12:00 AM
 | 
Aug 15, 2016
 |  BioCentury  |  Finance

Serving returns

How Ally Bridge expects to build on top of WuXi arbitrage play

China's Ally Bridge Group hit the investment world's radar in 2015 with its audacious move to take CRO WuXi PharmaTech Inc. private. If the firm and its partners can engineer the first fruits of that move with the listing of WuXi's biologics unit in Hong Kong this year, the question is what will be its next moves to generate outsized returns for its investors.

Ally Bridge, which has about $1.5 billion under management across three funds and an international base of LPs, thinks its returns and continued visibility will come from a handful of public and private portfolio companies with transformative data events, the first of which should come this half.

The firm also says it is working on new private equity deals that will rival WuXi in terms of size and impact.

Ally Bridge is keeping its private equity plans under wraps, and does not disclose names of investments in its Asia hedge fund. But founder and CEO Frank Yu did share with BioCentury the portfolio companies the firm hopes will join the ranks of ear disorder company Otonomy Inc., a big win from 2015, and Tesaro Inc., the winner so far this year.

The task of maintaining its biotech returns could be challenging. Two of the firm's three public biotech investments in the first half already have at least doubled in price. In addition, Ally Bridge is hoping for a win in Alzheimer's disease, a space that is rife with failure, as well as the ability of several portfolio companies to differentiate themselves in the intensely crowded field of immuno-oncology.

"We had a nice hit with Otonomy and people said we were lucky. Then we did it again with Tesaro," said Yu. "People also said WuXi was a one-off big deal, but we're working on several of similar size and potentially higher profile. If these are just lucky hits, why do we keep getting them?"

Because of the variety of investment types in its portfolio, Ally Bridge does not benchmark itself against any single firm such as a KKR & Co. in the PE space or an OrbiMed Advisors LLC in public/private biotech investing.

"We don't want to copycat somebody else," said Yu. "We learn from the leaders and work with them and benefit from that, but we want to carve out our own niche. It's a good example of mixed martial arts - we've done venture capital, growth investments, cross-border deals and buyouts on a global basis. We're also mixed by being agnostic to product type, stage and geography."

Building a bridge

Yu, who founded Ally Bridge in 2013, had been a managing director at Goldman Sachs in Hong Kong. There, Yu got his first taste of cross-border dealmaking when he invested in China's LifeTech Scientific Corp. and then helped the device company partner with Medtronic Inc. (now Medtronic plc) in 2012.

Medtronic bought a 19% upfront stake and gained distribution rights to LifeTech's devices for structural heart defects, vascular disease and heart valve disease.

Yu said LifeTech was overlooked by other investors because the heart valve market in China was almost non-existent.

"Elsewhere, however, this is a billion dollar market. Our due diligence on a global market helped the company with local deal-making," said Yu. "With LifeTech I got a hidden gem and got a 7-10x return. Without that spark, there would be no Ally Bridge."

Unlocking WuXi

Yu concluded the name of the game was cross-border investing and M&A. Thus, job one after founding Ally Bridge was building a network in the U.S. The firm invested in at least 13 private...

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