Cambridge Cog Regulatory News (COG)

7 March 2019

Cambridge Cognition Holdings Plc

("Cambridge Cognition" or the "Company")

Preliminary Results for the year ended 31 December 2018

Cambridge Cognition Holdings plc, which develops and markets neuroscience technology to assess brain health, today announces its preliminary results for the year ended 31 December 2018.

Sales orders up 49% to £7.93m

Encouraging growth in order intake in 2018 and a consequential increase in the order book at the end of the year offsets lower revenues in 2018 which was a consequence of a low order intake in 2017 and change in accounting practice.

Financial summary

· Total revenues of £6.13m (2017: £6.73m)*

· Gross profit of £5.23m (2017: £6.11m)*

· Adjusted** loss before tax of £1.50m (2017: loss of £0.07m)*

· Loss before tax of £1.49m (2017: loss of £0.28m)*

· Loss per share of 7.0 pence per share (2017: loss of 1.3 pence per share)*

· Cash balance at 31 December 2018 of £1.11m (2017: £1.86m)

· Equity placing to raise £2.50m announced today

* For each of these items, 2018 results were prepared using IFRS 15 and 2017 results prepared using IAS 18.

** Adjusted for share-based payments charge

Operational highlights

· Sales orders won in the year up 49% to £7.93m (2017: £5.31m)

· Contracted order book at year end: £6.08m (2017: £4.01m)

· Wider application of Cambridge Cognition technology platform to host a broader range of electronic clinical outcome assessments ('eCOA'): £2.67m of sales orders won in the year (2017: nil)

· Continued strong growth in digital healthcare: £0.63m of sales orders won in the year (2017 and earlier: £0.12m in total)

· Continued investment in research and innovative technology

· Management team strengthened with appointment of new Chief Operating Officer

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

"The funds secured today will enable us to accelerate our development in two key growth areas of eCOA and Digital Health. The growth in sales orders in these areas already demonstrates that our customers are receptive to our innovative offerings in these areas at a time when the interest in cognitive assessment is growing and commercial opportunities for digital health solutions has never been higher. The equity placing will also allow us to maintain the pace of technology advances that we have demonstrated in the last three years.

We expect to continue to deliver on our stated plans, in particular broadening our penetration of cognitive and clinical assessment markets. We also expect to further develop and nurture key corporate relationships that we have initiated in the year as we continue to drive to sustainable profitability. Our order book and expanding technology platform gives us much confidence in 2019 and beyond."

Enquiries:

The information communicated in this announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014.

CHIEF EXECUTIVE'S REVIEW

Overview

2018 has seen the business progress into a new phase of commercial development with a strong increase in the order book for both the core clinical trials outcomes and digital health businesses.

Four key contracts were announced during the year and whilst each of these contracts has unique features the key common factor is their bespoke nature. It has become clear during the year that there is a key market demand for a custom approach for both our core CANTAB proprietary products and our digital, near-patient technologies. While this presents operational challenges, the fundraising announced today enables us to capitalise on these significant market opportunities more quickly than we otherwise would have been able to.

Our NeuroVocalix voice platform has been included in its first contract and continues to be the subject of collaborative interest from many parties. We also launched our new healthcare offering - CANTAB BrainHealth - and we won our first contracts with this product.

Taking all of these factors together, the Group remains on track with its previously stated corporate goals of expanding our technology base, bringing cognitive testing closer to the user and positioning the Company's offer across the full clinical development cycle, including research and continuous monitoring. This was reflected in an increase in our R&D costs from £1.13m in 2017 to £1.41m. We also deepened our relationships with many academic and industrial collaborators during the year, not least through our partnership with the University of Bristol announced in June 2018.

Financial Results

Group revenues for 2018 and 2017 by product segment are as follows:

Software and Services revenue were lower than 2017 for two key reasons. First, a low order intake in 2017 meant lower revenues carried forward into 2018 as a significant proportion of orders are recognised as revenue over several financial years as clinical trial contracts are implemented. Second, of those contracts signed in 2017 and 2018, a greater proportion of contracts than normal are for periods of more than one year. As the Company performs more bespoke work, a pattern of higher value, but longer period contracts will become the norm, as has been seen with key contract announcements made in 2018. This will give the Company much better visibility over future revenues.

Hardware revenues remain a small proportion of overall revenues. While the quantum of hardware sales continues to be insignificant, we are seeing a continuing desire of large pharmaceutical companies to source hardware from us as part of the full service package.

Gross profit was £5.23m (85.3%) in 2018 compared with £6.11m (90.8%) in 2017, a reduction of 5.5 percentage points. This reduction is a result of a slight increase in low-margin hardware sales and higher cost of sales relating to the increased customisation of products.

