Cogstate seems to be executing well with an ever increasing pipeline and expanding into new disease domains. Margins may compress in the short term as they tool up to enable this:

Business Update

All results in US$, unless stated

Cogstate Limited (ASX:CGS), has today released a business update ahead of its Annual General Meeting of

shareholders, which will take place at 11am AEDT today.

Market Conditions

The demand for Cogstate services continues to grow, reflecting both growth in the market for R&D in central nervous

systems diseases as well as growth in market share by Cogstate.

Each of the last four quarters (from 2Q25 to 1Q26) has set a new record for the number of sales opportunities

identified by Cogstate, with those opportunities in the September quarter (1Q26) 72% higher than 1Q25.

The growth in sales opportunities identified reflects an expansion of both the Cogstate customer base and entry into

new indications. Cogstate management continues to carefully monitor win-rate from the associated increase in

proposals volume and is assessing the full impact of new channel partnerships, with further updates to be provided

throughout the course of the year.

Clinical Trials Sales Contracts

For the September quarter (1Q26), Cogstate executed $21.4 million of sales contracts, which is the second highest

quarterly result in Cogstate’s history. The quarterly sales contracts represent an increase of 88% compared to the

$11.4 million of sales contracts executed in the previous corresponding quarter (1Q25).

The following table shows the reduced concentration of the value of sales contracts executed in 1Q26, delivering on

Cogstate’s growth strategy, compared to the full FY25 year – noting that 1Q26 data will not necessarily be reflective

of the full FY26 year:

Indication

FY25

Sales Contracts

by Value

1Q26

Sales Contracts

by Value

Alzheimer’s disease 56% 33%

Rare disease 19% 19%

Narcolepsy 6% 11%

Depression 5% 17%

Parkinson’s disease 4% 2%

Schizophrenia 2% 14%

Other 8% 4%

| Page 1Financial Outlook 1H26

Subject to sales contracts executed up to 31 December 2025, and 1H26 revenue yield from those, revenue for the

December half year period (1H26) is expected to be:

• Approximately 18% - 20% better than the previous corresponding half (1H25 $23.9m); and

• Closely align with the most recent June half year period (2H25 $29.1m).

In respect of margins for the December half year period, we reconfirm guidance provided with the release of the

FY25 results in August, specifically:

• Continuing to invest for growth: Both direct costs and operating costs will increase from FY25 to FY26 as

Cogstate invests for growth:

o Additional science resources to support expansion into psychiatry and mood disorders;

o Additional resources based in the Asia-Pacific region to support a growing customer base there;

o Continued increase in expenditure related to data engineering to bring more automated data insights

to Cogstate customers; and

o Engineering expenses associated with development of AI tools.

• Potential margin impact of growth initiatives: Subject to revenue growth in FY26, the increase in

expenditure may result in a small decrease in margins (0-3 percentage points).

Due to the volume and value of sales opportunities outstanding presently, it is not possible to provide accurate full

year FY26 guidance at this stage.

Held IRL

From the economist.

I’ve been aware of the lower risk of Alzheimers in those who have had a shingles vaccine for some years . In fact, that was a major reason I paid for the vaccine a few years back (it is now free for >50 year olds). But this review really fleshes out that theory.

Initially, I thought it was a thesis buster given this will impact the beta amyloid theory and all the current crop of drugs. Having slept on it, I realise it may well be a positive: more research, more cognitive assessments, more business for Cogstate. Interested in others thoughts:

n the summer of 2024 several groups of scientists published a curious finding: people vaccinated against shingles were less likely to develop dementia than their unvaccinated peers. Two of the papers came from the lab of Pascal Geldsetzer at Stanford University. Analysing medical records from Britain and Australia, the researchers concluded that around a fifth of dementia diagnoses could be averted through the original shingles vaccine, which contains live varicella-zoster virus. Two other studies, one by GSK, a pharmaceutical company, and another by a group of academics in Britain, also reported that a newer “recombinant” vaccine, which is more effective at preventing shingles than the live version, appeared to confer even greater protection against dementia.

For years, most research into Alzheimer’s disease—the most common cause of dementia—has been laser-focused on two proteins, known as amyloid and tau. These build up in the brains of people with the disease, forming plaques and tangles that prevent neurons from functioning properly. Most scientists assumed that these proteins are the primary cause of Alzheimer’s disease. But the shingles studies published in 2024, along with a host of new papers, add weight to an alternative decades-old idea—that viruses trigger the disease. Per this theory, plaques and tangles of proteins could, instead, be the body’s response to an underlying viral infection. If that is true, then eliminating the virus could prevent or treat Alzheimer’s.

