Transcript
Speaker: Hello and welcome to Edison TV. Today I'm speaking to Greg Smith, Chief Executive Officer at IP Group, a leading investor into science-based and deep tech companies with a portfolio spanning healthcare, deep tech, and next generation computing.
Speaker: Greg, many thanks for joining me today. Greg, I see that. So you've just reported your H1 results. um You've seen NAV per share move up by 3.2% £1.13, £1.14, alongside nearly £67 million worth of realisations. Can you discuss the key highlights of the period for the investors?
Speaker: alongside nearly sixty seven million pounds worth of realizations um can you discuss the the key highlights of of the period for for the investors Yeah, I think you're right. you know The NAV per share increase up to 114 pence was the you know the sort i guess the single metric which is easiest to get your head around and and and demonstrates progress over the long term.
Speaker: I think for us as a business, I think it was the breadth of the progress that was encouraging. So um you you mentioned the realizations. We made very good progress on realizations. That's been one of our medium-term targets that we have put out there to the market and we're making good progress against it.
Speaker: We saw some de-risking of our Pfizer asset. I'm sure we'll have a bit of time to talk about. Oxford Nanopore made good progress in the period. um And I think sort of encouragingly in some of the things that we talked about in the half year were around the progress in some of those companies that are outside of the top five or 10 holdings that make up a big proportion of the value now, but that hopefully will be the drivers of value in the future. So I think it was the Yeah, I think it was the the breadth of the progress as well as the NAVPHA share increase that was that was encouraging and I think gives investors confidence that the business is moving in the right direction.
Speaker: Thanks. And we'll turn on to some of the, some of the the progress there later on. Um, just in terms of the realizations, you now generated 154 million pounds of realizations since the start of 2025, you've got the goal of reaching 250 million by 2027. yeah.
Speaker: yeah What, what should we read into that? Is this the, should we read into this, that your portfolio is now reaching a more, um, mature sustainable phase? Yeah, I think that's the the right conclusion to reach. the As you say, we're making good progress against that 250 million. I remember the process of setting that, what we consider to be quite a stretching objective back at the beginning of 2025. And um at that point, it was getting on for more than half of our market cap at the time. So we you know we we set ourselves an ambitious target to try and monetize some of that nav value into cash and shareholders can really then see that proving out in cash terms. um
Speaker: the The portfolio has definitely matured. If you roll back five, 10 years, I would say there were more companies that were um more heavily weighted towards technology risk than commercialization risk. And I think that balance has shifted a bit more in favor of the commercialization risk. And as company companies get further through their commercialization journey, we as a as an investment team as a management team it gives us more opportunity and and more options when it comes to realizing that value into cash for shareholders and i think again the i think it was the the diversity of sources of realizations that was encouraging in the first half and and beyond so we had um a couple of
Speaker: public market companies. One was selling down in Hinge Health, which listed back in at the back end of 2025 onto the New York Stock Exchange. and There was a ah full acquisition of another public business by Lilly.
Speaker: um And we also had an outright private sale acquired by a strategic. So three sort of different sources. And again, I think that's what's giving us confidence. That sort of, that that breadth of potential realization opportunities is what gives us confidence around delivering that 250 million cumulative by the end of Thanks. And now turning towards your exposure to Pfizer's anti but anti-obesity program, that was, you know, is one of the key drivers of NAV uplift over the period, and that was driven by some derisking of of the of the asset.
Speaker: Can you talk about that and also what the next key sort of milestones are which would enable you to derisk that further and and write that that valuation up? Yeah, so that, again, was a... um a story of of more clinical progress. So as viewers and and shareholders will be aware, this is we've we've got exposure across a number of different programs and that Pfizer are taking forward.
Speaker: I mean, incredibly, they're running 10 phase three programs across the lead compound, berobenotide. And and the during the period, in fact, just after the the period ended for results, um Albert Baller, the chief executive of Pfizer came out and he said of the three programs that are actually running, there's three phase three programs, um all three of those are now um almost fully recruited.
Speaker: which is and as we look forward to the next milestones, which of course are successfully completing those trials on time, getting the readouts and then seeing what the next commercial point of progress is for the businesses. that's That's a pretty key statement from them because often the thing that drives the timing of those clinical trial outputs is being able to recruit the patients onto the trial. So that was very encouraging.
Speaker: The thing during the period which had the biggest impact on our valuation was actually progress in the and the sort of the second program, which is a combination of berobenotide with um an amylin, so another and compound that's used in in the same treatment area.
