Cloudbreak Pharma sets sights on Hong Kong IPO after license deal

The developer of eye drugs has yet to launch a product on the market and could face financial pressure if its latest listing attempt falters

Key Takeaways:

• Cloudbreak has sold some of the rights to its core eye medication to Japan’s Santen Pharmaceutical for up $91 million in upfront and milestone payments
• The company reached a post-investment valuation of $469 million after a fundraising round last year

By Molly Wen

Hong Kong’s IPO market is enjoying a pre-Christmas rush, as companies jostle for access to equity capital.

In the past week alone, 11 companies have applied to list their shares on the Hong Kong Stock Exchange, taking advantage of this year’s broader market recovery. The brighter mood has given some applicants fresh hope of success after failing in their previous attempts to go public.

One such hopeful is Cloudbreak Pharma Inc., a loss-making developer of drugs to treat eye problems such as short-sightedness and an ocular condition associated with outdoor sports.

The company filed a prospectus on Monday in its third listing attempt, with UBS, CCB International and Huatai International as joint sponsors.

Founded in 2015, Cloudbreak has specialized in ophthalmic therapies, taking four drug candidates to the clinical trial stage and four others to the pre-clinical point. Its most advanced drug candidate targets pterygium, sometimes dubbed surfer’s eye, in which tissue grows from the corner of the eye onto the ocular surface. The drug entered Phase Three trials in the United States in June 2022 and reached the same stage in China in September 2023, with testing expected to wrap up at the end of next year.

The drug, CBT-001, has the potential to become a market leader in reducing irritation and controlling tissue growth that can otherwise damage the cornea and impair vision. The only current treatment for pterygium is surgical excision, according to research cited in the prospectus. The Cloudbreak product is on track to become the first drug to combat pterygium in a global market that is projected to reach $537 million by 2028 and $3.11 billion by 2033.

The commercial potential has already attracted interest. In August this year Japanese ophthalmology company Santen Pharmaceutical (TYO: 4536) struck a deal to acquire licensing rights to CBT-001 in parts of Asia. Santen agreed to pay up to $91 million (660 million yuan) in upfront and milestone payments to develop, manufacture and sell the drug in Japan, South Korea, Vietnam, Thailand, Malaysia, the Philippines, Singapore and Indonesia. Cloudbreak would also get a double-digit percentage of future net sales.

A Cloudbreak drug for juvenile myopia is also about to enter Phase Three trials in the United States, opening up another potentially lucrative market in eye care. The company’s CBT-009 drug uses a formula containing atropine to treat patients between the ages of five and 19 years and, if successful, would be the first such drug to be approved for U.S. use. The research findings in the prospectus projected the global market for juvenile myopia drugs would reach $1.96 billion in 2028. In China, just one myopia remedy has been approved for children, an atropine-based eye drop made by Xingqi Pharmaceutical to slow down the condition’s progression. Cloudbreak’s CBT-009 is the only clinical-stage drug candidate that comes in a non-aqueous formulation, according to the prospectus. The company said pre-clinical studies showed that the drug could offer benefits in terms of ease of use, safety and product stability.

Without any products on the market yet, Cloudbreak has been burning through its cash to fund the drug development machine. The company lost $72.95 million in 2022 and $130 million a year later, landing $52.93 million in the red in the first half of this year. Over the same timeframe, R&D costs came in at $15.29 million, $27.49 million and $22.49 million.

Valued at around $470 million

The prospectus showed that Cloudbreak has spent large sums on its operations over the years, mainly relying on external financing to support its ongoing research. By the end of June, cash and cash equivalents had fallen to $41 million, leaving the company exposed to financial strain if this latest IPO attempt ends in failure.

Before the IPO, Cloudbreak had raised $146 million in four rounds of financing. Its backers in the C Series, completed in April 2023, included well-known venture capitalists such as Industrial Securities Capital, CDH Investments, CCB International, Dyee Capital, Yingke PE and Efung Capital. Cloudbreak now commands a post-investment valuation of $469 million, 187% more than it was worth in November 2020.

The company said the IPO proceeds would be used to advance its core product, CBT-001, and other drugs such as CBT-009, as well as being spent on manufacturing facilities and general corporate purposes.

Only one other eye drug specialist is listed in Hong Kong. Zhaoke Ophthalmology (6622.HK), which debuted in 2021, has two products on the market but is still making a loss. The share price has shed more than two-thirds of its value since the end of 2023 and continued to languish even when other pharmaceutical stocks rebounded this year. Zhaoke is trading more than 90% below its IPO price, offering a cautionary tale for investors, given the uncertain commercial prospects for Cloudbreak.

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