Ruth Itzhaki, formerly of Manchester University and now a visiting professor at the University of Oxford, has championed this idea for almost 40 years. The bulk of her work has focused on herpes simplex virus 1 (HSV1), best known for giving people cold sores, which infects around 70% of people, most without symptoms. The virus normally lives outside the brain, where it can lie dormant for years. It is flare-ups that can lead to cold sores.

In rare cases, the virus can also lead to massive inflammation in the same brain areas that are most affected by Alzheimer’s. In experiments conducted in the early 2000s, Professor Itzhaki found that if she infected lab-grown human brain cells with HSV1, amyloid levels inside the cells increased dramatically. That led her to suspect a causal connection.

For decades she struggled to get her ideas accepted by the rest of the scientific community. “It was considered a left-field, crazy hypothesis,” says Or Shemesh, who researches viruses and Alzheimer’s at the Hebrew University of Jerusalem. Most scientists were focused on the role of amyloid and tau, assuming that they were the primary cause of the disease. Critics argued that the virus theory was hard to reconcile with the fact that Alzheimer’s has a strong genetic basis or occurs in almost all people with Down’s syndrome.

But growing disillusionment with the leading hypothesis for the cause of Alzheimer’s has led scientists to cast around for alternatives, such as viruses. Over many decades, for example, tens of billions of dollars have been poured into efforts to develop treatments to reduce the levels of amyloid and tau in the brain but the results have been underwhelming—existing amyloid-targeting drugs only have a modest effect on the disease. The discovery that pathogens can trigger other neurological diseases, such as the connection between Epstein-Barr virus and multiple sclerosis, has made the link yet more plausible.

In a bid to push forward Professor Itzhaki’s theory, a group of 25 scientists and entrepreneurs from around the world have assembled themselves into the Alzheimer’s Pathobiome Initiative (AlzPI). Their mission is to provide formal proof that infection plays a central role in triggering the disease. In recent years their work detailing how viruses trigger the build up of proteins linked to Alzheimer’s has been published in top scientific journals.

One new idea, supported by some AlzPI members, is that amyloid and tau may actually be the brain’s first line of defence against pathogens. These proteins are sticky, so they can grab hold of viruses or bacteria to slow their spread before more sophisticated immune responses kick in, says William Eimer at Harvard University. In small quantities, therefore, the proteins seem to boost brain health. The presence of active HSV1 or other pathogens, however, may send the immune system into overdrive, causing the proteins to stick to each other and create the plaques and tangles that damage neurons in Alzheimer’s.

Genetics seem to influence this process, answering some criticisms. The high incidence of the disease in those with Down’s syndrome, for example, might be explained by the fact that their bodies produce more of the protein that is, under certain conditions, converted into amyloid. Some of the AlzPI scientists theorise that this larger potential supply of amyloid could facilitate the formation of plaques in response to a virus. People with Down’s are also more prone to infection.

What’s more, in 1997 Professor Itzhaki found that people with a genetic variant known to increase Alzheimer’s risk, ApoE4, were only more likely to get the disease if they also had HSV1 in their brain. In 2020 a group of French scientists showed that repeated activations of the virus, seemingly harmless in people without ApoE4, more than tripled the chance of developing Alzheimer’s in those with it.

Researchers at Tufts University, working with Professor Itzhaki, have probed why such reactivation occurs. In 2022 they found that infection with a second pathogen, the shingles virus, could awaken the dormant HSV1 and trigger the accumulation of plaques and tangles. This may explain why shingles vaccination appears to be protective against dementia. In another study published in January, the Tufts researchers also showed that a traumatic brain injury—a known risk factor for Alzheimer’s—could also rouse HSV1 and start the aggregation of proteins in brain cells grown in a dish.

The viral theory has promising implications for treatment. Current therapies for Alzheimer’s, which attempt to reduce levels of amyloid in brain cells, merely work to slow the progression of the disease. If viruses are a trigger, though, then vaccination or antiviral drugs could prevent future cases. Such treatments could also slow or halt the progression of Alzheimer’s in those who already have the disease. None of this requires major breakthroughs. Antivirals for the cold-sore pathogen already exist and are off-patent. And the shingles vaccine is now routinely offered to elderly people in many countries.

