Analysis - CGS - Cogstate

CGS - Cogstate

Price($)              0.20
NTA ($)             0.08
P/NTA               2.61
Team                    4.1
BurnPeriod          3.4
ProductPipe      23.0
ForeignMarket   6.0
Cash:Debt          DebtFree

Cogstate develops computerised based cognitive based tests.

They specifically target the drug development market, in particular focussing on a small number of large global pharmaceutical companies. Eg. GSK, Pfizer, Merck, Abott.To date, they have signed more than 4 agreement with the big pharmas.

They have divested their drug development program to focus solely on the cognition test products. This strategy increases the risk of dependence on one product. However, CGS has about 4 products and R&D is ongoing which mitigate this risk to a certain extent.

Their market is mainly the US (where the big pharmas are), in addition to an agreement with a Danish and Japanese company. There is a lack of indication if they will expand to the broader Asian and European markets.

As such, the Foreign Market score and the Product Pipeline score is above average. The Team score is just moderate, but since they are not in the drug development business, it is not crucial to have a large team of scientists (more scientists = higher Team score).

Financially, the company is still making a loss, with most quarterly operations negative except for 06 Qtr3. Receipts were steadily growing over the last 3 quarters but the total operations outflow is at similar level meaning their cost increases the same rate as revenue. The company is debt-free with a cash burn rate survival of 3.41 more quarters.

The shares of CGS have not been very liquid over the last few months. Overall, there is good business strategy, product range and even proven ability of commercialization. However it is still to make sustained profits. Financially, the cash position, although not serious yet, suggests we need to be cautious. Speculatively, their is a high upside, in the event of more agreement with big pharmas.

In Feb 06, the price was still about 10c, but agreements with GSK, directors buying share, divestment of drug development pushed the price to 28c in April and August. Since Nov then the price has steadied around 20c. At the current price of 2.6 times NTA, it is on the low priced side.

All things considered here, and before the release of the 07 half year report, the Recommendation: Buy at 0.17c