Imperial Innovations Group Regulatory News (IVO)

23 April 2012

Imperial Innovations Group plc

£25 million invested to commercialise opportunities from UK's four leading research universities year to date & £109.5 million funds available.

Imperial Innovations Group plc (AIM: IVO, "Innovations", "the Group"), a leading technology commercialisation and investment group, has published its results for the six months ended 31 January 2012.

Business highlights

Portfolio developments

Financial highlights

Martin Knight, Chairman of the Group, said:

"We have invested over £25m in our portfolio companies already this year. Significantly, we have over £100m available to back further our top companies, as well as maintaining our very active programme of investing in new enterprises from the four leading research-based universities.

"At a time when energy storage and power capacity is so critical in a number of consumer and automotive markets, Nexeon's battery technology couldn't be better positioned. Meanwhile, Circassia's novel approach to the huge allergy market is making excellent progress with its proprietary Tolermune technology which tolerises the body to the allergen, such as cat, ragweed, house dust mite or grass.

"Behind these two front runners, we have another eight exciting and fast developing businesses, encompassing a wide range of healthcare and technology markets."

A pdf copy of the results is available at http://www.imperialinnovations.co.uk/interim2012.pdf

Enquiries:

Background information to the Group

Imperial Innovations - www.imperialinnovations.co.uk

Imperial Innovations ("the Group") builds and invests in healthcare and technology companies. The Group supports scientist‑entrepreneurs in the commercialisation of their ideas by leading the formation of new companies, providing facilities in the early stages, providing investment and encouraging co-investment to accelerate development, providing operational expertise and recruiting high-calibre management teams.

The Group was founded in 1986 as the technology transfer office for Imperial College London ("Imperial"), to protect and exploit commercial opportunities arising from research undertaken at the College. 

In 1997, the Group became a wholly-owned subsidiary of Imperial and in 2006 was registered on the Alternative Investment Market of the London Stock Exchange, becoming the first UK University commercialisation company to do so.

The Group has a Technology Pipeline Agreement ("TPA") with Imperial which extends until 2020, under which it continues to act as the technology transfer office for Imperial. The Group also acts as the technology transfer office for select NHS Trusts linked to Imperial, including Imperial College NHS and North West London Hospital Trusts.

Since 2005, the Group has raised approximately £206 million (before issue costs) in proceeds from investors, which has enabled it to invest in opportunities from its portfolio of spin-out companies.

Since the IPO in 2006, the Group has invested a total of £93.4 million as at the end of January 2012 and £108.7 million to date. The portfolio of companies in which the Group has invested has raised investment of over £320 million as at the end of January 2012 and over £370 million to date. The Group has holdings in 79 portfolio companies. 

The Group has achieved some notable early successes with its investments. In 2010 the trade sale of RespiVert, a small molecule drug discovery company, resulted in the Group realising £9.5 million of gross cash proceeds from an investment of £2 million, and Ceres Power Holdings, a domestic fuel cell manufacturer, has realised year to date £7.9 million gross (£5.0 million net) for the Group from an investment of £0.65 million. 

Following the fundraising in January 2011, the Group has invested larger amounts and maintained its involvement for longer in the most promising opportunities within its portfolio of spin-out companies associated with Imperial, with the intention of maximising exit values. In addition, the Group has begun to invest in opportunities arising from intellectual property developed at or associated with Cambridge University, Oxford University, and University College London ("UCL"), through its relationships with Cambridge Enterprise Limited ("Cambridge Enterprise"), Oxford Spin-out Equity Management ("OSEM"), and UCL Business Plc ("UCLB"). These universities are the top four research intensive universities by publication and citation in Europe, with a research income of over £1 billion per annum. Early investments in companies associated with this expanded opportunity include a £5 million commitment in Autifony, £1.3 million in MISSION Therapeutics and £0.25 million in Cambridge Communication Systems.

Total investment for the financial year ended 31 July 2011 was £35.1 million, compared to £14.0 million in the previous year. Total investment for the six month period ended 31 January 2012 was £10.4 million, representing a substantial increase over the previous half year, rising to over £25 million since the period end. The portfolio has raised over £76 million so far this financial year, reflecting the Group's stated intention to increase investment in its portfolio of companies.

CHIEF EXECUTIVE'S REPORT

Overview

The Group is firmly established with a strong balance sheet and track record of commercialising and investing in university created intellectual property. Its focus on the top four research intensive universities by publication and citation in Europe (Imperial, Cambridge, Oxford and UCL) is gaining momentum and the Group is building on relationships with its local collaborators: Cambridge Enterprise, UCL Business and OSEM.

The Group is an active investor from inception to exit. The Group has a highly focussed approach to its investment strategy, prioritising six to ten companies to ensure they have strong boards, management teams and are well capitalised. Following the equity raise early last year, the Group's strategic focus is on investing larger amounts in high potential businesses and maintaining its involvement for longer.

The Group has continued to develop the flow of opportunities from all four universities, advance further the accelerated Imperial companies, Circassia and Nexeon, and has identified and progressed the next eight accelerated companies: Veryan Medical, Plaxica, PsiOxus Therapeutics ("PsiOxus"), PolyTherics, Cell Medica, Stanmore Implants Worldwide ("Stanmore"), EVO Electric and TopiVert. 

Imperial continues to be a source of outstanding intellectual property and the Group has deployed significant capital and resources behind its technologies, including its two most advanced portfolio companies, Nexeon and Circassia. They both have made significant operational progress.

Nexeon, a battery materials and licensing company, signed a joint development agreement with a global tier one automotive OEM to optimise the company's technology for electric vehicle applications. The higher energy density of Nexeon's cells will increase the range of electric vehicles. In October 2011, the company announced it had produced '18650' cells (which are used in laptop batteries) with capacities of 4Ah, representing a more than 50% improvement over typical commercial cells, which have capacities of between 2.5-2.6 Ah.

