Imperial Innovations Group Regulatory News (IVO)

19 April 2011

Imperial Innovations Group plc

Balance sheet strengthened to commercialise opportunities from UK's four leading research universities

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 2011. Innovations has also led a £60 million funding round for one of its accelerated growth portfolio companies, Circassia - see separate release.

Martin Knight, Chairman of Imperial Innovations, said:

"The first half of the current financial year was, for Innovations, dominated by the raising of £140m in new equity. This was a very significant step for the Group, for its investee companies, and for the academic community whose ideas and work can now be more quickly translated, with appropriate funding, into marketable products.

"Innovations combines experienced venture capital expertise with the softer skills required to work successfully with the scientific community. With its substantially increased financial resource, Innovations now has ample opportunity to support its investee companies properly and attract top quality management capable of building highly successful businesses.

"This outstanding opportunity will enable Innovations to take full advantage of the good progress being made in a number of the already well established businesses in which it has invested. The recently announced £60m fundraising for Circassia gives confidence that shareholders will see this opportunity being energetically exploited.

"Furthermore, by working with the academic communities of the Universities of Oxford, Cambridge and University College London, as well as Imperial College, the Group is building a world class early stage venture business based on the scientific research excellence of the United Kingdom."

A pdf copy of the results is available at http://www.imperialinnovations.co.uk/interim2011.pdf

Enquiries: 

Background information to the Group

Imperial Innovations - www.imperialinnovations.co.uk 

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

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

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

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

§ providing operational expertise; and

§ helping to recruit high-calibre industry figures and experienced entrepreneurs as executive management & Board members.

In January 2011, Innovations raised £140 million (before issue costs) to accelerate the making of, and increase the size of, investments in companies established under its existing intellectual property pipeline agreement with Imperial College London. The Group also intends to invest in companies founded by or based on technology from the University of Oxford, the University of Cambridge and University College London. Innovations has already achieved significant success with its early investments; for example its £1.5 million investment in obesity drug developer Thiakis could return up to £22.2 million (£16.1 million after revenue share costs) subject to achieving certain milestones, following its sale for £99 million in 2008, while the sale of Respivert in May 2010, a small molecule drug discovery company, resulted in Innovations realising £9.5 million, a 4.7x return on investment.

In the year to 31 July 2010, Innovations invested £14 million in 20 ventures, helping to launch three new companies. For the six months to 31 January 2011 Innovations has invested £6.3 million in 12 ventures. With a technology portfolio of 80 companies, Innovations' most advanced assets include:

§ Circassia: Innovative T-cell vaccines for the treatment of a wide range of allergies

§ Nexeon: Advanced materials that extend the cycle life and significantly increase capacity of rechargeable batteries

§ Veryan: Stents inspired by the human vascular system

§ PsiOxus Therapeutics: Developing a pipeline of small molecule therapeutics for the treatment of wasting diseases and cancer

§ Polytherics: Biotechnology company that applies precision chemistry to develop protein and peptide-based drugs

§ Cellmedica: Cell therapy company working on new techniques to cure human diseases based on cellular immunotherapy

§ Evo Electric: Develops and manufactures advanced electric machines, hybrid drive trains and generator sets for a wide range of transportation and mobile power applications.

CHIEF EXECUTIVE'S REPORT

Strategic overview

Innovations took a significant step forward in the first half of the current financial year. The Group raised £140m of equity (before issue costs) and announced its intention to work with the academic communities, technology transfer offices and/or spin-out equity holders of the universities of Oxford, Cambridge and University College London.

With substantially increased funding and access to a larger pool of innovation, the Group is even more strongly positioned to create, build and invest in pioneering technologies that help to solve global problems in healthcare, energy and engineering.

The Group is now the leading enabler of UK innovation, providing significant funding and operational support for its portfolio companies at all stages of their development. The additional funds will enable it to grow a small number of its advanced portfolio companies more quickly, provide a higher level of early-stage funding that will accelerate commercialisation and attract top-quality management to deliver optimum business performance.