Speaker: And that was that moved into into a phase 2b. And so the risk that we apply to those future cash flows and just reduces a bit. And so that was what led to the uplift. and As we look forward for the rest of this year and into next year, um obviously progress on those two areas is important. There are also a number of other um compounds that we have ah that we've licensed to Pfizer that they're developing. a couple of those are in phase one so there's um a thing called a pro drug which is which could potentially be um quarterly dosing so very know very long distances between dosing um and those very early programs we've got little to no value on those at all in our current valuation so i think as as as they hopefully progress through successfully through phase one and out and that could be another value driver so it's um
Speaker: Yeah, it's encouraging to see it, but it's it's sort of important, I think, for our shareholders to recognize this isn't isn't, it's not like we've got a single program and we're waiting on the results of a single program. It's a breadth of and different compounds moving through the clinic um in different indications. And we've got, you know, that's why we we we like the risk reward and profile of that that that asset.
Speaker: Yeah, very interesting. um Looking elsewhere in the portfolio, um you talked a little bit about also Nanopore, the exit from Metsira. Can you talk about the key interesting developments elsewhere in the portfolio for the business?
Speaker: Yeah, I mean, Oxford Annapur you you um picked up there is it is an obvious example. and That is a business that is reaching a you know good stage of maturity now. We've been holders for for a long time. and Our thesis over the last sort of 12, 18 months has been around that business successfully moving to break even. I think we were ah maybe a bit more confident than the rest of the city that they would achieve that on the timetable that they set out. And I think the half-year results and particularly the very significant improvement in their EBIT loss has led to increased confidence across the analyst communities. I think that
Speaker: our investment thesis there, I think, will play out over the next 12 to 18 months. And again, back to this, that gives us some more options for and thinking about liquidity and and um and realization.
Speaker: um We had some good progress in on the clinical side. So, for example, um Enterprise Therapeutics, which is another one of our clinical stage and development therapeutics businesses, they had a very interesting readout in cystic fibrosis, and very difficult to treat area and and can be um hopefully very valuable commercially because it's a very difficult to to treat disease.
Speaker: and On the cleantech side, and very encouraging to see HySATA, so our um next generation hydrogen electrolyzer business. They achieved their first and commercial megawatt one megawatt plant order, and which is obviously a milestone in itself. And now they need to go on and deliver that in the field and during the first half of next year.
Speaker: And then sort of straddling deep tech and and also clean tech, and Oxa, which is our um self-driving autonomous vehicle software business, now very much focused on off-road applications. So things like ports and airports where you're having to tow stuff around. um Not only did that company complete $100 million dollars funding round that we announced in January, They also entered into a a very interesting strategic joint venture with and Dubai Future Foundation.
Speaker: And that is to put a number of vehicles into Dubai's logistics system and could be hopefully the gateway into scaled deployment. So, you know, very important commercial milestone for the business. So, yeah, mean, coming back to that theme that we started with, it was encouraging to see that sort of breadth of progress across the portfolio.
Speaker: And can we turn to quantum computing? You were one of the earliest investors into quantum computing. computinging You've been been active in that and that area, and it's now an area that's receiving consider but considerable investment. and And actually, two of your companies, um Oxford Quantum Circuits and Quantum Motion, I think, receives around about half a billion of investment dollars investment and in aggregate.
Speaker: ah Can you just can you to talk about your you your history in quantum in quantum computing and and also how you see that that that sector developing for IP groups? Yeah, so I mean we were delighted for the the teams at both um Quantum Circuits and Quantum Motion and we've been with them since the very first funding round and i think that opportunity, that long-term opportunity in Quantum is is really and interesting and exciting. and For IP group shareholders there's about sort of probably two pence a share roughly in exposure to and that but
Speaker: One of the possibly more interesting trends and and what it says about IP groups and in investment philosophy is we have ah ah quite a deep thematic focus on what we call future compute, of which quantum is a component. And this is all around something which is very familiar to everyone who's listening, I'm sure, the the increasing digitization and um certainly the huge increase in in processing power and and memory that is needed to support things like large language models and and the the huge increase in machine learning. and That theme of hardware for for next generation computers, something that we've been investing in for the last five, 10 years, and there were three other companies actually in that same space that had an good progress during the period and we think could be catalyst for the next sort of six, 12, 18 months.
Speaker: um And they include an analog optical computing company called Lumai, which is looking at doing the inference steps then the and the computation need do for inference much more energy efficiently using light in 3D space. So that's that's um an important component of trying to increase the speed and bring down the energy cost of compute for LLMs.
