Cogstate Limited (CGS) Earnings Call Transcript & Summary

My name is Brad O'Connor. I’m the Chief Executive at Cogstate. I'd like to welcome you to our presentation of the 30 June 2024 financial results for Cogstate. I'm joined today by Darren Watson, who's our CFO; and Rachel Colite, who's our Executive Vice President of Clinical Trials. I’ll just note our disclaimer, that today's presentation includes some forward-looking statements, and note that this information in the presentation is general in nature. I encourage all investors to consider your own investment objectives and also to review in detail our full year financial statements that have been lodged with the Australian Stock Exchange this morning. Following our presentation today, we will take questions. If you have a question, then there are 2 ways in which you can ask your question. [Operator Instructions] And with that, we'll get into the details of the presentation. And so before we dig into the financial results, we wanted to highlight some of the commercial considerations that we believe are really important to understanding our 2024 financial year results as well as our future prospects. So those considerations are, firstly, the Alzheimer's disease R&D spend, especially within large pharma companies, is progressing and expanding in a predictable manner and supports comments that we've made to investors over the last couple of years. Secondly, the buyback of our intellectual property from Eisai in the health care segment of our business was a commercially sound deal for Cogstate that provides us with some really important options for future growth. Thirdly, in a year where clinical trial sales were lower than recent years, revenue growth of 9% in our Clinical Trials segment was really impressive and reflects the expansion of our service offering. And then finally, our technology investment over the last couple of years has created efficiencies in our delivery, and that's resulted in improvements in our margins. I'm going to dig into each of those points in a little bit of detail. In Alzheimer's disease, we've previously stated the launch of the first disease-modifying treatment was likely to encourage future investment by new and different pharma companies because the launch of the treatment would be seen to derisk an area where failure of Phase III programs had previously been common. It's hard for us to say whether that growth is happening necessarily across the whole of the industry, but certainly Cogstate is seeing an increase in investment in Alzheimer's R&D by different pharma companies. During the ‘24 financial year, Cogstate was awarded 4 new Phase II Alzheimer's programs and 4 different customers, and 3 of those customers were new to Cogstate. These new awards provide not only growth activity but also decrease Cogstate’s customer concentration in Alzheimer's disease. And there's no doubt that Cogstate’s success in running a global Phase III trial for Lilly has been instrumental in us winning new work from those pharma companies that are entering the space. We've also witnessed though that pharma companies review their planned Phase III trials in light of the new therapies that have come and are coming to market. All pharma companies want to ensure that their new treatment will be able to compete commercially with those drugs already on-market. Well, then, in that case, a new drug must have either a different mechanism of action, greater efficacy or offer a better safety profile in order to justify the investment of the hundreds of millions of dollars in a Phase III program. An important part of that decision-making has been waiting to see regulatory commercial response to the launch of the new treatments. And this has limited new Phase III trial starts over the last 18 months. But we think the industry is now through that waiting stage, albeit with some questions when it comes to Europe and the commercial launch in Europe following the EMA rejection of Eisai’s lecanemab last month. It's worth taking a moment to analyze Cogstate results in Alzheimer's disease in some more detail. Our strategy is to engage pharma teams at the earlier stage of development and then follow therapy through to later stages. By winning Phase II work, we're likely to win Phase III work should the Phase II trial be successful. Total contract value of 1 disease-modifying Alzheimer's program can be up to $80 million across Phases I to III. And due to the cost of Phase III programs, those are usually only run by large pharma companies. So for Cogstate, future growth comes from securing early-stage Alzheimer's trials from large pharma which might then advance to Phase III. If we look at the number of Alzheimer's contracts with large pharma customers, we can see -- that are being secured by Cogstate each year, we can see that financial year '24 was actually our most successful year. So in the last year, we've executed, as I said before, large pharma trials, two small -- sorry, with 2 small Phase I trials, 4 Phase II trials and 1 Phase III trial. That Phase III trial was just a start-up agreement that really just allowed us to begin work and keep that trial on schedule for the full contract. It's actually been executed in the first weeks of financial year '25, and I'll talk about that in a second. So while the total value of Alzheimer's contracts executed by Cogstate in financial year '24 fell compared to prior years, as we've shown in the table here, the number of opportunities has increased significantly. And importantly, we're seeing that growth in customer base that projects well for future years. Outside of Alzheimer's disease, Cogstate recorded 60% growth in the value of sales contracts executed. Growth in other indications such as rare diseases, major depressive disorder, migraine, narcolepsy, Parkinson's disease and schizophrenia are all an important part of Cogstate's diversification plan. And Rachel is going to speak to that in a little bit more detail as we get into the presentation. The second area is -- just references our IP ownership and our agreement with Eisai. So in October 2020, Cogstate entered into a license agreement to provide Eisai with exclusive access to all our current and future technology for use outside of clinical trials. Under that exclusive license, Eisai paid Cogstate $15 