Hi. My name is Brad O'Connor, CEO of COGSTA. Thanks for your time today. During today's presentation, I'll take you through our results for the first half of financial year 'twenty one as well as our outlook into the second half of 'twenty one and beyond. We'll then have time at the conclusion of the presentation to take your questions.
I want to remind everyone that COGSIGHT reports in U. S. Dollars and all figures quoted today are U. S. Dollars.
I want to encourage you to ask questions. If you have a question, you may type your question into the control panel and it will be read by the moderator or you can raise your hand to have your line unmuted to ask a question. We will allow that at the end of today's presentation. This presentation includes forward looking statements and I note our disclaimer. I'm going to start today by outlining the investment case for COGS8.
Firstly, COGS8 has a record revenue pipeline of almost $75,000,000 at 31 December 2020 and a stable cost base that will deliver earnings leverage. Momentum continues to build in our clinical trials segment with continuing good level of sales contracts and the resulting revenue backlog in that segment has increased to almost $50,000,000 In addition, in the healthcare segment, the newly executed global license agreement with Eisai will produce minimum royalties of $10,000,000 over the next 5 years. This is in addition to the $15,000,000 royalty that has already been received from Eisai. Further minimum royalties of another $20,000,000 will roll off over year 6 to 10 of that license agreement. A stable cost base will see margins expand as revenues increase in coming periods.
Secondly, COGS data has significant leverage to an Alzheimer's treatment. There are a number of potential treatments with a short term path to potential regulatory approval and subsequent product launch. Our recently announced partnership with global pharmaceutical company Eisai means that Cogstate is uniquely placed to provide highly scalable digital tools for early identification of patients suffering from cognitive impairment that may be associated with early Alzheimer's disease. Thirdly, COGSADE has unique technology focused on large addressable markets. COGSADE technology has over 20 years of scientific validation and those digital solutions are perfect for large global markets where there is a growing demand for telehealth and mHealth style assessments.
COVID has forced substantial changes to the healthcare systems globally. The rise of telehealth and mHealth style assessments has been substantial and we believe these are permanent changes. The COGSATE technology solutions are well designed for virtual for this virtual assessment paradigm. Finally, possibly for the first time in our history, COGS8's business plans are underpinned by a strong balance sheet. During today's presentation, we will explore each of these themes in more detail.
Since first launching our technology in the clinical trials market in 2004, the majority of COGSIGHT revenue has come from this business segment where our customers are pharmaceutical companies seeking to determine the impact that their investigational compounds have on cognition. Clinical trials is our established business and that generated $21,000,000 of revenue in the previous financial year. This is a project revenue model that provides us with great forward visibility and predictability of our revenue. The length of clinical trials provides a revenue tail to build from year to year. Healthcare, the use of our technology to measure brain health in the community is our next horizon.
It was the basis of our original investment proposition and is starting to become a reality as we get closer to the release of a disease modifying therapy for Alzheimer's disease. This is a subscription based software revenue model sold through our strategic partner Eisai, who have other revenue, in this case, revenue from therapeutics tied to the adoption of Cogstack software. In both of these segments, CogState relies on data and more than 600 peer reviewed publications that come from decades of collaboration between academic researchers and the CogState scientific team. Our vision at CogState is to replace manual burdensome and difficult assessments of cognition with scalable digital solutions that can be formed routinely. CogState solutions are perfectly suited to a world adopting telehealth and mHealth solutions.
In the wake of the COVID-nineteen pandemic, we've seen a substantial shift to the way individuals access healthcare. As I said before, we think this is a permanent change and we're positioned well to leverage from that change. There are 3 key messages for today's presentation. We have executed a landmark license agreement with international pharma company, Aisai, that provides COGSTAK with $45,000,000 of minimum royalties over the 10 year license. And that opportunity I'm sorry, and the opportunity of significant upside from the potential near term launch of the first Alzheimer's therapeutic.
The size of that addressable market in 4 key markets alone is more than 320,000,000 people. Our clinical trials business continues to strengthen. Sales have been excellent in the context of the pandemic. Our revenue in this segment was a little sluggish through the first half of fiscal 'twenty one, but still up 52% compared to the prior corresponding period. Contracted future revenue that will roll off over time is now close to $50,000,000 which is an all time high for COGSAT.
