Announcement PDF ANNUAL GENERAL MEETING BUSINESS UPDATE 22 OCTOBER 2015 INTRODUCING OUR BOARD OF DIRECTORS • MARTYN MYER AO - Chairman Founder with long history of supporting neurosciences in Aust. • DAVID DOLBY - Non-Executive Director Director Dolby Laboratories Inc. and Dolby Family Ventures, an early stage venture firm focused on building great technology companies. • DR ALAN FINKEL AO - Non-Executive Director Chancellor of Monash University since 2008 and President of the Australian Academy of Technological Sciences and Engineering (ATSE) since 2013. In 1983, founded Axon Instruments and later sold to Molecular Devices • DAVID SIMPSON - Independent Non-Executive Director Previously Senior Partner at Doremus Communications, the largest US business to business advertsing agency. From 1985 to 2001 he held a series of senior management positions in Asia, South Africa and North America as well as Australia for the multinational advertising agency, J.Walter Thompson. • RICHARD VAN DEN BROEK - Independent Non-Executive Director Founder and managing partner of HSMR Advisors LLC, a U.S. based fund manager with an investment emphasis on small and mid-cap biotech public companies • BRAD O’CONNOR - CEO © 2015 Cogstate Ltd. All rights reserved. 2 COGSTATE • Founded in 1999 • Listed on Australian Securities Exchange in 2004 (ASX.CGS) • >90 employees across 4 global locations • UK based European Business Development Director started in October AUSTRALIA Melbourne © 2015 Cogstate Ltd. All rights reserved. UNITED STATES New Haven, CT UNITED STATES New York, NY SPAIN Barcelona 3 LEADERS IN THE MEASUREMENT OF COGNITION 1 2 COGNITION = THINKING Attention | Memory | Learning | Reasoning | Comprehension COGNITIVE CHANGE IS IMPORTANT TO MEASURE Neurological Disease | Head injury | Drug Effect Cognitive Assessment and Training Market Worth 7.5 Billion USD by 2020 According to a new market research report, z” Cognitive Assessment and Training Market by Assessment Type (Pen & Paper Based, Hosted, Biometrics), Service, Application (Clinical Trials, Classroom Learning, Brain Training, Corporate Learning, Academic Research), Vertical and Region - Global Forecast to 2020", published by MarketsandMarkets © 2015 Cogstate Ltd. All rights reserved. 4 © 2015 Cogstate Ltd. All rights reserved. 5 © 2015 Cogstate Ltd. All rights reserved. 6 COGSTATE ORGANISATIONAL AND SYSTEMS CHANGES FOCUS ON CORE BUSINESS Divestment of Axon Sports Training Business COMMERCIAL TEAM IN PLACE Achieving record sales contracts EXPANDED OFFERING Commercialisation of Precision Recruitment ADVANCING THE SCIENCE Involved in major landmark public/private partnership studies NEW TECHNOLOGY PLATFORM Commence migration of existing business over next 12 months © 2015 Cogstate Ltd. All rights reserved. 7 COGSTATE CLINICAL TRIALS – DRIVING REVENUE GROWTH & PROFITABILITY © 2015 Cogstate Ltd. All rights reserved. 8 CLINICAL TRIALS PORTFOLIO OF SERVICES FOR COGNITIVE ASSESSMENT IS THE DEEPEST IN THE INDUSTRY “ From well-validated computerised batteries to expert support for traditional paper-and-pencil tests, science, innovation and excellence in delivery are at the core of everything we do. © 2015 Cogstate Ltd. All rights reserved. ” 9 ACCURATE AND UNIVERSAL TESTING SOLUTION RAPID | REPEATABLE | SENSITIVE © 2015 Cogstate Ltd. All rights reserved. 10 DEEP EXPERIENCE ACROSS PHASES AND INDICATIONS ACADEMIC RESEARCH CLINICAL TRIALS Phase IV (4) >1,000 ACTIVE/COMPLETED STUDIES 67 INDICATIONS >300 PEER REVIEWED JOURNALS >200 Phase III (30) ACTIVE/COMPLETED STUDIES Phase I (103) 45 Phase II (81) COUNTRIES >90 LANGUAGES AVAILABLE Alzheimer’s disease, Schizophrenia, Major Depressive Disorder, Parkinson’s disease, ADHD, Pain, Epilepsy, Cardiovascular, Oncology TOP INDICATIONS © 2015 Cogstate Ltd. All rights reserved. 