INTERVIEW: Ally Bridge CEO On De-Risking China And Investing In 2016

With $1bn under management, the Hong Kong private equity firm Ally Bridge Group bagged multiple deals in 2015 including WuXi's $3.3bn privatization. CEO Frank Yu spoke to PharmAsia News about pursuing a holistic approach that goes beyond its China roots.

HONG KONG – Foreign investment in Asia’s life science companies is commonplace, but investment groups operating outside the region are often viewed as being less sophisticated or liable to put their money into areas where others fear to tread.

One company seeking to reverse this preconception is Ally Bridge Group (ABG), a pioneer of the “value added cross-border investment strategy.” The Hong Kong-based private equity firm has a growing reputation for disruptive technology platform funding in medical devices and biopharmaceuticals. Given the rise of China, much of the group’s strategy since it was founded in 2013 has been directed toward helping companies in the US and Europe with their strategies in Asia, and it has also been involved in upgrading Chinese health care platforms as they expanded westward.

As the company name suggests, ABG aims to act as an “ally” and a “bridge” to companies from both east and west, but this is not the whole story, co-founder and CEO Frank Yu told PharmAsia News by phone from Spain in late December. “It’s much easier to accept European or American companies doing business in Asia, but more difficult to understand how companies with roots in China or Hong Kong can do this. It’s not very symmetrical,” Yu said.

"There’s a pretty prevalent perception that Asian groups moving west are going into less developed or not so sophisticated markets that others don’t want to. But we manage to deal with top-notch specialists, the biggest companies in America, Europe and China, who are all dedicated life science specialists."

Caution Ahead?

ABG and its affiliates manage more than $1bn in assets and having focused over the past few years on immuno-oncology and specialty pharma, it has made major plays in the fields of diabetes, neurology and inflammation during 2015. Looking forward, it has some exciting plans for internet investment.

"Globally we have to be very cautious, because valuations in biotech have gone up a lot," Yu said. "There have been huge valuations over the last three or four years and in the second half [of 2015] there were some corrections, so we will be more selective moving forward into 2016."

“A key challenge for Asian companies is how to accelerate their own innovation, because there’s still a huge gap with the Western world…This is part of our core strategy, to accelerate and upgrade their operations.” – ABG’s Frank Yu

On a macro level, the challenge for pharma in the coming year will be continuing to generate strong growth, progress pipelines and stay innovative, Yu believes. Mega mergers are still possible but companies will remain cautious given stock price uncertainties and because of strong stock appreciation over the past few years.

"A key challenge for Asian companies is how to accelerate their own innovation, because there’s still a huge gap with the Western world. There’s a need to extend, accelerate and upgrade innovation," Yu said. As a result, Asian groups will look at licensing, partnerships and selective acquisitions of Western companies. "This is part of our core strategy, to accelerate and upgrade their operations.

"We are a group that is able to do multi-structure deals, venture capital, growth capital, buyout, equity and hedge funds and bios, all within the healthcare ‘one-stop’ approach. Unlike super life sciences groups, like Carlyle, we are not just life sciences but also look at healthcare, such as hospitals and low-risk, low-tech deals that are all about execution."

2105 was a banner year for the firm and the mid-year announcement of a raft of medtech investments has all panned out well (Also see "Raft Of Chinese Pharmas Join Active Financing Market" - Scrip, 17 Dec, 2015.).

These include: Conventus Orthopaedics Inc., which has advanced a minimally invasive, extremity fracture implant platform; NxThera Inc. which has used water vapor to pioneer a minimally invasive treatment for endo-urologic conditions; Neuroverse’s neural assessment multi-use solutions; Shockwave Medical Inc. and its patented lithoplasty system for treating peripheral and coronary vascular disease and aortic stenosis; and the improved view endoscope company EndoChoice Holdings Inc.

Asked about ABG’s Wing Tai Holdings, which changed its name to Mega Medical Technology and listed on the Hong Kong Stock Exchange in May 2015, Yu said: “We cleaned up the legacy of the shell company, leveraged our global network and knowhow and really focused the company on dental technologies, as well as adding more products."

