Imperial Innovations Group Regulatory News (IVO)

5 October 2011

Imperial Innovations Group plc

Over £35m invested in 23 companies

Imperial Innovations Group plc (AIM: IVO, "Innovations", "the Group"), a leading technology commercialisation and investment group, has published its results for the year ended 31 July 2011.

Business highlights

·; Completed £140 million equity raise (before issue costs) in January 2011:

- To increase and accelerate investment in the existing Imperial College London portfolio

- To invest in companies founded by, or based on technologies from, Cambridge University, Oxford University and University College London ("UCL") as well as Imperial College London

·; Led £60 million funding round in Circassia - third largest financing of private European biotech company for 15 years

·; Led £40 million funding round in Nexeon

·; Invested £4 million in Stanmore Implants Worldwide (UCL)

·; £35.1 million (FY 2010: £14 million) invested in 23 companies

- Group's portfolio raised £129 million in cash and investment commitments

·; Strong pipeline: 351 inventions appraised (FY 2010: 344) and 52 patents filed (FY 2010: 48)

·; Since 31 July 2011, invested £6.3 million in nine companies, including £1.2 million in Mission Therapeutics (Cambridge) and committed £5 million to Autifony (UCL)

Financial highlights

·; Gross realisations (proceeds from the sale of investments before revenue share) £2.4 million (FY 2010: £10.4 million)

·; Total revenues at £4.5 million (FY 2010: £4.3 million)

·; Cash and short term liquidity investments at 31 July 2011: £48.8 million (FY 2010: £23.7 million)

·; Net assets £224.1 million at 31 July 2011 (FY 2010: £91.1 million) including equity raise proceeds of which £74 million has been deferred and will be paid in two equal instalments of £37 million in January 2012 and January 2013

Martin Knight, Chairman of Imperial Innovations, said:

"This financial year has been an exciting and fulfilling one for the Group with the £140 million fundraising completed and the investment programme stepped up.

"In the second half, we invested substantial capital in our two most significant businesses from the Imperial portfolio, Nexeon and Circassia, leading funding rounds of £40 million and £60 million respectively. We also invested in three companies that have grown out of Cambridge University and UCL.

"In total we invested £35.1 million during the year - a significantly larger figure than before. Since the year end, we have maintained our momentum, with investments and prospects from all of the four research intensive universities on which we focus - Cambridge, Oxford, UCL and Imperial College London.

"The year has laid the foundations for the next stage of the Group's progress. We look forward with confidence to delivering good value from the portfolio of exciting businesses that we have and continue to support."

A complete copy of the Annual Report and Accounts for the year ended 31 July 2011 can be found at http://www.imperialinnovations.co.uk/annualreport2011.pdf

Enquiries: 

Notes to editors

Innovations

Innovations creates, builds and invests in pioneering university technologies addressing global problems in healthcare, energy, engineering and the environment. It combines deep understanding of science and technology with commercial acumen and strong investment expertise.

Innovations supports scientist-entrepreneurs in the commercialisation of their ideas by:

·; leading the formation of new companies and providing facilities in the early stages

·; providing significant investment and encouraging co-investment to accelerate the transition from R&D to products

·; providing operational expertise

·; helping to recruit high-calibre industry figures and experienced entrepreneurs as executive management and Board members

The Group invests in companies based on technologies from or associated with four universities: Imperial College London; and Cambridge University, Oxford University, and UCL supported by its collaborations with Cambridge Enterprise, OSEM and UCL Business. These are the UK's leading research intensive universities, measured by research income.

By raising £140 million in January 2011, the Group has been able to accelerate the making of, and increase the size of its investments. In the year to 31 July 2011, Innovations invested £35.1 million (2010: £14 million) in 23 ventures, and launched six new companies.

In its current portfolio of 78 companies, Innovations' most advanced assets include Circassia, which develops innovative vaccines for the treatment of a wide range of allergies; and Nexeon, a battery materials and licensing company which develops silicon anodes which extend the life and increase the capacity of lithium-ion batteries.

Operational report

The Group continued to make good progress in commercialising and investing in university-created intellectual property.

The first half of the year was focused on fund raising in order to support the revised strategy and increase the rate of the Group's development. The strategy is now settled and focused on companies emanating from, or linked to, the UK's four leading research intensive universities, measured by scientific research income: Cambridge University, Oxford University, UCL and Imperial College London. The focus for the second half of the year was the implementation of that strategy.

By successfully raising £140 million (before issue costs) in January 2011, the Group has been able to accelerate the making of, and increase the size of, its investments in companies from Imperial College London. The Group has also started to use the funds to invest in companies based on its collaborations with Cambridge Enterprise, Oxford Spin-out Equity Management and UCL Business. In total this financial year, the Group has invested £35.1 million (2010: £14 million) and the Group's portfolio raised £129 million in cash and investment commitments. The Group launched six new companies.