million upfront and guaranteed that future payments over the next 10 years would not be less than $30 million, taking guaranteed payments to Cogstate under license to $45 million plus future royalties. Then in April of this year, we announced that we’d renegotiated that license agreement with Eisai and that they now hold a nonexclusive license to specified Cogstate products in specified geographies. In exchange for that change to the license agreement, Cogstate agreed to forego future payment from Eisai of $15 million. So those are cash payments that would have been received by Cogstate during the period financial year '28 to financial year '31. Under the amended nonexclusive license agreement, Eisai will continue to market Cognigram to physicians in the U.S.A. and CogMate to consumers in specific Asian countries. We'll talk about this in a bit more detail later on. Commercially, this is really important to Cogstate for a couple of reasons. Firstly, under the nonexclusive license, Cogstate has regained ownership and control over our IP. And secondly, we've seen firsthand the difficulties associated with the rollout of new Alzheimer's therapies in the U.S., and we believe that Cogstate technology can play a role in the community and enable better and earlier identifications of the first signs of cognitive impairment that might be associated with Alzheimer's disease. This need exists within the context of case finding for new treatments on-market, but it also exists in the context of identification of patients who may be appropriate for clinic trials, where recruitment is going to get harder in the future because of competition from both the approved drugs as well as increased demand for patients because of an expected increase in trial activity. The opportunity for Cogstate technology to play a role in that identification would not have been possible without amendment to the prior agreement. Revenue growth recorded in the Clinical Trials segment was really impressive in the context of $27 million of clinical trial sales executed in financial year '24 and clearly a result that was lower than recent years. Usually, we'd expect sales to drive in-period revenue growth, and a big part of that growth is license fees of the Cogstate technology, which is usually recognized in the year of the execution of the sales contract. Historically, license fees have been in the range of 18% to 20% of Clinical Trials revenue each year. So in financial year '24, despite license fees only amounting to 13% of Clinical Trials revenue, Cogstate still grew Clinical Trials revenue by 9% in the prior year, and that really reflects growth in the services offered by Cogstate. That result suggests that Cogstate is really well positioned for further growth when we can return to growth in Clinical Trials sales contracts with the associated higher levels of license fees. The concern that one might have associated with growth in services revenue rather than license fee revenue is it has the potential to be associated with a decrease in margins. So over recent years, part of Cogstate technology investment has focused on automation of Cogstate service delivery, and this has delivered measurable returns in the '24 financial year. As a result of the efficiency gains, Cogstate was able to undertake a staff restructure that we announced in May '23, and mostly that staff restructure impacted our Clinical Trials group. For financial year '23 to '24, we were able to improve Clinical Trials gross margins by 6 points, turning a $3.3 million increase in Clinical Trials revenue from year to year into a $4 million increase in gross profit. Additionally -- additional upside is found in our operating expenses, which actually decreased by 4% year-on-year, and that's despite accrual for higher bonuses in financial year '24 than '23, reflecting the improved profit result. Finally, before I hand over to Darren, I just wanted to talk about a strong start that we've had to financial year '25, so in the 6 or 7 weeks since 1st of July. I mentioned earlier that we'd executed a Phase III start-up agreement at the end of financial year '24 that allowed us to begin work to keep that trial on schedule with the full contract executed in the first weeks of fiscal '25. So including that Phase III agreement, as well as other agreements that have been signed since 1st of July '24, Cogstate has executed an additional $9.3 million of net clinical sales contracts. That net value includes gross contracts to the value of $29.6 million, which has then been adjusted for changes to other contracts that were executed previously. So let me just explain this in a bit more detail. The one large pharma company has redesigned an ongoing Phase III program where multiple Phase III trials of the same prospective therapy have been consolidated into one larger Phase III trial. So those ongoing contracts were executed during the financial year '23, but the trials had been suspended pending reconsideration of the design of those trials, meaning they didn't produce [ menial ] revenue for Cogstate during the '23 or '24 financial years. The combination of the trials into a new protocol of one larger trial has increased the total contract value for Cogstate. That trial has now accelerated and is in startup with first patients expected to be treated later this calendar year. The gross value of contract has also been offset by the closeout and final [ reconciliation ] of a third separate Phase III trial. In that trial that was actually successful, a little over $4 million of budget was not utilized during the course of that trial. And therefore, that excess contract value has been written back, thereby reducing total contracted future revenue. Note that this had no impact on fiscal '24 revenue. It's simply a reduction in contracted future revenue. So inclusive of the new contracts, inclusive of the reorganization of the trials and the final reconciliation of that trial that's finalized, Cogstate future contracted clinical trials revenue is now $95 million, of which $31.4 million is expected to be recognized in financial year '25. I'm sure there are some questions in relation to all that, and we'll get to those after the conclusion of our audited results. So with that, I want to hand over to Darren to talk you through the financial results.

