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Amphion Innovations Plc: THE INVESTMENT CASE

Amphion mulls change in focus to late-state pre-IPO opportunities

The timing and ability of the group to realise its investments in partner companies is subject to inherent uncertainty due to numerous factors. The company is looking to change its business model a bit to become a financial supporter of companies looking to float or execute a trade sale
Initial public offering
Another of Amphion's partner companies, Polarean Imaging, floated on Aim this year

Amphion Innovations Plc (LON:AMP), the developer of medical, life science, and technology businesses, saw its net asset value improve significantly in 2017.

The company’s net liabilities narrowed to US$2.81mln at the end of 2017 from US$5.89mln at the end of 2016, thanks almost entirely to the movement in value of portfolio company, Motif Bio Plc (LON:MTFB).

READ Amphion Innovations nets US$3.7mln from sale of Motif Bio shares to pay off loan

Revenue in 2017 increased to US$286,367 from US$139,633 in 2016.

Administrative experiences declined to US$3.15mln in 2017 from US$3.47mln, leading to a narrowing of the operating loss to US$2/86mln from US$3.33mln the previous year.

Thanks to a US$9.96mln gain on the fair value of investments – that Motif Bio stake again – the company posted profit before tax of US$2.50mln, compared to a loss the previous year of US$16.84mln, when it booked a US$12.70mln hit on the fair value of its investments.

After the successful flotation of Motif in 2015 the company saw another of its portfolio companies – medical drug-device combination outfit Polarean Imaging PLC (LON:POLX) – list on Aim in March of this year.

The chief executive (CEO), Richard Morgan, said Amphion’s focus in the last few years had been primarily on Motif Bio and Polarean Imaging while the current focus is now starting to switch to Firestar Software Inc, a company that has proprietary technology that can play an important role in the drug development process.

Amphion reckons it has at least another six to 12 months of further development on Firestar’s system before it can enter the beta testing stage.

A mixed year for the other partner companies​

The other companies in the Amphion portfolio – DataTern Inc, Axcess International and WellGen Inc – enjoyed mixed fortunes during the year.

DataTern, an intellectual property business, is still looking for a legal firm to handle its claims in the Massachusetts courts after the case it brought against MicroStrategy Inc and some of its customers for alleged patent infringement was dismissed in October of last year after the withdrawal of DataTern’s legal counsel.

It remains DataTern's considered opinion that the patents are both valid and being infringed by a wide range of companies but the programmes are currently on hold and will only move forward if suitable funding sources and litigation partners can be identified.

Partner company Axcess International, meanwhile, has had some success in pursuing its claims of infringement against certain parties but the settlements achieved to date have not been large or numerous enough to allow the programme to be expanded, Amphion said.

“We remain confident in the strength of the patent portfolio and continue to explore the opportunity to help the company move forward with its claims against infringing parties,” the group added.

WellGen Inc’s joint venture with a US-based sports drink company began marketing Workout Tea, a novel functional beverage based on a patented anti-inflammatory ingredient. The market for such products has been expanding rapidly in recent years and WellGen believes there is a place for a tea-based sports drink whose anti-inflammatory properties have been clinically proven.

WellGen has determined that its interest in the marketing of Workout Tea will be through a profit participation in the activities of its joint venture partner. The profit participation agreement is currently being negotiated, Amphion revealed.

Extension of the Amphion business model​

CEO Richard Morgan said the board is now beginning to look beyond the horizon of its three primary assets (Motif, Polarean Imaging and Firestar) to an extension of its business model.

“We see that [extension] most likely being in the space between the private financing activities that support emerging life science and med-tech companies and the public markets where they can access a deeper pool of capital,” Morgan revealed.

“Up to now we have only supported companies that have emerged from our own incubation activities but that model has proven hard to sustain with limited capital resources and has proven difficult to scale and hard to manage from a risk perspective. Going forward we hope to be able to identify a broader spectrum of opportunities where late stage, pre-IPO capital is being required in anticipation of a listing or, in some cases, a trade sale.

“We have found from our own experience in tapping those financing sources that there is an unmet need at that stage of development and we believe we can operate profitably as a financial supporter of companies tackling that very difficult transition,” Morgan added, while admitting the company had more work to do to refine this business model.

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