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Cogstate - US$13.7 Million of Sales Contracts Signed

Cogstate (CGS: $1.68) has delivered another good quarter of sales contracts signed, totalling US$13.7 million and $US54 million for the first half following a very strong September quarter performance.


Its net operating cashflow for Q2 was US$1.5 million from cash receipts of US$10.7 million. The company should now be moving into consistently positive cashflow quarters, with the level of contracts signed for the last 10 quarters exceeding the revenue recognised, highlighting the continued growth phase of the business.

At the end of last year, the company had secured US$92 million of future revenue from clinical trials contracts signed and US$40.9 million of future revenue locked in from its contract with Eisai for use of its test outside of clinical trials.

With this backlog of work, just over US$30 million of revenue is already expected to be realised in FY2023 and just under US$25 million will be recognised in FY2024. The level of new work the company is bidding for also remains high according to CEO Brad O'Connor, with the business now well advanced to comfortably deliver on larger contracts.

Excluding government loans (that were forgiven), in FY2021 the company generated income of US$32.7 million with a pre-tax profit of US$3.3 million. As revenue approaches US$45 -US$50 million this year, the business' net profit should increase substantially.

Cogstate's healthcare business generates revenue from its cognitive test, distributed by Eisai, where it is used by GPs and patients. It is expected to increase in demand as adoption of the first disease modifying drug for Alzheimer's disease, Aduhelm, takes hold. However, reimbursement restrictions are limiting use of that drug in the US with CMS potentially reimbursing use of the drug in clinical trials only. A final decision from CMS is expected in April.

If that occurs it will slow down adoption of the Cogstate test in the US by patients and doctors/specialists. However, use in clinical trials of Cogstate's technology can be expected to increase as larger and additional clinical studies are undertaken by Cogstate's customers in Alzheimer's disease.

The Cogstate test was recently launched by Eisai in Hong Kong and Taiwan with a launch in China also expected. In China there is already a therapeutic for the treatment of Alzheimer's disease – Oligomannate, derived from brown seaweed – which was launched at the end of 2019. Developed by Shanghai Green Valley Pharmaceuticals, the drug was found to provide cognitive benefit in an 818 patient Phase III study in patients with mild to moderate disease. A Phase III study is underway in the US and Canada.

Cogstate is capitalised at $287 million. It held cash of US$24.6 million at the end of last year.

Bioshares recommendation: Buy


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