Thanks, Brad. So as Brad mentioned, our clinical trial sales contracts executed were $27 million, down 21% on the prior year. You see our group revenue was up 7% year-on-year on the back of the solid growth in our Clinical Trials revenue, as mentioned, which was up 9% year-to-year, but was partially offset by a decline in our Healthcare revenue, which is a result of the renegotiation of the Eisai agreement. With the FY '25 new contracts signed, plus the $9.3 million of net new contract sales to the 21st of August, our future contracted revenue now amounts to $110.9 million, which is down 16% year-on-year from the $132.6 million at 30 June 2023. This reflects the lower level of Clinical Trials’ new contract sales plus the impact of the renegotiation of the global licensing agreement with Eisai. Our profit before tax was strong at $7.1 million, which is more than double the prior year, driven by the solid growth in our Clinical Trials revenue as well as the flow-through from savings of the restructuring actions that we undertook in May last year, together with strong cost management through this year relative to the revenue growth that was achieved. Our operating cash flow improved substantially from the prior year, primarily coming from the growth in the Clinical Trials business, and results in a net cash balance at 30 June 2024 of $29.4 million, up from the $27.7 million in the prior period. Turning to the next chart, the group P&L, as I mentioned before, our group revenue was up 7% year-on-year on the back of solid growth in Clinical Trials revenue, which was up 9% year-on-year. Our gross profit has grown 18% with our gross profit margin up 5 percentage points, both the result of the solid revenue growth but also the flow-through of the cost savings from the May 2023 restructuring actions, tight cost management, but partly offset by the lower software license revenue, with the mix of software license revenue below the historical averages. Our operating expense declined 4% year-on-year through tight cost management, while our depreciation and amortization has grown 6% as we continue to invest in new technologies that support the business. This has resulted in EBIT of $6.5 million, up significantly from the prior year, and net profit of $7.1 million, more than double that of 2023. FY '24 has shown the leverage in the business and our ability to return to strong EBITDA and EBIT margins as the business grows. Turning to the segment view, starting with Clinical Trials, as I've mentioned, our revenue was up 9% year-to-year. While the revenue yield in the [indiscernible] contract sales was low given the lower value of sales contracts executed in the year, growth was achieved through the strong delivery of the backlog of contract revenue that was in place and the ability to accelerate some of the work on those projects. We've seen strong growth come from our services and the use of our network of neuropsychologists, though partially offset by lower-than-historical software license revenue primarily due to the lower value of sales contracts executed during the year. The Clinical Trials margin is up by 6 points year-to-year and illustrates the restructuring taken back in May 2023, which has really right-sized the business due to the backlog of work and the current mix of work. Growth in revenue from our network of neuropsychologists, tight management of the workforce and productivity from technology have helped retain costs and contribute to the improved margin. In Healthcare, the decline in revenue by 9% is attributable to the renegotiation of the Eisai global licensing agreement. The agreement, under which Cogstate has reacquired rights to the Cogstate IP, has reduced the contract value, and therefore the amortization of that revenue over the period of the contract. The Healthcare margin, although up by 1 point year-on-year, benefits from the flow-through of savings from the restructuring taken in May 2023, but is partially offset by the work that we have undertaken to develop a Cogstate strategy for the Healthcare business. Turning to cash flow, the business has achieved a very strong operating cash flow for the year at $5.8 million from operations compared to $0.7 million in the prior year, up substantially. The improvement has come from the strong profit performance in our Clinical Trials business and improved working capital with strong collections improving the cash performance in the year. Cash flow used in investment activities was lower due to the lower amount of work performed and recovered from Eisai for the work we do on Cognigram while the increasing cash flow used in financing activities reflects the share buyback program that was taken -- undertaken throughout FY '24. Finally, in terms of our future contracted revenue runoff, the graph here illustrates how that revenue runs off over the coming years. The reorganization of large trials into 1 trial has seen revenue move to outer years without factoring into the large backlog in FY '29 and beyond. For FY '25, revenue under contract is $33.6 million as of the 21st of August with Clinical Trials being $31.4 million, up $4.6 million from where we were at the opening of FY '24, and Healthcare of $2.2 million, down from the $4.2 million that we opened with at the beginning of FY '24. Future years will improve as we execute further contract sales throughout FY '25. With that, I'm going to hand over to Rachel Colite.

