The CogState Limited (ASX: CGS) share price fell 5% to $0.89 after the release of its half year report this morning. Revenues fell 5% to $13.4 million, and net loss after tax was $1.3 million, down from a $1.7 million loss last year.
Despite the decline in revenue, CogState added to its backlog of future contracts, and currently has $35 million in contracted revenue that will be recognised in future periods. Cogstate also invested $1 million in a new technology platform that will be easier to maintain and update for future commercial plans.
Over the full year, CogState expects to report continued heavy expenditure on new product launches (Cognigram) and product development, including the addition of 3 scientific experts' to CogState's team.
The company has found that offering scientific consultation (such as around trial design) earlier in the process can improve its sales conversion (the likelihood of winning a sale from a customer that they advertise to) and so these additional costs should bring benefits in future periods.
CogState also continues to invest in building and supporting a variety of new test types including audio, virtual reality, wearables, and written tests.
Overall, CogState looks to be making progress towards its goals of adding more tests to its arsenal and expanding the amount of work it is doing for clients. From my perspective, many of the company's tests (or equivalents) are easily replicable by competitors and I think CogState's key opportunity is by making itself a 'one stop shop' for clinical trials and being more efficient/more helpful than competitors.
The strong industry focus on curing/treating Alzeihmer's disease (Alzeihmer's cognitive tests are CogState's main area of expertise) does appear to be a nice tailwind for the company. I feel that the company's investment in technology and hiring experts is a shrewd decision but having said that, I'm not yet convinced that CogState is a clear winner in the space.
With a stronger second half expected, a substantial amount of contracted future revenue, and investment in internal systems expected to decrease, CogState's financial future looks ok. However, with around $4.2 million in cash and cash equivalents, and having burned $3 million in cash this half, I think the company may need to raise capital soon. This is something I would keep in mind were I a prospective buyer.
CogState is an interesting company, but it's one I'm inclined to watch from the sidelines for now.