Innovations is making good progress in building on, and widening, its existing collaborations with the universities of Oxford, Cambridge and University College London in conjunction with their organisations Oxford Spin-out Equity Management, Cambridge Enterprise Limited and UCL Business Plc.

Building on the successful platform that the Group developed to commercialise intellectual property (IP) from Imperial College London, Innovations will make substantial investments in companies founded by them or based on their technologies. The Group expects to make its first investments in IP originating from them in the second half of the financial year.

During the first half of the financial year, the Group made strong progress in developing its portfolio of Imperial College originated companies creating underlying value. The Imperial College pipeline continues to deliver potential high value opportunities in a range of sectors. Recent examples include aluminium forming and sustainable plastics from carbon dioxide. The former is a novel low cost process for shaping aluminium that enables complex robust components to be manufactured. The technology is particularly interesting to the automotive industry. The latter involves the manufacture of certain polycarbonates using waste carbon dioxide streams, potentially used in the production of polyurethane, which has a $40 billion annual market.

The Group's financial performance continued to be sound with Innovations maintaining its cash investment rate in the portfolio and in the development of new opportunities. The Group reported an increase in pre-tax profit to £1.3 million ((H1 2010: £0.1 million), reflecting the improvement in the underlying value of the portfolio.

At 31 January 2011, the Group's cash and short term liquidity investments position was £76.2 million after making £6.3 million of investments (H1 2010: £6.2 million) in 12 companies in the half year. The second and third tranches (£37 million each) from the fund raising programme become available in January 2012 and January 2013.

The recent £60 million funding round, led by Innovations, of one of its accelerated growth portfolio companies, Circassia, is a clear demonstration of the Group's strategy. Circassia is a speciality biopharmaceutical businesses focused on the development of anti-allergy products. The funding will play a key role in progressing the company's lead products to market.

Operational review

Realisations

There were no material exits in the first half of the financial year. In August 2010, Acrobot, an orthopaedic business focused on design and manufacture of bespoke implants for limb sparing and complex primary and revision joint replacement, was sold to Stanmore Implants Worldwide. Proceeds on this realisation of £0.5 million were received during the period with a further £0.4m after the period end. Post period end, the Group also reduced its holdings in three quoted companies and realised a further £1.1 million taking total realisations in the financial year to £2.0 million.

Licensing

During the period, the Group signed 12 licence and/or option deals, including a lumbar puncture manometer developed by a clinician at Charing Cross Hospital. This is the first deal arising as a result of Innovations' commercialisation agreement with Imperial College Healthcare NHS Trust. The new device has the potential to improve functionality and efficiency of the million lumbar puncture procedures carried out annually and has been licensed to Rocket Medical.

In February 2011, the Group licensed to EuroImmun AG a technology relating to the diagnosis, prognosis and treatment of rheumatoid arthritis patients according to type or stage of disease using a protein called citrullinated alpha enolase.

Also in February 2011, the Group concluded a licence for a non-destructive pipe-testing technology to Olympus Corporation. The licence covered an apparatus and method for inspecting pipes using elastic waves. The apparatus emits a pulse that travels along the pipe and is detected by receivers, allowing the user to determine whether there are faults in the pipe.

Investments

The Group has maintained its rate of investment, including supporting funding rounds, across its portfolio including companies which are part of the Innovations accelerated growth portfolio. The key investments are highlighted below:

In January 2011, Innovations invested £0.8 million in Novacem, a company developing carbon negative cement, as part of a £1.6 million round alongside existing investors, The London Technology Fund and the Royal Society Enterprise fund and new investor Laing O'Rourke, the UK's biggest privately owned construction company. The latter's investment highlights Novacem's integration with industry and the strong demand for innovative solutions to the challenges of sustainable construction. Innovations holds 43.9% of Novacem.

