SAVA - Cassava Sciences - How To Interpret 3 'Positive' Updates Shared In Q3

2023-12-06 17:03:31 ET

Summary

• Cassava's stock price has experienced significant losses, down 40% on a 12-month basis and 29% year-to-date.
• The company reported a cash position of $142.4m in Q3 2023, indicating sufficient funds to complete its Phase 3 studies.
• Positive updates include the confirmation of simufilam's safety profile, no changes to study procedures, and further support for simufilam's mechanism of action.
• It would be miraculous if simufilam worked, given it is an orally administered drug that is safe and cheap to manufacture, but we should know for sure when Phase 3 studies read out.
• Until then expect the game of "smoke and mirrors" to continue.

Investment Overview

When I last profiled Cassava Sciences, Inc. ( SAVA ) for Seeking Alpha back in August this year, its stock price had rallied slightly on the back of some insider share purchases by an Independent Director of the company, Richard J Barry.

Despite this small fillip for shareholders, however, Cassava stock has had a difficult year, down 40% on a 12-month basis, and 29% year-to-date. This is to be expected when, according to MarketBeat , as of November 15, 37% of the share float is being held by short-sellers.

In my last note I discussed the history of Cassava, its miraculous share price gains - from ~$3 per share in August 2020, to over $120 per share in August 2021 - as the company shared Phase 2 open label data in relation to its Alzheimer's drug candidate Simufilam showing patients cognitive scores actually improving on the gold standard ADAS-Cog scale - and the subsequent devastating share price losses, as short-sellers mounted a series of attacks against the company.

For a fuller history of the company I would urge readers to revisit my August post - in this post I will cover three significant events occurring over the past few months that have both damaged, and revived, the share price, and which have formed the latest thinking on the company, and whether its controversial drug Simufilam can provide a genuine benefit to the Alzheimer's community. First, let's take a brief look at Q3 earnings.

Q3 Earnings - Cash Sufficient To Complete "Make or Break" Phase 3 Studies

As of Q3 2023, Cassava reported a cash position of $142.4m, with no debt, and a net loss for the quarter of $(25.7m), or $(0.61) per share - broadly similar to last year's net loss of $(20.3m), or $(0.51) per share. For the first nine months of 2023, net loss was $(76.3m), compared to $(57m) in the prior year, primarily due to a $20m increase in R&D spending, which management ascribed to "increasing patient enrollment and costs to conduct the Phase 3 clinical program, as well as other studies with simufilam".

Summarising earnings, we can probably conclude that Cassava has sufficient funds to complete its Phase 3 simufilam studies, without having to raise further funding either via debt issuance or an at-the-market fundraising. That is positive news for management, as raising funds prior to the data readouts would likely be problematic, given the battles being waged between Cassava longs and shorts.

Should the Phase 3 data be decisively positive, Cassava would likely be in a position to raise ~$500m - $1bn of funding without damaging its share price, given the euphoria that would greet a safe and successful new Alzheimer's drug. Conversely, if simufilam flunks the studies, it is unlikely that any investor will be prepared to buy Cassava stock at any price.

The two Phase 3 clinical studies Cassava is conducting - ReTHINK-ALZ, which has enrolled 804 patients (according to a November investor presentation ), and takes place over a 52-week treatment period, and ReFOCUS-ALZ, which has enrolled 1,125 patients and takes place over a 76-week treatment period - ought to determine once and for all whether simufilam has any impact on the health of Alzheimer's patients or the course of their disease.

These two studies - now fully enrolled, according to the Q3 earnings press release - are by far the largest Cassava has conducted, and unlike the controversial Phase 2 open label study that initially produced such outstanding results, these studies include a placebo arm to compare results against. Top line data for ReTHINK have been promised for "approximately year-end 2024", while the market will have to wait until mid-year 2025 for the ReFOCUS data.

Positive Update 1 - Safety Profile Confirmed

Cassava management does not hold earnings calls, and rarely communicates directly with investors - perhaps to avoid engaging in dialogue with shorts, who have the advantage of being able to fling mud at management with impunity - but the company did share three pieces of positive news-flow in its Q3 updates.

Firstly, news that "interim safety MRI data that suggests simufilam is not associated with treatment-emergent ARIA, which are imaging abnormalities".

It is well known that Biogen Inc. ( BIIB ) and Eisai's approved Alzheimer's therapy, Leqembi, which was shown to reduced clinical decline using Clinical Dementia Rating Sum of Boxes ("CDR-SB") scoring by 27% at 18 months compared to placebo, is associated with cases of Amyloid Related Imaging Abnormalities ("ARIA"). According to Biogen's press release announcing full approval of Leqembi:

• In Study 2, symptomatic ARIA occurred in 3% (29/898) of LEQEMBI-treated patients. Serious symptoms associated with ARIA were reported in 0.7% (6/898) of patients treated with LEQEMBI. Clinical symptoms associated with ARIA resolved in 79% (23/29) of patients during the period of observation.

