My name is Brad O'Connor. I'm the Chief Executive of 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, with 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 Securities Exchange this morning. Following our presentation today, we will take questions. If you have a question, then there are two ways in which you can ask your question.
The first is you can type your question into the control panel, and that'll be read by the moderator, or alternatively, you can raise your hand and have your line unmuted to ask your question. 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, that 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 and the healthcare segment of our business was a commercially sound deal for Cogstate, 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 gonna 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 treatments was likely to encourage future investment by new and different pharma companies, because the launch of the treatment would be seen to de-risk 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 2024 financial year, Cogstate was awarded four new phase II Alzheimer's programs from four different customers, and three of those customers were new to Cogstate. These new awards provided not only growth activity, but also decreased Cogstate's customer concentration in Alzheimer's disease.
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, you know, 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. 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 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 earliest 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 one disease-modifying Alzheimer's program can be up to AUD 80 million across phase I to phase 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 that have been secured by Cogstate each year, we can see that financial year 2024 was actually our most successful year. So in the last year, we've executed, as I said before, large pharma trials. Sorry. With two small phase I trials, four phase II trials, and one 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 that's actually been executed in the first weeks of financial year 2025, and I'll talk about that in a second. So while the total value of Alzheimer's contracts executed by Cogstate in financial year 2024 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's gonna 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 AUD 15 million upfront and guaranteed that future payments over the next 10 years would not be less than AUD 30 million, taking guaranteed payments to Cogstate under license to AUD 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 non-exclusive license to specified Cogstate products in specified geographies. In exchange for that change to the license agreement, Cogstate agreed to forgo future payments from Eisai of AUD 15 million. So those are cash payments that would have been received by Cogstate during the period financial year 2028 to financial year 2031. Under the amended non-exclusive license agreement, Eisai will continue to market Cognigram to physicians in the USA and Cogmate to consumers in specific Eisaian 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 non-exclusive license, Cogstate has regained ownership and control over our IP.
Secondly, we've seen firsthand the difficulties associated with the rollout of new anti-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 clinical 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 AUD 27 million of clinical trial sales executed in financial year 2024, 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 for the Cogstate technology, which are usually recognized in the year of execution of the sales contract. Historically, license fees have been in the range of 18%-20% of clinical trials revenue each year, so in financial year 2024, despite license fees only amounting to 13% of clinical trials revenue, Cogstate still grew clinical trials revenue by 9% on the prior year, and that really reflects growth in the services offered by Cogstate.
That result suggests that Cogstate's really well positioned for further growth when we can return to growth in clinical trial 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. Over recent years, part of Cogstate technology investment has focused on automation of Cogstate service delivery, and this has delivered measurable returns in the 2024 financial year. As a result of the efficiency gains, Cogstate was able to undertake a staff restructure that we announced in May 2023, and mostly that staff restructure impacted our clinical trials group.
For financial year 2023 - 2024, we were able to improve clinical trials gross margins by six points, turning a AUD 3.3 million increase in clinical trials revenue from year to year into a AUD 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 2024 than 2023, 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 2025, so in the six or seven weeks since first of July.
I mentioned earlier that we'd executed a phase III start-up agreement at the end of financial year 2024, that allowed us to begin work to keep it, that trial on schedule with the full contract executed in the first weeks of fiscal 2025. So including that phase III agreement, as well as other agreements that have been signed since first of July 2024, Cogstate has executed an additional 9.3 million of net clinical trial sales contracts. That net value includes gross contracts to the value of AUD 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, excuse me, 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 2023 financial year, but the trials had been suspended pending reconsideration of the design of those trials, meaning that they didn't produce meaningful revenue for Cogstate during the 2023 or 2024 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 is now accelerated and is in start-up, with first patients expected to be treated later this calendar year. The gross value of contracts 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 AUD 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 there's no impact on fiscal 2024 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 AUD 95 million, of which AUD 31.4 million is expected to be recognized in financial year 2025. I'm sure there's some questions in relation to all that, and we'll get to those after the conclusion of our audit results.
So with that, I want to hand over to Darren to talk you through the financial results.
Thanks, Brad. So as Brad mentioned, clinical trial sales contracts executed were AUD 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 2025 new contracts signed, plus the 9.3 million of net new contract sales to the 31st of August, our future contracted revenue now amounts to AUD 110.9 million, which is down 16% year-on-year from the AUD 132.6 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 AUD 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 30th June 2024 of AUD 29.4 million, up from the AUD 27.7 million in the prior period.