In December 2010, Myotec Therapeutics merged with Hybrid Biosystems to form PsiOxus Therapeutics. The merger was supported by a new funding round of £3.6 million, in which Innovations invested £1.7 million alongside Invesco Perpetual, an existing investor in Myotec, and Mercia Fund, a founding investor in Hybrid Biosystems. The new funds will be used to develop a pipeline of therapeutic treatments for cancer and wasting diseases, helping to develop promising treatments such as Myotec's MT-102 and Hybrid's ColoAd1 through phase I and phase II clinical development. Innovations holds 41.5% of PsiOxus.

Also in December, Innovations led a seed investment of £0.93 million in Indigix alongside Kurma Biofund I, a Paris based life science fund. The investment of £0.2 million by Innovations follows a small convertible loan made by Innovations to the company. Indigix is developing a platform technology that enables it to engineer synthetic molecules which modify a defined immunological response in a variety of diseases. Potential applications include the treatment of inflammatory bowel disease and diarrhoeal diseases. Innovations holds 50% of Indigix.

In October 2010, Innovations, together with Longbow Capital and other investors, led a funding round for RepRegen (formerly BCT), a bioactive materials developer for soft tissue, orthopaedic and dental applications, of £1 million of which Innovations invested £0.3 million. Innovations has invested a total of £1.1 million in RepRegen and has an equity holding of 34.4%.

In August 2010, Innovations increased its investment in Plaxica, investing £1.1 million and leading a £3 million Series A funding round supported by Carbon Trust Investments, the National Endowment for Science, Technology and the Arts (NESTA) and Invesco Perpetual. The investment will allow Plaxica to accelerate development of a new and low cost route to manufacture high-quality biodegradable plastics from renewable sources with a wide variety of applications. Innovations has a holding of 41.5% in the company.

Also in August, Innovations acquired a further 3.3% of Nexeon's shares from Investor Partnerships UK Ventures, increasing its holding to 41.8%.

Innovations made a seed-investment post period end in Mycologix, which is developing innovative ways to process woody material and turn it into biofuels such as ethanol.

Portfolio operational update

Within the portfolio, two companies, Circassia and Nexeon, are well advanced with strong underlying value created. Post period end, Circassia raised £60 million, the third largest financing for a private European biotech company for 15 years. The achievement of certain milestones within Nexeon is reflected in a £3.6 million fair value uplift during the period.

Nexeon made rapid progress in increasing cell capacity, and announced world-record capacity Li-ion cells in December 2010. Higher capacity rechargeable batteries will enable the development of more advanced portable consumer electronic devices such as mobile phones and laptops. It also offers the potential for a breakthrough in electronic vehicle technology, allowing increased range and decreased weight.

The company achieved 3.2Ah at a realistic discharge rate representative of real market applications. This compares well to current commercial carbon-based Li-ion cells which offer capacities of between 2.5Ah and 3.1Ah. Nexeon is aiming to deliver cells with a capacity of 4Ah by the end of 2011.

Nexeon began providing material, coated anodes and cells under material evaluation agreements to major battery and automotive companies in September 2010. In January 2011, the company scaled its production capability to produce 5,000 kg pa enabling in depth understanding of battery production and potentially opening a new revenue stream. The next scale commercial plant is in design and is expected on stream in 2013. Innovations holds 41.8% of Nexeon.

Circassia advanced at pace, and now has a portfolio of 10 products with nine in phase II trials. The company raised £60 million in April 2011 bringing the total amount raised since launch to £93.1 million. In February 2011, the company successfully completed a key large-scale phase II clinical study of its ToleroMune cat allergy treatment, achieving a significant reduction in allergy symptoms and providing scientific proof of concept for the final phase III stage of development. This follows completion of an initial phase II study for its ToleroMune cat allergy treatment in controlled asthmatics, which also showed encouraging results.

In November 2010, a phase II clinical study of its house dust mite treatment achieved a major reduction in allergic reactions and the product's optimal dose was identified. In September 2010, the company initiated a final phase II chamber study with 275 subjects for its ToleroMune ragweed allergy treatment and began a phase II clinical trial of its grass allergy T-cell vaccine.

