After a 20% year-to-date decline, Cassava Sciences (SAVA) could see another downside in the coming months as circumstances may not be ideal for the company to develop its treatment for Alzheimer’s disease.
As I see no potential for a price recovery here, I am bearish on this stock.
Cassava Sciences is a clinical-stage biotech company committed to developing innovative therapies for Alzheimer’s disease.
Its lead treatment candidate, called Simufilam, is currently in Phase 3 clinical trials after receiving a special protocol review from the U.S. Food and Drug Administration (FDA).
For those unfamiliar with industry-specific terms, the product sponsor may request meetings with the FDA as part of a special protocol review to assess whether the treatment can receive marketing approval and the clinical trials meet scientific and regulatory requirements.
In an open-label study, researchers are also testing the safety and long-term tolerability of Simufilam in patients receiving 100 mg of the product twice daily for a year or more.
In addition, Simufilam is currently being evaluated in a randomized, double-blind, placebo-controlled study that will detect changes in cognition and measure biomarkers in patients with Alzheimer’s disease.
Alzheimer’s Disease
Alzheimer’s disease is a degenerative pathology of the nervous system characterized by a picture of presenile or senile dementia.
The main symptoms are progressive memory loss (amnesia) and cognitive deficits in language functions (aphasia). Also, a deficit in purposeful movement (apraxia) and in recognizing objects and people (agnosia).
FY 2021 Results
Because Cassava Sciences’ operations are still in the clinical stage, the company isn’t selling any products, meaning it’s not generating any revenue yet.
It continues to bear operating expenses, particularly expenses related to research and development activities, as they have to.
As a result, 2021 ended with another net loss of $32.4 million, which is more than 400% deeper in the red than the net loss of $6.3 million in 2020.
Cassava Sciences said during the year it had to buy an office in Austin, Texas, where the company plans to set up its headquarters, spending about $22.2 million to do so.
The company paid $24.8 million to cover research and development (R&D) expenses (about eight times higher than 2020), primarily related to funding Simufilam’s studies and paying wages to employees.
Financial Condition
As of December 30, 2021, Cassava Sciences’ balance sheet reported $233.4 million in cash and cash equivalents with no scheduled repayments to a lender.
Based on total spending in 2021, available cash should be sufficient to fund R&D activities and administrative expenses for a couple of vigorous years.
Outlook
Cassava recently warned shareholders that the U.S. Food and Drug Administration could suspend its clinical trials of Simufilam.
In its 10-K annual report, filed March 1, the company said, “A clinical hold may require us to spend significant resources over many months to address the root causes of FDA’s concerns. We may not find and successfully address such root causes, which could adversely affect our business.”
Then the company added, “If we are on clinical hold for 1 year or longer, the FDA may consider our IND for simufilam to fall into Inactive Status, which may result in termination of the clinical program for simufilam. To the extent we are not successful in lifting an FDA clinical hold, our results of operations and business will be materially adversely affected.”
Apparently, the wording in the 10K annual report, filed on February 28, was not initially disclosed.
Now, the information in the financial report follows the Food and Drug Administration’s January decision to hold Cortexyme and Denali Therapeutics, two of Cassava’s competitors, for their Alzheimer’s disease treatments.
Given what has happened, the perception is that Cassava Sciences’ treatment is now less likely to become a successful commercial product, which could potentially continue to translate into a lower share price.
Assuming that Cassava’s Alzheimer’s treatment will face the same headwinds as its peers, consuming significant resources to overturn an FDA clinical ban, the company must turn to capital markets to raise funds.
However, due to the Federal Reserve’s plans to tighten monetary policy, the company will face rising borrowing costs, which could significantly hamper the company’s growth plan to become a commercial-stage company.
Additionally, the risk that the FDA could halt the company’s clinical trials suggests that interim results from ongoing trials likely won’t be large enough to withstand the headwinds of higher inflation and economic slowdown from tightening Fed policy.
Wall Street’s Take
For the past three months, five Wall Street analysts have issued a 12-month price target for SAVA. The company has a Moderate Buy consensus rating based on four Buys, zero Holds, and one Sell rating.
The average Cassava Sciences price target is $98.80, implying a 186.7% upside potential.
Stock Statistics
Shares are changing hands at $34.47 as of the writing of this article for a market cap of $1.4 billion, a P/E ratio of -46.5, and a 52-week range of $31.44 to $146.16.
Conclusion
The company is clearly in the red so far this year. I would give the company a slim chance to market its lead candidate for the treatment of Alzheimer’s disease. The share price is unlikely to recover.
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