16 April 2013

FUSION IP PLC

 

("Fusion", "the Company" or "the Group")

 

Interim RESULTS FOR THE Six MONTHS ENDED 31 January 2013

 

Fusion IP plc (AIM: FIP), the university IP commercialisation company that turns world class research into business, is pleased to announce its unaudited Interim Results for the six months ended 31 January 2013.

 

Period highlights:

·      £1.2m funding round and 'first in man' trials for Asalus;

·      £2.5m funding for Magnomatics;

·      i2L purchase of US based, ICR Baltimore;

·      Increase in the carrying value of our investments to £21.0m (Jul 12: £19.8m);

·      Excluding intangibles, the Group reported an operating loss of £946k, a similar amount for the same time last year when a loss of £765k was shown for the same period; and

·      Closing cash and deposit balances of £4.1m (Jul 12: £5.9m).

 

Post period end highlights:

·      £20m raised in a placing with new and existing investors;

·      New university partnership agreements signed with the University of Nottingham and Swansea University;

·      Phase Focus signed a major licence agreement with Gatan for its Virtual Lens product; and

·      Fusion representatives invited to join the board and investment committee of the new Welsh £100 million life sciences investment fund, Arthurian Life Sciences.

 

 

Commenting on these Interim Results, David Baynes, Chief Executive Officer of Fusion, said:

 

"Our portfolio continues to gather strength and we expect a number of new companies to be created over the course of 2013.

 

Clearly the months post period end have been important for the Company; we have raised new funds, obtained a number of new investors and, perhaps most importantly of all, started 2 new university partnerships.

 

This is an exciting time for our Company and we very much look forward to the future and to working with our university partners."

 

For further information please contact:

 

Fusion IP plc                                                                                                                             +44 (0) 114 275 5555

David Baynes, CEO

Stuart Gall, Press Relations            

 

Cenkos Securities plc                                                                                                            +44 (0) 20 7397 8900

Elizabeth Bowman, Bobbie Hilliam (Corporate Finance)

Julian Morse (Sales)         

 

A copy of this document will be available on the company's website at www.fusion.co.uk

 

 

 

 

 

 

Chairman and Chief Executive's Statement

 

We are delighted to present our interim results for the period ended 31 January 2013. During the period we have continued to build an exciting portfolio of companies, with a number of these companies now reaching material value inflection points. Post period end, we raised £20m through a placing with new and existing shareholders; as well as signing agreements with two new universities:

 

·      Nottingham University, which is the UK's 7th ranked research-intensive university; and

·      Swansea University the second most research-intensive university in Wales after Cardiff.

 

The £20m placing will provide Fusion with the funds to invest in new start-up companies from the two new university partners and will also fund a number of our existing key companies in their late stage funding rounds, as they move up their valuation curves.

 

 

Key highlights in the period:

 

·      £1.2m funding round and 'first in man' trials for Asalus;

·      £2.5m funding for Magnomatics;

·      i2L purchase of US based, ICR Baltimore;

·      Increase in the carrying value of our investments to £21.0m (Jul 12: £19.8m);

·      Excluding intangibles, the Group reported an operating loss of £946k, a similar amount for the same time last year when a loss of £765k was shown for the same period; and

·      Closing cash and deposit balances of £4.1m (Jul 12: £5.9m).

 

 

Post-period end highlights, included:

 

·      £20m raised in a placing with new and existing investors;

·      New university partnership agreements signed with the University of Nottingham and Swansea University;

·      Phase Focus signed a major licence agreement with Gatan for its Virtual Lens product; and

·      Fusion representatives invited to join the board and investment committee of the new Welsh £100 million life sciences investment fund, Arthurian Life Sciences.

 

 

Key portfolio updates in the period:

 

Magnomatics

Our Sheffield-based electric motor company, Magnomatics, develops high torque magnetic transmissions and ultra-compact magnetically-geared motors and generators. The technology uses magnetic fields with high-powered permanent magnets to replace the meshed teeth that normally transmit mechanical power in gear systems. The magnetic fields eliminate the friction of contacting parts. As such, the super quiet, compact technology requires minimal maintenance; no oil lubrication and the gears can't be "stripped" through miss-use. The product has the potential to offer new engineering possibilities ranging from efficient, gearless generators for wind turbines, to lighter and more compact motors for hybrid vehicles.

 

In November 2012, Magnomatics successfully raised £2.5m to develop its novel Pseudo Direct Drive (PDD) system for the hybrid and electric vehicle market. It is active in a range of industries, including renewable energy, automotive, aerospace and defence, and has had over 100 industrial development contracts to date, including some of the world's largest transportation/engineering companies for its PDD system.

