I am neutral on Cassava Sciences (SAVA) as it has enormous upside potential if it can successfully develop its pipeline, Wall Street analysts are unanimously bullish on it, and the average price target implies it could triple over the next year. On the other hand, the company is not yet profitable and remains highly speculative.
Cassava Sciences was formed in 1998, and it is headquartered in Texas, United States. The company operates as a clinical-stage biotechnology company in the industry, with a primary focus on neurodegenerative diseases, such as Alzheimer’s.
Most of the Cassava Sciences clients are located in the United States, but the company has a great growth and expansion potential under positive circumstances. The company has been discovering, developing, distributing, and commercializing first-in-class medicines, after the translation of novel scientific insights, for debilitating diseases.
The company has a niche in the development industry for novel drugs and diagnostics and was founded by Remi Barbier and Barry M.
Strengths
Although the company has a small team of employees compared to its competitors, its latest insights and data put the company at the forefront of several other biotechnology companies in the industry. In recent years, Cassava Sciences has been able to attract diversified groups of investors, giving it a unique competitive edge in the industry.
Additionally, among other Alzheimer’s drug producers, the company has managed to withstand drawbacks. There’s no relationship between the industry trend and the company’s internal trends, so traders don’t have to buy out or in due to external market trends within the industry. Cassava Sciences’ latest invention for Alzheimer’s disease has garnered high expectations for approval.
Recent Results
In the Q3 that ended in September 2021, the company increased its expenses on research and development, which totaled $8 million. In Q3 2020, the amount spent on research and development was only $0.4 million. This also led to an increased net loss of $9.56 million in Q3 2021 compared to $1.43 million in Q3 2020.
The basic and diluted net loss per share equaled $(0.24) in Q3 2021, compared to $(0.06) in Q3 2020. The cash and cash equivalents at the end of the nine-month period in 2021 totaled $241.5 million, which is a significant increase from 2020’s amount totaling $93.5 million.
Valuation Metrics
SAVA stock is a bit difficult to value because the company is currently not profitable on neither a GAAP nor an EBITDA basis. The company needs to continue growing rapidly in order to generate the economies of scale necessary to turn a profit.
That said, Wall Street analysts expect the company to generate positive EBITDA in 2022. Still, the stock looks pretty pricey compared to 2022 EBITDA as its Enterprise Value is $1.7 billion, and it is only expected to generate $28.5 million in 2022 EBITDA, leading to an EV/EBITDA multiple of 59.6x.
Wall Street’s Take
According to Wall Street analysts, SAVA earns a Strong Buy consensus rating based on four Buy ratings assigned in the past three months. Additionally, the average Cassava Sciences price target of $102 puts the upside potential at 108.2%.
Summary and Conclusions
SAVA stock is highly speculative at this point, as it is investing aggressively in trying to develop breakthrough drugs that could treat severe diseases. If it is successful in developing and marketing its drug pipeline, it could generate very strong profits for shareholders who purchase shares at current prices.
It appears that Wall Street analysts have confidence in its drug pipeline as they are unanimously bullish on the stock and give it a very high price target that implies the stock could more than double over the next twelve months.
That said, investors should remember that an investment in SAVA is highly risky and speculative at this point and proceed accordingly.
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