COGSAT is well positioned to show profit growth in the coming periods. Forecast revenue growth in both the clinical trials and the healthcare segments supported by a record revenue backlog, provides confidence of revenue growth. Within the context of that revenue growth, cost control provides confidence of profit growth. In October of last year, Cogstat announced an expanded partnership with Eisai that takes us an important step closer to realizing our vision of cognitive assessment performed routinely as part of periodic health assessments. Aisai are a global pharmaceutical company.
They pioneered the treatment of Alzheimer's disease with the launch of the widely used Alzheimer's symptomatic treatment ARROCEP in 1997. They're global leaders in Alzheimer's disease with a focus on the development of a dementia ecosystem a dementia ecosystem that extends from identification of disease to intervention. ASI have partnered with COGSIGHT because our scientifically validated digital assessments are really well suited to use as a screening tool in multiple settings, including home based self assessment, assessment at the offices of a primary care physician, assessment by specialists or monitoring response to an Alzheimer's therapy. Presently, the commercial opportunity is focused on the increased awareness of the importance of brain health. There is a market for better and easier assessment of brain health today with a focus on lifestyle changes that have been shown to improve cognition.
The potential future opportunity that's really exciting relates to the potential launch of a disease modifying therapy for Alzheimer's disease. In that situation, the commercial opportunity centers around the identification of patients who would benefit from such treatment and the ongoing monitoring of those patients post prescriptions. And the release of a disease modifying therapy for Alzheimer's disease will require early detection of cognitive decline in order to intervene and slow progression of this terrible disease. The global market for a digital screening tool that is both scalable and sensitive to change associated to Alzheimer's disease is really large. To get a sense of how large that addressable market is, in the 4 key markets identified under our agreement with Eisai being the U.
S, China, EU and Japan, we've looked at a number of we've looked at the number of people in those countries over the age of 65. Taking those numbers alone, that represents an addressable market over 320,000,000 people with the potential of multiple assessments each year for some of those individuals. And we've never been closer to the potential launch of an Alzheimer's therapeutic. ASI along with the development partner Biogen have submitted application for approval to the regulators in the U. S, the EU and Japan.
A decision in respect to the USA approval is expected from the FDA by the 7th June of this year. Other potential therapies from Acyne Biogen, Roche Genentech and Eli Lilly are all in development with promising data released from prior studies. I'll look now at the specifics of the agreement with Eisai. In October, we executed a global agreement with Eisai, which expands upon the agreement entered into by the 2 parties in respect of Japan. Since execution of that Japanese license, Eisai proven to be a really supportive partner that's committed to building an entire ecosystem for dementia patients and their families with solutions targeting everything from identification, the first signs of memory loss to the development of therapeutic treatments as well as a range of lifestyle factors in between.
Under the terms of the license, Eisai will be responsible for marketing COGSTAKE technology in all countries, including all existing technology and future improvements to COGSTAKE technology. The agreement will exclude our clinical trials market where COGSTA continues to offer our technology and services independently. The global license has a term of 10 years on a country by country basis from the date of the commercial launch in each country. Eisai committed to launch within the U. S.
Inside the 1st year of the agreement, the EU within 3 years and China within 4 years. Eisai do have the option to terminate the global agreement 5 years under certain specific conditions. Under the license, ASI will pay COGSAT minimum payments totaling $45,000,000 across 10 years, including a $15,000,000 upfront license fee, which we received in December and then a further $30,000,000 of minimum royalties. The minimum royalties which increased from year to year total at least $10,000,000 for the period from years 1 to 5 and then $20,000,000 for the period of years 6 to 10. Similar to the agreement in respect of Japan, Eisai will fund any software development work required to further develop, improve or alter COGSTA technology for use within each country.
Eisai will also manage all regulatory issues and will be responsible for all sales and marketing activities. The resulting data from the use of the technology will be jointly owned by Eisai and COGSTA. I want to spend a few minutes now to talk about the treatment of the revenue under the Eisai agreements. I'll focus on the most recent global agreement, which excludes Japan, which is obviously the larger agreement. The revenue under the global agreement can be broken into 3 segments.