 

Fusion IP currently has a 32 per cent. (undiluted) shareholding in Magnomatics.

 

Phase Focus

Based in Sheffield, Phase Focus has developed a novel 'Virtual Lens' which is a digital replacement for the conventional image-forming optics used in imaging and microscopy. As well as eliminating the limitations and aberrations of conventional lens-based instruments, it can be exploited to visualise and quantify numerous specimen attributes such as surface topography, thickness and refractive index variations, or electric and magnetic field phenomena.

 

Its current products include an Ophthalmic Lens Profiler that can measure soft contact lenses with unprecedented levels of resolution and accuracy; and an optical microscope used for stain-free imaging of biological cells.

Post period end, in February 2013, Phase Focus announced that it had entered into a Licence Agreement with Gatan, Inc. ("Gatan"). Gatan is the world's leading manufacturer of instrumentation and software used to enhance and extend the operation and performance of electron microscopes. The Licence Agreement provides for joint development of a range of products, including a Phase Focus Virtual Lens "add-on" product for existing electron microscopes. Once fully developed, Gatan will market the product through its worldwide sales and distribution network. The financial terms of the agreement are undisclosed.

 

Fusion IP has a 35 per cent. (undiluted) shareholding in Phase Focus.

 

Seren Photonics

Based in Sheffield, Seren Photonics ("Seren") is developing a revolutionary new processing technique that greatly increases the efficiency at which an 
HB LED converts an applied voltage into light, which significantly reduces heat generation under normal running conditions. In simple terms, Seren's technology means that either for a given power consumption, much brighter LED lamps can be manufactured, or that for equivalent light output, the power consumption of LED lamps can be significantly reduced.

 

HB LEDs are set to replace incandescent lamps as governments around the world bring in legislation banning the manufacture and sale of incandescents and concerns increase about the poor light quality and environmental contamination fears from compact fluorescents. The rate of adoption is expected to accelerate as the brightness of HB LEDs increases and the cost of manufacture reduces.

 

Seren's technology is targeted at the fast growing $8bn white light HB LED markets, such as back lighting for laptops and TVs, signs and displays, as well as domestic, architectural and street lighting. This market is expected to grow to $11bn by 2015.

 

Following its £1.8m fundraising in March 2012, Seren is developing its technology for market and is in early stage licensing discussions with a number of major global HB LED companies for its technology.

 

Fusion IP has a 40 per cent. (undiluted) stake in Seren.

 

Diurnal

Cardiff-based Diurnal, a University of Sheffield spin-out, is developing a novel approach to drug delivery that will help patients suffering from reduced levels of the key hormone cortisol (hydrocortisone). Chronocort® is a modified release therapy that delivers hydrocortisone in a manner that mimics the body's normal circadian rhythm (the body's natural 24 hour hormone cycle). This circadian formulation has the potential to help patients suffering from diseases due to cortisol deficiency: congenital adrenal hyperplasia and adrenal insufficiency. Each of these rare diseases requires life-long treatment and Diurnal's novel approach to drug delivery has the potential to significantly improve patients' lives.

 

In January 2013, Diurnal announced that it had successfully enrolled the first patient into the CATCH (Chronocort® As Treatment for Congenital Adrenal Hyperplasia) trial. CATCH trial is a Phase 2 study in patients suffering from Congenital Adrenal Hyperplasia and is being run by the National Institute of Health (NIH), Maryland, US under a Cooperative Research and Development Agreement (CRADA) with an estimated completion of Part A of the study in mid-2013.

 

Chronocort® has already received two related Orphan Drug designations from the European Medicines Agency, which affords ten years of market exclusivity after the grant of marketing authorisation in Europe.

 

The Diurnal directors expect to complete the Phase 2 trial in 2013, at which point the company will either license the drug or take the drug through a Phase 3 trial.

 

Fusion IP has a 42 per cent. (undiluted) stake in Diurnal.

 

Medaphor

MedaPhor's lead product is ScanTrainer, a virtual-reality, ultrasound training simulator, which combines 'real-feel' haptic simulation with real patient scans and curriculum-based interactive learning, to provide fast and effective ultrasound training in a non-clinical environment.

 

These educationally driven training systems relieve the pressure and costs on service delivery within hospitals and training schools, by allowing doctors to learn ultrasound scanning skills on 'real' patients in their own time, through self-directed learning.

 

The company has had extremely encouraging growth as it expands its sales in the US and Europe, with over 50 hospitals now using the system in seven countries around the world.