Circassia, a speciality biopharmaceutical business focused on developing anti-allergy products, announced the successful completion of its phase II ragweed vaccine trial. This is a significant milestone, with the company now having completed phase II studies with its four leading vaccines for cat, grass, house dust mite and ragweed, in addition to a successful one year follow up phase II study on its cat vaccine, validating the company's approach to the treatment of allergy. In April 2012, Circassia raised a further £47 million from existing shareholders taking the total raised to £105 million.

Companies across the accelerated portfolio have also made good progress, raising funds and strengthening boards and management. Veryan Medical, developing 3D stent technology for vascular disease using the principles of biomimicry, added to its Board and completed recruitment for its first-in-human clinical trial. Plaxica, which develops biopolymers from renewable resources, began the process of building its first demonstration facility on Teesside. PsiOxus, an oncology and cachexia therapeutics company, strengthened its Board with the appointment of Dr Paolo Paoletti, President of GSK Global Oncology. 

PolyTherics, a company that enables better biopharmaceuticals, acquired Warwick Effect Polymers. Cell Medica, which develops patient-specific cellular immunotherapy products, received grant funding for its paediatric study in conjunction with the UCL Institute of Child Health. Stanmore Implants Worldwide, the innovative orthopaedic business producing patient specific primary implants, received CE mark approval for its METS modular implant system and EVO Electric, the advanced electric machines, hybrid drive trains and generator business, had its technology adopted in high performance vehicles, the Lotus Evora 414e Hybrid and the Infiniti EMERG-E. In addition, TopiVert, which focuses on developing topical medicines for inflammatory diseases of the eye and gut, licensed narrow spectrum kinase inhibitors from RespiVert.

The Group provided seed funding alongside Norner Verdandi, to new portfolio company, Econic, which is producing catalysts and reducing costs by enabling a percentage of the feedstock for certain polycarbonates to be replaced with CO2. Econic is led by Dr Charlotte Williams, Reader in Catalysis and Polymer Chemistry at Imperial and Chairman David Morgan, formerly of Johnson Matthey. 

The Group invested in its second Cambridge company, Cambridge Communication Systems, alongside the Cambridge Angels. It also provided seed investment to ASIO, its third investment in a UCL company, backing Dr Anthony Steed and a team from the UCL computing department. 

The Group continued to focus on ensuring that the portfolio has both experienced management and scientists. It has also diversified its target group of co-investors. To support the Group's ambition to grow companies for longer, it has begun to recruit additional industrial experience to strengthen the team and complement its existing professional venture capital skills. 

Operational review

Realisations

As anticipated the Group did not make any substantial realisations during the first six months of 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 £0.5 million came from smaller holdings. The Group also received the £0.4 million which was outstanding from the disposal of Respivert in May 2010.

On 12 April 2012, the Group was notified by Pfizer that Pfizer has discontinued its R&D activities on Thiakis and that it intends to seek a third party licensor or acquirer for the associated product rights. The Group sold Thiakis to Wyeth (now Pfizer) in December 2008 and includes a receivable on the balance sheet of £5.7 million, relating to contingent deferred consideration based on the achievement of future milestones. This is set out in more detail in note 4 to these interim accounts.

Investments

The Group invested £10.4 million during the period, of which £10.3 million went into investment rounds of series A and beyond and £0.1 million went into seed stages. Post period end, the Group invested £2.0 million in Abingdon Health and £11.75 million in Circassia which, alongside other post period end investments, has taken total investments by the Group so far this financial year to £25.7 million.

Autifony

In August 2011, the Group made its second investment in a company associated with UCL, committing £5 million to Autifony, a spinout from GlaxoSmithKline, as part of a £10 million funding round alongside SV Life Sciences. Autifony is developing therapeutics targeted at the treatment of hearing disorders including noise-induced hearing loss and tinnitus, for which there are currently no therapeutic options. Research and Development will be conducted by Professor McAlpine and Dr Jennifer Linden at the UCL Ear Institute. The Group holds a 25.9% stake in the company.

MISSION Therapeutics

Also in August 2011, the Group invested in a Cambridge spin-out, MISSION Therapeutics, a drug discovery and development company based on the research of Professor Steve Jackson, Head of the Cancer Research UK Laboratories at the Gurdon Institute,

Cambridge. The Group invested £1.2 million as part of a £6 million round alongside Sofinnova Partners, SR One and Roche Venture Fund. MISSION is focused on developing oncology therapeutics based on molecular understanding of cellular responses to DNA damage. The Group holds an 18.1% stake in the company.

PolyTherics

In September 2011, the Group made a further investment in PolyTherics, a company that enables better biopharmaceuticals, investing £1.2 million as part of a £2.2 million round alongside The Capital Fund and ProVen Health VCT PLC. The Group holds a 33.3% stake in the company following this investment. 

Plaxica

Also in September 2011, Plaxica, developing biopolymers from renewable resources, closed a £5 million series B funding round, taking its total funds raised to £10 million. The Group invested £2.2 million alongside Invesco Perpetual and NESTA Investments. The Group holds a 43% stake in the Company.

Veryan

In October 2011, the Group co-led a £5 million funding round for Veryan Medical, developing 3D stent technology for vascular disease using the principles of biomimicry, alongside Seroba Kernel and private investors. The Group holds a 48.4% stake in the business. The funding was raised to progress the company towards a clinical study in the USA to achieve FDA approval. 

In December 2011, the Group committed £4 million in TopiVert alongside SV Life Sciences as part of an £8 million funding round. TopiVert has licensed NSKI (narrow spectrum kinase inhibitor) related intellectual property from RespiVert., a former Innovations portfolio company until its acquisition in 2010 by Janssen Biotech (part of Johnson & Johnson). TopiVert will apply this NSKI technology to develop medicines to treat inflammatory diseases of the eye and gut, such as inflammatory bowel disease and uveitis. The Group holds a 22.7% stake in the company.