Dr James Shannon, formerly Head of Development at Novartis, joined the Circassia board in January 2011. In February 2011, Circassia extended its portfolio of products, acquiring the proprietary molecule PAP-1, a novel topical therapeutic for Psoriasis and atopic dermatitis, from Airmid. Innovations held 16.1% of the company and following the April 2011 investment holds 18.4% of Circassia

Other companies under development within the accelerated growth portfolio have also made good progress:

Polytherics moved to new premises in August 2010 to accommodate its growing number of staff. The company has moved its lead candidate, a Pegylated alpha interferon with an eight fold higher in-vitro activity than a marketed product, into development under contract with DSM Biosolutions. The company also announced a collaboration agreement with Macrogenics to apply its technology to the Macrogenics bi-specific antibody platform and it further strengthened its team through the appointment of John Burt, previously CEO of Thiakis, as Chief Business Officer. Innovations holds 34.6% of the company.

CellMedica announced the treatment in February 2011 of the first patient in its cytomegalovirus ACE/ASPECT clinical trial. The trial was a collaboration between CellMedica, Leukaemia & Lymphoma Research, University of Birmingham and NHS Blood and Transplant. The trial is designed to demonstrate the efficacy of adoptive cellular therapy in immunosuppressed patients following bone marrow transplants.

In January 2011, the company signed an exclusive licence agreement and research collaboration with the Center for Cell and Gene herapy (CAGT), Baylor College of Medicine (Houston, Texas), for the commercialisation of an innovative cell-based treatment for cancers associated with the oncogenic Epstein Barr virus (EBV). In October 2010, Cell Medica strengthened its board with the appointment of Dr Thomas Hecht as Non-Executive Director. Dr Hecht has a clinical background and formerly worked at Amgen. Innovations shareholding is 31.8%.

Evo Electric strengthened the team by recruiting Chris Wolfe, previously Operations Director at Modec, and prior to that Engineering Director at Bentley Motors. Its electric motors continue to be chosen for a number of vehicle platforms and motors have been supplied to a wide range of industrial and automotive customers. In November 2010, the Radical SRZero, an electric supercar powered by Evo's advanced electric technology, completed a 26,000km journey along the full length of the Pan-American highway, the first such journey by an electric vehicle. Innovations holds 47% of the company.

Myotec merged with Hybrid Biosystems to form PsiOxus in December 2010 and raised a further £3.6 million. The new funds will be used to develop a pipeline of therapeutic treatments for cancer and wasting diseases, helping to develop promising treatments such as Myotec's MT-102 and Hybrid's ColoAd1 through phase I and phase II clinical development. Innovations owns 41.5% of the company.

Veryan is midway through the CE Mark clinical study for its BioMimics stent platform and has recently added new sites to the study, which are based principally in Germany. Early results are encouraging. The company and its investors are looking ahead to the next stage of Veryan's technical and commercial development following the clinical study. Innovations holds 48.4% of the company.

Repregen raised a further £1.0 million in October 2010 from its existing investors. It is now engaged in commercialising its Stronbone synthetic bone graft substitute material with industry partners, as well as developing a range of new materials based on a family of synthetic extracellular matrices. These are aimed at repairing and regenerating soft tissue such as cartilage, tendon and ligament. The first product from this soft tissue platform will most likely be focused on cartilage repair and regeneration. Innovations shareholding is 34.4%.

Plaxica raised £3 million in August 2010. The funds will be used to accelerate development and scale up of the company's next generation PLA technology. All existing investors, Innovations, Invesco, NESTA and the Carbon Trust, participated in the round. Innovations shareholding is 41.5%.