 

In July 2012 the company raised over £1m in funding to complete the development of its second ScanTrainer platform, the TransAbdominal ScanTrainer, which launched to the UK and US markets at the end of March 2013. This system is expected to open up the large, general medical ultrasound training market.

 

 

 

In November 2012 MedaPhor announced that Riccardo Pigliucci (ex President of Perkin-Elmer and Director of Oxford Nanopore) had joined the company as Chairman.

 

Fusion IP has a 39 per cent. (undiluted) shareholding in Medaphor.

 

Asalus Medical Instruments

Cardiff based Asalus Medical Instruments ("Asalus"), is developing a range of innovative medical devices that aim to improve the safety and efficiency of laparoscopic surgery. Laparoscopic surgery is a modern surgical technique in which operations in the abdomen are performed through small incisions, as compared to the larger incisions needed in traditional surgical procedures. There are several benefits to conducting laparoscopic surgery and, as a result, the number of procedures conducted using this technique has grown rapidly over recent years.

 

Over two million laparoscopic operations per year are now performed in the USA alone and the market for laparoscopic surgery products is estimated at approximately $18 billion worldwide, growing 7-8 per cent. annually. Asalus currently has three projects in development, which it is looking to commercialise through partnerships with leading medical device companies.

 

Its lead product is Ultravision, the company's revolutionary surgical smoke clearing system for use in laparoscopic surgery, which successfully completed its 'first-in-man' trial in January 2013.

 

This was a key milestone for the company, that combined with its December 2012 fund raising of £1.2m, will enable the company to complete product development and apply for regulatory approval to launch the product in 2013.

 

The randomised, controlled, comparative study was the first use of the Ultravision device in patients, with the dual aims of assessing safety and performance. The trial assessed the use of Ultravision in thirty participants undergoing scheduled laparoscopic gallbladder removal at University Hospital Llandough (Cardiff and Vale University Health Board, Wales, UK). The results demonstrated that Ultravision was effective in maintaining a clear visual field throughout the laparoscopic procedure. This was achieved without the need to deflate the abdomen or release smoke produced during surgery into the operating theatre environment. In addition 77% of the procedures were completed without interruption compared to less than 1% in the control group that did not use Ultravision. There were no adverse events.

 

Fusion IP holds a 44 per cent. (undiluted) stake in Asalus.

 

 

New Universities

 

In line with the Board's long term strategy to expand the Fusion IP business model, the Company has entered into agreements with The University of Nottingham and Swansea University.

 

The new agreements complement Fusion IP's existing equity based university agreements by providing the Company with access to IP, but without having to make on-going or equity-based payments. The Directors believe this structure provides a flexible partnership for both parties, and enables the university to access Fusion IP's management and funds while Fusion IP gains access to such university's IP without tying up equity or contractual service fees. It also enables Fusion IP to generate more start-up companies per annum and utilise its central overhead more effectively.

 

The University of Nottingham

 

The University of Nottingham has over 40,000 students on its three campuses in the UK, Malaysia and China and as a member of the Russell Group is recognised as one of the UK's leading research intensive universities. In 2012 it generated over £100m in research grants and after the most recent RAE results in 2008, it was ranked 7th in the UK for its research excellence, according to the research power rankings produced by Research Fortnight.

 

Following the RAE results, 90 per cent. of all research at University of Nottingham was classified as of an 'international standard' and 60 per cent. as 'world-leading' or 'internationally excellent'. In 2008 the University of Nottingham was named Entrepreneurial University of the Year.

 

The University of Nottingham has a well-established technology transfer office, with close links with its academic community. To date the university has been involved in over 40 spin-out related companies and has a current portfolio of 30 spin-outs, of which 16 have products in the marketplace.

 

Swansea University

 

Established in 1920, Swansea University is a research led university, that following the latest RAE, 85 per cent. of its submitted research, was classified as of an "international standard" and almost 50 per cent. as "world-leading" or "internationally excellent". It has a number of excellent research departments, including the College of Engineering, which received a 5 QS star rating, for the excellence of its teaching, the highest achievable. Its newly built, Institute of Life Sciences, is one of the premier research facilities in Wales and the largest university campus investment by the Welsh Government.

 

The university has an established technology transfer office with an existing pipeline of potential portfolio company projects.

 

 

Change of broker

Post-period end, Fusion appointed Cenkos Securities plc as its Nominated Adviser and Broker.

 

 

Current trading

The combination of our current agreements and portfolio companies, combined with the post period placing of £20m and signing of two new university agreements, is a significant advance for the Company.

