Group overview - Touchstone Innovations · London, Cambridge and Oxford. This area has an unrivalled cluster of outstanding academic research and technology businesses, and is home

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02 Imperial Innovations Annual Report and Accounts 2016

£335.1moverall net portfolio value (2015: £327.2m)

107companies in portfolio

45accelerated growth companies (those in which we actively invest and take a seat on the Board)

7new accelerated growth companies added during the year

£69.9minvested across 33 portfolio companies during the year

79%of this money was invested into existing portfolio companies

Portfolio

Therapeuticssee p34

Medtech & Diagnosticssee p40

Engineering & Materialssee p44

ICT & Digitalsee p48

Net portfolio value

£154.2m(2015: £186.4m)

£32.2mnet decrease

£56.7m(2015: £46.7m)

£10.0mnet increase

£77.9m(2015: £61.8m)

£16.1mnet increase

£46.3m(2015: £32.3m)

£14.0mnet increase

Group overview

Portfolio overview

£206.4mraised by the portfolio

during the year

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Imperial Innovations Annual Report and Accounts 2016 03

Nurturing innovation

Imperial Innovations Group plc (known as Innovations) creates, builds and invests in pioneering technology companies and licensing opportunities developed from outstanding scientific research focusing on the ‘Golden Triangle’, the geographical region broadly bounded by London, Cambridge and Oxford.

This area has an unrivalled cluster of outstanding academic research and technology businesses, and is home to four of the world’s top 10 universities (source: QS World University Rankings ® 2016/17) as well as leading research institutions, the cream of the UK’s science and technology businesses and many of its leading investors.

The Group supports scientists and entrepreneurs in the commercialisation of their ideas, through protecting and licensing out intellectual property, by leading the formation of new companies, by recruiting high-calibre management teams and by providing investment and encouraging co-investment.

Innovations provides continuity of funding from start-up to scale-up, with initial investments from seed stage onwards. Innovations remains an active investor over the life of its portfolio companies, with the majority of Innovations’ investment going into businesses in which it is already a shareholder. This strategy substantially de-risks investment scale-up in our portfolio companies. As Innovations invests from its own balance sheet it is not constrained by the five-to-seven year investment horizons of closed-end funds, nor is it under pressure to sell early in order to demonstrate a return to Limited Partners (LPs).

Innovations has a technology pipeline agreement with Imperial College London that extends until 2020, under the terms of which it has exclusive commercialisation rights and as acts as the College’s Technology Transfer Office (TTO). The Group also acts as the TTO for a number of NHS Trusts linked to Imperial College London, including Imperial College Healthcare NHS Trust and London North West Healthcare NHS Trust. Further information on the Group’s role as TTO for Imperial College can be found on page 11.

Following a fundraising in January 2011, Innovations broadened its addressable market beyond Imperial College London by making investments in opportunities arising from intellectual property developed at, or associated with, the University of Cambridge, the University of Oxford and University College London (UCL). Since then around one-third of all of the Group’s new companies have come from Imperial College London, one-third from the Cambridge cluster, with the final third derived from University of Oxford, UCL and management teams and research organisations around London.

In June 2014, Innovations completed a £150.0 million fundraising. Following this transaction, the Group expanded its operation to include sourcing of opportunities not only from its existing University partners, but also from the extensive network of entrepreneurs, management teams and co-investors that the Group has established within the ‘Golden Triangle’ over the last 10 years.

During the year, the Group raised £100.0 million through a placing in February which provided the Group with the capacity to maintain its interests in the larger later stage funding rounds of its maturing portfolio, whilst also seeking to capitalise on two new strategic partnerships signed during the year that were designed to increase Innovations’ access to deal flow. These were the UCL Technology Fund, which provides Innovations’ with formal access to IP created by UCL researchers, and the creation of Apollo Therapeutics. The latter is a pioneering collaboration between AstraZeneca, GlaxoSmithKline, Johnson & Johnson and TTOs of Imperial College London, University College London and the University of Cambridge, which aims to accelerate the development of new medicines and provides Innovations with visibility of therapeutics IP across all three universities.

Since becoming a public company in 2006, Innovations has raised more than £440.0 million of equity from investors, which has enabled it to invest in some of the most exciting spin-outs to come out of UK research. In addition, the Group has a £50.0 million undrawn loan facility from the European Investment Bank (EIB).

Between Innovations’ admission to AIM (August 2006) and 31 July 2016, Innovations has invested a total of £306.7 million and the total raised by the Group’s portfolio companies is more than £1.5 billion, with £206.4 million being raised this year.

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Chairman’s statement

David NewlandsChairman

Innovations is an outstanding business based on access to the best in UK science, a deep understanding of the academic mindset and a highly professional investment capability.

It gives me great pleasure to present this Annual Report to shareholders, my first as Chairman. After nearly three months in the role, I have had an opportunity to meet with many of Innovations’ key stakeholders and I have been struck by the consistently high regard in which the business is held as a leader in the rapidly emerging technology commercialisation sector.

I would like to start by thanking my predecessor Dr Martin Knight, the Group’s founder and Chairman from its Admission to AIM in 2006 until 31 July 2016, for his vision in developing such an exciting company. The team has built an outstanding business based on access to the finest science-driven intellectual property (IP) in the UK, a deep understanding of the academic mindset and a highly professional investment capability.

We have the opportunity to build on this platform to create important, powerful and valuable businesses, to the benefit of our shareholders and our wider stakeholder community.

Make no mistake, what we do is important. Commercialising outstanding UK research and creating the next generation of world-leading technology companies is crucial for the UK economy, not only in economic terms but also in reinforcing the UK’s position as a world-leader in scientific research. We have both the expertise and the financial strength needed to play an important role in this endeavour.

A platform on which to create important, powerful and valuable businesses

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A year of significant progress across the maturing asset portfolio.

£69.9 million invested across 33 portfolio companies (2015: £60.8 million across 30):

– 79% of this money invested into existing portfolio companies.

Led 6 major private funding rounds during the year, which raised in total:

– Kesios Therapeutics £19.0 million. – Inivata Limited £31.5 million. – MISSION Therapeutics £60.0 million. – Nexeon Limited £30.0 million. – Precision Ocular £15.5 million. – Storm Therapeutics £12.0 million.

£206.4 million raised by the portfolio during the year.

Seven accelerated growth companies added to investment portfolio.

Net assets of £455.9 million (2015: £420.1 million).

Net portfolio value up by £7.9 million to £335.1 million (2015: £327.2 million).

Cash and short-term investments of £148.3 million (2015: £128.1 million).

Pre-tax loss of £63.1 million (2015: profit of £15.1 million), includes a £56.2 million net fair value loss:

– Quoted net fair value loss of £66.9 million, largely as a result of decline in Circassia share price

– Unquoted net fair value gain of £10.7 million

Total realisations for the year were £5.8 million.

£198.3 million available to invest, including undrawn £50.0 million second loan facility from European Investment Bank (July 2015) still to be drawn down.

Revenues of £4.3 million (2015: £5.1 million).

Portfolio developments Financial highlights

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Our timeline IPO on AIM market raising £25.0 million. Focused on IP derived from Imperial College London.

Innovations raises £30.0 million in a placing.

£140.0 million rights issue. Operations broadened to encompass sourcing opportunities from University of Cambridge, University of Oxford and UCL, in addition to Imperial College London.

201120072006

Financial performanceOur focus is on building a portfolio of substantial high-quality, well-funded and well-managed businesses. The Group’s Net Asset Value (NAV), increased by £35.8 million to £455.9 million (2015: £420.1 million). The Group’s Net Portfolio Value (NPV) was £335.1 million (2015: £327.2 million).

The carrying value of the Group’s listed investments (Abzena plc, Circassia Pharmaceuticals plc, IXICO plc and Oxford Immunotec Global plc) are all marked-to-market at period end. At the end of the financial year they had a total net valuation of £42.9 million (2015: £106.8 million); a net fall of £63.9 million comprising investments of £3.0 million, less net fair value movements of £66.9 million. The largest component of this decline resulted from the fall in the share price of Circassia Pharmaceuticals following the failure of its cat allergy Phase III study.

This was a major disappointment but the results of a single clinical trial will not cause us to change our long-term strategy. We make investments that involve carefully calculated risks, including investing in drug development companies and clinical trials are an inherent feature of this sector.

What matters over the medium to long-term is the ultimate value of the companies we are creating. We are confident that we are building a number of UK science-based companies that have the potential to make a significant impact, not only on Innovations but on the UK as a whole.

We are very encouraged by the performance of our unquoted portfolio which gives us confidence for the future. Many of our companies made significant technical, clinical and commercial progress during the year. Notable examples include Cell Medica’s partnership with Baylor College of Medicine, PsiOxus’ collaboration with Bristol-Myers Squibb and the completion of recent funding rounds for Inivata, Nexeon and Econic.

Operational progressDuring the year Innovations completed three major transactions which strengthened the balance sheet and increased our pipeline of opportunities.

In February 2016, we raised £100.0 million which provided the Group with the resources to maintain its holdings in the larger later-stage funding rounds of its maturing portfolio.

The Group has also started to capitalise on the new strategic partnerships signed during the year with the UCL Technology Fund and Apollo Therapeutics. These agreements have significantly increased our visibility of technology coming from UCL and the University of Cambridge, as well as broadening and deepening our existing relationships with three of the world’s leading pharma companies (AstraZeneca, GlaxoSmithKline and Johnson & Johnson).

At the same time, we have continued to deploy our capital, investing £69.9 million across 33 companies, including £14.6 million invested in seven new additions to the portfolio which will provide the foundations for value generation in future. Collectively the portfolio raised £206.4 million of total investment during the year.

Chairman’s statementcontinued

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Innovations obtains £30.0 million loan facility from European Investment Bank (EIB).

June Innovations raises £150.0 million in a placing.

July Innovations obtains £50.0 million second loan facility from European Investment Bank (EIB).

January Innovations launches Apollo Therapeutics.

Innovations commits £24.8 million to UCL Technology Fund.

FebruaryInnovations raises £100.0 million in a placing.

2016201520142013

Such events illustrate the potential of these private companies to drive long-term returns for shareholders, but this potential does not necessarily translate into significant changes in valuation straight away. The growing partnership interest we are seeing from pharma companies and other industry partners in our companies is also very encouraging.

BrexitRight at the end of the financial year, the UK voted to leave the EU. In the months after this vote, the UK has entered a period of uncertainty. Whilst the full picture is yet to play out, we are confident UK science will maintain its pre-eminent position on the world stage.

However there are risks to research funding, to attracting and retaining talent and to university finances. We believe the UK government recognises these challenges and will address them as part of its new UK industrial strategy. Significantly, our ongoing partnership with the European Investment Bank (EIB) and European Investment Fund (EIF) remains strong with both organisations reaffirming their commitment to our loan facility and the UCL Technology Fund respectively. The impact on our own staff resourcing will be minimal.

Board changesAt the end of the financial year, after 13 years of outstanding service, my predecessor Dr Martin Knight stepped down from the Board. Martin became the Chairman of the Imperial Innovations group of companies in 2003 and was Chairman when the Group was quoted on AIM in 2006. He is one of the pioneers of the emerging IP commercialisation industry and provided outstanding leadership to Innovations over the last 13 years. On behalf of the Board and everyone at the Group, I would like to thank him for his huge contribution to the business.

I joined the Board as non-executive Chairman on 1 August 2016.

The opportunity Our executive team has built a powerful and strong platform for nurturing innovation and turning raw IP into a portfolio of early-stage businesses. Our ambition is to create a portfolio of companies that deliver real value to shareholders, as well as adding value to the wider economy.

We are well placed to do this. All the key ingredients are in place. We have a strong balance sheet, an experienced Board and our portfolio companies are led by world-class management teams. We are supported by a strong group of like-minded shareholders and co-investors.

Our confidence for the future extends beyond our existing portfolio. The quality of the IP we are seeing from the academic, research and entrepreneurial community within the ‘Golden Triangle’ augurs well for the future and we expect it to lead to exciting investment opportunities and prospects for further value creation.

David NewlandsChairman

12 October 2016

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Our markets

Operating in a growing market

Innovations is focused on the commercial exploitation of outstanding research originating in the ‘Golden Triangle’.

The Group’s focus on this geography, combined with the pull of its capital and growing track record, puts Innovations at the heart of this world-class science cluster from which it derives the vast majority of its spin-outs and investment opportunities.

Innovations’ integrated business model (see page 18), which extends from original research through seed funding, scale-up, and long-term support, equips the Group with a detailed understanding of the process of translating early-stage research into commercial business opportunities. In addition, deep sector-specialist knowledge provides expertise in evaluating the likely success of new scientific ideas, which makes Innovations an attractive partner for research teams seeking to commercialise their technology.

Academic insight and visionThe majority of the Group’s investments are derived from academic research. This provides the Group with early sight of discoveries in fundamental science that may have commercial application, as well as insight into the future and the development of next-generation technologies.

The Technology Pipeline Agreement (TPA) with Imperial College London provides Innovations with exclusive access to all the unencumbered IP developed at the College and the flexibility to commercialise that IP in any way it considers appropriate. Typically, this is achieved either through the formation of a spin-out company, or through licensing IP to an existing company in the same field.

The Group also works closely with academic communities associated with the University of Cambridge, the University of Oxford and University College London on a non-exclusive basis. This includes working with those universities’ own technology transfer offices (Cambridge Enterprise Limited, Oxford University Innovation (formerly ISIS Innovation) and UCL Business, respectively) as well as collaborating directly with the universities’ own dedicated funds in backing new spin-out businesses.

The most recent example of this is the UCL Technology Fund, which was launched in January 2016. This is the first investment fund that University College London has created to commercialise its multidisciplinary research.

Over the next five years this fund is expected to invest £50.0 million to support ideas from academics in life sciences and physical sciences, and will be used for early-stage proof of concept funding, licensing opportunities and the formation of new spin-out companies. Innovations is a Limited Partner (LP) in the fund and has committed £24.8 million to the fund, matched by a commitment of the same amount from the European Investment Fund (EIF).

During the year, the Group also committed £3.3 million to Apollo Therapeutics, a new £40.0 million joint venture between AstraZeneca, GlaxoSmithKline, Johnson & Johnson and the technology transfer offices of Imperial College London, University College London and the University of Cambridge.

The aim of this new venture is to support the translation of outstanding academic therapeutic science into innovative new medicines, and is yet another example of Innovations operating at the nexus of outstanding academic research and industrial strength expertise.

Funding UK innovationThe UK has long been criticised for its apparent inability, or the reluctance of its ecosystem, to fund and develop the scientific research breakthroughs that are generated at its many world-class universities. In 2014, figures from the British Venture Capital Association (BVCA) suggest that, out of total private equity and venture investments of £4.7 billion in the UK, just £108.0 million was deployed into seed, start-up and early-stage investments (http://www.bvca.co.uk/Portals/0/library/documents/IAR%20Autumn15.pdf).

This may be due to the fact that early-stage investors in cutting-edge science experience not only high technical and market risk, but may also have to wait a long time before they see a return on their investment. Nevertheless, whatever the underlying cause, the last decade has seen an emergence of funding vehicles that look to fund early-stage high-risk technology companies with a long-term investment horizon – so-called ‘Patient Capital’.

Flexible, open-ended funding models of this type are appropriate for funding spin-outs from universities because of the typically long gestation period from lab bench to commercialisation. Inventions generated at our leading academic institutions typically require substantial development before they are commercially viable. Companies based around high-technology university inventions may take more than 10 years (and sometimes even longer) from first patent filing to exit or IPO, and frequently require considerable funding to develop their technology.

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Geographic focus and established network within

the ‘Golden Triangle’ The Group has an established network

of academics, industry partners and co-investors which makes the Group the partner of choice for leading academics

and management teams within this world-class science cluster.

3

Track record of forming management teams to maximise

opportunity from IPThe Group has a significant network

of experienced entrepreneurs and managers with proven expertise in forming and growing early-stage companies. The Group’s ability to create and develop top-quality management

teams for its portfolio companies is a significant attraction for scientists

partnering with the Group.

2

Proprietary technology pipeline with Imperial College London and

commercialisation rightsThe Group has early and exclusive access

to research outputs from one of the world’s leading research universities,

and through Imperial College London, to one of the largest medical

schools in the UK.

Well-developed and mature portfolio of companies

Approximately 80% of the Group’s investment goes into businesses in which Innovations is already a shareholder, holds a board seat and knows from the inside.

This significantly reduces the risk of scaling up investment.

6

Deep sector-specialist knowledge

The Group has expertise in evaluating the likely success, both technical and

commercial, of new scientific ideas. The ability to understand and talk deep science makes the Group an attractive partner for research teams seeking to commercialise

their technology, and differentiates us from many ‘digital’ investors.

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Investing from its own balance sheet

This gives the Group the ability to be involved with all stages of the

commercialisation process and the flexibility to take a long term approach to investments. This gives Innovations an opportunity to form companies and establish an influential role in the business before a venture capital investor

would get involved, and the ability to scale-up its investment as portfolio

companies develop.

5

Track record and integrated business model, which extends from original

research through to scale-up

The Group’s skills in IP management, technology and market assessment, product development, licensing and

investment make it an attractive partner for academics,

management teams and co-investors.

4

Competitive strengthsInnovations has a number of distinct strengths that differentiate it, not only

from its listed peers but also from venture capital firms, institutional investors and other organisations that may compete with the Group by providing funding to companies in the commercialisation process.

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Traditional venture capital (VC) funding, which has relied on the limited partnership model in which the likes of pension funds put their money into a closed fund managed by a venture capital firm, has proved unsuitable for supporting early-stage high-technology companies in the UK. This is chiefly a result of the fixed life of these funds and pressure to deliver a return to Limited Partners, which means that funding typically operates over a five-to-seven year horizon. In general, this means VCs often prefer to wait until a technology is substantially de-risked before making their initial investment – typically at the Series A stage (the first substantial funding round following seed and other development funding).

In contrast, seed investors invest earlier than VCs but usually lack the cash to ‘follow’ their money, and therefore often shy away from investing in certain sectors such as biotechnology and automotive/aerospace engineering, which are capital-intensive with long development cycles.

Because neither of these models is particularly supportive of university spin-outs, academic-associated technology start-ups historically found themselves falling into the gap (often described as the ‘Valley of Death’); on the one hand finding it difficult to attract seed funding, and on the other, discovering that venture finance was similarly limited.

Patient Capital arose as a potential solution. The longer-term outlook and investment profile of these funds is ideally suited to technologies arising from academia. Patient Capital providers can afford to ‘get in early’ (at seed stage or earlier) and continue to invest (sometimes alongside VCs, corporate VCs or other Patient Capital providers) throughout the lifecycle of a high-technology business, protecting their equity position through follow-on investment. Furthermore, because they invest from their own balance sheet, they are not under pressure to return capital to their shareholders or unit holders within a short period, thus retaining the flexibility of growing into more substantial businesses over time.

