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Author: Zheng Minfang, Shen Siqi

Editor: Songhe

In the financing winter, many domestic innovative pharmaceutical companies are cutting costs by "cutting" pipelines, but some companies are bucking the trend.

On August 13, Ocuvision Biopharma (1477.HK) announced plans to introduce the relevant rights in China of Alcon (ALC.N), a global leader in ophthalmology, to its portfolio of eight dry eye treatment and surgical eye drops.

The special thing about this transaction is that Ocumen Biopharma will pay by issuing shares to Alcon, which will also become one of Ocumen Biopharma's major shareholders.

According to TradeWind (ID: TradeWind01), Ocuvision Biopharmaceuticals took the initiative to approach Alcon more than a year ago in the hope of promoting cooperation. Since then, as the two parties have deepened their understanding of each other, Alcon hopes to achieve a deeper level of ties between the two parties through equity rather than cash.

This transaction brings to Ocuvision Biopharma not only products, but also Alcon's sales channels.

On the one hand, Ocuvision Biopharma plans to integrate Alcon's ophthalmic drug sales team in China into its own system, which is expected to help it better carry out commercialization work in the domestic market;

On the other hand, if Ocumen Biopharma's products are expected to be exported, Alcon will have the first choice, which means that Alcon may become an important partner of Ocumen Biopharma in developing overseas markets in the future.

On the afternoon of August 14, the TradeWind (ID: TradeWind01) team had a dialogue with Liu Ye, CEO of Ocuvision Biopharma, to present and restore more details and stories behind this transaction.

Cooperation points: products and channels

In 2024, a BD (business development) with important strategic cooperation significance was born in the ophthalmic drug industry.

On August 13, Ocuvision Biopharma announced the acquisition of relevant rights and interests in China for Alcon's portfolio of eight dry eye treatment and surgical eye drops products.

However, the consideration for this transaction was not cash, but equity.

As the transaction consideration, Ocuvision Biopharma plans to issue 139 million shares to Alcon. Based on the closing price of Ocuvision Biopharma on August 14, HK$6 per share, the transaction consideration is HK$834 million.

After the issuance is completed, Alcon's equity ratio in Ocuvision Biopharma will reach 16.71%, second only to its largest shareholder 6 Dimensions Capital, LP.

This time, Alcon is transferring the relevant rights and interests of its pipeline in China to Ocuvision Biopharma at a "discount".

According to the evaluation of the intermediary agency, the relevant equity value of these eight products is HK$1.28 billion, which is a premium of more than 30% over the transaction price.

At a time when the innovative drug industry is at a low point, Alcon chose to take counter-cyclical action based on the long-term contact and mutual trust between the two parties.

Liu Ye told TradeWind (ID: TradeWind01) that it was Ocon that first approached Alcon, hoping to cooperate with it in expanding domestic and overseas business. After nearly two years of communication, both parties have a deeper understanding of each other.

Okon originally planned to acquire Alcon's pipeline through cash, but Alcon hoped that the two sides could have a longer-term strategic cooperation, so it finally adopted an equity acquisition.

Not only that, Alcon basically "sold" its ophthalmic drug rights in China to Ocumen Biopharma, but did not hold a seat on Ocumen Biopharma's board of directors.

"After becoming the major shareholder of Oukang, Alcon did not participate in the company's operations and management, nor did it hold a seat on the board of directors. This shows that Alcon's investment is more strategic and financial, rather than directly intervening in the company's daily operations," said Liu Ye.

This is the most special aspect of this transaction, that is, Alcon exchanged the rights to its eight drugs in China for the equity of Ocuvision Biopharmaceuticals.

The cooperation between the two sides does not stop there.

With Alcon becoming one of the major shareholders of Ocumension Biopharmaceuticals, Ocumension Biopharmaceuticals' domestic and overseas sales networks are expected to be further expanded.

In terms of the domestic market, according to Liu Ye, Alcon's ophthalmic drug commercialization team in China will be fully integrated into Ocuvision Biopharma, and the two parties will jointly develop the market.

This is expected to further expand Ocuvision Bio's overall performance scale.

According to the unaudited data disclosed by Ocuvision Bio, the total domestic revenue of the seven newly introduced and commercialized products from 2021 to 2023 was RMB 222 million, RMB 251 million and RMB 279 million, respectively.

In terms of overseas markets, Ocuvision Biopharma is also expected to board the Alcon ship.

According to the agreement, Alcon and Ocumen Biopharma grant each other the right of priority negotiation for future products - in the future, Ocumen Biopharma will have the first choice right for Alcon's ophthalmic drugs in the Chinese market.

At the same time, as Ocuvision Biopharmaceuticals' products expand into overseas markets, Alcon will have the first choice.

This means that Alcon may become an important partner for Ocuvision Biopharmaceuticals' products to go overseas.

As a global leader in ophthalmology, Alcon's business covers 56 countries around the world. In 2023, its revenue and net profit were 67.523 billion yuan and 6.956 billion yuan, respectively, up 8.47% and 190.75% year-on-year.

