Health & Beauty

Since the media Jindu Research Institute recently reported that Beijing Mingyan Space Technology Co., Ltd. ("Munyan Space"), the main body of the medical beauty business of Sihuan Pharmaceutical (00460.HK), sued a well-known pharmaceutical investment for infringement of trade secrets. The organization CBC Group (CBC Group), and proposed high compensation. The case has been accepted by the Beijing Intellectual Property Court.

The plaintiff stated that in October 2020, Kangqiao Capital conducted a comprehensive and in-depth due diligence on the branches of Sihuan Pharmaceutical and its subsidiary Mianyan Space on the grounds of in-depth cooperation. During this process, the two parties signed a confidentiality agreement. However, after due diligence, Kangqiao Capital has nothing to do with it. However, the consortium led by Kangqiao Capital and Bain Capital reached an agreement to acquire 46.9% of the shares of Hugel (Xiujie), a South Korean medical beauty company (including management). Quan), and Sihuan Pharmaceutical is the agent of Xiujie Botox product Le Tibao in China.

Meiyan Space believes that Kangqiao Capital will inevitably use the core trade secrets obtained in its due diligence in its acquisition of Xiujie. Moreover, once the final acquisition is completed, it will occupy a favorable business position based on the information it has, and such acts are suspected of constituting unfair competition.

In response, Kangqiao Capital responded to Jiemian News that it was invited to conduct due diligence on Sihuan Pharmaceutical's business in October 2020, and Kangqiao Capital did not violate the confidentiality agreement signed by both parties. This due diligence has nothing to do with the Hugel acquisition plan of the Cambridge Capital Consortium. The so-called "stealing of commercial secrets" is pure nonsense. At present, Cambridge Capital has not received any relevant notice from the court and reserves the right to pursue legal liability for any false information.

Investment bankers who were aware of the above transaction revealed to Jiemian News that Sihuan Pharmaceutical had bid for the Hugel project with Kangqiao Capital, and Sihuan Pharmaceutical’s final bid was higher than that of Kangqiao Capital, but Bain Capital chose Kangqiao Capital for the reason. It may be due to the consideration of "deal certainty", that is, Kangqiao Capital is actually a private equity fund registered in Singapore, and the acquisition of Hugel's equity needs to be approved by relevant authorities in South Korea and the United States. In terms of the difficulty of approval, Kangqiao Capital is smaller than Sihuan Pharmaceutical .

In response to the above statement, Sihuan Pharmaceutical Chairman Che Fengsheng and the listed company did not respond to Jiemian News’ inquiries.

Wu Shiying, a legal assistant at the Shanghai branch of Beijing Tianchi Juntai Law Firm, said that generally speaking, the investor or the acquirer does come into contact with the other party’s core business secrets during the due diligence process, but the difficulty for the right holder is to prove their own Trade secrets were violated. The court accepted the case that the plaintiff had provided preliminary evidence of infringement, but the final result still depends on the specific circumstances of the plaintiff’s proof.

According to the requirements of the "Anti-Unfair Competition Law" on the distribution of burden of proof in trade secret cases, if the trade secret right holder provides preliminary evidence that the trade secret has been infringed reasonably, and provides one of the following evidence, the suspected infringer should prove that there is no infringement. Acts of trade secrets:

There is evidence that the suspected infringer has channels or opportunities to obtain trade secrets, and the information used is substantially the same as the trade secrets;

There is evidence that the trade secret has been disclosed or used by the suspected infringer or there is a risk of being disclosed or used;

There is other evidence that trade secrets have been infringed by suspected infringers.

Sihuan Pharmaceutical was listed in Hong Kong in 2010. The product line also involves cardio-cerebrovascular, digestive system, anti-infection, metabolism, breathing, nerves and other fields. Because of the agency rights of Le Tibao in the Chinese market, Sihuan Pharmaceutical is also the main medical aesthetic concept in the Hong Kong stock biomedical sector. share. Kangqiao Capital is a private equity fund in the medical and health field that has gained fame in China in recent years but is full of controversy. Its well-known investment cases include Songli Pharmaceutical, Tianjing Bio and Genting Xinyao.

