Is Cassava Sciences Stock A Buy?

Cassava Sciences Inc (NASDAQ:SAVA) is a biotechnology company dedicated to the study and treatment of Alzheimer’s disease.

The company’s stock experienced exponential gains in 2021, rising from around $7.00 per share to a high of $117.54 before settling. It came on the heels of promising results from its clinical studies. That begs the questions: is Cassava Sciences stock a Buy?

Medical companies are risky plays because of the expensive Food and Drug Administration (FDA) approval process. Everything hinges on those results, and a company like Cassava often spends years pushing through the clinical trials.

And an ailment like Alzheimer’s takes a long time to prove efficacy. Patients don’t simply take a pill and instantly get better. It can take years of treatments just to keep the condition from worsening. But the market potential of a cure gives the company 6 million potential customers with cognitive function and memory-related problems.

Will Cassava Sciences give investors a portfolio boost to remember?

Cassava Sciences Study Showed Improved Cognition

Cassava Sciences is an Austin, Texas-based biotechnology company focused on Alzheimer’s disease. Its main product is simufilam, which is a synthetic scaffolding protein that helps the brain maintain its shape.

Filamin A (FLNA) performs this function in our bodies naturally, but Alzheimer’s effectively alters them. This causes downstream pathologies that can lead to Alzheimer’s and other cognition- and memory-related diseases.

This treatment recently showed positive results in a National Institutes of Health-funded study. This study showed improved cognition scores, along with improvements in dementia-related behaviors.  However, that’s not all it takes to prove efficacy.

Medical efficacy can only be proved via a stage 3 clinical study through the FDA. Currently, it has only passed stage 2. This means it’s a long-haul investment for anyone jumping in today, and it’s not guaranteed to pass clinical trials.

Still, bullish investors believe this is a signal for a buy-and-hold situation once the price fully stabilizes.

Is Cassava Sciences Stock A Buy?

Cassava Sciences had a market cap of around $270 million at the start of 2021. By the end of the first week, the price stabilized at around $45.00, which gave the company a valuation around $1.5 billion.

That’s a big spike for a pre-revenue company that’s still operating at a loss. In fact, the company lost $0.15 earnings per share in the first nine months of 2020.

It holds about $94.3 million in cash, and that may not enough be to pay for the $1.8 billion it takes for what is likely to be a four-year-long clinical trial. Without this, it’s a volatile stock that may not be worth holding unless you’re a true believer in the cause.

Cassava Sciences initially went public in 2000, although it did another public stock offering of $75 million in November 2020. It plans to enter its phase 3 clinical trial in the second half of 2021, and that means it needs to take advantage of its elevated stock price.

Plus, the reason the price went up isn’t necessarily a good sign for potential investors.

Cassava Stock Caught In Short Squeeze Frenzy

It appears the reason Cassava Sciences shot up could be more due to the Reddit short squeeze frenzy that started the year. The company helped things out by releasing an announcement about the positive phase 2 study results, but it only involved 100 people.

Most likely, profit-hungry retail day traders pumped the stock up, and the frenzy was fueled by the news.

As the clinical trials expand, more problems could arise. This is the biggest risk of any biotech company, as they all need to be FDA approved. While the valuation spike mentioned sounds impressive, that enthusiasm is dampened when you realize the small drug maker has been trying for 20 years.

Critics argue the drug’s mechanism of action targets amyloid-beta and tau proteins found in the brain. Previous attempts using this technology from industry giants like Pfizer (NYSE:PFE), Eli Lilly (NYSE:LLY), and Merck (NYSE:MRK) all failed.

This means the company’s big time to shine was a long time ago, and others have moved on. The bearish argument is overwhelmingly in favor of the competition, which has much broader range of capabilities in their drug pipelines.

Are Cassava Partnership Options Limited?

Alzheimer’s is an incurable disease, and little major developments have been made to develop a cure for the last 30 years. Although the announcement of positive news from Cassava is encouraging, it’s not something to get too excited about.

With its relatively limited cash reserves, it may need a partnership with a major manufacturer. And that’s unlikely to be Eli Lilly, which has its own promising drug candidate for AD. Merck might still have a bad taste in its mouth from its failed 2018 trials.

Most likely, the company will need to continue exploring the efficacy of its medical technology on other diseases.

Pfizer (PFE) accidentally stumbled onto a possible Alzheimer’s cure with its rheumatoid arthritis medication in 2015. It simply chose not to spend the money for the labeling because the drug was already profitable enough without it.

Cassava Sciences doesn’t have this luxury. It needs to hit a homerun – otherwise, it’s heading for zero and taking investors for the ride.

Is Cassava Sciences Stock A Buy? The Bottom Line

Cassava Sciences is a biotechnology company focused on a singular treatment for Alzheimer’s disease. The technology behind it is not much different than treatments trialed unsuccessfully by other drug makers, but it could have an ace up its sleeve.

However, the company’s stock price is heavily volatile. Share prices shot up over 2,500 percent in February with no real reason, besides positive results from 100 patients in a phase 2 study. The real results are likely years to come.

That’s a long time to hold a company you have no interest in, so if you’re not heavily invested because you or a family member suffers from AD, it may not be worth the risk.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.