Cambridge Communication Systems

In January 2012, the Group made its second investment in a Cambridge company, Cambridge Communication Systems ("CCS"), investing £250,000 in a £1 million seed funding round alongside Cambridge Angels. CCS is developing a cost-effective backhaul solution for mobile infrastructure. The company is chaired by Robert Sansom, and the founding team comprises Steve Greaves and John Porter, who previously founded both Adaptive Broadband and Cambridge Broadband Networks. The Group holds a 6.4% stake in the business.

Since the period end, the Group has made further investments which include Abingdon Health and Circassia.

Abingdon Health

Post period end, in March 2012, the Group invested £2 million in Abingdon Health, a specialist medical diagnostics company, alongside £1.3 million from US investors. Abingdon is led by Chris Hand who was previously founding CEO of Cozart (sold to Concateno for £65 million). Abingdon will use the funds to invest and take a controlling 50.1% interest in one of the Group's portfolio companies, Molecular Vision and bring together complementary capabilities from other companies in its portfolio. Following the investment, the Group has a 31.8% stake in Abingdon Health and 37.8% stake in Molecular Vision.

Circassia

In April 2012, the second tranche of the £60 million investment round, announced last year in April, was drawn down following the achievement of milestones. The existing shareholders decided to increase the amount of the second tranche from £35 million to £47 million. As at 31 January 2012 the Group held an equity stake of 18.4% in Circassia. This has increased to 20.3% following the draw down.

Operational update of top 10 accelerated portfolio companies

Nexeon, a battery materials and licensing company, is developing technology originating from Imperial. Current commercial lithium ion (Li-ion) batteries use carbon as the anode material, but Nexeon, based in Oxfordshire, has shown that replacing the carbon with silicon could lead to the next generation of Li-ion batteries with an increase in energy capacity of 30-40% in the near term. Approximately 200% improvement can be expected when improved cathode technology is introduced to harness the full potential of silicon anodes.

At least three major markets are evident: i) Improvements in Li-ion battery performance will allow greater functionality in consumer electronics, and the greater use of rechargeable batteries - presently 600 million one-time use batteries are discarded

every year in the UK alone; ii) The rate of adoption of electric and hybrid vehicles is currently limited by the range available between battery charges. The ability to run longer between charges is dependent on improving battery capability; and iii) Newer forms of clean energy generation such as wind or solar power require efficient high capacity storage of the off-grid energy produced, often at the point of generation.

While lithium ion (Li-ion) batteries offer the best current solution to these challenges, carbon-based anodes are limiting the potential for further development. New chemistry based on silicon is required, but silicon, while offering the higher energy densities needed, is not suitable for carbon replacement in its standard form. When charging and discharging the battery cells, silicon suffers a dramatic change in volume of up to 400% and subsequent disintegration. As a result, the charge-discharge cycle life is typically very short. Nexeon has developed special chemical etching processes to create silicon with a high aspect ratio, and this allows for high energy densities while overcoming the physical fragility.

Early last year, Nexeon was able to announce that it had produced industry standard '18650' cells with capacities of over 4Ah, a greater than 50% improvement over typical commercial cells, which have capacities of between 2.5-2.6 Ah. The short-term target was reset at 5Ah.

Nexeon raised £40 million investment in July 2011, in a round led by the Group. This represented the second-largest venture capital funding round for a UK technology company in 2011. The Group holds a 40% stake in the company. At the time of the fundraising, Nexeon announced plans to establish a manufacturing facility to enable production of around 250 tonnes per annum of its unique silicon anode materials; this represents acommercial level of materials supply. The 'drop-in' nature of the switch to silicon, and the lower cost for a given cell capacity make silicon anode technology attractive for battery manufacturers.

In the last couple of years, Nexeon has been recognised in a host of awards, including four Rushlight Awards, Cleantech 'Top Company to Watch' (twice), a Cleantech 100 listing, and most recently, a Climate Week Award for 'Best Technological Breakthrough'.

In December 2011, Nexeon announced it had begun a collaboration with a global tier one automotive OEM with the intention of optimising its technology for application in electric vehicles. Nexeon and its OEM partner will work together to achieve the best balance of energy storage, time between charges and peak available current, as required for this key market. Also in December, the company completed the commissioning process for a major new pilot plant that will be the focus for much of the optimisation work. The plant is an important asset, allowing the Nexeon team to simulate the production processes seen in full scale battery manufacture, and to gain realistic costing data.

Significant additional discussions are underway with major potential partners: in materials, battery manufacture and consumer and automotive brands. The company is currently sampling its materials and prototype cells. The market for rechargeable cells is predicted to grow six fold to $60bn between 2010 and 2020. Nexeon's carrying value is unchanged for the half year to January 2012 at £34.1 million.

Circassia is a speciality biopharmaceutical company focused on developing immunotherapies to control common allergies. The company has now achieved proof of concept for its approach to immunotherapy, and has made rapid progress since its formation in 2006, completing nine phase II trials across its portfolio of ten products. Overall, clinical studies for Circassia's four leading products for the treatment of cat, ragweed, house dust mite and grass allergies, have treated 880 patients.

Circassia's approach to allergy is based on treating the underlying disease in a safe and efficacious manner through its proprietary ToleroMune® approach. The ToleroMune® technology identifies the short amino acid sequences present in allergens that are responsible for causing allergic reactions in sufferers. These sequences are then synthesised and administered to patients, which induces regulatory T-cells that down regulate the immune response to the allergen from which the administered peptide was derived, leading to the development of tolerance. This contrasts with many allergy treatments, which are only useful for symptom control, and do not treat the underlying condition.

In September 2011, Circassia announced that its ToleroMune® hay fever (grass pollen) vaccine had achieved positive results in a phase II clinical trial, substantially improving patient's allergy symptoms in comparison to placebo. The results of the trial showed the treatment reduced allergic symptoms in the eyes of patients exposed to grass pollen by up to 30% more than placebo, as well as improving early and late skin reactions by up to 54% and 19% more than placebo. In addition, the vaccine had a safety profile similar to placebo.

