China Aoxing to Buy Traditional Chinese Medicine Company

China Aoxing Pharma Company, Inc. (CAXG.OB) will pay $19.6 million to buy Shijiazhuang Lerentang Pharmaceutical Company Ltd. [LRT], a company that makes traditional Chinese medicines. Like China Aoxing, LRT concentrates on pain medications. Half of LRT’s revenues come from Zhong Tong An Capsules, which relieves dental pain, sore throats and oral ulcers. China Aoxing’s business centers on highly regulated narcotic and pain medications.

The purchase will be paid in cash and stock – specifically, 80 million RMB ($10.8 million) in cash and 8 million shares of Aoxing stock, worth approximately $8.8 million. China Aoxing is perpetually short on cash (it had less than $1 million on hand at the end of 2007), but it did not designate a source for the $10.8 million part of the offer.

LRT, based in Shijiazhuang City, Hebei Province and founded in 1935, produced $9 million in revenue in 2007. It was profitable, though specific figures were not disclosed. LRT currently markets 127 SFDA-approved products in its portfolio. LRT currently has 52 products listed in the first and second classes of the National Medical Insurance Program, and 101 products entered in the national OTC medicine book. In 2004, LRT received GMP production certificates for all of its production lines.

China Aoxing believes it can ramp up the revenues from LRT, and also achieve synergies in promotion and distribution. The company believes the transaction will close in 70 days.

China Aoxing has two drugs on the market. It has received SFDA licenses to research and develop seven additional narcotic medications such as Oxycodone, Tilidine and Pholcodine.

China Aoxing is currently trading at $1.10 per share, unchanged for the session, and at its low point for the last 12 months. It has traded as high as $4.41. The company has a market capitalization of $45 million.

Disclosure: none.