Amphion builds shareholder value in high growth companies in the medical and technology sectors, by using a focused, hands-on company building approach, based on decades of experience in both the US and UK.
Amphion has a significant shareholding in 7 Partner Companies developing proven technologies targeting substantial commercial marketplaces, each in excess of $1 billion. Each Partner Company is chosen with the goal of achieving an exit valuation in excess of $100 million.
Amphion also has a specialized entity, DataTern, Inc., established to exploit IP opportunities within the Company's Partner Companies.
Amphion Innovations: on the turnaround track
Before the latest round of stock market turbulence began two weeks ago shares in Amphion Innovations (LON:AMP) had only recently bounced from an all-time low of 2.12 pence each. Between mid-July and the beginning of August the shares rose as high as 7.25 pence each and currently they are changing hands for 4.5 pence each.
Richard Morgan, chief executive officer, is pleased by Amphion’s recent share price recovery but the increase had followed a long decline. “The volumes had been pitiful,” he says, putting the share price fall down to a long period of no news from the company and a few sales of shares.
However, Morgan’s July 21 purchase of 400,000 shares, just a fraction of the approximately 24.2 million shares he now owns, appears to have been the catalyst that turned the firm’s share price progress around.
Amphion had announced in its annual report at the end of June that “the recovery seen in the second half has continued in the first few months of the current year”. Then, on August 2, the firm issued a trading update that showed revenue and profitability had been boosted during the first half of its current financial year thanks to improved performance from its DataTern intellectual property licensing business.
Amphion said that it expects to report revenue of US$2.6 million for the six months to 30 June, compared with US$1.6 million for H1 2010. The firm said the increase in revenue is mainly due to the improved performance of DataTern, which increased revenue from US$700,000 during H1 2010 to US$2 million in H1 2011.
The DataTern subsidiary has been making progress with its patent-enforcement activities against a number of companies regarding its next-generation business software: ObjectSpark. DataTern has taken “concrete steps” to combat actions filed against it by Microsoft and SAP in April concerning its ’402 and ’502 patents. The two business software firms assert that these patents are invalid and not infringed by companies that DataTern itself has taken action against.
ObjectSpark, a form of what the enterprise software industry calls ‘business objects software’, is based on processes identified in the ’402 and ’502 patents to do with how business data is stored. “’402 and ’502 are sister patents. They are distinct but very complementary,” says Morgan. “Companies are routinely getting data from the real world, and that data needs to be stored. The place they store it is in a relational database.”
DataTern’s case is that it developed the key steps to all this work. “We figured out, before anyone else did, how to do the mapping process,” he says. “Now it has become state of the art and a completely routine, ubiquitous thing that’s used by everybody. And big software companies have incorporated this process into their tools.”
DataTern’s ObjectSpark can be used across a range of industries to allow business users to develop their own customised data service layers, and the business provides non-exclusive licences for its technologies on what it describes as “reasonable and non-discriminatory terms”.
And since DataTern has taken a more robust approach concerning its patents it has managed to boost revenues from the software. For example, in January this year DataTern announced it settled five patent infringement lawsuits involving the ’402 and ’502 patents, generating total revenues of US$1.125 million.
Now, the business has retained law firm McCarter & English, and on July 22 filed a motion in New York to dismiss, or at least stay, the actions by Microsoft and SAP. Around the same time it also filed an application in the US Patent and Trademark Office to re-examine the ’402 patent. The ’502 patent already successfully completed re-examination by the USPTO with all 18 original claims intact and 26 new claims added.
However, it should be remembered that Amphion is primarily a technology commercialisation company. Originally its purpose was and, according to Morgan, remains the starting and building of businesses that are based on proprietary (patented) technologies developed by UK and US universities and academic institutions. Each one of the businesses that Amphion has chosen to invest in and develop has been selected to address established markets worth in excess of US$1 billion, with the firm aiming to achieve exit values of more than US$100 million for each company.
Amphion, and its share price, has suffered in recent years because the progress of its ‘Partner Companies’ has been adversely affected by difficulties in raising capital from external investors.
In spite of this, Amphion’s eight Partner Companies still managed to raise US$16.3 million last year, with the lion’s share of this (US$10.6 million) being raised by Kromek – a UK firm that is developing digital X-ray systems for applications in security, industrial production, medicine and defence.
Myconostica, one of Amphion’s other Partner Companies, did not enjoy similar success so in May 2011 Amphion sold its 16 per cent stake in the company to Cambridge-based Lab21, a privately-owned medical diagnostics business, in return for US$200,000 of Lab21 equity. Amphion’s stake in Myconostica was valued at US$2.3 million at the end of 2010, so Amphion’s net asset value was reduced by around US$2 million as a result of the deal.
For now, Kromek is probably the best bet in terms of an exit opportunity for Amphion in the short-to-medium term, with the next most likely to achieve an exit being Motif BioSciences – which exploits population genetics, and novel clinical chemistry, for pharmaceuticals and diagnostics applications. “We have been talking about doing an IPO for one or two of the businesses since early 2008,” says Morgan. “If the stock market as a whole is supportive I think we should have a great opportunity to IPO Kromek and perhaps Motif during the next one to two years.”
Meanwhile, the firm’s Partner Company FireStar Software has made great progress despite what Amphion has described as “severe financial challenges”. FireStar succeeded in getting key products and technology adopted as standard by the Object Management Group – a standards setting body for enterprise software – while managing to be included in a consortium that is developing important software products for the US government.
FireStar’s key technology assets remain intact and this company has now had its patent application covering some of its critical messaging technologies granted by the US Patent Office. The business is starting to attract additional capital from investors other than Amphion to supplement cash flow expected from contract awards.
Other firms that Amphion is invested in include: publically traded Axcess International – a developer of RFID systems for a range of applications, mostly revolving around “advanced workforce management” which embraces safety, efficiency and security; m2m Imaging – MRI (magnetic resonance imaging) coils and tools for clinical and research applications; PrivateMarkets – online energy trading marketplace; and WellGen – a firm developing medical foods and nutritional supplements for the health market.
In the meantime, Morgan says that financial progress at the firm appears to be on a more positive trend. “If you look at the last three halves you will see a poor half to start with, moving to a better half in H2 2010 and then an even better half in H1 2011,” he says. “Now we’ve got a new leg to the business in the shape of Datatern, which is in a better situation, although we never expected it to become a P&L business.”