Imperial Innovations Group Regulatory News (IVO)

22 March 2013

Imperial Innovations Group plc

Major growth potential in key portfolio companies

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 2013.

Portfolio developments

Financial highlights

Martin Knight, Chairman of the Group, said:

"Our portfolio companies are developing well, building long-term value as they progress towards commercialisation.

"We have clear potential to grow major companies from several of our leading assets. The top three established assets, Circassia, Nexeon and Veryan Medical, which represent 52.8% of the value of the portfolio, made strong progress - providing validation of their commercialisation prospects.

"Circassia's pivotal phase III trial of its cat allergy treatment is a substantial step towards commercialisation, a great achievement for a private biotech company; Nexeon's strategic partnership with WACKER will provide it with proven expertise in the manufacturing scale-up of its technology to commercial levels; and the CE mark gained by Veryan Medical is a strong endorsement of the quality of its product.

"Our other significant investee companies, including PolyTherics, PsiOxus Therapeutics, Oxford Immunotec, Cortexica and Cell Medica, have also made substantial commercial and technical progress.

"The portfolio has a satisfactory depth and spread of technological activity, which the Directors believe bodes well for a sustained and sizeable increase in the valuation of our investments."

A pdf copy of the results is available at http://www.imperialinnovations.co.uk/interim2013.pdf

Enquiries:

CHIEF EXECUTIVE'S REPORT

Overview

Major growth potential

The Group's strategy is to ensure its assets grow and develop, receiving financial and operational support from Innovations. The Group's leading technology and healthcare assets have achieved a number of important milestones, and Innovations continues to build a portfolio of strong businesses.

Several of our leading assets are successfully developing disruptive technologies or innovative products for major international markets, and have the potential to grow to become substantial companies. They operate in high profile sectors for the UK economy, including energy, oncology, allergy and other healthcare fields, and advanced software. Businesses such as Cell Medica, Circassia, Nexeon and PsiOxus Therapeutics are well-managed businesses moving rapidly towards commercialisation with disruptive technologies, set to achieve a strong market position in their respective sectors.

Nexeon has signed a second joint development agreement (JDA) for its rechargeable battery technology with a global consumer electronics company. Circassia has moved to phase III trials with its cat allergy vaccine therapy. PsiOxus Therapeutics received a $3.3 million contract in January 2013 from the US Defense Threat Reduction Agency for the development of agents to enhance the body's immune response to vaccines.

Value creation

The Group adds value to its portfolio companies through:

·; Funding to enable businesses to grow and develop

Innovations continues to execute on its strategy of supporting early stage technology companies with appropriate funding. During the period, Innovations invested £14 million in portfolio companies, including £3.5 million for Autifony, £2.3m for Oxford Immunotec and £2m for TopiVert. In total, portfolio companies raised £36.7 million from Innovations and other co-investors.

Innovations is also active in helping portfolio companies receive backing from supportive co-investors. Many portfolio companies continue to secure non-dilutive funding from government schemes such as the Biomedical Catalyst and other Technology Strategy Board programmes. These grants enable further research and development and collaboration with partners. In October 2012, Ixico received £2.1 million from the Biomedical Catalyst fund and PsiOxus Therapeutics received £1.7 million in matched funding to fund a second study. In February 2013 Autifony was awarded a grant of over £1.0 million from the Biomedical Catalyst fund.

·; Facilitating the involvement of other investors or strategic partners with specific know-how, expertise or operations that complement and support the Group's companies

Innovations uses its knowledge and contacts within industry to encourage the involvement of strategic partners which give external validation to the technologies and expertise enabling the acceleration of the technologies towards commercialisation. For example, after the period end, Nexeon signed a strategic partnership with WACKER Chemie AG, a global chemicals company that has deep expertise in the manufacture of silicon. PolyTherics announced an additional licence as well as an additional collaboration agreement with a top five pharma company, and Oxford Immunotec signed a licensing and collaboration deal with Lophius Biosciences.

These agreements and strategic partnerships give external validation of the portfolio companies' technologies and the specific expertise they bring enable development of the technologies towards commercialisation to be accelerated.

