SAVA with Nobias technology: Will Cassava’s Protein-Oriented Approach to Alzheimer’s Solve This Unmet Need?
During the last year or so, you’d be hard pressed to find a stock more volatile than Cassava Sciences (SAVA). A year ago, this was a small-cap bio-tech stock trading in the $3 area. What caused the amazing rally? Cassava is developing a drug to treat Alzheimers, called Simufilam. Being that Alzheimer’s is widely considered to be the “holy grail” of sorts when it comes to untreated diseases in the world today, any potential good news here gets investors excited. Worldwide, there are tens of millions of people suffering from the disease, representing a large market of patients with unmet pharmaceutical needs.
Cassava has had positive breakthroughs in recent Simufilam trials, providing bio-tech investors with a lot of hope for a successful treatment. But, Alheimers has proven to be a tough nut to crack for scientists for decades and while there has been positive developments in the Alzheimer's space lately, there is no clear winner in this race. Could Cassava overtake Biogen (who saw a controversial Alzheimer’s drug approved by regulators earlier in the year)? Potentially. And that potential alone has caused investors to flock into SAVA shares. Unfortunately for bulls, the volatility that SAVA has experienced in recent months has not all been on an upward trajectory. In late July, SAVA shares fell from $135 to the $69 area. Then, throughout the current month, we saw SAVA shares mount a rebound, rising from their recent lows in the $69.50 range to roughly $122.50 in by mid-August. However, in recent days, we’ve seen the stock take a major step in the wrong direction (if you’re a bull, that is), falling to recent lows of approximately $58/share.
This most recent dip was the result of SAVA’s phase 2 trials for simufilam being called into question, with regard to quality concerns over the studies the company performed. SAVA’s management team has already rebuked these claims, yet legal pushback against the results remains in place (for now). In the market, such volatility can present unique opportunities for trades. And, the recent weakness could also represent an attractive buying opportunity for a long-term investor who missed the stock’s recent rallies. So, with that in mind, we wanted to take a look at what the blue chip analysts that the Nobias algorithm tracks have had to say about Cassava Sciences recently. In this article, we’ll be looking at recent reports by 4 and 5-star rated analysts as well as the aggregate opinions presented by the credible authors that our system accumulates over time.
Jim Halley, a Nobias 5-star rated analyst, recently published an article titled, “Why Shares of Cassava Sciences Fell 18.6% in July” which highlighted the first major dip that the stock took. And, surprisingly enough, he began his piece by saying, “The interesting thing is the results that sparked that precipitous drop were positive.” Halley continued, noting “The preliminary results from the company's phase 2 trials, presented during the Alzheimer's Association International Conference, showed the drug led to an improvement in cognition for Alzheimer's patients with no adverse side effects. After nine months, 66% of the 50 patients in the trial saw an average improvement of 3 points on the Alzheimer's Disease Assessment Scale-Cognitive Subscale (ADAS-Cog).”
When speculating as to why the stock sold off in response to what appeared to be positive results, Halley said that the “sell the news” trend is probably at play here, being that SAVA shares were up more than 3300% during the prior year (essentially, expectations will always be greater than reality in situation where such a strong rally has occurred). He also said, “It's also likely that some investors were underwhelmed by Simufilam's trials, as a 3-point difference on the ADAS-Cog may not be considered by some to be statistically significant.”
Halley highlighted how important Simufilam is for SAVA saying, “A lot is riding for Cassava on whether or not Simufilam is approved. The company has $278.3 million in cash but no revenue, and it lost $5.1 million in the second quarter.” However, he noted massive upside, considering that “simufilam appears to have fewer side effects than Biogen's recently approved Alzheimer's therapy, Aduhelm, may be enough to get the drug approved for Alzheimer's treatment.”
Aduhelm comes with a high price tag of $56,000/share. The prevailing thought is that Simufilam, which is a twice daily oral tablet, will be much cheaper than Aduhelm, which is administered via intravenous injection, and therefore, an approval here could allow SAVA to capture massive market share.