In December, Circassia's ragweed allergy therapy achieved positive results in a large scale phase II clinical trial. These results were announced at the 2012 Annual Meeting of the American Academy of Allergy, Asthma and Immunology in March 2012. The ragweed trial was designed to assess the T-cell vaccine's efficacy and tolerability, and to identify the optimal treatment regime. During the trial, patients were exposed to ragweed allergens in an exposure chamber, and their symptoms following treatment

were compared to their pre-treatment baseline. Results showed that the optimal dosing regimen for the T-cell vaccine reduced patients' symptoms by 97% more than placebo in subjects with moderate baseline symptoms. The study also showed that patients with more severe symptoms achieved a significantly greater reduction following treatment than those on placebo. Ragweed pollen is highly allergenic and is the leading cause of hay fever in North America, where Ragweed is extremely common. Ragweed is also becoming prevalent in areas of Europe. 

This follows on from positive results in June 2011, when Circassia announced that it had successfully conducted a one year follow-up study for its ToleroMune® cat allergy vaccine, which found that the treatment maintained its effect for 12 months following the initial treatment. The improvement in patients' total rhinitis symptoms compared to placebo had improved over the period from 94% to 133%. The ToleroMune® cat vaccine was administered to patients in four vaccinations over a 12 week period, representing a substantial improvement over conventional immunotherapy, which can take between three and five years. In addition, the vaccine had an excellent safety profile. Circassia's use of synthesised epitopes is an improvement over conventional immunotherapy in that it does not require use of the whole allergen, which can cause severe side effects.

Since its formation in 2006, the company has raised £105 million from its investors, alongside the Group. In April 2011, Circassia raised a £60 million funding round, led by the Group. This was the third largest investment in a private European biotechnology company for the past 15 years.

The market opportunity for Circassia's allergy products is highly attractive. Research from LEK indicates that the total market opportunity in the US for the company's four lead products is $2.6 billion per annum, with an opportunity for annual sales of $0.5 billion - $1 billion for the Cat product alone. In view of Circassia's milestone achievements, a fair value gain of £3.1 million (15%) has been recognised, taking the net carrying value to £23.6 million.

Veryan has made significant progress in the development of its BioMimics 3D™ stent technology. Veryan completed enrolment of patients in the MIMICS study in February 2012. This prospective randomised study was designed to evaluate the performance of the BioMimics 3D™ stent in the femoropopliteal application and has been conducted in Germany with Professor Thomas Zeller as the Principal Investigator. Initial results from the study have confirmed that the excellent preclinical results may be transferred to the human clinical experience. Veryan will apply for CE mark in the near future.

Veryan has also made two recent appointments to strengthen the team at Board and Management levels. Todd Pope has been appointed as a Non-executive Director. Todd is the CEO of Transenterix, a medical device company based in North Carolina and has spent more than 20 years working in key leadership positions within the medical-device industry. He served as Worldwide President of Cordis (a division of Johnson & Johnson) between 2006 - 2009 and previously held a number of leadership positions within Johnson & Johnson and Boston Scientific. Todd's experience in the global peripheral stent business adds significantly to Veryan's strategic approach. Nick Yeo was recently appointed as Chief Operating Officer. Nick has over 20 years' experience in the cardiovascular device industry in corporate appointments and in start-up companies and will provide leadership and direction as Veryan prepares to commercialise the BioMimics 3D™ stent technology. The net investment carrying value for Veryan has increased by £1.25 million to £9.3 million to reflect the investment made in October 2011.

Plaxicaclosed a £5 million series B funding round, taking its total funds raised to £10 million. Plaxica is developing new types of polylactic acid and biopolymers made from renewable and sustainable resources. The funds will allow Plaxica to advance its technology toward commercial implementation and licensing. Plaxica appointed a new CEO, Phil Goodier, former Group Managing Director at Hexadex and previously manager of Dupont's PET business. In January 2012, Plaxica announced it had begun the process of building its first demonstration facility, at Wilton International on Teesside. The plant will be used to gain key process data in preparation for scale-up and is expected to be operational later in 2012. Post period end, Plaxica announced the appointment of Martin Riediker as Chairman. Martin, previously Chief Technology Officer, Chief Innovation Officer and a member of the executive committee of Ciba, had been a non-Executive Director of Plaxica since early 2010. The net investment carrying value for Plaxica has increased by £2.2 million to £4.6 million to reflect the investment made in September 2011.

PsiOxus made strong progress, following its formation through the merger of Myotec Therapeutics and Hybrid Bioscience. In addition to recent study results which have demonstrated the efficacy of its cachexia and sarcopenia treatment, MT-102, in September 2011, PsiOxus received £1.8 million in grant-funding from the Wellcome Trust to support the clinical development of its cancer treatment, ColoAd1, an oncolytic virus which attacks cancer cells with selectivity far greater than other treatment types, such as chemotherapy.

In December 2011, PsiOxus presented data at the 6th Cachexia Conference which confirmed that it's MT-102 compound had both pro-anabolic (muscle and fat tissue build-up) and anti-catabolic (muscle and fat tissue loss) effect in pre-clinical models for cancer cachexia and age-related sarcopenia. In the same month, the company announced the success of its manufacturing partnership with ARK therapeutics, enabling the commencement of its ColoAd1 clinical trial.

In January 2012, the company strengthened its team with the appointment of Dr Paolo Paoletti as non-executive director. Dr Paoletti is President of GSK Global Oncology, managing over 800 professionals fighting the causes and impacts of cancer, overseeing the activity in GSK from early drug discovery through clinical development to launch. Previously he was VP oncology at Eli Lilly. Dr Hermiston, VP of Biologics Research at Bayer Healthcare Pharmaceuticals and inventor of the ColoAd1 oncolytic virus, joined the company's scientific advisory board. In April 2012, PsiOxus expanded into new facilities at the Milton Park in Oxfordshire, doubling its laboratory space. PsiOxus net carrying value is unchanged for the half year at £4.4 million.