·; Third party endorsement, certifications and approvals, progression to later stage trials

During the period a number of higher value portfolio companies announced trial launches, results or certifications. Veryan Medical secured a CE mark for its BioMimics 3D™ stent and continues to receive data from a clinical trial demonstrating safety and efficacy. Oxford Immunotec received regulatory approval in Japan for its tuberculosis diagnostic test, T-SPOT .TB. Japan is an important market for the company given its relatively high levels of the disease. Circassia initiated a phase III study of their cat product after the FDA had confirmed that a single positive phase III study would be sufficient for product registration.

·; Appointing talented individuals into key management positions.

Innovations continues to work with its portfolio companies to develop high quality management teams and Boards. One of the advantages of having well-funded portfolio companies with supportive co-investors is the ability for these companies to attract experienced individuals into key management positions. During the period, Circassia and Cell Medica appointed Chief Medical Officers, both bringing significant experience in their field.

Realisation of value

Innovations looks to recognise and realise the value added to its companies at appropriate points. The Directors believe that this value creation will be reflected in higher portfolio valuations in due course. However, this is not a linear process; technology and healthcare companies may not experience significant uplifts between early funding rounds. Representative milestones that could trigger a material revaluation include: the successful market launch of a new product, successful commissioning of a new plant or progression to a later round of clinical trials. A number of Innovations' companies are approaching such events. All of the Group's top companies have maintained or increased value during the period.

Investment

During the period a total of £14 million was invested and the Group's portfolio of companies raised £36.7 million, with £5.7 million going into new companies and £31.0 million into the existing portfolio. Key fundraisings during this half year include:

·; Oxford Immunotec, a medical diagnostics business, drew down its second $3.7 million tranche of funding from Innovations from its $28 million round in 2012. The funds will enable the company to continue expanding its worldwide sales and marketing operation.

·; TopiVert, a drug discovery business, drew down £2.0 million from the Group triggered through the company's completion of a milestone related to demonstrating proof of principle of its compound.

·; Semetric, a data aggregation and analytics firm serving the music marketing industry, received £1.5 million funding from the Group as part of a £3 million round. The funding will enable the further development of Semetric's technology to address other markets.

·; Acunu, a specialist in 'big data' and data analytics received £1.3 million from the Group as part of a £2.7 million funding round. The funding will be used to develop the company's marketing and build its sales team.

·; Autifony, a biotechnology company focused on developing treatments for hearing loss and tinnitus, drew down £3.5 million funding from the Group and brought in a further £3.5 million investment from SVLS.

Technology Transfer

The Group's Technology Transfer Office ("TTO"), in addition to its close relationships with Imperial College academics and technology management expertise, runs a wide-ranging proof of concept scheme dedicated to improving the commercialisation prospects of very early stage technologies arising from Imperial. These activities complement the Group's wider investment activities by providing promising opportunities that have been developed with commercial progress in mind and developing the next generation of companies.

Outlook

Innovations is firmly established across its key collaborating universities of Cambridge, Oxford, UCL and Imperial College London. The Group has continued to support and build its portfolio of investments, working closely with the universities' technology transfer offices, experienced entrepreneurs and management teams to identify and build investment opportunities in the technology and healthcare sectors.

The Group's top portfolio companies are moving towards commercialisation and are now developing considerable value. Nexeon will complete its new manufacturing plant in July and have product available for sale this year. Circassia is in phase III trials with its cat allergy product and plans to complete these in 2015. The US Food and Drug Administration (FDA) and the European Medical Agency (EMA) have confirmed that a single successful phase III trial will be sufficient to begin registration for the commencement of sales. Veryan Medical has achieved CE mark approval, clearing the way for product launch in Europe. In response to trade interest, Innovations and the company's management team are reviewing the strategic options regarding the next stage of Veryan Medical's development.

The Group continues to support directly the growth and development of all of its portfolio companies and will look to realise value at an appropriate time.

Operational review

Operational update and investments in the top 10 portfolio companies

Circassia

A specialty biopharmaceutical company focused on allergies, Circassia has made significant product development progress during the half-year. Its allergy treatment products are increasingly relevant, as allergies are a significant and growing global health issue.

In October 2012 the company initiated a pivotal, multinational phase III clinical study of its ToleroMune® cat allergy treatment, testing safety and efficacy in approximately 1,200 subjects across North America and Europe. The trial follows on from positive phase II results published in September 2012 which showed that, one year after the commencement of the study, patients showed significantly greater reduction in symptoms compared with placebo, following a four-dose course of treatment over 12 weeks.

