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IP Group is raising $125M and will acquire Fusion IP in $146M stock-based deal

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By Cormac Sheridan
Staff Writer

IP Group plc is raising £75 million (US$124.5 million) in new funding and, in an unrelated move, acquiring Fusion IP plc outright in a stock-based deal that values the latter firm at £87.8 million.

The fundraising comprises a £50 million “firm placing” of 30.3 million new shares, priced at £1.65 each, which is underwritten by Numis Securities Ltd., and a placing of a further 15.2 million new shares at the same price, which is not underwritten.

IP Group may increase the size of the share offer by up to one-third – or £100 million – if there is sufficient demand. The capital increase will be put to a shareholder vote on Feb. 12.

IP Group, which reported £38.1 million in cash on June 30, 2013, plans to use the new cash injection to accelerate growth by increasing its investment in both portfolio companies and new ventures, to develop therapeutics through single-asset plays or spinout companies, and to fund the expansion of its U.S. business. It already has entered pilot IP commercialization partnerships with a number of American universities, including the University of Pennsylvania and Columbia University. It has long-term IP commercialization agreements with 11 British universities, and its new acquisition has similar relationships with another four.

The offer for Fusion IP, which is valued at 80.2 pence per share, represents a premium of 27.4 percent over Fusion’s closing share price of 63 pence Wednesday, immediately prior to the disclosure of the bid.

The two organizations already are well acquainted – IP Group took a 20.1 percent stake in Fusion IP three years ago. As well as getting a share price premium, Fusion IP shareholders will have access to IP Group’s portfolio of more than 72 companies. “In a funny way, it wasn’t that difficult a decision at all,” Fusion IP CEO David Baynes told BioWorld Today. “We are stronger as a combined entity.”

Pharma and biotech currently comprise just 3 percent of the IP Group’s portfolio in value terms, while medical equipment and supplies account for another 59 percent. Included in the latter segment is a hefty 21 percent stake in Oxford Nanopore Technologies Ltd., the hottest privately held company in the fast-growing market for ultra-fast, low-cost sequencing systems. IP Group’s seed investment in Oxford Nanopore is now a major component of its £656 million market cap.

Fusion IP’s portfolio of 21 companies includes 14 in the medical sphere. Its most successful exit to date has been from Sheffield, UK-based Symcyp Ltd., the developer of a population-based pharmacokinetic modeling and simulation environment for drug developers, which St. Louis-based Certara LP acquired for $32 million. Fusion’s 20 percent stake in the firm – which it gained at a cost of just £20,000 – realized a return of $6.4 million.

Its current lead asset is a stake in Diurnal Ltd., which is developing Chronocort, a cortisol formulation that has a delivery profile that matches the body’s normal 24-hour cycle. Its lead indication is patients with congenital adrenal hyperplasia, a set of inherited disorders characterized by an inability to make cortisol, which plays an important role in maintaining the body’s energy balance. “It’s going into Phase III this year – by 2016, we’ve got a drug,” Baynes said.

Fusion IP reported £21.3 million in cash on July 31, 2013. Most of its portfolio is early stage, however, so the tie-in with IP Group will give it immediate access to more cash. “With IP Group we’ll maximize that potential,” Baynes said.

Fusion IP was founded in 2002 as Biofusion and went public in 2005 on AIM when it raised £8.2 million in an initial public offering priced at £1.50 per share. Most of its current investors are in profit, Baynes said, as it raised £20 million at 55 pence per share one year ago, and it priced a £5 million offering in 2011 at just 28 pence per share. “I’m pretty confident we’ll get better long-term returns for shareholders,” Baynes said. “This game does take a long time.”

Shares in IP Group (LONDON:IPO) dipped 2.7 percent to close at £1.75 Thursday, while Fusion IP’s stock (LONDON:FIP) surged 21 percent to close at £0.765.