The upfront royalty of $15,000,000 that was received by COGSADE in December 2020, the minimum royalties of at least $10,000,000 payable over the first five commercial years of the agreement and then the minimum royalties of $20,000,000 which is payable over commercial years 6 to 10. The upfront royalty of $15,000,000 plus the minimum royalty over years 1 to 5 of $10,000,000 so that's $25,000,000 in total will be amortized over the first five commercial years of the agreement. Commercial year 1 will begin upon the 1st sale and that contractually must occur within the 1st year after contract execution. Therefore, the amortization period has been set at 6 years from contract execution. To COGS state this equates to minimum revenues under the global agreement of $4,160,000 to a financial year.
On a pro rata basis, the minimum license fee revenue from the global agreement will be $2,840,000 in fiscal 'twenty one. The minimum royalties for years 6 to 10 have been ignored at this stage because of Eisai's right to terminate the agreement at the end of commercial year 5. Should that termination right be voided by other commercial events, then the additional $20,000,000 of revenue will need to be accounted. It's important to note the accounting treatment of revenue recognition will differ from cash receipts. The cash receipt of the $15,000,000 upfront royalty occurred in December, as I mentioned before, whereas the revenue recognized in the first half of fiscal 'twenty one was only $780,000 and that was calculated from the period of execution of the contract on the 26th October through to 31st December.
It's also important to know that due to the significance of the global licensing agreement, the group has reviewed the application of its accounting policy in respect of revenue relating to the grant of licenses, provision of supporting services, the provision of server access in accordance with the requirements of the accounting standard AASB 15, which deals with revenue from contracts with customers. And that's resulted in a change to the application of our previous policy. In the prior period, COGSTA recognized all of the $1,000,000 upfront payment received from Eisai as revenue upon granting the license to the Japan region. COGSTA considers that recognizing upfront payment as revenue on a straight line basis over the license period better reflects its performance in providing access to the license, continuing support of the services and continue access to service. As required by the accounting standard, this change has been applied retrospectively and as a result, we've restated the comparative revenue figures.
The restatement of the prior period is detailed in the appendices to this presentation, which has been lodged with the ASX today as well as in the financial results, which will also lodge with the ASX today. Switching gears to look at the Clinical Trials segment, where we note the core business is strengthening. The first half sales result strong and followed a very successful sales period for financial year 'twenty. Those sales have delivered a revenue backlog of almost $50,000,000 as of 31 December 2020, which provides great confidence in respect of revenue growth in coming periods. As a reaction to the COVID pandemic, COGS8 has established innovative partnership with multiple pharma companies to utilize COGS8 digital assessment for remote assessment and clinical trials.
We see this as a permanent shift in the industry and one that CogState can benefit from. CogState continues to pursue channel partnerships as a way of increasing market share. The agreement with ERT has delivered multiple sales opportunities and we are aiming to finalize the first of those, the first joint contract with ERT in the coming weeks. Over the last 18 months, COGS8 has broadened their reach into clinical trials across a range of indications. There is momentum in Alzheimer's disease R and D presently on the back of recent positive data such as Eli Lilly's announcement in respect of their trial blazer study for which Cogstate managed all cognitive endpoints.
But beyond that, Cogstate is supporting trials and growing business across a range of indications. We need to be conscious of the potential for disruption caused by COVID. The fall in case numbers and an increasing rate of vaccination in the Northern Hemisphere gives us hope that the second half of financial year 'twenty one will not see the revenue interruptions that we saw in the first half of the year. I'll turn now to the financial results. Overall, we saw strong revenue growth compared to the prior corresponding period in clinical trials.
We note that the prior corresponding period in the Healthcare segment has been restated, as I mentioned earlier. EBITDA for the period was a profit of $700,000 which is an improvement of $3,600,000 on PCP. I'll also note that the loss before tax of $360,000 is inclusive of one off costs of around $500,000 that were related to the execution of the Eisai Global Agreement. Importantly, I note that operating cash inflow during the half year was $13,200,000 boosted by the upfront license fee received from Eisai. When we drill into the clinical trial segment, we see that the first half 'twenty one result was almost identical to the second half of fiscal 'twenty result.
