Cambridge Cog Regulatory News (COG)

25 April 2016

Cambridge Cognition Holdings Plc

("Cambridge Cognition" or the "Company")

Preliminary Results for the year ended 31 December 2015

Cambridge Cognition Holdings plc, (AIM: COG), which specialises in development and marketing of computerised neuropsychological tests including those enabling the early detection of dementia, announces its unaudited preliminary results for the year ended 31 December 2015.

Financial Highlights

· Software and services revenues £4.59m (2014: £4.58m)

· Hardware revenues reduced by £0.75m to £0.33m (2014: £1.08m) following migration to cloud-based products

· Total revenue reduced by £0.76m to £5.04m (2014: £5.80m)

· Gross margin increased to 88% (2014: 85%)

· Administrative costs increased by only 0.7% to £5.62m (2014: £5.58m) despite a major investment to expand the US based commercial team

· Adjusted* EBITDA reduced to £0.60m loss (2014: £0.27m loss)

· Adjusted* loss for the year increased to £0.57m loss (2014: £0.17m loss)

· Loss for the year increased to £0.78m loss (2014: £0.17m loss)

· Loss per share increased to 4.6p (2014: 1.1p)

· Cash balances of £0.76m (31 December 2014: £1.52m)

· Post reporting period, a successful equity placing raising £1.25m announced today

* Adjusted in 2015 for one-off exceptional item of £0.21m

Operational Highlights

· Revenue reduction reflects successful transition of business to Connect cloud-based platform

· US commercial team expanded without significant increase in operating costs

· Continued growth and development in underlying core businesses of pharmaceutical clinical trials and academic research

o Pharmaceutical Clinical Trials sales pipeline for 2016 increased following deferral of a major contract due to regulatory review of the client's protocol

o Academic Research revenue excluding hardware increased 3.8%

· Implementation of the first non-UK Cantab Mobile distribution agreements

· Launch of Cantab Insight for dementia assessment in secondary care

· Establishment of a joint venture, Cantab Corporate Health, to target occupational health markets

· Product and technology development resulted in online testing and wearable testing capabilities and extension of intellectual property estate

Commenting on the results Steven Powell, Chief Executive Officer, said:

"2015 was a year of significant change with the enforced change in the management team bringing a renewed focus on the core product businesses and accelerated development of healthcare technology projects. 

"In 2016 we intend to accelerate revenue growth in both the academic research and pharmaceutical clinical trials business by investing further in commercial infrastructure and introducing new products and services in conjunction with pharmaceutical partners. With growing revenues and increased adoption of our products in our core markets, we will then turn to promoting our new, point of care technologies in the broader healthcare markets."

Enquiries:

CHIEF EXECUTIVE'S REVIEW

Overview:

2015 was a year of significant change following an enforced change in the management team bringing a renewed focus on the core product businesses and an acceleration in development of healthcare technology projects. In both the academic and pharmaceutical clinical trials businesses we have stepped up our investment in innovative marketing programmes and expanded our sales team; particularly in the USA where we have now established a permanent office. In parallel we have filed new patents to underpin innovative technologies for healthcare markets following a period of accelerated development and we have forged a number of key relationships to translate these technologies into revenue generating opportunities. We anticipate that this partnering approach will deliver faster growth rates than could be achieved by the group alone given our limited resources.

The migration of our software products to the cloud based Connect platform has had a significant impact on our results for 2015. This development increases the accessibility of our products and is important to the long term future of the business. However, this migration resulted in a £0.75m decline in hardware sales in 2015 as customers were no longer bound to purchase a touch screen computer from the Company as they are now able to download the software onto tablets sourced themselves. This reduction in hardware sales has also led to an improvement in gross margins.

Notwithstanding lower hardware sales, for the second year running both the Pharmaceutical Clinical Trials and Academic Research businesses were both profitable and cash flow positive. The profit made from these businesses has been fully invested in the Healthcare Technology business.

Group financial results

The trading performance was broadly similar to the prior year, with the exception of the decline in hardware sales due to the move to Connect. Revenues fell by £0.76m in the year which is equivalent to the decline in hardware revenue. Despite an increase in the number of contract wins year-on-year, there was only marginal growth in software revenues. This is because 2014 recognised revenue from a single substantial contract win which skews the overall growth trajectory.

