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    Health & Life Science Review November 2004
    page 28 of 84 Copyright © 2004 by Aegis Equities Holdings Pty Limited. All Rights Reserved.
    CogState Limited (CGS)
    Sector Industry Group Sub Industry Disease Target
    Life Science Health Care Equipment;
    Diagnostic Testing; Drug
    Neuro-degenerative Diseases;
    Alzheimer's Disease; Parkinson's
    Company Overview
    CogState Ltd is a biotechnology company established in 1999 with
    headquarters in Melbourne. CogState develops and commercializes products for
    the diagnosis and treatment of neurodegenerative disorders. The company
    currently sells five computerized cognitive test diagnostic products in the US,
    Europe and Australia. For the quarter ended 30 September 2004, the
    Company announced revenue of $198,199. The majority of these revenues
    have come from sales into the clinical trials programs of large pharmaceutical
    companies. This compares to full year revenue of $192,094 for the full year
    ended 30 June 2004. The company also has ongoing therapeutic development
    projects for the treatment of Alzheimer’s Disease and Parkinson’s Disease, both
    of which involve small molecule drugs licensed to CogState.
    The diagnostic division sells four branded, 15-minute, computerized tests which
    provide a quantitative, validated, rapid and accurate measurement of cognitive
    function. Users now number over 50 and include major corporations such as
    Pfizer, Johnson & Johnson, elite sporting bodies such as the Australian Football
    League, South African Rugby Football Union and the Jockey Club of Great
    Britain. The company has recently signed an agreement with Schutt Sports, the
    world's largest manufacturer of helmets for American Football players. Schutt is
    sponsoring a distribution of free CogSport tests under the brand “Concussion
    Sentinel” to up to 1 million football players in 20,000 high schools and 1,200
    colleges in the US during 2004-5. The company also announced that it had
    been audited by a major US pharmaceutical company and was on the way to
    reach full compliance, by which time it will be able to pursue a series of major
    trials with revenues for these trials ranging from US$20-100k each, recognised
    over the 2-18 month course of these trials. The therapeutic division finds,
    evaluates, negotiates and in-licenses Central Nervous System (CNS)
    compounds in early preclinical stages and project manages their development.
    When significant value has been added, compounds are on-licensed to
    commercialisation partners. Current projects target Alzheimer’s Disease and
    Parkinson’s Disease, and are outlined on the next page.
    Key Executives
    Martyn Myer, BE MESc MSM – Coles Myer (CHAIRMAN)
    Dr. Peter Bick MD MBBS MBA ABPN, CEO Director - Influence Inc, Skagus
    Group, VC, Quintiles
    Prof. Paul Maruff, PhD MPsych, CSO - MHRI, La Trobe University
    Dr. David Darby MBBS FRACP PhD, CMO; Director - MHRI, Harvard, U.
    Dr Adam Whybrew,PhD BSc(Physics), Bus Dev Mgr - Cambridge/Oxford
    University, Oxford Lasers, UK
    Brad O’Connor, CA, CFO and Secretary - PricewaterhouseCoopers, Nextec,
    Spherion Group
    Dr. Geoff Brooke, MBBS MBA – GBS Ventures (Director)
    Richard Morgan, Cbiol, MIBiol, Dip RCPath – Glaxo Smith Kline (Director)
    Hon Dr. Michael Wooldridge, MBBS MBA – Ex-Minister of Health (Director)
    David Simpson, BA - J Walter Thompson (US), JWT (Hong Kong)
    Key investment information
    Market Cap: $8.5M
    Capital Structure (M)
    Ord shares on issue: 35.6
    Options (fully diluted): 7.8
    Convertible notes/other: n/a
    Price as at 12-Nov: $0.24
    12 month H/L: $0.20 - $0.59
    Avg daily turnover: $0.03M
    Official listing date: Feb-04
    Substantial Shareholders
    Perpetual Trustees Nominees Ltd 23.3%
    MF Custodians Ltd 8.4%
    Queensland Investment Corp 6.4%
    Cash Position
    Cash (as at Sep-04): $4.7M
    Years with
    planned expenditure:
    Company contact
    Dr. Peter A. Bick
    Chief Executive Officer
    [email protected]
    61 3 9664 1300
    Health & Life Science Review November 2004
    page 29 of 84 Copyright © 2004 by Aegis Equities Holdings Pty Limited. All Rights Reserved.
    Main Company R&D Projects – Major Technology & Market
    1: Diagnosis of Neuro-Degenerative Disorders
    Stage: Market The following five products have been released onto the market:
    1. CogState Clinical – sold to biopharmaceutical companies for use in human