PolyTherics raised £2.2 million in further funding in September 2011 with investment from the Group, The Capital Fund and ProVen Health VCT PLC. The company announced at the time that the new finance would be used to apply its proprietary technology to a wider range of therapeutic proteins and peptides, and to pursue new applications for these technologies. In December, PolyTherics announced it had licensed its TheraPEG technology to Nuron Biotech to allow it to develop and commercialise a long-acting proprietary human interferon beta-1b. PolyTherics received an option fee as part of the deal and is eligible for royalties and milestone payments as the drug development continues.

In January 2012, PolyTherics completed the acquisition of Warwick Effect Polymers, a provider of specialty biopolymers for the modification of biological products. The acquisition provides PolyTherics with broader technology capabilities including low viscosity polymers for the creation of longer acting drugs and a novel drug targeting technology. The net investment carrying value for PolyTherics has increased by £1.3 million to £4.3 million, reflecting the £1.2 million investment made and a fair value gain of £0.1 million that has been recognised. 

Cell Medica continued to progress trials of its cellular immunotherapy treatments, following the treatment of the first patient in their Cytomegalovirus ACE/ASPECT clinical trial in February 2011. In September 2011, Cell Medica secured funding from the Wellcome Trust which will allow it to complete its CMV~IMPACT study investigating the use of its cellular immunotherapy treatment alongside conventional antiviral drug treatments. Participants in the trial include 14 of the largest bone marrow transplantation sites in the UK.

In January 2012, Cell Medica and the UCL Institute of Child Health received joint funding from the UK Technology Strategy Board for a phase I/II clinical trial for its ASPIRE (Adenovirus-Specific Paediatric Immune Reconstitution) programme, which is aimed at demonstrating the efficacy of adoptive cellular therapy against adenoviruses in paediatric patients following bone marrow transplants. In view of Cell Medica's progress, a fair value gain of £2.5 million (155%) has been recognised, taking the net carrying value to £4.0 million.

Stanmore Implants Worldwide achieved significant technical progress in the months following the Group's £4 million investment in the company in July 2011. The company was originally based on proprietary technology from UCL. In January 2012, the company received CE mark approval for its METS modular implant system, which is treated with ionic silver to reduce infection rates. In the same month, the company announced that the first patients had been treated using its 'Savile Row' system, a personalised knee replacement system which is based on technology developed at Imperial. The net carrying value for Stanmore remains unchanged at £4.0 million.

EVO Electric continued development of its Axial Flux motor and generator technology, following the formation of a joint venture with GKN during the preceding financial year. For the full calendar/financial year 2011, EVO delivered electric drive systems based on its Axial Flux technology to customers across Europe and India, including four global car manufacturers, two global bus and truck manufacturers, and three premium vehicle manufacturers.

In August 2011, EVO's Axial Flux motor technology was used in the Toyota EV P001, an all-electric racing car, which set the fastest time ever for an electric vehicle round the Nurburgring in Germany, achieving a better lap-time than many conventional vehicles with internal combustion engines.

In February 2012, EVO announced that a hybrid-electric off-road car powered by its Axial Flux motor and generator technology had become the first electric-drive vehicle to complete the Dakar rally (held this year in South America), an 8400km journey which more than half of entered vehicles failed to complete. EVO's motors have now been used in three landmark electric vehicles- the Dakar rally off-road car, the Toyota EV P001, and the Racing Green Endurance SRZero, which was the first electric vehicle to drive the full length of the Pan-American highway. In March 2012, Evo also had its technology demonstrated in high performance vehicles, the Lotus Evora 414e Hybrid and the Infiniti EMERG-E. There is a small increase in the net carrying value for Evo of £0.1 million to £4.0 million to reflect a purchase of shares.

Topivert entered into an exclusive drug discovery collaboration with RespiVert aimed at identifying new Narrow Spectrum Kinase Inhibitors. TopiVert receives exclusive rights to select and develop those NSKIs which target the treatment of inflammatory diseases of the eye and gut such as uveitis or inflammatory bowel disease, while RespiVert receives exclusive rights to those NSKIs which target other indications such as inflammatory diseases of the lungs. TopiVert is based in the Imperial College Incubator, where RespiVert remains a tenant. TopiVert's net carrying value increased by £1.975 million for the half year to £2.1 million to reflect an investment of £1.9 million and a modest £0.1 miilion fair value gain.

Ventures and pipeline development

Imperial College London - Spin outs

Five new Imperial companies are presently being incubated:

Econic Technologies is developing catalysts that enable polycarbonates, and subsequently polyurethanes, to be produced using CO2 as one of the raw materials. As a result, more than 30% of the resulting polymer can derive from carbon dioxide, providing an attractive means to sequester CO2 into useful products. Additionally, the proportion of petrochemicals used to make these materials is significantly reduced. Because raw materials costs can account for up to 80% of the sales price of the finished product, it is expected that the reduced petrochemical content will translate to significant savings for manufacturers of polycarbonates and polyurethanes. In February 2012, the company received £1.1 million in investment from the Group and Norner Verdandi, a division of Norner AS, the Norwegian technology consultant. David Morgan, former Executive Director at Johnson Matthey, has joined the company as Chairman and Dr Charlotte Williams acts as Chief Scientific Officer.

Hexxcell is developing technology to combat the problem of fouling in heat exchangers in oil refineries. Fouling in heat exchangers reduces their effectiveness and efficiency over time, and results in extra oil being burned in furnaces. It has been estimated that improved energy recovery efficiency could save £2 million - £15 million per refinery per annum, and across all oil refineries could prevent the release of nearly 90 million tons of CO2 per year, equivalent to 2.5% of global anthropogenic CO2 emissions (as at 2009). Hexxcell is being supported as part of a £9.3 million funding agreement between BP and the Skolkovo Foundation based in Russia.

