Small caps podcast with Paul Scott – Episode 17 (part 1 of 2) for 2023 – company results
In this podcast, Paul rattles through the main points. Some very nice companies, at reasonable prices too, reporting this week. A few howlers to avoid too!
As always, we’re just giving our personal opinions, not giving advice or recommendations. Our ethos is all about people doing their own research, and taking responsibility for your own investments, and seeking professional advice if required.
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Just as a follow up on Cambridge Cognition, I note it has now been confirmed in an number of academic papers authored by staff at Biogen and printed in last week in the peer-reviewed Neurology journal, that CANTAB is being used in the 25,000 person Intuition study, looking at identifying MCI and jointly sponsored by Biogen and Apple. The interim analysis suggests that in the over 60 age group, CANTABs short digital tests carried out on Apple Phones and Apple Watch and taking only 5 to 8 mins to complete are comprable to traditional pencil and paper cognitive testing that takes about 45 to 60 mins to complete and need to be administered by a Neuropsychologist.
The implications of these interim are huge, firstly CANTAB has been selected by Apple and is being run at scale on its products and is producing outputs that are the equivalent to traditional cognitive testing (this has the potential to go in many directions possibly in collaboration with Apple itself) secondly and more the more immediate and concrete results is that this is a huge validation of the CANTAB technology and I am certain you will see a significant number of CNS clinical trials incorporate this approach in to their trial design and protocols. Initially it will probably used as a patient recruitment/screening tool and to provide a snap shot of efficacy overtime in between trial centre/ rater administered tests, but with more validation there is no reason why it could not become a secondary endpoint in a trial and possibly even a primary one.
Nobody has validation of a digital, decentralised, unsupervised cognitive tests at even a fraction of this scale nor with this level of heterogeneity in the tested population. While this may take time to monetise, it places Cambridge Cognition far in the front in terms having a highly VALIDATED, inexpensive, quick and easy to administer cognitive test.
excellent thank you
We finally have confirmation that CANTAB (Cambridge Cognition’s Cognitive tests) is being used in the INTUITION Study. This by far the largest stud of this kind ever undertaken, it is a huge 25,000 person study sponsored jointly by Apple and Biogen. This is a ground breaking study and the early results included in the academic paper seem to indicate that they’re IPHONE and Apple Watches. The key conclusion is
” Reliability findings were comparable to those reported in the literature for supervised cognitive assessments. These initial results suggest remote and unsupervised cognitive testing is plausible and sufficiently reliable and can be self-administered in ecologically valid real-world settings.”
This is huge, firstly the potential link with Apple but secondly the validation that CANTABs short, self administered tests ( take about 8 to 10 mins, can be taken at home on your own device and repeated often) are comparable to supervised cognitive assessments (typically take 45 to 60 mins, need to be supervised by a neuropsychologist at US$ 800 per hour, taken at a testing centre using pencil and paper.)
https://www.intuitionstudy.com
https://n.neurology.org/content/100/17_Supplement_2/3379.abstract
We now have confirmation that CANTAB (Cambridge Cognition’s cognitive tests) is being used in the INTUITION Study. This by far the largest study of this kind ever undertaken, it is a huge 25,000 person study sponsored jointly by Apple and Biogen. This is a ground breaking study, looking to try and detect early indications of Mild Cognitive Impairment (MCI) and earlier Alzheimers’ diagnosis. I have linked the Intuition Study site below and I have also linked the academic paper that links CANTAB to this study. The key conclusion about CANTAB in this study is
” Reliability findings were comparable to those reported in the literature for supervised cognitive assessments. These initial results suggest remote and unsupervised cognitive testing is plausible and sufficiently reliable and can be self-administered in ecologically valid real-world settings.”
This is huge, firstly the potential link with Apple but secondly the validation that CANTABs short, self administered tests ( take about 8 to 10 mins, can be taken at home on your IPhone and repeated often) are comparable to supervised cognitive assessments (typically take 45 to 60 mins, need to be supervised by a neuropsychologist at US$ 800 per hour, taken at a testing centre using pencil and paper.)
https://www.intuitionstudy.com
https://n.neurology.org/content/100/17_Supplement_2/3379.abstract
Great stuff Paul. After you mentioning Warpaint last week i have had real good look at it. No debt, fantastic track reccord, two founders with a big equity stake, great fcf and cash in hand. Simple like me.
Whats not to like ?
Regards Bryan
Ps and I bought a lump.
Very useful summary of the news from the small cap world (including some larger caps where these are relevant. I also like the macro view podcast
Paul,
These weekly summarys are truly fantastic, I think a reason you do not get more comments, is due to the fact that you always provide a thorough, balanced and sensible recap of each stock. I will be honest, I don’t spend much time with the macro commentary as much but that has more to do with an investment style that does not put to much emphasis in this area than your insights.. I can promise you that many people find your podcasts very useful and would also love to see more interviews if you have the time and inclination.
With respect to Cambridge Cognition, I thought the results/outlook were excellent. This is not a management team prone to hyperbole and I am certain they are not talking about growth and excitement in the future without good reason. I also think that many investors do not yet understand how backward looking the reported profit numbers are for this business. Essentially you are recognising revenue that was contracted 1 to 2 or even 3 years ago (later stage neurodegenerative clinical trials can last for 4 years or longer) against an expenditure that is preparing for trials that will winning say 2 or 3 years ahead.
The two leading indicators about the future shape of the business, in my view, are the contracted order backlog, if they keep a positive book to bill ratio, then overtime revenues will move towards this backlog number. Cash, because of the significant difference between the cash from the software sale and how they are able to account for it, cash builds up long before the accoutning recognition of the software sale. My understanding is that the software sale (90%+ gross margin) can only be accounted for as each test is consumed, so if a trial contains 100 tests, 1% of the software sale can be recognised each time a test is administered. The other thing to note is that if the trial were to terminate early there is no clawback on the software sale. In essence the cash is the sale and accounting treatment is yet another work of accounting fantasy.
I also think it is worth keeping an eye on what is being sold. So we have 3 revenue buckets, Software with 90%+ gross margin, Services with 50% to 60% gross margin and hardware with 5% to 15% gross margin. I think it is worth noting that both of the acqustions they have made in the last 6 months, fit almost entirely in to the software category and will carry 90% plus gross margins. The sales potential for both as a share of current Cambridge Cognition revenue is significant but for Winterlight it is very significant. Increased sales of Winterlight and Clinpal products have the potential to significantly improve blended gross margin across the group. With some sales success in these areas mid 85% blended gross margins are a possibility with a 2 year view. Management is saying a return to profitability in second half of 2024 (I think it is possible to infer that 2024 will be a profitable year) and MATERIAL profitability in 2025 and beyond.
This is one of the few truly world class business on AIM. The CEO here should be on your interview list in my opinion.