Competitive environmentAs recently as two years ago, there were just three long-established companies: Imperial Innovations, IP Group and Fusion IP (subsequently acquired by IP Group) that were dedicated, university-associated listed Patient Capital businesses. However, over the last two years the IPO’s of Allied Minds, PureTech Healthcare and Mercia Technologies, have added greater weight to an IP commercialisation sector that has now raised more than £1.0 billion of capital.

Much of this technology commercialisation sector has been cornerstoned and underpinned by long-term supportive investment from wealth management funds such as Invesco Perpetual, Woodford Investment Management, Lansdowne Partners and others, who have all championed the benefits of investing in early-stage companies borne out of university research.

A common theme is the belief that UK intellectual property and early-stage spin-outs are significantly undervalued in comparison to their US counterparts and that there is a large potential upside to investing in UK innovation.

In addition, we have seen the emergence of specialist funds such as Woodford Patient Capital Trust (which last year raised more than £800.0 million of capital from investors to invest in early-stage technology companies) and other funds dedicated to commercialising the output of specific universities. The latter include the £50.0 million UCL Technology Fund (in which the Group is a Limited Partner), the £320.0 million Oxford Sciences Innovation (OSI) (launched in 2015) and Cambridge Innovation Capital (CIC) which has raised £125.0 million dedicated to investing in IP-rich companies from the University of Cambridge and the wider research and business community around the Cambridge area.

More recently, Draper Esprit became the first British venture capital investor of its type to float, raising £103.0 million by listing on AIM in June 2016. At the time of its IPO the company cited Innovations and IP Group as IP commercialisation companies whose success it was seeking to replicate, by gaining access to a more flexible source of capital and holding stakes in favoured businesses for longer without being forced to sell too early.

Sector growth brings greater choiceThe UK technology commercialisation sector is therefore clearly flourishing. These are welcome developments as they are not only beneficial for promoting UK innovation in general, but more specifically because they are likely to increase the number of potential opportunities in which the Group may invest, particularly as much of this new money is being deployed within the ‘Golden Triangle’.

Clearly, as a result of greater investor choice, there is increased competition in terms of attracting investment capital in the public markets, but this does not necessarily translate into direct competition when it comes to deploying that capital into university spin-outs and early-stage businesses. Each commercialisation company has its own geographic and sector specialisations, and as a result, they rarely compete in funding new opportunities. Greater choice is thus beneficial not only for investors but also for those seeking investment. Furthermore, despite the substantial sums raised recently, there is still a shortage of capital relative to the abundant supply of IP available to commercialise.

In addition, specialist skills and industry-specific expertise are needed to deploy capital effectively. On the rare occasions two or more investors do congregate around an opportunity, the tendency is to collaborate on creating stronger, more productive investor syndicates rather than to compete on terms.

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However, Innovations is well equipped to deal with competitive situations because of a number of key strengths which help the Group to source outstanding opportunities (see diagram on page 9).

So these macro-economic changes and new competition do not deflect the Group from its strategy. Rather, by virtue of its geographic focus, capital strength and track record, Innovations is well placed to be the lead investor or partner of choice for academics, management teams and co-investors within the ‘Golden Triangle’.

Furthermore, the Group’s active syndication of investments means it will continue to work collaboratively with dedicated university funds as well as leading financial investors, specialist venture capital firms and strategic investors. Further details of the key components of the Group’s investment case are articulated in pages 14-25.

Benefits of operating a Technology Transfer OfficeOperating a Technology Transfer Office (TTO) at Imperial College London gives Innovations a direct pipeline to the research being carried out at one of the world’s leading technical universities.

Staff in the TTO work every day in close proximity and collaboration with the academic staff developing ground-breaking technologies, which may in the future lead to substantial business opportunities.

As a result, the Group is intimately familiar with the technology that goes into Imperial College London spin-outs as the team has tracked its progression for a long time, even before a company is formed. The team seeks to leverage grant funding to help de-risk and develop these technologies at a very early stage, and use its sector-specific expertise to

step in to provide guidance and influence over the direction of technology development. This is beneficial, as it means that the technology and the future company develop in alignment so that the new spin-out company can hit the ground running. In addition, this familiarity allows the Group to determine early the optimum route forward for each technology for example, in deciding whether it should be licensed or form the basis of a new spin-out.

Aside from the benefits of working closely with technologies that may go on to form the basis of new businesses, the TTO also provides a reliable revenue stream that supports the operation of the Group.

Every year, many licence deals are signed with industry partners, whereby technology developed at Imperial College London is licensed for development to these companies. As the Group has undertaken IP protection on these technologies, it can generate revenue through up front licensing fees and future royalties in exchange for allowing industry partners access, sharing that 50/50 with Imperial College London.

In addition to generating revenue, this activity has additional related benefits. Firstly, industry partners who work with Innovations often see the benefit of technology developed at universities, and often provide specific research funding, which allows academics to undertake research in industry-relevant fields; secondly, the experience offered to academics through working with industry in licensing deals stands them in good stead for future industry interactions – such as entering into collaborations or forming businesses; and thirdly, this activity generates a network of scientific knowledge and contributors that ultimately benefits the pipeline of future technologies.

Alkion Biopharma is an example of one of Innovations’ many successful spin-outs from Imperial College London that are able to grow without receiving venture funding from the Group. It was formerly part of the Group’s organic growth portfolio of around 30 companies, for which the Innovations team provides ongoing support to raise funding, recruit management and promote organic growth.

Alkion is an Imperial College London spin-out co-founded by Innovations in 2011 and based on the work of Professor Peter Nixon and Dr Franck Michoux (Biochemistry). The company has developed a unique set of technologies that allow it to sustainably produce and purify valuable materials from

plant biomass and has positioned itself with a unique offering to several life sciences-based industries. These activities are backed by a strong portfolio of patented technology.

In May 2016, Innovations completed the sale of its shares in Alkion to Evonik Industries, a leading specialist chemical company operating in several fields such as nutrition, resource efficiency and performance materials. Commercial terms have not been disclosed. Innovations’ equity in Alkion derives from the early commercial support provided to the founders by Innovations’ Technology Transfer Office, as well as from licensing the founding IP.

Focus on Alkion Biopharma

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Our strategy

Our goals What we did in 2016 Links to KPIs Strategic risks Objectives for 2017

Generate exceptional returns for shareholdersGenerate exceptional returns to our shareholders through both unrealised fair value gains and cash realisations executed at the optimal time.

– Net portfolio value up by £7.9 million to £335.1 million

– Pre-tax loss of £63.1 million (includes net FV loss of £56.2 million)

– Disposals generated net proceeds of £5.8 million

– Growth in the value of the Group’s portfolio

– Net gain/loss in FV

– Potential value achievable from existing portfolio

– Change in government policy, legislation and taxation; decreased appetite for investment into research

See Strategic risk 4 on page 64

– Unrealised fair value gains and cash realisations from the Group’s maturing portfolio

Build $1.0 billion companiesSelectively back a few of our portfolio companies with patient capital to build $1.0 billion companies.

– Led major funding rounds for MISSION Therapeutics (£60.0 million), Inivata (£31.5 million), Nexeon (£30.0 million), Kesios Therapeutics (£19.0 million), Precision Ocular (£15.5 million) and Storm Therapeutics (£12.0 million)

– Investment made in portfolio companies

– Potential value available from existing portfolio

– Difficult to attract capital into early-stage businesses and through full economic cycle


– Continue to scale investment in the Group’s most promising portfolio companies

– Build strong syndicates with sector-specialist investors and financial investors

Leverage the UK’s outstanding scienceLeverage the strengths of the outstanding science emanating from the ‘Golden Triangle’ by engaging with the most promising technology opportunities and progressing them from inception to maturity.

– Seven new accelerated growth companies added to the portfolio, plus seven organic growth companies

– New companies added to the Group’s portfolio

– Loss of or reduction in access to flow of new opportunities through loss of Technology Pipeline Agreement (TPA)

– Failure to attract or retain key personnel

See Strategic risks 2 and 3 on page 63

– Maintain geographic focus, but broaden access to opportunities beyond university partners to other research institutions and entrepreneur-led companies

– Add five to eight accelerated growth companies, but with emphasis on quality over quantity

Successfully commercialise IPUse our deep sector knowledge and judgement to take calculated risks to deliver successful commercialisation of intellectual property through licensing or by forming portfolio companies.

– Licence and royalty revenues of £2.2 million (2015: £2.8 million)

– 39 commercial licence agreements signed (2015: 39) and 74 patents filed (2015: 66)

– A total of 14 new companies added to the portfolio

– Sale of Stanmore Implants, Alkion Biopharma and Hark Health Solutions

– Health and quality of intellectual pipeline from Imperial College London




– Maintain benefits of TPA with Imperial College London

– Expand licensing portfolio to create significant and sustainable future royalty streams

Build teams and syndicatesAttract high-calibre management teams to our portfolio companies.

Build strong syndicates with sector-specialist investors and financial investors.

– High-quality management appointments across portfolio

– Innovations’ venture partners appointed to Board positions in portfolio companies

– £206.4 million raised by the portfolio during the year (2015: £479.9 million)

– Investments made in portfolio companies




– Expand Ventures team to increase capacity

– Further syndication to reinforce Group’s position as lead investor or partner of choice for the top ‘Golden Triangle’ academics, management and co-investors, as well as dedicated university funds

Focus on sectors where we have expertiseUse our deep sector knowledge and judgement to identify new licensing and investment opportunities by evaluating the likely success of new scientific ideas (both technical and commercial).

– Seven accelerated growth companies added to the portfolio, comprising one therapeutics company, one engineering & materials company and five ICT & digital companies




– Increase emphasis on non-therapeutic sectors to rebalance the portfolio

– Particular emphasis on developing ICT portfolio

Provide continuity of funding from start-up to scale-upRetain flexibility to take a long term approach to realisation. Start small and then selectively scale investment in the most promising portfolio companies as they develop.

Continue to create new ventures to develop longevity in our portfolio.

– Increased investment rate in line with stated strategy

– £69.9 million invested in 33 portfolio companies (2015: £60.8 million in 30 companies)

– £100.0 million raised by means of a Placing in February 2016



– Dependence on material shareholders


– Maintain a similar rate of investment

– Continued focus on quality, adding six to eight new accelerated growth companies per annum

Innovations’ strategy is to build substantial, high-quality, well-funded and well-managed businesses.

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Our goals What we did in 2016 Links to KPIs Strategic risks Objectives for 2017

Generate exceptional returns for shareholdersGenerate exceptional returns to our shareholders through both unrealised fair value gains and cash realisations executed at the optimal time.

– Net portfolio value up by £7.9 million to £335.1 million

– Pre-tax loss of £63.1 million (includes net FV loss of £56.2 million)

– Disposals generated net proceeds of £5.8 million

– Growth in the value of the Group’s portfolio

– Net gain/loss in FV

– Potential value achievable from existing portfolio



– Unrealised fair value gains and cash realisations from the Group’s maturing portfolio

Build $1.0 billion companiesSelectively back a few of our portfolio companies with patient capital to build $1.0 billion companies.

– Led major funding rounds for MISSION Therapeutics (£60.0 million), Inivata (£31.5 million), Nexeon (£30.0 million), Kesios Therapeutics (£19.0 million), Precision Ocular (£15.5 million) and Storm Therapeutics (£12.0 million)

– Investment made in portfolio companies

– Potential value available from existing portfolio



– Continue to scale investment in the Group’s most promising portfolio companies

– Build strong syndicates with sector-specialist investors and financial investors

Leverage the UK’s outstanding scienceLeverage the strengths of the outstanding science emanating from the ‘Golden Triangle’ by engaging with the most promising technology opportunities and progressing them from inception to maturity.

– Seven new accelerated growth companies added to the portfolio, plus seven organic growth companies


– Loss of or reduction in access to flow of new opportunities through loss of Technology Pipeline Agreement (TPA)



– Maintain geographic focus, but broaden access to opportunities beyond university partners to other research institutions and entrepreneur-led companies

– Add five to eight accelerated growth companies, but with emphasis on quality over quantity

Successfully commercialise IPUse our deep sector knowledge and judgement to take calculated risks to deliver successful commercialisation of intellectual property through licensing or by forming portfolio companies.

– Licence and royalty revenues of £2.2 million (2015: £2.8 million)

– 39 commercial licence agreements signed (2015: 39) and 74 patents filed (2015: 66)

– A total of 14 new companies added to the portfolio

– Sale of Stanmore Implants, Alkion Biopharma and Hark Health Solutions

– Health and quality of intellectual pipeline from Imperial College London




– Maintain benefits of TPA with Imperial College London

– Expand licensing portfolio to create significant and sustainable future royalty streams

Build teams and syndicatesAttract high-calibre management teams to our portfolio companies.

Build strong syndicates with sector-specialist investors and financial investors.

– High-quality management appointments across portfolio

– Innovations’ venture partners appointed to Board positions in portfolio companies

– £206.4 million raised by the portfolio during the year (2015: £479.9 million)





– Expand Ventures team to increase capacity

– Further syndication to reinforce Group’s position as lead investor or partner of choice for the top ‘Golden Triangle’ academics, management and co-investors, as well as dedicated university funds

Focus on sectors where we have expertiseUse our deep sector knowledge and judgement to identify new licensing and investment opportunities by evaluating the likely success of new scientific ideas (both technical and commercial).

– Seven accelerated growth companies added to the portfolio, comprising one therapeutics company, one engineering & materials company and five ICT & digital companies




– Increase emphasis on non-therapeutic sectors to rebalance the portfolio

– Particular emphasis on developing ICT portfolio

Provide continuity of funding from start-up to scale-upRetain flexibility to take a long term approach to realisation. Start small and then selectively scale investment in the most promising portfolio companies as they develop.

Continue to create new ventures to develop longevity in our portfolio.

– Increased investment rate in line with stated strategy

– £69.9 million invested in 33 portfolio companies (2015: £60.8 million in 30 companies)

– £100.0 million raised by means of a Placing in February 2016



– Dependence on material shareholders


– Maintain a similar rate of investment

– Continued focus on quality, adding six to eight new accelerated growth companies per annum

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Business review

Russ CummingsChief Executive Officer

A unique and compelling investment case

The UK’s technology commercialisation sector is thriving, drawing in additional capital and shining a spotlight on us all.

The UK’s public technology commercialisation sector is thriving with a market capitalisation of £3.5 billion having raised over £1.0 billion in capital over the last two years (source: Eye on IP, Ken Rumpf, Stifel 4 July 2016).

Investors keen to gain an exposure to the sector now have a choice of six UK listed companies in which to invest, as well as a number of overseas companies. Common to all is that they provide exposure to very early-stage, potentially disruptive IP-based companies. However, there are significant differences in sector focus, business model, accounting policies and approach to valuation that make direct comparisons challenging.

For example, Innovations, IP Group and Mercia Technologies all focus predominantly on commercialising the output of academic research in the UK, whilst Allied Minds and PureTech Health target the US market and are basically US companies that have chosen to list in the UK because of the greater understanding of IP commercialisation in the London market. Even within the UK, Innovations is focused on the output of the ‘Golden Triangle’, whereas IP Group adopts a UK-wide approach and Mercia is focused predominantly on the Midlands and the North of England.

As a guide to investors we have set out, on the following pages, what we believe to be the five key components of Innovations’ investment case.

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Key components of our investment case

Unrivalled access to the UK’s best researchInnovations provides investors with an opportunity to gain exposure to the output of the best and most exciting research emanating from the ‘Golden Triangle’ of Oxford, London and Cambridge, including sourcing opportunities across all four of the UK’s leading research-intensive universities.

See pages 16-17 for more detail

Proven strong business model Our integrated business model, which includes patent and licensing activities, provides us with a unique insight into leveraging early-stage research and turning it into substantial, high-quality, well-managed and well-funded businesses. This end-to-end capability is not replicated by our listed peers.


Established portfolio – with exciting pipelineOver the last decade, Innovations has built an outstanding portfolio of early-stage companies, many of which are close to value creation events. These are businesses in which we have already invested £306.7 million and which have collectively raised investment of more than £1.5 billion.


Matching world-class management to world-class scienceIt takes high-quality, proven, highly-motivated management teams to build a successful business. It is not easy recruiting top talent into young companies, but companies in the ‘Golden Triangle’ have an advantage over those in other regions, because of the rich talent pool in the region and proximity to London, which makes it easier to attract international talent to the South East.


Syndication Syndication remains an important part of how we create strong businesses and we are very proud of the quality of co-investors that we are attracting to our portfolio. We work closely with leading financial investors, specialist venture capital firms and strategic investors such as the venture investment arms of major pharmaceutical companies.


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A compelling investment case

1. Unrivalled access to the UK’s best research

The ‘Golden Triangle’ is an unrivalled cluster of outstanding academic research and technology businesses. We are deeply embedded within this geography, which puts us at the heart of UK science, making connections between the research community and the commercial world. While the whole of the UK is rightly described as a research powerhouse, we believe the wealth of high-quality opportunities coming from this science cluster means that we do not need to expand our focus at the present time.

‘Golden Triangle’

University of Oxford

University of Cambridge

University College London

Imperial College London

Imperial College London, the University of Cambridge, the University of Oxford and University College London are the UK’s four leading research-intensive universities and are ranked as four of the top 10 universities in the world (source: QS World University Rankings 2016/17).

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Focus on

SAM Labs

SAM Labs is a great example of Innovations championing innovation, in this case by backing an Imperial College London alumni company that has developed wireless construction kits that are encouraging school children to take an interest in technology and engineering, thereby helping to inspire the next generation of STEM students.

SAM Labs’ wireless electronic kits allow users to build their own smart inventions using hardware, software and apps through the Internet of Things (IoT). The kits are aimed specifically at school-age children so they readily fit in with the UK’s national Computing at School curriculum that requires schools to introduce the concepts of coding to students from the age of six.

Importantly, the kits have been designed to make the basic elements of coding quick and easy to learn, which means that children learn even the most advanced coding concepts swiftly through the power of play.

The company was founded in April 2014 by a group of graduates from Imperial College London led by CEO Joachim Horn. SAM Labs raised more than £125,000 in October 2014 via the crowdfunding site Kickstarter and in May 2016, completed a £3.2 million funding round led by Innovations, which contributed £2.0 million to the round.

This new funding will allow SAM Labs to further develop its products and expand the commercial reach of its SAM kits which are already sold via its web site and through retailers such as the Science Museum and the Conran Shop.

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A compelling investment case continued

2. Proven strong business model

By virtue of the fact that we invest from our own balance sheet, we have flexibility with respect to the amount invested and the timescale for realisation.

