Authors: Zheng Minfang, Shen Siqi
Editor: Song He
Amid the financing winter, many domestic innovative pharmaceutical companies are cutting costs by streamlining their pipelines, but some companies are bucking the trend.
On August 13, OCUMENSION-B (1477.HK) announced plans to introduce Alcon's (爱尔康， ALC.N) portfolio of 8 dry eye treatment and surgical eye drop products in China.
The uniqueness of this transaction lies in OCUMENSION-B issuing shares to Alcon as payment, with the latter also becoming one of OCUMENSION-B's major shareholders.
According to TradeWind01, OCUMENSION-B proactively approached Alcon over a year ago to initiate cooperation. As the understanding between both parties deepened, Alcon expressed a preference for equity rather than cash to achieve a deeper level of partnership.
This transaction not only brings products to OCUMENSION-B but also Alcon's sales channels.
On one hand, OCUMENSION-B plans to integrate Alcon's ophthalmic drug sales team in China into its own system, which is expected to help enhance its commercialization efforts in the domestic market.
On the other hand, if OCUMENSION-B's products are poised to go global, Alcon has the right of first refusal, meaning Alcon may become an important partner for OCUMENSION-B in expanding overseas markets in the future.
On the afternoon of August 14, the TradeWind01 team had a conversation with OCUMENSION-B CEO Liu Ye to present and reveal more details and stories behind this transaction.
<h2>Points of Cooperation: Products and Channels</h2>
In 2024, a significant strategic business development (BD) partnership was born in the ophthalmic drug industry.
On August 13, OCUMENSION-B announced the acquisition of the rights to Alcon's portfolio of 8 dry eye treatment and surgical eye drop products in China.
However, the consideration for this transaction was not cash, but equity.
As part of the consideration, OCUMENSION-B plans to issue 139 million shares to Alcon. Based on OCUMENSION-B's closing price of HKD 6 per share on August 14, the consideration for this transaction is HKD 834 million.
After the issuance, Alcon's ownership stake in OCUMENSION-B will reach 16.71%, second only to its largest shareholder, 6 Dimensions Capital, L.P.
In this transaction, Alcon effectively transferred the rights to its pipeline in China to OCUMENSION-B at a discount.
According to intermediary evaluations, the value of the rights to these 8 products is HKD 1.28 billion, representing a premium of over 30% compared to the consideration for this transaction.
In the midst of a downturn in the innovative pharmaceutical industry, Alcon's counter-cyclical move is based on the long-term contact and mutual trust established between both parties.
Liu Ye told TradeWind01 that initially, OCUMENSION-B proactively approached Alcon, hoping to reach a cooperation agreement in expanding domestic and international businesses. After nearly 2 years of communication, both parties gained a deeper understanding of each other.
Initially, OCUMENSION-B planned to introduce Alcon's pipeline through cash, but Alcon hoped for a more long-term strategic partnership, hence the final equity acquisition
Not only that, Alcon this time basically &#34;sold&#34; its ophthalmic drug rights in China to Ocumension-B, but did not have a seat on Ocumension-B's board of directors.
&#34;After becoming a major shareholder of Ocumension, Alcon does not participate in the company's management, nor does it have a seat on the board of directors. This indicates that Alcon's investment is more strategic and financial, rather than directly involved in the company's daily operations,&#34; said Liu Ye.
This is the most special aspect of this transaction, that is, Alcon used its 8 ophthalmic drugs in China to exchange for shares of Ocumension-B.
The cooperation between the two parties does not stop there.
With Alcon becoming one of the major shareholders of Ocumension-B, Ocumension-B's domestic and international sales network is expected to further expand.
In terms of the domestic market, according to Liu Ye, Alcon's ophthalmic drug commercialization team in China will be fully integrated into Ocumension-B, and both parties will jointly explore the market.
This is expected to further expand Ocumension-B's overall performance scale.
According to unaudited data disclosed by Ocumension-B, the total revenue of 7 newly introduced and commercialized products from 2021 to 2023 in China is 222 million yuan, 251 million yuan, and 279 million yuan, respectively.
In terms of the overseas market, Ocumension-B is also expected to benefit from Alcon's support.
According to the agreement, Alcon and Ocumension-B grant each other the right of first negotiation for future products - in the future, Ocumension-B will have the first right to Alcon's ophthalmic drugs in the Chinese market.
At the same time, as Ocumension-B expands its product offerings in overseas markets, Alcon will also have the first right.
This means that in the future, Alcon may be an important partner for Ocumension-B's products to &#34;go global&#34;.
As a global leader in ophthalmology, Alcon's business covers 56 countries worldwide. In 2023, its revenue and net profit were 67.523 billion yuan and 6.956 billion yuan, respectively, with year-on-year growth of 8.47% and 190.75%, respectively.
<h2>Multiple Bets</h2>
The 8 drugs introduced by Ocumension-B this time are Xinleiran, Leiran, Beiran, Aierkaiyin, Lishede, Saifeijie, Siran, and the candidate pipeline AR-15512, covering dry eye disease and surgical eye drops.
Xinleiran, Leiran, Beiran, and the candidate pipeline AR-15512, a total of 4 drugs, are used to treat dry eye disease; Siran is used to relieve eye dryness.
If the already commercialized &#34;Ouqin&#34; in Ocumension-B's pipeline and the tyrosine kinase inhibitor OT-202, which is in Phase 2 clinical trials, are included in the statistics, Ocumension-B will have at least 6 dry eye disease drugs.
Dry eye disease does have broad market prospects, with the number of dry eye disease patients in China reaching 360 million, which may lead to eye discomfort and visual impairment.
Although the scale of dry eye disease drugs is large, the reason why Ocumension-B is expanding so many dry eye disease drugs is also a focus of market attention.
&#34;The pathogenesis of dry eye disease is very complex. Therefore, there may be situations where this 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,&#34; Liu Ye pointed out. &#34;If the company really wants to have a significant impact in the field of dry eye disease, what we need is not one or two products, but a product portfolio, so that all dry eye disease patients can be covered.&#34;
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From the perspective of treatment, there are indeed some differences among the 6 drugs.