Diversify Beyond China

"Right now we are in the fortunate position [that] every deal we are looking at is coming to us. We have really made an impact, but what really differentiates us is a true global approach. Yes, most of the companies and funds are focused on Asia and a lot of companies are looking at the potential of China, but we take a much more holistic approach.

“We are absolutely not dependent on growth in China. Of course we benefit from that and we try to maximize our returns on the market, but no, we are absolutely not dependent on China.” – Frank Yu

"For example, sometimes we advise our companies against going into China right now. If they are busy in the US, we would prefer they didn’t divide their resources in what is still the world’s biggest market.

"We are absolutely not dependent on growth in China. Of course we benefit from that and we try to maximize our returns on the market, but no, we are absolutely not dependent on China, because we have a globally balanced strategy."

Last year ABG led financing for the Shanghai-based Hua Medicine Ltd., which is developing an oral small-molecule drug for type 2 diabetes, identifying specific biomarkers for select patients. "Hua is definitely a good example of what the biotech invasion looks like because it's not just Chinese, it’s truly international in its outlook and its innovation isn’t just leading in China but the world.

"Candidly speaking the innovation evolution in China is still emerging and started at a low base, but we do have pioneers like Hua and others that are setting a good standard. One of the key reasons I spend a lot of time in the US and Europe is that there are a lot of companies producing great innovation, it’s not just China."

WuXi Buyout

Yu said ABG is increasingly focused on low technology and risk ventures that are high cash generating businesses, like Shanghai’s WuXi PharmaTech Inc. , which delisted from the New York Stock Exchange in December in a $3.3bn management-led buyout (Also see "WuXi Bids Farewell To US Listing As It Vows To ‘Revolutionize R&D’" - Scrip, 14 Dec, 2015.).

"I have known WuXi for about 10 years, when I was at Goldman Sachs, and I have been amazed by what they have achieved since 2001. They are a world leader in contract research, servicing pharma and pharmtech companies around the world, with one-stop services that their peers cannot do. That’s a model that differentiates WuXi’s brand globally, its service model or business, so there’s very little downside.

"A high-risk innovation strategy and low-risk cash generating businesses are highly complementary together. Through a number of these companies around the world we are able to gain a much better understanding and idea of how the value chain works. A portfolio has to balance risk and reward," Yu commented.

Another example of a highly innovative company that ABG has assisted is the French firm, MedTech SA, which produces robotic surgical assistants. For Yu, this is a “hot and irreversible trend” and the $15m cash injection announced in November will assist development of ROSA Brain and ROSA Spine for, respectively, minimally invasive epilepsy and brain surgery.

Healthcare IT Allures

Yu underlined the fact that ABG’s presence in Europe is growing, in addition to the US. “The way we play is not narrowly focused on Asia or China. We take a very global approach to every investment decision we make and try and do our best to leverage our capabilities and resources to bring different parts of the world together.”

ABG set out last year to establish strategic footholds in therapeutic areas such as diabetes, neurology and inflammation. “We have achieved almost everything we set out to achieve. These are obviously huge indications and there is rapid growth in the market.”

He said there had not been any major breakthroughs in gerontology, but market growth is an “irreversible trend” and ABG addressed this in April with a $10m cash injection to Alzheon Inc., a Framingham, Massachusetts-based clinical-stage therapeutics company.

As for ABG’s internet investment, this is focused on healthcare IT, and Yu said a deal would be announced “very shortly. Obviously, the company has to make the announcement first and then we can talk about it, but I can say it's very important to focus on a big data base for health care so that we can develop precision medicine.

"This is how we can build a data ecosystem on a global basis, to collect patient data, analyze it and turn into actionable so-called therapeutic decisions. Everything we do revolves around expertise, that we continue to build. The more we know about healthcare then the better we understand what needs to happen to improve healthcare moving forward.

"Obviously, precision medicine is an irreversible trend that can only grow, along with genetics and information technology and these are an extension of traditional medicine. Knowledge is power."

As to where he thinks the smart money should be going in 2016, Yu replied: “Hard to say about what other people do with their money. We will continue to invest in breakthrough innovation across segments.”