The release goes on to explain:

ARIA usually occurs early in treatment and is usually asymptomatic, although serious and life-threatening events, including seizure and status epilepticus, rarely can occur. Reported symptoms associated with ARIA may include headache, confusion, visual changes, dizziness, nausea, and gait difficulty. Focal neurologic deficits may also occur.

While the Food and Drug Administration ("FDA") has essentially accepted the amyloid beta reduction thesis - i.e., that removing these "sticky" clumps of protein from the brains of Alzheimer's patients may slow the rate of cognitive decline - as a surrogate endpoint for approval of Alzheimer's therapies, there is a clear safety risk associated with this approach, while it should also be noted that leqembi is administered via twice monthly infusions at approved centres. In short Leqembi is an expensive therapy - current list price is $26.5k per annum, that is burdensome for patients - although a subcutaneous version of the drug is in development.

Eli Lilly and Company's ( LLY ) amyloid beta targeting drug donanemab, which will likely be approved by the FDA imminently, and which has been shown to slow cognitive decline by as much as 35% using the integrated Alzheimer's Disease Rating Scale ("iADRS"), and requires only a monthly infusion, is also associated with cases of ARIA. According to a Lilly press release, in its pivotal TRAILBLAZER-ALZ 2 study of the drug:

The incidence of serious ARIA was 1.6%, including two participants whose death was attributed to ARIA and a third participant who died after an incident of serious ARIA.

Clearly, then, the Alzheimer's population - estimated to number ~6.7m by the Alzheimer's Association - would greatly benefit from an oral therapy that is not associated with ARIA. The catch is whether simufilam can be not just safe, but effective, otherwise no matter how strong the safety profile, it has no place in any patient's treatment plan.

Positive Update 2 - No Change To Study Procedures, Suggesting FDA Support

A second update shared by management in its Q3 earnings updates is that:

In September 2023, a Data and Safety Monitoring Board (DSMB), recommended that the Phase 3 studies continue as planned, without modification.

Throughout the period where it has been attacked by short sellers, who went as far as filing a Citizen's Petition with the FDA demanding that all studies of simufilam be halted, and management be investigated for manipulating data and research papers that enabled it to secure its Investigational New Drug ("IND") approval from the agency (an IND must be obtained before in-human studies of any drug can take place), Cassava has generally been able to count on the support of the FDA.

The FDA helped Cassava with the design of its two Phase 3 studies of simufilam via a Special Protocol Assessment ("SPA"), and also denied the Citizen's Petition filed by a law firm on behalf of short sellers of Cassava stock, albeit on the grounds that the petition insisted the FDA initiate an investigation of Cassava, which "is not an administrative action".

The fact that the DSMB has permitted the studies to continue as planned seems to suggest that the relevant authorities are content to allow the studies to be completed and the data analysed and published. That should not be interpreted as a sign that they believe the studies will be positive, merely that Cassava be permitted to complete its studies, and that the trial design and execution is sound in the eyes of the authorities.

Cassava's CEO Remi Barbier is no stranger to the FDA, having tried, and failed on four separate occasions to secure approval for a gel formulation of oxycodone, before changing the name of his company from Pain Therapeutics, to Cassava, and pursuing the approval of simufilam.

It is still theoretically possible that Cassava could be investigated for past instances of data manipulation, but the message from the FDA seems to be that it would rather see the studies of simufilam completed and analysed than consider taking any retrospective action or halting any studies at this time.

Positive Update 3 - Further Support For Simufilam Thesis (CUNY Investigation Halted)

A fact highlighted by short sellers in the Citizen's Petition was that a Phase 2b study of simufilam that failed in 2020, missing its primary endpoint of reducing levels of tau protein in cerebrospinal samples and other biomarker assessments when data was analysed by an outside lab, was subsequently declared a success, after being analysed by the lab of a long-time Cassava collaborator, Dr. Hoau-Yan Wang, at City University New York ("CUNY").

Both Cassava longs and shorts have been waiting to see whether Dr. Wang would be investigated, and in October, a report was leaked to the press, supposedly prepared by CUNY, concerning Dr Wang. According to the New York Times :

On Oct. 12, the journal Science made public a draft of the committee's report, which concluded that Dr. Wang was "reckless" in his failure to keep or provide original data, an offense that "amounts to significant research misconduct."

Cassava was quick to respond to this news, stating in a press release :

On October 12, 2023, Science reported that it had obtained a copy of CUNY's report from " a person who requested anonymity because they are not authorized to share it ." The Science article quotes a person paid by a lawyer for certain short-sellers, but does not indicate what role, if any, short-sellers had in the leak. According to Science , CUNY completed its investigation in May 2023. The short interest in Cassava Sciences' stock jumped 40%, to over 14 million shares, between June 30, 2023, and September 29, 2023, according to NASDAQ.

CUNY's report makes no findings of data manipulation. Rather, the " egregious misconduct " cited in the report relates exclusively to internal record-keeping failures at CUNY. The report also finds that internal record-keeping failures " prevented us [CUNY] from making an objective assessment " of the allegations of research misconduct.