11 KEY FINANCIAL FEATURES OF CLINICAL TRIALS BUSINESS • Clinical Trials is our key revenue driver. Accounts for 94% of sales in FY15. • Our revenue is driven by the volume of clinical trials, not their success. This differentiates Cogstate to many other companies in this space. • Contract life (often beyond 12 months) provides security of revenue into future years. Cogstate contracts with some of the largest pharmaceutical and biotech companies in the world © 2015 Cogstate Ltd. All rights reserved. 12 FINANCIAL REVIEW AND UPDATE © 2015 Cogstate Ltd. All rights reserved. 13 SUMMARY OF 2015 FINANCIAL YEAR RESULTS • Revenue from ordinary activities up 30% to A$16.2m • Clinical Trials revenue up 42% to A$15.2m • EBITDA of -A$2.3m, delivered positive EBITDA of A$0.2m in 2H15 • Net loss after tax of –A$5.1m (includes A$2.2m asset impairment) FY15 (A$m) actual FY14 (A$m) actual % change 15.2 10.7 42% 16.2 11.5 30% EBITDA -2.3 -3.9 40% Net Loss After Tax* -5.1 -3.9 (30%) Clinical Trials Revenue Total Revenue *FY15 includes -A$2.2m impairment of internally generated intellectual property, which has no tax effect. There were no asset impairments in FY14 © 2015 Cogstate Ltd. All rights reserved. 14 FY15 – IMPROVED SECOND HALF 1ST HALF $’000,000 2ND HALF $’000,000 FY15 $’000,000 FY14 $’000,000 · Revenue 5.56 9.62 15.18 10.69 · Cost of Sales -2.87 -3.57 -6.44 -5.22 2.69 6.05 8.74 5.47 SUMMARY FINANCIAL RESULTS Clinical Trials Gross Margin 0.09 0.07 0.16 0.11 Total Clinical Trials Contribution · Net Recovery of Pass-through Costs 2.78 6.12 8.90 5.58 Precision Recruitment Contribution 0.23 0.21 0.44 0.06 Healthcare Contribution -0.10 -0.13 -0.23 -0.37 Sport Contribution -0.09 -0.02 -0.11 -0.23 Total Business Unit Contribution 2.82 6.18 9.00 5.04 Overhead Costs – Continuing Operations -5.42 -6.60 -12.02 -8.38 Overhead Costs – Discontinued Operations -0.34 - -0.34 -0.84 Other Income 0.41 0.64 1.05 0.31 EBITDA -2.53 0.22 -2.31 -3.87 Amortisation & Depreciation -0.33 -0.41 -0.74 -0.68 EBIT -2.86 -0.19 -3.05 -4.55 Impairment of Assets - Refer Notes 16 & 17 0.00 -2.16 -2.16 0.00 Income Tax Benefit 0.20 -0.05 0.15 0.66 Loss After Tax -2.66 -2.40 -5.06 -3.89 © 2015 Cogstate Ltd. All rights reserved. 15 CLINICAL TRIALS SALES MOMENTUM CONTINUES TO BUILD US$ Millions Value of Clinical Trials Contracts Signed 26 24 22 20 18 16 14 12 10 8 6 4 2 - Record Clinical Trials sales contracts signed in FY15, totaling US$23.7m, an increase of 165% (PCP US$9.0m) Sales contracts signed financial year to date, totaling US$9.6m, exceeds FY14 full year result FY09 © 2015 Cogstate Ltd. All rights reserved. FY10 FY11 FY12 FY13 FY14 FY15 FY16 YTD 16 SALES MOMENTUM PROVIDING REVENUE GROWTH As a result, we started FY16 with a contracted revenue pipeline for the year significantly ahead of where we started FY15 20,000,000 18,000,000 16,000,000 14,000,000 US$9.6m of sales contracts signed since 1 July 2015 have added A$7.8m to contracted FY16 revenue 12,000,000 10,000,000 Cogstate now has A$35.4m of contracted Clinical Trials revenue to be recognised in future periods, of which A$18.7m will be recognised in FY16 8,000,000 6,000,000 4,000,000 2,000,000 FY10 FY11 FY12 FY13 FY14 Contracted at beginning of year FY15 FY16 FY17 FY18 FY19 FY20 This is equivalent to 123% of the Clinical Trials revenue that was recorded for FY15 Signed during the year *As at 29 September 2015 © 2015 Cogstate Ltd. All rights reserved. 