Cognetivity Neurosciences is undervalued, says Echelon

Stefan Quenneville of Echelon Capital Markets is remaining bullish in his approach to Cognetivity Neurosciences Ltd. (Cognetivity Neurosciences Innovation Stock Quote, Chart, News, Analysts, Financials CSE:CGN), maintaining a “Speculative Buy” rating and target price of $1.50/share for a projected return of 114 per cent in an update to clients on Friday.

Incorporated in 2011 and headquartered in Vancouver, Cognetivity is a digital health company that is using artificial intelligence (AI) to enable early detection of cognitive decline in neurodegenerative diseases such as Alzheimer’s dementia (AD). 

The company’s primary product is a validated Integrated Cognitive Assessment (ICA) tool, an app-based alternative to pen and paper diagnoses that aims to serve a market of over 50 million people globally over the age of 65 who have AD, with over half of those suffering dying without a proper diagnosis, or diagnosed at a point where care providers have limited opportunity to take mitigation steps like behavioural and pharmaceutical interventions.

Quenneville’s latest analysis comes after the company announced it had raised just shy of $4 million in the form of a non-brokered private placement in three tranches.

“As our model already assumed a capital raise of this size and this announcement does not materially change our forecast estimates, we maintain our view that Cognetivity is meaningfully undervalued,” Quenneville said.

The company issued 7.23 million units at a value of $0.55/share, with each unit including one common share along with one-half of one common share purchase warrant. Each whole warrant entitles the holder to purchase one additional share from the Company at a price of $0.85 for a period of 36 months from closing.

Quenneville believes the additional funding, paired with $110,000 in cash on hand and $380,000 still available from its $1.28 million loan facility with the United Kingdom government, will help the company cover its cash burn of approximately $800,000 per quarter over the next year as it begins the process of commercializing its CognICA offering in the United States after it received FDA clearance in late October.

Since then, Cognetivity has been featured in The Economist, Wired UK, Medscape, and a number of other mass media and specialized healthcare technology publications, which Quenneville believes will help drive awareness to the company and its technological offerings.

Most recently, the company announced an agreement with Emirates Health Services, the Dubai-based federal provider of public healthcare services and the operating arm of the Emirati Ministry of Health and Prevention to use Cognetivity’s ICA technology as a screening tool for cognitive impairment throughout the United Arab Emirates.

The deal comes after Cognetivity had previously deployed its clinical care at the Clemenceau Medical Centre in Dubai, and according to Quenneville, the technology could help as much as 10 per cent of the Emirates’ population of 10 million, with Quenneville also expecting the Emirates to experience the second-highest percentage increase worldwide in the number of people living with dementia by 2050 due to its population’s age distribution.

“We’re hugely excited about this latest deployment of the ICA and thrilled to confirm another major deal in the Middle East,” said Dr. Sina Habibi, CEO of Cognetivity in the company’s February 1 press release. “To tackle the massive global problem of dementia, we have to begin cognitive testing on a larger scale than ever before. The ICA is the perfect tool in every way for this job and this latest implementation paves the way for further large-scale deployments in the future, which is immensely exciting.”

Quenneville estimates the deal’s value to be between US$500,000 and US$1 million in the first year, with that number growing to a range between US$3 million and US$5 million as CognICA experiences a greater rollout.

Quenneville forecasts the company to bring in its first revenue in 2022 at $100,000, though the figure is projected to gradually increase through 2025, where Quenneville projects revenue of $17.8 million. Meanwhile, after projecting losses of $6.2 million in 2022 and $2.3 million in 2023, Quenneville expects the company’s EBITDA to turn positive in 2024 at $1.9 million, followed by another forecasted jump to $8.5 million in 2025.

From a valuation perspective, Quenneville projects the company’s EV/Sales multiple for the first time in 2022 at 15.4x compared to the peer group estimate of 9.3x, with 2023 projecting a 4.9x multiple for Cognetivity and a 4x multiple for the peer group to close the valuation gap.

Cognetivity’s stock price has cratered to a 34.5 per cent loss over the last 12 months, though the stock has delivered a 1.9 per cent return since the start of 2022. Cognetivity’s share price climbed to a 52-week high of $1.30/share on June 16. It’s been downhill since then, with the stock dropping to a 52-week low of $0.44/share on February 8.