Turning to the next chart, the group PNL. As I mentioned before, our group revenue is 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 five 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 a 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 AUD 6.5 million, up significantly from the prior year, and net profit of AUD 7.1 million, more than double that of 2023. FY 2024 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 is up 9% year-to-year. While the revenue yield in the year from new 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 six points year-to-year and illustrates the restructuring taken back in May 2023, which has really right-sized the business relative 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 cost 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 one 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've undertaken to develop the Cogstate strategy for the healthcare business. Turning to cash flow, businesses achieved a very strong operating cash flow for the year, AUD 5.8 million from operations, compared to AUD 0.7 million in the prior year, up substantially. 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 increase in cash flow used in financing activities reflects the share buyback program that was undertaken throughout FY 2024. 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 one trial has seen revenue move to outer years without factoring into the large backlog in FY 2029 and beyond.
The FY 2025 revenue under contract is 33.6 million, as at the 21st of August, with clinical trials being 31.4 million, up 4.6 millionfrom where we were at the opening of FY 2024, and healthcare of 2.2 million, down from the 4.2 million that we opened with at the beginning of FY 2024. Future years will improve as we execute further contract sales throughout FY 2025. 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 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%-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 what we see as driving the growth of the AD 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 sub-q 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 at the 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 increEisaing, 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. So 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 endpoints are clinical assessments that are highly prone to error and variance, which can obscure drug effect.
Cogstate's developed a uniquely comprehensive set of technologies and solutions to address this challenge from every angle. We're investing in expanding these services, strategically focused on the needs of the established endpoints that are in high use in clinical trials today. Where are we investing? 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 endpoint 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 this space with master license agreements that will allow us to better meet the needs, especially the startup timeline 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 endpoints 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 Eisaia-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 and 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 pre-screening 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 2024 result, where we've significantly grown our large pharma relationships in 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 it back.
Thank you . 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 allow 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 allow Alzheimer's patients access to the right intervention at the right time. So specifically, under the amended global licensing agreement, Eisai will hold a non-exclusive license to distribute specific Cogstate products. So they'll have a license to Cognigram in the USA, 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 four cognitive tests that have been scientifically validated as sensitive to changes in cognition that is associated with the early stages of Alzheimer's disease. So Cognigram is a Class II exempt, FDA-listed digital medical device that can be marketed in the USA and is designed to be utilized by healthcare 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 AUD 15 million that we received from Eisai, as well as all royalty payments that have been received to date. We'll receive, in the future, minimum royalties, to the end of the term, which is August of 2031, of an additional AUD 11.5 million, but we've agreed to forego AUD 15 million of future minimum royalties. I mentioned that earlier. And the reduction in those future minimum royalties impacts from a cash flow perspective, financial years 2028 through to 2031. So we're actually really excited about the opportunity to push Cogstate technology into the community, both as a general healthcare tool but also as a pre-screening 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 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 terms 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 2025. We're encouraged by the new sales contracts that we executed in the first few weeks of the year. The AUD 9.3 million of net sales contracts executed over that seven-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 2025.
I think it's important to note, you know, 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 essentially the break of 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 a u ltimately successful global phase III Alzheimer's trial provides really important commercial validation of our offering as a best-of-breed vendor for what's, you know, 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 2025 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. Then finally, we note that the share buyback has been suspended until further notice. With that, I'm gonna open up to questions. As a reminder, if you do have a question, you have two ways in which to ask it.
You can type your question into the control panel, and it'll be read by the moderator, or alternatively, you can raise your hand to have your line unmuted to ask questions.
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?
Yeah. So I'll tackle this initially before handing over to Rachel, but absolutely, I think, you know, it's our expectation that you'll see a number of different phase IV type, you know, or, you know, trials of drugs on market or real-world evidence studies. We can't talk to the specifics in relation to discussions we're having with those sponsors. But, you know, we do expect to participate in some of those. Rachel, do you wanna add some comments in relation to that?
Yeah, 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 endpoint 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 will 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?
Yeah, almost certainly. So it's sort of a public secret that, you know, 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 ended up in excess of AUD 45 million. I think the original contract value for that study was in the mid-twenties, I think around AUD 26 million or AUD 27 million. You know, so it grew by sort of 60%-70% over the course of the trial. So why does that happen? So firstly, you know, like everything in life, phase III trials take longer than people expect.
You know, 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 will be found. You also see, sponsors want to have. You'll have different stages of the disease in an Alzheimer's disease trial, from very early-stage disease to, you know, someone with, you know, who's categorized with dementia. Sponsors will wanna 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 wanna see a mix of patients by geography, you know, noting that they'll need to have these drugs approved in multiple countries and this...
You know, so the phase III trial needs to serve a number of masters, and so you'll see the trial dynamics change 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, you know, a global Alzheimer's trial, you know, going into it, that things are going to go wrong, and therefore, you know, due to the nature of the relationship that we have with the pharma companies and the services we offer, we're oftentimes the people that they come to to help them solve those problems.
So there's additional services revenue that ultimately, you know, ends up being added into our contract. So we have regular amendments to those contracts, you know, as they get underway, you know, 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?