Novacem has continued to build its links with industry, establishing relationships with a number of industry partners including Lafarge, Rio Tinto and Laing O'Rourke. In January 2011, Innovations, London Technology Fund, The Royal Society and Laing O'Rourke subscribed to a further funding round of £1.6 million. The company has now scaled its technology in South Kensington to produce small quantities of cement and is making preparations for construction of the first pilot plant. David Walkerdine, the former Finance DIrector of Lafarge UK and Strategic and Commercial Director at Redland Aggregates, joined the company as Commercial Director. Innovations shareholding is 43.9%.

Cortexica has recruited a new leadership team. Iain McCready joins as CEO from being CEO of Mobiqa and then NeoMedia, two companies focusing on mobile phone software and barcode technologies. Malcolm Bird joins as Non-Executive Chairman. One of the original founding team at ARM, Malcolm led the growth of Unwired Planet, later becoming Phone.com and then part of Openwave. As a Non-Executive Director he has worked with several companies including Adeptra and Ubiquisys. The company is now focusing its efforts on developing its mobile platform-based image recognition system together with a number of industry and commercial partners. Innovations shareholding is 36%.

New ventures and pipeline development

Three companies, Indigix, Mycologix and Navion continue to be incubated:

Navion is developing novel therapeutic antibodies against voltage gated sodium channel targets for metastatic breast cancer and other indications. The team has been strengthened considerably by the appointment of Phil Bland-Ward as Chief Scientific Officer. Phil was previously VP Preclinical Development at PanGenetics BV and prior to that, was at Cambridge Antibody Technology and GlaxoWellcome. Navion is currently working with a number of external CROs to isolate potential therapeutic leads.

Indigix is developing synthetic routes and analytical processes in conjunction with external clinical research organisations, prior to initiating the next phase of pre-clinical testing which will commence at two centres within Imperial College in April 2011. The company is also building its board, with the appointment of David Brown as Non-Executive Chairman.

Mycologix has demonstrated that its low cost pre-treatment process for biofuels is highly efficient using sugarcane bagasse. The company has recruited Ivor Thomas into a part-time FD role. Ivor was previously FD of a number of listed and private companies.

The number of opportunities originating from Imperial College London remains very healthy. The Group invested £0.5 million in patent filings, filing 23 new patents and reviewed 165 invention disclosures. Five new proof of concept projects were funded, including Fineagg and 'label-free microarray'. The former project was aimed at developing beneficial reuse applications for quarry fines and silt in construction products. The latter was aimed at producing a working demonstrator of label free microarray diagnostic technology, which will allow point-of-care testing for a range of analytes such as biomarkers for cancers, chronic disease and infectious diseases.

The collaborations with the universities of Oxford and Cambridge as well as University College London continue to progress well. Internal teams have been established to develop further Innovations networks of academics, entrepreneurs and co-investors across Cambridge, London and Oxford with new ventures and investment executives assigned. Working with Cambridge Enterprise, Oxford Spin-out Equity Management and UCL Business, the Group is tracking their existing portfolio companies, evaluating opportunities and beginning diligence on a small number of companies.

There are four 'Entrepreneurs in Residence' working across the portfolio. Over 322 opportunities have been identified for detailed review already. The Group expects to make its first investments in the second half of the financial year in opportunities emanating from these three research led universities.

The second half of the financial year has also started well. The substantial funding round of £60 million into Circassia, along with other smaller rounds in companies within the accelerated growth portfolio, are clear examples of the Group's progress in building its portfolio. Innovations is now in a very strong financial position and its collaborations with the universities of Oxford and Cambridge, and University College London are expected to be successful later this year.

FINANCIAL REVIEW

The balance sheet strengthened significantly, primarily reflecting the £140 million (before issue costs) equity raise and rights issue, and the Group ended the period with net assets up by £133.6 million from July 2010 to £224.7 million.

The Group generated a profit of £1.3 million (H1 2010: £0.1 million, FY 2010: £5.5 million). Cash and short term liquidity investments at 31 January 2011 were £76.2 million (H1 2010: £24.4 million, FY 2010: £23.7 million). Including the future committed deferred receipts from the equity raise of £74 million (due in two instalments of £37 million in January 2012 and January 2013 respectively), the total available for investment would be £150.2 million.

