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Aoxing Pharmaceutical Company (AMEX: AXN) and Johnson Matthey Plc of the UK agreed to set up a JV to develop APIs for narcotic and neurological drugs. The two companies plan to invest $15 million in the new entity over the next five years. An Aoxing subsidiary will own 51% of the venture, while Macfarlan Smith (Hong Kong), an affiliate of Johnson Matthey Pacific Ltd., will hold the remaining 49%. The goal is to produce APIs for the China market.

The new joint venture will seek to develop eight narcotic APIs at the outset, though it claims the potential for up to 30 products eventually. It will be housed on the campus of an Aoxing subsidiary, Hebei Aoxing Pharmaceutical Group, in Xinle City, 200 kilometers southwest of Beijing. The JV hopes to have cGMP approval for a manufacturing facility by the end of 2010, with actual production beginning in Q1 of 2011.

Aoxing (NYSEMKT:AXN) has claimed that its ownership of a rare narcotics license gives the company entry into a niche with few competitors in China’s otherwise crowded pharmaceutical market. However, so far, the company has not been able to make much money from its specialty, even though pain relief in China remains an under served need. The top 12 narcotics produced $1 billion in revenues globally during 2008, though the China market was estimated to total only $20 million.

Macfarlan will contribute technology expertise and an unspecified amount of capital to the joint venture. Hebei Aoxing Pharma will contribute capital, fixed assets and its API manufacturing licenses.

American Oriental Biogengineering (NYSE: AOB) holds a 35% stake in Aoxing, which also has established a strategic relationship with Australia’s QRxPharma for a morphine and oxycodone Dual-Opioid™ drug.

Disclosure: None.

Source: Aoxing, Johnson Matthey's New China JV for Narcotic APIs