Cassava stock: as good a buy as ever (NASDAQ: SAVA)

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Introduction

I give a strong buy rating to Cassava Sciences (NASDAQ: SAVA). As the drops went by, I kept adding actions and DCA. In the past I called Cassava Sciences the best risk to reward in the stock market, and when the price becomes even more attractive on the noise, it makes it an even better risk to reward. Big pharmaceutical companies have spent billions of dollars researching drugs to help patients with Alzheimer’s disease (AD). Yet a small former pain-treatment company in Austin, Texas — a place not known as a biotech mecca — has released data that is blowing everyone’s stuff up. Unlike competitors’ expensive and inconvenient IV solutions that are fraught with safety issues, Cassava Sciences’ solution is a small pill with no known safety issues. From the graveyard of AD therapy came life called Simufilam. Due to this improbability, the company has been reduced to pennies from its all-time highs reached last summer. While shorting a high-profile stock is usually a brilliant bet, based on reviewing all the claims for and against the company, I think Cassava Sciences has seemingly done the impossible. You can read my bullish public coverage going back over a year on Seeking Alpha and my reasons for bolstering my belief below.

Four bullish events since our last conversation

As Peter Lynch said, “Insiders may sell their stocks for any number of reasons, but they buy them for only one: they think the price will go up.” And buy Cassava Sciences insiders. Since the last quarterly report, four insiders have bought more than $3 million worth of stock on the open market, including longtime Salesforce (CRM) board member and Neuroscience supporter Sanford Robertson, increasing its equity position by about 10% to push it beyond the million shares. . In addition to the above buy, no insider has sold stocks in years. Insiders have inside information and their moves speak volumes. These insiders are screaming loudly as they try to get their hands on as much stock as possible. The last open market insider buying took place on September 24, 2020, shortly before the stock hit over $100 in the summer of 2021 and became the best performing stock in the year. More importantly, it was three months before the company announced its groundbreaking six-month OLE results. Company insiders likely had a closed buying period shortly after this purchase and at least until the 2021 data announcements. September 2020 was most likely the last time insiders had the opportunity to buy on the open market, since we did not see any purchases between these two purchases on the open market.

One thing that undoubtedly strengthened insiders’ belief was when, on August 3, the company announced 12-month data for 100 patients from its Phase 2 trials. While the second cohort of 50 was only admittedly not as good as the first 50, the second 50 was still very good. Highlights of the data are that 63% of patients improved their cognition, a remarkable achievement considering that AD is a disease in continuous decline. Additionally, 21% of patients slowed less than five cognitive points, meaning the drug may have slowed the effects of AD. Overall, 84% of patients saw a positive impact from the drug. If the company is able to achieve anything close to this while the drug’s safety profile remains impeccable, I would be shocked if it failed to gain approval. Data from 100 patients further reduces stock risk by decreasing risk of phase 3 failure.

Amid the frenzy of insider buyers, a surprise occurred when yet another scientific review found no data manipulation in Cassava Science’s scientific publications on Simufilam. The Alzheimer’s Disease Prevention Journal (JPAD) is a positive step in the right direction pending critical regulatory clearance from the City University of New York (CUNY). Many retail investors question the importance of CUNY, but that’s because its importance is not for retail investors. Instead, its importance is for institutional investors. I guess it’s the heist for many institutions buying the stock resulting in very low institutional ownership. Institutions need to respond to their customers, and no matter how good Cassava Sciences data is, if an institution were to invest before a CUNY clearance and CUNY came out against Cassava Sciences, then the institution would have serious repercussions to deal with. .

While we are still waiting for CUNY, we have positive news that the SEC has concluded all of its investigations into the company. From SEC investigative expert John P Gavin of Disclosure Insight’s work, we can say that the SEC conducted a thorough investigation of Cassava Sciences, totaling 48 boxes of documents that did not result in any formal investigation. CEO Remi Barbier said the company gave “nearly 100,000 pages of documents to an alphabetical soup of outside investigative agencies… [they have] resulted in an important finding to date: there is no evidence of research misconduct. “Commercial paper holds 5000 pages for a box, but loose-leaf paper fits much looser in a box. From my research, only about 2500 sheets of loose-leaf paper can fit in a box, of so the number of documents in this citation lines up with the SEC’s comment at 48. Whatever the amount, it’s in the company’s rearview mirror.

Events on the horizon

Before the end of the year, Cassava Sciences is expected to release 12-month data for 200 patients from its OLE trial, which will further increase the chances of successful phase three trials if the data continues to be positive. Additionally, the company will release 12-month biomarker data for 25 patients, which will provide further validation of the results from the Cassava Sciences data. It should be remembered that Biogen’s Aduhelm (BIIB) was approved based on biomarker data, not cognitive data. Looking ahead, results from the company’s cognition maintenance study are expected in mid-2023 showing data from patients taking the drug for 18 months and having the first placebo-controlled data. Finally, the company will have completed phase three trials in early to mid-2024, the results of which will determine whether Simufilam is approved or not. The next two years will be exciting for Cassava Sciences investors.

finance

According to the latest quarterly filing, the company has $197 million in cash with only $9 million in current liabilities, including $0 in debt. The company had a burn rate of just under $20 million per quarter, which will most likely increase as phase three trials progress. The cash position should not worry investors as the company said it has enough cash to last through its phase three trials, at which time we will know whether the drug will be approved or not.

Risks

This stock is a speculative game. Traditional fundamental measures cannot value any biotechnology company before its earnings. Instead, the valuation comes from the potential money earned once the drug is approved. Because we highly value future earnings with a discount for trial success, the best way to look at this is almost like a high growth business. Any macro condition affecting a high-growth business will also affect that business. For example, inflation devalues ​​future earnings because they will have less purchasing power when the company gets them than current dollars. The higher the inflation, the greater this effect. So not only the risks of trial failure affect this business, but all bad macro conditions also affect this business. By any measure of risk, this game is very high risk. Walk with caution and understand the risks you are taking.

conclusion

The debate over this stock is simple. The bulls are speculating that the drug will continue to do well in clinical trials, eventually leading to approval, which will bring money to the company. On the other hand, the bears are speculating that the company, for whatever reason, will fail to bring the drug to market. The company said it has the money to fund its phase three trials, which may push this to approval or denial. Unless a trial is stopped, which seems very unlikely, we will see whether the drug is approved or not. Investors have time to decide which side they end up on, but in the end we will know who is right.

About Nicole Harmon

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