The Group has maintained its rate of cash investment in portfolio companies at £6.3 million (H1 2010: £6.2 million, FY 2010: £14.0 million), although since the end of January further investments have been made, bringing the total invested this financial year to £14.7 million.

Revenues, cost of sales and operating costs

Trading revenue was £1.7 million (H1 2010: £2.6 million, FY 2010: £4.3 million) reflecting the generally more difficult trading conditions and economic environment. Royalty revenue from intellectual property licences was £0.6 million (H1 2010: £0.8 million, FY 2010: £0.9 million) and initial licence payments was £0.4 million (H1 2010: £0.8 million, FY 2010: £1.3 million). Other income, including corporate finance fees received of £0.2 million, totalled £0.7 million (H1 2010: £1.0 million, FY 2010: £2.1 million).

Cost of sales, largely arising from the revenue sharing arrangements with Imperial College, at £0.5 million (H1 2010: £0.9 million, FY 2010: £1.3 million) reflects the decreased licence and royalty activity.

Administrative expenses of £3.7 million (H1 2010: £2.8 million, FY 2010: £6.2 million) include £0.4 million of costs for the separation of the Group from Imperial College (as the Imperial College holding in the Group fell below 50% following the equity raise) and the upfront costs incurred on the move into the new offices. Administrative expenses also include costs of £0.5 million (H1 2010: £0.4 million, FY 2010: £0.9 million) incurred filing patents and protecting the as yet unexploited intellectual property from Imperial College London.

Finance income was £0.2 million (H1 2010: £0.3 million, FY 2010: £0.4 million), reflecting the Group's cash balance and the release of the discount on the deferred partly paid shares issued as part of the equity raise (see note 5 to the Interim Financial Statements). Underlying interest earned was £0.1 million, in line with the reduced interest rates available for deposits in the market.

The Group reported a profit before tax of £1.3 million (H1 2010: £0.1 million, FY 2010: £5.5 million). The Group's basic earnings per share was 2.09p (H1 2010: basic earnings per share 0.2p; FY2010: basic earnings per share 9.35p). The fall in the earnings per share against FY2010 reflects the additional shares issued during the equity raise as well as the lower profit for the period. The Board is not recommending the payment of a dividend.

Cash and short-term liquidity investments

At 31 January 2011, the Group had cash and short term liquidity investments of £76.2 million (H1 2010: £24.4 million, FY 2010: £23.7 million). This represents an increase of £52.5 million from the opening balance at 31 July 2010. This movement in cash is summarised below:

1 Excludes the deferred proceeds on the equity raise of £74m due in two equal instalments of £37 million in January 2012 and 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. Although the Group's cash and short term liquidity investments were £76.2 million at the period end, the total assets available over the next two years to invest in the portfolio, in the absence of any cash realisations, total £150.2 million (H1 2010: £24.4 million, FY 2010: £23.7 million) as set out below:

Investment portfolio performance

The Group reported a net fair value gain arising from the portfolio of £3.4 million (H1 2010: £0.9 million gain, FY 2010: £8.2 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 value of the portfolio increased from £67.6 million to £76.9 million as a result of investments of £6.3 million, proceeds on disposals of £0.5 million, fair value gains of £3.6 million and a £0.1 million reduction in the value of the University Challenge Seed Fund. There was a corresponding increase in provisions for liabilities and charges (in non-current liabilities) of £0.2 million and a £0.1 million reduction in University Challenge Seed Fund liabilities (in non-current liabilities), taking total non-current liabilities from £5.2 million to £5.3 million.