Many researchers have trawled through medical records to look for links between antivirals and reductions in dementia diagnoses. These sorts of retrospective analyses are often tricky to interpret, as people who take medications or get vaccinations tend to be more health-conscious in general, making them less likely to develop diseases such as Alzheimer’s. But some of the results are promising. One study published in 2018 found that for older people in Taiwan who had cold sores, taking an antiviral cut the risk of dementia by 90%. Several subsequent analyses of medical data from other countries found more modest protective effects of antivirals, typically between 25 and 50%.

 The first double-blinded randomised clinical trial to test the effectiveness of antivirals against dementia is now under way. A group of researchers mostly based at Columbia University are testing whether valacyclovir, an antiviral used against HSV1, can slow down cognitive decline in people with early stage Alzheimer’s. Between 2018 and 2024, the researchers recruited 120 patients and treated half with the antiviral. They expect to publish their findings later this year. John Hardy, whose research forms the basis of the dominant amyloid theory of Alzheimer’s, and who has been a critic of the virus theory, says that a positive result in this trial would begin to convince him otherwise. If Dr Geldsetzer and his team can secure the funding, a similar trial of the shingles vaccine may soon follow.

Around 32m people around the world are living with Alzheimer’s disease. If antiviral treatments can indeed slow, delay or prevent even a small subset of these cases, the impact could be tremendous. ■

I’m still a holder but thinking my thesis is busted or at least a little bent out of shape.

@nerdag - you were an early and vocal naysayer. Do you have any updates to how things are shaping up?

thx

c

Been pretty quiet for CGS. One bad surprise overnight though:

The share price of Eisai, a Japanese drugmaker, plummeted after a surprise decision by European regulators on Friday not to approve lecanemab, an Alzheimer’s treatment it developed with Biogen, an American counterpart. The European Medicines Agency cited the danger of serious side effects, including brain swelling. The drug has been approved in America and Japan. Eisai said the ema’s decision would disappoint Europe’s 6.9m Alzheimer’s sufferers. 

Just watched the video from the recent meeting.

I felt reassured that the confidence implied by the continued share buy back was real. At least in the short-medium term. The likelihood of larger contracts from the 3 new big pharma companies to contract their services was clearly something that Brad thought (and the Board) would have a very high likelihood of bringing increased revenues in teh future.

The expansion of Cognigram into the yearly health check in the US is really interesting. Brad raised the point that there is a big gap between identifying a decline and there being any actionable steps. This may not matter. The old "show me the incentives...." quote comes to mind. If there is a positive financial impact for the primary healthcare provider, they will want to use the test. If there is also a perceived benefit from the patient, they will want the test. This might be all that matters. Be interesting to see how that evolves.

That got me thinking - they should have a free app you can download and test yourself at home. Turns out they do - it's called Lila - you can test yourself and track your results over time, I just downloaded and will give it a burn tomorrow. I'm surprised this has never come up before - presumably it hasn't got much traction as yet.

Overall, I felt considerably reassured about heir capital management, which was my main concern with how the business is tracking.

Held.

it seems the 2 deaths are likely attributable to drug interactions rather than a direct effect of lecanamab.

for me the major point about this study is that it opens the door a little for other trials. This is the first, robust phase 3 trial with positive results that confirms that the amyloid plaque theory is valid. As to whether the (admittedly modest) benefit is worth the risk or cost is not partly relevant to the thesis of Cogstate. It means that there will now be a concerted push by drug companies to improve on this initial success we are likely to see a significant expansion in new drugs in this space all requiring trials. This is the point

Heralded Alzheimer’s drug works — but safety concerns loom

Eisai and Biogen share clinical trial data confirming that lecanemab slows mental decline amid reports of potentially related deaths.

30 November 2022

People involved in a clinical trial of the experimental Alzheimer’s drug lecanemab had their brains scanned to see whether the treatment was clearing away toxic protein plaques.Credit: US Department of Energy/Science Photo Library

Researchers have got a first look at phase III clinical trial data for a much lauded experimental Alzheimer’s drug — and although the data support it having a moderate cognitive benefit for people, scientists worry about its safety.

The results, presented on 29 November at the Clinical Trials on Alzheimer’s Disease conference in San Francisco and simultaneously published in the New England Journal of Medicine¹, confirmed that the treatment, a monoclonal antibody called lecanemab, slowed cognitive decline by 27% relative to placebo in an 18-month study of nearly 1,800 participants. The antibody’s developers — pharmaceutical firm Eisai, based in Tokyo, and biotechnology firm Biogen, based in Cambridge, Massachusetts — announced these topline findings in September in a press release.