Gross margins rose to 88% from the 2014 level of 85%. This was largely driven by the reduction in hardware sales over the year (which have a lower margin than software and services) and is another reason why this reduction in hardware sales will benefit the business in future years.

Despite our continued investment in Healthcare Technology and in a US facility, including an overall headcount increase of 12%, administrative expenses of £5.62m were held to within 1% of the 2014 level. An increase of £0.52m in pay costs was offset by strong cost control in other overheads. Grant income increased to £0.51m (2014: £0.34m), reflecting increased collaborative work.

These factors combined to produce an operating loss before exceptional item of £0.66m (2014: £0.30m). In addition, the group investigated the opportunity to acquire another business during the last quarter of 2015. This transaction failed to complete and the related cost of £0.21m has been disclosed as an exceptional item in the financial statements.

The taxation credit on research and development projects has been reduced in the year to £0.09m (2014: £0.12m) reflecting the maturity of the development cycle of our underlying products. Consequently, the loss per share has increased to 4.6 pence per share, or 3.4 pence per share before exceptional items (2014: 1.1 pence per share).

The reduction in cash balances to £0.76m at the year end was in line with the operating result. Excluding the impact of the exceptional item, working capital generated £0.12m of cash in the year. Investment in fixed assets of £0.13m included both the establishment of the office in the US and investment in our network infrastructure.

Pharmaceutical Clinical Trials

Since 2002 Cambridge Cognition has supplied the world's leading pharmaceutical companies with CANTAB™ cognitive assessment software, expert scientific consultancy for trial design and operational support services. The Company now provides a range of cloud-based products to enrich neurological pharmaceutical development from initial patient recruitment through phases I-IV clinical trials and post-marketing studies, thereby accelerating the development of safe and effective treatments for neurological disorders. 

The reduction in Pharmaceutical Clinical Trials revenue reflects the reduction in hardware sales arising from the migration to CANTAB Connect. Hardware sales were down £0.54m on the previous year.

 The operating profit for the business unit was £0.20m (2014: £0.46m) reflecting a combination of the reduction in hardware sales and an increase in headcount following the expansion of the US-based clinical sales team during the reporting period.

Having opened the US office toward the end of Q1 2015, the benefit of this facility on the Pharma results is expected to impact fully in 2016.

The product offer has changed significantly over the year as tests have been migrated to the new Cloud based 'Connect' product. The Company also restructured its support services in H2 2015 to be able to offer additional revenue generating services in clinical trial design and data analytics which, together, cement the Company's position as a leader in the neuroscience field.

Academic Research

Cambridge Cognition products for academic and biotechnology research have been used in 800 universities and research institutions worldwide leading to 1,600+ peer-reviewed publications and over 100,000 citations; making CANTAB™ the world's most highly validated cognitive assessment software.

The academic and biotechnology markets are key to the overall Cambridge Cognition business as they represent an opportunity for the group's products to be validated in a variety of clinical applications by key opinion leaders. Throughout the reporting period we have continued to secure business globally, including increased sales in Australia and the Far East, and we anticipate increasing software revenues in the coming year in all geographic territories. In particular we will target smaller and pilot academic projects and early stage biotechnology academic spin-off companies to strengthen the future sales pipeline.

The major investment in the US facility during the year is expected to generate a return next year as our greater understanding of the US academic market begins to generate more business.

Hardware revenue in the Academic Research business was also impacted by the move to CANTAB Connect. Total revenue fell by 7.9% to £1.54m (2014: £1.68m) with a £0.18m decline in hardware revenue being slightly offset by modest growth in software and service sales. The decline in revenue and the increased investment in the US facility impacted on the operating profit for the business unit, which was £0.30m (2014: £0.84m).

 Healthcare Technology

To date, the principal usage of computerised cognitive assessment has been in the controlled environment of academic and industrial clinical research. These applications, whether in the laboratory or in the clinic, rely on infrequent snapshots to characterise profiles of impairment, recovery and decline and require a subject to travel to the investigating centre. Such sparse sampling of behaviour will often miss clinically significant changes, which can impact on quality of life and limit the ability to quantify the effects of neurological and medical conditions and their treatments.

