Inherent value to be “developed and extracted” at Amphion

Amphion Innovations (LON:AMP) said it believes there is “significant inherent value to be developed and extracted” from its partner companies, when it released its annual results for 2010 this morning.

Net asset value per share fell to 14 pence during the 12 months to 31 December, from 26 pence per share a year earlier. Revenues fell 53 percent to US$4.1 million and the group booked a US$1.9 million loss.

DataTern – the New York-based business wholly owned by Amphion that was established in order to commercialise selected intellectual property opportunities from the group’s partner companies – has had its licensing activities restructured, enhancing gross margins.

Seven new licence deals were concluded in the second half bringing the total to 28 by the end of December.

“The recovery of our IP licensing activities in the second half of the year has continued into the current year,” said Richard Morgan, Amphion’s chief executive officer. “This programme has become a central part of Amphion’s business and the key source of revenue and cash flow, allowing the group to continue to provide some support for our partner companies, despite the difficult overall funding environment. We continue to explore new ways of extracting value from the intellectual property assets in DataTern and elsewhere in the group.”

Amphion Innovations starts and builds companies based on proprietary (patented) technologies developed by universities and academic institutions in the UK and US. Each one of the companies the firm has chosen to invest in and develop was carefully selected to address established markets worth in excess of US$1 billion each, and Amphion also believes that many of them can achieve exit values of more than US$100 million each.

The firm and its share price has suffered in recent years because the progress of these partner companies has been affected by difficulties in raising capital from external investors and today’s results confirmed that the environment for raising capital directly into Amphion’s partner companies remained negative throughout the year.

In spite of this, Amphion’s eight partner companies still managed to raise US$16.3 million, with the lion’s share of this (US$10.6 million) being raised by Kromek – a UK firm developing digital X-ray systems for applications in security, industrial production, medicine and defence.

“Kromek continues to be the company which has enjoyed some success in raising capital and it continues to make good progress,” said Morgan.

Myconostica, one of Amphion’s other partner companies, has not enjoyed similar success so in May Amphion sold its 16 percent stake in the company to Cambridge-based Lab21, a privately-owned medical diagnostics business, in return for US$200,000 of Lab21 equity. Amphion’s stake in Myconostica had been valued at US$2.3 million at the end of last year, so Amphion’s net asset value was reduced by around US$2 million as a result of the deal.

At the time, CEO Richard Morgan said: “The lack of sufficient further capital to support Myconostica’s continued progress as a standalone company required exiting at a relatively early stage in its growth which ended in a disappointing outcome.”

For now, Kromek is probably the best bet in terms of an exit opportunity for Amphion in the short-to-medium term.

Meanwhile, the firm’s partner company FireStar Software has made great progress despite what Amphion describes as “severe financial challenges”. FireStar has managed to get key products and technology adopted as standard by the Object Management Group – a standards setting body for enterprise software – while managing to be included in a consortium that is developing important software products for the US government.

FireStar’s key technology assets remain intact and it has been informed that its patent application covering some of its critical messaging technologies has been granted by the US Patent Office. The business is now starting to attract additional capital from investors other than Amphion to supplement cash flow expected from contract awards.

Other firms that Amphion is invested in include: Axcess International – a developer of RFID systems for a range of applications, mostly revolving around “advanced workforce management” which embraces safety, efficiency and security; Motif BioSciences – using population genetics for pharmaceuticals and diagnostics; m2m Imaging – MRI (magnetic resonance imaging) coils and tools for clinical and research applications; PrivateMarkets – online energy trading marketplace; and WellGen – a firm developing medical foods and nutritional supplements for the health market. —Jon Mainwaring