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Cogstate Half-Year Results

Cogstate (CGS: $1.90) reported an EBIT of US$6.1 million for the first half of this financial year. EBIT for the full year is expected to be between US$8.8 - US$11.3 million.


Revenue continues to grow for the company underpinned by a consistently strong level of sales contracts being signed in each quarter. Sales contracts for the half totalled US$54.5 million, with revenue of US$23.1 million. In a growth phase, revenue trails the contracts signed.

Cogstate can be now expected to deliver annual revenue in excess of US$40 million, which should keep the business profitable. On a conference call last week CEO Brad O'Connor said he expects revenue and profit to grow over the coming years with the operating leverage visible once the company passes US$40 million in revenue (i.e. more of the revenue will flow through to the bottom line).

Cogstate has a backlog of contracted work of US$90 million in clinical trials with a further US$29 million to be received from Eisai for use of the Cogstate test outside of clinical trials (healthcare market).

Other future work can also be expected to come from trials Cogstate is involved with that progress to the next clinical phase of development. The company is currently involved with 76 Phase I and Phase II studies. O'Connor said that the company achieves good follow-through with its customers to subsequent studies.

Alzheimer's Disease R&D to Stay High
Whilst the take-up in the US of the first disease modifying Alzheimer's disease drug is being limited by poor reimbursement, the view of the larger pharmaceutical companies in the filed is that more compelling Phase III data will solve the reimbursement issue.

O'Connor said that the major players in the Alzheimer's field do not expect investment (activity) to fall. Before year's end Eli Lilly expects to start a Phase III study with a new amyloid clearing drug candidate, n3pG4. In Q3 Eisai is expected to release top line results from its Phase III trial in Alzheimer's with lecanemab, with results from a Phase III study with donanemab (Eli Lilly) expected mid next year.

Potential of Healthcare Market
Currently non-clinical trial sales (healthcare market) contributes only around 10% to Cogstate's revenue. However, over the next three years this market dynamic may change as the Cogstate healthcare product is launched in other countries (including the US and China). O'Connor said there is significant potential upside from the Eisai deal beyond the minimum set royalties. In Japan over 26,000 Cogstate tests have so far been taken (without supervision) as a community-based test. So far, the test has been launched in Japan, Hong Kong and Taiwan, with the product translated into Mandarin. Brain performance can now be assessed at home on either a PC or a smartphone.

Cogstate is capitalised at $325 million with US$24.6 million in cash at the end of last year.

Bioshares recommendation: Buy


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