IPO Update: Cognition Therapeutics Proposes Terms For $40 Million IPO

Summary

• Cognition Therapeutics has filed to raise $40 million in an IPO.
• The firm is developing treatments for Alzheimer's Disease and macular degeneration.
• CGTX is working in a very difficult research area of AD, where major pharma firms have failed, so while I wish the firm well, I'll pass on the IPO.
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A Quick Take On Cognition Therapeutics

Cognition Therapeutics (NASDAQ:CGTX) intends to raise $40 million from the sale of its common stock in an IPO, according to an amended registration statement.

The company is developing treatments for Alzheimer's Disease and macular degeneration.

CGTX has shown promise in its trial results so far and the IPO is not overvalued. However, the research area of Alzheimer’s Disease has proven to be an area of ongoing failure for treatment research for even major pharmaceutical firms, so I’m not optimistic that a small firm will have a major breakthrough.

I'll watch the IPO from the sidelines.

Company & Technology

Purchase, NY-based Cognition was founded to develop small molecule drug candidates to treat mild-moderate and early-stage Alzheimer's disease and forms of macular degeneration.

Management is headed by president and CEO Lisa Ricciardi, who has been with the firm since March 2019 and was previously CEO of Suono Bio.

Below is a brief overview video of Alzheimer’s Disease:

(Source)

The firm's candidate, CT1812, is in Phase 2 trials for various forms of Alzheimer's disease and early efficacy results showed a positive trend on cognitive function.

Below is the current status of the company’s development pipeline:

(Source)

Management expects to publish topline data from the study sometime in 2023.

Investors in the firm have invested at least $55.4 million in equity investment and include Golden Seeds, Ogden CAP Associates, BIOS Memory and Pittsburgh Life Sciences Greenhouse.

Cognition Therapeutics' Market & Competition

According to a 2020 market research report by Market Insight Reports, the global market for Alzheimer's Disease was an estimated $2.9 billion in 2018 and is expected to reach $10.5 billion by 2025.

This represents a forecast CAGR (Compound Annual Growth Rate) of 17.5% from 2019 to 2025.

Key elements driving this expected growth are the aging global population and increasing incidence of Alzheimer's and related dementia diseases.

Also, there are numerous early-stage companies through major pharmaceutical firms developing treatments in this difficult to succeed area.

Major competitive vendors that provide or are developing related treatments include:

• AbbVie (ABBV)

• AstraZeneca (AZN)

• Biogen (BIIB)

• Celgene

• Eli Lilly (LLY)

• GlaxoSmithKline (GSK)

• Johnson & Johnson (JNJ)

• Novartis (NVS)

• Pfizer (PFE)

• Sanofi (SNY)

• Takeda (TAK)

• Others

Cognition’s Financial Status

Cognition’s recent financial results are typical for a clinical-stage biopharma in that they feature no revenue and significant R&D and G&A expenses associated with its development efforts. The company has received grant income from the NIH (National Institutes of Health), a federal government department.

Below are the company’s financial results for the past two and 1/2 years:

(Source)

As of June 30, 2021, the company had $11.3 million in cash and $16.2 million in total liabilities.

IPO Details

CGTX intends to sell 3.35 million shares of its common stock at a midpoint price of $12.00 per share for gross proceeds of approximately $40 million, not including the sale of customary underwriter options.

No existing or potentially new shareholders have indicated an interest to purchase shares at the IPO price.

Assuming a successful IPO at the midpoint of the proposed price range, the company’s enterprise value at IPO (ex. underwriter options) would approximate $206 million.

Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 16%. A figure under 10% is generally considered a ‘low float’ stock which can be subject to significant price volatility.

Per the firm’s most recent regulatory filing, it plans to use the net proceeds as follows:

approximately $12.1 million to fund our planned Phase 2 trials of CT1812 for the treatment of mild-to-moderate AD;

approximately $16.2 million to fund our planned Phase 2 proof of concept trials of CT1812 for the dry AMD;

approximately $6.1 million to fund our IND-enabling studies of compounds in our library for the treatment of neurodegenerative indications such as PD; and

the remainder for our other research and development activities, as well as for working capital and other general corporate purposes.

(Source)

Management’s presentation of the company roadshow is not available.

Regarding outstanding legal proceedings, management states that the firm is not a party to any material legal claims against it.

The listed bookrunners of the IPO are B. Riley Securities and Oppenheimer & Co.

Commentary

CGTX is seeking public capital market investment to advance its ambitious programs through and into clinical trials.

The firm’s lead candidate, CT1812, is in Phase 2 trials for various forms of Alzheimer's disease and early efficacy results showed a positive trend on cognitive function.

Management expects to publish topline data from the study sometime in 2023.

The market opportunity for treating Alzheimer’s is large and expected to grow substantially in the years ahead and the global population ages and an increased number of elderly persons contract the disease.

The firm has disclosed no major pharma firm collaboration agreements.

The firm’s investor syndicate includes well-known seed-stage investors but no major venture capital firms specializing in life science investments.

B. Riley Securities is the lead underwriter and IPOs led by the firm over the last 12-month period have generated an average return of negative (2.7%) since their IPO. This is a bottom-tier performance for all major underwriters during the period.

As for valuation, management is seeking an Enterprise Value of approximately $206 million at IPO which is below the typical range for a clinical-stage company at IPO. The typical range is between $250 million and $500 million.

CGTX has shown promise in its trial results so far and the IPO is not overvalued. However, the research area of Alzheimer’s Disease has proven to be a graveyard of treatment research for even major pharmaceutical firms, so I’m not optimistic that a small firm will have a major breakthrough.

I'll watch the IPO from the sidelines.

Expected IPO Pricing Date: October 7, 2021.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Investing in IPOs is an inherently volatile and opaque endeavor. My research is focused on identifying quality IPO companies at a reasonable price, but I’m wrong sometimes. I analyze fundamental company performance and my conclusions may not be relevant for first-day or early IPO trading activity, which can be highly volatile and unrelated to company fundamentals. This report is intended for educational purposes only and is not financial, legal or investment advice.