Cogstate (CGS: $2.17) held investor call this week to discuss its first half results. The business appears to be thriving, from a more diversified approach and with the assistance of its five channel partners.
In the first half of this financial year, the company commenced 42 new studies, with 133 studies underway at the end of the year. The latter is a 34% increase over the close of 2024.
The sales contracts executed over the period was US$41.7 million, up 105% over the PCP. An increasing amount is being driven by the company's channel partners, which were involved in 62% of sales contracts signed in the December quarter. CEO Brad O'Connor said that there is no impact on margins in selling via its partners, and that investors are just seeing the beginning of the impact from its channel partners.
The net result for the half was a profit before tax of US$5.3 million, up 20% over the PCP. Total revenue was up 12% to US$26.9 million. The only down side for the period was a drop in gross margin to 52.8% from 61.4% in the PCP. However this is expected to recover in the current half to between 56%-59%, with a long term target to push margins over 60%.
Cogstate charges an upfront license fee from use of its technology. This made up 23% of clinical trial revenue, which was up from 19% in the PCP, but down from the unusually high 31% in the preceding six months.
The company is now in expansion mode, with headcount up 17% in clinical trials management.
On the topic of competition, the company said that there were only a few competitors with a high barrier to entry. On the topic of disruption from AI, the company believes that its most important moat is the clinical data base, which continues to widen not narrow, with increasing work. Its global clinical network that has been established is also a barrier to competition, AI or other.
Cogstate is using AI to assist its raters (who conduct the assessments) and reduce any errors from conducting assessments. It invested around US$0.5 million in the half in AI-powered programs.
In the Alzheimer's disease field, O'Connor said that this year developments in trials in pre-symptomatic patients can be expected to a major talking point. (If studies underway in pre-symptomatic patients are successful, then it may mean that future Alzheimer's disease trials may focus on longer and larger studies in healthier patients, seeking to address the disease before cognitive and functional decline occurs. This will be good for Cogstate's business.)
Of interest also is that the Cogstate's tests have now been used as primary and secondary endpoints in sleep/narcolepsy studies, which may help position the company's technology as the 'go-to' test for this field.
Cogstate finished last year with US$34.1 million in cash. It does not intend to pay an interim dividend, but will maintain its full year dividend with a payout ratio of between 20%-50%.
The second half already has US$21.6 million of secured revenue, which is a 24% increase on the PCP. This means revenue for the full year will be US$48.6 million plus revenue from new contracts signed. In the second half of FY2025, an additional US$12 million of revenue was generated from new contracts, although that included an unusually high level of license fees (31%).
Cogstate is capitalized at $371 million.
Bioshares recommendation: Buy
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