Ouqin's main ingredient is sodium hyaluronate, which has high moisturizing and viscoelastic properties, providing long-lasting lubrication and moisturizing effects;

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

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

In addition to dry eye syndrome, a noteworthy drug in Ocumension-B's research pipeline is the low-concentration atropine eye drops OT-101 for controlling myopia progression, which has already entered Phase 3 clinical trials.

The market prospects for this drug are also highly anticipated. The global number of myopic adolescents reached 571 million in 2022 and is expected to reach 642 million by 2027.

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

In March of this year, the first drug in China for delaying the progression of childhood myopia, the atropine sulfate eye drops (SQ-729) of Xingqi Eye Medicine (300573.SZ), was approved for marketing.

The market competition for this drug's indications is fierce.

Currently, several pharmaceutical companies such as Zhaoke Ophthalmology (6622.HK) and Qilu Pharmaceutical have low-concentration atropine eye drops for adolescents in Phase 3 clinical trials.

There is considerable controversy in the industry over whether low-concentration atropine eye drops can effectively delay myopia progression.

An article published in July 2023 in the &#34;Journal of the American Medical Association Ophthalmology&#34; titled &#34;Low-Dose 0.01% Atropine Eye Drops vs Placebo for Myopia Control A Randomized Clinical Trial&#34; once pointed out that 0.01% atropine eye drops did not slow the myopia progression in American children.

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

However, excessively low pH results in discomfort for patients, tears wash away the drug, ultimately leading to the drug's ineffectiveness.

Therefore, in the design of the OT-101 drug, Ocumension-B's approach is to adjust the pH of atropine to neutral through patented technology, improving the drug's absorption and efficacy, and reducing patient discomfort.

Whether this innovative design can propel the OT-101 drug to stand out from the competition remains to be seen by the market.

Overall, Ocumension-B's layout in ophthalmic drugs is relatively comprehensive, with corresponding product pipelines for a wide range of eye diseases such as dry eye syndrome, myopia, glaucoma, and conjunctivitis, all with broad prospects.

With the completion of the transaction, Ocumension-B's total ophthalmic drug assets will reach 33, making it the company with the most ophthalmic drug pipelines among domestic peers.

Supported by &#34;product + multinational pharmaceutical company channels,&#34; Ocumension-B is expected to usher in a broader development space.

