Summary
- Multiple insiders have purchased shares on the open market in the last month.
- The company has now released positive 100 patient 12-month data.
- Another journal cleared the company of any wrongdoing.
- The SEC has officially ended any inquiries into the company.
Introduction
I give a strong buy rating to Cassava Sciences ( SAVA ). Throughout the drops, I have continued to add shares 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 over noise, it makes it an even better risk to reward. Big pharma spent billions of dollars searching for drugs to help patients with Alzheimer's Disease ((AD)). Yet, a small former pain company out of Austin, Texas – a place not known as a biotech mecca – has released data that blows everybody else's products out of the water. Unlike its competitors' expensive, impractical IV solutions full of safety issues, Cassava Sciences' solution is a small pill without known safety concerns. From the graveyard of AD therapy has come life called Simufilam. Because of this unlikeliness, the company has been shorted down to pennies of its all-time highs achieved last summer. While shorting a highly hyped stock is usually a brilliant bet, based on looking at all claims for and against the company, I believe that Cassava Sciences has seemingly done the impossible. You can read my bullish public coverage going back well over a year on Seeking Alpha and my reasons for my strengthening belief below.
Four Bullish Events Since We Last Spoke
As stated by Peter Lynch, "Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise." And buy the Cassava Sciences insiders have done. Since the last quarterly report, four insiders have purchased over $3 million in shares on the open market, including longtime Salesforce ( CRM ) board member and supporter of Neuroscience Sanford Robertson, increasing his share position by ~10% to push him past 1 million shares. In addition to the above buying, no insider has sold shares for years. Insiders have privileged information, and their moves speak volumes. These insiders are yelling very loudly as they try to get their hands on as many shares as possible. The last insider buy on the open market was September 24th, 2020, shortly before the stock rose in the summer of 2021 to over $100 and became the top performing stock of the year. Even more importantly, this was three months before the company announced its groundbreaking six-month OLE results. The company insiders likely had a closed buying period shortly after that purchase and at least through the data announcements of 2021. September 2020 was most likely the last time insiders had the chance to buy on the open market, considering we have not seen any buys between these two open market buys.
One thing that undoubtedly strengthened the insiders' belief was when on August 3rd the company announced 12-month data for 100 patients from its phase 3 trials. While the second 50 cohort was admittedly not as good as the first 50, the second 50 was still very good. Highlights from the data are that 63% of patients improved cognition, a remarkable achievement considering that AD is a disease of continual decline. Additionally, another 21% of patients slowed less than five cognitive points, meaning that the drug was able to slow down the effects of AD. Overall, 84% of patients saw a positive impact from the drug. If the company is able to achieve a result anywhere close to this while the drug's safety profile remains impeccable, then I would be shocked if they were unable to secure approval. The 100 patient data further de-risks the stock by decreasing the chances of a phase 3 failure.
In the middle of the frenzy of insider buyers, a surprise occurred when yet another scientific journal found no data manipulation in Cassava Science's scientific publications on Simufilam. The Journal of Prevention of Alzheimer's Disease ((JPAD)) is a positive step in the right direction while we wait for critical regulatory clearance from the City University of New York ((CUNY)). Many retail investors question the importance of CUNY, but that is because its importance is not for retail investors. Instead, its importance is for institutional investors. I speculate that this is the hold-up for many institutions purchasing the stock, resulting in very low institutional ownership. Institutions have to answer to their clients, and no matter how good the data for Cassava Sciences look, if an institution invested before a CUNY clearance and CUNY ruled against Cassava Sciences, then the institution would have some severe repercussions to face.
While we are still waiting on CUNY, we have positive news that the SEC has concluded all its inquiries into the company . From SEC investigation expert John P Gavin from Disclosure Insight's work, we can tell that the SEC performed an extensive inquiry into Cassava Sciences, totaling 48 boxes of documents that did not end in any formal investigation. CEO Remi Barbier said the company gave "nearly 100,000 pages of documents to an alphabet soup of outside investigative agencies … [they have] yielded an important finding to date: there is no evidence of research misconduct." Commercially bought paper comes in 5000 pages for a box, but loose leaf paper fits much looser in a box. From my research, only about 2500 pieces of loose leaf paper can fit in a box, so the number of documents from this quote aligns with the 48-box comment from the SEC. Regardless of the amount, it is in the rearview mirror for the company.
Events on the Horizon
Before the end of the year, Cassava Sciences should release 12-month data for 200 patients from its OLE trial, which will further boost the odds of success in 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 another validation for Cassava Sciences' data results. Something to remember is that Aduhelm from Biogen ( BIIB ) was approved based on biomarker data, not cognitive data. Looking ahead, mid-2023 should yield the results of the company's cognition maintenance study showing data from patients on 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, whose results will determine whether or not Simufilam gets approved. The coming two years will be exhilarating for Cassava Sciences' investors.
Financials
Per the last quarterly filing , the company has $197 million in cash with only $9 million in current liabilities, of which $0 is 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 be of concern to investors as the company has stated that they have enough cash to last through their phase three trials, at which points we will know if the drug will be approved or not.
Risks
This stock is a speculative play. Traditional fundamental metrics cannot value any pre-revenue biotech company. Instead, valuation is from potential cash earned once the drug is approved. Because we heavily value future revenue with a discount for the trial's success, the better way to look at this is almost like a high-growth company. Any macro condition affecting a high-growth company will also affect this company. 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 higher this effect is. So, not only do the risks of the trial not succeeding affect this company, but all the poor macro conditions also affect this company. Under any measure of risk, this play is very high risk. Walk with caution and understand what risk you are taking on.
Conclusions
The debate about this stock is simple. Bulls are speculating that the drug will continue to have great results in clinical trials, eventually leading to approval, which will bring cash into the company. On the other hand, bears speculate that the company will, for some reason, fail to get the drug to market. The company has stated they have the money to finance their phase three trials which will be able to push this to approval or denial. Barring any halting of a trial which appears to be very unlikely, we will see if the drug is approved or not. Investors have time to decide which side they will ultimately end up on, but in the end, we will find out who is right.
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Cassava Sciences Looks As Good Of A Purchase As Ever