The cost control from period to period is good. As I've noted already, we would have expected to see revenue growth from the second half of 'twenty into the first half of 'twenty one, but some COVID related delays led to revenue deferral in the first half of 'twenty one. All things being equal, we expect to catch up that revenue in future periods. You can see from this slide that the level of sales contracts executed was good throughout the first half of 'twenty one. And in saying that the sales result for the Q2, the December quarter showed really good recovery from a slightly sluggish Q1.
Sales prospects for the March quarter also look good at this stage. For 6 consecutive quarters now, the value of contracts executed has exceeded revenue recognized, which had the effect of ballooning the clinical trials revenue backlog to almost $50,000,000 Turning our attention to the breakdown of the Healthcare segment, I note again the restatement of the revenue in the prior corresponding period. Revenue in the first half of fiscal 'twenty one increased slightly from the second half of fiscal 'twenty with the first $800,000 of revenue from the Eisai Global license agreement hitting the P and L during the half just completed. We'll see further revenue increases from that global license agreement into the second half of fiscal 'twenty one. I note that direct costs increased slightly in the first half 'twenty one, but note that some of that cost related to consultancy work undertaken ahead of and in preparation for the Eisai Global Agreement.
Those consultancy costs won't be replicated in the second half of the financial year. COGS8 contracted future revenue provides really good insight into revenue growth in the coming periods. At 31 December 2020, COGS8 had almost $75,000,000 of contracted revenue that will roll off in future periods. That's an increase of 96% compared to that figure at the same time last year. Of the $75,000,000 $12,200,000 is expected to be recognized in the second half of financial year 'twenty one.
Probably just as importantly, 6 months out from the beginning of financial year 'twenty two, COGSADE has already secured over $20,000,000 of revenue for that period. This provides great confidence of continued revenue growth into fiscal 'twenty two. To summarize our financial outlook, the clinical trials business is really well positioned to show revenue growth in the second half of this financial year. We begin the second half with over $10,000,000 of contracted revenue expected to roll off in this half. Sales expectations for the June half year are supported by COGSATE remote assessment capabilities, our sales channel partnerships and our strategic customer relationships in a number of important indications.
Finally, we're cautiously optimistic that the site based activity, particularly in the Northern Hemisphere, will be less impacted by the ongoing COVID pandemic during the second half of fiscal 'twenty one and therefore we'll start to see an increase in the runoff of revenue from that contracted revenue base. In the healthcare segment, we're already seeing a substantial commercial activity in Japan and pre launch activities are being undertaken by Eisai in respect of the U. S. And Asian markets. In the second half of 'twenty one, healthcare revenue will increase with a 6 month contribution from the global license agreement.
Overall, we're targeting a profit before tax for this financial year with only the potential COVID interruptions tempering those expectations by providing some degree of uncertainty as they are for all businesses. So in conclusion, COGSIGHT has a record revenue pipeline of almost $75,000,000 at 31st December with a stable cost base that will deliver earnings leverage. We remain excited about the prospect of a potential approval as an Alzheimer's therapeutic to which COGSIGHT has significant leverage. COGSIGHT has unique technology focused on a large addressable market where our digital solutions can leverage the growing demand for telehealth and mHealth style assessments. Finally, possibly for the first time in our history, COGSTAK business plan underpinned by a strong balance sheet.
I want to thank you for your time. And with that, I'm happy to take your questions. As we said earlier, you may type your question in the control panel and it will be read by the moderator or you can raise your hand to have your line unmuted to ask a question.
Fantastic. Thank you so much, Brad. We do have several questions coming in And I again also encourage other questions. To get started though, first question is, is the one off $500,000 advisor expense related to the Eisai Global deal included in the group overhead of 6,000,000 dollars
Yes, it is. And that's obviously a one off non repeatable cost, but it's included in overhead costs.
Great. Next question. What are the priorities for the use of surplus cash? And to the extent that, that includes M and A, in what area would that be focused?