17 WHAT IS DRIVING THIS MOMENTUM? FULLY RESOURCED COMMERCIAL SALES TEAM FAVOURABLE INDUSTRY TRENDS © 2015 Cogstate Ltd. All rights reserved. • • • Targeted strategy delivering results – a 10x increase in proposals vs PCP Utilisation of Subject Matter Experts Identification and execution of RFPs • Alzheimer’s/Dementia Increased trial activity looking at early stage disease / prevention • Major Psychiatric Disorders (Schizophrenia, Depression) These conditions are seeing an increase in research activity • Cognitive Safety Concerns New regulatory requirements in paediatric trials; concerns of neurotoxicity in oncology and cardiometabolic drugs • Growing Interest in Computerised Assessments vs. Paper-and-Pencil 18 BUSINESS UPDATE Q1 FY16 Revenue of A$6.1m realised in 1Q16, up 80% on 1Q15. © 2015 Cogstate Ltd. All rights reserved. Second largest quarter of new contract signings in US$ terms (the largest in A$ terms). Record revenue pipeline totaling A$35.4m of which A$18.7m will be recognised in FY16. A Net Operating Cash Outflow of -A$0.76m in Sept quarter due to a reduction in payables and the typical lags between higher sales and cash inflow. A return to positive EBIT in 1Q16. Excluding the A$2.2m impairment of assets in June 2015, Cogstate has achieved a positive EBIT in five consecutive months since May 2015. 19 OUTLOOK Maintain prior guidance for a return to positive EBIT in FY16, with positive EBIT also expected in 1H161 Management are targeting Gross Profit margins of 57%-60% On a constant currency basis, management expect FY16 overheads to remain broadly in line with the levels of 2H15 (annualised) 1. EBIT from continuing operations at 30 June 2015 exchange rates. © 2015 Cogstate Ltd. All rights reserved. 20 RECENT AND UPCOMING INNOVATIONS © 2015 Cogstate Ltd. All rights reserved. 21 PRECISION RECRUITMENT™ An online pre-screener that streamlines and accelerates clinical trial recruitment using remote cognitive assessment • AD trials are increasingly requiring hard-to-find asymptomatic patients. These trials see up to 90% on-site screen failures; causing dramatic, costly recruitment delays • Our web-based system employs computerised cognitive tests to qualify appropriate subjects and direct them to a nearby site • Optimised and validated for unsupervised administration • Compatible with existing recruitment workflows • Scalable and modular functionality • Fewer on-site failures = lower costs and reduced recruitment time © 2015 Cogstate Ltd. All rights reserved. 22 CENTRED AROUND THE COGSTATE BRIEF BATTERY COGSTATE TESTS ARE UNIQUELY SUITED TO DETECT SUBTLE CHANGES IN BRAIN FUNCTION IN OTHERWISE ASYMPTOMATIC PATIENTS: Asymptomatic © 2015 Cogstate Ltd. All rights reserved. Symptomatic • Most critically, the ability to test people remotely, in their own homes • Large data set of normal patients for comparison • Unique monitoring tool – progression over time • Significant number of peer reviewed publications • Significant number of validated clinical trials 23 OTHER RECENT AND UPCOMING INNOVATIONS • iPad Based Computerized Cognitive Assessment • Technology being utilised in the DIAN-TU and A4 trials has now been commercialised and is available for deployment into clinical trials • First contracted study to kick off in December 2015 • Additional studies in oncology and heart failure have been awarded and expected to contract in Q2 • Ground-up technology platform to be complete mid-2016 to support the unified delivery and support of an emerging portfolio of Cogstate solutions and products • New Products In Development • Clinical Trials product that leverages advances enabled by the platform (e.g. Hardware-independence for existing and new tasks) • Tablet-based electronic data capture capability for traditional paperand-pencil scales • Cognitive assessment tool for healthcare providers © 2015 Cogstate Ltd. All rights reserved. 