Prior to the start of the phase III study for its cat product, Circassia held an end of phase II meeting with the FDA at which the FDA accepted that a single positive phase III study of the cat product would be sufficient for product registration, an important factor for Circassia's commercial development.

A key driver of value in Circassia is that its product platform extends to more than one allergen. Phase II trials for its House Dust Mite and Grass products are currently underway.

The company has made a series of important appointments during the period. In September 2012, Dr Brett Haumann, formerly Vice President, Medicines Development Leader at GSK, with a focus on developing inhaled respiratory products, was appointed as Chief Medical Officer. The company also appointed Stewart Sharpe as Vice President of Commercial Operations. Stewart has over 25 years' experience in the pharmaceuticals industry, most recently as Head of Commercial and Business Development at OSI/Prosidion. In December 2012, Circassia appointed Dr Jean-Jacques Garaud to its Board of directors. Dr Garaud has more than 25 years' experience of pharmaceutical research and development, having been Head of Roche Pharmaceutical Research and Early Development.

In February 2013, Circassia announced positive phase II follow up data on its cat allergy treatment, showing that the ToleroMune cat allergy therapy maintained improvements in patients' symptoms two years after the start of treatment, after a short course of four doses over 12 weeks. The original phase II study measured improvements in allergy symptoms in 202 patients, and 50 patients completed the follow-up study. The reduction in patients' symptoms was two to three times greater than in a number of similar studies, and this effect has been shown to be maintained over a significant period.

Circassia's net carrying value increased by £1.6 million to reflect a fair value gain based on progress in trials to date.

Nexeon

A battery materials and manufacturing company developing unique silicon anode technology for next generation lithium-ion batteries, Nexeon continued to demonstrate its potential for long-term growth. In October 2012, Nexeon signed a second JDA with a global consumer electronics company. Nexeon had previously announced in December 2011 a JDA with a global Tier 1 automotive OEM.

Since the period end, Nexeon has formed a strategic partnership with WACKER, the global chemicals company that has deep expertise in the manufacture of silicon. WACKER's role will be to support manufacturing scale-up and provide personnel and expertise as Nexeon plans, builds and commissions its manufacturing plant, planned to be built in the UK.

Nexeon is currently in the process of completing construction of a pilot plant capable of taking it from batch to continuous operation and producing 20 tonnes per annum of its silicon anode material, near its current site at Milton Park in Oxford. Completion is scheduled for July 2013. This plant will provide valuable data and know how, reducing risk as Nexeon scales up to a commercial scale 250 tonne per annum production unit.

Veryan Medical

A specialist in vascular disease, Veryan Medical made good progress, receiving CE Mark status in November 2012 for its lead vascular stent product, the BioMimics 3D™stent, designed for use in arteries in the leg. It has a unique three-dimensional design that mimics the natural helical geometry of the human vascular system. The intention of this design is to improve blood-flow characteristics in a stented vessel. This may in turn confer a vasoprotective effect and enhanced biomechanical performance, with a reduction in kinking, deformation and related vessel trauma during leg flexion compared with a standard stent.

The grant of the CE mark was supported by data from a clinical trial of the BioMimics 3D™ product, which was presented at the VIVA (Vascular InterVentional Advances) meeting in Las Vegas, US, in October 2012. This data showed that, of 50 patients treated with the stent, all remained clear of vessel damage related to the introduction of the stent, and there were no deaths or amputations.

After 12 months, 91.7% of patients remained free of vessel damage related to the introduction of the stent compared with 85.7% from the control group; there were no stent fractures in either group. The trial will continue to yield data for two years, which will support the process of commercialisation.

PsiOxus Therapeutics

A biotechnology company focused on developing oncolytic vaccines, PsiOxus Therapeutics launched a phase I/II clinical trial of its ColoAd1 oncolytic vaccine in September 2012. The study, known as Evolve (Evaluating Oncolytic Vaccine Efficacy) will evaluate ColoAd1 for the treatment of metastatic solid tumours in 126 patients at sites across Europe and has so far recruited and dosed the first nine patients. Initial results of the study are expected by the end of 2013. ColoAd1 is a highly potent, broad spectrum anti-cancer therapeutic capable of destroying tumour cells at minute concentrations.

In October 2012, the company received £1.7 million matched funding from the UK Government's Biomedical Catalyst programme to fund a second phase I/II study of ColoAd1 for the treatment of patients with ovarian cancer to be initiated at cancer centres in the UK later this year. A third clinical study investigating the mechanism of action of ColoAd1 will also be initiated this year.