"We remain confident in the underlying science for simufilam, our lead drug candidate," said Remi Barbier, President & CEO. "We intend to continue to translate our passion for science into a novel drug for people living with Alzheimer's disease. Our Phase 3 clinical program continues."

CUNY confirmed that it had paused its investigation into Dr. Wang in a statement released on October 27th, stating:

Because questions regarding the confidentiality and integrity of this investigation have been raised, CUNY will stay the underlying inquiry into the allegations regarding Dr. Wang's research until such time as the University completes a comprehensive investigation of the process.

In short, we are essentially back where we started, with unsubstantiated allegations made against Dr. Wang and the actions of his laboratory, and no investigations into these allegations currently ongoing.

In the meantime, Cassava has been keen to counter the argument that there is no scientific evidence that simufilam's mechanism of action would have any benefit in Alzheimer's patients, besides evidence produced by Dr. Wang's lab at CUNY. Cassava states in its Q3 earnings release that:

In September 2023, a fourth academic institution showed non-clinical data in support of the biological activity of simufilam.

A link to this data appears to be shared in the press release containing Cassava's response to the CUNY investigations, quoted above, as follows:

In September 2023, Cassava Sciences announced the publication of new research that confirms the biological activity of simufilam. Researchers at the Cochin Institute (Paris, France) used a highly precise cell-based assay to show that simufilam interrupts amyloid binding to the ?7 nicotinic acetylcholine receptor.

Cassava Sciences believes this protein interaction underlies simufilam's mechanism of action in Alzheimer's disease. The research appears in a special issue of International Journal of Molecular Sciences, a peer-reviewed scientific publication, and is currently available on-line at: Simufilam Reverses Aberrant Receptor Interactions of Filamin A in Alzheimer's Disease

Below is how the mechanism of action ("MoA") of simufilam is described by Cassava in its most recent investor presentation:

In the same press release, Cassava also shares links to research published in May 2023 by scientists at the University of Milan, in which "researchers showed that simufilam treatment significantly reduced levels of phosphorylation at a site on FLNA in human pituitary tumor cells", and research shared by researchers at Yale University, and published by Science Translational Medicine which showed that "filamin A inhibition by simufilam reduced seizure activity in a mouse model of epilepsy".

Concluding Thoughts - Pivotal Study Success Still A Remote Possibility - But No Delay's To Data Readouts

There is no question Alzheimer's Disease is a devastating condition for both patients and their caregivers, with a huge unmet treatment need amongst nearly 7m patients in the US, poorly served by current standards of care, which are capable only of slowing cognitive decline slightly.

In that context it is arguably no surprise that Cassava stock rocketed as it did when management shared study data showing that patients using simufilam were seeing their ADAS-Cog scores improving. Briefly, it seemed as though the impossible was happening and that a biotech had stumbled across a potentially transformative approach to treating Alzheimer's.

In reality, only patients with the mildest form of Alzheimer's showed actual improvement in the study, which may be unrelated to treatment with simufilam, otherwise patients using the drug largely failed to outperform placebo.

Another Cognition Maintenance Study conducted by Cassava, in which patients used simufilam for 12 months, then either switched to placebo or continued on simufilam, apparently showed patients who continued with simufilam experienced slowing of cognitive decline by 38% versus placebo. Again, the data was obtained from patients with mild forms of the disease.

The reality is that Central Nervous System diseases are tricky enough to diagnose, let alone treat, and that makes it extremely difficult to assess the efficacy of a therapy - even the ADAS-Cog scoring system is arguably a subjective process, carried out by caregivers on behalf of patients.

What that can mean and what seems to be the case with Cassava is that we enter a world not exactly composed of smoke and mirrors, but one where data laid out one way appears convincing, but presented in another way may look entirely unconvincing.

The same may also be said about the controversy that dogs Cassava's research - from one angle it is arguably robust, and supported by independent, peer reviewed, research, from another, only Cassava and its closest collaborators seem to be able to make the simufilam magic work.

Throughout the clinical trial process, the FDA has maintained a watching brief, and having helped to design the Phase 3 studies, and with the studies having been reviewed by the DSMB, the one comfort that seems to lie ahead is that by the middle of 2025, we ought to have a definitive answer to whether simufilam has any effect whatsoever on people suffering with Alzheimer's disease.

It is interesting to note that the 52-week study will read out next year, with the 76-week study reading out many months later. That means that final conclusions won't be able to be drawn until both have read out, which will likely lead to a period of intense speculation, and share price volatility, between the two readouts. In this period, it may be entirely possible for two people to consider the same data and reach entirely different conclusions.

Until the entirety of the ReTHINK and ReFOCUS data becomes available, however, in my view, shorts and longs are essentially fighting a "phony war", with claim followed by counter claim, and little in the way of clarity. That day will come, but we may have to accept that the wait will be a long and tortuous one, and the scrutiny on the part of the authorities and the market must continue, to avoid the studies being blown off course.

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