The Group's portfolio from Imperial College London is developing well in line with the new strategy. Highlights include the Group leading a £60 million funding of Circassia, an allergy platform company, which represented the third largest financing of a private European biotech company for 15 years. Circassia has now reached a significant technology milestone achieving positive results in two key phase II clinical studies.

The Group also led a £40 million round in Nexeon, a next generation battery manufacturing company, which was one of the largest investment rounds during the year in a European private technology business. Nexeon has now reached a significant technology milestone of exceeding the performance of the highest performing commercial battery. Also in the year GKN, the global engineering group, formed a joint venture with Evo Electric, an electric drive supplier to the automotive sector, in which the Group has a substantial stake.

The Group's collaborations with Cambridge Enterprise and UCL Business have already resulted in investments. One of these was a Cambridge company, Mission Therapeutics which targets oncology applications. The Group has also made two investments in UCL companies, Autifony, a drug-discovery company targeting hearing disorders, and Stanmore Implants Worldwide, an orthopaedic implant manufacturer.

To support the expanded business, the Group has been active in the recruitment of further highly skilled and experienced personnel. A number of key hires have already been made including the appointment of Nigel Pitchford, who joins in January 2012 as Managing Director of Healthcare Investments. The Group is now well positioned to deliver on its strategy.

Realisations

As expected, the Group did not make any substantial realisations during the year. This is in line with the Group's strategy of supporting a number of key investments in more mature assets and seeking to grow them into substantial businesses. Realisations totalling £2.4 million (£3.1 million including receipts of deferred consideration) came from the sale of smaller holdings in Toumaz, Microsaic and Acrobot and the part disposal of Quantasol.

Licensing

In addition to the 12 licence/IP transactions signed in the first half, the Group has also completed 13 further licence agreements based on Imperial College London technologies.

Licences and IP transactions signed this year included:

·; Stanmore Implants Worldwide: a modular knee resurfacing design - first implant was successfully made in August 2011. The Group will benefit from milestones and royalties as the product is commercialised, in addition to the value created through its 19.3% equity holding

·; Volcano: measurement of stenosis in vessels

·; Biosense Webster (Johnson & Johnson): software deal for monitoring cardiac performance

·; Smith and Nephew: surgical tool for dealing with cruciate ligament repair

·; EuroImmun AG: technology related to the diagnosis, prognosis and treatment of Rheumatoid Arthritis using a protein called citrullinated alpha enolase

·; Thomas Swan: licence of technology to functionalise carbon nanotubes, making possible their use in composite materials

·; JK Tech: licence of peak air recovery technique for the global mineral industry

The Group also concluded a number of smaller deals with Novartis, Genentech, ISIS Pharmaceuticals and Alcon.

Investments

Since the January 2011 fundraising, the Group has accelerated the size of its investments, selectively supporting funding rounds across its portfolio and particularly those companies which are part of the Group's 'accelerated' growth portfolio. In total during the year ended 31 July 2011, the Group invested £35.1 million of which £0.3 million went into pre-seed/seed stage and £34.8 million went into later stages.

Of the capital invested, £22.4 million went into Nexeon and Circassia, which is consistent with the Group's strategy to scale a small number of existing portfolio companies and build them into bigger businesses. Since the year end, the Group has invested £6.3 million and has committed to invest £5 million to Autifony.

In April 2011, the Group led a £60 million funding round alongside Invesco Perpetual and other existing investors, in Circassia, a speciality biopharmaceutical business focused on the development of anti-allergy products. The Group committed £15 million. This was the third largest financing for a private European biotech company for 15 years. The Group holds an equity stake of 18.4% of Circassia.

In July 2011, the Group invested £4 million in Stanmore, a specialist in the design and manufacture of patient specific orthopaedic implants, based on IP from UCL and Imperial College London. Some of the funding will be used to develop Stanmore's 'Saville Row' system, the world's first fully personalised early knee replacement surgery. Stanmore is an established business in which Abingworth is also an investor.

This investment is consistent with the strategy of selectively investing in such businesses where the Group has a deep understanding and insight into the technology and a close association with the management team. The Group holds an equity stake of 19.3% of Stanmore.

Also in July 2011, Innovations led a £40 million funding round for Nexeon, a battery materials and licensing company, investing £15 million alongside existing investor Invesco Perpetual. Funding will be used to scale-up production of Nexeon's silicon anode materials to commercial levels and to provide application development and support to customers. With an experienced board and management team in place and clear customer engagement, together with significant funding, we believe that Nexeon has the potential to grow significantly in value. The Group holds an equity stake of 40% of Nexeon.