In January 2013, PsiOxus Therapeutics received a $3.3 million contract in January 2013 from the US Defense Threat Reduction Agency for the development of agents to enhance the body's immune response to vaccines.

Cell Medica

A biotechnology company developing cellular therapeutics for infectious diseases and cancer, Cell Medica has expanded its operations in the US, establishing an office in Houston, Texas. The company has made a number of senior appointments including Dr Kurt Gunter who was appointed as Chief Medical Officer. Dr Gunter was previously Vice President of Clinical Development at Hospira, Inc, and is currently President of the International Society for Cell Therapy. Also appointed were Jeff Hammel as Chief Financial Officer, who was previously CFO at Orthofix International and US Controller at Eli Lilly, and Ross Durland as Senior Vice President of Development, formerly Vice President of Product Development at Altera Therapeutics and Senior Director Preclinical Development at GeneMedicine.

Cell Medica is currently progressing its ASPIRE Trial, an investigation into the use of its Cytovir ADV product to treat adenovirus infections in high risk paediatric patients following bone marrow transplant. The trial is taking place at Great Ormond Street Children's Hospital.

PolyTherics

PolyTherics develops and markets technology that enables the creation of better biopharmaceuticals, and has signed a number of collaboration, research and licence deals during the half-year period.

In September 2012, Pro Bono Bio exercised its option to obtain an exclusive licence from PolyTherics for use of its TheraPEG technology for the development of a potential long-acting treatment for haemophilia A. In October 2012, PolyTherics announced it had further expanded a collaboration agreement with a top five pharmaceutical company to use its PolyPEG technology to enhance the clinical properties of biopharmaceuticals. Also during October, PolyTherics entered into a research collaboration with Biotecnol for the development of Tribody Drug Conjugates for targeted cancer therapy. During the period PolyTherics also completed a fourth licence agreement with Celtic Pharma for a factor VIII haemophilia product using its PEGylation technology.

In January 2013, the company announced it was expanding its operations in London in response to increased demand for its range of technologies. In March 2013, after the period end, PolyTherics announced it had received a milestone payment under its existing license agreement with Celtic Pharma on its Factor VIII program.

PolyTherics net carrying value increased by £2.2 million to reflect a fair value gain based on progress to date and completion of the fourth licence agreement.

Cortexica

A visual search company developing products for retail and other applications, Cortexica continues to make good commercial progress particularly in its relationship with eBay. It has visually enabled the eBay Motors app which is now live in the US, UK and Germany on both iPhone and Android. Successful visual search recognition rates continue to be above 90%. New companies have continued to sign up for Cortexica's open API and progress is being made to port part of the recognition process onto the mobile device for major chip and handset manufacturers.

Cortexica was recognised for the potential of its 'find-me-similar' technology at this year's Mobile World Congress, an event that attracts 70,000 visitors. The company was awarded a prize for a session in which a number of companies presented on their technologies and the audience (of more than 2,000 people) voted for which would have the biggest impact over the next decade.

Oxford Immunotec

A medical diagnostics company developing novel new tests for various diseases using patented T-cell measurement technology, Oxford Immunotec has made further progress in developing its market worldwide. Its leading T-SPOT.TB test received regulatory approval from the Japanese Ministry of Health, Labour and Welfare in October 2012, followed by reimbursement approval in November 2012. Japan is an important market due to high levels of TB, and is now among more than 40 countries worldwide in which the T-SPOT.TB test can be sold.

In January 2013, the company announced a licensing and collaboration deal with Lophius Biosciences, which operates in the field of novel T-cell based diagnostic test systems. Under the terms of the deal, the two companies will have access to certain intellectual property from the other party, enabling the development of new T-cell based assays.

In August 2012, the SWITCH study, published in the Journal of Occupational and Environment Medicine, provided support to TSPOT.TB showing that tests like it (IGRAs) are cheaper and more accurate than the existing Tuberculin skin test (TST).

Oxford Immunotec drew down its second tranche of funding from the Group in December 2012. The second payment, of $3.7 million, took the total investment from the Group in the company to $9.5 million (£6.06 million). The Group holds an 8% stake in the business. Oxford Immunotec's net carrying value increased to £7.5 million, to reflect an investment of £2.3 million and a fair value gain of £0.6 million as a result of the last investment round.