Could drugs prevent Alzheimer’s? These trials aim to find out

But the disclosure comes amid media reports that lecanemab might have contributed to the deaths of two people who had participated in the trial — adding to an ongoing debate over whether the experimental drug’s modest benefit is worth its accompanying safety risks. Eisai has denied lecanemab played a part in one death, and has yet to determine if it had a role in the other.

“It’s quite a complicated balancing act for risks and benefits,” says Rob Howard, a psychiatrist at University College London who specializes in dementia. And he worries about how patients and families who are desperate for Alzheimer’s treatments will weigh the two sides, if lecanemab is approved by regulatory agencies.

“All the available safety information indicates that lecanemab therapy is not associated with an increased risk of death overall,” Eisai said in a 29 November statement.

If a connection between lecanemab and the deaths is found, it could pose “a real conundrum” for the US Food and Drug Administration (FDA) as it decides how to rule on lecanemab, says Caleb Alexander, an internal-medicine specialist and epidemiologist at the Johns Hopkins Bloomberg School of Public Health in Baltimore, Maryland, and an advisory committee member for the FDA. The FDA is slated to decide on whether to give the experimental drug special authorization in early January.

Benefits and risks

Researchers are glad to see the swift publication of the lecanemab trial data. Some have previously criticized the rollout of another monoclonal antibody treatment for Alzheimer’s: aducanumab. Like lecanemab, aducanumab was designed to sweep clumps of a protein called amyloid-β from the brain; many researchers think this protein is a root cause of Alzheimer’s. The FDA controversially approved aducanumab, which was also developed by Biogen, last year on the basis that it cleared amyloid from people’s brains, but without clear evidence of cognitive benefit.

Alzheimer’s drug slows mental decline in trial — but is it a breakthrough?

By contrast, lecanemab is the first of its kind to slow mental decline in a robust clinical trial. During the trial, called Clarity AD, clinicians administered the treatment to a cadre of people in more than a dozen countries with early-stage Alzheimer’s. Half received biweekly intravenous infusions of lecanemab, while the others received a placebo. Scientists assessed people’s cognition primarily with a metric called the Clinical Dementia Rating–Sum of Boxes (CDR-SB), which evaluates a person’s abilities in six areas, including memory and problem solving, using an 18-point scale.

After 18 months, participants receiving lecanemab scored, on average, 0.45 points better on the CDR-SB than those receiving placebo. Other cognition tests used in the study echoed these results, and the treatment group showed a reduction in amyloid and other disease biomarkers.

But some researchers have questioned whether this shift is big enough to be noticeable in a person. A one-point difference on the CDR-SB is the minimum to be clinically important, Howard says.

“It’s a modest benefit,” says Brent Forester, director of the Geriatric Psychiatry Research Program at McLean Hospital in Belmont, Massachusetts, who helped to run the clinical trial for lecanemab. His concerns lie with safety. About 20% of people receiving lecanemab had brain-scan abnormalities that indicated swelling or bleeding — although less than 3% of those who received the antibody experienced symptoms related to these abnormalities.

This is how an Alzheimer’s gene ravages the brain

This safety profile is better than that of aducanumab. Forty per cent of people receiving that antibody in phase III clinical trials showed brain swelling in scans. But Forester still worries, because if approved, lecanemab would be given to relatively high-functioning people who happen to be in the early stages of Alzheimer’s. Complications might therefore worsen their quality of life.

During Clarity AD, 13 people taking lecanemab developed symptomatic brain bleeds — or strokes — whereas only 2 people in the placebo group did, according to the conference presentation. This represents just 1.4% of the treatment group, Howard says, but “that’s not a trivial risk profile”.

Further exploration needed

Both deaths reported in the media occurred during Clarity AD’s ‘open-label extension’, a period during which a trial has formally ended, but participants who were receiving placebo can opt to receive the experimental treatment. Both involved stroke-related complications.

More Alzheimer’s drugs head for FDA review: what scientists are watching

In one case, reported by STAT News, a participant who used a prescribed anticoagulant, or ‘blood thinner’, for a heart condition, died after a heart attack and four mini-stroke-like events. The other individual, reported by Science, died from a brain bleed after she received an emergency stroke medicine. As reported by both outlets, scientists think it’s plausible that lecanemab could have weakened the brain’s blood vessels by sweeping away amyloid protein lining the vessels in these people’s brains. The medications could have then helped trigger bleeding.

