Fusion’s portfolio shows growing returns

Last month the company sold its most advanced spin-out, Sheffield-based drug simulation firm Simcyp, for $32m (£20m).

The deal netted Fusion £4m – a 200-fold return on its investment – with academics and staff taking the rest.

Chief executive David Baynes said Sheffield-headquartered Fusion is now repaying investors’ confidence. Shares in the firm closed up XXXX yesterday and have risen XXX

“Many of our early-stage spin-outs are gaining sufficient critical mass to demonstrate clearly the potential value of our exclusive university pipelines,” said Mr Baynes.

“Our business... is an increasingly valuable model, with great future potential for our shareholders.

“It’s taken a long time, to be fair, but when you start a business from scratch it it takes a long time. We’ve got a number of really good companies in the portfolio, particularly in Sheffield.”

Fusion reported deeper first half pre-tax losses of £1.7m in the six months to the end of January, versus £414,000 losses a year earlier.

But Mr Baynes said the results were deceptive as much progress has been made since the period end.

Since then, its spin-outs Seren Photonics, Asalus and Diurnal have completed fundraisings totalling almost £3m.

The company now has cash of around £8m, after ending January with about £5.2m.

Bigger peer IP Group upped its stake in Fusion to 26 per cent in November when the company completed a £5m placing, adding new investors.

“They are a great organisation to work with and have invested in a number of our companies,” said Mr Baynes. “As far as I’m concerned it’s one team.”

Despite the squeeze on university funding, he added Fusion continued to see a strong pipeline of research from Sheffield and Cardiff universities.

It has exclusive deals to commercialise their research, and in December struck a “significant” licence deal from Sheffield University research which allows a pharmaceutical giant to use its technology to develop endocrine disease treatments.

Fusion said this single agreement should earn it royalties of £1m a year at its peak – enough to cover most of Fusion’s annual overheads.

“I don’t think we’re seeing a slowdown,” he said. “Both Sheffield and Cardiff are coming up with some great stuff. I think we will do around three start-ups between now and Christmas.

“Every year the level of interest in what we do has grown.

“We have money and we’re going to spend all that in Sheffield and Cardiff on companies.”

The value of its portfolio companies edged up four per cent to £17.5m by the end of January, and Fusion said it expected to see most of the uplift in the second half.

Mr Baynes said a number of its companies had made big progress in recent months.

Sheffield-based spin-out Seren Photonics, which has developed high-brightness light emitting diode (LED) technology for use in TVs, architectural lighting and laptops, signed its first collaboration deal in January with a big LED firm to target the Indian market.

Seren’s new processing technique has been shown to double the light output of LEDs, which either means much brighter lamps, or less power-hungry lamps.

The deal will allow Seren’s new partner to manufacture LED products using the spin-out’s technology.

In March it also raised £1.8m in equity funding. “It is hoped that this is the last funding that will be required before the company comes to profit,” said Fusion, which owns 40 per cent of Seren.

Another Sheffield company, Magnomatics, had an “excellent” period. The company develops magnetic gear boxes and efficient motors.

It now has development contracts with over 15 major companies in markets such as oil and gas, renewable energy, hybrid vehicles, rail, defence and aerospace.

Fusion holds 48 per cent of Magnomatics.