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Cogstate to book first profit in 2009, reports more cognitive testing contract wins

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In the first days of October, Australian cognitive testing healthcare company CogState (ASX: CGS) has already won a new sales contract worth US$0.5 million (AUD$0.58 million).

Cogstate specialises in the development and commercialisation of rapid, computerised tests of cognition (brain function). The tests are sold to pharmaceutical, biotechnology, nutraceutical and functional food companies to quantify the effect of drugs or other interventions on human subjects participating in clinical trials.

This takes the total value of contracts signed by the company since 1 July 2009 to US$3.68 million (AUD$4.31 million).  And importantly, during the quarter ended Q3 2009, the value of contracts signed (11) increased by 26% over the corresponding period last year. As well as 11% higher than the contracts signed during the June quarter 2009.

Clearly, the company's brand and testing is gaining traction in the marketplace. CogState provides its products and services predominantly to large pharmaceutical (big pharma) companies. During the September quarter, contracts were signed with GlaxoSmithKline, AstraZeneca, Pfizer, Targacept, and others.

Unfavourable foreign exchange movements appear the only blight, as most sales contracts are denominated in US$, the recent strength of the Australian dollar has impacted negatively on the AUD$ value of sales contracts.

During the quarter ended 30 June 2009, the average exchange rate applied to sales contracts was AUD$0.76, compared to an average of AUD$0.85 for the September 2009 quarter.

With the cognitive market exhibiting growth (particularly Alzheimer's disease), and total market worth $100 million, Cogstate stands to be a beneficiary as Phase 2 and Phase 3 clinical trials increase, where cognitive testing is required. 

The company's next generation cognitive products represent a qantum leap forward over previous cognitive testing methods.

With Cogstate flagging an "initial profit guidance for the first half of the financial year"; debt free, in strong operating conditions and an expectation of closing further clinical trials contract wins in the current quarter, it follows that the company's market valuation should also rise as more investors discover the company's business model.

The fact that the company provides it product to big pharma tends to assist to "de-risk" the company.  As will booking its maiden profit, which will place the company into a larger universe of investors as a result.

Brad O'Connor managing director of Cogstate said "the increasing demand for our technology appears to indicate that pharmaceutical companies are increasing their research and development spending again in line with the recovering global economic conditions.”

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