So look, it's a good question. Our priorities are really focused around technology improvement that will leverage the changes to telehealth and mHealth style assessments. And I should clarify, when I say mHealth, I'm talking about the use of self assessments, mobile device types health assessments. The critical aspect in respect of that is going to be the ease of use of those technologies. So we need technologies that are easy to access.
They're intuitive for use. They don't rely on any special equipment. So we're talking largely phone based assessments and phone based hardware being the most available hardware source for most individuals. So one of the key areas where we will be focusing over the coming period is the development and release of very intuitive mobile assessments. That work is already underway and a lot of that work is already being funded externally to Colstate.
So being funded by Eisai and you'll recall that also we were in receipt of a grant from the Alzheimer's Drug Development Foundation as part of their digital biomarkers strategy, which is backed by the Gates Foundation. So that was a $1,300,000 grant. So we have funding available in respect of that, but that will be a key area where we'll be looking to focus. In terms of M and A activity, which is the second part of that question, we'll continue to look at potential opportunities both in the clinical trials segment and the healthcare segment to the extent that such opportunities make sense within our strategic plans.
Perfect. Thanks so much for those perspectives, Brad. Another question, is there any risk on the forgiveness on the U. S. PPP loan with a very strong balance sheet and the $2,000,000 annual royalty yet to come with Eisai Global deal, would the company consider any capital management activities such as shares buyback?
So we're not at pleasant considering any capital management activities in respect of the Paycheck Protection Program loan, which is a $2,400,000 loan under the U. S. Government's coronavirus aid package. Our position at this stage is that we've utilized that funding for the intended purpose. So that funding was separately quarantined within our bank accounts and was used solely for the purpose of U.
S.-based employees' salary and wages. And we have noted of course during this presentation that we have seen slowing of revenues through the first half of fiscal 'twenty one. So from my point of view, we've used the funds as intended and our business has been impacted by the coronavirus pandemic. I won't comment further in respect of the application for forgiveness other than to say that we're going through that process currently.
Perfect. And then another question, is the financial year 26 to 30 revenue backlog related to the Eisai partnership or is it clinical trials?
Largely speaking, that's clinical trials. But I'm just going to bring up the slide. We have a look at this slide here just to refresh everyone's memory. The as you can see there, the Eisai partnerships represent a portion of that, but €50,000,000 of the €75,000,000 is clinical trials related backlog. Most of the backlog runoff for 26 to 30 relates to the clinical trials business remembering of course that we haven't taken into backlog the minimum royalties under the Eisai agreement for commercial years 6 to 10, which is a further $20,000,000
Great. And going back to the related to the Eisai partnership, but also a little bit different, I'm going to combine a couple of questions here. In the event that an Alzheimer's drug does get approved, how likely is it that our tests will be used in the rollout of a drug? And then related to that, will A side be as motivated to push out COGSATE tests if another company's drug gets approved first?
Good questions. So the issue will be with the launch of a therapeutic is identification of 2 issues. The first is cognitive decline and the second one is elevated levels of amyloid in the brain of the patient. Whilst COGSTATE technology won't be considered a companion diagnostic in the truth sense, The reality for us is that there is going to be a need to have easy to access and scalable solutions to identify the appropriate level of cognitive impairment. As to whether that makes a difference, whether that's an A side drug or a drug from another company.
We see all the time in the pharmaceutical industry that the diagnostic assessments that are owned by one company would be used as part of the diagnosis process for a drug sold by a different company. And so the most obvious example there is or the most example in Alzheimer's disease is the various PET scans that are produced by different companies, the amyloid PET scans, which would be factored into the sales and marketing activities or the diagnosis planning for any company that's planning for the launch of an Alzheimer's disease therapeutic. So essentially, when you're trying to sell the therapeutic, you want the easiest, most cost effective way of identifying those patients that will benefit from the therapy. So we think we're well placed regardless of what kind of therapy hits the market.
And a little bit of different angle here still on the Eisai partnership. How is Cognigram Japan's regulatory approval going and is that delaying Eisai's commercialization?
