Cogstate's (CGS: $0.95) annual revenue over the last three years has been consistent, ranging from US$40 - US$45 million. This has been even with volatility in annual sales contracts signed, ranging from US$27 million (in FY2024) - US$82 million (in FY2022).
Net profit over the last three years has ranged from US$3.6 - US$7.5 million (US$5.6 million last year).
Sales and profitability can be expected to grow over the next year for a number of reasons, which is the guidance given by the company as well last week.
Strong Start in September Quarter
As of last week, Cogstate had already secured US$13.9 million in new contracts this financial year, compared to just US$27 million for FY2024, which was a disappointing year according to the company.
Alzheimer's R&D Reinvigorated
With the two Alzheimer's disease drugs making their way through the regulatory pathway and entering the market (Leqembi from Eisai/Biogen, on the market, and Kisulna from Eli Lilly, approved in August this year), other drug developers have now recommenced their drug development activities.
This is reflected in the number of Phase II studies in Alzheimer's disease commenced by Cogstate's large pharma partners, which was zero in 2022, one in 2023, and four last financial year. For Kisulna, Cogstate was involved in most of the clinical programs including Phase III.
The sector has been particularly interested in the commercial progress of Leqembi for Alzheimer's disease, which generated sales of just US$27 million in the 12 months to the end of March this year. However, the company is forecasting sales of US$364 million in the year to March next year.
Cogstate CEO Brad O'Connor said that this (approval) success has prompted companies including Janssen (J&J), BMS, and Abbvie to place this indication on their target list, as well as Takeda paying US$100 million upfront for access to an Alzheimer's disease vaccine in development targeting beta amyloid.
Arguably, the success of the first disease-modifying drugs that remove beta amyloid has wedged open the door for finally tackling this disease upon which additional therapies, including new supplementary mechanisms of action, can and are being developed.
Whilst Cogstate is diversifying its business to become less reliant on the Alzheimer's drug development space, 80% of future revenue is in this disease.
5th Channel Partner to be Announced
Cogstate expects to announce its fifth channel partner shortly, which will be one of the largest it partners with. These are effectively CROs which bid for work including Cogstate's products and services. These channel partners offer Cogstate the potential to significantly ramp up its sales contracts.
So far in this financial year, the number of proposals from channel partners has exceeded that accessed in FY2023 and almost that brought to Cogstate last financial year.
The company's channel partners are:
- Clinical Ink, electronic clinical outcome assessment (eCOA) platform (partnership formed 2016)
- Clario, decentralised trials provider (2022)
- uMotif, eCOA platform (2023)
- Thread, decentralised research and eCOA provider (2024)
- To be announced
Stronger Business Evolving
Historically, the majority of Cogstate's work has been in providing cognitive testing in Alzheimer's disease clinical studies (48%-90% of work). However, the variability in this field over the last five years has forced Cogstate to evolve into a more efficient and diverse business.
In FY2024, Alzheimer's disease drug trials made up 48% of new contracts signed. Importantly, drug trial contracts outside of Alzheimer's disease increased by 60% in FY2024 over the previous year. Whilst these contracts are generally smaller, the smaller contracts deliver the full contract value earlier (normally within 18 months) compared to up to five years for a large Phase III study. (A Phase III trial in Alzheimer's disease can generate US$30 - US$40 million in revenue and a total of US$80 million for a Phase I, II and III program.)
In 2021, Cogstate employed 210 full-time staff plus consultants. The figure has been reduced to around 150 full-time staff plus consultants (or casual workers). This allows the company to better manage costs. By example, in FY2024 the company generated revenue of US$43.4 million with a net positive operating cash flow of US$5.8 million. This compares to the year earlier when the company achieved revenue of US$40.5 million with just US$0.7 million in positive operating cash flow.
Strong Involvement in Phase II Studies
Cogstate is currently involved in 95 clinical studies. Of these, 37 are Phase II studies. If these studies are successful and move into Phase III, Cogstate is likely to win the larger Phase III study work, which indicates a strong pipeline for future work.
Use Outside of Clinical Studies
An unmapped market for Cogstate is the use of its test in the community setting, outside of clinical studies. Eisai and Cogstate share rights to the Cogstate technology in this setting, with Cogstate having amended the original agreement with Eisai to non-exclusive last year.
This also includes Cogstate using its test to help pharma partners recruit for clinical studies in Alzheimer's disease through outreach in the community, which only became possible once the agreement with Eisai became non-exclusive. Cogstate recently signed one such contract.
With the availability of Leqembi and shortly Kisulna, recruiting patients has become more difficult as patients are becoming less willing to potentially be placed in a placebo arm of a study when disease-modifying therapies are available on the market. The competition for patients is also increasing with additional studies being started in this disease.
Summary
Cogstate finished June with US$29 million in cash. The company has previously bought back 4.4 million shares. It has restarted a share buyback for up to 10% of issued stock with no daily volume restrictions. The company intends to buy back shares 'opportunistically in block trades' rather than small volume purchases.
As at 21 August this year, Cogstate announced that it had already secured US$33.6 million of revenue that was expected to be recognised in FY2025. Cogstate is currently capitalised at $164 million.
Bioshares recommendation: Buy
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