The need for more effective measures of brain health has never been greater with the World Health Organization reporting that mental ill health is now the leading cause of disability worldwide and the global cost of mental illness is predicted to increase to over $6 trillion by 2030. However, the cost of transporting patients to clinical centres for treatment and monitoring is a significant burden on healthcare systems - in the USA the cost of transporting patients to their point of care is in excess of $5 billion per annum. With the evolution of effective data transmission, storage and analysis brought about by the digital revolution it is now technologically feasible for detailed point-of-care assessment and diagnosis.

Cambridge Cognition is committed to bringing high-frequency measurement to patients and to provide them with tools to monitor daily variations in their cognitive health and, importantly, link these to data about their lifestyle, medication and physical health.

The Company began its digital healthcare innovation with the launch of CANTAB Mobile, a Class II medical device, now used routinely in the UK NHS to identify patients exhibiting the earliest signs of Alzheimer's disease and the product has, to date, measured the cognitive performance of 22,000 patients. Given the clinical acceptance of CANTAB Mobile, in December 2015 we gained a CE mark extension for and launched a related product CANTAB Insight, which allows in-depth evaluation of at risk patients to detect underlying signs of common mental health problems such as depression, schizophrenia and dementia at a very early stage. Whilst Mobile targeted the elderly for early signs of Alzheimer's disease, Insight not only targets a wider range of mental health problems but can be used from early adulthood.

Equipped with these two products we established our first product distribution agreements for the marketing of Mobile and Insight for clinical applications and these distributors are now preparing to launch these products internationally. Outside of the clinical sector, the Company formed a joint venture with Shandwell Limited to explore the opportunities for CANTAB Mobile and Insight in the corporate healthcare market. CANTAB Corporate Health Limited secured its first sales in H2 2015 and has built a notable pipeline of commercial interest in the product in the expectation of reporting significant income within its first year of trading.

In parallel with the extension of Mobile and Insight usage, in mid-2015 we initiated an accelerated development programme to translate cognitive assessment tests to near-patient applications. As a result we were rapidly able to file two patent applications in the field of monitoring patient cognition with wearable technology to take advantage of the evolving smart watch and smart phone technologies. Both patents provide an opportunity for consumers to receive high-quality, continuous monitoring of bio-behavioural measures which, if deviating from a baseline, would trigger cognitive testing through a mobile device without the need for visits to healthcare providers or other professionals.

The speed of development has further increased post the reporting period when we announced a technology collaboration with Ctrl Group for the design and development of a wearable device for near-user cognitive testing. By collecting data using a wearable device the new technology being developed will provide healthcare practitioners with a richer and more natural profile of mental health to improve the understanding, diagnosis and treatment of cognitive disorders.

This wearable platform, together with a new online testing format for trial recruitment will provide our pharmaceutical customers with tools to enhance the efficiency of clinical trial recruitment and monitoring as well as, in the medium-term, provide the means to monitor the health of patients being treated with a particular therapy. This activity will generate revenues in the near term and also provide important validating data for these products. The validating data can then be used to support the marketing of these products direct to patient groups via channel partners in line with our established healthcare strategy. For pharmaceutical companies, understanding the real world impact of interventions will support clinical trials of drug development candidates and marketed treatments for chronic diseases.

Outlook

The achievements of 2015, in particular the new joint venture arrangements and the expansion of the group's intellectual property estate, are a solid platform for future growth. 2016 has started well with a strong order book and improved sales pipeline. We also start the year with an enlarged commercial team in place unlike the prior year As we look ahead, we have a renewed focus on accelerating revenue growth in both the academic research and pharmaceutical clinical trials businesses. This will be achieved by investing further in commercial infrastructure and deploying online testing for clinical trials recruitment and wearable technology for 24 hour patient assessment in conjunction with pharmaceutical partners.

