Working with any partner has its risks and uncertainties. Cogstate (CGS: $3.65) has five channel partners that help it gain sales through a shared product and service offering. Those partnerships, particularly with MediData, are now bearing fruit.
In the September quarter, Cogstate signed US$25.1 million in new contracts (defined as sales by the company) with 80% of those contracts coming through MediData. The majority of the contracts were to conduct cognitive assessments in five Phase III studies in bipolar disease and depression, with the clinical activity in psychedelics being a significant contributor.
Over the last few years Cogstate has made an investment to expand its services into other CNS diseases, moving away from the strong dependence on its involvement in Alzheimer's disease trials. In the last financial year, the CNS trials outside of Alzheimer's disease represented 46% of new contracts.
It has also built its expertise in providing central rating services. Rather than training the raters - the clinicians who conduct the assessments to ensure the approach is as homogenous as possible - when providing central rating, the company also conducts the analysis using its own contracted physicians.
When assessing the impact of psychedelics which have an obvious visible effect, this must be conducted remotely to blind the rater from viewing which patient is on placebo and which is in the active arm. Whilst such studies may involve less proprietary Cogstate tests, resulting in lower upfront license fees, the total contract sum can be larger as the company is providing more services in conducting the assessments. Central rating studies will contribute to 16% of studies in the current financial year from secured contracts yet will make up 32% of total clinical trial revenue.
In FY2026, Cogstate signed US$89 million of new contracts. Its revenue, which lags contracts signed as the business is growing, was US$60.9 million, with a net profit after tax of US$11.9 million. Revenue secured so far for the current financial year is US$56.8 million (up from US$48.3 million at June 30), excluding revenue from additional contracts to be signed over the next three quarters. Bioshares estimates full year revenue for FY2027 at between US$75 - US$80 million.
At this week's AGM, chairman Martyn Myer said there were at least half a dozen tailwinds for the company at the moment. Although not specified, these include: the building impact of channel partners, allowing the company to win involvement in larger Phase III studies; the impact of AI on increased clinical trials from more efficient drug discovery, when has yet to have an effect; the continued growth in CNS drug R&D; the growing impact of central rating; a general increase in R&D spend; the low market share at the moment, which will grow, in mood and psychiatry studies; and efficiency improvements within Cogstate from the use of AI.
CEO Brad O'Connor is confident of revenue growth into FY2027, FY2028 and FY2029. The company is winning market share where it was not previously and is securing a larger value of service offering (through central rating). Margins can be expected to grow from FY2028 onwards from the implementation of AI.
Cogstate is capitalized at $624 million. As its revenue begins to approach US$100 million, it will become an attractive acquisition asset to a larger clinical trials group.
Bioshares recommendation: Accumulate
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