    clinical trials to detect changes in cognition secondary to drug effects. 2.
    CogSport – sold to sporting organizations and through sporting goods
    distributors for the assessment of baseline and the tracking of concussion
    resolution following head injuries in individuals involved in contact sports. In
    the US, the brand of this product marketed by Schutt Sports is Concussion
    Sentinel. 3. CogHealth – sold to medical practitioners and individuals for
    the detection of early Alzheimer’s Disease as an annual screening test. 4.
    CogSafe – sold to occupational health organizations for the measurement of
    cognitive change in workers at risk. 5. CogMaze – specifically for
    schizophrenia drug trials.
    2: Alzheimer’s Disease Treatment – Cog0192 Programme
    Stage: Preclinical Angiotensin 4 (AT4) receptors in the brain (e.g. in the hippocampus) are
    believed to be crucial for memory formation and have been implicated in
    Alzheimer’s Disease. CogState has licensed compounds from Taisho
    Pharmaceuticals in Japan and Pacific Northwest Biotechnology in the US that
    stimulate AT4 receptors. CogState recently developed the world’s first
    bioassay for AT4, a test that can greatly accelerate identification of lead AT4
    compounds. This test has identified a protein structure now being used to
    model a drug for use in human clinical trials in the ensuing months.
    3: Parkinson’s Disease Treatment – Cog0193 Programme
    Stage: Preclinical Cog0392 is a carrier molecule for tyrosine, which has been licensed from
    Brain Research Ltd in Israel. Cog0392 is orally absorbed and carries tyrosine
    efficiently from the blood into the brain. Once in the brain, Cog0392
    releases tyrosine, which converts into dopamine, a chemical that is deficient
    in the brains of people with Parkinson’s Disease. CogState has recently
    succeeded in synthesizing Cog0392, which is now being used in animal trials
    with the objective of moving to human clinical trials within 18 months.
    Aegis Equities Comments
    Market Position: CGS focuses on brain dysfunction caused by injury or disease, particularly Alzheimer’s and
    Parkinson’s Diseases. CGS’s computerized tests are used to assess and track memory and related skills in many
    large market segments, such as athletes, children and work accidents (for concussion); clinical trials and the aging
    (for dementia). Licensees include sporting clubs, doctors and pharmaceuticals. CGS plans to use test revenues to
    help fund an R&D pipeline targeting certain brain diseases.
    Milestone Record: Prior to listing, CGS had raised $4.8M of private equity and developed its “brain performance”
    tests. CGS listed in Feb-04, raising $7M. Since then, it has signed major distribution deals (Schutt Sport, a national
    US sporting goods distributor; HCN for Australian doctors), won contracts for clinical trials (Pfizer; the US Center for
    Disease Control) and sports testing (England Rugby Union), and cross-licensed technology use with Pfizer. CGS has
    also licensed preclinical compounds for Parkinson’s Disease from Taisho and for Alzheimer’s Disease from PNB.
    Risk Profile: Due to the recent market release of CGS’s cognitive tests, the level of market acceptance remains
    uncertain although sales to marquee name clients during 1Q FY05 are encouraging. CGS faces the usual risks
    associated with early stage companies. At current cash burn rates, the company's recent capital raising should last
    several years, although it must deliver excellent drug development results in order to secure further funding that
    will be needed to progress candidates through the clinic.

    for Monday 22 November 2004
    Stocks that Southern Cross Equities likes which
    are covered in some detail in this edition of
    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.

    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
    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
    Leadership: Martyn Myer
    (Chairman), Dr Peter Bick (CEO)
    Share Price (c): 23
    Market Cap. of tradeable shares:
    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
    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
    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
    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 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 :

    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.
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