that it could profit off the public.

He said Yangtianhe filed the lawsuit after the CFDA revoked its license because the company refused to upgrade its computer network to accommodate the new system.

Li said his company would have had to spend more than 12 million yuan on equipment such as barcode readers from the Alibaba subsidiary for its 540 outlets around the country.

An executive from another company in Hunan, Laobaixing Pharmacy, said the CFDA lacked a legal basis for introducing the system. The government broke the law by failing to hold open bidding for candidates to host the system, said the executive who asked not to be named.

The executive also complained that the CFDA did not disclose information about its partnership with Alihealth.

Laobaixing spent about 80 million yuan, a sum equal to one-third of its profits for last year, so that it could link itself to the Alihealth system, he said.

Hong Kong-listed Alihealth has said in financial reports that the authentication system was responsible for much of its revenues. And in a financial report for the April to September period it said that sales revenue related to the system rose by 14.6 percent year-on-year to HK$21.4 million.

(Rewritten by Li Rongde)