Plaxica

Plaxica, a renewable plastics business, received a further £1.0 million investment from Innovations, in a £2.0 million round alongside Invesco Perpetual. Plaxica has developed a process for the production of plastics from a variety of non-petrochemical feedstocks, and operates a pilot plant at Wilton, Teesside. The Group now holds a 44.1% stake in the business. The investment will enable the company to refine and demonstrate its process, building data for customer assessment, and also to progress a number of commercial engagements with which it is involved. In September 2012, Plaxica's demonstration plant entered its commissioning phase, which is expected to last a number of months. Plaxica's technology is based on work conducted by Edward Marshall and Professor Gibson at Imperial College London.

Autifony

A biotechnology company focused on the identification and development of novel pharmaceuticals to treat hearing loss and CNS disorders, Autifony received additional funding in February 2013 through the extension of its initial £10 million funding round, bringing in Pfizer Ventures and IBT as additional investors and increasing the size of the round to £15.5 million. The company was also awarded over £1.0 million grant funding from the Biomedical Catalyst fund for the further development of its compounds. Following this post period end investment the Group's holding is 31.8%.

Investments in other portfolio companies

TopiVert

TopiVert, a drug discovery business focused on treatments for inflammation of the eye and gut, drew down £2.0 million from the Group in September 2012. This completes the £8.0 million investment into TopiVert made by the Group alongside SV Life Sciences. The funding was triggered through the company's completion of a milestone related to demonstrating proof of principle of its compounds. The Group has a 33.7% holding in this company.

Abingdon Health

In January 2013, the Group made an investment of £0.7 million in Abingdon Health, a developer and manufacturer of clinical diagnostic tests and services. This follows on from an investment of £2.0 million made in March 2012, and increases the Group's shareholding in the company to 36.4%.

Nascient

Nascient, an antibody discovery business focused on treatments for Rheumatoid Arthritis, drew down a second tranche of funding of £0.5 million to enable it to continue executing its early seed plan. Nascient's technology is based on the work of Professor Kim Midwood, at the Kennedy Institute for Rheumatology, Oxford University. The Group holds a 57% stake in the business.

Impression Technologies

In January 2013, the Group invested £0.1 million and allocated for investment a further £0.4 million in Impression Technologies, a company formed around Imperial College and Birmingham University technology, led by Executive Chairman Mike Foster, formerly CEO of Charter International plc, which he headed for five years following a career at GKN plc and Kvaener. Impression Technologies has developed a technique for rapid forming of aluminium into complex shapes suitable for widespread use in the automotive industry.

Since the period end, the Group has made an investment in:

Cambridge Communication Systems (CCS)

In March 2013, the Group made an investment of £1.0 million in CCS as part of a £4.5 million round, alongside Cambridge Angels. CCS has developed a solution that will allow mobile phone operators to deal with the increased data demand by using a network of small cells overlaid on existing networks, which are wireless, self-organizing and provide ease of installation and low-cost. Since the Group first invested in CCS in December 2011, the company has made good progress and has completed trials with a number of mobile operators. The Group holds a 11.5% stake in the business following this investment round.

CCS's net carrying value increased by £0.3 million to reflect a fair value gain following the funding round.

Investment in new opportunities

The Group continues to seek out opportunities to invest in new emerging sectors and in technologies where there is potential for successful commercialisation.

Acunu and Semetric

Two investments were made in software businesses: in Acunu, a Cambridge-associated business, and Semetric, an Imperial-associated business. Acunu is a specialist in 'big data' with technology that enables its customers to create large, quickly accessible databases using low-cost hardware. The Group invested £1.3m as part of a £2.7m round alongside Eden Ventures and Pentech Ventures. Semetric is a data aggregation and analytics business, initially focused on providing marketing data to the music industry. The Group has invested £1.5 million, again alongside Pentech Ventures, in a £3.0 million round. Both Semetric and Acunu are pursuing opportunities in 'big data' and both have strong entrepreneurial teams.

These companies add to the Group's growing portfolio of software businesses, which includes Featurespace, a predictive analytics business providing services for marketing and fraud prevention; Cortexica, an advanced visual search business; and PSE which provides software analytical tools for modelling complex chemical processes.