Thank you, Darren. So as Brad highlighted, we are starting the year strong, and we're now seeing the positive change in sales that we knew was coming. We expect it will continue because the market is growing and our share of the market is growing. So let's start with the market growth. Central nervous system diseases make up the second largest segment of the Clinical Trials market, second to oncology, with a few strong competitors in this endpoint data quality assurance space where Cogstate focuses. Next slide, please. When we look at the indications within CNS, we see that Alzheimer's disease is expected to be the fastest-growing area, forecasting 12% to 14% annual growth through 2027. Alzheimer's disease has historically made up almost 60% of Cogstate revenue, so a continued focus area for us. And this is followed by rare neurodevelopmental diseases, mood disorders such as anxiety and depression pictured here, and sleep-wake disorders, such as narcolepsy. Next slide, please. Just some context on why we -- or what we see is driving the growth of the AV market. So first-generation drugs that are targeting early-stage disease are finally available. Prescription rates have been slower than expected, but they are improving. Health system preparedness is beginning to happen, so more doctors can identify patients, manage risks and track progression, and Cogstate has ambitions to play a role here, which Brad will speak to a little later on. New subcu dosage forms are now on their way. Combination therapy trials are happening with these amyloid-lowering drugs combined with tau drugs and label expansions to allow these drugs to help patients with even earlier presymptomatic stages of disease. These trials are well into Phase III, where Cogstate are the leaders in the field. So while Alzheimer's R&D is increasing, we believe trials still are taking too long to recruit. They're too expensive to run. And we believe that, with technology, we can help improve the speed and data quality at lower costs. Next slide, please. So we've talked a bit about the market growth. Now let's review how Cogstate will grow our share of the market over the next 12 months. So one of the principal challenges with CNS trials is the end points are clinical assessments that are highly prone to error and variants, which can obscure drug effect. So Cogstate’s developed a uniquely comprehensive set of technologies and solutions to address this challenge from every angle. And we're investing in expanding these services, strategically focused on the needs of the established end points that are in high use in clinical trials today. So where are we investing? So starting with Scientific Consulting, we will expand our bench of executive -level, KOL-level scientific and medical leadership in Alzheimer's disease. This will allow us to engage more pharmaceutical sponsors earlier as a trusted partner in forming their study design and endpoint selection. Next, through our Scale Management offering, we can license nearly any required end point for a study. We've established relationships with over 70 license holders from whom we secure usage rights, and then we optimize the assessments for use in trials. We will be deepening key relationships in the space with master license agreements that will allow us to better meet the needs, especially the start-up time line needs, of clinical trial sponsors. We are also deepening our relationships and integrations with electronic Clinical Outcome Assessment vendors, or eCOA vendors. These partners, we will be working closely with them to develop differentiated error prevention and error detection automations, again, strategically focused on the data quality needs of those established key end points that are widely used in clinical trials today. We are continuing to expand how we train raters at clinical trial sites around the world to collect high-quality data with an expanded library of licensed training materials as well as offering our own expert central raters to assess trial participants via telehealth. This year, we are focused on geographic expansion of our central raters into a number of new European, South American and Asia Pacific countries, including China. Telehealth central rating has been a growing source of new revenue for the business and has allowed us to dramatically impact data quality for our pharmaceutical sponsors. A recent analysis showed that 60% fewer errors from central ratings versus site-based ratings, which is a really remarkable result. Our central monitoring services provide a second set of expert eyes to identify and correct administration scoring error of raters. So we are investing in improved data and algorithmic monitoring approaches to enhance this more labor-intensive human expert review that we perform. Our library of proprietary validated digital assessments will be expanding in the period and their fully automated administration and scoring means that high-quality data can be collected anywhere and without the need for expert raters or data quality monitoring that we see with some of the conventional assessments. So this, combined with our recent investment in adapting the test to smartphone data collection, makes Cogstate assessments ideal for use at scale, pushing into the community, as Brad was describing, allowing us to address new use cases such as patient engagement, including diverse populations and trial prescreening with remote assessment. To summarize, successful CNS trials require sensitive and reliable clinical outcomes, and we believe we are better positioned than any other company to deliver this. This has been validated in many ways with our financial year '24 result, where we've significantly grown our large pharma relationships and Phase II trial awards, which sets us up for continued growth with the larger Phase III trial awards to follow. So with that, I'll hand to Brad.

