Spotlight: Fusion IP

Three Russell Group universities, Sheffield, Nottingham and Cardiff, along with Swansea University, have taken a different tech transfer approach to most of their fellow UK institutions. Rather than maintaining their own commercialisation processes, the universities have outsourced research commercialisation.

Established in 2002 as Biofusion with the aim to commercialise life sciences research, Fusion IP signed its first ten-year agreement with Sheffield University in 2005. The contract included exclusivity to license any appropriate technology. Cardiff University followed in 2007, with Nottingham and Swansea both signing memorandums of understanding in 2013.

The same year it gained Sheffield as a partner, Fusion IP floated on the London Stock Exchange’s Alternative Investment Market (AIM) – preceding the flotation of Imperial Innovations, which we profiled in July 2013, by a year. Its initial public offering raised £8.2m ($14m).

Over the course of its short, nine year lifespan, Fusion IP raised a total of £48m ($82m) from the UK public market following the firm’s flotation. It secured a further £60m ($102m) for its portfolio companies from venture funds.

Fusion accumulated shareholdings in some 20 portfolio companies, investing in companies such as Sheffield’s magnetic gear developer Magnomatics, which raised £5m ($8.55m) through a grant and a venture round in August 2013. It also held a 44% stake in Cardiff’s spin-out Asalus. The spin-out gained the CE mark for its Ultravision product in January 2014, giving the company the green light to roll out its system to handle surgical smoke during keyhole surgery across European hospitals.

Fusion’s biggest success came in 2012 in the form of its first and only exit by a portfolio company. Simcyp. The company, which provided a modelling and simulation platform for predicting drug reactions, was sold to US-based drug developer Certara for $32m. Spun-out of Sheffield in 2001, the company’s sale meant a 200 fold return for Fusion, which received $6.4m for its 20% stake. Fusion had originally invested £20,000 ($34,000).

On top of its contracts with universities, Fusion IP also established two significant investment partnerships. The first was with IP Group, founded in 2001, which held commercialisation agreements with ten UK universities at the time, such as Oxford University and King’s College London. IP Group took a 19.8% shareholding in Fusion IP in 2009 and entered into a co-investment agreement. That deal gave IP Group the right to acquire, for cash, 20% of Fusion’s equity in any new portfolio company. Fusion’s stake was usually 60% at startup, equating to IP Group’s potential shareholding of 12%.

Fusion IP also held a co-investment agreement with Finance Wales Investments, which the two extended for a further five years in 2013. Finance Wales invests in small and medium-sized businesses throughout Wales, managing funds approaching £400m ($684m). As part of this agreement, Fusion IP committed to giving Finance Wales the opportunity to invest in each new spin-out. In return, Finance Wales ensured each company would be given formal consideration as part of its investment evaluation process.

In January 2014, Fusion IP’s stand-alone success story came to an end. IP Group put forward a recommended offer, and the following March, the acquisition was completed. The takeover was worth £70m ($116m). David Baynes, one of Fusion IP’s founders and its chief executive until acquisition, joined IP Group’s board as chief operating officer.

Cardiff, Sheffield, Nottingham and Swansea universities have transferred their agreements to IP Group, which now counts partnerships with fourteen UK institutions. The transfer can only be good news for the universities, as IP Group reported a pre-tax profit of £72.6m ($124m) in 2013 – a 78% increase from its 2012 total of £40.7m ($70m). The company has also celebrated several exits this year already, with Queen Mary University of London spin-out Actual Experience floating on AIM at a market capitalisation of £15.6m ($26.67m), and Leeds University spin-out Xeros floating at a market capitalisation of £27.6m ($40m).

Alan Aubrey, chief executive at IP Group, was optimistic about the new future together, and said: “Together, we have greater breadth of coverage, enabling us to access a wider pool of intellectual property as well as improve our service offering to existing and potential research institutions both in the UK and internationally. We firmly believe that the enlarged business will enhance shareholder value.”

David Baynes meanwhile added: “We are delighted to have completed this transaction. We have very much enjoyed working as partners with IP Group over the last five years and are looking forward to being part of the same team. We have no doubt that working as one company we will be able to maximise the value of our portfolio and pipeline and further enhance the service we provide to our university partners.”