Fractal is a web based service that allows e-mail marketers to ensure their e-mail designs are compatible with a range of different e-mail clients. The Group made a seed investment of £50k as part of a £0.1 million funding round alongside Seedcamp and The Accelerator Group and the founding Fractal team. Fractal was founded by an MSc student from the computing department at Imperial.

In addition, Alkion Biopharma is developing an innovative method to propagate leafy biomass containing medicinal chemicals and Novocore is working on all aspects of digital electronics design with a focus on low power, high performance computation applications using Field Programmable Gate Array chips.

The number of opportunities originating from Imperial remains healthy. The Group reviewed 165 invention disclosures, filed 16 new patents, and signed seven (7) commercial agreements.

Imperial College London - Licensing

The Group's Technology Transfer Operation (TTO) works exclusively on opportunities emanating from Imperial. During the half year the Group signed seven commercial agreements.

The TTO is focusing on building portfolios of products and licences in specific areas. In medical devices, the Group is currently marketing 18 patents, and to date has 14 licences in place. During the period a novel microscopy design was licensed to a major optics manufacturer. The design improves image clarity by reducing the background fluorescence and can be added to existing devices as well as being a standalone device.

In the automotive and energy storage area the Group is progressing a portfolio of 20 technologies. Since the end of January 2012, an evaluation agreement was signed with Lotus Engineering for a novel aluminium forming process and an evaluation agreement was signed with Alerion Energie Rinnovabili S.r.l. for a technology for the improvement of wind power generation efficiency. In addition, the Group signed a further evaluation agreement with FPT Industrial for research and development on new technologies for improved performance and efficiency.

Cambridge

The Group has now concluded two investments in Cambridge University associated companies: MISSION Therapeutics and Cambridge Communication Systems and continues to evaluate new company opportunities and technologies. The Group has a presence in the ideaspace enterprise accelerator on campus and started to operate an office at the Babraham Science Park from April 2012. In February, the Group held a launch event at Emmanuel College, Cambridge to celebrate its first investments in Cambridge. The event was attended by around 120 individuals from academic, business and investment backgrounds, including representatives from Cambridge Enterprise.

Oxford

The nature of the Group's collaboration with Oxford is slightly different to that with the other universities and entails engaging at a later stage with OSEM, the company that manages the shares in Oxford spin-outs following formation and initial funding. The Group is in the process of forming a market-led opportunity to develop an antibody therapeutic for the treatment of rheumatoid arthritis, where some of the development work will be conducted in Dr Kim Midwood's laboratories at the Kennedy Institute of Rheumatology. The Group also has an investment in PsiOxus, based in Oxford and led by Professor Len Seymour and Dr Kerry Fisher of the department of Clinical Pharmacology, Oxford University.

UCL

The Group has invested in three UCL linked companies: Stanmore Implants Worldwide, Autifony and Animal Systems (ASIO). The Group provided £0.1 million of seed funding to ASIO alongside £0.1 million from UCL Business. ASIO is a new spin-out, co-founded with UCLB based on UCL technology. It is currently building novel data-sharing applications for mobile devices launching in Spring 2012. In January 2012, UCLB and the Group together secured £0.5 million of research funding from The Carbon Trust for Imperial and UCL to develop a novel polymer fuel cell.

Recruitment and appointments

There are three Entrepreneurs in Residence working across the portfolio. Nigel Burns has over 20 years' experience in the biotech industry, and was a former senior executive at Cambridge Antibody Technology, CAT. John Hamlin has 25 years' experience at BP in various senior positions within the chemicals and polymers space. Until recently, John was the founder CEO of one of the Group's accelerated growth companies, Plaxica. Mark Routh has over 25 years' experience in the oil and gas industry. He was founder CEO of CH4 Energy Ltd., which sold to Venture Petroleum plc for £153m in 2006.

In addition, the Group has engaged Simon Cartmell as a Venture Partner. Simon has an impressive track record in healthcare start-ups including as CEO of Apatech, a spin-out which was sold to Baxter for $330m, as CEO of Celltech pharmaceuticals, and as COO of Vanguard, following an early career at GSK.

Outlook

The Group continues to deliver on its broader strategy of maintaining and enhancing its Imperial pipeline; establishing a portfolio of companies emanating from Imperial, Cambridge University, Oxford University and University College, London and developing momentum across its portfolio, building significant businesses with access to capital enabling scale.

Since the half year period-end, the Group has continued to invest in its portfolio companies investing £15.3 million in eight companies. The pipeline continues to build with investment momentum across the portfolio at all stages of each company's development and there continue to be high quality opportunities to put capital to work.

Susan Searle

Chief Executive Officer

FINANCIAL REVIEW

Summary

The balance sheet has remained strong and the Group ended the period with net assets up by £0.9 million from July 2011 to £225.0 million. Cash and short term liquidity investments remained healthy at £72.5 million (H1 2011: £76.2 million, FY 2011: £48.8 million) having benefitted from the receipt of the £37 million first instalment of committed deferred receipts from the January 2011 equity raise. Including the remaining future committed deferred receipt from the equity raise of £37 million (due in January 2013), the total available for investment and operations would be £109.5 million. The Group generated a profit during the period of £0.9 million (H1 2011: £1.3 million, FY 2011: £0.6 million). 

The Group's cash investment in portfolio companies during the period was £10.4 million (H1 2011: £6.3 million, FY 2011: £35.1 million), representing significantly increased activity over the prior half year period. Additionally, since the end of January, further investments have been made in portfolio companies, taking the total invested this financial year to £25.7 million, with the portfolio raising a total of £24.5 million in the half year and £76.2 million so far this financial year.

Revenues, cost of sales and operating costs

Trading revenue of £1.6 million (H1 2011: £1.8 million, FY 2011: £4.5 million) was marginally down from the prior half year reflecting the continuing challenging economic environment. Licence and royalty revenue from intellectual property licences was £0.8 million (H1 2011: £0.9 million, FY 2011: £1.9 million). Other income, including corporate finance fees received of £0.2 million, totalled £0.8 million (H1 2011: £0.9 million, FY 2011: £2.6 million). 

