Alpharma Forms Vancomycin JV with Zhejiang Hisun

Alpharma (NYSE: ALO), a large generic drugs company, will amend its Vancomycin production agreement with Zhejiang Hisun Pharmaceutical Co., Ltd. (SHSE: 600267). The two companies will establish a 51%-49% joint venture that will manufacture Vancomycin, with Alpharma being the majority partner.

Alpharma is the world’s largest producer of Vancomycin, an antibiotic for infectious diseases caused by gram positive bacteria. Zhejiang Hisun, which is the largest producer of Vancomycin APIs in China, is one of the 20 largest pharmaceutical companies in China.

Under an agreement signed two years ago, Alpharma was supposed to build a Vancomycin manufacturing facility on Zhejiang Hisun’s land, using the latter company’s manufacturing technology. Until Vancomycin from the facility passed regulatory tests, Alpharma would buy Vancomycin API from Zhejiang Hisun. The plant is scheduled for completion in the first half of 2008. Under the old agreement, Zhejiang Hisun was to receive a technology service fee based on the amount of output.

Now the facility will become part of the JV. Zhejiang Hisun is contributing $11.91 million in land use rights, workshops, and equipment, while Alpharma API Hong Kong, a division of the parent company, will inject $12.39 million of real assets and cash.

According to Industrial Securities Co., Ltd., Alpharma’s goal in setting up the JV is to focus on high-profit preparation production as it spins off API production.

Zhejiang Hisun said the JV would boost its return on investment [ROI] and build its presence in overseas markets because Alpharma's distribution channels extend throughout the world.

Currently, Alpharma manufactures Vancomycin in its own facilities in Copenhagen, Denmark and Budapest, Hungary.

Disclosure: none.