So the approval process is underway. So Eisai are managing that with the PDMA in Japan. So that process is underway currently. They're in discussions there. The fact that that's not approved currently isn't preventing them from their activities, which are really focused on consumers at this stage and on awareness of brain health.
And so the a lot of their activities are focused around the marketing of the NONO technology, which is the cold state brief battery that has been designed for consumer application. So the commercial activities there are ongoing. They're continuing to consult with the regulator in Japan and looking to have regulatory approval for the collagen and ground product prior to therapy launch in that country.
Great, fantastic. And I just want to thank everybody for the great questions that we've had coming in. We will take a few more and then we'll wrap up. So if you have anything burning, please go ahead and submit it now. So switching gears a little bit, Brad, could you provide some color about the ERT partnership?
What does our pipeline look like? And how is ERT working with us to make sure the partnership is a success?
That's a good question. So look, we're really happy with the partnership with ERT. They've been a proactive and engaged partner. Their commercial and marketing teams have been very engaged with ours and have been driving opportunities to COGSTA. So, so far we're very happy with their level of engagement in the partnership.
As I mentioned, there's a number of joint opportunities that we're pursuing and we're hopeful of announcing the 1st win under those shortly. Obviously, we would have preferred to have already secured contracts and would have liked the opportunity to have announced that, But that you'll appreciate that the timelines from pitching of these opportunities to securing them can be quite long. So the timelines here aren't unusual in the context of the work that we do and the business we operate in. And as I say, we're really happy with the level of engagement from the ERT team, particularly at a senior level. So I think it's really encouraging.
And we do believe that those channel partnerships are a really important factor in how do we grow our sales base and our market penetration for COGS today.
Great. Thank you. Another question related to ERT. I seem to be reading this one really quick. Could you give some color on what to expect with joint wins with ERT compared to current Alzheimer's trial mixes, such as like the size, the phase, maybe just a little bit more on the types of deals we're looking on potentially?
Yes.
Look, and it's probably too early to answer that question, to be honest. You'll appreciate that we only announced the partnership in the first half of fiscal 'twenty one. It takes some time to develop joint marketing materials and to get out there and sell it. So, I think it's too early to comment on the mix. What we're seeking to do, of course, is to not only work with ERT in respect of central nervous system diseases, but also really leverage off their market share outside of central nervous system diseases.
So we think there's a huge opportunity for use of cognition as a safety endpoint and looking to leverage off, as I said, ERT's market share in a number of those indications. So I think the mix will change, but it's probably too early at this stage to comment on what that's going to look like in the short term.
Great. Thanks for that, Brad. And with that, we're going to go ahead and take this final question and it's around, you spoke about our unique technology and what does CogSate's technology roadmap look like in the near future and what are some of our priorities?
Yes. So as I mentioned before, really we'll be focusing our product development around the shift to mobile devices that will include audio as well as digital interaction with patients. We need to improve the user experience and the user interface and make sure that those assessments are intuitive as possible. Focusing around the idea of assessing a 7 year old unsupervised at home and if we solve for that problem, we think that solves for a number of problems and the application of that technology across our different segments. So that same technology into the clinical trial segment, we think has great application and is just an improvement on the types of solutions that we have now.
So our technology at the moment is good, but we understand that it can get better and that's where we'll be focusing a lot is around the delivery mechanism. So the hardware that's required there, as I said, that push to phone base or smartphone based assessments and utilizing that technology and the ubiquity of that and the availability of that technology will be a key factor in how we develop our technology going forward. And then as always, there's a focus on improved sensitivity of our assessments and really focusing around if we look at that healthcare market, really focusing around identification of patients who will benefit from a therapy. And whilst our databases there are excellent, we do think there's the ability to improve those and to improve the analysis to provide increased sensitivity over time. And as we build up that normative database through the use of the technology, we expect that that the sensitivity and specificity of those assessments continue to improve.
This is great, Brad. Exciting opportunities. And that concludes our question segment.
So thank you, everybody. I want to thank you for your interest in COGS Tape. I'll point you again to the ASX website where this presentation has been lodged with a number of appendices that provide additional detail and as always thank you for your interest in COGSAT.