Thank you, Rachel. Thanks, Rachel. So we'll just quickly touch on the reacquisition of the IP from Eisai. I know we've talked about this a little bit, but I think it is worth digging into a little bit more of a detail. So we announced this in April of this year, and the amended global license agreement allows Cogstate to continue to work with Eisai but also to explore an extended role that we can potentially play in building an integrated system that allows Alzheimer's patients access to the right intervention at the right time. So specifically, under the amended global license agreement, Eisai will hold a nonexclusive license to distribute specific Cogstate products. So they'll have a license to Cognigram in the U.S.A., which includes a shorter memory-only version that has been developed in conjunction with Eisai, and then CogMate, which is a direct-to-consumer tool, will be available in Taiwan, South Korea, Thailand, India, Malaysia, Philippines and Vietnam. Both Cognigram and CogMate utilize the Cogstate Brief Battery, which is a collection of 4 cognitive tests that have been scientifically validated as sensitive to changes in cognitive – in cognition that is associated with the early stages of Alzheimer's disease. So Cognigram is a Class 2 exempt, FDA-listed digital medical device that could be marketed in the U.S.A. and is designed to be utilized by health care professionals. As I mentioned, CogMate is a direct-to-consumer product that provides limited feedback to the individual patient. It's not considered a medical device and, therefore, does not require regulatory approval. So from a financial perspective, Cogstate retains the initial upfront payment of $15 million that we received from Eisai as well as all royalty payments that have been received to date. We will receive, in the future, minimum royalties to the end of the term, which is August of 2031, of an additional $11.5 million. But we've agreed to forego $15 million of future minimum royalties. I mentioned that earlier. And the reduction in those future minimum royalties impacts, from a cashflow perspective, financial years '28 through to '31. So we're actually really excited about the opportunity to push Cogstate technology into the community, both as a general health care tool, but also as a prescreening tool to identify patients for clinical trials. We were really encouraged by conversations with pharma companies in this regard at the recent Alzheimer's Association International Conference in Philadelphia, which had occurred earlier this month. We think there's a great opportunity here, and we're really looking forward to exploring that opportunity. As I mentioned, we wouldn't be able to do that under the term of the original agreement, so this amendment was really important in terms of our future strategy. So just looking forward a little bit here in relation to '25, we're encouraged by the new sales contracts that we executed in the first few weeks of the year. The $9.3 million of net sales contracts executed over that 7-week period includes the initiation of an exciting and large Phase III Alzheimer's program that's already started and is generating revenue in financial year '25. I think it's important to note, as we mentioned at the start of this presentation, that we had seen some stall in terms of decision-making as pharma companies wanted to understand the regulatory environment and the market environment for drugs, and therefore, what they were going to be competing with before making Phase III decisions. We think the execution of this contract heralds the -- essentially the break or that pause in consideration of the Phase III trials. Rachel highlighted the significant market opportunity in central nervous system diseases that reflects our view of growth opportunities in Alzheimer's disease as well as other indications. Our offering in Clinical Trials is becoming more sophisticated each year, and the success that we've had in running an ultimately successful global Phase III Alzheimer's trial provides really important commercial validation of our offering as a best-of-breed vendor for what's a niche offering in this clinical trial space. Outside of Clinical Trials, we anticipate the opportunity to pilot our technology in the community, and we're really encouraged by recent discussions with industry players. Management expects to grow revenue and profit in this '25 financial year, but no specific guidance is provided at this time and pending execution of sales contracts, which will provide us with greater certainty in respect to the timing of revenue. And then finally, we note that the share buyback has been suspended until further notice. And with that, I'm going to open up to questions. [Operator Instructions]

