Cogstate Ltd - Brain Health Is Driving the World and Revenues
Cogstate Ltd
Brain health is driving the world and revenues
Cogstate (ASX:CGS) works to optimise brain health assessments in clinical trials and medical diagnosis. The company has developed digital technology over 20 years to enable non-invasive sensitive measurements of brain health. Cogstate runs clinical trials for global pharmaceutical companies testing new drug candidates in treating diseases such as Alzheimer’s. The company was formed in 1999 with the thesis that in an ageing society an increasing awareness of brain health would drive a need for brain health assessments. Cogstate has developed digital assessments of brain health that can be delivered via computer, tablet and phone technologies. The Cogstate assessments have been shown to be effective for both in-person and remote assessment of patients. Cogstate tests have demonstrated scientific validity in over 600 peer-reviewed publications and have been used in more than 1,800 academic research studies. Since first sales into the clinical trials market in 2004, Cogstate has supported more than 130 different customers in the conduct of 460 clinical trials in 75 countries. Increased focus on Alzheimer’s disease and remote monitoring have driven the business strongly in FY22.
Business model
Cogstate derives revenues from the clinical trials segment where CGS manages the entire clinical trial cycle from design to final statistical analysis on behalf of a pharmaceutical or biotech company. The value of clinical trials contracts executed in FY22 rose 74% with Alzheimer’s disease representing 84% of the value of those contracts. The company is managing 123 trials in FY23 across all four stages of drug development. CGS tools are also developed to aid healthcare professionals in assessment of cognition in patients. Distribution of these products has been outsourced to Japanese company Eisai and has resulted in increased opportunities and lower costs. Revenue in the healthcare segment rose 19%.
FY23 margins appear robust and revenue growth likely
Building on the strong operational performance in FY22 management is guiding to EBIT at the bottom of the target 20%-24% of revenues. H1 FY23 revenues are forecast to be consistent with H2 FY22 but H2 FY23 is less clear as it depends on sales contracts executed in FY23. Given strong revenue backlogs it seems likely H2 FY23 will also be stronger.
CGS executing well in a growth market
Cogstate is the largest and most mature of the comparable companies we have selected. Delivering strong revenues and profit growth over the past two years places CGS in a position where the company is generating cash and needs relatively little invested capital. Clinical trial management in the areas of brain function seem likely to grow and remain technically difficult for drug companies to manage – Cogstate is in a strong competitive position.
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