Because of the tie with anticoagulants and other factors, it’s a bit difficult to detangle whether lecanemab played a role in the deaths, said Marwan Sabbagh, a neurologist at the Barrow Neurological Institute in Phoenix, Arizona, while presenting data at the conference. “These things are continuing to be explored," he said. Although the rate of brain hemorrhage is low with lecanemab, it does rise with anticoagulants, he added.

“I honestly would be in the camp of not prescribing monoclonal antibodies to people on anticoagulation [medicines],” says Liana Apostolova, a neurologist at the Indiana University School of Medicine in Indianapolis who has consulted for Eisai and Biogen.

Whether or not the deaths will affect the FDA’s decision on lecanemab, scheduled for 6 January, is “anybody’s guess”, Alexander says. The agency will consider whether it should grant the drug candidate ‘accelerated approval’ on the basis of phase II clinical trial data showing that lecanemab clears amyloid-β from the brain. The approval would be conditional on Eisai and Biogen conducting follow-up studies to confirm a clinical benefit, which Clarity AD should fulfill.

If lecanemab is approved, Forester says, “I would suspect that there will be recommendations for careful monitoring”.

Roche late-stage Alzheimer’s trials end in failure

Two studies of antibody treatment gantenerumab fail to slow decline in people with early-stage disease

nowhere near as important as Eisai’s success, but would have been a good addition to the tailwinds for CGS

The Economist have published a piece on the rise of dementia and its implications, which predominantly focuses on the diagnosis.

Irritatingly for the cognitive testing part they picked Cognetivity Neurosciences as their example of a program to be used remotely to diagnose cognitive impairment. This company seems not to have anywhere near the history, background of rigorous studies or indeed a cash flow, like CGS, so it was a lost opportunity. Still, I downloaded the app and ran the test which was cool. I don't have dementia, which was even cooler.

Link to article

I also listen to the Economist's science podcast: Babbage, where the topic was discussed in further depth. I came away far more confident of the massive tailwinds that will benefit CGS, and that their technology will remain relevant for the foreseeable future.

Podcast

Cogstate (ASX.CGS) is pleased to announce that the net value of Clinical Trials sales contracts executed in 1Q22 to date (01 Jul 2021 - 23 Aug 2021) is $35.4 million. The gross total of new sales contracts executed was $38.4 million and includes several new sales contracts. The net total of $35.4 million includes the cancellation of one ongoing trial.

This is in the first few months of this FY. If the rest of the year does no better than last year it would translate to ~$50m for the full year. It seems likely that would be a conservative estimate, given the likelihood of multiple "me-too" drugs that are going to enter clinical trials in light of the FDAs recent approval of Aduhelm (no comment from me on the merits of that decision.....)

Importantly, with software firms, the EBIT and NPAT increase at a far greater percentage than Revenue. The additional cost of selling one or one hundred tests is tiny. 

So using an EV/Sales ratio as opposed to an EV/EBIT will tend to underestimate fair value today.

But, point accepted that it is no longer the compelling proposition it was a few months ago.

@nerdag

Thanks for your post and for challenging what may be a great case of group think. Something we need to be mindful of when we hear a well constructed argument from a pursuasive speaker.

You contend that the other revenue stream is from spillover into clinical practice. There is another revenue stream: direct to consumer. The software has been licenced by Eisai and is going to be marketed to the worried well, and maybe not so well, to check their brain health. This may or may not be successful.

Secondly, could I ask was your valuation on a trailing multiple or a forward multiple? The forecasts for next TM are considerably higher than for last year.

Many thanks for your thoughtful post.

C

@firedup. 
good find!

infuess there are a couple of further bits of information you would need to decide if this will upset the cog state theory. 
it sounds (with no research) that the tests mentioned are yes/no tests. Is Alzheimer's present or not. 
if that is the case then cog state is ok. CGS offers an assessment of function. 
as such it is a way or measuring an outcome or response to treatment in a way that would correlate with functional ability. (Can a person still drive, live on their own, is competent  to sign legal documents etc)

a test that measures an intermediate measure is fraught with issues. Let's say the blood tests Beta-amyloid levels (the plaques that build up in the brain are made of this stuff) . 
if the blood tests show a drop in this level after treatment then everything is great right? Sadly not . There are lots of treatments that can change a marker but make no difference to what really matters, in this case cognitive function. 
Bu measuring cognitive function directly, CGS should be fairly safe from these kinds of diagnostic developments  

hope that helps