Cambridge Cognition acquires Winterlight Labs Inc

Cambridge Cognition Holdings plc (LON:COG), which develops and markets digital solutions to assess brain health, has announced the acquisition of Winterlight Labs Inc, a leader in monitoring cognitive impairment through free-speech analysis.  The total consideration for the Acquisition is £7.0 million, comprising a cash payment of £3.0 million and £4.0 million in Cambridge Cognition shares.

Highlights

·    Acquisition of Winterlight, a leader in monitoring cognitive impairment through free-speech analysis

·    Significantly enhances Cambridge Cognition’s expertise and position in voice-based assessments

·    The market for speech-based biomarkers for all conditions is reported to be growing at 66% per annum and, is predicted to be around US$220 million by 20261

·    Total consideration for the Acquisition is £7.0 million, comprising a cash payment of £3.0 million and £4.0 million in Cambridge Cognition shares

·    Limited overlap with Cambridge Cognition’s existing customer base, potential to cross-sell and generate further revenue growth

·    Potential to add more than £2.0 million to Cambridge Cognition’s revenue in 2023 with considerable further growth in 2024

Winterlight, based in Toronto, Canada, focuses on machine-learning based voice assessments, using free-speech inputs or those that require deductive reasoning or interpretation.  These are widely used in clinical trials.  Winterlight has its origins in the Computational Linguistics department at the University of Toronto, which developed novel methods of analysing speech that were first patented in 2007.  In 2015 it spun out Winterlight, led by two entrepreneurial team members and supported by a leading professor in the field.  Winterlight raised angel and venture capital funding, invested considerably in new applications and clinical validation, and built a business with over 20 pharmaceutical and healthcare customers over the past 7 years.

Both Cambridge Cognition and Winterlight share a common goal of developing digital health products to better understand, detect and treat conditions affecting brain health.  The capabilities of the combined organisation will create a company with strengths across technology platforms for screen-based, structured voice-based and free-speech based cognitive assessments for clinical trials.  The combined company is well positioned to secure a market leading position with voice biomarker technology for clinical trials, with further potential for healthcare applications in the future.

The market for voice biomarkers for all conditions is reported to be growing at 66% per annum and, starting from a modest base, is predicted be around US$220 million by 20261.  Furthermore, Cambridge Cognition commissioned extensive market research for voice solutions in 2022 and estimate that the market opportunity for those currently provided by Winterlight specifically could exceed US$30 million by 2027. 

Strategic rationale for the Acquisition

To date, Cambridge Cognition’s approach to voice technology has been focussed on replicating structured short – that is one or two word – verbal assessments that incorporate novel intellectual property.  This has enabled the Company to scale delivery of well-validated cognitive tests.

With the Acquisition, Cambridge Cognition is adding to its existing portfolio of leading screen-based cognitive assessments and structured voice-based cognitive assessments with the complementary free-speech and vocal biomarker technology of Winterlight.  Winterlight’s 28 staff, with complementary and additional expertise in voice solutions and machine learning, are joining Cambridge Cognition.  Taken together, the Acquisition significantly enhances Cambridge Cognition’s expertise and position in voice-based assessments.

Winterlight has an excellent and growing portfolio of customers including five of the top 10 life sciences companies globally, using its technology to measure disease progression and response to therapy.  It has limited overlap with Cambridge Cognition’s existing customer base, providing the potential to cross-sell and generate further revenue growth.  

The combined offering will support the Company’s growth ambitions with the opportunity to further diversify its revenue stream.  Over the longer-term, combining the results of Cambridge Cognition’s existing digital cognitive assessments with Winterlight’s free-speech cognitive assessments presents an exciting opportunity to create a multi-modal biomarker with greater levels of sensitivity to help assess and potentially support the treatment of CNS disorders.

Terms of the Acquisition

The total consideration for the Acquisition is £7.0 million, comprising a cash payment of £3.0 million and £4.0 million in Cambridge Cognition shares.  The total consideration was based on Winterlight’s forecast 2023 revenues from their existing and growing contracted order book.

The cash consideration of £3.0 million is being funded from the Company’s existing cash resources, which were approximately £8.3 million as of 31 December 2022.

The £4.0 million share consideration comprises the issue of 3,445,595 new ordinary shares of 1p each in the Company (“New Ordinary Shares”) at a price of 116.09 pence per share, the volume weighted average price of the Company’s shares on the London Stock Exchange over the 20 trading days up to 5 January 2023.  On Admission, further described below, the New Ordinary Shares will represent approximately 10.0% of the Company’s total issued capital.  The New Ordinary Shares will be subject to a six-month lock-in period and an orderly marketing agreement thereafter.

For the year ended 31 December 2022, Winterlight generated revenue of £1.0 million and reported a loss before tax of £2.1 million.  Winterlight’s gross assets are approximately £0.7 million.  Winterlight had a contracted order book of £2.5 million as of 31 December 2022, with approximately 35% expected to be recognised as revenue in 2023.

It is expected that the Company will continue to invest in the Winterlight solutions, further developing its proprietary products and integrating with the existing Cambridge Cognition solutions.  With a larger team, the combined business has a strengthened sales and marketing resource that is anticipated to generate new opportunities.  The combined entity aims to retain all existing employees whilst making modest non-employee related cost savings. 

With a strong contracted order book already in place and third party commercial due diligence reporting outstanding customer feedback along with the potential to drive additional sales across the combined product portfolio, this presents an exciting growth opportunity for Cambridge Cognition.  It has the potential to add more than £2.0 million to Cambridge Cognition’s revenue in 2023 with considerable further growth in 2024.

The Company’s performance for 2022 is expected to be in line with the market expectations and the Company anticipates releasing a trading update for the year ended 31 December 2022 in the week commencing 30 January 2023.

Commenting, Matthew Stork, Chief Executive Officer of Cambridge Cognition, said:

“Having developed short speech-based cognitive assessments for several years, we have seen the considerable potential for longer free-speech assessments.  There is a major opportunity over the medium term for growth in this field and it is important to be an early entrant to secure a strong position for the future. Winterlight has established itself as a leader in monitoring cognitive impairment through free-speech analysis, as confirmed by extensive external market research.  With this acquisition, we can now offer many of the verbal cognitive assessments used in clinical trials giving us the potential for major growth in the coming years.  We look forward to welcoming our new colleagues at Winterlight so that together we can build on our combined expertise in voice technology to drive innovation in clinical trials.”

Liam Kaufman, Cofounder of Winterlight Labs, said:

“For nearly 8 years as a company and many years before within the University of Toronto, Winterlight has worked to develop speech-based digital biomarkers for healthcare and clinical trials.  I am incredibly proud of what we have engineered, validated and delivered to our life science partners.  This transaction opens an exciting new chapter for Winterlight.  We bring to Cambridge Cognition proprietary free-speech analysis technology and a dedicated team that are experts in the field.  We are looking forward to being a part of Cambridge Cognition and together we can build a leading position in vocal biomarker technology.”

Admission and Total Voting Rights

Application has been made for the New Ordinary Shares to be admitted to trading on the AIM market of the London Stock Exchange.  Admission is expected to take place at 8.00 a.m. on or around 16 January 2023.

On Admission the Company’s issued share capital will comprise of 34,615,688 Ordinary Shares, with no Ordinary Shares held in treasury.  Therefore, the total number of Ordinary Shares in the Company with voting rights will be 34,615,688.  This figure may be used by shareholders in the Company as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the share capital of the Company under the FCA’s Disclosure Guidance and Transparency Rules.

References

1. Coherent Market Insights, 2019

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