It was a great set of results for FY25. Though much of it was pre-announced in an earlier trading update, so there were no surprises. 2H was significantly stronger with $27.9m revenue and $8.1m EBIT. A notable shift from prior years is the growing share of smaller clinical trial wins, which provide faster turnarounds and earlier revenue recognition.

In the past, Cogstate has hinted that channel partnerships (with groups like ERT or Clario) could help drive sales. It now looks like they’ve found the real deal in Medidata - a major electronic data capture company with 4,000+ staff and roughly 800 salespeople. The partnership is still in its infancy: the sales team only began ramping up in February 2025, yet proposals involving Medidata already represent around 20% of Cogstate’s pipeline. With Medidata’s far deeper reach into clinical trials, Cogstate is accessing a broader range of opportunities than it could on its own. Management has made it clear this is only the beginning, with expectations of further pipeline growth and contract wins as the joint approach matures.

We’re also beginning to see the benefits of the April 2024 licensing amendment with Japanese pharma giant Eisai, which returned global rights to Cogstate’s assessment technology. That technology is now being used to help pharma companies pre-screen patients for clinical trials - an application that generated $1.2m in FY25 revenue, with more opportunities of this kind already in the pipeline.

It’s been a tough stock to hold over the years, largely because Cogstate has been so reliant on a small number of large phase 3 Alzheimer’s trials. The scarcity of these large deals, combined with their inherent lumpiness and the impact of patient recruitment delays, has led to significant year-to-year swings in the company’s performance.

All of a sudden, the outlook looks much brighter. The business is diversifying beyond Alzheimer’s into areas like rare disease, sleep disorders, and Parkinson’s - smaller trials that are quicker to secure and faster to recognise revenue from, smoothing out the historic lumpiness. Medidata is now driving meaningful RFP flow and opening doors into new indications. Cogstate has also began monetising its consumer-facing technologies for patient recruitment, with scope to expand into further use cases. Importantly, the upside from large phase 3 Alzheimer’s trials remains intact, with a number of big pharma companies currently progressing phase 2 programs.

Management have suggested revenue growth is once again expected in FY26, but with the shortened sales cycles and revenue recognition, no specific numbers have been given. Also expect a modest margin decline (~0-3 percentage points on EBITDA/EBIT) due to increase investments. They’re off to a strong start with $14.1m of contract revenue banked since June 30. A maiden $0.02/share fully franked dividend was also declared.

One could make the case that it’s a very reasonably priced company with an EV/E of 15x (annualise 2H performance), that’s more self-reliant than it has previously been (broader beyond AD, stronger channel-partner leverage, and a faster cadence of smaller contracts), with some tremendous tailwinds (pursuit of AD treatments, pharma chasing earlier stages of AD that require more sensitive endpoints, etc). Ultimately, this is only for investors that have belief in the long-term tailwinds and willing to ride the bumps and grinds - this is not your grandad’s SaaS company adding incremental ARR every year.

Not a huge surprise, but good news nevertheless.

Hopefully in the eyes of pharma companies and biotechs this helps de-risk the development of future Alzheimer’s treatments, and in turn increase the demand for Cogstate’s clinical trial products and services. This is the main bull case of the FDA approval for CGS.

Apart from the financial strain to the US government (US$26.5k per year for the treatment), other key concerns involve the strain of the demand to the medical system. PET scans, genetic tests, neurologists, the laborious administration by intravenous infusion every 2 weeks, and so forth.

Cogstate may stand to benefit in a couple of ways. One is the likely follow up clinical trials for Leqembi, and other likely FDA approval candidates, to use less laborious administration of the drug. Perhaps longer intervals or subcutaneous injections instead of infusion.

Two, in order to qualify for Leqembi, prospective patients will need to have cognitive tests completed and submitted to centralised registries. A low-touch digital test would help ease the load on the medical system by opening up the pool of healthcare professionals that can administer them. No doubt Eisai and Cogstate are hoping their upcoming digital apps will play a large role in this.

Despite the share price falling by nearly 50% since the close on Friday last week, my view is very little has changed about the company on a fundamental level.

The guidance downgrade issued was essentially the result of delays in clinical trials by Cogstate’s customers - either from slower-than-expected enrolment of patients or delays in timelines. The vast majority of companies working in the clinical trials space face the same risks. It’s part of parcel of being in the industry and should be expected to happen from time to time. More importantly, none of the contracts have been cancelled and contracted revenues are sitting at record levels. As per my previous straw, contracted revenues for the next few years are tracking materially higher than today and this is the leading indicator for future revenue. EBITDA and EBIT numbers are going to be crunched this year as operating leverage goes into reverse - but again, I don’t think anyone that’s followed the story would be surprised by that. The company has plenty of cash, looking to remain profitable, and can easily ride out the bumps.

