Cambridge Cognition Holdings Plc (LON:COG) announced earlier this week a maiden £0.22m profit in its Preliminary Results, with £0.47m cash generated from operating activities. In this initiation note we explain how and why the Group now seems to have reached an exciting point in its development with a range of innovative products and technologies that aid the diagnosis and treatment of neurological and psychological diseases from the collection of information obtained from computer based cognitive assessments.
Expansion into wearable technology. COG continues to take important steps since the launch of its JV, Cognition Kit and signing of a pilot study with Takeda Pharma. The study monitors and track cognitive functions in patients with Major Depressive Disorder. Wearable technology shows COG meeting the increasing appetite of pharma for mobile and wearable-based assessment, providing an opportunity to expand into a potentially ultra-high growth revenue area.
Diversified move. Over the last year, COG has increasingly broadened its scientific and clinical focus over a range of neurological disorders such as Alzheimer’s disease, Multiple Sclerosis and Parkinson’s disease, along with psychiatric disorders Schizophrenia.
Group continues to tap into high-margin partnerships. Although lumpy in nature, once locked in, partnerships will bring in recurring future revenue. The margins for these are exceptional (around 85%).
Ahead of competition with mobile clinical trial offerings. COG currently offers and generates revenue from cloud and online products CANTAB Connect and CANTAB Recruit, both are now developed and commercialised. This contrasts with $31m raised by Science 37 in Oct ‘16 to advance its technology and offer decentralised clinical trials. Pharma companies are increasingly transitioning towards digital clinical trials. COG is well placed to meet a need that others are currently unable to sufficiently provide.
COG’s scientific or technological risks minimal compared to other medtech companies. A concern often associated with medtech companies is whether the science and technology could be flawed, fear of costs spiralling and need to conduct extensive tests. As COG generates revenue from successfully tested and commercialised products, it does not suffer from such risks with over 30 years of scientific credibility.
Development of cutting edge innovation with minimal R&D costs. COG continues to develop new technology that meet the increasingly digital and remote needs of pharma’s and clinicians. R&D costs of £1.3m have been cut to £0.9m and expected to remain at this level for the foreseeable future. Despite this R&D reduction, COG has remained productive in its research, developing new technology such as software for wearables and smart devices.
Dowgate Capital believe a Company with a growth profile such as Cambridge Cognition, with high-margin, mostly fully developed products at the revenue reaping stage, that is now showing the signs of becoming a highly cash generative business, should command a high-growth multiple of just over x20 around two financial years from reaching break-even. On this basis, a rating of x22.5 from our forecast eps of 5.11p for ’18, would imply a share price of 115p. This provides a potential 43% upside from the current share price.
Group Background & Strategy
Cambridge Cognition Holdings PLC (LON:COG) is an international neuroscience company, with over 30 years’ experience, developing and marketing near patient cognitive assessment products. The Group’s partners and customers include renowned academic institutions; public-private healthcare providers and major biotechnology and pharmaceutical companies.
The Group was founded in 2002 and admitted to trading on AIM in April 2013, following a £6.4m funding at 70p, with an initial market cap of £11.8m. COG has developed the neuro-psychological assessment technology CANTAB (Cambridge Neuropsychological Test Automated Battery), which is used by academics and pharma/biotech in clinical research and trials. It is a cognitive assessment system that is computer based. The commercialised products are sold worldwide, but principally in the UK, the US and Europe.
The last two years has been a period of transformation for the Group. The focus has been on restructuring and strengthening its sales infrastructure in both the USA and Europe, while also increasing its product offering. Cambridge Cognition is also looking to diversify its revenue stream, through the launch of CANTAB Recruit and the commencement of a ‘Cognition Kit’ joint venture. This has resulted in the Group re-focusing investments away from its Healthcare technology division, and towards its two core revenue streams, Academic Research and Pharmaceutical Clinical Trials. The result of this, is a significantly expanded product offering across all stages of the development cycle. The Group has also taken steps towards the introduction of new ‘wearable’ technology with recent announcements showcasing COG’s expansion into this new technology.