We are not constrained by the five-to-seven year investment horizons of closed-end venture capital funds, nor under pressure to sell early in order to demonstrate a return to Limited Partners. Quite the contrary; if we have a portfolio company with significant growth potential we can increase our investment and hold for the long term.

By leveraging grant and proof-of-concept funding for early-stage investments, less than 6% of our own funds go into the highest risk start-up phase investments. The vast majority of our capital is deployed in the scale-up of portfolio companies, which we know intimately from the inside. This gives us the opportunity to invest with the benefit of more influence and make better-informed decisions than would be the case for late-stage investors.

From start-up to scale-up

One of the factors that makes us different is our ability to invest over long periods, forming companies before a venture capital company (VC) would get involved and scaling our investment in our maturing companies when they approach value.

Typically, we start with an initial seed investment in the order of £25,000 to £1.0 million to get the business off the ground. Assuming we are satisfied with the venture’s development, we then progressively deploy more

capital over time, typically in the order of £1.0 million to £5.0 million in Series A funding rounds to help the business build organisational strength and develop necessary partnerships.

We then selectively build our stake in our most promising assets by deploying more capital and attracting co-investors to the business. Our largest investments to date have been Nexeon (£27.4 million) and Circassia Pharmaceuticals plc (£25.5 million).

Continuity of funding with deep knowledge of assets

Start-up phase Scale-up phaseSeed investment £25k–£1m<6% of capital invested

Understand the opportunity & market

Seat on Board Build organisational strength

Exit at most opportune time

‘Live with’ the technology Accelerate investment in best opportunities

Series A round £1m–£5mIncreasing momentum and accelerating pace of development

Stake building £5m–£25m+

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Focus on

Kesios Therapeutics

During the year the Group continued to deploy its substantial capital resources into its investment portfolio. In total the Group invested £69.9 million across 33 portfolio companies during the period. Kesios Therapeutics was one of the companies that benefited, with the Group committing £6.0 million to a £19.0 million Series A funding round, investing alongside SV Life Sciences and Abingworth.

Kesios is developing novel therapeutics for the treatment of multiple myeloma and other cancers. The company was created in 2011 to commercialise research led by Professor Guido Franzoso from the Department of Medicine at Imperial College London and has made rapid progress since Innovations first seed-funded the business.

Concurrent with its financing, Kesios has made swift progress in building a world-class management team to advance its innovative science and drug development. This includes the appointment of Paolo Paoletti MD, formerly President of GSK Oncology, as Chief Executive Officer, who leads an experienced team drawn from across the biotech/pharma industry.

Kesios’ lead drug candidate is about to enter clinical studies and, with this substantial Series A financing behind it, the team is in a strong position to deliver a new treatment option for patients with multiple myeloma.

1 MISSION Therapeutics 2 Econic3 TopiVert4 Abingdon

5 PsiOxus Therapeutics6 Nexeon7 Circassia

8 Cell Medica9 Veryan Holdings10 Abzena

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3. Established portfolio – with exciting pipeline

At 31 July 2016, our net portfolio value was £335.1 million. It comprises businesses that we have co-founded and know intimately.

Strong, well-funded pipeline

The average age of our eight largest unlisted portfolio companies (Nexeon, Cell Medica, Veryan Medical, PsiOxus Therapeutics, Mission Therapeutics, TopiVert, Abingdon Health and Econic Technologies respectively) is 8.6 years and these companies have raised commitments on average of £38.9 million each. These are substantial, well-managed and well-funded businesses, and are good examples of companies in the portfolio that we expect to trigger significant value-creation events over the medium term.

Beyond this leading cohort, we have a very strong and well-funded follow-on pipeline of exciting businesses, some of which will generate value in years to come.

An investment in Innovations is therefore a way for shareholders to support and participate in the growth in value of a diverse portfolio of early-stage technology companies, whilst leveraging Innovations’ expertise to select and build those businesses on their behalf.

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Focus on

Inivata

Inivata shows how Innovations’ capital strength has allowed the Group to rapidly accelerate the development of an extremely promising early-stage company, from a £4.0 million funding round in September 2014, to a £31.5 million Series A fundraising in January 2016.

Inivata is a clinical cancer genomics company harnessing the emerging potential of circulating tumour DNA (ctDNA) analysis to improve testing and treatment for oncologists and their patients. Unlike conventional invasive biopsies, Inivata detects and analyses genomic material from a cancer patient’s cell-free DNA (ctDNA) which can be collected through a simple blood sample.

This minimally-invasive approach – a liquid biopsy – offers a revolution in how cancer is detected, monitored and treated. The test allows precise analysis of cancer-related mutations present in ctDNA, and is designed to provide oncologists with clinically actionable genomic information to guide therapy selection, monitor treatment progress and detect new mutations as they emerge.

Inivata was spun out from Cancer Research UK in 2014 and launched with £4.0 million in funding from Innovations, Cambridge Innovation Capital and Johnson & Johnson Development Corporation.

The company made such rapid progress that in January 2016 it attracted a further £31.5 million in Series A fundraising. Innovations committed £10.0 million to the round alongside existing investors Cambridge Innovation Capital (CIC) and Johnson & Johnson Innovation (JJDC) and new investor Woodford Patient Capital Trust.

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4. Matching world-class management to world-class science

A common theme amongst the management that we attract to our portfolio companies is that many have blue-chip CVs, having worked for large corporations before going on to success in high-growth entrepreneurial start-ups. We like people who have proven abilities to operate in both environments, because we need both the entrepreneurial drive and an ability to understand what the ultimate acquirer expects to see before writing a large cheque, or what the public markets expect post IPO.

Putting the right team in place

Crucially for long term value creation, Innovations makes sure that its portfolio companies are set up correctly from the start. This means ensuring that the venture is funded sufficiently to attract experienced management with a track record and an insightful understanding of the market in which the technology will be deployed. It also means managing the evolution of the management team so that it is ‘stage-relevant’ to the lifecycle of the company.

The continuity of funding we provide from start-up to scale-up, and our close working relationship with the management of our portfolio companies, are important components of our model – it is far harder to influence a company’s development if you are a late-stage investor inheriting a team and investor base.

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Inflowmatix

Water network data analytics business Inflowmatix demonstrates the advantages of bringing in management with directly relevant industry experience to work alongside academic founders to lead the development of spin-out companies. This pairing ensures the correct blend of research, application expertise, technical skills and business innovation.

Inflowmatix provides water flow and pipe health analytics to water utilities worldwide, enabling them to diagnose hydraulic instabilities and failures, reduce bursts, prioritise network maintenance and reduce operating costs. The company was formed in July 2015 with £1.0 million in seed funding from Innovations. In May 2016, the company completed a £3.0 million series A round led by Innovations alongside new investor Parkwalk Advisors Limited.

Inflowmatix’s technology is based on research carried out in Dr Ivan Stoianov’s InfraSense Labs, in the Department of Civil & Environmental Engineering at Imperial College London.

In just over a year since formation, Innovations and Dr Stoianov have together brought in an experienced

management team including Chairman Dr David Parker, who has extensive experience in building companies from early-stage, and new CEO Steve George, who joined the company in October 2015.

Steve has worked in the water industry since 1999 and joined Inflowmatix from the Suez Group, where he worked in business and market development. He holds a wealth of experience in providing services and software solutions to water network management and was formerly IT Director for a leading UK consultancy company providing leakage management software and services. This industry expertise has helped Inflowmatix engage closely with water companies in order to ensure that the data and solutions the company is developing are valuable to customers.

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5. Syndication

Smart, sector-focused co-investors bring significant added value. They carry out extensive due diligence (in addition to our own) and thus help us to validate our portfolio and avoid ‘originator’s bias’, thereby ensuring that there is real quality in our portfolio. Meanwhile, we use our position of influence and our pre-emption rights as a founder shareholder to deploy the appropriate share of our capital.

Quality shareholders and co-investors

Syndication of investment is an important part of our approach to building strong companies. Our co-investors bring capital, but they also bring insight and people with operational experience, which can be invaluable.

Strategic investors also bring directly relevant expertise that can help with our companies’ development, for example with clinical development plans. And of course, they may be a potential acquirer, so they increase the range of trade sale options.

Shareholders• Invesco Asset Management• Lansdowne Partners• Woodford Patient Capital Trust• Imperial College London

Specialist investors• Sofinnova Partners• SV Life Sciences• Fidelity BioSciences• Abingworth• Octopus Investments• Jetstream Ventures

Strategic investors• Astellas• SR One• Pfizer Ventures Investments• Roche Venture Fund• Johnson & Johnson Innovation• Merck Ventures BV• Robert Bosch Venture Capital• Lundbeckfond Ventures

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Storm Therapeutics

Storm Therapeutics (formerly Iceni Therapeutics) is a classic example of our model – helping world-leading scientists to turn their outstanding research into exciting early-stage companies by providing long-term funding and building great syndicates of like-minded co-investors.

Storm Therapeutics is a drug discovery and development company focused on the identification and development of small molecules that target RNA-modifying enzymes. The company is a spin-out from the University of Cambridge’s Gurdon Institute and was created to commercialise the ground-breaking work of its founders, Professor Tony Kouzarides and Professor Eric Miska, in the field of RNA epigenetics.

RNA (ribonucleic acid) is the template of all protein synthesis and has key regulatory functions in cells. There is growing understanding of the importance of RNA modification in the development of cancer, opening up novel therapeutic targets in cancer treatment.

Innovations led the seed funding round for Storm Therapeutics in May 2015. On 28 June 2016, Innovations committed a further £3.0 million to the company’s £12.0 million Series A funding round, alongside existing investor Cambridge Innovation Capital and new investors Merck Ventures BV and Pfizer Venture Investments.

Storm Therapeutics intends to develop therapeutics, using IP licensed from Cambridge Enterprise (the commercialisation arm of the University of Cambridge). The proceeds of the funding will be used to identify small molecule modulators of these novel targets in RNA modification pathways and develop them into new classes of anti-cancer treatments.

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Chief Executive Officer’s review

The long-term prospects for the Group remain very good

The fundamentals of our business are very strong, with many of our portfolio companies making significant progress during the year.

I am pleased to report on another year of progress as we continue to develop our portfolio and lay the foundations for future value creation. However, I look back on the year with somewhat mixed emotions, because whilst I am excited about the very real progress we are making in the business and across our portfolio, I am disappointed by one specific non-cash event which impacted our headline numbers, namely the failure of Circassia’s Phase III trial.

This event should not overshadow a very good year for the Group. We have come a long way with a number of key developments which may ultimately prove to be of greater significance to shareholders.

Notable achievements included signing new strategic partnerships to increase our visibility of new investment opportunities; strengthening our balance sheet by means of a £100 million Placing; and once again increasing the level of investment in our portfolio to a record level. The Group’s net portfolio value is now £335.1 million and, although we are reporting a loss of £63.1 million for the period, net assets increased by £35.8 million to £455.9 million.


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The fundamentals of the business are very strong. Many of our portfolio companies made significant technical, clinical and commercial progress during the year and we led six major private funding rounds.

Significantly, there is growing evidence of strong partnership interest in our portfolio, both from corporate venture investors (e.g. Johnson & Johnson Innovations, SR One, Roche Venture Fund and Robert Bosch) and industry (e.g. BMS, Consort Medical, TSYS Inc and Sumitomo Chemical Co Limited) with the recently announced collaboration and licence agreement between Crescendo Biologics and Takeda Pharmaceuticals being a prime example. We remain confident about the prospects for long-term value creation.

Visibility of new investment opportunities remains very high. The quality and experience of our team means our ability to identify potential stars is continually improving. We have accelerated the development of some of our more recently formed companies. Good examples of this include the £31.5 million Series A funding round for Inivata and the £19 million Series A round in Kesios.

We added seven new companies to the accelerated growth portfolio during the year. As always, we have adopted a measured approach to growing the number of companies in our portfolio with a resolute focus on quality over quantity. Already the pipeline for the next financial year is looking strong.

Circassia’s Phase III trialThe result of Circassia’s Phase III trial was a disappointment. The large body of Phase II clinical data was indicative of a successful outcome. However, we understand that clinical trials do not always go to plan, so we hold a diversified portfolio of strong, well-funded and well-managed portfolio companies, which reduces the Group-level risk of failure of individual assets.

We are encouraged that Circassia has taken a similar approach in its own business. In addition to its allergy immunotherapy products, Circassia has built a fast-growing asthma diagnostics and management platform, and a broad pipeline of respiratory products, each of which have considerable value in their own right. The business is well funded and we are confident its experienced management team will implement whatever changes they deem necessary to adjust for this setback and create value in future.

The failure of this trial has led to a non-cash reduction in carrying value of Circassia, down by £54.8 million.

Strong balance sheetIn February 2016, the Group raised £100.0 million (before expenses) by means of a Placing. As of 31 July 2016, the Group had total cash and short-term liquidity investments of £148.3 million (2015: £128.1 million). In addition, the Group had a £50.0 million EIB loan facility that was undrawn at year-end.

This balance sheet strength combined with our policy of building strong investor syndicates, means we are in a strong position both in absolute terms and relative to our peers, particularly over companies with earlier-stage portfolios or non-syndicated investments.

“ The quality of new opportunities that the Group is seeing from the academic, research and entrepreneurial community within the ‘Golden Triangle’ remains very high, with a healthy stream of new investment opportunities.”

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Major funding rounds completed during the yearPortfolio company Funding round Co-investors

Kesios Therapeutics Limited £19.0 million series A SV Life Sciences, AbingworthInivata Limited £31.5 million Series A Cambridge Innovation Capital, Johnson & Johnson Innovation,

Woodford Patient Capital TrustMISSION Therapeutics £60.0 million funding round Woodford Patient Capital Trust plc, Sofinnova Partners, SR One,

Roche Venture Fund and Pfizer Venture InvestmentsNexeon Limited £30.0 million equity funding round Invesco Asset Management, Woodford Investment Management LLPPrecision Ocular Ltd £15.5 million investment Consort Medical plc, NeoMed, Hovione Scientia LimitedStorm Therapeutics £12.0 million Series A Cambridge Innovation Capital and new investors Merck Ventures BV

and Pfizer Venture Investments

Chief Executive Officer’s review continued

Putting our capital to workDuring the year the Group continued to deploy its substantial capital resources into its investment portfolio, and once again increased its investment levels, investing £69.9 million across 33 portfolio companies during the year (2015: £60.8 million across 30 portfolio companies). This is more than double the level of just two years ago and reflects the ambition and increasing maturity of our portfolio companies.

Of this 79% (£55.0 million) was invested into existing portfolio companies, with the balance being invested in new companies added to the portfolio. The Group’s portfolio companies raised a total of £206.4 million during the year (2015: £479.9 million).

Six portfolio companies completed major funding rounds during the period. Collectively these companies: MISSION Therapeutics, Nexeon, Inivata, Kesios Therapeutics, Precision Ocular and Storm Therapeutics raised £168.0 million. The fact that these private companies were able to raise such substantial funding is a result of our proactive policy of building strong investor syndicates and shows that the Group is not dependent upon the public markets to ensure that its portfolio companies grow with pace and ambition. The calibre and breadth of co-investors is notable and includes strategic investors, specialist funds and financial investors (see Table).

In addition to these major rounds, the Group completed investments into 20 other portfolio companies, including leading funding rounds in Featurespace (£6.2 million), Econic (£5.0 million), Abingdon Health (£3.0 million), Aqdot (£5.0 million) and Inflowmatix (£3.0 million).

The overall net portfolio value increased by £7.9 million to £335.1 million (2015: £327.2 million) through a combination of investments of £69.9 million, disposals of £5.8 million and net portfolio losses of £56.2 million. A major component this year was the £66.9 million net fair value loss attributable to movements in the value of the Group’s quoted portfolio which is marked-to-market at period end. Circassia Pharmaceuticals accounted for £54.8 million (or 81.9%) of the drop in value in the quoted portfolio.

Net assets were £455.9 million (2015: £420.1 million).

Total disposals for the year were £5.8 million. We completed the sale of three portfolio companies. In April 2016, the Group crystallised a net fair value gain of circa £1.4 million from the sale of its 16.4% interest in Stanmore Implants Worldwide to Stryker Corporation. This was followed by the sale of two organic portfolio companies, Alkion Biopharma and Hark Health Solutions, which were sold to Evonik Industries and Google DeepMind respectively. Both of these companies were spin-outs from Imperial College London in which Innovations held equity as a result of the Group’s Technology Transfer Office providing early commercial support to the founders, as well as from licensing the founding IP.

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Technology Transfer OfficeThe Group’s Technology Transfer Office (‘TTO’) was broadly in line with budget on all key metrics. Licensing and royalty income was £2.2 million (2015: £2.8 million). The TTO managed the sale of two portfolio companies: Hark Health Solutions and Alkion Biopharma.

The number of opportunities flowing through the pipeline from Imperial College London remains healthy. The Group reviewed 425 invention disclosures (2015: 386) and seven new Imperial spin-out companies were formed during the year (2015: 7) and joined the Group’s organic growth portfolio. 39 licensing deals were signed (2015: 39) and 74 patents filed during the period.

Continuing momentum in the portfolio We remain very encouraged by the performance of the portfolio. Full details are included in the ‘Portfolio update’ section on page 32, but notable highlights include:• Nexeon: the company is continuing to optimise its

silicon materials for the blended carbon/silicon anode applications currently being demanded by the battery industry. Material development has advanced to the point that the company can now offer a product that outperforms SiOx, the only silicon-based material being used in commercial quantities today. Product sampling is underway with several potential customers in both the consumer electronics and automotive sectors. On 11 October 2016 Nexeon opened a new office and development laboratory in Yokohama, close to many of the company’s development partners and prospective customers in the electronics and automotive sectors.

• PsiOxus Therapeutics: announced an exclusive clinical collaboration agreement to evaluate the safety, tolerability, and preliminary efficacy of Enadenotucirev in combination with Bristol-Myers Squibb’s PD-1 immune checkpoint inhibitor Opdivo® (nivolumab) to treat a range of tumour types in late-stage cancer patients. The company also announced a combination study with Paclitaxel in ovarian cancer.

• Cell Medica: significantly broadened its product pipeline with the announcement of an exclusive licensing agreement and a co-development partnership with the Baylor College of Medicine to develop next-generation cellular immunotherapies. This new partnership is expected to generate a significant number of new products for the company’s cellular immunotherapy pipeline and was followed shortly by the acquisition of Delenex Therapeutics AG, a Swiss biopharmaceutical company whose proprietary PENTRA®Body technology provides a key enabling technology for Cell Medica to develop a pipeline of next-generation CAR-modified immunotherapies. In August 2016, Cell Medica announced a research collaboration with UCL to generate leading-edge modified T Cell Receptor (TCR) products for the treatment of cancer.