Stavros Georgiadis, a Nobias 4-star rated analyst, recently published another bearish article, highlighting his skepticism with regard to SAVA’s massive share price rally. He began by saying, “Obviously, I want this company to succeed; I witnessed a family friend’s battle with Alzheimer’s disease, and I would love for Cassava to succeed in their battle against it. But a closer analysis of its fundamentals leaves me questioning SAVA stock’s surge of over 1,600% so far this year, much less its 3,600% gain in the last year.”
Like Halley, Georgiadis touched upon SAVA’s poor fundamentals from a sales/cash flow that SAVA presents investors with at the moment. Regarding SAVA’s recent earnings, Georgiadis said, “The only positive news is that the company has no debt, and it has plenty of cash: $278.3 million, to be specific, up from $93.5 million at the end of 2020.” However, he noted this cash influx was brought on by equity sales. Granted, when a stock is up more than 3000%, it’s probably a prudent idea for management to take advantage of the exuberance surrounding its stock and to raise cash, even if it dilutes investors. But, needless to say, paying such a high multiple for a company with quarterly losses is a risky bet.
Georgiadis’s main point was that final approval of Simufilam, should the company continue to pass drug trial tests, is likely far into the future. He said, “The company also recently announced phase-3 trials for simufilan for the second half of 2021. Phase-3 is an important step in the process of having a treatment approved by the Food and Drug Administration, but it’s not a short process. It could last years. That’s a challenge for a company like Cassava Sciences, which has no revenue so far.”
However, not everyone is a skeptic here. Taylor Carmichael, a Nobias 5-star rated analyst, recently published a report at The Motley Fool, highlighting his bullish stance on the company. Carmichaels said, “What makes Cassava really interesting is that it's zigging where Big Pharma is zagging regarding Alzheimer's research. This field has a huge market opportunity, maybe worth $100 billion or more for a working drug.”
Carmichaels points out that “Alzheimer's research has been a graveyard for Big Pharma for decades. By one count, there have been 130 failed drug development attempts since 1998. Almost all of this research has been based on a shaky premise -- that amyloid plaques are the cause of Alzheimer's. And treatments developed on the basis of a weak theory are unlikely to succeed.”
While acknowledging that he is not a scientist, Carmichael continues, noting that he does not believe that companies focused on amyloid plaques as the cause and/or solution to Alheimzers are focused on the right area. As an equity analyst, he says, “My investment thesis is that biotech companies that have abandoned the amyloid plaque theory have a much better chance of success.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Carmichaels highlights Cassava’s different approach saying, “Cassava researchers noticed that Alzheimer's patients have a mutated protein called filamin A. So they designed a drug that fixes this mutation, and restores its proper form and function.” He notes that SAVA is one of two companies working on the protein theory - Annovis Bio (ANVS) is the other. However, he notes that ANVS only has $49 million on its books, which in his view, is not enough cash to fund a proper phase 3 drug trial. Therefore, he mentioned that his family has invested in SAVA shares recently, because of the fact that its nearly $300 million in cash has the potential to push Simufilam past the finish line.
Noting the speculative nature of SAVA shares, Carmichael concludes his piece saying, “But the way investors avoid too much pain is by making a small investment. If the pivotal trial later this year is successful, the upside is huge. And if the drug disappoints, your downside is limited.” Overall, looking at the analyst community that the Nobias algorithm tracks, the vast majority of authors are bullish on SAVA shares after its recent pullback.
Right now, 88% of credible authors are bullish on SAVA shares. Right now, the average price target for SAVA amongst the group of authors that Nobias tracks is $117.50. Compared to SAVA’s current share price of $58.34, this represents upside potential of 101%. Obviously, when it comes to investing in early trial bio-techs, there is enormous risk involved. But, it appears that the analysts that Nobias tracks believe the risk/reward outlook here is attractive.
Disclosure: Nicholas Ward has no position in any company mentioned in this article. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.