It is not difficult to see that whether it is Sihuan Pharmaceutical’s lawsuit or Cambridge Capital’s bid for Hugel, it is behind Hugel’s strength in medical aesthetics products, especially Le Tibao’s future in the Chinese market.

Sihuan Pharmaceutical signed a cooperation agreement with Hugel in 2012, agreeing to become the exclusive agent for the import of Hugel botulinum toxin products and hyaluronic acid into China. Subsequently, Sihuan Pharmaceutical has carried out many years of clinical development and market access for Le Tibao's import into China. In October 2020, Le Tibao was approved for import registration and officially entered mainland China for sales in the first quarter of this year.

At present, there are only four face-lifting needle products approved to be marketed in China, namely Hengli from Lanzhou Institute of Biology, Gish from Gaodemei, Botox from Allergan, and Le Tibold from Sihuan Pharmaceutical. Soochow Securities Research Report once pointed out that 70% of Sihuan Pharmaceutical’s medical aesthetics marketing team comes from Allergan, with rich medical aesthetics marketing experience, and uses agency-based and direct-sponsored methods to promote Le Tibold. At present, it has covered more than 200 cities across the country through more than 40 agents, and the company aims to obtain more than 30% of the domestic market share within three years. Therefore, Le Tibao is of great importance to Sihuan Pharmaceutical's future performance growth.

In the first half of this year, Sihuan's medical and aesthetic products achieved revenue of 258 million yuan, and Le Tibao made a significant contribution. On the other hand, Le Tibao is the core supporting the concept of Sihuan Medicine and beauty. It is also after Le Tibao was approved in China that the market value of Sihuan Medicine has risen sharply. This year, the market value of Sihuan Pharmaceutical has continued to rise from a low of 7 billion Hong Kong dollars, and once rose to 37.1 billion Hong Kong dollars in June.

And Kangqiao Capital has a large amount of biomedical investment in China. After it takes Hugel, the future rights and interests of Le Tibao and other Hugel products represented by Sihuan Pharmaceutical will obviously be very uncertain, whether it is Hugel and Sihuan After the medical cooperation expires, the contract will not be renewed. Even under the leadership of Kangqiao Capital, Hugel chose to end the cooperation with Sihuan Pharmaceutical in advance. Even if Hugel may need to pay corresponding compensation, under the current market of the current concept of medical aesthetics, Kangqiao Capital has everything to do. It may choose to put the sales rights of Hugel products in China into a domestic company that it has invested and incubated. The value added in the capital market may be far greater than the compensation that may arise from the termination of the agreement. After all, "fertile water does not flow to outsiders' fields",

Regarding this, Kangqiao Capital responded to the interface news and stated that it will continue to empower Hugel, an excellent Korean medical beauty platform, and further improve its management by leveraging on the accumulation of Kangqiao in the international medical market and the holding-type transaction management experience accumulated in the past few years. Operational level, strengthen R&D and business development capabilities. Kangqiao Capital will actively evaluate Hugel's potential to further develop the commercial market in China, with the most important principle of maximizing Hugel's interests.

Although Cambridge Capital has not stated that it will definitely change the agreement between Hugel and Sihuan Pharmaceutical, the sentence "actively assessing Hugel's potential to further develop the commercial market in China, and maximizing Hugel's interests as the most important principle" is worthy of fun.

It is precisely because of this that some investment bankers pointed out that Sihuan Pharmaceutical’s initial bid for Hugel was very motivated to preserve its rights as an agent of Hugel products in China and maintain the concept of medical beauty. After all, for Sihuan Pharmaceutical, Hugel's transaction price is quite expensive. Its annual revenue is only over 200 million U.S. dollars, net profit is 50 million U.S. dollars, and the pe value is close to 70.

Therefore, Sihuan Pharmaceutical did not hesitate to "see in court" with Cambridge Capital after the failed bid for Hugel.