• TopiVert Pharma: completed a Phase I trial of its lead product TOP1288 in ulcerative colitis. A Phase IIa proof of concept study started in October 2016. TopiVert also expects to start the clinical development of TOP1630, its candidate for dry-eye disease in early 2017.

• Circassia Pharmaceuticals plc: The Phase III failure was disappointing, but the company made progress in its respiratory products portfolio with the announcement that its lead asthma product has been approved in the UK. Circassia expects two further filings for regulatory approval by the end of 2017.

• Abzena plc: raised £20.0 million by means of a placing and completed two acquisitions in the USA. The company also announced a licensing agreement with a large, publicly listed US biotech for the development of Antibody-Drug Conjugates (ADCs) with the potential to receive licence fees and milestone payments of up to $150.0 million, and a manufacturing agreement with Faron Pharmaceuticals (AIM: FARN) to manufacture Clevegen®, a novel therapeutic antibody being developed to reduce immune suppression in cancer.

• Autifony Therapeutics: announced the successful completion of a Phase I study of AUT00206, its first-in-class Kv3 modulator for schizophrenia. This partly offsets the disappointing news of the failure of the company’s Phase II study in age-related hearing loss involving a second molecule AUT00063. Meanwhile, the Quick+fire study in adult cochlear implant users, which started in July 2016 and will test AUT00063 in a population of patients with different hearing difficulties is continuing.

• Featurespace: announced a number of significant new customer wins in the UK and growing traction in the USA. These include a five-year agreement with Zapp Limited, the UK mobile payment innovator; a new project with Camelot, the UK National Lottery operator; and a new partnership with US company TSYS Inc, one of the world’s largest payment solutions and services companies.

• Cortexica Vision Systems: announced the successful completion of a six-month consumer trial of its findSimilar™ product discovery tool on the John Lewis iPad app. As a result, John Lewis has permanently added this function to its Men’s and Women’s fashion product list pages.

• Abingdon Health: signed a multi-year, exclusive, global distribution agreement with Sebia, the world leader in medical diagnostics by electrophoresis, for its Seralite® – FLC serum product. The company also achieved a CE Mark for its related product Seralite® – FLC urine. In April 2016, the company announced a collaboration agreement with Sumitomo Chemical Co Limited to develop a next-generation multiplexed point of care biosensor device.

• Oxford Immunotec: acquired Imugen, Inc., a Massachusetts-based clinical laboratory that specialises in testing for tick-borne diseases. This transaction has expanded the company’s addressable market, whilst leveraging its existing commercial infrastructure.

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Building a pipeline for future value creationDuring the year, Group added seven new unquoted accelerated growth companies to the portfolio. In line with the plans set out the previous Annual Report, the Group is continuing to develop its investment portfolio by scaling its activities in non-therapeutics sectors. It is significant therefore that five of these seven new portfolio companies are in the ICT & Digital sector (Garrison Technology, Import.io, Telectic, WaveOptics and SAM Labs) one in the Group’s Engineering & Materials sector (Silicon Microgravity) and one in Therapeutics (Precision Ocular).

The Group’s accelerated growth portfolio now comprises 45 companies (2015: 39 companies) which collectively account for 99% of the portfolio by value.

The TTO’s company formation unit, Co.Create also contributed to the pipeline of future opportunities, forming seven new organic growth businesses. Co.Create works with academics at Imperial to form businesses, which will either grow organically or seek funding from Angel or VC investors. Innovations receives an equity stake at nil cost in return for its support in establishing the business and for the transfer of IP from Imperial College into the company.

Broadening the Group’s access to new IPIn January 2016, the Group announced two new initiatives aimed at expanding its licence portfolio and broadening its visibility of, and access to, IP from the elite universities within the ‘Golden Triangle’.

The first of these was participation in the new UCL Technology Fund LP, the first investment fund that University College London (UCL) has created to commercialise its multidisciplinary research. Over the next five years this fund is expected to invest £50.0 million to support ideas from academics in life sciences and physical sciences, and will be used for early-stage proof of concept funding, licensing opportunities and the formation of new spin-out companies.

Innovations is a Limited Partner (LP) in the fund and has committed £24.8 million to it, matched by a commitment of the same amount from the European Investment Fund (EIF). Participation in the fund provides Innovations with visibility of potential intellectual property from across UCL’s research base.

Chief Executive Officer’s review continued

In addition, the fund’s general partner Albion Ventures has obligations to offer co-investment opportunities to the LPs, to alert them to any projects that the fund chooses not to invest in, and to negotiate the right for LPs to take up pre-emption rights that the fund does not take up. As a result, in addition to its £24.8 million commitment to the fund, the expectation is that Innovations will also have opportunities to make direct investments into selected UCL Business plc (UCLB) spin-outs to support their long term growth and value creation.

Participation thus significantly increases Innovations’ access to deal-flow from one of the world’s leading universities, and also provides a template for a new, collaborative model which could be replicated at other universities. The fund has started to make its first investments including providing Proof of Concept funding to spin-out from the Department of Computer Science and backing for two early-stage therapeutics companies.

On 25 January 2016, Innovations announced that it had committed £3.3 million to Apollo Therapeutics, a new £40.0 million joint venture between Innovations, Cambridge Enterprise (the technology transfer office of the University of Cambridge), UCLB (the technology commercialisation company of UCL) and three of the world’s leading pharma companies, AstraZeneca, GlaxoSmithKline and Johnson & Johnson.

This new venture is supporting the translation of outstanding academic therapeutic science into innovative new medicines by combining the skills of the university academics with industry expertise at an early stage. The ultimate aim is to speed up the development of new medicines, as well as reducing the cost and improving the attrition rate of potential opportunities, whilst sharing the risk of early development.

Over the initial six-year life of the Apollo venture, the three TTOs will each contribute £3.3 million, while the three pharmaceutical companies will each contribute £10.0 million, as well as providing research and development expertise and resources to assist with the development of projects. In May 2016, Dr Richard Butt joined as CEO, bringing valuable experience in drug discovery and development following 20 years’ experience with Pfizer.

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Outlook The long-term prospects for the Group remain very promising. We have created a well-diversified business, with a strong financial position and a dynamic portfolio with potential for near-term exits and partnering transactions.

Our portfolio now includes 45 accelerated growth companies comprising four quoted and 41 private companies with the vast majority (85%) valued at cost or last funding round. We now have 10 companies with net carrying values between £10 million to £50 million spread across three sectors (see table on page 58). Of these 10 companies, eight are private companies with an average age of 8.6 years. These are well-managed and well-capitalised businesses which have raised an average of £38.9 million each. In addition, we have considerable strength in depth from other companies with potential, and the capital required to enable us to support their growth.

In the coming financial year, we will continue to deploy the bulk of our investment capital in existing portfolio companies. We expect to maintain this investment this year, in order to accelerate the growth of leading assets and maintain significant stakes in our high-potential companies. Creating strong syndicates with like-minded co-investors will remain an important part of our approach, allowing us to build substantial, well-managed and well-funded businesses whilst leveraging the complementary expertise of our co-investors.

Whilst the majority of our investment capital will be deployed in companies that we have co-founded and know intimately, we will maintain our new business creation activity at the current rate by selectively adding five to eight new companies per annum. We plan to continue our policy of balancing our portfolio by proactively growing our investment in non-therapeutics businesses whilst building further capacity in our tech ventures team.

The quality of new opportunities that the Group is seeing from the academic, research and entrepreneurial community within the ‘Golden Triangle’ remains very high, with a healthy stream of new investment opportunities. Imperial College is a key component of this cluster and remains a highly productive source of new opportunities. Since 2011, we have broadened our reach across the ‘Golden Triangle’ but still around one third of all of the Group’s new companies have come from this strategically important relationship.

We remain in a very strong financial position with nearly £200 million available to invest. This gives us ample capital to scale up our investment in the significant opportunities within our unquoted portfolio, whilst maximising the new opportunities expected from the new alliances with UCL Technology Fund and Apollo Therapeutics.

The current financial year has started very well. In the first quarter, portfolio company Permasense was sold to Emerson Electric and the Group secured a new five-year contract to manage the incubator at Imperial College London’s new White City Campus. Additionally, portfolio company Crescendo Biologics signed a global, strategic, multi-target collaboration and licence agreement with Takeda Pharmaceutical which has a potential value of $790.0 million subject to the successful completion of milestones. The Group has also added two new companies to its investment portfolio: ThisWay Global, a Cambridge-based technology company that is developing a software platform powered by machine learning for the recruitment industry; and Artios Pharma, a new Cambridge-based private biotech company, focused on the development of novel DNA Damage Response (DDR) cancer therapies.

The Board remains confident that Innovations’ business model and key principles of attracting world-class management, building stakes in selected portfolio companies alongside appropriate co-investors, and having the patience and capital resources to hold for the long-term, will generate attractive returns for shareholders.


12 October 2016

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Portfolio update

Our portfolio in detail

Innovations has built particular expertise in the key sectors of Therapeutics, Medtech & Diagnostics, Engineering & Materials, and ICT & Digital. These four sectors reflect the strengths of the UK science base and the technological heritage of the four universities that we work with. We have built our capability in each sector and adapted to each one’s different dynamics.

As at 31 July 2016, the Group had a portfolio of 107 companies. Of these there are 45 accelerated growth companies in which we actively invest and take a seat on the board. Collectively these 45 companies account for 98.8% of our portfolio by value. The balance is represented by 35 ‘lighter-touch’ companies, in which the Group gives support to promote organic growth and revenue generation, and some 27 low-involvement companies where the Group has a historical holding or has acquired shares through IP transactions.

The accelerated growth portfolio had a total net portfolio value of £331.1 million at the end of the financial year (2015: £320.1 million). Of this 46.6% is represented by companies in the therapeutics sector and 22.7% by companies in the Engineering & Materials sector. The Group’s Medtech & Diagnostics companies represent 16.7% of the value. The ICT & Digital sector is a growing part of the Group’s portfolio companies, currently representing 14.0% of the total value, and should increase in the years ahead as the Group puts an increasing focus on this sector.

The Group’s top 10 investments by net fair value represent a carrying value of £202.5 million.

Therapeutics 46.6%

Medtech & Diagnostics 16.7%

Engineering & Materials 22.7%

ICT & Digital 14.0%

Therapeutics 17

Medtech & Diagnostics 7

Engineering & Materials 10

ICT & Digital 11

Imperial College 65.7%

University of Cambridge 15.1%

University of Oxford 11.4%

UCL 1.7%

Other 6.1%

Portfolio analysis by net fair value Accelerated growth companies £331.1m

Portfolio analysis by number Accelerated growth companies 45

Portfolio analysis by source % of total net portfolio value

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Imperial College 29%

University of Cambridge 26%

University of Oxford 12%

UCL 6%

Other 27%

Portfolio source over the last five years% of new portfolio companies

Therapeutics 29%

Medtech & Diagnostics 15%

Engineering & Materials 18%

ICT & Digital 38%

% of new portfolio companies by sector

The Group now has a quoted portfolio of four companies which as of 31 July 2016 had a net investment carrying value of £42.9 million (12.8% of total portfolio value) (2015: £106.8 million, 32.6%) and an unquoted portfolio with a net investment carrying value of £292.2 million (87.2 % of total portfolio value) (2015: £220.4 million, 67.4%) as of the same date.

In the following pages we provide an update on the major developments for all of the Group’s top 10 portfolio companies together with a selection of other portfolio companies that either had significant news flow during the year or are in some other way representative of Innovations’ interests in each sector.

Full details of the Group’s holding, net investment carrying value and cumulative cash invested in each of the top 10 investee companies can be found on page 58.

Our portfolio in detail

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Portfolio update continued

TherapeuticsInnovations continues to prove its ability to identify innovative therapeutic science early in development, build high-quality investment syndicates to provide substantial funding where necessary and develop those assets into leading businesses.

One of our key differentiators from our listed peers is the strength of our therapeutics portfolio, which is truly world-class. During the year, the Group added three new therapeutics companies to this portfolio.

By virtue of Innovations’ success, the sector’s high capital requirements, companies in this sector represent around 57% of the valuation of our top 10 portfolio companies.

£154.2mvalue of our therapeutics assets within our portfolio

£96.3mraised by therapeutics companies during the year

£27.5minvested in therapeutics companies during the year

1new company added to the Therapeutics portfolio

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Crescendo Biologics is a Cambridge-based biopharmaceutical company that is harnessing the power of its proprietary transgenic mouse platform to efficiently discover and develop Humabody® therapeutics with a focus on cancer. The underlying technology was originally developed at the Babraham Institute, Cambridge. Crescendo was formed to commercialise this research and is backed by an impressive syndicate of blue-chip investors including Innovations, Sofinnova Partners, Astellas Venture Management and EMBL Ventures.

Focus on

Crescendo Biologics

Humabodies are a novel class of small, robust and potent protein therapeutics based on fully human VH domains. VH fragments are the smallest portions of immunoglobulin that retain target specificity and potency and are the most robust antibody fragments in terms of stability, ease of engineering and manufacture.

Compared to antibodies, Humabodies offer a unique combination of potential benefits that results from their small size, cost-effective production and modular configuration. This means that they can be readily modified and customised,

for example by extending their half-life to match a relevant therapeutic treatment regime. Cresecendo is building a pipeline of new differentiated medicines, including Humabody™ Drug Conjugates (HDCs) and multi-specific immuno-oncology (IO) modulators.

On 10 October 2016, Crescendo announced a a global, strategic, multi-target collaboration and licence agreement with Takeda Pharmaceutical Company for the development of drugs for the treatment of cancer indications with high unmet need.

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Circassia Pharmaceuticals plcCircassia is a speciality biopharmaceutical business focused on allergy and respiratory disease. The company has an established commercial infrastructure, marketed products, a pipeline of near-term therapies and a portfolio of next-generation treatments targeting multi-billion dollar market opportunities.

Circassia was established in 2006 based on a novel allergy immunotherapy platform, ToleroMune®, originally developed at Imperial College London. In February 2007, Innovations led the company’s Series A funding round, investing £2.0 million of a £6.5 million round. Subsequently Innovations led three other funding rounds, investing a total of £25.5 million in Circassia up until the company’s IPO and listing on the Main Market of the London Stock Exchange in March 2014. This IPO was followed in 2015 by a Placing which provided the finance for the Company to acquire Aerocrine and Prosonix as part of its strategy to broaden its pipeline beyond its original immunotherapy assets.

These acquisitions significantly diversified Circassia’s portfolio and Circassia is now a speciality biopharmaceutical company focused on the diagnosis, treatment and management of allergy, asthma and chronic obstructive pulmonary disease (COPD). From Aerocrine the company gained a novel, market-leading allergy management and diagnostics product NIOX® that is used by clinicians in over 40 countries to aid asthma diagnosis and management. Circassia markets these products directly in the USA and Germany and they are sold elsewhere around the world through a network of distributors.

The acquisition of Prosonix has provided Circassia with a broad pipeline of respiratory products. Circassia’s lead asthma product targets substitution of GSK’s Flixotide® pMDI, and was recently approved in the UK. Circassia expects two further filings for regulatory approval by the end of 2017, for products targeting direct substitution of Serevent® pMDI and Seretide® pMDI. The company is also developing a number of novel treatments for COPD.

On 20 June 2016, Circassia announced top-line results from its investigational cat allergy immunotherapy Phase III study. In the study, both treatment regimens and placebo greatly, and equally, reduced subjects’ combined allergy symptom and rescue medication use score from baseline. This meant that despite dramatic improvements in subjects’ allergy symptoms and rescue medication use, the very marked placebo effect meant that the treatment did not meet the study’s primary endpoint.

As a result of this news, management decided to minimise its expenditure on its allergy programme. Accordingly, Circassia stopped development activities in its grass and ragweed allergy programmes. The Phase IIb study of its house dust

mite allergy treatment will continue to completion in spring 2017. The company’s early-stage, small-scale Phase II birch allergy study also continued to completion.

On 27 September 2016, Circassia reported its interim results for the six months to 30 June 2016. The company noted substantially increased revenues from its asthma management products, strong growth in its respiratory portfolio and an expansion of its commercial footprint in order to capitalise on its broadening pipeline and early work on a number of new product opportunities.

The company also reported encouraging results from its Phase II birch allergy study but will wait for the results of its large-scale (700 patients enrolled) house dust mite field study which are due in Spring 2017, before reassessing the wider strategy for its allergy immunotherapy portfolio.

PsiOxus Therapeutics LimitedPsiOxus Therapeutics is an Oxford-based immuno-oncology company which has developed a patented platform for the systemic delivery of tumour-targeted oncolytic immune therapeutics. The company was founded in 2010 in its present form, having been created by the merger of Imperial College London spin-out Myotec Therapeutics with Oxford spin-out Hybrid BioSystems.

Founder John Beadle, a former Entrepreneur in Residence at Innovations, has been CEO from the start. The new team was further strengthened by the appointment of Paolo Paoletti as Chairman in January 2016. Dr Paoletti is CEO of another Innovations portfolio company, Kesios Therapeutics, and was previously president, GSK oncology and Vice President, clinical development at Lilly Oncology. PsiOxus has raised £45.7 million to date, with the most recent funding round being a £25.0 million Series C in May 2015.

PsiOxus’ Tumour-Specific Immuno-Gene (T-SIGn) therapy platform is based on the company’s oncolytic virus, enadenotucirev, which has unique properties that allow it to be delivered systemically via intravenous administration and to replicate only in tumour cells. The virus’s anti-cancer capability can be further enhanced through ‘arming’ – a process that involves the addition of new genes to the virus. The armed T-SIGn platform makes possible creation of a broad range of systemically delivered oncolytic immune therapeutics, including oncolytic viruses that express one or more antibodies, cytokines, immunomodulatory proteins, and nucleotide (RNA)-based payloads.

The T-SIGn platform is in pre-clinical stage, while Phase I/II clinical trials are ongoing with enadenotucirev in a variety of different tumour types and as a combination therapy alongside both checkpoint inhibitors (SPICE study with nivolumab) and conventional chemotherapeutics (OCTAVE study with paclitaxel).

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On 30 June 2016 PsiOxus announced an exclusive clinical collaboration agreement to evaluate the safety, tolerability, and preliminary efficacy of enadenotucirev in combination with Bristol-Myers Squibb’s Immuno-Oncology (I-O) agent Opdivo® (nivolumab) to treat a range of tumour types in late-stage cancer patients. Opdivo® was the first PD-1 immune checkpoint inhibitor to receive regulatory approval anywhere in the world in July 2014 and currently has regulatory approval in 51 countries including the USA, Japan and the European Union.

Given that enadenotucirev is designed to have immune stimulating effects and Opdivo® is designed to alleviate immune suppression, this new clinical collaboration will support Phase I studies to determine whether combining these two agents can significantly improve the proportion of patients achieving objective tumour responses, the extent of tumour shrinkage, and/or the durability of responses. Under the terms of this agreement, Bristol-Myers Squibb will make a one-time upfront payment of $10.0 million to PsiOxus, and the parties will share development costs.