 

Many of the Company's portfolio companies are now well funded and therefore only limited uplifts are expected in the second half of the year as NAV is based primarily on the last funding round. However the Directors believe that a number of companies are increasing in value, which will be reflected in results in the longer term. The Directors are looking forward to continuing to develop the Group's existing portfolio and identifying new opportunities and are now well placed to do so.

 

We remain fully committed to the commercialisation of the UK's leading university generated IP and believe we are well placed to further increase our pipeline and maximize the returns from our increasingly mature portfolio.

  

 

 

 

Doug Liversidge CBE                                                                         David Baynes

Chairman                                                                                              Chief Executive

 

 

 

 

Financial Review

 

Results

Excluding the amortisation of intangible assets, the Group achieved an underlying loss from operating activities of £946k compared to a loss of £765k for the six months ended 31 January 2012.

 

The Group's reported loss from operating activities for the period increased to £1.9m, compared to a loss of £1.8m for the six months ended 31 January 2012.

 

The movement in reported losses mainly arose from additional spin out expenses due to new subsidiary companies.

 

 

Revenue and portfolio returns

The first half of the year shows revenue and portfolio return of £307k (31 January 2012: £376k).

 

The movement can be explained as follows:

 

·           Gain on disposal of investments of £10k (31 January 2012: £54k), this gain relates to a part disposal  of a subsidiary during the period;

 

·           Net change in fair value of investments in spin-out companies of £nil (31 January 2012: £nil), the current period result reflects an uplift in fair value of £615k arising from increased valuations in spin-out companies, mainly Asalus at £598k, offset by unrealised losses and a provision against loans to Asterion. These movements are as shown in note 2 to the interim financial statements; and

 

·           Revenue and dividend income of £297k (31 January 2012: £322k), resulting from management services provided to non subsidiary spin-out companies, licence income and development grants received.

 

 

Investments

At 31 January 2013, the Group had investments and loans in 20 spin-out companies amounting to £21.0m (31 July 2012: £19.8m). The investments are all classified as financial assets and are held at fair value under IAS 39 "Financial Instruments: Recognition and Measurement".

 

During the period the Group invested £1,189k in follow-on funding (31 January 2012: £705k), this included equity investments of £354k in Diurnal, £330k in Magnomatics, £351k in Asalus. In addition the Group has two trading spin-out subsidiaries (31 January 2012: two) and three new start up companies which are consolidated (31 January 2012: nil). During the half year the Group provided funding of £187k to these subsidiaries (31 January 2012: £5k).

 

 

Intangible assets

At 31 January 2013, the Group had intangible assets of £8.5m (31 July 2012: £9.4m) which represents the IP rights over the IP pipelines with Cardiff University and the University of Sheffield. The Group's view is that these assets have a finite life of ten years, being the length of the IP pipelines, and to that extent they are being amortised over their respective unexpired periods with provision made for any impairment if required.

 

 

Cash and deposit balances

Cash and deposit balances of the Group as at 31 January 2013 were £4.1m (31 July 2012: £5.9m). The Directors believe these balances, along with the £20m additional funds raised in the post period end placing, are sufficient to support the current portfolio of companies, planned creation of new portfolio companies and corporate operating expenses for at least the next twelve months.

 

The net decrease in cash and cash equivalents of £1.9m is primarily summarised as outflows on operating activities of £0.8m and outflows on investing activities of £1.1m.

 

The Group continues to have no borrowings or foreign currency deposits.

 

 

 

 

 

 

 

Consolidated statement of comprehensive income for the six months ended 31 January 2013
		Unaudited	Unaudited	Audited
		Six months	Six months	Year
		ended	ended	Ended
		31 January	31 January	31 July
		2013	2012	2012
	Note	£000	£000	£000
Revenue and portfolio return
Revenue		288	313	705
Dividend income		9	9	19
Change in fair value of investments	2	-	-	3,567
Gain on disposal of investments		10	54	459
		307	376	4,750
Operating expenses
- corporate operating expenses		(875)	(866)	(1,708)
- subsidiary spin-out operating expenses		(378)	(275)	(656)
- amortisation of intangible assets		(994)	(995)	(1,996)
		(2,247)	(2,136)	(4,360)
Results from operating activities		(1,940)	(1,760)	390
Finance income		118	89	177
Finance expenses		(31)	(30)	(62)
(Loss)/profit before taxation		(1,853)	(1,701)	505
Taxation		-	-	-
(Loss)/profit and total comprehensive income for the period		(1,853)	(1,701)	505
Attributable to:
- owners of the parent		(1,724)	(1,623)	669
- non-controlling interests		(129)	(78)	(164)
		(1,853)	(1,701)	505
Basic and fully diluted (loss)/profit per share	3	(2.37)p	(2.69)p	1.00p