The Company had a strong and profitable first half, delivering revenues of £4.5 million, a 50% year-on-year growth. Order intake was above the Board’s expectations at £8.6 million and this included two substantial orders outside the Company’s core area of focus that totalled £3.6 million.
The Company is now delivering more clinical trial contracts than at any time in its history, which is reflected in a contracted order book at 30 June 2021 of £15.2 million, up 36% from 31 December 2020 and more than double the value at 30 June 2020. The order book contains contracts for clinical trials in which revenue will be recognised over one to six years, further increasing the long-term revenue base for the Company. The forward order pipeline provides a good platform for growth, though at this time does not include the unusually large orders seen in the last two half-year periods.
The direct impact of COVID-19 on the Company’s operations has been minimal and the Company continued to deliver high levels of customer service while operating in a remote manner. The pandemic has accelerated interest in virtual clinical trials, with testing performed at home rather than in-clinic, and, as a result, orders for home testing solutions grew. We expect this trend to persist after the pandemic.
Looking forward, the Board believes the Company to be well positioned as a digital technology solutions provider, underpinned by a strong cash position. The Company will continue to take advantage of the growth in interest in developing new pharmaceuticals for Central Nervous Systems (“CNS”) disorders and the market shift to virtual clinical trials, continuing to focus on commercial execution and investment in new products to expand the product offer for future growth.
|•||50% year-on-year revenue growth to £4.5 million (H1 2020: £3.0 million)|
|•||Gross margin maintained at 80% (H1 2020:81%)|
|•||Profit for the period £0.1 million (H1 2020: £0.4 million loss)|
|•||0.3p basic and diluted earnings per share (H1 2020: 1.5p loss per share)|
|•||Strong cash generation with cash balance of £4.2 million (31 December 2020: £3.0 million)|
|•||Increase in sales orders of 74% to £8.6 million (H1 2020: £4.9 million)|
|•||Contracted order book of £15.2 million, up 36% since 31 December 2020 and more than double the value at 30 June 2020 (31 December 2020: £11.2 million, 30 June 2020: £7.4 million)|
|•||Launch of NeuroVocalix™, a digital voice cognition solution, ready for clinical trials|
|•||Completed successful spin-out and venture financing of Monument Therapeutics|
Commenting on the results Matthew Stork, Chief Executive Officer of Cambridge Cognition, said: “I am delighted with our performance over the first half of the year. We have continued to execute our growth strategy, achieving a number of firsts, including the highest order intake in a six-month period. The Company is well positioned to serve pharmaceutical companies, whose needs are changing as the benefits of virtual clinical trials are embraced globally. We continue to attract interest from a wide range of customers and remain confident in the outlook for the year.”
CHIEF EXECUTIVE OFFICER’S REVIEW
The Company delivered an exceptionally strong financial and operational performance in the first half of 2021, with a further considerable increase in secured orders and successful delivery of new contracts won in 2020 and early 2021. Progress against our strategy to focus on commercialisation of existing and newly developed products continues to be delivered.
Orders received totalled £8.6 million (H1 2020: £4.9 million). These contracts included a number of major wins for CANTAB™ cognitive assessment software, many for at-home use. This is in line with our expectations of a market shift to virtual trials catalysed by the COVID-19 pandemic.
Around two-thirds of the Company’s clinical trial orders came from existing customers, reflecting excellent customer service and the benefits of the Company’s focus on commercialisation. These sales orders cover a range of cognitive assessments across various clinical trial phases, demonstrating the Company’s ability to deliver against a spectrum of client needs with a broader portfolio.
As well as a record sales orders achievement in the first half, I am pleased to report more firsts for Cambridge Cognition in the period. These include:
|•||The achievement of a strategic goal by securing an evergreen contract for post-marketing support for a newly licensed pharmaceutical with a top twenty pharma company|
|•||Contract wins in a number of new therapeutic areas; examples include a COVID-19 study measuring the impact of the virus on cognition and an oncology study measuring the neurological effects of brain metastases and chemotherapy agents|
|•||The Company’s largest funded clinical trial, assessing many thousands of patients at home with a mixture of longer web-based assessments and high-frequency, quick assessments on mobiles|
|•||The provision of NeuroVocalix™, a unique digital voice solution that can conduct common verbal cognitive tests on our regulatory-compliant clinical trial platform|
Cambridge Cognition is focused on successful operational delivery to meet today’s customer needs, while investing, as is critical for a growing technology business, to meet their future requirements. During the period, the business continued to invest through R&D initiatives and increased headcount across the business to deliver against an increased sales order book whilst looking to drive future growth.
Sales orders of £8.6 million (H1 2020: £4.9 million) contributed to further growth in the Company’s contracted order book, which has more than doubled from £7.4 million at 30 June 2020 to £15.2m at 30 June 2021. The contracted order book represents confirmed orders that are not yet recognised as revenue.
Revenue, which is recognised as software products and associated services are used, grew to £4.5 million (H1 2020: £3.0 million), a 50% increase and ahead of our initial forecasts for H1 2021. This represents further good growth from £2.2 million in H1 2019, a period not impacted by the pandemic.