Thanks so much, Brad, and Darren and Rachel. We do have some questions here, so we'll go ahead and dive right in. The first one is regarding the Alzheimer's drugs that are entering the market. Now that they're on the market, is there an opportunity for Phase IV contracts with some of these larger customers? And if so, would the contracts have similar economics to some of the other trial phases?

Yes. So I'll tackle this initially before handing over to Rachel. But absolutely I think it's our expectation that you'll see a number of different Phase IV type -- or trials of drugs on-market or real-world evidence studies. We can't talk to specifics in relation to discussions we're having with those sponsors, but we do expect to participate in some of those. Rachel, do you want to add some comments in relation to that?

Yes, just to agree. In terms of the economics, we do find Phase IV trials, post-marketing trials, do tend to be somewhat more cost-sensitive than Phase III, certainly. So the contract sizes are larger because the scale is larger, but the cost sensitivity mirrors some of the earlier phases of development. And so that's something we've thought a lot about. And our digital end points certainly lend themselves really well to Phase IV, as do some of our central rating telehealth-type solutions. So this is absolutely an area that we expect we'll see growth as more drugs come on-market.

Thanks, guys. Another question we have coming in here, is there potential for the new Phase III trial contracts to grow for Cogstate over the life of those Phase IIIs?

Yes, almost certainly. So it's sort of a public secret that you enter into these contracts and then they grow over time. I think the largest Phase III trial we've ever done, total contract value, you ended up in excess of $45 million. I think the original contract value of that study was in the mid-$20s million, so I think about $26 million to $27 million. So it grew by – it grew by sort of 60%, 70% over the course of the trial. So why does that happen? So firstly, like everything in life, Phase III trials take longer than people expect. The budgets that are put together at the start of a trial are generally optimistic in terms of the rate of recruitment of patients and where those patients were found. You also see sponsors want to have -- you will have different stages of the disease in an Alzheimer's disease trial from very early-stage disease to someone with -- who's categorized with dementia. Sponsors will want to see a mix of those patient types. So the size of the patient population can grow out as they seek to achieve that appropriate mix. The size of the population can also grow because I want to see a mix of patients by geography, noting that they [ maybe ] have these drugs approved in multiple countries and this -- so the Phase III trial needs to serve a number of masters. And so you'll see the trial dynamics change to make -- as they seek to make sure they've got an appropriate number of patients in each geography. And then things just happen as you get through the course of the trial. These trials are really complex. And running a global trial, a global Alzheimer's trial, you know going into it that things are going to go wrong. And therefore -- and due to the nature of the relationship that we have with the pharma companies and the services we offer, we are oftentimes the person -- the people that they come to to help them solve those problems. So there's additional services revenue that ultimately ends up being added into our contracts. So we have regular amendments to those contracts as they get underway as the rubber hits the road.

Thanks so much for those details, Brad. That makes sense. The next question we have here, can you comment on how much contract sales were achieved in non-Alzheimer's disease indications?

Yes, I can. We actually had a slide on that, so I'm just going to bring it up. So as you can see here, 14 -- so $27 million worth of contracts signed in financial year '24, of which $14 million was non-Alzheimer’s disease contracts. So that was growth of 60% from the prior year. You can see the 3 prior years there as referenced on the slide that I'm presenting.

Perfect. And then can you comment on the quality of current clinical trials, contracted revenue balance, considering how that balance moves due to traveling, consolidation and trial and reconciliations, should it be expected for further deduction of that nature in financial year '24 or possibly into financial year '25?