The Imperial Technology Transfer Office (TTO)

The TTO is responsible for identifying, developing and commercialising the output of Imperial College London's science base. It evaluates inventions, invests in patents and other forms of intellectual property protection, assists with grant funding and translational funding applications to advance new technologies, and then negotiates licence deals with industry partners or new spinout companies alongside the Group's Ventures team. The TTO is important to the ongoing success of Innovations as it is an important source of future companies. 12 of the Group's top 20 companies originated from the TTO.

The TTO currently manages a portfolio of 304 patents, 151 commercial IP agreements and has conducted over 100 proof of concept projects (funded from grant sources) since 2004. The TTO also manages the Group's holdings in more than 20 smaller product/service companies based on intellectual property developed at Imperial College London.

The TTO manages its technologies in three distinct portfolios: engineering, medtech and therapeutics. Across these three portfolios, nine new projects received proof of concept funding. The Imperial TTO derives much of its proof of concept funding from a HEIF grant, and all nine of these projects received funding from that source.

During the period, the nine proof of concept projects included:

·; An assessment of the manufacturing methods and costs of producing wind turbine blades with fractal edges. This technology can reduce the drag on blades and increase power output of wind turbines by up to 12%, and

·; Preclinical development of small molecule inhibitors of EZH2, an enzyme which is implicated in epigenetically silencing genes that usually suppress tumour growth. Inhibiting the enzyme may have therapeutic effect in brain, ovarian, breast and other solid tumours.

187 inventions were assessed for commercial viability (HY 2012: 165) and 19 patents were filed (HY 2012: 16).

Nine new commercial agreements (HY 2012: 7) were signed, including:

·; Becton Dickinson: antibodies for the development of potential therapeutics for allergic disease;

·; Anglo-Platinum: licence for process to optimise output from froth flotation tanks; and

·; Convincis (new company): licence for inflatable operating theatres to enable low cost training without disrupting existing operational facilities

The TTO delivered £0.7 million of licence and royalty income and £0.1m of funding for services and proof-of-concept projects from Imperial College's Higher Education Innovation Fund (HEIF) programme.

FINANCIAL REVIEW

Summary

The Group's overall financial position remains very sound.

Cash and short term liquidity investments remained strong at £63.0 million (H1 2012: £72.5 million, FY 2012: £43.9 million) following the receipt of the £37.0 million final instalment of committed deferred receipts from the January 2011 equity raise.

The Group generated a profit during the period of £0.9 million (H1 2012: £0.9 million, FY 2012: £5.1 million) and ended the period with net assets down by £0.6 million from July 2012 to £227.6 million. The movement is represented by the profit of £0.9 million less the accounting impact of the EBT purchasing 500,000 shares to hedge future option liabilities associated with the long term incentive share option scheme.

The Group's cash investment in portfolio companies during the period was £14.0 million (H1 2012: £10.4 million, FY 2012: £37.9 million). Additionally, since the end of January, further investments have been made in portfolio companies, taking the total invested this financial year to £15.4 million, with the portfolio raising a total of £36.7 million in the half year and £43.8 million so far this financial year.

Revenues, cost of sales and operating costs

Trading revenue of £1.6 million (H1 2012: £1.6 million, FY 2012: £4.3 million) was comparable with the prior half year reflecting steady performance in a challenging economic environment. Licence and royalty revenue from intellectual property licences was £0.7 million (H1 2012: £0.8 million, FY 2012: £1.6 million). Other income, including corporate finance fees totalled £0.9 million (H1 2012: £0.8 million, FY 2012: £2.7 million).

Cost of sales, which mainly arises from the revenue sharing arrangements with Imperial College, London remained steady at £0.5 million (H1 2012: £0.5 million, FY 2012: £1.2 million) reflecting the licence and royalty activity.

Other administrative expenses were £4.5 million (H1 2012: £4.3 million, FY 2012: £9.2 million). Other administrative expenses includes costs of £0.5 million (H1 2012: £0.4 million, FY 2012: £0.9 million) incurred filing patents and protecting the as yet unexploited intellectual property from Imperial College London.

The Group's carried interest plan, which is a significant portion of its long term incentive arrangements, recognised a release of £2.8 million (H1: 2012: nil, FY 2012: a charge of £3.4 million). There is no cash payment due to members of the scheme until the Group has made substantial cash realisations.

Finance income was £0.8 million (H1 2012: £1.3 million, FY 2012: £2.2 million), which includes £0.4 million relating to the final release of the discount on the deferred, partly paid shares issued as part of the January 2011 equity raise. Underlying interest earned was £0.4 million and continues to represent the Group's cautious approach to surplus cash investment with a focus on capital preservation.