Cell Medica LimitedCell Medica develops, manufactures and markets cellular immunotherapy products for the treatment of cancer and infections. Cell Medica employs a range of leading-edge technologies to develop immune cell products with the potential to transform the lives of cancer patients in the years ahead.

Cell Medica’s lead oncology programme is aimed at a range of cancers associated with the oncogenic Epstein Barr virus (EBV), including non-Hodgkin lymphomas, Hodgkin lymphoma and nasopharyngeal carcinoma. In addition to its oncology programs, the company is pioneering the use of adoptive T cell immunotherapy for the treatment of cytomegalovirus and adenovirus infections in patients who are profoundly immunosuppressed from allogeneic haematopoietic stem cell (bone marrow) transplantation.

The business was founded by CEO Gregg Sando, who gained an MSc Immunology at Imperial College London following a career in investment banking in London and New York. Since its initial seed funding round in 2007, Cell Medica has raised over £72.5 million of which £19.8 million has been invested by Innovations. The bulk of this funding was provided by a £50.0 million Series B funding in November 2014, which was led by Innovations alongside co-investors Invesco and Woodford Investment Management.

Cell Medica’s lead cancer immunotherapy product baltaleucel-T (CMD-003) comprises engineered T-cells targeted at malignant cells that express the oncogenic Epstein Barr virus. EBV is part of the Herpes family of viruses and was the first virus to be discovered to cause cancer.

It is now widely associated with a range of cancers. The safety and efficacy of this novel cancer immunotherapy is currently being investigated in a ground-breaking international Phase II clinical trial (CITADEL) for the treatment of advanced extra nodal natural killer T cell lymphoma (ENKTCL). The trial enrolled its first patient in early 2015 and initial data is expected towards end-2016 with completion expected in 2017.

CMD-003 was given orphan drug status by the FDA in March 2015 for the treatment of EBV+ non-Hodgkin lymphomas and in July 2016 the European Commission (EC) granted the product orphan drug designations for the treatment of ENKTCL and post-transplant lymphoproliferative disorder (PTLD).

Towards the end of 2016 the company expects to initiate label expansion studies for baltaleucel-T with the CIVIC trial. This will study baltaleucel-T in three additional indications: EBV+ Hodgkin’s lymphoma, EBV+ diffuse large B cell lymphoma and EBV+ post-transplant lympho-proliferative disease.

On 17 June 2016, Cell Medica announced an exclusive licensing agreement and a co-development partnership with the Baylor College of Medicine (‘Baylor’) to develop next-generation cellular immunotherapies incorporating chimeric antigen receptors (CARs) with genetically enhanced potency for the treatment of cancers that do not respond to conventional therapies. This new collaboration provides Cell Medica with an exclusive licence over several Baylor cell and gene technologies and an option to license new products introduced into the co-development partnership by Baylor’s leading research teams in the field of genetically engineered immune cells. As a result it is expected to generate a significant number of new products for the company’s cellular immunotherapy pipeline.

This news was followed on 12 July 2016, by the announcement of the acquisition of Delenex Therapeutics AG a privately held, clinical-stage biopharmaceutical company based in Switzerland. Delenex is focused on the development of locally and systemically applied antibody therapeutics and its proprietary PENTRA®Body technology provides a key enabling technology for Cell Medica to develop a pipeline of next-generation CAR-modified immunotherapies. Delenex’s scientific team and the company’s laboratory facilities in Switzerland will be maintained within Cell Medica’s global R&D operations which now encompass operations in the UK, USA, Germany and Switzerland.

Just after the year-end, on 24 August 2016, Cell Medica announced a research collaboration with UCL which will see the company utilise UCL’s novel T cell receptor (TCR) technology to generate leading-edge modified TCR products for the treatment of cancer. The collaboration also provides Cell Medica with an exclusive worldwide option and licence agreement for these technologies, as well as TCR gene sequences for the development and commercialisation of specific products.

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Abzena plcAbzena provides proprietary technologies and complementary services to enable the development and manufacture of biopharmaceutical products, a growing area that requires specialist knowledge and expertise. Abzena has a global customer base which includes the majority of the top 20 biopharmaceutical companies as well as large and small biotech companies and academic groups.

During the period, Abzena completed two acquisitions in the USA which have given it a footprint on both the East and West coasts of the USA and a broader offering for its customers. In September 2015, the company acquired PacificGMP, a contract biopharmaceutical manufacturing and development company based in San Diego, USA. In December 2015, it also acquired The Chemistry Research Solution (TCRS), a contract chemistry and bioconjugation business based in Bristol, near Philadelphia. This acquisition was partly funded by a £20.0 million placing announced in the previous month.

On 25 January 2016, Abzena announced that it had entered into a licensing agreement with a large, publicly listed US biotech for the development of Antibody-Drug Conjugates (ADCs) based on Abzena’s ThioBridge™ technology. The agreement covers the development of ADCs against three undisclosed targets. Abzena will receive an initial licence and target nomination fee and has the potential to receive further licence fees and milestone payments of up to $150.0 million. The licensing agreement follows a research collaboration between the two parties, which included the evaluation of multiple ADCs for safety and efficacy in pre-clinical models.

On 13 June 2016, Abzena’s full-year results highlighted a period of strong growth. The acquisitions of TCRS and PacificGMP significantly expanded Abzena’s offering and generated a significant increase in business from US-based customers. The company also reported that several of its ‘ABZENA Inside’ programmes were making strong progress towards commercialisation with leading partners, notably GS-5745 (Gilead Sciences) in gastric cancer. Abzena entered into a further eight licensing agreements in the financial year, bringing the total to over 40. Eleven ABZENA Inside programmes are in clinical trials funded by partners.

On 14 July 2016, Abzena announced a joint venture with the Baylor Scott & White Research Institute (BSWRI) based in Texas, to create a new company, Denceptor Therapeutics Limited, which will develop immunotherapeutic products to treat cancer and autoimmune diseases using BSWRI’s dendritic cell receptor-targeting antibodies. These antibodies will be humanised using Abzena’s Composite Human Antibody™ technology to reduce unwanted drug immunogenicity.

On 25 July 2016, Abzena entered into a manufacturing agreement with Faron Pharmaceuticals Limited (AIM: FARN) that will result in Abzena manufacturing Clevegen®, a novel therapeutic antibody being developed by Faron to reduce immune suppression in cancer. Clevegen was humanised by Abzena using its Composite Human Antibody® technology and is the first product produced using this technology that will also be manufactured by Abzena following its acquisition of PacificGMP.

TopiVert Pharma LimitedTopiVert is a clinical-stage biotechnology company developing narrow spectrum kinase inhibitors (NSKIs) as novel, locally-acting medicines for the local treatment of chronic inflammatory diseases of the gastrointestinal tract and eye.

NSKIs are novel small molecules that are potent inhibitors of a range of kinases involved in the inflammatory response. They are designed to have low bioavailability, which reduces their exposure to many of the body’s healthy tissues, thereby enhancing their safety and tolerability profiles. Together, these attributes make NSKIs ideal treatment candidates for chronic inflammatory diseases where long-term therapy demands a sustained effect accompanied by excellent safety and tolerability.

The company was founded in December 2011, following an £8.0 million funding round jointly led by Innovations and SV Life Sciences. In December 2013, TopiVert raised a further £17.0 million in a funding with new investors Johnson & Johnson Development Corporation and Neomed Management, joining the syndicate alongside SV Life Sciences and the Group.

TopiVert’s most advanced drug candidate, TOP1288 for the treatment of ulcerative colitis, has successfully completed Phase I development. On 6 October 2016, the company announced that the first patients had been dosed in its Phase IIa proof-of-concept study.

TopiVert also expects to start the clinical development of TOP1630, its candidate for dry eye disease (DED), in early 2017. Current therapies for these debilitating diseases provide inadequate long-term control in a high proportion of patients and considerable unmet medical need remains.

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MISSION Therapeutics LimitedCambridge-based MISSION Therapeutics was founded in 2011 to commercialise expert research into the ubiquitin pathway for the treatment of cancers and non-malignant disease. It has built a world-leading platform for the discovery and development of first-in-class, small molecule drugs that selectively target deubiquitinating enzymes (‘DUBs’) – an emerging, and hitherto intractable drug class that is attracting significant commercial interest as the potential ‘next kinase area’.

DUBs are involved in multiple cellular processes, including DNA damage response and cell proliferation. The inhibition of these enzymes has considerable potential for the generation of novel drugs for treating cancer and other unmet medical needs, including neurodegenerative disease, muscle wasting and infectious disease. Despite significant efforts within the pharmaceutical sector, there is a lack of DUB inhibitors in clinical development.

MISSION’s leadership team has a wealth of international, commercial and scientific experience and the company has strong links with key academic and research centres including Cancer Research UK laboratories and the Gurdon Institute, University of Cambridge. Professor Steve Jackson at Cancer Research UK laboratories and the Gurdon Institute, University of Cambridge is the scientific founder of MISSION and is the Chief Scientific Officer of the company.

To date, MISSION has raised £86.0 million from investors including a £60.0 million funding round announced on 2 February 2016 which was jointly led by Innovations and new investor Woodford Patient Capital Trust plc, with follow-on investment from existing shareholders Sofinnova Partners, SR One, Roche Venture Fund and Pfizer Venture Investments. The new funding will enable MISSION to maximise the potential of its world-leading DUB platform and advance a series of first-in-class small molecule drug candidates targeting specific DUBs into early clinical development.

Precison Ocular LimitedIn February 2016 Innovations led a £15.5 million investment round in Precision Ocular Limited an Oxford-based retinal therapeutics development company focused on combining proprietary drug delivery technology and drug formulations to treat sight-threatening diseases.

Innovations committed £6.9 million to the round alongside other investors, including NeoMed and V-Bio Ventures an international venture capital firms focused on the healthcare industry; Consort Medical plc, a leading global single-source pharma services drug and delivery device company with whom Precision Ocular has a strategic development and manufacturing agreement; and Hovione Scientia Limited, a leading pharmaceutical manufacturer specialising in particle engineering and drug encapsulation, with whom Precision Ocular is developing proprietary drug products.

Precision Ocular’s delivery technology enables routine injection to deliver drugs and therapeutics to specific tissues in the back of eye, resulting in improved therapeutic benefits and safety. Precision Ocular’s drug formulations are optimised to suit the unique ocular environments where they are delivered, resulting in better pharmacokinetics (drug movement) and pharmacodynamics (therapeutic effect) as well as extended treatment durations.

Precision Ocular’s lead programme is a drug/device combination product that is prepared in a preloaded, single-use, injection instrument and is being developed to treat adults with a number of eye conditions including diabetic macular oedema (DME) and retinal vein occlusion (RVO).

Post year-end

Artios PharmaLimitedOn 21 September 2016, Innovations committed £5.1 million to the £25.0 million Series A funding round of Artios Pharma Ltd., a new Cambridge-based private biotech company, focused on the development of novel DNA Damage Response (DDR) cancer therapies.

Artios was formed with assets from Cancer Research Technology (CRT), the technology transfer unit of Cancer Research UK (CRUK). It is backed by an impressive syndicate of leading European and US life science investors including SV Life Sciences, Merck Ventures, Arix Bioscience PLC, CRT Pioneer Fund (managed by Sixth Element Capital) and AbbVie Ventures (in addition to Innovations). This syndicate reflects Artios’ international ambitions to build a pipeline of first-in-class DDR therapies identified from a network of global, independent collaborators.

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Medtech & DiagnosticsThe Medtech & Diagnostics sector includes businesses that develop medical technologies and businesses that develop diagnostic tools such as those that detect disease or can ascertain the severity of a disease.

UK universities and research institutions, especially those in the ‘Golden Triangle’, have a strong history of developing pioneering advances in these fields and we are well placed to form and fund companies around such innovation.

£56.7mvalue of our Medtech & Diagnostics assets within our portfolio

£35.5mraised by Medtech & Diagnostics companies during the year

£14.5minvested in Medtech & Diagnostics companies during the year

0new companies added to the Medtech & Diagnostics portfolio

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Cambridge-based Ieso Digital Health is transforming the accessibility, affordability and accountability of mental health treatment by delivering therapy online.

Discreet one-to-one therapy is delivered in real time using written (typed) conversation, with patients meeting an accredited therapist in a secure virtual therapy room, at a time and location that is both convenient and comfortable for them.

The use of technology and written conversation offers greater patient choice, more widespread access

Focus on

Ieso Digital Health

to effective, evidence-based therapy and a freedom to express themselves by communicating online. A written conversation also improves learning and retention compared to a spoken conversation. The therapy has been clinically validated within the NHS across a range of conditions and has been shown to be comparable or better than face to face therapy.

Innovations first invested in Ieso in 2013 by which time the company had treated a few hundred patients. The company has made huge progress since then and is now the largest provider of Cognitive Behavioural Therapy (CBT) in the UK.

During the last financial year the company had more than 5,000 patient referrals in the NHS, representing a 61% year-on-year growth compared to the same period in 2015. More than 14,000 hours of therapy were delivered in the first half of 2016 alone.

Ieso has now started treating patients in the US via a partnership with Beacon Health Options, the largest behavioural health managed care organisation in the USA and covers 45 million lives.

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Veryan Holdings LimitedVeryan is a medical technology company that has developed and patented a three-dimensional stent, BioMimics 3D™, for use in the peripheral (leg) arteries. The shape of the BioMimics 3D™ stent improves its biomechanical performance and blood flow in the vessel, with a demonstrated benefit on clinical outcomes in peripheral arterial disease.

Existing stents indicated for placement in the leg arteries have a straight tubular design that tends to straighten any curvature present in vessels. This straightening effect may interfere with normal shortening of the femoropopliteal artery during lower limb movement, such as when the knee is bent.

However, Veryan’s BioMimics 3D™ stent technology involves adapting traditional straight stent designs to a patented three-dimensional helical shape, which more closely mimics the natural geometry of the human vascular system. When implanted, the BioMimics stent imparts natural curvature to the diseased artery, thereby promoting swirling blood flow, which improves the outcome of peripheral intervention. The unique biomimetic design of the BioMimics 3D™ stent also provides more flexibility, kink and fracture resistance than other laser-cut nitinol tube stents, making it perform particularly well over long periods of time.

In November 2012, Veryan gained CE Mark approval for its BioMimics 3D™ peripheral stent. This was followed in November 2014, with the publication of the full two-year data from the ‘Mimics’ randomised controlled study, which confirmed that Veryan’s advanced stent design provided statistically significant clinical benefits over two years when compared to straight nitinol stents.

On 14 January 2015, Innovations led an £18.0 million Series B funding round in Veryan, alongside co-investors Invesco, Seroba Kernel and Seven Mile. Innovations committed up to £8.4 million to the round. The proceeds of this fundraising were used to initiate the company’s ongoing MIMICS-2 study.

This is a prospective, single-arm, multicentre clinical study of 280 patients at more than 40 investigational sites in the USA, Germany and Japan. The study is being conducted under an FDA Investigational Device Exemption (IDE), with Japanese PMDA concurrence through the ‘Harmonization by Doing’ initiative, to provide clinical data to support parallel pre-market approval reviews in USA and Japan. On 13 June 2016, Veryan announced that the 200th patient had been recruited to the trial.

Abingdon Health Limited Abingdon Health is a UK-based medical diagnostics group focused on developing, manufacturing and commercialising point of care immunoassay tests for disorders of the immune system. Since the company’s formation in 2008 it has completed a series of selective acquisition and licensing transactions to bring together intellectual property, diagnostic platforms and manufacturing and has also created a sales and marketing structure.

Abingdon Health’s initial focus is on developing rapid tests for haematology oncology and specifically B-cell dyscrasias, which are diseases caused by disorders of plasma cells. The company is addressing unmet clinical needs in this area with the introduction of rapid and near-patient tests for diagnosis and monitoring of B-cell dyscrasias. Abingdon’s first product to market is Seralite®– FLC, the world’s first rapid diagnostic device in multiple myeloma which was launched in March 2015.

On 27 June 2016, the company announced that it has entered into a multi-year, exclusive, global distribution agreement with Sebia, the world leader in medical diagnostics by electrophoresis. The deal allows Sebia to add Abingdon Health’s Seralite®– FLC Dual Kappa and Lambda serum lateral flow immunoassay to its worldwide offering.

This announcement was quickly followed by the news that the company had secured the CE mark for Seralite®– FLC urine. This test utilises the same well characterised antibodies featured in Seralite®– FLC serum and provides accurate quantification of free light chains in urine within 10 minutes as an aid to the diagnosis and management of multiple myeloma.

Abingdon Health is also developing a multiplexed rapid diagnostics technology platform to meet the market need for simple to use, rapid, cost-effective, portable systems. The company’s rapid testing system integrates low-cost Organic Light Emitting diodes (OLEDs) and Organic Photodetectors (OPDs) with immunoassay lateral flow chemistry to allow the quantitative measurement of a range of multiplexed assay panels.

On 18 April 2016, Abingdon Health announced the signing of a collaboration agreement with Sumitomo Chemical Co Limited to develop a next-generation multiplexed point-of-care biosensor device. This agreement follows a two-year joint development agreement between Molecular Vision, a subsidiary of Abingdon Health, and Sumitomo Chemical.

On 11 July 2016, Abingdon announced the completion of a further £3.0 million investment round.

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Oxford Immunotec Global plcOxford Immunotec Global plc, headquartered near Oxford, UK is a global, high-growth diagnostics company focused on developing and commercialising proprietary tests for the management of immune-regulated conditions. The company has an extensive presence in the USA, and since November 2013 has been listed on NASDAQ. Revenues for the year ended 31 December 2015 were $62.8 million an increase of 33% on a constant currency basis compared to prior year.

Oxford Immunotec’s first product is the T-SPOT®TB test, which is used to test for tuberculosis infection. This diagnostic test has been approved for sale in over 50 countries, including the USA, where it has received pre-market approval from the Food and Drug Administration, Europe, where it has obtained a CE mark, Japan and China. The T-SPOT®TB test has advantages over current TB diagnosis methods (such as the tuberculin skin test), as it returns results more quickly and more accurately, and is suitable for use in a wider range of patients.

In addition, Oxford Immunotec has two other products, the T-SPOT.CMV test and the T-SPOT.PRT test as part of a series of products intended for the transplantation market. In addition to these three products, the company has an additional six active development programmes, each of which leverages its T cell, B cell and innate immune measuring technology.

On 23 June 2016, Oxford Immunotec announced it has entered into a definitive agreement to acquire Imugen, Inc., a Massachusetts-based clinical laboratory focused on developing and performing specialised testing for tick-borne diseases, for US$22.2 million in an all-cash transaction. This transaction is a significant step forward for Oxford Immunotec as it expands the company’s addressable market, whilst leveraging its existing commercial infrastructure to grow and diversify its revenue streams.

