for Monday 22 November 2004 Stocks that Southern Cross Equities likes which are covered in some detail in this edition of Buzz: Cogstate (CGS) In this edition of Buzz: Cogstate makes progress on its diagnostic tests and on NLT The stock price of this small Melbourne company has yet to register any of the good news, but Cogstate has significantly boosted usage of its diagnostic tests of cognitive function in the 2004/2005 financial year, while the company has also reported progress in the development of its NLT drug for the treatment of Parkinson's Disease. Cogstate is a Speculative Buy for Knowledgeable Professional Investors.
easy... If you're a Parkinsonian rat, Cogstate may be able to look after you. It's been a productive three months or so for Cogstate (CGS), the Melbourne company which we covered favourably in July and August. This company, best known for its innovative computer-based tests of cognition, had, you will recall, suffered 'share price Company Name: Cogstate ASX Code: CGS Southern Cross Equities' Page 4 of 8 Southern Cross Equities Australian Biotechnology Buzz 23/11/2004 concussion' shortly after it came to market in February in a 50 cent IPO. By the time we got to Cogstate just five months later, the stock was available for around half the issue price, even though the company had just done a deal with an American sporting goods manufacturer called Schutt which had put the Cogstate test at the disposal of every high school and college football team in the United States. We argued in a series of four pieces on Cogstate that not only was the share price not allowing much in the way of value for Cogstate given the potential of the cognitive tests, but that virtually no value was being afforded for candidate drugs for the treatment of both Alzheimer's and Parkinson's Disease on which Cogstate was working. Probably the biggest achievement for Cogstate since 20 August has been the firming up of its relationship with mighty Pfizer. The latter company had been a minor user of the Cogstate diagnostics for several years. As with any drug company, Pfizer needs to know if its drug candidates, be they cardiovascular, anti-cancer or whatever, have unwanted effects on the central nervous system and therefore on cognition. Tracking quantitatively the cognitive state of clinical trial participants at various points in the trial is an ideal way of doing this, and as we noted on 30 July the Cogstate test is considered one of the better systems available for this purpose because, being based on images of playing cards, it crosses cultural boundaries easily. More importantly, the test benchmarks the subject against himself or herself at prior time periods rather than against a normative benchmark for the population as a whole, making it more exacting in its ability to follow cognitive changes over time. One of the reasons why Cogstate's share price has disappointed since April has been unhappiness with the company's progress in building its diagnostics test business. In the 2004 financial year the tests earned Cogstate just under $200,000 in revenue, but much higher revenues had been expected by many familiar with the Cogstate story since companies like Pfizer, with their huge range of ongoing clinical trials, had been using the test. These observers hadn't clicked to the fact that one doesn't easily obtain any big drug company as a regular customer. Before embedding the Cogstate test into its own clinical trial processes, that prospective customer will want to know for sure that Cogstate as a company has complied with various quality standards that the drug company has formulated. So, for example, the drug company will be paranoid about trial records falling into the wrong hands, and will seek to verify that Cogstate has the right kind of security arrangements in place to prevent this. On 21 July Cogstate was able to tell the market that it was 'seeking compliance with quality assurance standards that will make it eligible to have the Cogstate Clinical products...used in a series of clinical studies for a US major pharmaceutical company. This follows an audit of Cogstate by a quality assurance employee of the US company who was sent to Australia with the specific purpose of auditing Cogstate'. The announcement went on to say that full compliance was some two or three months away, after which the Cogstate product would likely be used in several clinical trials. We learned that the customer in question was Pfizer on 25 August, when Cogstate announced that its diagnostics had been approved by the American company for use in a Phase III trial of a particular drug, even though Cogstate had yet to jump through every Pfizer hoop. Which is to say, the use of Cogstate in a Phase III trial was taking place under an 'interim agreement' pending conclusion of a 'full agreement'. That in itself was an indication that Pfizer seriously liked the Cogstate product. But even better was the 8 September announcement that Pfizer and Cogstate had put in place a 'Master Services attitude: We like it Location: Melbourne Business: Developing diagnostics for neurodegenerative diseases as well as working on potential therapies Leadership: Martyn Myer (Chairman), Dr Peter Bick (CEO) Share Price (c): 23 Market Cap. of tradeable shares: $6m Twelve Month Range (c): 55 - 20 No. of shares tradeable: 28.2m Volume this week (Average weekly volume): 0.36m (0.5m) Value this week (Average weekly value): $0.09m ($0.18m) % below 12 month high: 58.2% Back to top Page 5 of 8 Southern Cross Equities Australian Biotechnology Buzz 23/11/2004 Agreement' to provide a contractual framework governing the use of Cogstate Clinical in any Pfizer clinical trial, thereby lowering the paperwork required for each individual trial. In other words, just about all the Pfizer-related hoops had been jumped through, which meant that Cogstate could start to deliver on the potential of the Pfizer relationship in money terms. Also on 8 September Cogstate announced that Pfizer would be using Cogstate Clinical over a two month period in a Phase I drug trial. For little in the way of extra investment by Cogstate, the Melbourne company company quickly earned itself another $60,000. When one