Cogstate
H1 2022 full update
By Manuel Maurício
September 02, 2021
I wrote about Cogstate just the other day following the release of the usual earnings update.
Last week Cogstate published the full report for the first half of 2022 (ending in December) as well as a conference call filled with new information.
As previously disclosed, the revenue reached an all-time-high of $23.1 million.
Interestingly enough, Brad (CEO) doesn’t believe that this growth is reflective of the Aduhelm approval just yet. It takes time to run through that investment cycle, meaning that many biotech and pharma companies have yet to ramp up their R&D investments in Phase 1 trials so it will take some time for Cogstate to recognize it on its Backlog and Income Statement.
As expected, the revenue growth outpaced the costs growth…
… leading to a higher margin.
This happened, in great part, due to higher software revenue mix, 23% of the total revenue versus 17% historically. The management was clear in mentioning that this was related to the large contract that they’ve signed earlier in the year and we should expect the mix to go back to the historical 17%.
Another important and just-released information is the breakdown of the Backlog by phase of Clinical Trials.
For those of you who are new to the clinical trials industry, there are usually 3 phases before a drug gets approval by the regulators:
Phase 1: To test the safety of the drug on a small population sample (20-80 people).
Phase 2: To test the efficacy of the drug on a larger population sample (100-300 people).
Phase 3: To test both the safety and efficacy of the drug on a large population sample (1000-3000 people).
Cogstate is working on 117 Clinical Trials, most of which are in Phase 1 and 2. But when we look at the dollar amount that these Phases represent we can see that, although the Phase 3 trials account for just 20% of the Backlog, they represent 58% in dollar terms. This happens because the Phase 3 trials are the largest of all, usually involving millions of dollars.
Either way, it’s very reassuring to see that the company is working on many Phase 1 trials. It’s these trials that will, eventually, become Phase 2 and Phase 3 trials.
The management also states that 73% of the Backlog is Alzheimer’s Disease related. I would like to see the company diversify a bit more, but it is what it is.
Another important new piece of information was the management’s attempt to calculate Cogstate’s market share in the USA. According to their calculations, they have a 13.3% market share.
When asked about their competition in the remaining 78 trials, Brad mentioned Signant Health and WCG (VeraSci) as companies that perform standardized measures of cognition.
Both these companies offer much more than just cognition assessments. They actually offer the whole package of remote clinical trials. I believe they’re similar to ERT with whom Cogstate has a partnership. It’s important that Cogstate keeps partnering with large clinical trials providers to expand its market share.
HEALTHCARE SEGMENT
On the Healthcare segment, the company recorded the minimum royalty payments by Eisai. The slight decrease in revenue from the second half of 2021 was due to a change in the way the company recognizes the cost coverage by Eisai.
Of relevance to the Healthcare segment is the recent launch of Raku Raku phone, marketed to the senior population of Japan. This smartphone comes with a pre-installation of Cogstate’s software NouKNOW.
26.000 NouKNOW cognitive assessments have been performed in Japan already, with more than 90% testing sessions that were initiated were successfully completed, which is a great result for an unsupervised assessment.
Following the recent launch in Taiwan and Hong-Kong, Eisai is planning on launching Cogmate in the US later in the year.
CONCLUSION
The company now has $24.6 million in cash. When asked about what they’ll do with it, this time the answer was different from usual with Brad mentioning that they’re open to make acquisitions of other software companies if they find them at the right price. Very interesting to hear this.
Following the recent earnings update in January, the stock came down 27%. One of the subscribers asked me if I knew the reason. I told him that I didn’t, but that I suspected it was related to the tech sell-off in the USA.
I also told him that I wasn’t too worried about it as I wasn’t finding any news to justify such price action.
And, as expected, the stock has been recovering the lost ground.
This high volatility is the price you pay for investing in microcaps. I’m perfectly OK with that.
Before I wrap up, I would like to mention a recent find of another diagnosis tool for Alzheimer’s Disease. Semler Scientific, a core holding of the Portfolio, has announced an investment in Synaps, the company behind Discern. With a small skin sample (that must be shipped to Synaps’s lab) they can detect early signs of Alzheimer’s Disease and distinguish it from other dementias. This is, potentially, a very interesting development in this space. I’ll be updating you on my findings going forward.
For now, nothing material ha changed and Cogstate will remain the Portfolio as a core, long-term, holding.
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