Multi-line betting

The eight drugs introduced by Ocuvision Biopharma this time are Xinleiran, Leiran, Beiran, Alkain, Lishede, Saifejie, Siran and the candidate pipeline AR-15512, covering dry eye disease and surgical eye drops.

A total of four drugs, including Xin Leiran, Leiran, Beiran, and pipeline candidate AR-15512, are used to treat dry eye syndrome; Siran is used to relieve dry eyes.

If the commercialized "Oqin" in Ocumen Biopharma's original pipeline and the tyrosine kinase inhibitor OT-202, which is currently in phase 2 clinical trials, are included in the statistics, Ocumen Biopharma will have a total of at least 6 dry eye disease drugs.

Dry eye disease does have broad market prospects. The number of people suffering from dry eye disease in my country has reached 360 million. The disease may cause eye discomfort and vision impairment.

Although the scale of dry eye disease drugs is large, why Ocuvision Biopharma has expanded so many dry eye disease drugs is also the focus of market attention.

"The pathogenesis of dry eye disease is very complex. So there may be a situation where a drug is ineffective for A but effective for B. Therefore, the treatment of dry eye disease is often a process of continuous selection to see which drug is most effective for the patient. Liu Ye pointed out, "If the company really wants to have a significant impact in the field of dry eye disease, then we need not one or two products, but a product portfolio, so that all dry eye patients can be covered."

From the perspective of treatment ideas, there are indeed certain differences among the six drugs.

The main ingredient of Oqin is sodium hyaluronate, which has high water retention and viscoelasticity, and can provide long-lasting lubrication and moisturizing effects;

Xinleiran, Leiran and Beiran mainly relieve dry eye syndrome by mimicking the composition of human tears;

OT-202, which is expected to enter Phase 3 clinical trials in the second half of this year, mainly acts on spleen tyrosine kinase and vascular endothelial growth factor, inhibiting ocular inflammatory response through a unique synergistic mechanism.

In addition to dry eye disease, the most attractive drug in Ocuvision Biopharmaceuticals' pipeline is undoubtedly OT-101, a low-concentration atropine eye drop used to control the progression of myopia, which has now entered Phase 3 clinical trials.

The market prospects of this drug are also highly anticipated. In 2022, the number of young people with myopia in the world has reached 571 million, and it is expected to reach 642 million in 2027.

However, Ocuvision Biopharma's first-mover advantage in low-concentration atropine eye drops is not significant.

In March this year, the first domestic drug used to delay the progression of myopia in children, atropine sulfate eye drops (SQ-729) developed by Xingqi Eye Medicine (300573.SZ), was approved for marketing.

The market for this drug's indication is highly competitive.

Currently, many pharmaceutical companies such as Zhaoke Ophthalmology (6622.HK) and Qilu Pharmaceutical have launched low-concentration atropine suitable for adolescent myopia in the market, which have entered Phase 3 clinical trials.

There is also great controversy in the industry as to whether low-concentration atropine eye drops can effectively delay myopia.

An article published in the Journal of the American Medical Association Ophthalmology in July 2023 titled "Low-Dose 0.01% Atropine Eye Drops vs Placebo for Myopia Control A Randomized Clinical Trial"

It has been shown that 0.01% atropine eye drops do not slow the progression of myopia in US children.

In this regard, Liu Ye explained that the main reason is that low-concentration atropine has poor stability when the pH value is neutral. The current mainstream practice in the industry is to lower the pH value to maintain the stability of low-concentration atropine.

However, a too low pH value will result in discomfort in the patient's eyes, and tears will wash away the medicine, ultimately making it difficult for the medicine to be effective.

Therefore, in the design of the OT-101 drug, Ocuvision Biopharma used patented technology to adjust the pH value of atropine to neutral, thereby improving the drug's absorption and efficacy and reducing patients' discomfort.

The market is waiting to see whether this innovative design can help OT-101 drug break through the competition.

Overall, Ocuvision Biopharma's layout in ophthalmic drugs is relatively complete. Whether it is the dry eye and myopia market with broad prospects, or various ophthalmic diseases such as glaucoma and conjunctivitis, it basically has corresponding product pipelines.

With the completion of the transaction, Ocuvision Biopharma's total ophthalmic drug assets will reach 33, making it the company with the largest ophthalmic drug pipeline among its domestic peers.

With the support of "products + multinational pharmaceutical company channels", Ocuvision Bio is expected to usher in a broader space for development.

The following is a transcript of the conversation:

Prior to joining Ocuvision Biopharmaceuticals, Liu Ye had more than 20 years of experience in the pharmaceutical industry, especially in the field of ophthalmology. From 2014 to 2018, Liu Ye served as Chairman and General Manager of Santen Pharmaceutical (China) Co., Ltd.

Santen Pharmaceutical (4536.T) is also one of the leading companies in the global ophthalmic pharmaceutical industry, with revenue and net profit of 14.678 billion yuan and 1.295 billion yuan in 2023, respectively.