Cost of sales, which mainly arises from the revenue sharing arrangements with Imperial remained steady at £0.5 million (H1 2011: £0.5 million, FY 2011: £1.1 million) reflecting the licence and royalty activity. 

Administrative expenses were £4.3 million (H1 2011: £3.7 million, FY 2011: £7.8 million). Administrative expenses also include costs of £0.4 million (H1 2011: £0.5 million, FY 2011: £0.9 million) incurred filing patents and protecting the as yet unexploited intellectual property from Imperial. The expected increase on prior period costs represents the increase in the size of the operation, to enable increased investment activity, following the equity raise in 2011.

Finance income was £1.3 million (H1 2011: £0.2 million, FY 2011: £1.7 million), and includes the release of the discount on the deferred, partly paid shares issued as part of the equity raise of £0.9 million (see note 5 to the Interim Financial Statements). Underlying interest earned was £0.4 million and continues to represent the Group's cautious approach to cash investment and hence represents a good return in a market with generally low returns.

The Group reported a profit before tax of £0.9 million (H1 2011: £1.3 million, FY 2011: £0.6 million). The Group's basic earnings per share was 1.49p (H1 2011: basic earnings per share 2.09p; FY 2011: basic earnings per share 0.93p). The Company did not pay a dividend.

Cash and short-term liquidity investments

At 31 January 2012, the Group had cash and short term liquidity investments of £72.5 million (H1 2011: £76.2 million, FY 2011: £48.8 million). 

Although the Group's cash and short term liquidity investments were £72.5 million at the period end, when including the future committed deferred receipts from the equity raise of £37 million the total available for investment in the portfolio and for operations, in the absence of any cash realisations, totals £109.5 million.

The increase in cash and short term liquidity investments of £23.7 million from the opening balance at 31 July 2011 is summarised below:

1 Excludes the tranche 2 deferred proceeds on the equity raise of £37m due in January 2013.

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.

Investment portfolio performance

The Group reported a net fair value gain arising from the portfolio of £2.9 million (H1 2011: £3.4 million gain, FY 2011: £3.3 million gain). An analysis of the changes in fair value is set out in note 2 to the interim financial statements and is summarised below:

The total gross value of the portfolio increased from £104.5 million to £117.4 million as a result of investments of £10.4 million, proceeds on disposals of £0.5 million and fair value gains of £3.0 million. Total non-current liabilities remained at £5.7 million (31 July 2011: £5.7m). 

Investment and divestment

During the half year, the Group made £10.4 million of investments to fund 14 technology companies in its portfolio and at the end of the half year had outstanding commitments to make further investments of £16.4 million. 

Since 31 January 2012, the Group has invested a further £15.3 million in eight companies, which brings the total invested in this financial year to £25.7 million.

During the half year, the Group received the £0.4 million which was outstanding from the disposal of Respivert in May 2010. This amount had been included in trade and other receivables. During the period, the Group realised £0.5 million from the sale of other investments.

Portfolio company creation

At 31 January 2012, the Group held equity stakes in 79 companies (H1 2011: 80 companies, FY 2011: 78 companies). The movement reflects formations less dissolutions and liquidations during the year.

The following table analyses the cash received during the period from the sale of investments.

Revenue share represents amounts payable to Imperial and the Appointee Directors' Pool on revenue and on the future realisation of investments (based on fair values).As at the period end, the Group was holding a total of £5.7 million (H1 2011: £7.2 million, FY 2011: £6.1 million) as risk adjusted discounted deferred proceeds of sales of investment assets. This amount is held within other receivables. The total unadjusted potential proceeds, which relates to the sale of Thiakis Limited, are £13.1 million (H1 2011: £14.3 million, FY 2011: £13.5 million). 

On 12 April 2012, the Group received notification from Pfizer that they have decided to discontinue all activities relating to the research and development of products relating to Thiakis. It is Pfizer's intention to seek a third party licensor or acquirer for the associated product rights. Since the notification was received after the period end this has been treated as a non-adjusting post balance sheet event and the full impact on the receivable is currently uncertain.

Total net investment after net cash disposals in the period was £10.2 million (H1 2011: £5.9 million, FY 2011: £31.9 million).

Portfolio company overview

The table below sets out the top 15 technology companies in the portfolio by value, and in addition contingent deferred consideration (Thiakis), 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.

1 See note 4 to the interim financial statements.

Julian Smith

Chief Financial and Operations Officer

CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTH PERIOD TO 31 JANUARY 2012

The accompanying notes are an integral part of these interim financial statements.

CONSOLIDATED INTERIM BALANCE SHEET

AS AT 31 JANUARY 2012

The accompanying notes are an integral part of these interim financial statements.

The interim financial statements on pages 14 to 26 were approved by the Board of Directors on 20 April 2012 and were signed on its behalf by J. Smith and S. Searle.

CONSOLIDATED INTERIM CASH FLOW STATEMENT

FOR THE SIX MONTH PERIOD TO 31 JANUARY 2012

The accompanying notes are an integral part of these interim financial statements.

CONSOLIDATED INTERIM 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.

The accompanying notes are an integral part of these interim financial statements.

NOTES TO THE INTERIM FINANCIAL STATEMENTS

1. BASIS OF PREPARATION

These unaudited condensed consolidated interim financial statements have been prepared in accordance with the AIM Rules and European Union endorsed International Financial Reporting Standards and International Financial Reporting Interpretation Committee Interpretations. These comprise the consolidated interim statement of comprehensive income, the consolidated interim balance sheet, the consolidated interim cash flow statement, the consolidated interim statement of changes in equity and the related notes ("the condensed consolidated interim financial statements"). The Group has chosen not to adopt IAS 34, "Interim Financial Reporting", in the preparation of these condensed consolidated interim financial statements.