Yeah, I can. We actually had a slide on that, so I'm just gonna bring it up. So as you can see here, 14. So AUD 27 million worth of contracts signed in financial year 2024, of which AUD 14 million was non-Alzheimer's disease contracts. So that was growth of 60% from the prior year. You can see the, you know, the three prior years there as reference 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 trial delay and consolidation and trial and reconciliations, should it be expected for further deduction of that nature in financial year 2024 or possibly into financial year 2025?
Yeah. So I think I think it's an excellent question, and it is. You'll appreciate that it is a moving feast. As you know, I think the perfect example of the point of that question was, you know, we signed those couple of phase III Alzheimer's disease trials in financial year 2023. We went through the start-up stage of those programs, and then we never dosed a 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 gonna project forward after that, so these things can move around. I think where the...
You, yeah, we went through, you know, what's happened with the consolidation of those trials, you know, in terms of the contracts we've signed at the start of the 2025 financial year. I think we're now in. 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 where there's no trials that are stalled. Everything's up and running. And so we probably have, I would suggest, more confidence in terms of the run-off of this backlog than we've had, certainly at this time last year.
Thanks, Brad. Now, we're gonna go to a hand raise. Elyse Shapiro, I'm gonna 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.
Great. Thanks, Sam, and congrats on the phase III contract. Can we just talk in a bit more detail as to, you know, what the pipeline looks like, in comparison to maybe where it was this time last year? And then also, you know, 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.
Thanks, Elyse. So, so both really good questions. I think, you know, 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 gonna distinguish between biotech pipeline and pharma pipeline. And I know, and I don't mean to be disparaging in that distinction, but, you know, as we mentioned, you know, at the start of the call, you know, 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, you know, the reality is that the cost of those is so significant in the hundreds of millions of dollars that 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, you know, really putting a lot of focus in other areas and expanding our offering in depression and schizophrenia and areas like that. We're starting to see the benefit. You know, we've run for some years now a sort of model where we partner with a number of different Eisai 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're seeing it. I think, you know, what I'd say is that, you know, the level of pipeline is encouraging, but also the breadth and the, you know, the lack of uniformity of the pipeline is really encouraging compared to where we were, say. You know, if you compare where we are today to, say, you know, our best financial year was 2022, when you look at that 2021, 2022 sort of period, it was. You know, there was a lot of concentration of revenue and opportunity there, and I think that's quite different now. In terms of pharma, generally, yeah, 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 wanna jump in here and add some comments?
Yeah, just on the latter. Or 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 licensed deals and an 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 I agree with you, Brad, that we're seeing this sort of broadening of the customer base across different therapeutic indications, as you'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 not, 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 are a couple of things there. I mean, so always, the board is considering, you know, the, you know, how do we best add value to shareholders? I think, you know, presently, we're seeing a number of different opportunities, you know, 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, you know, in this market, you know, in the broader economic environment, and the, you know, 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 is. There are some interesting technologies and interesting businesses around at the moment, you know, that are looking to partner or, find themselves a 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 wanna keep our powder dry a little bit.
Just understand what opportunities, you know, are present for us and, you know, whether we wanna look at any of those. So I do note that it's a suspension, not a cancellation, so we'll keep thinking, you know, about that as, you know, as we move through the financial year.
Thanks, Brad. The next question is, the half two EBIT percentage has already reached 20%, which had been a long-term target. Could you comment on financial year 2025 margin expectations? And then would there be need to be any operational expense investment here? And then last little thing plugged onto this one is the capitalized R&D expenses were lower in financial year 2024. Would it stay around this level in financial year 2025? Several of the things to address here around margins and operational expenses and capitalized R&D expense.
Yeah, so I'll make a couple comments, and I'll hand over to Darren, but certainly, that sort of, you know, EBIT margins in the 20%, + 20% 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 we've made in technology, you know, focused on delivery of services over recent years is really paying dividends, so you know, Darren, do you want to add any comments in relation to that margin work?
Yeah, 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, you know, move more towards that target model, and beyond as revenue grows. The other one was around capital spend. I certainly expect, you know, the business has a definite focus on bringing further technology advances to the business. You know, 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. 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 you know, we're 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 and customers, but that isn't going to detract from earnings. You know, we've 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 2023 - 2024, 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. Yeah, I guess the summing that up is, yeah, what are some of the, what is the interest like in central rating?
Yeah.
Rachel, do you wanna take this one?
Sure. So we see it. 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 endpoints, but also at the screening visit.
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 pre-symptomatic 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 increase 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're certainly see it sticking, and we're seeing that increase over time.
Thank you so much, Rachel. With that, we're gonna 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, you know, 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 2027 really doesn't appropriately reflect the growth that we've seen in terms of customer base over the 2024 financial year, and we think we're really well- positioned for growth. But we thank everyone for your attention.