Touchstone Innovations — Update 6 January 2017

Touchstone Innovations — Update 6 January 2017

Touchstone Innovations

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Touchstone Innovations

New year, new name

Rebrand and update

Pharma & biotech

6 January 2017

Price

332.38p

Market cap

£536m

Net cash and equivalents (£m) at 31 July 2016

148.3

Shares in issue

161.2m

Free float

9%

Code

IVO

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.4)

(21.5)

(21.8)

Rel (local)

(9.1)

(23.1)

(32.1)

52-week high/low

467.9p

325.0p

Business description

Touchstone Innovations (formerly Imperial Innovations) is a technology transfer, incubation and venture investment company. It invests in ventures from Imperial College London, Cambridge and Oxford universities and UCL. Over 99% of its portfolio value is in its 45 accelerated growth companies.

Next events

Cell Medica: Phase II Citadel data

H117

Circassia: Phase IIb house dust mite

H117

Nexeon: move to pre-production quantities

2017

PsiOxus: Phase I data (SPICE and OCTAVE)

2017

Analysts

Lala Gregorek

+44 (0)20 3681 2527

Daniel Wilkinson

+44 (0)20 3077 5734

Touchstone Innovations is a research client of Edison Investment Research Limited

Touchstone Innovations (IVO), the new name for Imperial Innovations, aligns the brand behind its evolving and diversified portfolio. Strong newsflow in the final months of 2016 capped a year of momentum for Innovations. Notably in December PsiOxus Therapeutics secured a $936m deal with Bristol-Myers Squibb (BMS) for its next-generation ‘armed’ oncolytic virus (NG-348). This was the largest deal for an Innovations portfolio company, leap-frogging the $790m collaboration between Crescendo Biologics and Takeda signed in October. Numerous other portfolio companies including Abzena, Puridify and Yoyo Wallet expanded or formed new partnerships.

Year
end

Net portfolio value* (£m)

Cash**
(£m)

Net fair value
gain (£m)

Net asset
value (£m)

NAV/share
(p)

DPS
(p)

07/15

327.2

128.1

21.3

420.1

306

0.0

07/16

335.1

148.3

(56.2)

455.9

283

0.0

07/17e

436.2

94.4

30.0

476.5

296

0.0

07/18e

537.4

36.0

30.0

495.3

307

0.0

Note: *Net value, excludes provisions. **Cash, cash equivalents and short-term investments.

New name, same Innovations

The rebranding marks the continued evolution of the company as it looks to build on milestones achieved in 2016, including the £100m equity raise and the launch of Apollo Therapeutics. While Innovations highlights the continued vitality of its relationship with Imperial College London, we expect the new branding to reinforce the portfolio diversification seen in the past 24 months, both in relation to source and sector. We expect Innovations’ strategy to remain the same as it looks to continue to acquire IP, form companies and scale them up to generate value.

PsiOxus: $50m upfront highlights potential

Portfolio company PsiOxus’s agreement with BMS for exclusive worldwide rights to the ‘armed’ oncolytic virus NG-348 (‘armed’ with specific immune-therapeutic transgenes) includes a $50m upfront payment with up to $886m in development, regulatory and sales-based milestones, and in addition, royalties on net sales. NG-348 is currently in preclinical development, which will be completed by PsiOxus (with funding from BMS) before the handover of clinical development to BMS.

Partnerships define year end

Expansion of Cell Medica’s partnership with Baylor College of Medicine, extension of Puridify and GSK’s collaboration, along with Abzena’s licensing deal with Trieza Therapeutics and Yoyo Wallet’s Caffè Nero partnership all demonstrate the value other companies see in Innovations’ portfolio companies. Outside of partnerships TopiVert has received FDA IND approval for TOP1630 in dry eye syndrome.

Valuation: Modest NAV premium

Innovations’ shares trade at a c 14% premium to our unchanged FY17e NAV of 296p/share (at 4 January 2016). We believe this is a modest premium given a maturing investment portfolio with a number of companies approaching important catalysts with significant potential for future value uplifts.

Exhibit 1: Financial summary

£'000s

2014

2015

2016

2017e

2018e

Year end 31 July

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

 

 

 

 

 

Revenue

 

 

3,636

5,099

4,257

4,359

4,463

Cost of sales

 

 

(1,005)

(1,769)

(1,395)

(1,396)

(1,438)

Gross profit

 

 

2,631

3,330

2,862

2,963

3,025

EBITDA

 

 

(8,385)

(8,223)

(9,758)

(10,289)

(10,890)

Operating profit (before GW and except.)