Since the year end the Group has made further investments, which include Mission Therapeutics, Autifony, Plaxica and PolyTherics.

In August 2011, the Group made its first investment in a Cambridge University company, Mission Therapeutics, a drug discovery company targeting oncology applications of proteins in the ubiquitin pathways which control cellular responses to DNA damage. The company is based on the work of Professor Steve Jackson at the Gurdon Institute, Cambridge and is supported by an experienced management team with an excellent track record at KuDos Pharmaceuticals, which Professor Jackson founded. The Group invested £1.2 million in a £6 million round alongside a strong investor syndicate including Sofinnova Partners, SR One and Roche Venture Fund. The Group holds 18.1% in Mission Therapeutics post year end.

Also in August 2011, the Group made an investment in a UCL company, Autifony. The Group committed to invest £5 million in a £10 million round alongside SV Life Sciences (SVLS). Autifony is a drug discovery company focussed on undrugged voltage-gated ion channels, the modulation of which is thought to have potential in the treatment of hearing disorders including tinnitus and age-related hearing loss.

Autifony is a spin-out from GSK and is working in collaboration with leading experts from the UCL Ear Institute. UCL Business is a founding shareholder in Autifony and this is the Group's second UCL related investment. The Group holds 21.8% in Autifony post year end.

In September 2011, the Group made a further investment of £2.2 million into Plaxica as part of a £5 million funding round alongside existing investors Invesco Perpetual and NESTA. Plaxica is one of the Group's accelerated growth portfolio companies and the new funds will allow it to further develop its proprietary 2nd generation biopolymers which are derived from sustainable resources.

Also in September 2011, the Group made a further investment of £1.2 million as part of a £2.2 million funding round into PolyTherics alongside new investor ProVen Health VCT and existing investor The Capital Fund. The funds will be used to develop PolyTherics's proprietary technologies for the improvement of protein and peptide drugs.

Portfolio operational update

Circassia

Circassia has made positive technical progress, successfully completing a large scale, phase II clinical study of its cat allergy treatment, which provided scientific proof of concept. The one year follow-up to the cat allergy phase II trials also showed that the result of the treatment is maintained and improves over time. The company currently has 10 products in the pipeline, and has undertaken nine phase II trials. Its lead products are now financed and planned to enter phase III.

The Group recruited James Shannon, formerly Head of Global Development at Novartis Pharma AG, to the board of Circassia as a Non-Executive director. In September 2011, the company also announced positive phase II clinical results of its hay fever vaccine, showing substantially improved patient allergy symptoms compared to those on placebo.

Nexeon

In addition to raising £40 million in July 2011, in March Nexeon announced world record performance by lithium-ion cells achieving a 3.2Ah at a realistic discharge rate. This compares to today's commercially available carbon based lithium-ion cells which offer capacities between 2.5Ah and 3.1Ah. Batteries with higher energy density can offer longer time between charges, higher power output, smaller size or a combination of these benefits. They are eagerly awaited for application in cell phones, laptops and many other consumer devices, as well as having important application in electric vehicles and in storage of renewable energy.

The new funding will be used to grow the production capability for Nexeon's products and the new manufacturing facility is expected to be on stream in 2013. Nexeon also signed Material Evaluation Agreements with a number of leading battery manufacturers.

Evo Electric

Evo Electric, a pioneer in advanced electric drive solutions for the automotive sector, formed a Joint Venture JV) with GKN Driveline (GKN). GKN has invested £5 million in cash and will provide engineering and commercial resources for the development of Evo Electric and the JV. This provides Evo Electric with the ability to exploit the automotive sector and to expand into other sectors.

PsiOxus

PsiOxus (previously Myotec Therapeutics), a biotechnology company developing a pipeline of innovative therapeutics for the treatment of serious diseases including cachexia, sarcopenia and cancer, acquired Hybrid Biosystems and concluded an investment of £3.6 million into the combined entity of which the Group invested £1.7 million. Technical progress has been made on the "Hybrid" portfolio, including completing a pre-clinical trial with phase I and II trials designed.

In March 2011 PsiOxus announced the initiation of a phase II study of its lead therapeutic MT-102. This was an example of using an existing management team and encouraging growth through acquisition.

Veryan Medical

Veryan Medical, which develops helical stent technology to improve fracture resistance, continued to build on its initial positive results. However, trials have been slower than expected due to patient recruitment, but the proposition remains sound.

