A robust 1H23 in recorded clinical trial sales amounting to US$27.3M was followed by a reduction of approximately 75% in 2H23, with sales totalling just US$6.7M. This marks a decline in overall clinical trial sales of 59% from the record reported in FY22 of US$82.5 million.
The result is partially attributed to the decline of in-period signings (39% in FY22; and just 16% in FY23) as opposed to backlog revenue. The decline in in-period clinical trial sales was attributed to reduced biotech spending with regard to capital as well as the focus of large customers in closing Phase 3 trials and preparing subsequent regulatory submissions of the Alzheimer's disease drug candidates (Leqembi from Eisai/Biogen and donanemab from Eli Lilly). Alzheimer's disease-related services represented 70% of the value of contracts executed in FY23.
Decline in Revenue (& Profit) in FY23
Revenue for FY23 declined by just 11% to US$35.7 million, supported by the backlog on long-term contracted work. Profit before tax declined by 72% to US$3.0 million, although this exceeded the guidelines of US$0.6-US$1.6M.
The decline in clinical trial revenue is attributed to the slow recruitment into one large Phase 3 clinical trial, as well as contract delays for two other Phase 3 trials that were temporarily paused. Both delays experienced in FY23 have been resolved.
Revenue (& Profit) Expectations for FY24
Revenue and profit are expected to grow in FY24, although there is no specific guidance with regards to figures for this period (an update is expected at the AGM scheduled for late October).
Cogstate's expected revenue growth is bolstered by a strong backlog of previously contracted work, totalling US$31.9M for FY24 and US$30.3M for FY25. However, contracted future revenues, estimated at US$132.6M, represent a decrease of 5% since FY22, and are attributed to the low volume of new clinical trials sales contracts from 2H23.
Cogstate anticipates a rising demand for its services, given the growing influx of pharmaceutical companies planning clinical trials within this domain. In addition to its large existing customers, Cogstate has onboarded three new Top 10 Pharma clients to its expanding portfolio. The pipeline and level of activity (i.e. quotes) is at the level seen in FY2022 when the company reported its record sales year for new contracts (US$82.5 million).
Further, Cogstate's traction in other disease areas diversifies its revenue streams, maximising growth opportunities. Current areas of indication include Parkinson's disease, multiple sclerosis, depression, sleep, as well as rare and paediatric diseases such as GLP-1 and paediatric obesity.
With regards to profit, cost reductions, particularly staff reduction, are expected to yield favourable outcomes in FY24.
Cogstate's Unique Position in the Pre-Symptomatic Alzheimer's Market.
There is a growing market for Cogstate's technologies and services, most notably within the Alzheimer's disease space. Specifically, Cogstate is uniquely positioned in the pre-symptomatic Alzheimer's market due to its highly sensitive digital and clinical instruments as well as its unique clinical experience and expertise.
Cogstate is involved in 100% of ongoing and planned pre-symptomatic Alzheimer's disease trials, with another trial having been recently secured. This 100% market share is expected to yield significant benefits in the future, positioning the company to outperform rivals.
Cogstate's favourable position within this market is compounded by positive external market conditions, consisting of the approval and launch of disease-modifying treatments as well as the expanding research landscape. Additionally, the addressable market for Cogstate's Clinical Trials and Healthcare businesses is expected to grow due to the rising prevalence of Alzheimer's.
Cogstate's relevant areas of innovation include the development of phone-based and app-based assessment, the building of data reservoirs to enhance products such as digital assessment, as well as technology-based methods to improve margins.
Summary
Earlier this year Cogstate announced that acquisition negotiations for the company had ceased. On a recent investor call, CEO Brad O'Connor said that the board may reconsider M&A talks when financial results are more robust.
Given the current high level of activity in new work the company is bidding for, acquisition negotiations may well resume in the year ahead.
Cogstate is capitalised at $267 million with US$29 million.
Bioshares recommendation: Buy