Yes. So I think it's an excellent question, and it is -- you will appreciate that it is a moving [ feast ] as -- I think the perfect example of the point of that question was we signed those couple of Phase III Alzheimer's disease trials in financial year '23. We went through the startup stage of those programs and then we never dosed the patient essentially while the sponsor of those trials waited to see what happened with the approval of Eisai and Lilly's drug and then made a decision how they were going to project forward after that. So these things can move around. I think we're -- and you -- we went through what's happened with the consolidation of those trials. In terms of the contracts we've signed at the start of the '25 financial year, I think we're now in a -- we have a really clean book. So I think this represents probably the cleanest future revenue backlog that we've presented. We have a really clear understanding. There's nothing in this backlog that we're -- there's no trials that have stalled. Everything is up and running. And so we probably have, I would suggest, more confidence in terms of the runoff of this backlog than we've had certainly this time last year.

Thanks, Brad. Now we're going to go to a hand-raise. Elyse Shapiro, I'm going to go ahead and unmute you, Give me just one second. Okay. Let's see. All right, Elyse, you should now be able to unmute your line, and we'll take your question.

Congrats on the Phase III contract. Can we just talk in a bit more detail as to what the pipeline looks like in comparison to maybe where it was this time last year? And then also, looking at the broader CRO landscape, we are seeing kind of pharma making their mind up a little bit quicker, a bit more of a willingness to spend. And how long do we expect that to translate to pipeline and new contract adds on your end?

Thanks, Elyse. I think -- so both really good questions. I think -- so pipeline looks really good. Certainly, the level of activity that we're seeing and the engagement across a broader number of pharma customers -- and so in this answer, I'm going to distinguish between biotech pipeline and pharma pipeline. And I don't mean to be disparaging in that distinction. But as we mentioned at the start of the call, when you're talking -- it's the Phase III Alzheimer's trial that really moved the needle on our sales contracts and our revenue. And so the reality is that the cost of those is so significant, in the hundreds of millions of dollars. So generally, it's just pharma companies who run those. So a lot of activity from pharma customers, which is really encouraging. Certainly, we're seeing a lot -- we've put a lot of focus outside of -- we're continuing to focus on Alzheimer's disease, and we're really leaning into that, but we're equally really putting a lot of focus in other areas, in expanding our offering in depression and schizophrenia and areas like that. We're starting to see the benefit. We have run, for some years now, a sort of model where we partner with a number of different eCOA partners. So these are technology providers into the Alzheimer's disease space. We partner with those customers, and we're starting to see a real pickup in work that they're bringing us. And that tends to be outside of Alzheimer's disease. So I think we've seen it -- I think what I'd say is that the level of pipeline is encouraging, but also the breadth and the lack of uniformity of the pipeline is really encouraging compared to where we were. Say, if you compare where we are today to -- say our best financial year was '22, when you look at that '21/'22 sort of period, it was -- there was a lot of concentration of revenue and opportunity there. And I think that's quite different now. In terms of pharma generally, yes, we agree. We're certainly seeing a change in decision-making and a speed-up in that decision-making over recent months. Rachel, do you want to jump in here and add some comments?

Just on the latter, I would say that the decision-making within pharma and the enthusiasm around CNS and Alzheimer's in particular is signaled by some of the deals that we're seeing. So we're seeing an increase in license deals and increase in discussions with our pharmaceutical sponsors regarding those in-licensed compounds. So that's certainly congruent with what you're describing, Elyse. And on the first point, I would just say within -- I agree with you, Brad, that we're seeing that sort of broadening of the customer base across different therapeutic indications as we've shown the growth in non-AD areas. But within AD, we are seeing a lot more new mechanisms and targets. And so that's been really encouraging to see as well as -- where we've previously been very focused on that preclinical stage, disease modifying of amyloid clearing drugs and now we have opportunities in the pipeline with all different mechanisms from inflammation to vaccines. It's really an exciting time.

Thanks so much, Brad and Rachel. We've had a couple of questions regarding the share buyback and the suspension of that. And I'm curious if there could be some elaboration on some of those reasons for the suspension of the share buyback.

