Comprehensive Strategic Alliance with Sinopharm Group and Investment in Beijing Huahong

Mitsubishi Corporation（Mitsubishi）, MEDIPAL HOLDINGS CORPORATION . （MEDIPAL）and major, Shanghai-based Chinese pharmaceutical distributor and whole-seller Sinopharm Group Co., Ltd. （Sinopharm Group）, have signed a memorandum for a comprehensive strategic alliance. To begin this alliance, Mitsubishi and MEDIPAL have purchased shares of Sinopharm Group Beijing HuaHong Co.,Ltd. （Huahong）from Sinopharm Group and Beijing ChangXinYiDa Investment Consulting Co., Ltd. (ChangXinYiDa). and undertaken an increased issuance of Huahong stock. Through this joint venture investment, Mitsubishi and MEDIPAL plan to make inroads into China’s pharmaceutical distribution and wholesales business.

 

　　　　　　　　　　　　　　　　　　　　　　　　　　　　 

１．Background

In September 2005, Mitsubishi and MEDIPAL signed a memorandum for a comprehensive strategic alliance in the healthcare business. The companies have since been jointly developing operational support for hospitals and prescription drug store chains in Japan. Envisioning further expansion in this domain and its profit base, the partners have been looking more and more seriously into future business development in the rapidly growing Chinese market.

Over the last five years, the Chinese pharmaceutical industry has continued to achieve double-digit growth, and is currently a four trillion yen market. With increasing deregulations enticing further foreign investment, this market is expected to grow even more from hereon. There has been some inefficiency, however, among many of the pharmaceutical distributors, and strong customer support, which is often taken for granted in Japan, is lacking. Distributors are being pressed to increase their management efficiency, better maintain their distribution functions, and generally improve the quality of their services.

 

Sinopharm Group is a major entity among China’s State-owned Assets Supervision and Administration Commission of the State Council (SASAC). It is the largest distributor in China and the only company capable of nationwide distribution. After numerous discussions, Mitsubishi, MEDIPAL and Sinopharm Group concluded that this alliance would allow them to marry their unique strengths for optimum development of the Chinese market. By investing in Huahong, and launching a joint venture in pharmaceutical distribution, Mitsubishi and MEDIPAL got the alliance off to a promising start. Huahong is a key subsidiary in Beijing, where pharmaceutical consumption is high.

 

２．Details

The main areas this alliance will cover are listed below. More in-depth discussions on each of these areas are planned via a project team, which is to be set up jointly by the three partners.

 

(1) Multi-Area Corporation of Pharmaceutical Distribution Business

(2) Pharmaceuticals and their constituents / Medical Care & Equipment Imports and Expansion of Sales.

(3) Joint Operation of Group Purchases, Deliveries and Management for Hospitals

(4) Development of Hospital Pharmaceutical Department Management

(5) Development of Prescription Pharmaceutical Chain Management

 

３．Investment in Huahong

１）Objective

Huahong is located in Beijing, where pharmaceutical consumption is the highest in China. The company began as a pharmaceutical distributor, and is expected to grow further from hereon. Mitsubishi and MEDIPAL have dispatched employees to the company to provide know-how in hospital management and internal operations based on their outsourcing business in Japan. This will set Huahong apart from the competition and help the company gain a larger market share in Beijing. For the time being marketing will be limited to Beijing; however, this may be expanded after discussions with Sinopharm Group. Furthermore, this investment will help strengthen the relationship with Sinopharm Group, facilitating greater access to sales channels throughout China. By utilizing Mitsubishi’s global sales network and MEDIPAL’s good relationship with Japanese Pharmaceutical Manufacturers, the partners should be able to expand these manufacturers’ business in the Chinese market.

 

２）Fundamental Scheme

Huahong is incorporated under Chinese law as a Limited Liability Company with a registered capital of 40,000,000RMB.

Sinopharm Group own 60% of Huahong, and ChangXinYiDa 40%.

Through this joint venture, Mitsubishi will acquire 9% interest in Huahong from Sinopharm Group and 16% interest from ChangXinYiDa, for a total of 25%. MEDIPAL will acquire 14% interest from ChangXinYiDa.

After completion of the stock transfer, Huahong’s capital will be increased. The increase in shares will be pro-rated between the four shareholders of Mitsubishi, MEDIPAL, Sinopharm Group, and ChangXinYiDa.

Huahong will then be re-registered as a Sino-Japan joint venture foreign company, with a capital of 80,000,000RMB.

  

＜Investment scheme＞

Operation	Pharmaceutical wholesales to hospitals and pharmacies, logistics and　management of drugstores. （Trade with 4,200 hospitals, approx.5,800 pharmacies,3,000 whole-sellers and 3,600 other medical institutes） Group company of China National Pharmaceutical Group Corporation which is directly controlled by the State-owned Assets Supervision and Administration Commission of the State Council（SASAC）,China’s largest and only nationwide distributor and whole-seller.
Head office	Shanghai
History	Jointly established in January 2003, by China National Pharmaceutical Group Corporation and Fosun Pharmaceuticals (Group) Corporation.
Shareholders	Sinopharm Industrial Investment Co., Ltd. (96% *), China National Pharmaceutical Group Corporation (4%). （*China National Pharmaceutical Group Corporation 51%, Fosun Pharmaceuticals (Group) Corporation 49%） ●China National Pharmaceutical Group Corporation Established in 1951. SASAC controlled Pharmaceutical Manufacturing & Distribution company. （Major distribution is handled by Sinopharm Group.） ●Fosun Pharmaceuticals (Group) Corporation Private enterprise established in 1994, involved in bio-medical and pharmaceutical operations, and manufacturing of products for clinical trials. Established and developed by four individuals from Fudan University and IPO at Hongkong market in July 2007.
Chairman	She YuLin（China National Pharmaceutical Group Corporation CEO）
CEO	Fu MingZhong
Employee	11,123
Financials	Revenue 38.2 Billion RMB, profit after tax 818 Million RMB (end of 2008)

  

３）Outline of Huahong(after increasing capital)

（１）Co. Name	Sinopharm Medicine Holding Beijing Huahong Co., Ltd.
（２）Operation	Wholesales, import, export and sales of pharmaceuticals in China, medical equipment and group purchasing and supply management for hospitals.
（３）Place	Chongwen District, Beijing, China
（４）Representative	CEO：Hua WeiQiang
（５）Capital	80,000,000RMB〔approx.1.2 Billion Japanese yen〕
（６）# of employees	120
（７）Shareholders	Sinopharm Group：51％ ChangXinYiDa：10％ Mitsubishi：25％ MEDIPAL：14％
（８）Business     license period	30 years
（９）Fiscal year	January 1st to December 31st
（10）Established	April 29, 1998
（11）Launch date	End of October, 2009(Plan)
（12） Financials （Fiscal Year 2008）	Revenues     1,053.38 Million RMB（15.8 Billion yen） Net Profits   25.46 Million RMB（ 400 Million yen） Total Assets    394.50 Million RMB（ 5.9 Billion yen）

　　*　Figure of 〔　〕，calculated at 1 RMB ＝ 15 Japanese yen.