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Engineering & MaterialsWe take a broad approach to investing in the Engineering & Materials sector, though our focus is on enabling or platform technologies that have the potential to form the basis of very large businesses addressing significant global markets.

Many advances in the fields of engineering and materials derive from fundamental research undertaken at universities, such as those within the ‘Golden Triangle’. Our close links to these research centres give us good insight into new developments and an early chance to identify these opportunities.

£77.9mvalue of our Engineering & Materials assets within our portfolio

£49.3mraised by Engineering & Materials companies during the year

£14.6minvested in Engineering & Materials companies during the year

1new company added to the Engineering & Materials portfolio

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One of the new additions to Innovations’ accelerated growth portfolio this year was Cambridge-based Silicon Microgravity (‘SMG’) a newly-formed University of Cambridge spin-out which has developed a novel sensor technology that aims to improve the management of oil and gas reservoirs.

SMG’s robust, miniature and highly sensitive sensors, which have been developed in partnership with BP, are sent deep into boreholes to distinguish oil from water. Once the position of water is established and tracked, reservoir engineers can mitigate the potentially damaging results of water reaching a production well. SMG estimates that the technology could improve yields

on conventional reservoirs by up to 2%, representing significant increases in production and revenues. The first field trial in a production well is scheduled for 2017.

The underpinning sensor technology was developed by a team of Cambridge scientists, led by Dr Ashwin Seshia, of the University’s Department of Engineering, which has been working closely with BP to develop the sensors. SMG was set up to commercialise this research and benefited from a US$3.0 million funding led by Innovations alongside Cambridge Enterprise, the commercialisation arm of the University of Cambridge, together with grant funding from the UK government.

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Silicon Microgravity

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Nexeon Limited Nexeon is a battery materials company that is developing silicon anodes for the next generation of lithium-ion rechargeable batteries. Batteries made with silicon anodes have increased capacity, offering the potential for lighter batteries with more power and a longer lifetime between charges.

Nexeon has a broad IP portfolio relating to silicon materials and their use in lithium-ion batteries, comprising over 375 patents, of which more than 200 have been granted. In April 2014, the company completed the construction and commissioning of its new process development and manufacturing facility plant in Milton Park, Oxford, UK. The plant is capable of producing over 20 tonnes of product a year and has been built to handle a wide range of materials and reagents. In parallel, the company has toll manufacturing arrangements with a number of third-parties to augment its production capability and to react quickly to customer demands.

Nexeon is continuing to optimise its silicon materials for the blended carbon/silicon anode applications currently being demanded by the battery industry. Material development has advanced to the point that the company can now offer a product that outperforms SiOx, the only silicon-based material being used in commercial quantities today. Product sampling is underway with several potential customers in both the consumer electronics and automotive sectors. The company continues to supply low volumes of materials into niche applications such as defence where energy density is the priority.

Nexeon has designed its technology for easy adoption in existing Li-ion battery production lines. The plan is for the graphite currently used in anodes to be replaced with hybrid electrodes containing Nexeon materials which can be used in combination with conventional polymer binders and current collectors as part of the standard battery manufacturing process. In this way, Nexeon offers a drop-in capability, which gives battery manufacturers a low switching cost by virtue of the simple integration of Nexeon’s silicon anode into existing manufacturing processes.

On 4 May 2016, Nexeon completed a £30.0 million equity funding round. Innovations committed £5.0 million to the round alongside existing investor Invesco Asset Management and new investor Woodford Investment Management. Nexeon is using these funds to launch products, acquire IP and complementary technology to broaden its offering to customers, and to begin work on the design of a larger manufacturing facility. These initiatives will improve Nexeon’s ability to achieve world-leading levels of battery energy density and to satisfy the demand for superior battery performance in applications. These range from smart phones and other mobile consumer devices to electric vehicles and the large-scale static energy storage of renewable energy.

On 11 October 2016, Nexeon announced the opening of a new office and development laboratory in Yokohama, close to many of the company’s development partners and prospective customers in the electronics and automotive sectors.

Econic Technologies Limited Econic Technologies is an innovative and fast-growing chemical technology company that develops and commercialises novel catalyst technologies to build carbon dioxide (CO2)into polyurethanes and other polymers. The underlying catalyst technology was developed at Imperial College London by a team of scientists led by Professor Charlotte Williams. The current technology is covered by a number of worldwide patents and patent applications.

Econic Technologies was founded in 2011 to develop the technology further towards commercial applications. Innovations led an initial £1.1 million funding round alongside Norner Verdandi, part of Norner AS, a leading international technology consultancy and partner for polymers and materials industries. This was followed by a £1.85 million round in early 2013. In December 2013, Econic received a further £5.1 million in investments from the Group and a new investor, Jetstream Capital.

Econic’s technology is one of the few commercially viable ways to chemically utilise CO2, which although highly abundant and cheap, is very un-reactive and needs to be activated using a catalyst. Econic’s catalysts enable manufacturers to make a whole new generation of everyday plastics – for use in cars, mattresses, running shoes – that will be both profitable and ecological.

Econic partners with plastic manufacturers to help them make their products using CO2. Econic’s technology will allow replacement of up to 50% of traditional petrochemical feedstock with lower cost CO2, reducing feedstock cost by as much as 30-40%, to create added value through the chain. This means that manufacturers save money and natural resources by replacing key ingredients made from oil with a waste product they already have. At the same time, CO2 is being recycled into new plastics, instead of released back into the environment.

On 6 July 2016 Econic completed a £5.0 million funding round. Innovations has committed £2.5 million to the round alongside Jetstream Capital and new investor Woodford Investment Management. The funding will provide crucial support for the development of future catalyst generations and the expansion of Econic’s facilities, thereby accelerating the commercialisation of Econic’s catalyst technology. This latest round of investment is complemented by an EU Horizon 2020 SME award, which adds a further £2.0 million of funding over the next two years.

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Aqdot LimitedAqdot™ is a specialist chemical company which operates in the rapidly growing encapsulation market, currently valued at £4 billion. Its proprietary technologies encapsulate and protect valuable active products (cargoes) in a variety of settings and allow them to be delivered when and where the customer requires.

To date the challenge for encapsulated products has been in triggering encapsulation systems to release their cargo at the time that the customer needs them. It is this unique proprietary capability that Aqdot’s technology delivers, based on a disruptive platform originally discovered at and spun out of the University of Cambridge.

Aqdot’s technology has the potential to be game-changing in a wide range of industries, including household products such as detergents, pharmaceuticals, oil and gas, agrochemicals, cosmetics, food, paint, fragrances and personal products. By identifying unmet needs in these sectors, Aqdot is seeking to develop products that enable manufacturers to introduce novel and differentiated brands, reduce manufacturing costs and make a truly positive impact on the environment.

Innovations first invested in Aqdot in November 2013, leading a £1.0 million funding round alongside Cambridge Enterprise Limited, Parkwalk Advisors and Providence Investment Company. This was followed by a further £2.6 million funding round in December 2014 featuring the same investors. In February 2016, Innovations led a £5.0 million Series A fundraising, committing a further £3.0 million of investment to the company.

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ICT & DigitalThis sector as a whole is thriving in the UK and is supported by university talent. Our investments in this sector will often centre on entrepreneurial management teams trained and nurtured in these institutions.

In line with the strategy set out in last year’s Annual Report, the Group has increased its investment in this sector and added five new ICT & Digital companies to its accelerated growth portfolio during the year.

£46.3mvalue of our ICT & Digital assets within our portfolio

£25.3mraised by ICT & Digital companies during the year

£13.3minvested in ICT & Digital companies during the year

5new companies added to the ICT & Digital portfolio

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In October 2015 Innovations led a £1.5 million seed funding for Telectic, a London-based start-up that uses artificial intelligence (AI) to interpret the content of the World Wide Web. The company’s initial focus is on the substantial business information market, where Telectics’ AI technology can be used to provide live interpretation of the Web’s content for decision-makers, their networks and organisations, providing invaluable insights into professional networks for anyone doing research and business development.

The underlying technology has been developed over the last five years by a research team led by AI veteran Dr Jason Kingdon alongside three

other experienced AI and software entrepreneurs, Sergi Martorell, Dr Iain Mclaren and Pedro Esteban. In addition to co-founding UCL’s Intelligent Systems Lab, Jason Kingdon was the co-founder and CEO of big data AI analytics pioneer Searchspace (now part of Nice Systems) and backer of Robotic Process Automation software company Blue Prism.

Telectic thus provides a good example of Innovations’ investment in ICT & Digital companies, where it is more likely to be based around people or teams, often leveraging university research, as opposed to being created around a specific piece of IP born out of university research.

Focus on

Telectic

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Yoyo Wallet LimitedYoyo Wallet (‘Yoyo’) was founded in 2013 at Innovations by a team of highly experienced entrepreneurs from the credit card and payments industry, led by Innovations’ Venture Partner Alain Falys. The company has created an app that offers a better experience for retail customers, simplifying and speeding up in-store transactions by combining payment and loyalty in one easy scan. It also provides a marketing platform for retailers that enables digital customer engagement in-store. Retailers gain access to a set of tools that enables them to better target their customers through loyalty rewards, offers and incentives.

Crucially in a noisy mobile payments space, Yoyo offers not only mobile payments, but also adds value to consumers and retailers by integrating loyalty and engagement respectively. For example, retailers at no additional transaction cost, and with a small monthly per till fee for the EPOS software, gain a host of detailed transaction data about their customers and their purchases which current payment systems don’t provide. Yoyo’s personalised basket data thus transforms customers from anonymous purchasers to individuals with habits, tastes and motivations who can be targeted with offers and loyalty programmes.

In turn consumers gain from the fast payment transactions, get to consolidate and maximise their loyalty/deals effortlessly in one app and benefit from retail promotions specifically targeted to their interests and needs (based on their historical purchasing patterns). They also earn rewards based on usage.

These benefits provide reasons for both consumers and retailers respectively to adopt the technology and provides revenue streams (EPOS software licences per till point and share of promotional value-added sales) on top of a thin slice of transaction commissions.

Targeting two ‘closed’ groups, university campus retailers and corporate office facilities, has enabled Yoyo to achieve high transaction rates and avoid having to win over users one by one.

The ‘app’ was launched in early 2014 across 32 food and drink outlets at Imperial College London. Since then, Yoyo’s experienced management team has made strong commercial progress and as at 31 July 2016, had signed 34 universities as customers and deployed the solution at 80 head office corporate catering locations. Yoyo has also signed up a number of high-street retailers.

Featurespace Limited Featurespace is an Adaptive Behavioural Analytics company which has developed a machine learning software platform, the behaviour analytics engine (ARIC) that enables the identification of abnormal behaviour in high-volume real-time applications such as online betting and credit card transactions. The underlying technology is based on Bayesian statistics and research undertaken at the University of Cambridge by the late Professor Bill Fitzgerald and Featurespace CTO David Excell.

Featurespace’s software delivers significant economic benefits to customers, by providing a granular view of transactions which allows them to predict likely fraud and take appropriate action. For example, for a UK credit card company it reduced fraud loss by 40%, and cut the ratio of false positives to genuine rejections from 23:1 to 6:1.

Featurespace’s growing customer base includes companies such as CallCredit and KPMG in financial services, and Betfair and William Hill in gaming and lotteries. During the year the company announced a number of new customer wins including a five-year agreement with UK mobile payment innovator, Zapp Limited, to provide real-time fraud protection for its mobile payment customers, and a new project with Camelot, the UK National Lottery operator. The latter involved Featurespace’s technology being used to augment Camelot’s existing processes for identifying and protecting online players at potential risk of harmful play.

More recently, on 11 July 2016, Featurespace announced a partnership with OpenBet, the world’s leading software provider to the sports betting industry, which will result in Featurespace’s market-leading ARIC engine being implemented into OpenBet’s activity feeds, enabling OpenBet customers to have real-time access to player data.

Featurespace also made progress in the USA, announcing a number of major new customer wins with USA-based companies. The most recent of these, announced on 19 May 2016, is a new partnership with TSYS Inc, one of the world’s largest payment solutions and services companies, in which Featurespace’s adaptive behavioural analytics platform will be used to reduce fraud and false positives for TSYS’ clients.

On 31 May 2016, Featurespace completed a £6.2 million funding round. Innovations committed £2.5 million to the round alongside new co-investor TTV Capital, a leading US venture company focused on early-stage fintech companies, which contributed £2.4 million to the round. The balance was made up by existing investors, including Nesta and a number of members of the Cambridge Angels group. The new funding will enable Featurespace to expand its operations in the UK and USA and to continue to grow in financial services.

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Cortexica Vision Systems LimitedCortexica Vision Systems is the leading provider of cloud-based image recognition systems and mobile visual search technology. The company was spun-out from the Bioengineering Department of Imperial College London, originating from a research project to reverse-engineer the human visual cortex.

Cortexica provides advanced visual search and image recognition software to global retailers, brands and digital publishers that allows their customers to purchase products at the moment of inspiration by matching images to inventory. Cortexica seeks to visually empower its clients by supporting them in using its technology to drive both sales through customer engagement and to improve internal operations through simplifying existing processes.

The company’s proprietary findSimilar™ technology is used by a growing list of global retailers, including Zalando, Macy’s and Shop Direct as well as many other brands across an increasing range of verticals. findSimilar™ is an online function that displays search results of a range of products within a particular category that are visually similar in colours, shapes, details and patterns. By searching visually through the inventory, the customer has access to a greater range of product choice and inspiration without the need for inputting keywords.

On 8 July 2016, Cortexica announced the successful completion of a six-month consumer trial of its product discovery tool on the John Lewis iPad app. As a result, John Lewis has permanently added the findSimilar™ function to its Men’s and Women’s fashion product list pages.

New ICT & Digital companies In line with the plans set out in last year’s Annual Report, Innovations is continuing to develop its investment portfolio by scaling its activities in the ICT and Digital sector. Of the seven companies added to the accelerated growth portfolio during the year, five were in this sector.

• SAM Labs: a company set up two years ago by an Imperial College London Engineering graduate that is creating wireless electronics kits that allow anyone to build their own smart inventions. Innovations invested £2.0 million in a funding round which closed in January 2016.

• Garrison Technology Limited: London-based cybersecurity firm which completed a £2.0 million seed funding round in August 2015. Innovations committed £1.6 million to the round alongside existing angel investors.

• Import.io: London-based machine-learning start-up addressing the data-as-a-service (DaaS) market which completed a $13.0 million Series A funding round in January 2016, led by Innovations, with participation from Wellington Partners, Oxford Capital, Delin Capital and AME Cloud Ventures.

• Telectic Limited: London-based start-up that uses artificial intelligence (AI) to interpret the content of the internet, which completed a £1.5 million seed funding round in October 2015. Innovations committed £1.3 million to the round alongside angel investors.

• WaveOptics Limited: Oxford-based developer of Augmented Reality (AR) technology displays. Innovations led the funding round in December 2015 alongside Robert Bosch Venture Capital GmbH, Octopus Ventures, angel investors and existing investor Blippar.

Post year-end

ThisWay GlobalOn 27 September 2016, Innovations led a £1.6 million funding round in ThisWay Global Limited, a Cambridge-based technology company that is developing a software platform for the recruitment industry.

The round participants also included US-based Jetstream Ventures and Grupa Pracuj, a global recruitment technology company with a dedicated investment arm for emerging HR tech companies. ThisWay’s platform uses machine learning to streamline the recruitment process by matching high-quality candidates to the most appropriate job opportunities. The funding will allow the company to expand its offering to recruiters and pursue existing customer demand.

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Corporate and social responsibility

Innovations recognises its obligations to act responsibly, ethically and with integrity in its interactions with its employees and all its stakeholders.

The Group is committed to conducting its business in an honest, ethical and socially responsible manner and in accordance with established best practice. Furthermore, the Group endeavours to provide a safe working environment for its employees as well as to minimise its impact on the environment. In all activities, the Group aims to be commercial and fair, to maintain its integrity and professionalism and to respect the needs of its investors, employees and suppliers.

Social responsibility The Group operates an ethical licensing policy that seeks to use reasonable efforts to insert clauses into therapeutic drug licence agreements that promote fair access to technology by less economically developed countries.

The Group focuses its investment activities on businesses which will improve the quality of life of people across the world. These include businesses addressing global problems in healthcare, energy, engineering and the environment.

The Group complies with international regulations and related laws, and its internal rules enable it to implement sound and fair corporate practices, in order to earn the trust of stakeholders such as customers, shareholders, employees, business partners and society. To that end, the Group will communicate with all stakeholders and disclose business information in a timely and fair manner. It will also conduct reliable financial reporting through accurate accounting processes.

Volunteering and fundraising The Group supports outreach activities that promote science, technology and engineering to the general public. An example of this is its continued involvement in the Imperial Festival, an event which is designed to highlight to the public the research activities undertaken by Imperial College London staff and students. Innovations has been involved with the festival since its inauguration three years ago and believes that the Group’s involvement in projects such as this contributes to an interest in science and technology from young people and that they are inspired to take up professions in the field.

The Group also encourages its employees to undertake charitable volunteering activities and offers each member of staff up to two days’ paid time off each year to volunteer for, or support, registered charities.

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Health and safety The promotion and awareness of health and safety is an important responsibility of staff and management throughout the Group to ensure a safe environment for all employees. The Group has a Health and Safety Policy that is contained within its staff handbook along with a variety of other policies and procedures. This staff handbook is designed to help each employee adapt to the Group’s work environment and operate in a safe and responsible manner. On joining Innovations each employee is issued with a copy of the staff handbook and given a fire safety induction.

Environmental policyThe Group actively contributes to social and environmental initiatives in the local community and has organised and taken part in corporate charitable activities – including donating time to community projects. Through its business activities the Group also actively encourages the development and diffusion of environmentally friendly practices.

Innovations also encourages its employees to cycle to work and the HMRC-sponsored Cycle-To-Work scheme is available to employees.

The Group understands and acknowledges the many objections to animal testing, but believes that in certain select cases (and where testing is mandated by regulation and undertaken with a responsibility to ensure the highest standards of animal welfare) such testing can ultimately be beneficial, and may result in positive advancements in the development of medical treatments for serious disease.

As of 31 July 2016, the Group employed a full-time equivalent of 68 employees (including the Executive Directors), the majority of whom are based within Innovations’ registered office. The Group therefore considers that its direct environmental impact is relatively low. However, the Group is committed to operating its business in an environmentally responsible and sustainable manner. To demonstrate the Group’s commitment to this aspect of its business, details of the Group’s greenhouse gas emissions are set out overleaf.