Sure. So there's a couple of things there. I mean, so always, the Board is considering that -- how do we best add value to shareholders? I think presently we’re -- so we're seeing a number of different opportunities come across our desks in terms of potential bolt-ons, particularly to our clinical trials offering. Mostly, we're passing on those because we don't think they make sense. But we are looking at a couple. I think, in this market, in the broader economic environment and the difficulties that a number of smaller -- whether they be tech companies or service companies in this clinical trial space, the difficulty that they've had in terms of access to capital means that there are some interesting technologies and interesting businesses around at the moment that are looking to partner or find themselves as part of a larger organization. So -- which is not to say that we're specifically advanced in relation to anything at the moment, but we are looking at a couple of things. And so within that context, we want to keep our powder dry a little bit, just understand what opportunities are present for us and whether we want to look at any of those. So I do note that it's a suspension, not a cancellation. So we'll keep thinking about that as we move through the financial year.

Thanks, Brad. So the next question is the half 2 EBIT percentage has already reached 20%, which had been a long-term target. Could you comment on financial year '25 margin expectations and whether there needs to be any operational expense investment here? And then the last little thing plugged onto this one is the capitalized R&D expenses were lower in financial year '24. Would it stay around this level in financial year '25? So several different things to address here around margins and operational expenses and capitalized R&D expense.

Yes. So I'll make a couple of comments, and I'll hand over to Darren. But certainly that sort of EBIT margins in the 20% and 20-plus percent range is our target. We've been very public around that. We believe that we've right-sized the business in terms of staffing at the moment. And that investment that we've made in technology, focused on delivery of services over recent years, is really paying dividends. So Darren, do you want to add any comments in relation to that margin work?

Yes. I think, Brad, the business has demonstrated, over the last few years, that there is great leverage in the business. So to the extent that we expect to see revenue growth, we would also expect to see margins to grow with it and continue to move more towards that target model and beyond as revenue grows. The other one was around capital spend. I certainly expect -- the business has a definite focus on bringing further technology advances to the business, so we’d expect our capital spend to return to prior year levels, if not a little above that, as we evaluate different projects and ensure that they've got the appropriate returns on investment. But we're not holding back in terms of investing in new technological capabilities for the business.

Thanks, Brad and Darren. The next question is, judging from the comment on the couple of potential acquirees, is profitability and EPS dilution a consideration when the Board considers acquisitions?

Yes, absolutely. So we -- in some ways, we're looking for something that's quite special, so something that's going to add to our offering to enhance the role that we -- the partnership role that we play with our pharma company customers but that isn't going to distract from earnings. We have been very focused on growing revenue and growing market share, but also growing earnings while we're doing that. I think we've demonstrated that focus from financial year '23 to '24, and we'll continue to focus on that.

A little bit of a shift in question or in question type. What is the industry's interest levels in concepts such as central rating? We heard that mentioned a few times throughout the presentation. I guess the --- summing that up, is what are some of the in- what is the interest like in central rating?

Rachel, do you want to take this one?

Sure. So we see it really is depending on the scenario and use case, but we see a strong interest in areas like rare neurodevelopmental disorders, so where the rater has to be quite specialized, but where the patient population is really dispersed. And so, oftentimes, the centers that are recruiting these populations may not have the specialist raters there to support the trial. And so central rating has become really common, if not standard, in some of these studies that we're supporting. In areas of mood disorder trials like depression and anxiety, oftentimes you're seeing it for either primary and secondary end points, but also at the screening visit. And some of that is to really get a neutral third-party view of the participant at the screening for inclusion to ensure you're getting a really appropriate population enrolled into the trial. And then in Alzheimer's disease, we're seeing this as drugs are moving to address that presymptomatic stage of the disease where the participants are quite well going into the trial. They're very cognitively healthy, tend to be younger, tend to have very full, busy lives. This concept of patient centricity, of allowing the participants to do more from home, as well as the data quality benefits that I've mentioned, have really been a key driver in making that an attractive option in those types of trials. And so we are absolutely seeing it as an increased interest area. And I think a lot of that was catalyzed following some of the COVID-19 distancing, and that really opened up possibilities and different approaches in clinical trials, but we certainly see it sticking, and we're seeing that increase over time.

Thank you so much, Rachel. With that, we're going to go ahead and say, Brad, Darren, Rachel, any final words for our group here?

I'd just like to thank everyone for your attention. I think these -- we've shown the ability this year to really focus on improving those earnings, improving the cash flow. We think that the sales result that we posted for '27 really doesn't really appropriately reflect the growth that we have seen in terms of customer base over the '24 financial year, and we think we're really well positioned for growth. So -- but we thank everyone for your attention.