Speaker: um We have a next generation memory technology, which is all about shrinking the form factor and being able to get it closer to the processing because a lot of the energy and the time is wasted transferring data between the processor and the memory chips. So if you can co-locate them, um again, fascinating business called intrinsic that we have there. And then and probabilistic compute. ah You and I have spoken occasionally about... The importance of randomness, if you can use the quantum effect to create and truly random numbers for things like optimization problems and other um computation areas, that's also important. I think all three of those businesses are nicely set and we own somewhere between sort of 15 and 28% of each of those companies. So if they deliver as and we think there is the opportunity for them to do so, shareholders have got good exposure to those. So yeah, we're we're really pleased with the quantums.
Speaker: couple of percent of exposure, but also we've got this sort of big theme of future compute that seems to be bearing out. Interesting. And so can we talk turn now towards third-party capital? So you've expanded the platform there through Averdeen, Parkwalk, and now the Climate Catalyst.
Speaker: um can you Can you discuss that, but also discuss what the expansion of the third-party capital platform means to the business as a whole? Yeah, so this is a theme that I've been talking about for quite a long time. So it's and is very encouraging to see um two new mandates um completing signing um during the year. I said at the time of the full year when we announced the Aberdeen Partnership,
Speaker: And that I hoped we'd be able to deliver another one. And actually the Climate Catalyst one and signed and announced, I think within a couple of weeks of the full year results actually. So the the next phase of development for both of those now is to make our first investments and get the first and portfolio companies funded under those two mandates.
Speaker: the i mean I guess the broader opportunity, IP group has and traditionally, 5, 10, 15 years ago, been a balance sheet investor first and foremost. and I think the balance sheet remains a really important strategic asset and it's where the vast majority of shareholder value lies.
Speaker: But I think on a slightly longer term basis, the addition of private capital brings a number of benefits alongside the balance sheets, although it's a relatively nascent area.
Speaker: Having more recurring fee income helps to mitigate the cost base and enables us to leverage the platform that we've built. um But also it provides either in the case of part walk,
Speaker: opportunities where the cost of capital is probably a bit lower than the balance sheet because of the tax incentives. So we can cast a bit of a wider net for new portfolio opportunities and a subset of those that progress then can be funded on the balance sheet.
Speaker: And similarly, on the scale-up capital side, as we've seen with the quantum companies, there are hopefully an increasing number of businesses with the pedigree that can raise a few hundred and million, and that's beyond the capacity that we have on the balance sheet. So it should be complementary capital to help accelerate those businesses and I guess really sort of prove you can um create some businesses at scale here in the UK which will be good for obviously investors but I think good for society and the economy as as we look to sort of build the next um the next the next shape of the u k economy.
Speaker: Absolutely. um And on a related matter, can we talk about allocation of capital? um So you've got the exits and the cash from the exits um and you've got third-party top funds. But um yeah, what do what what should we think about nowadays in terms of of allocation capital and the balance between investing in new businesses, sporting existing businesses, and and also returns for investors?
Speaker: Yeah, so, I mean, cash allocation remains probably the most important job that the board and the management team have to do day-to-day, week-to-week, month-to-month.
Speaker: We, as a board, remain very strongly of the view that and returns to shareholders... is an important component of the overall value story. and Ultimately, the large proportion of our capital is invested into and the existing maturing businesses that we are looking to progress to the point where we can monetize them and start the cycle again.
Speaker: um But we we we do think that things like buybacks actually are very additive to short-term and long-term shareholders. And we you know we continue to advocate for that position. um You mentioned, though, of course, it's also about a balance of investing in new things. And um I think it's we've we've shown good progress this year in terms of and sort of refilling the hopper with new opportunities. And I i so spoke and back at the sort of back end of 2024 and early 25 about you trying to more proactively use Park Walk as our sourcing engine.
Speaker: and We've done three new investments onto the balance sheet um during this year so far. um One of them is AI for and sort of materials discovery and comes from a world-leading lab and brings together a you know real sort of proper world-leading prof in the space actually with multi-hundred million pound development lab. and But also we've brought them, that those two ingredients together with an experienced um entrepreneurial leader who we've backed previously.
Speaker: and We haven't announced that yet, but hopefully in the next few weeks that will be announced. And it's it's about sort of bringing together those components of the ecosystem and that we've operated in for the last sort 20, 25 years.
Speaker: So there was there was that one and we had another hyperspectral imaging company in the healthcare care space, slightly later stage Series A investment, and it's all about helping both human and robotic surgeons to be able to um assess the health of tissue live during surgery and increase the success rates and decrease the repeat rates for surgical procedures. So we're seeing quite a healthy flow now of of of new things onto the balance sheet and We're making sure that as we're being successful delivering realizations, hopefully being able to return a portion of that to shareholders, we're also ensuring that we're investing in the future opportunities that will deliver growth for shareholders in in future years.
Speaker: That's very encouraging. Greg, many those who joined me again today. Great to see you. Thanks.