Greenhouse gas (GHG) emissionsFor the third year running, we have included our voluntary reporting of greenhouse gas emissions, as well as wider details on the Group’s environmental impact. The reporting period is the same as the Group’s financial year.

Organisation boundary and scope of emissionsWe have reported on all of the emission sources required under the Companies Act 2006 (Strategic Report and Directors’ Reports) Regulations 2013 as it applies to Quoted companies.

An operational control approach has been used in order to define our organisational boundary. This is the basis for determining the Scope 1 and 2 emissions for which the Group is responsible.

For avoidance of doubt, this excludes any emissions from our investment subsidiary companies. Management believe the approach taken best captures the emissions for which the Group is directly responsible and has control over.

MethodologyFor the Group’s reporting, the Group has employed the services of a specialist adviser, Verco, to quantify and verify the GHG emissions associated with the Group’s operations.

The following methodology was applied by Verco in the preparation and presentation of this data:• the Greenhouse Gas Protocol published by the World

Business Council for Sustainable Development and the World Resources Institute (the ‘WBCSD/WRI GHG Protocol’);

• application of Defra emission factors to the Group’s activities to calculate GHG emissions;

• inclusion of all the applicable Kyoto gases, expressed in carbon dioxide equivalents, or CO2e;

• presentation of gross emissions as the Group does not purchase carbon credits (or equivalents);

• verification of all data against appropriate evidence.

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Corporate and social responsibility continued

Absolute emissionsThe total Scope 1 and 2 greenhouse emissions from the Group’s operations in the year ended 31 July 2016 were: • 35.6 tonnes (2015: 41.0 tonnes) of CO2 equivalent (tCO2e)

using a ‘location-based’ emission factor methodology.• 37.8 tonnes of CO2 equivalent (tCO2e) using a ‘market-

based’ emission factor methodology. Since this is a new methodology, no comparative figure is available.

Key figuresImperial Innovations Group plc – breakdown of emissions by scope tCO2e

2016 (location-based)

Scope 1 Scope 2

7.0

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

28.6

2016 (market-based)

Scope 1 Scope 2

7.0

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

30.8

Intensity ratioAs well as reporting the absolute emissions, the Group’s GHG emissions are reported below on the metrics of tonnes per employee and kilograms per square footage of office space. These being the most appropriate metrics given that the majority of emissions result from the operation of the Group’s offices and the day-to-day activities of the employees.

Target and baselinesGiven the comparatively low GHG impact of the Group’s operations, the Group’s objective is to maintain or reduce its GHG per employee and per square footage of office space each year and will report each year whether it has been successful in this regard.

The Group’s emissions have decreased modestly from last year. The main source of this decrease is from Scope 2 emissions driven by a reduction in electricity consumption and the carbon intensity of the electricity grid in the United Kingdom. There has also been a decrease in GHG emissions on a per employee and a per square footage basis.

GHG emissions

2016 2015

Tonnes CO2e

tCO2e/emp. 4

kgCO2e/sq. ft. 5

Tonnes CO2e

tCO2e/emp. 4

kgCO2e/sq. ft. 5

Scope 11 7.0 0.10 0.63 6.5 0.101 0.58Scope 2 2 (location-based) 28.6 0.42 2.57 34.5 0.539 3.10Scope 2 3 (market-based) 30.8 0.46 2.77 N/A N/A N/ATotal GHG emissions (location-based Scope 2) 35.6 0.52 3.20 41.0 0.640 3.68

Total GHG emissions (market-based Scope 2) 37.8 0.56 3.40 N/A N/A N/A

1 Scope 1 comprises emissions from the Group’s combustion of fuel and operation of facilities.

2 Scope 2 comprises electricity (from location-based calculations), heat, steam and cooling purchased for the Group’s own use.

3 Scope 2 comprises electricity (from market-based calculations), heat, steam and cooling purchased for the Group’s own use.

4 Employee number: 68.

5 Occupied office space: 11,119 ft 2.

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Understanding the indirect environmental impacts of our business activitiesAs described previously, the Group’s day-to-day operational activities have a limited impact on the environment. We do, however, recognise that the more significant impact occurs indirectly, through the investment decisions we make and the operation of the companies we choose to invest in. The Group therefore considers it important to establish and invest in businesses that comply with existing applicable environmental, ethical and social legislation. It is also important that these businesses can demonstrate that an appropriate strategy is in place to meet future applicable legislative and regulatory requirements and that these businesses can operate to specific industry standards, striving for best practice.

Employee diversity and human rightsThe Group is an equal opportunities employer which promotes diversity through the selection, training, career development and promotion of employees and does not differentiate on grounds of gender, ethnicity, religion or physical ability.

As at 31 July 2016, the Group employed 72 employees, inclusive of senior management and the Board of Directors. A breakdown of staff by gender is set out in the illustration above.

The number of persons (including Non-Executive Directors) as shown in the table is representative of those employed by the Group as at 31 July 2016. Therefore this figure will not reconcile with the average monthly number of persons (including only Executive Directors) in note 21 to the consolidated financial statements.

Given the nature of the business, the Group believes that the principal human rights issues affecting the business relate to non-discrimination, gender equality and fair employment practices. The Group supports the principles of the United Nations Declaration on Human Rights and ensures that all transactions the Group enters into uphold these principles.

Diversity as at 31 July 2016

Board of Directors

Male

88% (7)

Female

12% (1)

Senior management

Male

83% (10)

Female

17% (2)

Employees

Male

50% (26)

Female

50% (26)

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Financial review

The financial results for the year to 31 July 2016 reflect a year of progress and challenges

The Group’s rate of investment in its portfolio companies increased to £69.9 million across 33 companies (2015: £60.8 million across 30 companies). This takes the total invested since the IPO in July 2006 to £306.7 million and the total raised by the Group’s portfolio companies to £1.5 billion.

The financial results for the year to 31 July 2016 reflect a year of progress and challenges. We increased the rate of investment into our portfolio by 15% to £69.9 million creating the potential for significant future returns. Our investment capability was additionally strengthened through the completion of a £100.0 million placement during February 2016 and we still have an undrawn £50.0 million facility with the European Investment Bank (EIB).

Loss after tax for the Group for the year to 31 July 2016 was £63.1 million, compared to a profit of £15.1 million in 2015.

This result includes a £56.2 million net loss in the portfolio (2015: net gain of £21.3 million). Net assets at the year end of £455.9 million (2015: £420.1 million) increased by £35.8 million from 31 July 2015. The increase reflects the net proceeds from the share issue less the fair value loss and operating costs for the year.

Cash and short-term liquidity investments increased to £148.3 million (2015: £128.1 million) primarily following the net proceeds from share issues of £98.6 million offset by the increase of the investment rate to £69.9 million (2015: £60.8 million). The Group entered into a new £50.0 million facility with the EIB in the prior year. This facility has not been drawn upon, however it adds significant further investment capability.

The Group’s rate of investment in its portfolio companies increased to £69.9 million across 33 companies (2015: £60.8 million across 30 companies). This takes the total invested since the IPO in July 2006 to £306.7 million and the total raised by the Group’s portfolio companies to £1.5 billion.

Anjum AhmadTreasury and Finance Director

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Summarised statement of comprehensive income

Summary of financial performance:2016

£m2015

£m

Revenue 4.3 5.1 Cost of sales (1.4) (1.8)Net change in fair value of investments (56.2) 21.3 Admin expenses:Carried Interest Plan release 3.0 1.2 Other (12.6) (11.5)Finance costs (1.2) (0.6)Finance income 1.0 1.4 (Loss)/profit and total comprehensive income for the year (63.1) 15.1 Basic (loss)/earnings per Ordinary Share (pence) (43.2) 11.1

Revenue Total revenues decreased by 15.7% to £4.3 million (2015: £5.1 million). The main reason for the decrease in revenue is a decline in royalty income of £0.5 million, £0.1 million decrease in licence income and £0.3 million decrease in revenue from services and recoveries. The fall in royalty income reflects lower receipts on the Volcano licence. The fall in services and recoveries has arisen as prior year cost recoveries on investments completed, were higher.

The split of revenue is as follows: licence and royalty income was £2.2 million (2015: £2.8 million), revenue from services was £1.6 million (2015: £1.9 million), corporate finance fees were £0.4 million (2015: £0.4 million) and dividends received were £0.1 million.

Cost of salesCost of sales, which mainly arises from the revenue-sharing arrangement with Imperial College London, decreased to £1.4 million (2015: £1.8 million), primarily reflecting the decreased licence and royalty income.

Change in fair value of investments reflecting investment portfolio performanceTotal net fair value losses were £56.2 million (2015: £21.3 million gains) and reflect gains in the net fair value of the Group’s holdings of £22.1 million (2015: £29.7 million) across the portfolio, offset by impairments and losses of net fair value of £78.3 million (2015: £8.4 million).

Portfolio movements excluding cash invested:

2016 £m

2015 £m

Net fair value gains on the revaluation of investments 22.1 29.7Net fair value losses on the revaluation of investments (78.3) (8.4)Net fair value (loss)/gain (56.2) 21.3

Total net fair value gains were £22.1 million (2015: £29.7 million). This includes a net fair value gain of £4.1 million on Mission Therapeutics Limited and £4.0 million gain on TopiVert Limited.

Additional gains of £2.3 million arose following the sales of portfolio companies during the year. Other significant gains include Econic Technologies Limited of £1.5 million, Inivata Limited of £1.3 million, Kesios Therapeutics Limited of £0.7 million, Nexeon Limited of £2.8 million and Process Systems Enterprise Limited of £1.8 million. The balance of the gain reflects smaller mechanistic uplifts.

The above gains were offset by net fair value impairments and losses of £78.3 million (2015: £8.4 million) within the portfolio. This includes net fair value losses on quoted stock on Circassia Pharmaceuticals plc of £54.8 million, Abzena plc of £9.6 million and Oxford Immunotec Global plc of £2.5 million. These losses reflect the market prices of these quoted stocks at the end of July 2016. The balance includes general impairments across the portfolio.

Carried Interest Plan The Group’s Carried Interest Plan, which is a long term employee incentive scheme, generated an accounting release of £3.0 million (2015: a release of £1.2 million). This reflects the impact of the hurdle which must be exceeded by gains in the portfolio before the performance conditions are met and an accounting charge arises. There is no cash payment due to members of the scheme until the Group has made substantial future cash realisations. For additional understanding of this plan refer to the Directors’ Remuneration Report on page 87.

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Financial review continued

Other administrative expensesOther administrative expenses increased by 8.6% to £12.6 million (2015: £11.6 million). The small increase reflects the increased activity across the Group.

Administrative expenses includes costs of £1.5 million (2015: £1.4 million) incurred on filing patents and protecting the ‘as yet’ unexploited intellectual property emanating from Imperial College London.

Finance costsFinance costs were £1.1 million in the year to 31 July 2016 (2015: £0.6 million) and relate to the £30.0 million EIB facility, which was drawn down in two tranches during July 2013 and June 2015 respectively. There are no finance costs associated with the new £50.0 million facility arranged in the prior year as this has yet to be drawn down.

Finance incomeFinance income was £1.1 million (2015: £1.4 million) mainly attributable to the lower cash balance during the year before the receipt of the equity raise proceeds in February 2016.

Earnings per shareBasic loss per share was 43.2 pence (2015: earnings of 11.1 pence).

Financial position and resources Net assets at the year-end of £455.9 million (2015: £420.1 million) increased by £35.8 million from 31 July 2015. The increase reflects the net proceeds on issue of shares less the loss for the year.

Investment portfolio and activityDuring the year, the net value of the Group’s investment portfolio rose to £335.1 million spread across 107 companies (2015: £327.2 million spread across 98 companies). The increase represents £69.9 million (2015: £60.8 million) of investments to fund 33 (2015: 30) companies in its portfolio, net disposals of £5.8 million (2015: £6.9 million) and net fair value losses of £56.2 million (2015: net fair value gains of £21.3 million) which have been analysed below.

The Group has invested a total of £274.4 million in the portfolio of currently active technology companies; £154.8 million invested in the top 10 companies and £119.6 million in the remaining companies. In total the portfolio companies raised £206.4 million in cash (2015: £479.9 million) from all sources of investment.

The table below separates out the top 10 portfolio companies, by net fair value, to illustrate the relative carrying value in the Group’s investments in such companies and the movement in value from 1 August 2015 to 31 July 2016.

Table of net fair value movement: Top 10 portfolio companies

Name of company

Net investment carrying value

as at 1 August 2015

£000

Cash investedyear to

31 July 2016 £000

Cash divestedyear to

31 July 2016 £000

Fair value movement

year to 31 July 2016

£000

Net investment carrying value

as at 31 July 2016

£000

Cumulative cash invested

as at 31 July 2016

£000

% Issued share capital

held as at 31 July 2016

%

Nexeon Limited 34,086 5,000 – 2,804 41,890 27,373 33.7%Cell Medica Limited 21,037 7,500 – – 28,537 19,810 25.5%Veryan Holdings Limited 20,893 5,606 – – 26,499 19,317 46.1%Circassia Pharmaceuticals PLC 79,750 – – (54,818) 24,932 25,500 9.3%Psioxus Therapeutics Limited 22,623 – – – 22,623 13,676 27.8%MISSION Therapeutics Limited 6,012 3,937 – 4,111 14,060 9,770 11.6%TopiVert Pharma Limited 7,543 1,059 – 4,045 12,647 8,500 29.5%Abzena plc 17,773 2,500 – (9,607) 10,666 12,975 19.8%Abingdon Health Limited 7,717 2,725 – – 10,442 11,014 33.7%Econic Technologies Limited 2 6,145 2,500 – 1,533 10,178 6,900 53.7%Other companies 103,641 39,047 (5,759) (4,317) 132,612 119,596 ¹Net total 327,220 69,874 (5,759) (56,249) 335,086 274,431

1 Currently active companies.

2 The Group does not control this company (control as defined by IFRS10), and therefore does not consolidate it.

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All carrying values 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.

The early-stage nature of many of the portfolio companies is such that investments are made on a milestone/tranche basis that matches the companies’ needs for cash with the achievement of agreed milestones. This provides investment security for the companies and more control over the Group’s cash payments to the portfolio.

Additional investment commitments undrawn at the year-end amounted to £29.0 million (2015: £22.3 million).

The Group does not have, directly or indirectly, more than half of the voting power of these entities nor does it have power over more than half of the voting rights by virtue of any agreement with any other investor.

Cash and short-term liquid investments The Group ended the financial year with total cash and short-term liquidity investments of £148.3 million (2015: £128.1 million), comprising £133.3 million of cash (2015: £108.1 million) and £15.0 million (2015: £20.0 million) of short-term liquidity investments. The Group drew down the £15.0 million second tranche of the EIB facility during June 2015 and completed a new EIB facility of £50.0 million, which is yet to be drawn down.

Cash and short-term liquidity investments increased from the prior year primarily because of the proceeds from the placement, reduced by the increased rate of investment.

The decrease in the cash and short-term liquidity investments balance is shown below:

2016 £m

2015 £m

Net cash used in operating activities (10.8) (9.3)Purchase of trade investments (69.9) (60.0)Investments in funds (1.2) –Net proceeds from sale of trade investments 5.0 6.2 Net cash from other investing activities 1.1 1.4 Financing activities 96.0¹ 13.3Movement in net cash reserves 20.2 (48.4)

1 Primarily reflects the proceeds of £98.6 million equity raised (net of issue costs).

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.

Deferred payment obligations The Group has a Technology Pipeline Agreement (‘TPA’) with Imperial College London which stipulates the terms for sharing revenue generated from the commercialisation of Imperial College London intellectual property which is assigned to Imperial Innovations Limited (subsidiary company).

Non-current provisions for liabilities and charges relating to revenue-sharing obligations (including those due under the TPA and on HEIF and UCSF investments) rose to £9.4 million (2015: £6.7 million).

Going concernAfter making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for a period of at least 12 months from the date of approval of these financial statements. For this reason, they continue to adopt the going concern basis in preparing the financial statements. In addition, the Group has prepared a viability statement.

Anjum AhmadTreasury and Finance Director

12 October 2016

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Key performance indicators

How measured Progress KPI

1. Growth in value of the Group’s interest in its portfolio of companies

This KPI monitors the strategic objective of maximising value through measuring progress in the value of the portfolio companies.

Measured in terms of the net value and net gain or loss arising in the value of the portfolio using established valuation methodologies based on International Private Equity and Venture Capital Guidelines (IPEVCVG). The value is net of revenue-sharing obligations.

The value of the Group’s portfolio fell reflecting the decline in the quoted portfolio. However, the unquoted portfolio continued to show growth through fair value gains and investment activity.

Net portfolio value £m

2015

2016

2014

335.1

252.0

327.2

Net (loss)/gain in the value of the Group’s interest in its portfolio £m

2015

2016

2014

(56.2)

40.5

21.3

2. Investments made in portfolio companies This KPI monitors the strategic objective of providing continuity of

funding through measuring investment made by the Group as well as total investment from external sources.

Measured in terms of total cash raised by the portfolio, together with the investments made by the Group, giving an indication of the appetite for funding within the portfolio.

The Group has increased the rate of investment and the rate of investment from external sources has fallen.

Investments made in portfolio companies £mGroup investment Total raised by portfolio

2015

2016

2014

69.9

32.8

60.8

3. New companies added to the Group’s portfolio This KPI monitors the strategic objective of leveraging

outstanding research.

Measured in terms of all new companies added to the Group’s portfolio. New companies can be added through investments arising from relationships with, among others, Cambridge Enterprise Limited, Oxford Spin-out Equity Management and UCL Business plc, or technology transfer activities with Imperial College London.

The Group has continued to select a range of technology opportunities from the UK’s four leading research-intensive universities as well as other research institutions and entrepreneurs.

Number of new companies added to the Group’s portfolio

2015

2016

2014

77

67

67

Accelerated growth

Lighter touch

14 new companies during the year, comprising 7 accelerated growth, 7 lighter touch.

4. Potential value available from the existing portfolio This KPI monitors value creation, which will then flow through

to realisations and provide funds for future investments.

A measure of the net increase in value in the accelerated growth portfolio calculated by the movement in the portfolio value during the year less investments made.

The potential value available from the accelerated growth portfolio has continued to increase.

Net increase in accelerated growth portfolio value £m

2015

2016

2014

11.0

38.3

20.4

5. Exits achieved This KPI monitors the Group’s strategy to grow its most valuable

companies in order to optimise value.

Measured in terms of cash returned to sustain future investments.

Net realisations of £5.8 million were in line with prior year.

Net realisations £m

2015

2016

2014

5.8

4.0

6.9

6. Health and quality of intellectual property pipeline from Imperial College London

This KPI monitors the success of the Group’s commercialisation of intellectual property.

Measured by the number of opportunities flowing through the pipeline from Imperial College London, demonstrated by the number of inventions disclosed, patents filed, and new licences.