CellMedica

CellMedica announced the treatment in February 2011 of the first patient in its cytomegalovirus clinical trial in collaboration with Leukaemia & Lymphoma Research, University of Birmingham and NHS Blood and Transplant. In January 2011, the company signed an exclusive licence agreement and research collaboration with the Center for Cell and Gene Therapy (CAGT), Baylor College of Medicine (Houston, Texas), for the commercialisation of an innovative cell-based treatment for cancers. In October 2010, CellMedica strengthened its board with the appointment of Dr Thomas Hecht a Non-Executive Director. Dr Hecht has a clinical background and formerly worked at Amgen. The Group's shareholding is 41.1%.

Cortexica

Cortexica, which started with a vertical market strategy, has now accelerated its progress by focusing on the core technology platform. The company recruited Iain McCready as CEO, formerly CEO of NeoMedia (a US based bar-code software business) and Chairman, Malcolm Bird, one of the founding team at ARM and an experienced and respected Chairman in the technology arena, to take the business through its next phase of development.

Ventures and pipeline development

In addition to the recent substantial funding rounds, and the continued support provided across the portfolio, the Group has continued to support very early stage companies with funds, management expertise and operational support.

Indigix and Navion continued to make positive progress in incubation. Indigix, which develops novel immune modulators with potential indications including bowel related diseases, raised £1.0 million of which half came from Kurma Biosciences. Early pre-clinical testing of its products has commenced. The company also appointed David Brown as chairman, formerly of GSK, Roche Ventures, Pfizer and Cellzome.

Navion is developing novel therapeutic antibodies against voltage gated sodium channel targets in the treatment of breast cancer and other indications. The Group approved a further investment in the company and appointed Phil Bland-Ward, formerly CSO at PanGenetics, as Chief Scientific Officer.

From Imperial College London, the Group founded Sweetspot, an antibody platform for the development of therapeutics and seed-funded one other therapeutics business. The Group also seed-funded Econic, a company developing a catalyst and process for manufacturing plastics using waste CO2 streams. Econic also appointed as Chairman, David Morgan, previously Executive Director responsible for strategy and M&A at Johnson Matthey.

The Group also founded two organic growth companies: Hexcell, developing technology to increase efficiency in oil and gas refineries; and Alkion, which is developing technology to facilitate extraction of anti-cancer compounds from plants.

From Cambridge Enterprise, the Group provided seed funding to Mission Therapeutics alongside Sofinnova Partners followed, after the year end, by a series A funding round which was expanded to include SR One and Roche Venture Fund. From UCL, Autifony completed a series A round alongside SVLS post year end.

The Group has established regular review meetings with each of its collaborators: Cambridge Enterprise, UCL Business and Oxford Spin-Out Equity Management. Following the fund raising in January 2011, the Group has undertaken 22 detailed evaluations of prospects from which the Group has made three investments.

Imperial College's Technology Transfer Office (TTO)

The Group's TTO team filed 52 patents and reviewed 351 invention disclosures maintaining a healthy flow of new opportunities. The team continues to provide a range of services to Imperial College London including proof of concept grants, securing large research grants and developing the long term pipeline. This year the team secured several translational awards for large research programmes from sources such as the Wellcome Trust and the Medical Research Council. The team supported Imperial College London with a number of initiatives including the establishment and support of the Climate Change Knowledge Innovation Centre and the development of a 'software accelerator' to be located in the Incubator.

Recruitment and appointments

As part of the increased investment programme, the Group has made good progress in its recruitment as it builds a team with the expertise to support the expanded business. Some key appointments have already been made to strengthen the Ventures team including: Paul May (founding Technical Director of Cambridge Display Technology and founding CEO of Kamelian);Dayle Hogg (previously Commercial VP at Lectus Therapeutics); and Rebecca Todd (formerly Investment Manager with Oxford Capital Partners). Tony Hickson, who has been with the Group for nine years and is responsible for Imperial College's Technology Transfer Office, was promoted to Managing Director of Technology Transfer.

Since the year end, the investment team has been strengthened by the appointment of Nigel Pitchford as Managing Director of Healthcare Investments. He joins in January 2012. Nigel has 14 years venture capital experience, 12 as a Partner at 3i Cambridge and two at DFJ Esprit following their acquisition of the 3i portfolio. He has a strong track record including Domantis, sold to GSK for $423 million and Apatech, sold to Baxter for $330 million.

Outlook

The Group has begun to deliver its broader strategy set out in the equity raising prospectus. In the coming year its key priorities are:

·; To establish a portfolio of companies emanating from Cambridge University, Oxford University, University College London and Imperial College London;

·; To maintain and enhance the Imperial College London pipeline;

·; To maintain the investment momentum across the portfolio at all stages of each company's development and continue to put capital to work in high quality opportunities;

·; To develop further the 'accelerated' companies, Circassia and Nexeon, which are now well positioned to progress both commercially and technically; and

·; To identify and progress the next cohort of accelerated companies.

