Fusion IP considering exits from some of its spin-out companies

FUSION IP said it is considering selling some of its promising university spin-out companies as its portfolio begins to reach maturity.

The Sheffield company, which turns university research into business, has stakes in 23 university spin-outs from its exclusive deals with Sheffield and Cardiff universities.

Fusion yesterday reported on a year of progress as it cut pre-tax losses for the 12 months to the end of July by more than two thirds, and vastly increased revenues.

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"We're making good progress," said chief executive David Baynes. "Revenues are up through the roof and there's an increasing number of companies that are looking very interesting."

Fusion said pre-tax losses totalled 1.6m for the year, compared with a 5m deficit a year earlier. Revenues and portfolio returns surged to 4.4m, compared with just 561,000 a year earlier. Some 2.6m of this gain was down to portfolio companies increasing in value.

Shares in Fusion surged 11.3 per cent yesterday to close up 3p at 29.5p.

Of its companies, Sheffield-based Simcyp was the most profitable, growing earnings by 42 per cent to 1.7m and sales by 21 per cent to 4.7m.

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The firm, which employs about 50 staff, simulates how the body deals with new drugs in development, allowing pharmaceutical companies to analyse how a drug is absorbed and used before clinical trials start.

This process helps to significantly cut costs and time for its customers, and Simcyp won the Queen's Award for Enterprise earlier this year. Fusion, which holds 21 per cent of Simcyp, expects its growth to continue into 2011. Another Sheffield firm, Magnomatics, signed a host of development contracts during the year. The company, 48 per cent owned by Fusion, develops magnetic transmissions and gear boxes which could lead to lighter and more compact engines.

Magnomatics' turnover surged to 800,000 from 300,000 a year earlier. After winning a contract with the Ministry of Defence in 2009 to investigate a magnetically geared propulsion motor for frigates and submarines, it has signed another contract to further develop the motor for the MoD.

Magnomatics also signed a deal in September with the Department of Transport to develop a lightweight rubbish collection vehicle. Part of a 3m deal awarded to a consortium, the grant aims to develop a vehicle that halves the carbon emissions per tonne of waste collected.

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However, one of the group's biggest hiccups during the year was Cardiff's Demasq, which has developed knee imaging software to help medics assess knee joints. Fusion said despite winning US and European regulatory approval for the product, Demasq had "significant technical and operational issues".

Of Fusion's 1.1m fair value losses, most were down to Demasq, and the group no longer expects any return on its investment.

Mr Baynes said the group expects to sell at least one business this year, but declined to say which one.

"People still remain very interested in this kind of disruptive technology," he said. "People are talking sensible valuations."

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He added: "Fusion is in the game of making exits (business sales) at the right time.

"At the right time, for the right offer, we will be selling businesses. I would like to think that we will see a lot of exits. Some in (financial year ending) 2011, more in 2012 and more in 2013."

Fusion owns the exclusive rights to commercialise research from Cardiff and Sheffield universities.

Despite concerns over university research funding being squeezed by Government spending cuts, Mr Baynes said the pipeline of opportunities emerging from its universities remains as strong as ever.

A working partnership

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Fusion IP joined forces with its stock market big brother IP Group in November 2009.

Fusion sold a 20 per cent stake to IP Group for 3m, also giving its new partner the option to invest in any new companies it creates.

IP Group has the right to buy 12 per cent of any new company Fusion forms, for a set price of 500,000. Forty per cent goes to the academics involved, and Fusion is left with just under half its equity.

Under the deal, IP Group gives new Fusion spin-outs support in return.

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IP Group has invested in all three new Fusion spin-outs created since the deal.

"They're great," said Fusion chief executive David Baynes. "They're very well aligned joint shareholders."

Under the deal, IP Group's chief technology officer Alison Fielding joined Fusion's board as a non-executive officer. Dr Fielding has previously worked for global consultancy McKinsey & Co and pharmaceutical group Zeneca.

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