SAVA - Cassava Sciences' Luck Hasn't Run Out Yet

2023-12-21 10:50:37 ET

Summary

• Cassava Sciences stock has increased by 50% since October due to positive safety data for its Alzheimer's disease candidate simufilam.
• The safety data shows that simufilam does not have a critical safety issue associated with another Alzheimer's drug.
• Cassava is facing allegations of scientific misconduct, but the FDA has allowed its phase 3 trials to continue.

Cassava Sciences ( SAVA ) is up 50% since my last article from October, where I concluded my somewhat neutral piece by saying this:

This is a risky stock, so play with it with expendable funds. I am a conservative investor, so I won't be buying, but broadly, SAVA and other AD stocks rise and fall on market enthusiasm, and can be profit makers for savvy and disciplined investors with a trading mentality.

That is an opportunity missed, of course, but with SAVA, you never know. SAVA went up in mid-October on the back of phase 3 safety data of simufilam, its filamin A targeting Alzheimer’s Disease candidate. Ordinarily, a spike on safety data would be hype, but there is some reason here, being that competing AD molecules have a certain safety issue simufilam does not seem to have. From the press release :

…announced a potentially significant safety finding based on interim magnetic resonance imaging ((MRI)) brain data from Alzheimer’s patients who are enrolled in a Phase 3 clinical trial of simufilam. The MRI data suggest simufilam is not associated with treatment-emergent amyloid-related imaging abnormalities, or ARIA…ARIA is a medical term used to describe a spectrum of brain MRI imaging abnormalities, such as edema and brain bleeds. ARIA is also a known risk factor for Alzheimer’s patients taking the class of drugs known as monoclonal antibodies directed against beta amyloid. In contrast to such class of drugs, simufilam is Cassava Sciences’ small-molecule (oral) drug candidate.

From Biogen’s (BIIB) leqembi approval document :

Monoclonal antibodies directed against aggregated forms of amyloid beta, including LEQEMBI, can cause amyloid related imaging abnormalities ((ARIA)), characterized as ARIA with edema (ARIA-E) and ARIA with hemosiderin deposition (ARIA-H).

Now the reason for the spike becomes clearer; simufilam avoids a critical safety issue associated with another AD drug from big pharma. The company indicates that simufilam’s being a small molecule may have something to do with that. We do not know. But this early safety data is highly positive.

While this is a positive development, Cassava is usually mired in a lot of extraneous, non-scientific nonsense. The one from the month of October relates to the work of CUNY professor Dr. Hoau-Yan Wang, who is a co-developer of simufilam, along with Dr. Lindsay Burns, Sr Vp of Neuroscience at Cassava, and the spouse of its CEO Remi Barbier. On October 12, Science magazine published an article and a report alleging serious research misconduct in the work of Dr. Wang.

There have been similar challenges before, notably from short sellers and neuroscientists—Geoffrey Pitt of Weill Cornell Medicine and David Bredt - which ended inconclusively. However, a researcher hired by attorneys of these two neuroscientists produced research regarding some of these allegations, which ultimately led to the Science report.

The report alleges that there is evidence of scientific misconduct in a number of papers authored by Dr. Wang, Dr. Burns, and a Harvard University neurologist and Cassava adviser named Dr. Steven Arnold. The primary concerns are manipulated use of western blots, a standard method used to detect specific proteins in a sample of tissue homogenate or extract. The report alleges that these manipulations may have caused simufilam to appear to produce positive effects it actually cannot produce.

Investigation into these allegations by CUNY and other bodies have turned out to be inconclusive, as well, mainly because Dr. Wang allegedly refused to provide original raw data to compare with the published data. However, any irregularities in his conduct would call into question the premise of the molecule simufilam. Cassava has prior experience blustering through such allegations, especially where accusers need the help of the alleged culprit to prove his own wrongdoing. As you can see, despite these serious allegations, Cassava stock has gone up 50% on the back of the safety data I just described. However, this is a house of cards, and if someone can remove that one critical card, the whole thing will fall apart.

That critical card is the FDA, which has so far declined to halt the two phase 3 trials pending further investigation, but has reserved the rights to do so. Cassava’s trump card is that the two original accusers were apparently short sellers, and also that before the publication of the 2023 reports, there was a “40% increase in short selling activity of Cassava shares.”

Meanwhile, Cassava continued to enroll patients in both its large phase 3 trials, and recently reported completion of enrollment:

The first Phase 3 trial involving 804 patients is expected to generate topline data before next year's end, following a 52-week treatment period. The company completed its enrollments in October.

The second Phase 3 trial involving 1,125 Alzheimer's patients is anticipated to generate topline data around mid-2025 after a 76-week treatment period.

Short selling has become a boon for Cassava, which it uses as a defense against these allegations, claiming that the allegations are mala fide. Meanwhile, the FDA continues to allow the trials to continue, probably with the intention to use the data generated at the trials to prove or disprove those allegations once and for all. Meanwhile, too, Cassava stock continues to rise mainly because of the tremendous market interest surrounding it. As such, this is an unpredictable stock - its movement does not depend on data.

Financials

Cassava Sciences, Inc. has a market cap of $1.17bn and a cash balance of $142mn. They recently issued warrants to SAVA shareholders, who will receive four warrants for every ten shares of common stock, funds from which will be used to fund their research. Research and development (R&D) expenses were $23.6 million for the third quarter, while general and administrative (G&A) expenses were $4.3 million. At that rate, they have cash for another 3-4 quarters at the most. Thus, they have just enough cash to see them through the data drop from the first phase 3 trial, which, if positive, should give them enough boost to raise some funds for the final step of the journey.

Bottom Line

Personally, I avoid stocks such as these because their movements cannot be predicted based on scientific data. However, I do not intend to advise long-term SAVA investors what they should do with their holdings because, like I always say, every investor’s personal situation may be different. Having said that, Cassava Sciences, Inc. stock needs a lot of caution, and current prices appear uncomfortably high.

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