considers that Concussion Sentinel, Cogstate's concussion management product for the US high school and college football market, is sold to that market at a little more than US$500 per institution for a whole year (for a potential US$18m p.a. if demand is universal), the Pfizer relationship is potentially quite a lucrative one. The Pfizer deal, augmented by a final agreement announced last week related to the Phase III trial, in our view takes away any concerns investors may have had regarding Cogstate diagnostic test sales, in the sense that these are now growing strongly, albeit off a low base. Just over two months into the 2005 financial year the Cogstate tests had earned $188,000 in revenue, around the same as for the whole of 2003/2004. By last week sales for the 2005 year had breached the half a million dollar mark, and the company was disclosing that another 'major pharmaceutical company' had been billed $32,000 for 'pretrial services', an indication that Pfizer's competitors are also interested in Cogstate. Also announced at that time was a deal to start marketing Japanese language versions of the test, thereby opening another large market for both pharmaceutical and sports applications. Meanwhile the Cogstate tests have also been on the rise in terms of prestige. So, for example, the sports injury applications were presented to a receptive audience at the 2nd International Symposium on Concussions in Sport in Prague earlier this month. And in terms of cognitive monitoring for health purposes an important piece of work will be that announced in August, which will see Cogstate used in a study of HIV-related dementia being sponsored by the US government's Centers for Disease Control and Prevention. The deal was only worth $21,000 to Cogstate but will bring the test to the attention of neurology-focused clinicians in the US. In short, Cogstate is travelling well in terms of its diagnostics business. This month the company was able to disclose that things were moving forward on the drug development front as well. Its NLT product for the treatment of Parkinson's Disease has not only been earmarked for a credibility-raising $250,000 BIF grant from the Australian Federal Government, it has also performed well in early stage lab work. As we noted on 13 August, NLT is the fatty acid omega-3 conjugated to the amino acid tyrosine. The latter is a precursor for dopamine, the chemical which helps to regulate body movement and which is lacking in the Parkinson's patient. Ordinarily, orally-delivered tyrosine can't get above the blood brain barrier and turn into the dopamine the patient so badly needs. Omega-3, however, does this with ease, and so, in experiments to date, has NLT. When we last looked at NLT scientists at the University of Queensland were working on an assay that would enable researchers to track the progress, in test rats, of NLT into tyrosine. With this work completed, the researchers could then proceed to test NLT's ability to create dopamine in the brains of healthy rats. Which brings us to the latest happy news - that tests in NLT-dosed healthy rats had resulted in five times more dopamine being assayed in the brains of those rats that was the case at the point of administration just four hours previous. Of course, the scientists doing the work were reasonably certain that this was what they'd get, since Professor Shlomo Yehuda of Bar Ilan University in Israel had already demonstrated that omega-3 plus tyrosine has just this dopamine-creating effect. However what the Queensland work has shown is that the data from the Yehuda team did not result from laboratory error but was in fact reproducible. Going forward, the big issue for NLT will be how well the drug performs in animal models of Parkinson's in terms of the metabolism of the dopamine and then the effects on behaviour in the rats. This work is still coming up. Nonetheless from what we know about what Yehuda achieved with his Page 6 of 8 Southern Cross Equities Australian Biotechnology Buzz 23/11/2004 models, we're optimistic about the next stage of the process. Cogstate still hasn't been able to get much traction in its share price from all the good news, in spite of a couple of directors having been recent buyers of the stock (click here). The most recent announcement regarding diagnostic sales and NLT development on 16 November prompted an intraday 3 cent jump in the share price, to 27 cents, before the stock settled back to close unchanged. So at this stage only the day traders are making money. But at least Cogstate seems to be forming a base around the 20-25 cent level. With the company continuing to deliver on the potential we noticed in the middle of this year in both cognitive diagnostics and CNS drug development, Cogstate remains, for those with the patience to wait for the eventual upside breakout, a Speculative Buy for Knowledgeable Professional Investors. Back to top (Click here to view a 3-month chart of Cogstate. If you encounter a term in this email with which you are unfamiliar, please visit our Southern Cross Equities Australian Biotechnology Glossary at http://www.biotechbuzz.com.au/Glossary.htm. We are adding new entries to this easy-touse lexicon all the time.) That's it for another edition of Australian Biotechnology Buzz. Till next time... Stay bullish.
ABN AMRO :http://www.cogstate.com/pdf/ABN_Amro20041119.pdf
Cogstate (CGS) CGS has announced two new agreements with Pfizer. Pfizer will use Cogstate’s diagnostic tool in a Phase 3 clinical trial. This follows the Interim Agreement valued at A$70,000 announced in August this year. The final agreement will generate A$220,000 in addition to the Interim Agreement with approximately A$160,000 being realized in the current trading quarter. In a separate agreement, CogState’s diagnostic tool to be used in a new (previously un-announced) Phase I Clinical Trial. The agreement will generate revenue of A$67,000 over the next 4 months. CGS has also been awarded a major federal government grant of $250,000 for further development into its novel drug treatment for Parkinson’s Disease.
CGS Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
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