These condensed consolidated interim financial statements have been prepared on a going concern basis under the historical cost convention, as modified by the revaluation of certain financial assets at fair value, as required by IAS 39, "Financial instruments: Recognition and Measurement". The accounting policies adopted are consistent with those of the annual financial statements for the year ended 31 July 2011, as described in those financial statements. As at the date of signing the condensed consolidated interim financial statements, there are no new Standards likely to affect the financial statements for the year ending 31 July 2012.

These condensed consolidated interim financial statements do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 July 2011 were approved by the Board of Directors on 4 October 2011 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.

2. 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 £2,859,000 as set out on the face of the Consolidated Statement of Comprehensive Income represents the change in net fair value 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 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'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.

University Challenge Seed Fund

The University Challenge Seed Fund (UCSF) reflects an award made by the UK government and third parties and must be deployed according to the conditions of that award. The purpose of the fund covers seed investment and funds for proof of concept awards. These terms include a restriction on distribution of monies from UCSF investments until the fund size has reached a multiple of three times the original investment of £4.15 million, excluding donations from industry parties. The corresponding creditor balance is reflected on the balance sheet under 'non-current liabilities'. The increase in the value of this asset in the period arises mainly as a result of revaluations.

Fixed asset investments

All equity investments held by the Group are defined as financial assets under International Accounting Standard (IAS) 32 'Financial Instruments: Disclosure and Presentation' and are classified as financial assets held at fair value under IAS 39, 'Financial Instruments: Recognition and Measurement'. This includes all UCSF equity investments.

Under IAS 39 the carrying value of all investments is measured at fair value with changes in fair value between accounting periods being charged or credited to the Consolidated Statement of Comprehensive Income. 

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.

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

1 All quoted companies are registered on AIM.

2 The provision for liabilities and charges represents monies due to Imperial 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'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 upon the eventual realisation of the Imperial Innovations LLP assets acquired from Imperial 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:

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

3. Earnings per share

Basic earnings per share is calculated by dividing the profit for the financial period by the weighted average number of Ordinary Shares in issue during the period. 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 5 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 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 period. The profits and weighted average number of shares used in the calculations are set out below:

4. Trade and other receivables

Current year receivables include contingent deferred consideration on the sale of Thiakis of £5.7 million (H1 2011: £5.7 million, FY 2011: £5.7 million).

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 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 January 2012, 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.

On 12 April 2012, the Group received notification from Pfizer that they have decided to discontinue all activities relating to the research and development of products relating to Thiakis. It is Pfizer's intention to seek a third party licensor or acquirer for the associated product rights under such circumstances the milestones remain payable by Pfizer. Since the notification was received after the period end this has been treated as a non-adjusting post balance sheet event and the full impact on the receivable is currently uncertain.

5. Share capital and equity raise

Share Capital

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 was 350 pence (the "issue price") each payable in three instalments, comprising 150 pence (paid during the period of the Rights Issue), 100 pence paid 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 or 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 January 2012 was 99,651,035 voting shares (31 July 2011: 99,651,035 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 year ended 31 July 2011. This was 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 related primarily to investment banking, legal and regulatory filing fees, accounting, printing and public relations fees. These issue expenses were 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 issue price for the New Convertible B Shares is payable at 350 pence each in three instalments comprising 150 pence paid during the period of the Rights Issue, 100 pence paid on 20 January 2012 and 100 pence due on 21 January 2013.

Therefore, of the total net proceeds of £135 million, £61 million cash was received in the prior 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 was received on 20 January 2012 and £37 million is due on 21 January 2013. The outstanding receivable is included in the balance sheet as a financial asset within current assets.

The financial asset has been measured at its fair value, applying an appropriate discount rate, with an amount of £36,149,000 included in current assets. The discount rate reflects management's best estimate of the time value of money with reference to the yield of Invesco's bonds due to be repaid in 2013.

The amount discounted is being unwound through the Statement of Comprehensive Income with a subsequent reserve transfer to issued share capital. Finance income includes £0.9 million on the unwinding of the discount (H1 2011: £0.1 million, FY 2011: £1.0 million) and £0.4 million as interest receivable on cash and short term liquidity investments (H1 2011: £0.1 million, FY 2011: £0.7 million).

6. Short term liquidity investments and cash and cash equivalents

Reconciliation of amounts invested to Trade Investments:

Reconciliation of cash flows arising from sale of trade Investments:

Reconciliation of cash flows arising on revenue share paid on asset realisations of trade investments:

7. Post balance sheet events

Since 31 January 2012, the Group has invested a further £15.3 million in eight companies, which brings the total invested in this financial year to £25.7 million.

The Group sold Thiakis to Wyeth (now Pfizer) in December 2008 and includes a receivable on the balance sheet of £5.7 million relating to contingent deferred consideration based on the achievement of future milestones. On 12 April 2012, the Group received notification from Pfizer that they have decided to discontinue all activities relating to the research and development of products relating to Thiakis. It is Pfizer's intention to seek a third party licensor or acquirer for the associated product rights. Since the notification was received after the period end this has been treated as a non-adjusting post balance sheet event and the full impact on the receivable is currently uncertain.

Independent review report to Imperial Innovations Group plc

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 January 2012, which comprises the consolidated interim statement of comprehensive income, consolidated interim balance sheet, consolidated interim cash flow statement, consolidated interim statement of changes in equity and related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the AIM Rules for Companies which require that the financial information must be presented and prepared in a form consistent with that which will be adopted in the company's annual financial statements.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with the basis of preparation set out in note 1.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the AIM Rules for Companies and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 January 2012 is not prepared, in all material respects, in accordance with the basis of preparation set out in note 1 and the AIM Rules for Companies.

PricewaterhouseCoopers LLP

Chartered Accountants

20 April 2012

Cambridge

Notes:

The maintenance and integrity of the Imperial Innovations Group plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.