Financial report

Summary

The balance sheet strengthened significantly, primarily reflecting the £140 million (before issue costs) equity raise. The Group ended the period with net assets at £224.1 million (2010: £91.1 million) up by £133.0 million from 31 July 2010.

The Group successfully completed an equity raise of £140 million (before issue costs), which included the issue of partly paid shares. The sum of £66 million (before issue costs) was received in January 2011 and a further two sums of £37 million each are to be received in January 2012 and January 2013. This innovative structure has allowed the Group to have sufficient cash resources available when required to further build, and invest, in the existing portfolio and to support the Group's widened sources of investment opportunities.

The Group's pre-tax profit was £0.6 million in the year to 31 July 2011 (2010: £5.5 million) although gross profit increased to £3.4 million (2010: £3.1 million). The prior year benefited from the realisation of Respivert, whereas this year the Group focused on consolidating and building its portfolio of investments.

Cash, short-term liquidity investments, and the next tranche due for the partly paid shares (before discounting) under the equity raise substantially increase the Group's liquid reserves available to invest over the next year to £85.8 million (2010: £23.7 million).

The Group achieved total gross realisations of £2.4 million (2010: £10.4 million). Net cash collected from realisations, including receipt of amounts outstanding at the start of the year, was £3.1 million (2010: £9.2 million).

As planned, the Group continued to increase its rate of investment in its portfolio companies and invested £35.1 million across 23 portfolio companies (2010: £14.0 million). This takes the total invested since the IPO at the end of 2006 to £83 million, and the total raised by the Group's portfolio companies to over £300 million.

Cash and short-term liquidity investments

The Group ended the financial year with total cash and short-term liquidity investments of £48.8 million (2010: £23.7 million), comprising £23.8 million of cash and £25.0 million of short-term liquidity investments.

Including the future committed deferred receipts from the equity raise of £74 million, the total available for investment would be £122.8 million.

The increase in the cash and short term liquidity investments balance of £25.1 million from the opening balance of £23.7 million can be analysed as follows.

The Group invests cash surplus to working capital requirements in short-term deposits, classified as short term liquidity investments, across a number of banks with a focus on capital preservation rather than interest earned. The Group has no foreign currency deposits.

Revenues, cost of sales and operating costs

Total revenues increased to £4.5 million (2010: £4.3 million). Licence and royalty revenue from initial licence payments and intellectual property licences was £1.9 million (2010: £2.2 million) reflecting the difficult economic environment.

Revenue from services (which includes intellectual property management consultancy fees) was £1.2 million (2010: £1.4 million). There was a £0.6 million increase in corporate finance fees to £1.3 million (2010: £0.7 million), reflecting the increased value of the funding rounds which the Group led. Additionally, dividends received were £0.2 million (2010: £nil).

Cost of sales, which mainly arises from the revenue-sharing arrangement with Imperial College London, fell to £1.1 million (2010: £1.3 million) reflecting the lower royalty and licence activity.

As expected, operating costs increased from £6.2 million to £7.8 million, with £0.4 million of the additional costs arising from the separation of the Group from Imperial College London (as Imperial College London's holding in the Group fell below 50% following the equity raise) and the upfront costs incurred on the move into the new offices. These are not expected to recur. The balance of the increase in the operating cost base primarily reflects the scaling-up of the business post equity raise.

Administrative expenses also include costs of £0.9 million (2010: £0.9 million) incurred filing patents and protecting the as yet unexploited intellectual property emanating from Imperial College London.

Interest income was £1.7 million (2010: £0.4 million), and includes £1.0 million (2010: £nil) finance income on the unwinding of the deferred equity raise proceeds (financial asset - partly paid share capital).

The Group reported a pre-tax profit of £0.6 million (2010: profit £5.5 million).

Basic earnings per share was 0.93p (2010: 9.35p). The Board is not recommending the payment of a dividend (2010: £nil).

Investment portfolio performance

During the year, the Group's investment portfolio grew from £67.6 million spread across 81 companies, to £104.5 million across 78 companies. Portfolio companies raised more than £92 million in cash from all sources of investment during the year, and secured total cash and investment commitments of over £129 million in total.

The fair value of the Group's holdings was £4.4 million (2010: £8.4 million), before taking into account associated revenue sharing obligations, and by £3.3 million (2010: £8.2 million) after these obligations.

(Based on International Private Equity and Venture Capital Valuation Guidelines (IPEVCVG).)

Investment and divestment activity

The Group made £35.1 million of investments to fund 23 technology companies in its portfolio. The early stage nature of many of the technology companies is such that investments are made on a milestone/tranche basis that matches the companies' need for cash with the achievement of agreed milestones. This provides investment security for the companies and more control over the Group's cash payments to the portfolio.