The judgements required to determine the appropriate valuation methodology of unquoted equity investments means there is a risk of material adjustment to the carrying amounts of assets and liabilities. These judgements include a decision whether or not to impair valuations. Most unquoted equity investments in the Group are valued using the price of recent investment. However, a small number of companies, that are well advanced, represent 52% of the value of the investment portfolio. It has been deemed appropriate to value these investments using an alternative valuation to the price of recent investment in accordance with the International Private Equity and Venture Capital Valuation Guidelines (IPEVCVG) and the Group's accounting policy.

Investment and divestment

During the half year, the Group made £6.3 million investments to fund 12 technology companies in its portfolio and at the end of the half year had outstanding commitments to make further investments of £2.3 million.

Since 31 January 2011, the Group has invested a further £8.4 million in nine companies, which brings the total invested in this financial year to £14.7 million, and has made further commitments of £8.7 million.

During the half year, the Group received £0.5 million following the purchase by Stanmore of Acrobot. Since the half year, the Group received the remaining £0.4 million arising from this sale and has realised £1.1 million from other investment realisations. This has taken the realisations this financial year to £2.0 million.

Portfolio company creation

At 31 January 2011, the Group held equity stakes in 80 companies (H1 2010: 86 companies, FY 2010: 81 companies). The movement reflects formations less dissolutions and liquidations during the year. A total of 12 companies in the portfolio achieved successful follow-on funding rounds during the period.

The Group has continued its approach of keeping company propositions as unincorporated projects until the opportunity has been developed more substantially. One new company was formed in the half year (H1 2010: three companies, FY 2010: four companies). Post period end one company, Mycologix, was seed funded.

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

1 Revenue share represents amounts payable to Imperial College 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 £7.2 million (H1 2010: £5.9 million, FY 2010: £7.2 million) as risk adjusted discounted deferred proceeds of sales of investment assets. These amounts are held within other receivables. The total unadjusted potential proceeds are £14.3 million (H1 2010: £13.5 million, FY 2010: £14.3 million).  This relates primarily to Thiakis and Respivert.

Total net investment after net cash disposals in the period was £5.9 million (H1 2010: £5.7 million, FY 2010: £4.8 million).

Portfolio company overview

The table below sets out the top 15 technology companies in the portfolio, by value, as set out in the July 2010 annual accounts, including contingent deferred consideration (Thiakis Limited and Respivert Limited), 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.

1 See note 4 to the interim financial statements.

The Group is exposed to the impact of exchange rate volatility of Sterling with US Dollars on the remaining £1.4 million Respivert proceeds. During 2010, the Group entered into a forward contract to exchange US Dollars for Sterling in May 2011 and November 2011 with respect to the £1.4 million of proceeds. The purpose of this contract is to hedge the balance sheet position of the company to minimise foreign exchange exposure.

The discounted fair value of the currency forward exchange contracts held at 31 January 2011 was £0.1 million. The company's policy is not to trade in derivatives, but to use these instruments to hedge anticipated exposures.

CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTH PERIOD TO 31 JANUARY 2011

1 Basic and diluted earnings per ordinary share has been restated to take account of the bonus element of the Rights Issue (see note 3).

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

CONSOLIDATED INTERIM BALANCE SHEET

AS AT 31 JANUARY 2011

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

CONSOLIDATED INTERIM CASH FLOW STATEMENT

FOR THE SIX MONTH PERIOD TO 31 JANUARY 2011

CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY

Attributable to equity holders of the Group

Treasury shares with a cost of £6,468 have been netted against retained earnings representing shares held by the Employee Benefit Trust.

NOTES TO THE INTERIM FINANCIAL STATEMENTS

1. Base of preparation

These unaudited 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 interim financial statements"). The Group has chosen not to adopt IAS 34, "Interim Financial Reporting", in the preparation of these interim financial statements.

These 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 2010, as described in those financial statements. As at the date of signing the interim financial statements, there are no new Standards likely to affect the financial statements for the year ending 31 July 2011.

These 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 2010 were approved by the Board of Directors on 11 October 2010 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 £3,378,000 as set out on the face of the Consolidated Statement of Comprehensive Income represents the change in net fair value of £3,365,000 plus £13,000 to reflect final adjustments on realisations before revenue share with third parties as summarised below.

