Imperial Innovations reports a £1.3M profit in 6 month results

Imperial Innovations, the technology transfer arm of Imperial College London, has reported a profit of £1.3 million for the first six months of the current financial year, compared to a loss of £2.2 million in the same six months last year and a loss of £5.9 million for the full year.

Other highlights included the sale of portfolio company, Thiakis, to Wyeth for up to £99.4 million, leading a £10 million investment in next-generation battery company Nexeon and the continuing flow of intellectual property with 161 invention disclosures and 23 patents filed.

In the six months, five companies, Cortexica Vision Systems, Myotec, Navion Pharma, Novacem and Smart Surgical Appliances, were seed funded and spun out, complete with management teams.   

Royalty income up was up 80 per cent at £900,000, there was cash in hand of £41.9 million and £3.3 million was realised from the sale of portfolio companies.              

But despite this progress, in a sign of the times, net assets were worth £81.5 million, down from £82.9 million in the same period last year.

Martin Knight, chairman, said that despite the great economic uncertainty, Imperial Innovations is better placed than it has been to deliver shareholder value from its business model.

Grounds for confidence

What lies behind this relative confidence at such a time?

Firstly, the UK government has made it very clear that the science agenda sits at the centre of the debate about the future of the British economy. Knight said the general acceptance of this perspective is important for the quality and quantity of intellectual property that will become available for exploitation by Imperial Innovations. “The intellectual property pipeline remains strong and shows every sign of continuing to be so,” Knight said.

Secondly, Imperial Innovations’ business model is focused not on financial engineering, but on building businesses. Funding spin-out companies properly, and putting in experienced and motivated management teams, has been at the heart of the company’s work. “We are now seeing the benefits of this emphasis on building businesses in the real progress being exhibited in our portfolio companies, said Knight.

Thirdly, the shock to the global financial system, in autumn 2008, prompted a comprehensive portfolio review and business analysis. The subsequent refocusing of activities central to the future of the company and its investments, with a reduction in headcount and overheads, was clear evidence that management understand the business drivers behind delivering shareholder returns, claimed Knight. “The second outcome of this review was a sharpened focus on the optimum utilisation of the cash resources of the group in the investment decision making process, to reflect a more acute awareness of where the real value lies. In a tough business climate, where cash is king, scrupulously targeted allocation of this scarce resource is critical.”

Susan Searle, CEO, said Imperial Innovations is making good progress in becoming an established business where growing equity realisations and reported profit can be expected, although the pattern may still be lumpy.

Royalty income is up 80 per cent at £900,000 against the comparative half year. “This is welcome because it represents the potential for growing recurring revenue whilst inevitably trading income from one-off upfront fees and services is suffering due to the recession,” Searle said. “When a licence deal is concluded it means a partner is then funding the development of the technology. Whilst upfront payments might be modest, our priority is to conclude deals so that the potential for further downstream royalties exists.”

Searle added that the company’s approach to building technology businesses, with experienced management teams and products that are technically sound, is delivering results. “We have a group of companies with world class management teams, experienced boards and technologies that addresses large market opportunities, validated by industry partners. For example, in February 2009, we raised GBP 10 million for Nexeon, which is developing silicon anodes for lithium ion batteries, a growing market worth over $10 billion.

After cutting costs by £800,000 per annum, and with cash in the bank, Searle claims that Imperial Innovations is well capitalised to invest in quality technology. “The current climate creates a great opportunity to match great science with talented management and invest at attractive prices.”

The portfolio and the company’s approach to investment

At the start of the year, facing the impact on co-investors of the global recession and liquidity restrictions, Imperial Innovations reviewed its investment policy, segmenting its portfolio based on the stage of development of each company, its financing requirements, the strength of the management team, the technology and market potential and likely time to break-even or exit. A number of companies are reaching a more mature stage and Searle said it was decided to invest significant time ensuring that these businesses have top quality boards and management teams, and are funded to deliver. “Our intention is for the strong companies to get stronger,” she said.

Meanwhile, prospective new ventures need to be incubated well and built to thrive in the current challenging environment. Searle said, “This places even greater emphasis on building top quality management teams around our world class technologies matching talent and science. We are capital efficient with these companies, using grants to get through the proof stage, stretching seed funding by managing costs and leveraging grant funding sources. However, when businesses are ready for accelerated growth we will not hold back from fully capitalising them.”

The technology pipeline

Imperial Innovation received 161 invention disclosures in the six month period, filed 23 new patents and concluded a range of small licensing deals, for example, an oil well riser technology (Petronas), a transgenic model (GlaxoSmithkline), a serum factor (Novartis), a database (Servier) and a pacemaker algorithm (MedImmune).

The company also supported ten applications from Imperial College for large scale translational funding from organisations like the Wellcome Trust and the Medical Research Council.  Searle said this is important because it helps to advance the earlier pipeline.