HONG KONG – Hutchison China Meditech Ltd. (LSE:HCM) and Sinopharm Group Co. Ltd. (SEHK:1099) have gained regulatory approval for their new joint venture that will provide sales, distribution and marketing services to pharmaceutical companies in China.

Set to start operating on April 25 as Hutchison Whampoa Sinopharm Pharmaceuticals (Shanghai) Co. Ltd. (Hutchison Sinopharm), the new company was created on the basis of Sinopharm Group's old subsidiary Sinopharm Holding Huyong Pharmaceutical (Shanghai) Co. Ltd.

"There have been inadequate drug distribution channels in China and this will help with the situation," Anthony Carlisle, a spokesman at Hutchison China Meditech (Chi-med) told BioWorld Asia. "This is a significant business opportunity."

Chi-med is a member of Hutchison Whampoa Ltd. (SEHK:13), one of the largest conglomerates in Hong Kong.

By combining Chi-Med's marketing expertise and Sinopharm's distribution, logistics, and government relations infrastructure, the partners want Hutchison Sinopharm to become a leading drug distributor, sales and marketing service provider for both Chinese and multinational pharmaceutical and biotechnology companies looking for business opportunities in China.

"The purpose of Hutchison Sinopharm is to provide sales, distribution and marketing services to major domestic and multinational third-party pharmaceutical manufactures," said Chi-med in an April 17 announcement of the approval. "It will also provide a broadened sales and marketing platform for synergy across Chi-med group."

Chi-med first announced the new JV in December 2013.

Sinopharm is China's largest pharmaceutical and health care product distributor and also a value added supply chain service provider. In 2012, the company had sales of more than $20 billion and controlled about 18 percent of the drug distribution market in China.

Chi-med will invest as much as $9.8 million in cash into Hutchison Sinopharm and control 51 percent of its shares making Hutchison Sinopharm a subsidiary of Chi-med. Hutchison Sinopharm will be included in Chi-med's China Healthcare Division. The investment will be used to expand commercial activities, especially for the third party drug sales and marketing.

Sinopharm will control the remaining 49 percent stake in the new company.

Huyong, the predecessor of the new JV, was founded in 1993 and was acquired by Sinopharm in 2010. It was a Chinese good supply practice (GSP) certified pharmaceutical company as well as a health care products distribution and marketing company. Huyong had sales of $50 million and pre-tax profit of $1 million in 2012 on assets of about $30 million.

Before the JV, Huyong focused more on lower margin logistics and distribution activities. Once the Hutchison Sinopharm begins operating officially, it will shift its the focus to more value added marketing and commercialization services.

In its 2013 annual report, Chi-med said that it plans to "build new product-based detailing teams as well as provide a vehicle to tap into Chi-med's existing approximately 2,700-person pharmaceutical commercial network in China to sell third party products." It will start out focusing on big and multinational pharmaceutical biotechnology companies to build up its customer base and then look for opportunities to carry products from these major companies.

Hutchison Sinopharm also will provide a vehicle for Hutchison Medipharma Ltd., the drug research and development division of Hutchison Whampoa, to market its own oncology and immunology drugs in China once they are approved by Chinese regulators.

Chi-med has eight drug candidates in the therapeutic areas of oncology, inflammation and immunology. The most advanced candidate is HMPL-004 for the treatment of ulcerative colitis. HMPL-004 is undergoing phase II clinical trials.

In 2013 the company doubled revenues over 2012 to $46 million, an increase driven by the growth in milestone and service income in the R&D division where revenue has trebled from $6.9 million to $29.5 million. Sales in Chi-med's subsidiaries and JVs were up 13 percent from $350 million to about $395 million.

"Our new joint venture with Sinopharm will add substantially to Chi-med's commercial infrastructure in China and we believe that it will be a source of major business opportunity," said Chi-med in its annual report.