Administration costs increased by 4% in the year from £6.49m in 2017 to £6.75m. Overheads, excluding research and development, have been maintained at similar levels to the prior year. The ongoing commitment to innovation, with a £0.28m rise in research and development costs, continues to position Cambridge Cognition as a leader in its field and drives the development of its' digital health business

The loss before tax in the year was £1.49m, compared with a loss of £0.28m in 2017. R&D tax credits of £0.07m offset tax charges in the United States of America of £0.02m. Loss for the year was £1.44m, which equates to a loss per share for the year of 7.0 pence, compared with 1.3 pence in 2017.

Cash outflow from operating activities was £0.64m (2017: £0.62m outflow). In the second half of the year the Company generated cash of £0.31m. The annual cash outflow was lower than the loss as our billing pattern will typically result in invoicing ahead of revenue recognition. Capital expenditure remains low at £0.03m. The Company's Employee Benefit Trust purchased £0.05m of ordinary shares in the year to ensure that future obligations under employee incentive schemes could be met. With a cash balance of £1.11m at year-end the Group had sufficient resources for its ongoing core operations but the fundraising announced today will enable operational scaling to meet the demands of a growing customisation business.

The major change in the balance sheet came on the adoption of IFRS 15 on 1 January 2018, when £1.96m was added to deferred income and taken out of retained earnings. This adjustment, alongside the loss for the year meant that the business entered a net liability position on the balance sheet. Of the £1.96m adjustment, £0.62m remains on the balance sheet at 31 December 2018. The Group has no long-term debt and, after the completion of the equity placing also announced today, will return to a net asset position.

The impact of the new accounting standard for revenues: IFRS 15

The Group has adopted the new revenue accounting standard, IFRS 15, using the prospective method with effect from 1 January 2018. Accordingly, 2018 reported figures are prepared using IFRS 15, whilst 2017 reported figures were prepared under IAS 18. The main impact is that much of the Company's software revenue is now recognised as our customers use it, rather than on signature of contract as previously. We believe this new standard will result in a smoother spread of revenue over the life of all contracts.

Our estimate of revenues and loss before tax on each accounting basis for each of 2018 and 2017 are as follows:

On an IFRS 15 basis:

On an IAS 18 basis:

Operational Review

Our new sales team delivered an improved performance this year. Sales orders booked in the year totalled £7.93m representing a 49% increase on the prior year order intake figure of £5.31m. Accordingly, there has been an increase in the value of contracted revenues yet to be recognised of £2.07m in the year to £6.08m at 31 December 2018 (2017: £4.01m).

We continue to raise the profile of products in our core neuroscience disease areas, particularly Alzheimer's and schizophrenia. As we announced in April 2018, our Recruit offering is now established in two major Phase III trials for Alzheimer's disease, and its profile is also rising through inclusion in large public-private and EU-funded consortia such as Dementias Platform UK and the Europe-wide project Models of Patient Engagement for Alzheimer's Disease (MOPEAD). In schizophrenia, both our technology and our clinical trial design expertise are being increasingly recognised as world-leading. Our scientists are leading international working groups building industry consensus around schizophrenia trial design and are in demand as thought leaders, independent from their product-specific expertise.

The number of clinical studies using our technology at any time continues to increase, with our Operations team managing 55 studies in December 2018 (compared with 37 in December 2017). A growing number of these studies use our cloud-based clinical trials platform (Connect) to deliver digital forms of questionnaires and other electronic clinical outcomes assessments (eCOA) in addition to, or instead of, CANTAB cognitive tests. This opportunity to expand the use of Connect has arisen as customers recognise the versatility of our Connect platform and benefits the customer by being able to run more outcome measures on a single platform. By adding non-cognition outcome measures into our capabilities it also means that we can target more customers in non-CNS fields and so widens our potential customer audience.

In the USA, our 'digital health hub' in Boston has flourished in 2018 building a strong local presence and a network of relationships through the East Coast pharmaceutical clusters. Under the Cognition Kit brand we have continued to translate expertise in software and neuroscience into patient-centric applications that enable our pharmaceutical company partners to assess patients beyond the clinical trial site. These applications, whether delivered on patient's own mobile phones or integrated into other digital systems, are in increasing demand to enable lower cost data collection through remote or 'virtual' clinical trials and the opportunity to collect 'real world evidence' more easily and at earlier stages in the drug development cycle. While customer requirements for these purposes are typically of a bespoke product, we are gaining in efficiency as we build a menu of interoperable modules and user interface available for re-use in subsequent mobile apps. As we have noted in previous announcements, a significant attraction of this market is that each individual win in this area brings the potential for recurring license revenue over time.

As detailed in a separate announcement today, Matthew Stork has agreed to join the Company as Chief Operating Officer on completion of the fundraising. This gives further breadth to the management and it is expected that Matthew will join the board in due course.