(8,418)

(8,237)

(9,772)

(10,303)

(10,904)

Fair value gains/losses

 

 

40,549

21,324

(56,249)

30,000

30,000

Impairments

 

 

0

0

0

0

0

Share-based payment

 

 

(4,821)

1,161

2,972

(3,000)

(3,000)

Operating profit

 

 

27,310

14,248

(63,049)

16,697

16,096

Net interest

 

 

106

817

(64)

(180)

(1,205)

Profit before tax (norm)

 

 

(8,312)

(7,420)

(9,836)

(10,483)

(12,109)

Profit before tax (FRS 3)

 

 

27,416

15,065

(63,113)

16,517

14,891

Tax

 

 

0

0

0

0

0

Profit after tax (norm)

 

 

(8,312)

(7,420)

(9,836)

(10,483)

(12,109)

Profit after tax (FRS 3)

 

 

27,416

15,065

(63,113)

16,517

14,891

Average number of shares outstanding (m)

 

102.4

136.2

146.1

161.2

161.2

EPS - normalised (p)

 

 

(8.1)

(5.4)

(6.7)

(6.5)

(7.5)

EPS - reported (p)

 

 

26.8

11.1

(43.2)

10.2

9.2

Dividend per share (p)

 

 

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

 

 

 

 

 

 

 

Fixed assets

 

 

258,327

333,936

345,615

446,956

548,155

Tangible assets

 

 

26

29

18

29

40

Intangible assets

 

 

0

0

0

0

0

Investment Portfolio

 

 

257,105

333,268

345,146

446,263

547,451

UCSF (University Challenge Seed Fund) investments

543

460

163

163

163

UCSF loans

 

 

0

0

0

0

0

Other

 

 

653

179

288

501

501

Financial asset

 

 

0

0

0

0

0

Current assets

 

 

177,800

130,506

152,792

98,987

40,731

Cash and cash equivalents

 

 

176,462

128,097

148,306

94,394

36,028

Financial asset

 

 

0

0

0

0

0

Accounts receivable, net

 

 

1,338

2,409

4,486

4,593

4,703

Current liabilities

 

 

(4,900)

(5,732)

(7,333)

(7,333)

(7,333)

Trade accounts payable

 

 

(4,900)

(4,232)

(4,166)

(4,166)

(4,166)

Short-term borrowings

 

 

0

(1,500)

(3,167)

(3,167)

(3,167)

Long-term liabilities

 

 

(26,445)

(38,639)

(35,184)

(62,103)

(86,263)

Long-term borrowings

 

 

(14,830)

(27,222)

(24,089)

(51,680)

(76,512)

UCSF

 

 

(640)

(666)

(477)

(477)

(477)

Provisions

 

 

(10,975)

(10,751)

(10,618)

(9,946)

(9,274)

Net assets

 

 

404,782

420,071

455,890

476,507

495,290

NAV/share (p)

 

 

295

306

283

296

307

CASH FLOW

 

 

 

 

 

 

 

Operating cash flow

 

 

(6,523)

(9,331)

(10,799)

(10,182)

(10,780)

Net Interest

 

 

44

875

(24)

(180)

(1,205)

Tax

 

 

0

0

0

0

0

Capex

 

 

(23)

(17)

0

(25)

(25)

Purchase of trade investments

 

 

(32,826)

(59,957)

(71,046)

(71,117)

(71,188)

Proceeds from sale of trade investments

 

 

3,370

7,179

4,979

0

0

Revenue share paid on asset realisations in trade investments

 

 

0

(989)

0

0

0

Equity financing

 

 

146,823

0

98,599

0

0

Short term liquidity investments

 

 

0

0

0

0

0

Net cash flow

 

 

110,865

(62,240)

21,709

(81,504)

(83,198)

Opening net debt/(cash)

 

 

(50,783)

(161,632)

(99,375)

(121,050)

(39,546)

Other

 

 

(16)

(17)

(34)

0

0

Closing net debt/(cash)

 

 

(161,632)

(99,375)

(121,050)

(39,546)

43,651

Source: Edison Investment Research, Imperial Innovations accounts

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt and Sydney. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Touchstone Innovations and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt and Sydney. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Touchstone Innovations and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Kiadis Pharma — Update 6 January 2017

Kiadis Pharma

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