In parallel we will continue to develop the healthcare business through partnerships as exemplified by the appointment of distributors for CANTAB Mobile and the formation of CANTAB Corporate Health with Shandwell Limited for the occupational health market.

Operationally, in 2015 we reported that both Andy Blackwell and Nick Kerton were moving to Non-executive roles. Nick's move was a result of him having to take an extended leave of absence from the Company due to a serious medical condition. I am delighted to report that Nick responded well to his treatment and is an active non-executive member of the Board. These changes however resulted in us building a restructured management team which is now fully operational and well placed to drive the commercial growth of the Company in 2016 and beyond. We would however like to acknowledge the key roles played by both Andy and Nick in the development of the Company.

Finally we would like to acknowledge and thank our colleagues, partners and shareholders for their support over the past year as we transitioned the Company into what will be a new phase of its development and growth.

Steven Powell

Chief Executive Officer

25 April 2016.

CONSOLIDATED Statement of COMPREHENSIVE INCOME

For the year to 31 December 2015

The above results relate to continuing operations.

Total comprehensive income equates to the loss for the period reported above.

Consolidated statement of financial position

For the year ended 31 December 2015

Consolidated statement of changes in equity

For the year ended 31 December 2015

Consolidated statement of cash flows

For the year ended 31 December 2015

NOTES TO THE INTERIM FINANCIAL STATEMENT

1. General information

Cambridge Cognition Holdings plc ('the Company') and its subsidiaries (together, 'the Group') develops and commercialises computerised neuropsychological tests for sale worldwide, principally in the UK, the US and Europe.

The Company is a public limited company which is listed on the Alternative Investment Market ('AIM') of the London Stock Exchange (COG) and is incorporated and domiciled in the UK. The address of its registered office is Tunbridge Court, Tunbridge Lane, Bottisham, Cambridge, CB25 9TU.

Since CCL's formation in 2002, the Group has created a well-established business through sales of its proprietary CANTAB™ (Cambridge Neuropsychological Test Automated Battery) software into academic and pharmaceutical research locations around the world. More recently, focus has increasingly turned to applications serving primary healthcare markets.

2. Basis of preparation

The financial information of the Group set out above does not constitute "statutory accounts" for the purposes of Section 435 of the Companies Act 2006.

The financial information in this preliminary results announcement does not constitute the Group's statutory accounts for the year ended 31 December 2015 or the year ended 31 December 2014 but is derived from those accounts.

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union, IFRIC interpretations and the Companies Act 2006 applicable to companies operating under IFRS. The accounting policies adopted are consistent with those followed in the preparation of the consolidated financial statements for the year ended 31 December 2014.

3. Segmental information

An analysis of revenue is as follows:

3. Segmental information (continued)

The analysis of operating profit/ (loss) by business unit is as follows:

The analysis of operating (loss) allocates costs to the business unit to which they relate, including an allocation of support function costs. Central costs represent the Company's corporate costs, offset by grant income.

4. Exceptional item

In the last quarter of 2015, the company investigated the possibility of acquiring a US based Group. The acquisition was not completed. Expenses, which principally related to professional fees, totalled £208,000. As these expenses are of a magnitude and nature that the Directors consider to be outside of the Group's normal operating business, they have been separately disclosed as an exceptional item.

5. Earnings per share

The calculation of the basic and diluted earnings per share is based on the following data:

Earnings

As the effect of options would be to reduce the loss per share the diluted loss per share is the same as the basic loss per share.

6. Notes to the cash flow statement

Included in the cash flows for 2015 above are £9,000 cash payments in respect of the exceptional item. The remaining £199k is included in the movement in payables line item.

Cash and cash equivalents

Cash and cash equivalents comprise cash and short-term bank deposits with an original maturity of three months or less, net of outstanding bank overdrafts. The carrying amount of these assets is approximately equal to their fair value.

7. Annual Report & Annual General Meeting

The Annual Report will be available from the Company's website, and posted to shareholders by 27th May 2016. The Annual Report contains notice of the Annual General Meeting of the Company which will be held at 11.00am on 23th June 2016 at the registered office, Tunbridge Court, Tunbridge Lane, Bottisham, Cambridgeshire, CB25 9TU.