How transactions happen

Trade Winds: How did the company’s collaboration with Alcon come about?

Liu Ye:We initially took the initiative to contact Alcon, hoping to find a long-term strategic partner to expand overseas business and expand domestic market coverage. After many communications, the two sides deepened their understanding and mutual recognition and finally reached a cooperation. At first, we hoped to cooperate in cash, but Alcon insisted on equity cooperation to share the fruits of Oukang's rapid development in the future, so we finally chose the equity cooperation method.

Xinfeng: After Alcon becomes the company's major shareholder, will it participate in the company's operations and management?

Liu Ye:Alcon will not be involved in the management of the company and will not have a seat on our board of directors.

Trade Winds: How does the company plan to use Alcon’s channels to expand overseas markets?

Liu Ye:Our cooperation with Alcon provides a channel for mutual cooperation. According to the announcement, we have the first choice for Alcon's drugs in the Chinese market, and when our products are expanded to overseas markets, Alcon also has the first choice. Therefore, Alcon will be our preferred partner for expanding overseas markets.

Xinfeng: Will the company continue to introduce other product lines from Alcon in the future?

Liu Ye:In our cooperation with Alcon, we have the first choice right for its ophthalmic drugs in China. In the future, we will continue to communicate with them to explore the possibility of introducing other products.

Xinfeng: In the cooperation with Alcon, how do the two parties complement each other in terms of domestic commercialization teams?

Liu Ye:Alcon's sales team in China will be incorporated into Okon, so there is no complementarity issue, but direct integration. This cooperation is strategic, and both the sales team and product line will become part of Okon.

Xinfeng: After introducing Alcon’s products, will you still use the Alcon trademark for sales?

Liu Ye:The product's trade name will remain, but the logo on the outer packaging will be replaced with Okon's logo. This acquisition is a complete acquisition, not an agency.

Integration of “Product + People”

Xinfeng: How is the complementarity of the pipelines between the two parties reflected?

Liu Ye:We have a relatively complete ophthalmology pipeline in China, and we are the company with the largest ophthalmology pipeline in China. Alcon's products and existing market network are important resources for us. For Alcon, our focus and capabilities in Chinese drugs can also help them expand the market. Therefore, the convergence of the two parties in terms of pipelines lies in resource complementarity and market expansion.

Xinfeng: Why is this collaboration mainly focused on dry eye disease? What are the differences between the products?

Liu Ye:This cooperation does not specifically specify dry eye products, but Alcon packages all its ophthalmic drugs in China to us, including 4 dry eye products. The pathogenesis of dry eye is complex, and different drugs have different effects on different patients, so a product portfolio is needed to cover all dry eye patients. Introducing these products can accelerate our influence in the field of dry eye.

Xinfeng: Has the company observed changes in the sales channels of ophthalmic drugs, especially the trend of out-of-hospital sales?

Liu Ye:The proportion of out-of-hospital sales of ophthalmic drugs, especially eye drops and dry eye drugs, is increasing. We have already started selling online. The growth of out-of-hospital sales of ophthalmic drugs is mainly due to the younger patient population and the convenience brought by the Internet, which makes patients more inclined to choose drugs on their own.

Xinfeng: Will the reform of online medical insurance payment promote the growth of the company's online sales?

Liu Ye:Although the proportion of patients who pay for ophthalmic drugs out of their own pocket is relatively high, the support of medical insurance will undoubtedly promote the growth of online sales.

Xinfeng: What is the difference between the company's atropine drugs and other products on the market?

Liu Ye:Atropine varies widely.

This is because of the particularity of the administration method. If ophthalmic drugs are not suitable for patients, tears will wash away the drugs, resulting in ineffectiveness rather than poor effects. This is different from other administration methods. The patient's body has the right to choose, so the requirements for drug preparations are higher.

In fact, there is also controversy in the academic community about the effectiveness of atropine. The main reason is the instability of atropine, especially low-concentration atropine is unstable at a neutral pH value. Using an acidic method to stabilize it leads to low absorption and large side effects, and poor results. The atropine used in the past few decades is prepared and used immediately, which solves the stability problem and is therefore effective.

Trade Wind: What is the advantage of Oukang’s OT101 in atropine stability?

Liu Ye:Our product uses patented technology to adjust the pH value of atropine to neutral, which improves the drug's absorption and efficacy and reduces patients' discomfort. Compared with ordinary products, Oukang's OT101 has an overwhelming advantage in efficacy.

Xinfeng: Can you introduce the situation of the factory in Suzhou?

Liu Ye:In the next few years, we plan to transfer the production of the acquired Alcon products to our Suzhou plant, one of the most advanced ophthalmic drug production bases in the world.

First, we have undertaken many complex OEM projects for world-renowned companies; second, our level of automation is very high, and we can basically achieve semi-unmanned operation; finally, if everything goes well, our company will export eye drops to the United States for the first time next year. This will be the first time that Chinese eye drops have been exported to the United States.