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The following is a transcript of the conversation:
Before joining OCUMENSION-B, Liu Ye had over 20 years of experience in the pharmaceutical industry, especially in the field of ophthalmology. From 2014 to 2018, Liu Ye served as the Chairman and General Manager of Santen Pharmaceutical (China) Co., Ltd.
Santen Pharmaceutical (4536.T) is also one of the leading global ophthalmic pharmaceutical companies, with revenues and net profits of RMB 14.678 billion and RMB 1.295 billion in 2023, respectively.
<h2>How the Deal Happened</h2>
Xin Feng: How did the company reach a cooperation agreement with Alcon?
Liu Ye: We initially reached out to Alcon proactively, hoping to find a long-term strategic partner to expand overseas business and increase domestic market coverage. After multiple communications, both sides deepened their understanding and mutual recognition, eventually reaching a cooperation agreement. Initially, we hoped for a cash cooperation, but Alcon insisted on equity cooperation to share the results of OCUMENSION-B's rapid future development, so we ultimately chose equity cooperation.
Xin Feng: After Alcon becomes a major shareholder of the company, will they participate in the company's management?
Liu Ye: Alcon will not participate in the company's management, and they do not have a seat on our board of directors.
Xin Feng: 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 right of first refusal for Alcon's drugs in the Chinese market, and when our products expand to overseas markets, Alcon also has the right of first refusal. Therefore, Alcon will be our preferred partner for expanding overseas markets.
Xin Feng: Will the company continue to introduce other product lines from Alcon in the future?
Liu Ye: In our cooperation with Alcon, we have the right of first refusal for their ophthalmic drugs in China. In the future, we will continue to communicate with them to explore the possibility of introducing other products.
Xin Feng: In the cooperation with Alcon, how do both sides complement each other in the domestic commercial team?
Liu Ye: Alcon's sales team in China will be integrated into OCUMENSION directly, so there is no complementary issue, but direct integration. This cooperation is strategic, and the sales team and product line will all become part of OCUMENSION.
Xin Feng: After introducing Alcon's products, will the company still use Alcon's trademark for sales?
Liu Ye: The product names will remain, but the logo on the packaging will be changed to OCUMENSION's logo. This acquisition is a comprehensive acquisition, not an agency.
<h2>Integration of &#34;Product + People&#34;</h2>
Xin Feng: Where does the complementary nature of the pipeline cooperation between the two parties lie?
Liu Ye: We have a relatively complete ophthalmic pipeline in China, being the company with the most ophthalmic pipelines 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 resources and market expansion is the point of fit between the two parties in the pipeline.
Xin Feng: Why is this cooperation mainly focused on dry eye syndrome? What are the differences between the products?
Liu Ye: This collaboration is not specifically for dry eye products, but Alcon will package all its ophthalmic drugs in China for us, including 4 dry eye products. The pathogenesis of dry eye disease is complex, and different drugs have different effects on different patients, so a product combination is needed to cover all dry eye patients. Introducing these products can accelerate our influence in the field of dry eye disease.
Xin Feng: 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 online sales. 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, leading patients to prefer to choose drugs independently.
Xin Feng: Will the online payment reform of medical insurance promote the company's online sales growth?
Liu Ye: Although the proportion of self-paying patients for ophthalmic drugs is relatively high, the support of medical insurance will undoubtedly promote the growth of online sales.
Xin Feng: What are the differences between the company's atropine drugs and other products on the market?
Liu Ye: The differences of atropine are significant.
This is due to the uniqueness of the administration method. If ophthalmic drugs are not suitable for patients, tears will wash away the drugs, rendering them ineffective rather than ineffective. This is different from other administration methods, where patients have the right to choose, thus requiring higher demands on drug formulations.
In fact, there is controversy in the academic community over the effectiveness of atropine. The main reason is the instability of atropine, especially at low concentrations when neutral in pH. Stabilizing it with acidic methods leads to low absorption and significant side effects, resulting in poor efficacy. Atropine used in the past few decades was prepared and used immediately, solving the stability issue, hence effective.
Xin Feng: What are the advantages of OCUMENSION's OT101 in atropine stability?
Liu Ye: Our product adjusts the pH of atropine to neutral through patented technology, improving drug absorption and efficacy, reducing patient discomfort reactions. Compared to ordinary products, OCUMENSION's OT101 has overwhelming advantages in efficacy.
Xin Feng: 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 Alcon products acquired this time to the factory in Suzhou, which is one of the world's most advanced ophthalmic drug production bases.
Firstly, we have undertaken many complex OEM projects for world-renowned companies; secondly, our level of automation is very high, basically achieving semi-unmanned operation; finally, if everything goes smoothly, next year our company will export eye drops to the United States for the first time, marking the first export of Chinese eye drops to the United States

01477

The global leader in ophthalmology "joins hands" with the Chinese leader in ophthalmology

- Eucon Vision Bio (1477.HK) plans to acquire Alcon's 8 eye care products in China through stock issuance, making Alcon a major shareholder.
- The deal values at 8.34 billion HKD, with Alcon gaining access to Eucon's sales channels and potential overseas market expansion.
- Eucon's strategic move aims to enhance its domestic presence and potentially collaborate with Alcon for international market ventures.

Global ophthalmic leader Alcon "joins hands" with OCUMENSION, the inside story revealed (including dialogue records)