The Group reported a profit before tax of £0.9 million (H1 2012: £0.9 million, FY 2012: £5.1 million). The Group's basic earnings per share was 1.45p (H1 2012: basic earnings per share 1.49p; FY 2012: basic earnings per share 8.10p). The Company did not pay a dividend.

Cash and short-term liquidity investments

At 31 January 2013, the Group had cash and short term liquidity investments of £63.0 million (H1 2012: £72.5 million, FY 2012: £43.9 million).

The movement in cash and short term liquidity investments of £19.1 million from the opening balance at 31 July 2012 is summarised below:

1 Includes the final third tranche of deferred proceeds on the 2011 equity raise of £37m which was received in full 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 £4.2 million (H1 2012: £2.9 million gain, FY 2012: £14.7 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 £155.7 million to £173.6 million as a result of investments of £14.0 million, less disposals of £0.4 million, gains on revaluation of £5.5 million less losses on the revaluation of investments of £1.2 million. Non-current liabilities on investments increased slightly to £5.3 million (FY 2012: £5.1m) reflecting increases in the fair value of the portfolio.

Investment and divestment

During the half year, the Group made £14.0 million of investments to fund 15 technology companies in its portfolio and at the end of the half year had outstanding commitments to make further investments of £6.1 million.

Since 31 January 2013, the Group has invested a further £1.4 million in five companies, which brings the total invested in this financial year to £15.4 million.

During the period, the Group received £0.4 million from the sale of other investments in prior periods. The distribution represents amounts arising following finalisation of the sale process.

On 12 April 2012, the Group received notification from Pfizer that they are seeking an acquirer for, and are discontinuing the research and development of, products relating to Thiakis. On 16 March 2013, after the period end, Pfizer has given notice that the company is now seeking to negotiate with the vendors of the products relating to Thiakis, of which the Group is a party, for the return of the assets. The Group intends to negotiate with Pfizer to re-acquire these assets, however, at the time of reporting, the success of these negotiations and the consequential value of the products relating to Thiakis remains uncertain. Accordingly, the Group has impaired the value of the Thiakis contingent consideration of £3.5 million which was held in other receivables.

Total net investment after net cash disposals in the period was £13.6 million (H1 2012: £10.2 million, FY 2012: £36.3 million).

Portfolio company creation

At 31 January 2013, the Group held equity stakes in 86 companies (H1 2012: 79 companies, FY 2012: 82 companies). The movement reflects formations during the period and two of these are discussed in the CEO report.

Portfolio company overview

The Group has invested a total of £139.6 million in companies which have been active since the IPO of Innovations in July 2006. This includes investment of £4.7 million prior to the IPO and the balance of £134.9 million has been invested since the IPO. Since the January 2011 £140 million equity raise, the weight of capital has been focused towards the later stage companies as we de-risk the investment hypothesis. Of the £134.9 million invested, 83% has been focused on 20 companies where we have invested over £2 million in each with the balance invested in smaller companies.

The Group has a total of £116.7 million invested capital at work in the portfolio of currently active technology companies; £112.8 million invested in the top 20 companies, and £3.9 million in the remaining 25 smaller companies.

The table below sets out the top 20 technology companies in the portfolio by value, including contingent consideration outstanding on the sale of 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.

Table of the net fair value of the top 20 investee companies

A The Group's investment in Molecular Vision is included in the Abingdon Health investment following its acquisition of 50% of the Molecular Vision equity.

B Included within other receivables at the start of the period.

CCurrently active companies which excludes those sold, closed or impaired.

DFollowing conversion of loans and on a fully diluted basis Innovations' holding in Cortexica rises to 65.4%.

CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTH PERIOD TO 31 JANUARY 2013

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

CONSOLIDATED INTERIM BALANCE SHEET

AS AT 31 JANUARY 2013

The interim financial statements were approved by the Board of Directors on 21 March 2013 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 2013

CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY

Attributable to equity holders of the Group

Treasury shares with a cumulative cost of £2,557,000 (FY 2012: £976,000) have been netted against retained earnings representing shares held by the Employee Benefit Trust.

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 2012, 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 2013.

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 2012 were approved by the Board of Directors on 4 October 2012 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 £4.2 million 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.

