Why the Cogstate (ASX:CGS) share price is rocketing 73% higher

The first new treatment approved for Alzheimer’s disease since 2003 is giving this healthcare technology company a boost…

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The Cogstate Limited (ASX: CGS) share price is rocketing higher on Tuesday morning.

At the time of writing, the neuroscience technology company’s shares are up 73% to $1.60.

Why is the Cogstate share price rocketing higher?

Investors have been bidding the CogState share price higher on Tuesday following a very positive development.

According to the release, Eisai and its development partner, Biogen, have announced that the U.S. Food and Drug Administration (FDA) has granted Accelerated Approval for aducanumab for the treatment of Alzheimer’s disease.

The accelerated approval has been granted based on data from clinical trials demonstrating the effect of aducanumab on reducing amyloid beta plaques. This is a biomarker that is believed to predict clinical benefit, which in this case is a reduction in clinical decline.

The release advises that under the accelerated approval conditions, which provide patients suffering from the disease earlier access to treatment, Biogen will conduct a controlled trial to verify the clinical benefit of the drug in patients with Alzheimer’s disease.

This is the first new treatment approved for Alzheimer’s disease since 2003 and is the first approved therapy that targets the fundamental pathophysiology of the disease.

However, if the Biogen trial fails to verify clinical benefit, the FDA may initiate proceedings to withdraw approval of the drug.

How does this benefit Cogstate?

Cogstate stands to benefit from this development due to its agreement with Eisai. That agreement gives the Japan-based pharmaceutical company the rights to exclusively develop and distribute Cogstate digital cognitive assessment technologies in healthcare and other markets worldwide.

The release explains that following the approval of aducanumab by the FDA, Eisai no longer has the right to accelerated termination of the Cogstate-Eisai agreement. Therefore, in addition to the minimum contractual royalty payments over commercial years 1-5 of US$10 million, Eisai is now also contractually obliged to make the minimum royalty payments to Cogstate over commercial years 6-10. This will mean an additional aggregate payment of US$20 million over that period.

The Cogstate share price is now up 385% over the last 12 months.

James Mickleboro does not own any shares mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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