The flow of opportunities has remained healthy.

Of the 425 invention disclosures in the year ended 31 July 2016, 310 came from Imperial College London and the remainder came from other sources. The Group entered into 39 new IP agreements and generated £2.2 million in revenue from its portfolio of 202 licensing and royalty agreements.

Health and quality of intellectual property pipelinePatents filed Invention disclosures

2015

2016

2014

74

57

66

2015

2016

2014

425

402

386

Number of new licences

2015

2016

2014

39

27

39

The key performance indicators (KPIs) below measure the Group’s results of operations.

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How measured Progress KPI

1. Growth in value of the Group’s interest in its portfolio of companies

This KPI monitors the strategic objective of maximising value through measuring progress in the value of the portfolio companies.

Measured in terms of the net value and net gain or loss arising in the value of the portfolio using established valuation methodologies based on International Private Equity and Venture Capital Guidelines (IPEVCVG). The value is net of revenue-sharing obligations.

The value of the Group’s portfolio fell reflecting the decline in the quoted portfolio. However, the unquoted portfolio continued to show growth through fair value gains and investment activity.

Net portfolio value £m

2015

2016

2014

335.1

252.0

327.2

Net (loss)/gain in the value of the Group’s interest in its portfolio £m

2015

2016

2014

(56.2)

40.5

21.3

2. Investments made in portfolio companies This KPI monitors the strategic objective of providing continuity of

funding through measuring investment made by the Group as well as total investment from external sources.

Measured in terms of total cash raised by the portfolio, together with the investments made by the Group, giving an indication of the appetite for funding within the portfolio.

The Group has increased the rate of investment and the rate of investment from external sources has fallen.

Investments made in portfolio companies £mGroup investment Total raised by portfolio

2015

2016

2014

69.9

32.8

60.8

3. New companies added to the Group’s portfolio This KPI monitors the strategic objective of leveraging

outstanding research.

Measured in terms of all new companies added to the Group’s portfolio. New companies can be added through investments arising from relationships with, among others, Cambridge Enterprise Limited, Oxford Spin-out Equity Management and UCL Business plc, or technology transfer activities with Imperial College London.

The Group has continued to select a range of technology opportunities from the UK’s four leading research-intensive universities as well as other research institutions and entrepreneurs.

Number of new companies added to the Group’s portfolio

2015

2016

2014

77

67

67

Accelerated growth

Lighter touch

14 new companies during the year, comprising 7 accelerated growth, 7 lighter touch.

4. Potential value available from the existing portfolio This KPI monitors value creation, which will then flow through

to realisations and provide funds for future investments.

A measure of the net increase in value in the accelerated growth portfolio calculated by the movement in the portfolio value during the year less investments made.

The potential value available from the accelerated growth portfolio has continued to increase.

Net increase in accelerated growth portfolio value £m

2015

2016

2014

11.0

38.3

20.4

5. Exits achieved This KPI monitors the Group’s strategy to grow its most valuable

companies in order to optimise value.

Measured in terms of cash returned to sustain future investments.

Net realisations of £5.8 million were in line with prior year.

Net realisations £m

2015

2016

2014

5.8

4.0

6.9

6. Health and quality of intellectual property pipeline from Imperial College London

This KPI monitors the success of the Group’s commercialisation of intellectual property.

Measured by the number of opportunities flowing through the pipeline from Imperial College London, demonstrated by the number of inventions disclosed, patents filed, and new licences.

The flow of opportunities has remained healthy.

Of the 425 invention disclosures in the year ended 31 July 2016, 310 came from Imperial College London and the remainder came from other sources. The Group entered into 39 new IP agreements and generated £2.2 million in revenue from its portfolio of 202 licensing and royalty agreements.

Health and quality of intellectual property pipelinePatents filed Invention disclosures

2015

2016

2014

74

57

66

2015

2016

2014

425

402

386

Number of new licences

2015

2016

2014

39

27

39

2015

2016

2014

206.4

315.4

479.9

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1. Difficult to attract capital into early-stage businesses and through full economic cycle and investee technologies may not succeed

Risk has decreased following growth of capital available in the sector.

Risk Consequences Mitigation

As market conditions tend to be cyclical there are times where it will be easier to attract investment into early-stage technology companies and into the Group and conversely there are times where investment will be less readily forthcoming.

Some portfolio companies may have significant funding requirements in the future. The success of these portfolio companies and the ability of the Group to maintain its equity holding may be influenced by the market’s appetite for investment in early-stage companies, which may be insufficient in relation to the funding demands of portfolio companies.

The majority of the Group’s investments are made at an early stage of a portfolio company’s development when the portfolio company’s technology is materially unproven. Such investments are subject to the following risks typically associated with early-stage investments:(a) early-stage portfolio companies may not be able to

secure subsequent rounds of funding, which may restrict their ability to fund ongoing research and the development and commercialisation of their intellectual property;

(b) the technology developed by portfolio companies may fail and/or the portfolio companies may not be able to develop their intellectual property into commercially viable products or technologies or into products which offer sufficiently compelling benefits to customers;

(c) competing technologies may enter the market which may adversely affect the portfolio companies’ ability to commercialise their intellectual property, or the portfolio companies may not be able adequately to protect their intellectual property (whether due to lack of financial resource or otherwise) or patent applications made by the portfolio companies may not proceed through to grant;

Were market conditions to become unfavourable this could lead to a constraint on the appetite for investment in the Group and thus the ability to invest into promising opportunities would be negatively impacted.

Therefore it may take longer for the Group to realise value from equity holdings in portfolio companies which have significant funding requirements and the consideration received by the Group may include shares and/or deferred cash consideration, the value of which may depend upon the future performance of the portfolio company; alternatively, the Group may not realise value from such holdings at all.

Lack of funding and/or an inability to attract or retain appropriately skilled personnel may restrict the ability of portfolio companies to fund ongoing research and the development and commercialisation of their intellectual property. This could in some cases result in a portfolio company being forced to sell off its assets or cease its development.

Competing technologies may adversely affect portfolio companies’ ability to commercialise their intellectual property.

The failure of portfolio companies adequately to protect their intellectual property could potentially have an adverse effect on their performance or prospects.

Any of the foregoing factors could have a material adverse effect on the value of the relevant portfolio companies and, in turn, upon the Group’s financial condition, results of operations and/or profits.

The Group seeks to mitigate the risk of portfolio companies being unable to access sources of funds by ensuring that appropriate capital levels are maintained to reduce the impact of market flux and to reduce dependency on short-term realisations.

The Group further seeks to mitigate the risk of portfolio companies being unable to access sources of funds by assisting or leading funding rounds through maintaining relationships with co-investors and by helping to ensure that the portfolio company is appropriately capitalised such that it is not dependent on a premature exit.

To mitigate the inherent risk of unproven early-stage technology companies, the Group employs experienced personnel who have considerable experience of building and developing early-stage technology-based companies. Initial investments may involve seed funding to identify and mitigate early risks before proceeding with more substantial investments. The Group seeks to monitor the progress of its portfolio companies, and may take a Board seat for a substantial period of time to ensure familiarity with issues and risk.

Principal risks and uncertainties

The management of the business and the execution of the Group’s strategy are subject to a number of risks.

Risks are formally identified by the Board and appropriate processes are put in place to monitor and mitigate them. If more than one event occurs, it is possible that the overall effect of such events would compound the possible effects on the Group. The risks that the Board has identified as the key business risks facing the Group are set out in the table below along with the consequences and mitigation of each

risk as well as the risk change on the prior year. Any number of these could have a material adverse effect on the Group, its financial condition, its development, results of operations, portfolio companies and/or future prospects. During the period the Directors reviewed the Group Risk Register and amended the view of the principal risks faced by the Group. As a consequence the risks noted below changed from those identified in the previous year. The Directors confirm that their assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity, was robust.

Strategic risks

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1. Difficult to attract capital into early-stage businesses and through full economic cycle and investee technologies may not succeed continued

Risk has decreased following growth of capital available in the sector.


(d) portfolio companies may not be able to attract and/or retain appropriately skilled personnel;

(e) portfolio companies may not generate any, or any significant, returns for their shareholders; and

(f) the Group may not be able to secure a profitable exit from its investment in any or all of the portfolio companies and/or it may take time to realise investments and portfolio companies may not grow within the timescales envisaged by the Group.

2. Loss or reduction in access to flow of new opportunities through loss of Technology Pipeline Agreement (TPA) before 2020


Imperial College London has the ability to terminate the Technology Pipeline Agreement (TPA) during the remainder of its term until 2020 in circumstances where a change of control of the Group occurs and Imperial College London reasonably considers the new controlling party would significantly affect its ability to obtain research funding or whose activities were incompatible with Imperial College London’s ethical principles or which might affect Imperial College London’s charitable status.

At the end of the term of the TPA, the Group has no right to further intellectual property generated at Imperial College London. Intellectual property equity acquired by the Group during the term of the TPA will be retained by the Group when the TPA ends, as will intellectual property that has been assigned to the Group during the period of the TPA (subject to limited cases where Imperial College London can require reassignment). Intellectual property equity, licence agreements and intellectual property which came into existence during the term of the TPA will continue to be subject to revenue-sharing arrangements.

The Group seeks to mitigate this risk by diversifying its sources of opportunities across other research intensive universities and other industrial sources.

The Group engages with Imperial College London to ensure that they have comfort that the Group is using its best endeavours to achieve the best possible outcome from the commercialisation of IP.

3. Failure to attract or retain key personnel


The industry in which the Group operates is a specialised area and the Group requires highly qualified and experienced management and personnel. Many of the Group’s key employees have links to communities of academics, entrepreneurs, investors and potential management teams that provide the Group with commercial opportunities. Further, given the relatively small size of the Group, its operations are reliant on a small number of key individuals, including the Executive Directors. There is a risk that the Group’s employees could be approached and solicited by competitors of the Group or other organisations or could otherwise choose to leave the Group.

The UK voted to leave the EU during the year. The UK has entered a period of uncertainty ahead of the conclusion and subsequent negotiations.

If the Group does not succeed in retaining skilled personnel or is unable to continue to attract all personnel necessary for the development and operation of its business, it may not be able to grow its business as anticipated or meet its financial objectives, which may have a material adverse effect on the Group’s business, financial condition, results of operations and/or prospects.

There could be potential risks to research funding, to attracting and retaining talent and to university finances generally.

The Group carries out regular market comparisons for staff and executive remuneration. Senior executives are shareholders in the business and the Group encourages staff development and inclusion through coaching and mentoring. The Group believe the UK government recognise the challenges of the UK leaving the EU and will address them as part of its new UK industrial strategy.

We believe the UK government recognises these challenges and will address them as part of its new UK industrial strategy.

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4. Change in government policy, legislation and taxation; decreased appetite for investment into research


Changes in legislation (including research and development tax credits and other tax legislation) and government policy may occur which could adversely affect the Group, its business and/or the position of shareholders and which could reduce the return that shareholders receive on their investment in the company. In particular, any change to law and/or regulation relating to the funding and resources available to research-intensive universities could adversely affect the ability of such organisations to carry out research and therefore result in a reduction in the quantity and quality of intellectual property in which the Group could have the opportunity to invest.

Changes to the funding of technology or to research and development tax credits and other tax legislation could adversely impact the development activities carried out by portfolio companies by, for example, increasing the costs incurred by a portfolio company in carrying out its business and/or could result in a portfolio company needing to alter the way in which it conducts its business.

Future changes in tax legislation could result in an unforeseen tax liability.

Any such changes to law and/or regulation could also result in such institutions being unable, or it not being commercially viable for them, to own, develop, exploit and/or protect the intellectual property that they generate. This could have a material adverse effect on the business, financial condition, results of operations and prospects of the Group.

Any such event could lead to a reduction in investment opportunities for the Group and/or could adversely affect the value of a portfolio company and therefore have a material adverse effect on the business, financial condition and results of operations of the Group.

The Group engages in discussion with Government to provide education on the benefits of research to the UK scientific base.

The Group utilises professional advisers as appropriate to support its monitoring of, and response to, changes in tax or other legislation.

5. Dependence on material shareholders


The Group is dependent on a small number of shareholders who hold a large proportion of the total share capital of the Group.

The decision by one of these shareholders to dispose of their holding in the Group might have an adverse effect on the Group’s operations.

The Directors seek to build a mutual understanding of objectives between the Group and its shareholders.

Regular communication is maintained with all shareholders through the Group’s announcements and its annual and half-yearly reports.

The Directors maintain regular contact with institutional shareholders through presentations and meetings held throughout the year.

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6. Domination of portfolio by few larger investments or licences


A large proportion of the overall value of the investment portfolio held by the Group may at any time be accounted for by one, or very few, portfolio companies.

A large proportion of the overall revenue from licences granted by the Group may at any time be accounted for by one, or very few, licence agreements. Revenue from licences granted by the Group comprises revenue from licence fees and from royalty income.

If one or more such investments in portfolio companies experience financial or operational difficulties, fails to achieve anticipated results or suffers from poor stock market conditions and if, as a result, its value were to be adversely affected, this could have a material adverse impact on the overall value of the Group’s portfolio.

Should a licence or licence agreements be terminated or expire, or should the income received under such licence or licence agreements decline, this could have a material adverse effect on the revenue received by the Group.

The Group mitigates this risk by carefully monitoring its assets on a regular basis, by careful portfolio management and by employing appropriately qualified experienced staff. However, it is the Group’s expectation that there will always be companies and licence agreements that dominate in this way.

7. Performance of high value and high potential portfolio companies


The Group has a portfolio of 39 accelerated growth companies in which we actively invest and take a seat on the Board; these are considered to be our high potential companies.

If one or more such investments in portfolio companies experience financial or operational difficulties, fails to achieve anticipated results or suffers from poor stock market conditions and if, as a result, its value were to be adversely affected, this could have a material adverse impact on the overall value of the Group’s future portfolio.

The Group seeks to mitigate these risks by diversifying its investments in portfolio companies and syndicating to reduce our exposure.

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8. Competitive pressures


The Group is subject to competitive pressures at all stages of the commercialisation process, in particular the following:• Over the last few years the UK commercialisation

sector has gone through a period of significant growth, marked by the inflow of capital into the sector and the emergence of new companies whose business model involves investing in early-stage science and technology companies. Whilst in some respects these are welcoming developments as they are not only beneficial for promoting UK innovation in general, but more specifically because they will increase the number of potential opportunities in which the Group may invest, however in other respects it will clearly lead to increased competition in terms of attracting investment capital and competition for the same opportunities.

• Underperformance of competitors (for example, via unexpectedly poor performance of one of their portfolio companies) may impact the sector as a whole as investors lose confidence in the sector’s ability to generate returns.

• On the other hand, if competitors consistently outperform the Group, Innovations may find it difficult to raise new capital and to invest this capital as investors, research institutions and portfolio companies chose to do business with competitors rather than us.

Increased competition, in particular within the ‘Golden Triangle’ area which is bounded by London, Oxford and Cambridge, could result in a loss of opportunities to commercialise intellectual property.

The Group may face difficulties raising additional capital or deploying this capital into commercialisation opportunities.

The Group seeks to mitigate this risk by diversifying its sources of opportunities across other research-intensive universities and other industrial sources.

The Group regularly monitors the performance of its competitors and their portfolio companies.

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9. Insufficient liquidity to meet future obligations as they fall due


It is essential that the Group maintains sufficient liquidity to enable it to meet future financial obligations when they become due. Insufficient liquidity usually arises when there is a mismatch in the timing of cash flows.

Having insufficient liquidity would mean that the Group would be unable to meet future obligations as they fall due, or would only be able to do so at excessive cost (for example, through the sale of assets or through a high interest loan). This could ultimately lead to the failure of the Group.

The Group seeks to manage financial risk, and in particular liquidity risk, ensuring that sufficient liquidity is available to meet foreseeable requirements and to invest surplus cash in low risk instruments with reputable institutions.

The Group manages its exposure to liquidity risk through cash flow forecasting and monitoring its counterparties.

10. General, commercial, technological and clinical risks


The Group’s portfolio companies are exposed to a wide range of general, commercial, technological and clinical risks. In particular:• Reputational damage, for example because of animal

testing or a targeted social media campaign.• Failure to obtain approval by the FDA and/or other

regulatory bodies for new products developed.• Failure to sell products profitably or in sufficient

volumes.• Launch of a competing product.• Negative results from clinical trials.

All of these risks could potentially lead to a decline in the valuation of a portfolio company, or in extreme cases lead to the portfolio company failing.

By placing experienced staff members on Boards of portfolio companies the Group aims to mitigate these risks.

The Director of Communications and Investor Relations works closely with CEO and CIO to ensure early warning of any likely issues with the portfolio companies and that an appropriate communication strategy is put in place.

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The Directors confirm that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three year period ending 31 July 2019.

The assessment of prospects and viability has been made with reference to the Group’s business model and the Board’s assessment of principal risks and uncertainties including how these are monitored and mitigated, as detailed on pages 62 to 67. The assessment has been performed over a three year period to 31 July 2019 as this coincides with the Group’s three year strategic planning horizon. The Group also produces a less detailed 10 year strategic plan.

The Group’s prospects have been assessed through its strategic planning process in which a detailed three year budget is set using a bottom up approach. This process is carried out at least annually.

The three year plan makes certain assumptions about the timing and value of realisations, the rate of investment into portfolio companies, the performance of the portfolio companies, the continuation of the EIB loan facilities and the level of overheads.

The Group has a cash balance of £148.3 million and an undrawn EIB facility of £50.0 million. The Group has commitments of £29.0 million into its portfolio companies and, over the next five years, has committed £24.8 million towards the UCL Technology Fund LP fund and £3.3 million towards the Apollo Therapeutics LLP fund. The Group’s rate of investment into its portfolio is flexible and can be reduced if expected realisations are not achieved.

In assessing the Groups’ viability, the Board have stress tested the three year plan using the following scenarios, which they consider to be ‘severe but plausible’:• Failure or poor performance of one of the high value

portfolio companies resulting in no future realisations from this company.

• Failure or poor performance of two or more of the high future value potential portfolio companies resulting in no future growth and realisations from these companies.

In stress testing these scenarios the Directors have considered the interdependency between risks, for example the impact on cashflow, realisations, investment rate, investor confidence, the retention of key personnel and the impact on the EIB facility covenants. The Directors have also modelled a situation where both of the above scenarios occur.

The results of this stress testing show that over the three year period modelled, the Group would be able to withstand the impact of these scenarios on its cash reserves by reducing the rate of planned investment and that it should remain within the terms of its EIB covenants.

The Strategic Report was approved by the Board of Directors on 12 October 2016 and signed on its behalf by:

David Newlands Russ CummingsChairman Chief Executive Officer

Viability statement

Documents

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