I am neutral on Cassava Sciences (SAVA) because Wall Street’s bullishness on the stock and its strong growth potential are offset by its lack of profitability and speculative nature.
Cassava Sciences has a mission to defeat Alzheimer’s disease. The company is a clinical-stage biotechnology firm that is researching and developing innovations for clinical neurodegenerative diseases. (See Analysts’ Top Stocks on TipRanks)
Strengths
Cassava Sciences is in the process of developing simufilam, a proprietary drug candidate for Alzheimer’s disease, which is Phase 3-ready in 2021. It also owns SavaDx, an investigational diagnostic product candidate that can detect the presence of Alzheimer’s disease from a small blood sample, potentially years before any clinical symptoms manifest in its early development stage.
The company’s science programs are being developed with financial and scientific backing from the National Institutes of Health (NIH).
Recent Results
Cassava Sciences reported a net loss of $5.1 million, or a loss of $0.31 per share, in the second quarter of 2021, ended June 30. This is in comparison with the net loss of $1.1 million, or a loss of $0.05 per share, in the second quarter of 2020. The company had cash and cash equivalents of $278.3 million, compared to $93.5 million in the fourth quarter of 2020, ended December 31, and reported zero debt on its balance sheet.
The company reported net cash used in operations in the first and second quarter of 2021 of $7.4 million. NIH also provided a research grant reimbursement of $0.9 million, which was recorded as a decrease in R&D expenses. This is in comparison to the $1.1 million of grant receipts received from the NIH for the second quarter of 2020.
Research and development expenses were $3.9 million in Q2, up significantly from $0.6 million in the same period of the previous year as a result of the manufacturing costs of the clinical trial supplied for launching simufilam’s Phase 3 clinical program, expenses on an ongoing open-label simufilam study, and higher personnel expenses.
General and administrative expenses for the second quarter of 2021 stood at $1.2 million as compared with $0.8 million for the same period of the previous quarter. This increase was attributed to higher insurance costs and annual shareholder meetings, as compared with the previous year.
Cassava Sciences says it expects its net cash used for operations to be between $20 million and $25 million for the full Fiscal Year 2021. The increase will be driven by higher personnel expenses and head count, manufacturing costs, insurance costs, office space and IT-related expenses, and professional services costs related to clinical programs.
Valuation Metrics
Cassava Sciences’ stock looks a bit expensive here as it is trading at 31 times forward sales, and 53.9 times forward normalized earnings.
At the same time, 2022 net normalized income is expected to grow by 43.6%, providing some context for the lofty valuation.
Wall Street’s Take
From Wall Street analysts, Cassava Sciences earns a Strong Buy analyst consensus based on four Buy ratings, zero Hold ratings, and zero Sell ratings in the past three months.
The average Cassava Sciences price target of $159.25 puts the upside potential at 232.2%.
Summary and Conclusions
Cassava Sciences is an intriguing stock that has garnered the support from the NIH, giving it significant credibility and potential.
Furthermore, Wall Street analysts are unanimously bullish on the stock at current prices.
At the same time, the stock remains quite speculative due to uneven profitability, and uncertainty concerning how successful its research and development projects will become.
Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.
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