SHANGHAI - Nanjing Pharmaceutical Co Ltd said on Wednesday that its parent company intends to reach a cooperative agreement with the UK-based pharmaceutical giant Alliance Boots to boost its market innovation ability and improve its competitive position.

Nanjing Pharmaceutical Group, the controlling holder of Nanjing Pharmaceutical Co Ltd, and British Alliance Boots signed a letter of intent on cooperation this week, it said in a filing to the Shanghai Stock Exchange on Wednesday.

The goal of the cooperation is to build Nanjing Pharmaceutical Co Ltd into a market innovator in quality products and service, as well as a leading chain drug retailer, it said.

The nature of the cooperation has yet to be determined. The two might establish a joint venture in which Nanjing Pharmaceutical Co Ltd will hold a 75 percent stake and Alliance Boots 25 percent. Another possibility is that the listed Nanjing Pharmaceutical will issue additional shares, inviting Alliance Boots as a strategic investor. The two companies could decide to follow one or possibly both plans.

Nanjing Pharmaceutical engages principally in pharmaceutical distribution - including the operation of regular chain drug stores - delivery of pharmaceuticals, supply chain management and logistics services, with revenue for 2010 of 15.3 billion yuan ($2.37 billion).

It said the cooperation will improve its competitive edge by introducing international advanced technology and innovation.

With a presence in more than 25 countries, the UK-based Alliance Boots is a major international pharmacy-led health and beauty group. Its core businesses are health and beauty retailing and pharmaceutical wholesaling and distribution.

"Alliance Boots recognizes that there are huge opportunities in working together to create a truly great distribution network, building on the pre-existing strengths of the Nanjing Pharmaceutical Company Limited, the city and the region," a spokesman for Alliance Boots said in an e-mail interview with China Daily.

In recent years, Alliance Boots has entered the fast-growing Chinese market, pursuing sustainable growth. In 2008, the company and its Chinese partner Guangzhou Pharmaceutical Co Ltd launched a joint venture, Guangzhou Pharmaceuticals Corp (GP Corp). Alliance Boots purchased 50 percent of GP Corp's shares in a deal worth 545 million yuan. Since then, GP Corp that once the country's third-largest pharmaceutical wholesaler has become the largest joint venture in pharmaceutical distribution and wholesale industry in China.

So far, Nanjing Pharmaceutical and Alliance Boots are still discussing their plans, and future steps will be subject to regulatory and government approval in China.

In its deepening healthcare reform, China launched the essential drug system which lists 307 most common used traditional Chinese and medicine drugs. Heavily subsidized by government, these drugs are sold at cost price at hospitals and health care institutions.

"With China's new healthcare plans, some of the middlemen in the distribution of medicine will be eliminated. In the coming years, the country's medicine distribution market will see more consolidation," said an industry expert surnamed Liu from Shanghai. With a strong market position in Jiangsu, Fujian and Anhui provinces, Nanjing Pharmaceutical Co has a high value for acquisition and merger, he added.