Cassava Sciences (NYSE:SAVA) was on a tear in 2021 on the heels of the pharmaceutical company’s announcement of its groundbreaking treatment for Alzheimer’s disease. Astonishingly, that speculation drove the stock from where it was trading at around $1 in late 2019 to nearly $125 in mid-2021.
Then disaster struck. The SEC launched an investigation into the company for manipulation of research data in its Alzheimer’s study. That sent the stock plummeting almost as fast as it initially rose, and it’s been nothing but downhill it seems for SAVA ever since.
Despite the allegations, there have been no charges filed as of yet, and Cassava has continued with clinical trials. Since the stock is down nearly 50% year-to-date, investors are starting to wonder if maybe SAVA is undervalued.
What does Cassava Sciences do?
Cassava Sciences started out in 1998 with a focus on developing pain medications. After difficulties in getting its opioid-based drugs through final approvals, the company pivoted to Alzheimer’s treatments in 2018.
Cassava’s flagship drug is called Simufilam. It’s a drug designed to repair a protein in the brain called Altered Filamin A (FLNA) that becomes damaged in Alzheimer’s patients.
Simufilam is currently in clinical phase III, with a recent study completed in July 2023. That study found that in 150 enrolled patients, those who took Simufilam over a 6-month period slowed their cognitive decline by 38%, compared to patients who received a placebo.
Another clinical study is expected to reach full enrollment by the end of the year. Cassava hopes to enroll 1,750 participants but noted that there has been difficulty in finding enrollees due to the controversy around the company.
Is Cassava Sciences a Good Investment?
The declining stock price may be enough to scare many investors away, and there’s good reason to expect volatility around SAVA but positive signs did emanates from the firm’s Q2 2023 earnings release.
The biggest positive is that Cassava Sciences has $168.4 million in cash and cash equivalents, and it has zero debt on the books. Company leadership expects cash on hand to carry operations through until Simufilam can complete clinical trials and begin generating revenue.
Aside from that bright spot, the earnings release wasn’t very positive. That’s mainly because Cassava won’t have any earnings to speak of until its drugs reach shelves.
The company’s net loss of $26.4 million increased from $19.3 million last year, as Cassava spent more to put Simufilam through trials.
What is the Prediction for Cassava Sciences?
Because of the controversy around the stock and because Cassava hung its hat on a single drug that remains in the trials phase, analysts have been reluctant to make bold predictions about the future of SAVA.
Only 2 analysts have ventured to rate the stock, and both are bullish on SAVA. Not only have the analysts assigned Buy ratings, but they have also predicted it could jump by as much as 785% to $124 over the next year, a price that would put Cassava share price close to where it was trading two years ago.
Even the lower rating forecasts a pop of 435% to $75 over the next 52 weeks. While it’s certainly possible for SAVA to soar if Simufilam clears trials and the controversy dissipates, there is a reason why more analysts haven’t given predictions at this juncture.
Will Cassava Sciences Go Up?
The two analysts covering Cassave clearly expect good news on the horizon to ignite a big bump. While a 700% jump over the next 12 months may seem far-fetched, there is plenty of room for the stock to rise if Cassava Sciences can escape the dark cloud of controversy it’s been under.
By reaching its enrollment target for the upcoming clinical trial, Cassava is likely to be viewed more positively by shareholders. That may be enough to ignite the stock in a positive direction.
No doubt, results from the trials that confirm the drug’s effectiveness will go a long way to winning back shareholder confidence too.
Why is Cassava Stock Falling?
Unfortunately for prospective buyers, it’s going to be a while before any results from trials are announced, and the drug still has a long way to go to achieve FDA approval. The process is that much more difficult because of the controversy around the company’s earlier research trials, which is partially why the stock has failed to bounce back.
It’s not the only bad news that’s been reported, either. In a recent Science article, one of the co-developers of Simufilam was accused of egregious misconduct after an investigation by the City University of New York (CUNY).
The accusations weren’t backed by substantial proof, though, so at this point, it’s an accusation based on the co-developer’s consistent lack of documentation and refusal to cooperate with the investigation.
Given Cassava’s earlier allegations of misconduct, the recent report was enough for some scientists to call for the suspension of the studies that Simufilam is currently undergoing. That would be a major blow to the company’s plans, and its the reason why many investors have shied away from the company.
Is Cassava Sciences Stock Undervalued?
For all of the bad news around Cassava Sciences, there still hasn’t been any hard evidence that would put an end to the company’s pursuit of approval for its Alzheimer’s treatment. And since the stock has continued to plummet relentlessly, it’s certainly possible that SAVA is undervalued.
Without a doubt, if Simufilam is what investors believed it was in 2021, the stock is undervalued. But with all of the controversy, it’s harder and harder for many investors to believe that the drug will see the light of day.
That leaves SAVA as a consideration for speculative investors at the moment, because there’s likely to be more headwinds in the near future.
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.