24 INVESTMENT SUMMARY © 2015 Cogstate Ltd. All rights reserved. 25 SUMMARY: INVESTMENT HIGHLIGHTS • Leaders in the measurement of cognition – providing services and software across four key areas. • Clinical trials is our main revenue driver (94% of FY15 sales). Importantly, we are reliant on the volume of clinical trials, not their success. This is a key point that differentiates us to many other companies in this space. • We are seeing renewed sales momentum in Clinical Trials. Our sales revenue in FY15 was significantly ahead of FY14 and the sales revenue we have contracted so far for FY16 is already ahead of the total we achieved in FY15. • We expect to return to positive EBIT in FY16, with positive EBIT also expected in 1H16.1 • This positive outlook is driven by a more focussed business strategy, favourable industry trends and our scientific innovations that deliver a competitive advantage and new revenue streams. • High calibre, international board and management team. 1. EBIT from continuing operations at 30 June 2015 exchange rates. © 2015 Cogstate Ltd. All rights reserved. 26 APPENDIX 1 – CONTRACTED REVENUE PIPELINE US$9.6m of new sales contracts signed since 1 July 2015 have added an additional A$7.8m to FY16 contracted revenue. This is in addition to the A$10.9m that was secured at 1 July 2015: As at 22 October 2015 As at 30 June 2015 As at 22 October 2014 Year 1 FY16 A$18.7m FY16 A$10.9m FY15 A$ 9.6m Year 2 FY17 A$ 9.2m FY17 A$ 6.5m FY16 A$ 4.7m Year 3-5 FY18-FY20 A$ 7.5m FY18-FY20 A$ 4.0m FY17-FY20 A$ 6.9m A$35.4m A$21.4m A$21.2m Total 1. Contracts are denominated in US$. Spot rate at respective dates have been used to calculate the A$ equivalent. The rate used at 22 October 2015 was 0.732, 30 June 2015 was 0.765 and 22 October 2014 was 0.9. © 2015 Cogstate Ltd. All rights reserved. 27 APPENDIX 2 –CONTRACTS SIGNED VS. REVENUE 14,000,000 12,000,000 10,000,000 A$ 8,000,000 6,000,000 4,000,000 2,000,000 Sep-13 Dec-13 Mar-14 Jun-14 Contracts Signed © 2015 Cogstate Ltd. All rights reserved. Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Revenue 28 APPENDIX 3 –CONTRACTS SIGNED VS. REVENUE QUARTERLY BOOK-TO-BILL RATIO 4.50 4.00 Future Growth Contracts / Revenue New contract signings in 1Q16 of A$11.7m exceeded the A$5.8m of revenue in the same period by 2.02x (Book-to-Bill ratio). This is the fifth consecutive quarter where new contract signings have exceeded revenue (Book-to-Bill ratio >1), indicating growth in the revenue pipeline. 3.50 3.00 2.50 2.00 1.50 1.00 0.50 - At 1.00, contracts signed = revenue and future contracted revenue is constant. When Book-to-Bill > 1.00 contracted future revenue increases. © 2015 Cogstate Ltd. All rights reserved. 29 APPENDIX 5 - SUMMARY BALANCE SHEET 30 JUN 2015 A$’000,000 30 JUN 2014 A$’000,000 - Cash and cash equivalents 5.50 7.13 - Trade and other receivables 4.90 2.77 - Other current assets 0.46 0.43 - Property, plant and equipment 1.12 1.32 - Deferred tax assets 1.94 1.33 - Intangible assets 0.40 2.14 14.31 15.11 - Trade and other payables 2.55 1.12 - Provisions 1.15 0.92 - Deferred tax liabilities 0.49 0.06 Total Liabilities 4.19 2.10 Net Assets 10.11 13.02 Assets Total Assets Liabilities © 2015 Cogstate Ltd. All rights reserved. 30