HEIF funded investment and 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.

The Higher Education Innovations Fund (HEIF) reflects an award made by the UK government 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. Realisation must be paid back to the fund for re-deployment. The corresponding creditor balance is reflected on the balance sheet under 'non-current liabilities'.

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 gains recognised in the Consolidated Statement of Comprehensive Income for each of the periods is generated. The tables exclude any UCSF or HEIF related investments as returns are repayable to the respective funds based on the above terms.

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 net fair value gains and losses together with any investments and disposals.

1 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.

2 All quoted companies are registered on AIM.

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 were not included in the calculation of basic earnings per share for the six months ended 31 January 2012 or year ended 31 July 2012 as these shares were not entitled to dividends. However, as described in Note 4 below, they were included in share capital as the future tranches were 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. Share capital and equity raise and EBT

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 had 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 paid on 21 January 2013. The unpaid element of the New Convertible B Shares had previously been included in share capital (and financial assets - see below) as the holders were liable to pay the outstanding instalments. As at the date of these interim financial statements the shares are fully paid up and application was therefore made for admission to trading on the London Stock Exchange's AIM market for listed securities on 22 January 2013.

The New Convertible B Shares represented a separate class of shares but, save as expressly provided for in the Group's Articles of Association (adopted on 6 January 2011), ranked pari passu in all respects, including voting, with the Existing Ordinary Shares. The New Convertible B Shares had a nominal value of 350 pence but, until the entire issue price had been paid, were non-transferable. The New Convertible B shares carried no right to dividends or other distributions declared, made or paid during the period of their issue.

Following receipt of the final instalment, on 21 January 2013 in respect of the issue price of all New Convertible B Shares the New Convertible B Shares were converted into new fully paid Ordinary Shares of 3 and 1/33 pence each.

On conversion of the New Convertible B Shares, holders were entitled to one Ordinary Share for each New Convertible B Share held and the Ordinary Shares resulting from the conversion, in all respects, rank as one uniform class with the issued and fully paid Ordinary Shares in issue.

The total issued voting share capital as at 31 January 2013 was 99,651,035 voting shares (31 July 2012: 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 paid on 21 January 2013.

Therefore, of the total net proceeds of £135 million, £61 million cash was received in January 2011, 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 was received on 21 January 2013. The outstanding receivable due on 21 January 2013 was included in the balance sheet as a financial asset within current assets in the prior period.

The financial asset had been measured at its fair value, applying an appropriate discount rate, and included in current assets. The discount rate reflected 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 has now been fully unwound through the Statement of Comprehensive Income with a subsequent reserve transfer to issued share capital.

Hedging arrangements by Employee Benefit Trust

As at 31 July 2012, the Employee Benefit Trust held 471,080 of the Group's Ordinary Shares, which have a cost of £983,002 (H1 2012: £6,013). As set out in the Directors' remuneration report for the year ended 31 July 2012 , 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.

It is the intention of the Group to use these shares to settle the option liabilities at the point of exercise and they represent a partial hedge on the cost of the exercise. No shares have been issued from the EBT during the period. During the period the Employee Benefit Trust increased its holding by a further 500,000 shares for a cost of £1,581,000. At the period end the EBT holds 971,080 ordinary shares.

5. 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:

6. Post balance sheet events

Since 31 January 2013, the Group has invested a further £1.4 million in five companies, which brings the total invested in this financial year to £15.4 million.

On 12 April 2012, the Group received notification from Pfizer that they are seeking an acquirer for, and are discontinuing the research and development of, products relating to Thiakis. On 16 March 2013, after the period end, Pfizer has given notice that the company is now seeking to negotiate with the vendors of the products relating to Thiakis, of which the Group is a party, for the return of the assets. The Group intends to negotiate with Pfizer to re-acquire these assets, however, at the time of reporting, the success of these negotiations and the consequential value of the products relating to Thiakis remains uncertain. Accordingly, the Group has impaired the value of the Thiakis asset of £3.5 million which was held in other receivables.

Independent review report to Imperial Innovations Group plc

Introduction

We have been engaged by the company to review the condensed consolidated interim financial statements in the half-yearly financial report for the six months ended 31 January 2013, 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 consolidated interim 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 consolidated interim 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 consolidated interim 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 consolidated interim financial statements in the half-yearly financial report for the six months ended 31 January 2013 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

21 March 2013

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.