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

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. hese 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 decline in the value of this asset in the period arises mainly as a result of write downs in equity and loan balances in addition to the costs of running the fund.

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.

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.

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 net profit for the financial period, by the weighted-average number of Ordinary Shares outstanding and, when dilutive, adjusted for the effect of all potentially dilutive shares, including share options and partly paid New Convertible B Shares on an as-if-converted basis. The potential dilutive shares are included in diluted earnings per share computations on a weighted average basis for the period. The prior period earnings per share has been recalculated for the impact of the bonus element of the Rights Issue by including an additional 455,000 shares. The profits and weighted average number of shares used in the calculations are set out below:

4. Trade and other receivables

Current year receivables includes contingent deferred consideration on the sale of Thiakis of £5.7 million (H1 2010: £5.9 million, FY 2010: £5.7 million) and £1.4 million (H1 2010: £nil, FY 2010: £0.9 million) due on the sale of Respivert, which occurred in May 2010.

On 18 December 2008, the Group divested its holding in Thiakis Limited. Under the sales agreement, the Group could receive cash payments of £22.2 million (net of transaction costs). After revenue-sharing obligations of £6.1 million payable to Imperial College London and other research sponsors, the net receipt to the Group would be £16.1 million. As at 31 July 2009, the first payment of £3.3 million had been received and after revenue-sharing obligations, the net receipt was £2.9 million. The estimated fair-value uplift of the remaining contingent deferred consideration, after risk adjustment using industry-standard criteria and discounting for time at 12% per annum, resulted in a fair value uplift in the 12 months ended 31 July 2009 of £6.0 million. At each reporting date the fair value of the contingent deferred consideration is adjusted to reflect the probability of completion of the associated milestones and the timing of any cash receipts. At 31 July 2010, after allowing for further receipts of £0.3 million, there was a negligible £3k impact on the carrying value of the deferred consideration and a negligible £3k impact to the Consolidated Statement of Comprehensive Income. At 31 January 2011 there has been no change to the contingent deferred consideration carrying value and the probability of milestone receipts is considered to be unchanged. As future payments are a contractual entitlement, the £5.7 million contingent deferred consideration is reflected in the balance sheet within trade and other receivables.

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 is 350 pence (the "issue price") each payable in three instalments comprising 150 pence (paid during the period of the Rights Issue), 100 pence due on 20 January 2012 and 100 pence due on 21 January 2013. The unpaid element of the New Convertible B shares has been included in share capital (and financial assets - see below) as the holders are liable to pay the outstanding instalments.

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

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

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

Equity Raise

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

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

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

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

These financial assets have been measured at their fair values, applying an appropriate discount rate, with an amount of £36,098,000 included in current assets and £35,268,000 included in non-current assets. The discount rates reflect management's best estimate of the time value of money with reference to the yields of Invesco's bonds due to be repaid in 2012 and 2013 respectively.

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

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 the sale of trade investments to provisions for liabilities and charges:

7. Post balance sheet events

Since 31 January the Group has led a £60 million funding round in Circassia; Innovations committed £15 million alongside co-investors Invesco Perpetual and other existing investors. The change in fair value will be reflected in the results for the second half of the year.

Since 31 January 2011, the Group has invested a further £8.4 million in 9 companies (which includes Circassia - see above), which brings the total invested in this financial year to £14.7 million. The Group has also made further investment commitments of £8.7 million.

Since the period end of 31 January 2011, until and as at 14 April 2011, the last practical date prior to the approval of the interim financial statements, the value of the Group's publicly quoted investment, Ceres Power Holdings plc, had decreased by 28% from 70.25 pence per share to 50.05 pence per share and the effect of this would be to decrease investments by £0.5 million and reduce the provision for liabilities and charges by £23,000 post the period end.

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 2011, 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 2011 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

18 April 2011

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.