Additional investment commitments undrawn at the year-end amounted to £9.9 million. Additionally, some investments are made as convertible loans and at the year end there was a total of £6.3 million which is included in fixed-asset investments.

The Group realised gross £2.4 million (2010: £10.4 million) from the realisation of four investment assets. Taken together with the receipt of consideration deferred from prior year's asset sales this brings the total proceeds arising from the sale of assets to £3.3 million (2010: £9.6 million) and £3.1 million (2010: £9.2 million) after accounting for associated revenue sharing obligations.

As at the year end, the Group was holding a total of £6.1 million (2010: £7.2 million) as discounted deferred proceeds on sales of investment assets. These amounts are held within other receivables. The total unadjusted potential proceeds are £13.5 million (2010: £14.3 million).  This relates primarily to Thiakis and the remaining Respivert proceeds.

Net cash flows from investments in trade investments in the year was £31.9 million (2010: £4.2 million).

1Revenue share represents amounts payable to Imperial College London, other third parties and the Appointee Directors' Pool on revenue and on the future realisation of investments (based on fair values).

Portfolio company creation

At 31 July 2011, the Group held equity stakes in 78 companies (2010: 81 companies). The movement reflects disposals, formations and equity acquired less dissolutions and liquidations during the year.

Portfolio company overview

The table below sets out the top 15 technology companies, by value, in the portfolio including contingent deferred consideration (Thiakis and Respivert), to illustrate the spread of the investments held and their relative carrying value. All of the carrying values listed below reflect the net fair value of the investment, being the gross value of the holding less the attributable revenue-sharing obligations associated with each investment. The percentage of issued share capital represents the absolute percentage of the shares held, without reflecting any revenue-sharing obligations. The percentage holdings in these companies are increasing in line with the Group's strategy to hold larger stakes in its portfolio companies.

A: PsiOxus Therapeutics (formerly known as Myotec Therapeutics)

B: In May 2010, the Group sold its stake in Respivert for £9.5 million. Of the £1.4 million deferred proceeds outstanding £1.0 million was paid in the period and £0.4 million will be paid in 6 months subject to any retentions.

C: On 18 December 2008, the Group divested its holding in Thiakis. Under the sales agreement, the Group could receive cash payments of £22.2 million (net of transaction costs). After revenue-sharing obligations of £6.1 million payable to Imperial College London and other research sponsors, the net receipt to the Group would be £16.1 million. As at 31 July 2009, the first payment of £3.3 million had been received and after revenue-sharing obligations, the net receipt was £2.9 million. The estimated fair-value uplift of the remaining contingent deferred consideration, after risk adjustment using industry-standard criteria and discounting for time at 12% per annum, resulted in a fair value uplift in the 12 months ended 31 July 2009 of £6.0 million.

At each accounting reference date the fair value of the contingent deferred consideration is adjusted to reflect the probability of completion of the associated milestones and the timing of any cash receipts. At 31 July 2011, there has been no change to the contingent deferred consideration carrying value and the probability of milestone receipts is considered to be unchanged. As future payments are a contractual entitlement, the £5.7 million contingent deferred consideration is reflected in the balance sheet within trade and other receivables.

The Group is exposed to the impact of exchange rate volatility of Sterling with US Dollars on the remaining £0.4 million Respivert proceeds. During 2010, the Group entered into a forward contract to exchange US Dollars for Sterling in November 2011 with respect to the £0.4 million of proceeds. The purpose of this contract is to hedge the balance sheet position of the Group to minimise foreign exchange exposure.

The discounted fair value of the currency forward exchange contract held at 31 July 2011 was £0.1 million (31 July 2010: £0.1 million). The Group's policy is not to trade in derivatives, but to use these instruments to hedge anticipated exposures.

Deferred payment obligations

The Group has a Technology Pipeline Agreement (TPA) with Imperial College London which stipulates the terms for sharing revenue generated from the commercialisation of Imperial College London intellectual property which is assigned to Imperial Innovations Limited.

Non-current liabilities (including those due under the TPA) increased from £5.2 million to £5.7 million at the end of 2011, reflecting the increase in the revenue-sharing obligations to Imperial College London and other parties arising on the revaluation and realisations of investments in technology companies.

Consolidated statement of comprehensive income

For the year ended 31 July 2011

1 Basic and diluted earnings per ordinary share has been restated to take account of the bonus element of the Equity raise (see note 4).

Consolidated balance sheet

As at 31 July 2011

Consolidated cash flow statement

For the year ended 31 July 2011

Consolidated statement of changes in equity attributable to equity holders of the Group

Treasury shares with a cost of £6,013 have been netted against retained earnings representing shares held by the Employee Benefit Trust.