The key components of revenue are shown in the table below:
|Revenue (£m)||H1 2021||H1 2020||H1 2019|
|Software & services||4.3||2.9||2.2|
Software & services revenue increased by 47% to £4.3 million due to the increased number and value of contracts being delivered. Hardware revenue remains a small proportion of the sales mix, though may increase over time as it is possible that the Company supports more trials using wearables.
Gross profit rose by £1.1 million to £3.6 million (H1 2020: £2.5 million) and the gross profit margin of 80% was broadly in line with the prior year (H1 2020: 81%).
Administrative expenses increased by £0.7 million to £3.6 million (H1 2020: £2.9 million). Excluding the impact of foreign currency, administrative expenses increased by £0.4 million to £3.4 million (H1 2020: £3.0 million), reflecting investment in personnel and increased activity. Focused R&D remains important to continue to position the Company at the forefront of the sector, with R&D investment of £0.8 million remaining broadly in line with the prior year (H1 2020: £0.7 million) and reducing slightly as a percent of revenue.
The rise in gross profit, partially offset by increased administrative expenses, resulted in a profitable first half. Profit before tax, Profit for the period and EBITDA all rose by £0.5 million. Consequently, basic and diluted earnings per share improved to 0.3p (H1 2020: 1.5p loss on a basic and diluted basis).
The excellent sales order performance combined with higher level of revenues contributed to strong cash generation, with net cash inflow from operations of £1.2 million (H1 2020: £0.2 million outflow). This led to an overall improvement in cash to £4.2 million as at 30 June 2021.
The Company’s above expectation sales orders performance in H1 2021 demonstrated continued strong commercial execution. Over the period, the business expanded its marketing and sales team to increase coverage and support sales of the growing product offering.
As with most technology businesses, continued R&D investment in products is essential to support further growth in the future. Progress has been good through the first half of 2021 with developments in:
|•||Prototypes of new tests designed for use primarily on mobile phones|
|•||Services supporting multiple clinical trials with wearable devices, providing richer data for clients|
|•||Platform development to enable the delivery of a solution for a newly licensed pharmaceutical|
|•||The production release, further development and planned clinical validation of NeuroVocalix™|
|•||Movement of our infrastructure to Amazon Web Services in multiple geographies|
Providing a high level of customer service remains an important element of our offering. Making operational improvements has been important over the period and we have continued to deliver projects on time for customers and received excellent customer feedback. We are now working on over 30% more projects with a 20% increase in service staff compared to June 2020.
During the period, the Company completed the spin-out of Monument Therapeutics Limited (“Monument”), a drug development company applying digital phenotyping to CNS disorders which Cambridge Cognition had been incubating since 2018, with early-stage research supported by two Innovate UK grants. Monument applies a novel drug development strategy, leveraging digital assessments of cognition, to match patients with new pharmaceutical treatments.
To develop these programmes as an independent company, Monument secured £2.6 million in funding from a consortium of investors led by Catapult Ventures and Neo Kuma Ventures. Cambridge Cognition retained a 36.9% shareholding and agreed a licence for the use of several of the Company’s gold-standard cognitive assessments, including CANTAB™, for patient stratification. Upon successful commercialisation of its drug development programmes, Monument will pay royalties to Cambridge Cognition.
Cambridge Cognition is yet to finalise the accounting treatment for Monument. Costs incurred by Cambridge Cognition prior to the spin-out have been disclosed as “Investment” and “Cost of investment” in the balance sheet and cash flow, respectively, for the purposes of this Report.
As previously announced, Michael (Mick) Holton, CFO, was appointed as a Board Director at the AGM. Nick Walters, former CFO, continued as an Executive Director until the AGM to conduct a handover with Mick. We are pleased to have Mick on board and are grateful to Nick for seven years’ dedicated service.
The clinical trials market that the Company serves is large and evolving rapidly, with many drivers of change supporting potential future growth. The market for electronic clinical outcomes assessments is estimated at over US$1bn p.a. and growing at 15%, a trajectory which may increase in pace as a result of:
|•||a catalytic effect of the COVID-19 pandemic, with growing evidence that this is likely to be accelerating a move to more virtual clinical trials; and|
|•||technological innovation enabling real-world testing and data capture, which often has meaningful advantages over testing and data captured in-clinic|
Cambridge Cognition’s core strength is in supporting clinical trials for CNS disorders, though the Company, at times, wins contracts in other therapy areas based on its technology, reputation and levels of service. Pharmaceutical companies are investing more in therapeutics for CNS disorders, with a 20% increase in number of industry sponsored clinical trials from 2020 to 2021, likely underpinned by exciting new drug developments and the approval of a new drug for Alzheimer’s disease.
The Company remains firmly on track and we continue to trade in line with market expectations. We continue to see potential for growth for both clinic-based and virtual assessments for cognition, whether for recognised solutions such as CANTAB™, or for newer high-frequency digital or voice-based assessments and for electronic Clinical Outcomes Assessment solutions for CNS disorders in clinical trials.
With increasing investment in commercial activities, continued product development, a rising cash balance and supportive shareholder base, the Company is well positioned for further revenue growth. We remain excited about the potential for the future.
Chief Executive Officer
21 September 2021