The Co-operative Group is to become the first UK retailer to manufacture its own prescription drugs, with the announcement that it is to begin sourcing generics from China.

The Co-op’s pharmaceutical wholesale subsidiary, Sants, has signed a joint-venture agreement with Tasly Group China, one of the country’s top three pharmaceutical suppliers, for the construction of a state-of-the-art production facility in the city of Tianjin, in which Sants will invest a total of £20 million. Production of “a range of well-established generic prescription drugs” is expected to start at the site within a year and, by mid-2009, these will be supplied by Sants to over 600 Co-op pharmacy outlets in the UK. Marketing opportunities will also be sought across the wider European Union, says the group.

John Nuttall, the Co-op’s managing director of healthcare, described the joint venture as “a milestone” which “will give us absolute control over our source of supply and will help protect our commercial return as the government puts increasing pressure on suppliers to cut the wholesale cost of prescription drugs.” No UK drugmaker would lose out as a result of the agreement, he added.

Following its merger with United Co-operatives on July 29, the Co-op is now the UK’s third largest pharmaceutical chain, dispensing more than 33 million prescriptions each year and with an annual turnover of around £450 million.

A first for Tasly

This is also the first deal of its kind for a Chinese company. Tasly, which was set up in 1994 and has a market capitalisation of around £1.1 billion, is a leading manufacturer of herbal medicines as well as generic drugs. It operates five research centers in China and the facilities at its two existing pharmaceutical factories, in Tianjin and Huaian, match those in the west, says the Co-op. Tasly owns 40% of Sants.

The new plant will employ up to 200 people and will be built to UK standards of environmental compliance. Best practice, as informed by international labour standards, will be pursued in managing employment conditions, says the Co-op.

Despite the new single-source arrangements, there will be occasions when medicines produced by the joint venture will not be available to Co-op pharmacies, and they will then have to buy them on the home market, a spokesman for the British Association of Pharmaceutical Wholesalers (BAPW) told PharmaTimes UK News. He also pointed out that the joint-venture’s production facilities will have to be inspected by the Medicines and Healthcare products Regulatory Agency.

It is estimated that generics account for 98% of Chinese pharmaceutical production, and this is now a very competitive market, with many UK firms already sourcing generics in China and then re-boxing them for the domestic market, said the BAPW spokesman. However, it has been reported that the joint-venture products will not be sold under the Co-op brand.

China approves Alliance Boots buy

Meanwhile, last week, the UK-based pharmacy-led health and beauty group Alliance Boots announced that the Chinese government has approved its acquisition, for $38 million, of a 50% share in the state-owned Guangzhou Pharmaceuticals Corp, China’s third-largest pharmaceuticals wholesaler.