Cogstate's (CGS: $1.19) business is now delivering on changes that have been implemented over the last two years.
Cogstate records 'sales' when contracts are signed. In the first half, sales were US$20.3 million, up 27% on the previous (June) half. It's in a position now that sees the company delivering a profit, when sales can be maintained above US$40 million a year.
Revenue for the last half was US$23.9 million. It's higher than sales as it takes into account longer term contracts already underway before the period commenced, similar to the way construction firms win long term contracts.
What was particularly good was the increase in cash of US$4.1 million, or US$5.1 million if the share buyback is excluded. If that performance can be repeated in the current half, then it should see the company increase cash by at least US$10.2 million or AUD 16.5 million over the year.
More Efficient Business
Over the last two to three years there has been an emphasis in building profitability. It has reduced its employee numbers from 166 at the end of 2023, to 161 at the end of June last year and to 154 at the end of last year. Much of this has been able to be achieved from efficiency gains, some of which occurred as a result of the pandemic. CEO Brad O'Connor said that the company has capacity to increase work load with the current employee base.
Increase in Channel Partners
The second change for Cogstate that has occurred is partnerships it has secured with larger CROs. The company now also bids through work with five CROs, which has increased from just two partners two years ago. In the last half 36% of new sales opportunities came from these channel partners.
Generational Opportunity
Other drivers of the company's business is the acceleration in Alzheimer's disease drug research following from the success through recent drug approvals (Leqembi from Eisai & Biogen and donanemab from Eli Lilly). The company believes there is currently a 'generational opportunity' in this field for service providers.
Cogstate is currently providing its services and technology for 27 studies in this disease area, and 99 studies in all disease areas. Of the US$20.3 million in new sales contracts signed last half, 70% were in Alzheimer's disease. The company has also been working on increasing its business in other disease areas.
Another current driver for business cited by the company is the improved funding environment for small-medium drug developers.
Cogstate is capitalized at $203 million with cash of US$34 million (A$54 million) at the end of last month.
Bioshares recommendation: Buy
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