Notes

1. Basis of preparation

The preliminary announcement for the year ended 31 July 2011 has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union as at 31 July 2011. The financial information contained in this preliminary announcement does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The financial information has been extracted from the financial statements for the year ended 31 July 2011, which have been approved by the Board of Directors and on which the auditors have reported without qualification. The financial statements will be delivered to the Registrar of Companies after the Annual General Meeting. The financial statements for the year ended 31 July 2010, upon which the auditors reported without qualification, have been delivered to the Registrar of Companies.

A complete copy of the Annual Report and Accounts for the year ended 31 July 2011 can be found at

http://www.imperialinnovations.co.uk/annualreport2011.pdf

2. Segmental reporting

For the year ended 31 July 2011 and the year ended 31 July 2010, the Group's revenue and profit was derived from its principal activity within the United Kingdom.

The Group has adopted IFRS 8, "Operating Segments". IFRS 8 defines operating segments as those activities of an entity about which separate financial information is available and which are evaluated by the Chief Operating Decision Maker to assess performance and determine the allocation of resources. The Chief Operating Decision Maker has been identified as the Board of Directors. The Directors are of the opinion that under IFRS 8 the Group has only one operating segment, being Technology Transfer, Incubation and Investment. The Board of Directors assess the performance of the operating segment using financial information which is measured and presented in a manner consistent with that in the financial statements.

The Group has two customers that account for £1.2 million (26%) of the Group's revenue (2010: £0.5 million (10.8%) one customer). Both customers account for £0.6 million (13%) each.

Breakdown of the revenue from all services is as follows:

3. Investments

Net change in fair value of investments held at fair value through profit or loss

Net change in fair value for the period represents the change in fair value less the revenue share charge on these fair value movements. Net change in fair value of investments of £3,262,000, as set out on the face of the Consolidated Statement of Comprehensive Income, represents the change in net fair value of £3,249,000 plus £13,000 to reflect final adjustments on realisations before revenue share with third parties as summarised below:

Included within the net fair value movement recognised in the Consolidated Statement of Comprehensive Income are provisions for liabilities and charges. These are made up of the revenue sharing provision which represents a fair value estimate of monies due to Imperial College London and other third parties such as co-funders of research work and the Appointee Directors' Pool. The provision will be payable upon the eventual realisation of investments held by the Group under the revenue sharing arrangements of the Technology Pipeline Agreement (TPA) and in recognition of Imperial College London's right to call for a transfer of its share of the Group's holding in investments. The timing and amount of the realisation of the provision is dependent on the timing of the disposal of investments, which is uncertain as this is determined by the investment strategy.

The following tables in this note set out how the net fair value recognised in the Consolidated Statement of Comprehensive Income for each of the periods is generated, along with the year end position with respect to the carrying value of investments.

For the year ended 31 July 2011

The table below sets out the movement in the balance sheet value of the investments from the start to the end of the year, setting out the fair value gains and losses together with any investments and disposals.

The table below sets out the movement in the balance sheet value of the provision for liabilities and charges arising on revenue sharing obligations from the start to the end of the year, setting out any fair value gains and losses together with the impact arising as a result of disposals.

The table below sets out the movement in the net carrying value of investments from the start to the end of the year, setting out the fair value gains and losses together with any investments and disposals.

1 All quoted companies are listed on AIM.

2 The provision for liabilities and charges represents monies due to Imperial College London upon the eventual realisation of investments held by the Group under the revenue sharing arrangements of the Technology Pipeline Agreement (TPA) and in recognition of Imperial College London's right to call for a transfer of its share of the Group's holding in these particular investments. The timing and amount of the realisation of the provision is dependent on the timing of the disposal of investments, which is uncertain as this is determined by the investment strategy. Deferred consideration represents monies due to Imperial College London upon the eventual realisation of the Imperial Innovations LLP assets acquired from Imperial College London as part of the private share placement in 2005.

Additionally, monies are due to parties in the Appointee Directors' Pool in respect of the Imperial Innovations LLP assets acquired as part of the stepped acquisition in 2005 and to other third parties. These are included in 'Revenue Sharing Other' in the table below. The timing and amount of the realisation of the provision is dependent on the timing of the disposal of investments, which is uncertain as this is determined by the investment strategy.