The likely reason for the share price volatility is someone caught hold of the corporate control discussions between a third-party and Cogstate and purchased large volumes of stock throughout early-mid February. When the takeover was called off - and the party also caught wind of this - they became a forced seller and started dumping heavy volumes on the next trading day and has continued since. The Galaxy Brain has lost 30%+ of capital within a week on this trade, and may attract regulatory or criminal investigations.

One can argue, management could have handled the corporate control situation better. Perhaps halted the stock when increased volume of purchasing was obvious - that is, the confidential discussions were no longer confidential. Perhaps they could have disclosed the discussions once access to due diligence was granted. It’s neither here nor there, and doesn’t change my view on the quality of management. Of course if management is found to have been negligent in keeping the discussions confidential, then my views will change.

The share price closed at $1.18 on Friday. Prices not seen since before the FDA accelerated approvals of Aducanumab (Biogen) and Lecanemab (Eisai/Biogen). A time in the midst of a dark winter of AZ treatment development, when no new AZ treatments had been approved for almost two decades. When there was a high level of uncertainly whether Cogstate’s customers will continue to fund clinical trials if the current set of monoclonal antibody treatments struck out. Some 20 months on, we’re given another chance to purchase stock at this price. In my opinion, we’re given the chance because someone screwed up majorly trading on inside information, and is now a forced seller.

When there is a high level of uncertainly and incomplete information, this is when one’s resolve, conviction and understanding is tested. None of these can be borrowed from other investors, and during times of peak uncertainty, we’re all on our own.

I added substantially to my RL holdings on Friday, and could potentially add more in the coming days.

The share price could have further to fall from here. I’m wrong a lot. Please do your own research. Thought it would be fun to publicly document during a time of high uncertainty. It’ll be fun to look back to see whether I took the correct action or if I had completely misjudged the situation.

I've put together this graph to better visualise the contracted clinical revenue (which is 90% of the business) over time. As you can see, FY23 and FY24 contracted revenues are tracking well ahead at similar stages to prior years

The CEO mentioned on the conference call that he believes the tailwinds from the Aduhelm approval have yet to kick in.

So hopefully when it does...

There's been talk on Cogstate's valuation - how it's high and has a lot of the direct to consumer/doctor upside priced in.

I actually think the opposite is true - the valuation is very reasonable on the clinical trials business alone. 

Right as of this moment, the company has more clincial trial contracted revenue in FY22 (USD$30.5m) and FY23 (USD$29.5m) than recorded in FY21. Through the last set of presentations, management is pretty much guiding $47-$55m group revenue (+48-74% growth) with no upside from the Healthcare segment. It's growing very quickly, and there's more visibile than ever.

I've included a "cohort" chart of contracted clinical trial revenues, and how it grows over the years. FY22 and FY23 numbers are of course my own forecasts. The assumptions in my opinion are quite balanced. All numbers are in USD.

On these numbers the company is currently trading at FY23 4.2x sales and 13x EV/EBIT. Again zero upside on the direct to consumer/doctor healthcare segment is built in.

Overnight, the Biogen share price lept 40% on the back of some positive comments from the FDA about its Alzheimer’s drug aducanumab.

More details: https://www.bloomberg.com/news/articles/2020-11-04/biogen-shares-surge-after-fda-publishes-alzheimer-s-documents

Cogstate is a cognition testing company. Historically earned most of its revenue from clinical trials where measuring improvement/decline of cognition is required.

But they've been trying to enter the consumer-side in a partnership with Japanese pharma giant Eisai. The idea is end consumers, via phone/tablet/web apps, would be able to test their own cognition without the need for a specialist to administer the test or specialised equipment.

Why does this all matter?

• Eisai is a partner of Biogen on aducanumab.
• Eisai is a partner of Cogstate on its consumer product and holds ~7% of the company.
• Cogstate had previously mentioned that an approved consumer drug that treats cognition would be a major boon for the company. The hope was that measuring cognition would become similar to measuring blood pressure and helps the end consumer monitor the effectiveness of the drugs they're taking.
• Alzheimer's is estimated to be between the 3rd and the 6th leading cause of death among the elderly in the US. It's poorly understood - especially when it's first detected and what can be done to treat it.

Worth a watch