Innovation

Our innovation and R&D activities continued apace during 2018, supported in part by grants from Innovate UK. A project to develop and deliver voice-based cognitive tasks through our new Neurovocalix voice-based platform has generated considerable interest from pharmaceutical partners. The funded project continues into 2019, however we have already commercialised our first tests into voice-products for two pharmaceutical partners as part of their drives to innovate clinical development in psychiatric and neurological indications. The second part of this project, to derive new biomarkers of mental state from the voice signal, is now gaining momentum as we collaborate with academic researchers to collect patient data from multiple disease states during 2019.

The digital phenotyping programme, using cognitive testing to match responsive sub-populations of patients with specific drugs, progressed rapidly during 2018. The initial Innovate UK-funded project focussing on schizophrenia was completed successfully at the end of 2018 and has led to a valuable development pipeline of biomarker-indication combinations that will be explored further in 2019. We have developed a new partnership with the University of Bristol School of Experimental Psychology in order to develop a broader pipeline of opportunities in this space. This allows us to take advantage of the discovery and early stage research expertise of the Bristol group, including access to clinical and experimental research facilities, and population cohorts such as the ALSPAC study. In return, we provide insight into regulatory and commercialisation paths and scale-up and adoption issues. We believe that as this joint team builds a portfolio of grant-funded projects it will rapidly accelerate our ability to translate new ways of phenotyping and treating mental ill-health through from initial discovery to applied R&D.

Outlook

In 2018 we identified a key opportunity to accelerate the growth of our core clinical trials business with the addition of more outcome measures onto our Connect platform. We also made substantial progress in commercialising our digital health business. With additional financial resources from the equity placing announced today and over £6m of future revenues already secured we believe we are well positioned to drive growth and fulfil our primary objective of sustainable profitability. We also expect our digital phenotyping programme to make significant advances in 2019 which will drive our corporate partnering activities.

We operate in a market with increasing levels of investment in both neuroscience and digital health. Our ability to provide innovative, customised solutions from our R&D activities positions the Company well for growth and recognition as a leader in its fields. As a result, we remain both optimistic and assured of more significant contracts and partnerships being secured in 2019.

As always, none of this would be possible without the continued support of our investors and the creativity and hard work of our operational teams.

Steven Powell

Chief Executive Officer

7th March 2019

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year to 31 December

All items of other comprehensive income are attributable to the equity holders in the Parent.

The above results relate to continuing operations.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year to 31 December

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December

1. General information 

Cambridge Cognition Holdings plc ('the Company') and its subsidiaries (together, 'the Group') specialises in improving brain health by developing and marketing near-patient cognitive testing techniques.

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

In the period since the principal trading company, Cambridge Cognition Limited was formed in 2002, it 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.

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 2018 or the year ended 31 December 2017. The information for the year ended 31 December 2018 is based on accounts that are in the process of being audited and will be approved by the Board and subsequently filed. Accordingly, the information for the year ended 31 December 2018 is unaudited. The information for the year ended 31 December 2017 is based on accounts that were approved by the Board and subsequently filed in 2018.

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 2017, other than that IFRS 15: Revenue from contracts with customers has been adopted in the 2018 financial statements.

There are three changes in accounting policy for the Group given the adoption of IFRS 15.

1) For software licences that are hosted on our servers, we are now measuring these in one of two ways:

a. For contracts where we also provide study and data management services, and also for any other contract greater than £20,000 in value, we are allocating a per assessment price to the assessments sold and amortising the deferred revenue over the period assessments are used.

b. For all other sales, we are recognising revenue on a straight line period of 12 months. This period has been chosen as it best represents the average life of this portfolio of contracts.

In either of these cases, the customer purchases a right to use our intellectual property as it exists throughout the licence period, and our performance obligation is therefore executed over a period of time. This software revenue was previously recognised on execution of contract.

2) For licences that are not hosted on our own servers, we now only recognise the revenue when the licence period commences, even if the order has been placed and accepted, and software prepared, prior to this date. In this case, the customer purchases a right to use our intellectual property at the point in time the licence commences, and so our performance obligation is discharged upon delivery of the licence. This software revenue was previously recognised on execution of contract.

3) Where commissions are paid based on revenues that are not expected in the same accounting period, the commission amount is capitalised and held as an asset on the balance sheet, before being amortised in line with the related revenue. Previously, all commissions paid were recognised immediately in the income statement.

The summary financial impacts of this adoption is summarised in the Chief Executive's Review.

3. Segmental information

An analysis of the Group's revenue for each major product and service category is as follows:

4. Earnings per share

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

Earnings

For 2018 and 2017, the effect of options would be to reduce the loss per share and as such the diluted loss per share is the same as the basic loss per share.

5. Notes to the cash flow statement

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.

6. Annual Report & Annual General Meeting

The Annual Report will be available from the Company's website from 21 March 2019. Notice of the Annual General Meeting together with a copy of the Annual Report will be posted to shareholders by 1 May 2019. The Annual General Meeting of the Company will be held at 10.00am on 23 May 2019 at the registered office, Tunbridge Court, Tunbridge Lane, Bottisham, Cambridgeshire, CB25 9TU.