The following table analyses the provision by obligation:

4. Earnings per share

Basic earnings per share is calculated by dividing the profit for the financial year by the weighted average number of Ordinary Shares in issue during the year. The partly paid New Convertible B shares are not included in the calculation of basic earnings per share as these shares are not entitled to dividends. However, as described in note 6 below, they have been included in share capital as the future tranches are contractually obliged to be paid by the shareholders. Diluted earnings per share is computed by dividing the net profit for the financial period, by the weighted-average number of Ordinary Shares outstanding and, when dilutive, adjusted for the effect of all potentially dilutive shares, including share options and partly paid New Convertible B Shares on an as-if-converted basis. The potential dilutive shares are included in diluted earnings per share computations on a weighted average basis for the year. The prior year earnings per share has been restated for the impact of the bonus element of the equity raise by including an additional 455,000 shares. The profits and weighted average number of shares used in the calculations are set out below:

5. Short term liquidity investments and cash and cash equivalents

6. Issued share capital

1 Issue of 2,870,328 New Ordinary Shares of £0.0303 each pursuant to the 2 for 3 Rights Issue.

2 Issue of 36,990,086 New Convertible B Shares of £3.50 each (partly paid and discounted (see below)).

On 19 January 2010, the Company issued 2,160,308 Ordinary Shares of 3 and 1/33 pence each, on the exercise of share options, for placing on the Alternative Investment Market of the London Stock Exchange, for a cash consideration of £65,463.

On 24 January 2011, the Company's total issued voting share capital increased through the issue of 2,870,328 New Ordinary Shares of 3 and 1/33 pence each at 350 pence each pursuant to a 2 for 3 Rights Issue (taking the total number of Ordinary shares admitted to trading on AIM to 62,660,949) and 36,990,086 New Convertible B shares of 350 pence each which have not been admitted to trading on AIM. The issue price for the New Convertible B shares is 350 pence (the "issue price") each payable in three instalments comprising 150 pence (paid during the period of the Rights Issue), 100 pence due on 20 January 2012 and 100 pence due on 21 January 2013. The unpaid element of the New Convertible B shares has been included in share capital (and financial assets - see below) as the holders are liable to pay the outstanding instalments.

The New Convertible B Shares represent a separate class of shares but, save as expressly provided for in the Group's Articles of Association (adopted on 6 January 2011), rank pari passu in all respects, including voting, with the Existing Ordinary Shares. The New Convertible B shares have a nominal value of 350 pence but, until the entire Issue Price has been paid, are non-transferable. The New Convertible B shares carry no right to dividends and other distributions declared, made or paid during the period of their issue. Once the Company has received all payments in respect of the Issue Price of all New Convertible B shares held by a holder, all New Convertible B shares held by that holder will be converted into fully paid Ordinary Shares.

On conversion of the New Convertible B shares, a holder shall be entitled to one Ordinary Share for each New Convertible B share held and the Ordinary Shares resulting from the conversion will in all respects rank as one uniform class with the issued and fully paid Ordinary Shares then in issue.

The total issued voting share capital as at 31 July 2011 was 99,651,035 voting shares (31 July 2010: 59,790,621 voting shares).

Equity raise

The Company raised net proceeds of £135 million from the Rights Issue and issue of New Convertible B shares during the period. This is made up of: £10 million received from the 2 for 3 Rights Issue of 2,870,328 New Ordinary Shares at 350 pence each; £129.5 million from the issue of 36,990,086 New Convertible B shares at 350 pence each (payable in three instalments); less expenses of £4.5 million, which relate primarily to investment banking, legal and regulatory filing fees, accounting, printing and public relations fees. These issue expenses have been taken directly to the share premium account and retained earnings in proportion to the proceeds from the Rights Issue and issue of New Convertible B shares respectively.

The New Convertible B shares are payable at 350 pence each in three instalments comprising 150 pence paid during the period of the Rights Issue, 100 pence due on 20 January 2012 and 100 pence due on 21 January 2013.

Therefore, of the total net proceeds of £135 million, £61 million cash has been received in the period, comprising £10 million from the 2 for 3 Rights Issue, £55.5 million from the first instalment of the New Convertible B shares less £4.5 million of issue expenses.

Of the remaining total proceeds of £74 million relating to the New Convertible B shares, £37 million is due on 20 January 2012 and £37 million is due on 21 January 2013. These receivables are included in the balance sheet as financial assets within current assets and non-current assets respectively.

These financial assets have been measured at their fair values, applying an appropriate discount rate, with an amount of £36,572,000 included in current assets and £35,705,000 included in non-current assets. The discount rates reflect management's best estimate of the time value of money with reference to the yields of Invesco's bonds due to be repaid in 2012 and 2013 respectively.

The amount discounted is being unwound through the Statement of Comprehensive Income with a subsequent reserve transfer to issued share capital.

Employee Benefit Trust

As at 31 July 2011, the Employee Benefit Trust held 198,416 of the Group's Ordinary Shares, which have a cost of £6,013. These represent unallocated shares which are considered to be under the de-facto control of the Group and have therefore been consolidated in the financial statements.