Last week in Penny Sleuth we looked at America’s sudden enthusiasm, thanks to Barack Obama, for science. Surprise, surprise, the UK Government has now leapt on it too. This is a good thing.
Our political leaders have finally realised that lending ever increasing amounts of money to people so that they can buy ever more expensive houses is no way to ensure long-term prosperity. All of a sudden scientists are getting that wanted feeling.
This is provoking some glimmers of optimism in the penny share market. In the past, so many small companies have floated in order to exploit a scientific invention, only to then find that the City loses interest. So the companies fail to secure the financial support necessary to take a good idea through to the stage of commercialisation.
Now, though, new sources of government funding could provide just the lead that the private sector appears to need to back innovation. One quoted company hoping that this is the case is Angle (LSE: AGL).
Exploiting new technology
Angle is a venture management company that advises on the exploitation of new technology but has also founded a number of businesses that are at various stages of commercialisation. The Management Services side provides advice to the London Development agency, the Carbon Trust, the Qatar Science & Technology Park, and many others.
In the latest six months Angle made a profit of £0.8m from this activity. According to broker Collins Stewart, that by itself sufficient to justify Angle’s paltry £2m stock market capitalisation. They point out that this valuation leaves ‘the potentially exponential optionality of the investment portfolio in for free.’
Translated, this broker-speak means that if any of the companies that Angle owns or part owns hits the big time then its shareholders should make a lot of money. There are nine companies in Angle’s portfolio – so nine shots at the big time. The three that offer the greatest excitement are Novocellus, Parsortix and Aguru Images. Let’s have a quick look at them.
The first two of these are in the field of health. Novocellus has just signed a deal with the Danish IVF specialist Medicult which will fund a four hundred patient trial of its EmbryoSure technology.
Currently the selection of embryos for transfer back into the uterus involves a subjective visual assessment of their quality. Because this method is far from foolproof, embryologists often feel it necessary to transfer at least two likely embryos at one time, which can result in multiple births.
What EmbryoSure does is to analyze changes in the amino acid content of the embryo culture medium. Thus it can identify those embryos most likely to lead to a successful pregnancy and increase the clinical pregnancy rate by 25%.
The next company, Parsotix, has developed an improved way of determining whether an unborn child may be liable to Down’s syndrome or other congenital problem. Today the usual method is amniocentesis, an invasive and costly procedure that involves taking a sample of the amniotic fluid that surrounds the foetus.
Parsortix believes that the necessary information can be secured by analyzing foetal cells that are found in the mother’s blood. The difficulty is that for every five hundred million maternal blood cells, there is only one foetal cell and consequently they are very hard to isolate.
This, though, is what Parsortix has managed to achieve and several multinational healthcare companies, aware that this method could be 60% cheaper than the cost of amniocentesis, are watching closely as Parsortix completes development of the product and applies for regulatory approval.
Companies that could lead the country out of recession
The last company in Angle’s portfolio that I want to mention is Aguru Images, which operates in a totally different sector.
This company claims to have an answer to what it describes as ‘the holy grail of computer graphics’, which is for realistic recreation of images. The difficulty of creating accurate digital images arises because every object has thousands of different textured surfaces that must be captured in every possible angle and light.
Aguru offers a number of advanced imaging machines, including a kaleidoscopic array that makes it possible to look at an object from many directions at the same time. What’s particularly encouraging about this is that it has just completed its first major sale to a Los Angeles film maker.
All of these small companies are tackling potentially large markets. And all of them are based upon the appliance of science. Angle has been fighting a tough battle against a sceptical and risk-averse City audience.
But if this country is going to pull out of recession it will be down to companies like Angle. It is time for Government and the City to start backing science.
• This article is taken from Tom Bulford’s free twice-weekly small-cap investment email The Penny Sleuth. Sign up to The Penny Sleuth here.
Information in Penny Sleuth is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. Penny Sleuth is an unregulated product published by MoneyWeek Ltd.