Amphion Innovations – primed for the return of the IPO market

Amphion Innovations starts and builds companies based on proprietary (patented) technologies developed by universities and academic institutions in the UK and US. The company has its roots in Amphion Capital Partners – an investment business founded in 2003 that was the brainchild of Richard Morgan and Robert Bertoldi, both of whom previously worked under James Wolfensohn (the ninth president of the World Bank) at his company, James D. Wolfensohn Inc.

Amphion Capital Partners activities were focused primarily on the life sciences sector in the US and, secondarily, in selected areas of information technology. For example, the Nasdaq-listed biotechnology firm Celgene, currently valued at $23.7bn, was co-founded by Amphion’s management.

Today’s Amphion Innovations came about in 2005, when it acquired Amphion Capital Partners’ management and investment portfolio a couple of months before floating on London’s Alternative Investment Market. The business still retains one foot on the east coast of North America, but following on the success of an earlier company (MediSense, which was based on Oxford University technology and eventually acquired by Abbott Labs after it had become a public company, for about $1 billion) the company is also active once again in the UK.  Amphion today has two UK-based companies.  Although the company is mainly focused on the life sciences, it still has three companies which are mainly based in software and wireless technology.

Amphion sees itself as quite different from many of the other university intellectual property-focused investment businesses that are listed in London (there are half-a-dozen such firms quoted on AIM and the LSE’s full list). Morgan, Amphion’s chief executive officer, explains that while there are a lot of IP investors who follow a diversified approach, often acquiring stakes in numerous companies and technologies sight unseen, Amphion prefers to work closely with inventors, helping them to put a management team in place and building a company around their IP. “We see ourselves as partners to the universities and the inventors and we have very a small number of partner companies and we focus intensely on the success of each one,” he says. “We’re like shipbuilders.”

At the moment, Amphion has significant shareholdings in eight companies with strong patented technology that are targeting substantial commercial marketplaces, each in excess of $1bn. All of these companies were chosen with the goal of achieving exit valuations in excess of $100m apiece.

Amphion’s portfolio includes:
·    Axcess International – a developer of RFID systems for a range of applications, mostly evolving around “advanced workforce management” which embraces safety, efficiency and security. Axcess, valued at almost $20m, is quoted on the US’s OTC Bulletin Board under the ticker, AXSI. (Amphion’s stake is 8.5%).
·    DataTern – a New York-based business was established in order to commercialise selected intellectual property technology opportunities that originate from Amphion’s Partner Companies (Amphion holds 100% of DataTern).
·    FireStar Software – a software firm that owns an enterprise-quality platform, called EdgeNode, which enables service providers to create and run multi-enterprise messaging applications, e.g. a healthcare payments system. (15.2%)
·    Kromek – a UK firm developing digital X-ray systems for applications in security, industrial production, medicine and defense. (20%)
·    m2m Imaging – MRI (magnetic resonance imaging) coils and tools for clinical and research applications. (24.4%)
·    Motif BioSciences – using population genetics for pharmaceuticals and diagnostics. (38.6%)
·    Myconostica – molecular diagnostics for fungal diseases. (22.1%)
·    PrivateMarkets – online energy trading marketplace. (25.3%)
·    WellGen – a firm developing medical foods and nutritional supplements for the health market. (14.6%)


Of these eight firms, Kromek and WellGen are the most likely to present exit opportunities for Amphion in the near future. According to Morgan, Amphion is currently talking to banks about floating the two businesses. The most likely exit for WellGen would be an IPO in the US, while Kromek could be floated in either the US or the UK. But Morgan does not rule out a trade sale for either firm.

Formerly known as Durham Scientific Crystals, Kromek was spun out of Durham University in 2003 but with the valuation of Amphion’s stake now standing at £18.1m this summer, it means it has already delivered a paper return of 448% for Amphion, which has invested £3.3m in the firm.

Kromek’s base technology is focused on the production of cadmium telluride – a semiconductor that enables significantly improved imaging in digital X-ray detectors. Although cadmium telluride has been seen historically as too expensive, and too difficult, to make for large-scale commercial applications, Kromek owns a ‘vapour phase’ growth technique, developed over 20 years at Durham University, that makes volume production of cadmium telluride crystals a reality.  However, Kromek has now moved well beyond the original base with a strong patent portfolio embracing complementary technologies in application specific software and integrated circuits as well as specialized data-extraction and processing algorithms.

Cadmium telluride is the material of choice for digital X-ray imaging because it has properties that allow multispectral detectors to be made out of it. This means that a three-dimensional, colour image of the object being X-rayed can be produced, which helps the observer to better identify what he is looking at.  Kromek’s core technology is enabling CdTe to become an economically useful technology, in the same way that silicon detectors have enabled digital imaging in photography.

Kromek is targeting markets in the security, industrial, defence and medical sectors, and last year it launched its first product: the Kromek Bottle Scanner. This is a desktop inspection unit for bottled liquids that can scan, analyse and categorise liquids as ‘pass’ or ‘fail’ in less than 20 seconds. It can handle a range of shapes and sizes of glass, plastic and metal containers.

This June, Kromek launched its second product: the 3-1-1 Scanner. This product can scan plastic bags as well as small packages, and it is currently being evaluated by airport authorities in many countries.

The company has also recently received an award of a $4m contract from the US Defense Threat Reduction Agency (DTRA) for the development of detectors from vapour-grown cadmium zinc telluride material.

WellGen, a spinout from Rutgers University, borrows a quote from Hippocrates – “Let food be thy medicine and medicine be thy food” – as a slogan which summarizes the focus of the company on the rapidly growing medical foods sector. The company uses proprietary nutrigenomics technology that enables the development of safe and effective medical foods that can be used by patients suffering from chronic ailments (such as  diabetes and GI-tract problems) where medication is required over long periods of time and the toxicity in pharmaceutical products builds to intolerable levels. In addition to the medical foods market, which requires more intense clinical testing (but far less than with pharmaceutical products) the company can also market its discoveries as nutritional supplements and functional foods and beverages.

In May this year, WellGen launched its first consumer products: nutritional supplements that will be sold under the brand name Te Amé and its first product for the medical foods market is currently undergoing pre-clinical testing. The last valuation for WellGen, at the end of June 2009, put a price of $64m on the company.

Amphion’s shares have performed roughly in line with the broader US market [and probably UK market] over the past couple of years; they have fallen from about 20 pence two years ago to a low of 8p and have since recovered to about 14 pence at the current time, valuing the firm today at £18.4m. The company is now trading at a large discount to its stated net asset value, despite the success of its intellectual property licensing program, which is now generating revenue to Amphion at the rate of about $7m a year.  A key factor for Amphion remains the revival of the IPO market.  Although Amphion’s focus is on building value in its Partner Companies, a process that inevitably takes time, the valuations of these companies are largely determined by the buoyancy and valuations levels in the IPO market.  The IPO market has been almost nonexistent since the Credit Crunch started.  However, recent months have seen a handful of flotations on stock markets around the world, which could be a sign that Amphion’s time is about to come.

Certainly, Morgan is confident. “We expect to see a big transformation in our company over the next 12 to 18 months,” he says.