The OECD published some depressing numbers earlier this month. England has continued to slip down the industrialised world’s education tables. In fact, our 16-24-year-olds ranked 22nd for literacy and 21st for numeracy out of 24 countries.
Even worse, we were unique in being the only country where 16-24-year-olds performed no better in the tests than older people in the 55-64 age bracket. In most other countries, that younger cohort significantly outperforms its grandparents.
As a parent of secondary school children, this is worrying. And like most people I have some strong views on the subject.
However, at the same time, we are home to world-class universities. In The Times Higher Education World University Rankings, Britain is home to three of the top ten universities in the world.
Oxford ranks second (personally I think it should be top), while Cambridge and Imperial College London are in seventh and tenth place.
In more specialist areas the story gets even better. In the “clinical, pre-clinical and health” category, three of the world’s top four universities are British.
This is important for the economic health of the nation, since our universities are not purely academic establishments. And there has been a big push to make sure that we capitalise on the research discoveries and intellectual property (IP) emanating from them. Unfortunately, we have a long tradition of UK scientific breakthroughs being commercialised in the US.
But several companies and organisations have sprung up in recent years to break this cycle, and ensure we retain the fruits of our academic labours. And I’d like to talk about one in particular today.
Back the best new technology in Britain
This week, Imperial Innovations (IVO) reported some great results and I enjoyed discussing them with CEO Russ Cummings. IVO has a thriving relationship with Imperial College London where it has a technology pipeline agreement running to 2020.
Here it provides IP protection, licensing and business building services for commercial prospects coming out of the research labs. Nascent business ideas are then incubated and commercialised with Imperial Innovations providing capital and expertise.
Since IVO went public in 2006, Imperial has invested over £140m in emerging technology companies and it currently has a war chest of £80m cash to put to work. And as well as Imperial College there are close relationships with Oxford, Cambridge and UCL which have provided a rich source of investment opportunities.
The portfolio is especially strong in therapeutics. They have a large investment team in this sector and some strong industry relationships, particularly with Glaxo and Pfizer.
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For example, at the same time as the results IVO were able to announce the planned listing on Nasdaq of Oxford Immunotec, a diagnostics company whose first product is an innovative test for latent TB. IVO led a funding round last year for the company and has an 8% stake.
The largest investment in IVO’s portfolio is Circassia. This Oxford-based company is developing immunotherapies for the treatment of common allergies and is well advanced in bringing products to market.
A cat allergy product has entered phase III clinical trials and the technology appears to be effective across different allergies. A large Canadian phase II trial in hay fever has been successful. These are potentially large markets.
IVO has invested £25m in Circassia, and its near 20% stake in the company has a current valuation of £45m.
IVO is also building up its strength in materials technology and its second biggest portfolio investment is in Nexeon. This business aims to extend the performance of lithium-ion batteries through novel silicon anodes.
Software and ICT is another more recent area being strengthened and I was particularly interested to hear of investment in big data analytics, which is also a Red Hot area of focus.
Two more stocks you need to keep an eye on
Russ Cummings sees a number of portfolio companies being positioned for either a sale or listing over the next year. Understandably, he wouldn’t be drawn on any numbers, but there ought to be an interesting pipeline of news coming up. There can be big valuation uplifts on such realisations, so IVO is worth keeping tabs on.
In fact, I think it is worth considering companies like IVO and its peer IP Group (IPO) (in which I hold shares) as a diversified way to get exposure to a range of high-risk, high-reward new technology companies.
You need to take a careful look at where the net asset value (NAV) stands in relation to the share price and then form a view on how conservative that NAV might be, given expected uplifts from portfolio realisations and new funding rounds.
It certainly feels worthwhile to have a stake in the exciting innovations coming out of our world-class research universities.
Watch out too for the upcoming Aim float of Applied Graphene. This company was spun out of Durham University and is seeking funds to scale up production of “wonder material” graphene on Teeside. I hope to write about them in a future issue.
• This article is taken from our free twice-weekly small-cap investment email, The Penny Sleuth. Sign up to The Penny Sleuth here.
Information in The Penny Sleuth is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. The Penny Sleuth is an unregulated product published by Fleet Street Publications Ltd. Fleet Street Publications Ltd is authorised and regulated by the Financial Conduct Authority. FCA No 115234. http://www.fsa.gov.uk/register/home.do
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