2023-08-03 18:15:55 ET
Summary
- Cassava Sciences, Inc. is advancing Alzheimer's treatment simufilam, but the small study size and lack of statistical significance raise concerns.
- Despite $168.4 million in cash, Cassava's Q2 2023 net loss of $26.4 million and ongoing expenses highlight financial risks and potential need for financing.
- Considering methodological issues, increased losses, and high failure rates in Alzheimer's drug development, the investment recommendation for Cassava Sciences stock is a "Strong Sell."
Introduction
Cassava Sciences, Inc. (NASDAQ: SAVA ) focuses on biotechnological solutions for neurodegenerative disorders such as Alzheimer's disease. The company is in the process of advancing simufilam, a treatment option for Alzheimer's that has reached Phase 3 trials, along with SavaDx, a prospective diagnostic instrument that requires only small amounts of blood.
In my previous analysis , I concluded that Cassava's developments in Alzheimer's treatment with simufilam reaffirmed my "Strong Sell" recommendation. Despite a reduction in cognitive decline from small-scale studies, statistical insignificance and methodological issues warrant caution. Furthermore, Cassava's Q1 net loss of $24.3 million, primarily due to increased Phase 3 trial costs, raised sustainability concerns. With plans to enroll 1,750 patients in global studies by year's end, increasing operating costs could lead to more financial strain. Coupled with market skepticism and high failure rates in Alzheimer's drug development, I advised investors to approach Cassava with caution.
Recent developments: On Thursday, Cassava reported its Q2 GAAP EPS at -$0.63, falling short by $0.05. The company had $168.4 million in cash and cash equivalents as of June 30, 2023.
The following article examines Cassava's progress in developing Alzheimer's treatments, particularly simufilam, highlighting financial concerns, methodological issues, and continued uncertainty, leading to a "Strong Sell" recommendation.
Q2 Earnings & Balance Sheet Review
As of June 30, 2023, Cassava Sciences reported $168.4 million in cash and equivalents, with no debt. The net loss for Q2 2023 was $26.4 million ($0.63 per share), up from a net loss of $19.3 million ($0.48 per share) in the same period in 2022. This loss increase was mainly attributed to patient enrollment growth and associated costs for Phase 3 trials with simufilam. The company spent $33.2 million on operations during the first half of 2023 and expects to spend $40 to $50 million in the second half. R&D expenses grew to $25 million, and G&A expenses increased to $3.8 million, reflecting increased costs in patient enrollment, stock-based compensation, and legal services.
Turning to the company’s balance sheet : Cassava has experienced an increased operating loss for the first six months of 2023, reaching $55.29 million compared to $37.74 million in the prior year. Despite generating some income through interest and other net incomes, the net loss is also higher year-on-year. The balance sheet reveals a decrease in total assets from $234.83 million to $197.25 million as of June 30, 2023, mainly attributable to the reduction in cash and cash equivalents. Current assets outweigh current liabilities by a substantial margin, ensuring good liquidity. However, the continual cash burn, combined with an accumulated deficit of $334.20 million, indicates a potential need for additional financing if the trend continues, especially to support growing R&D expenses.
Cassava's stock, SAVA, is up 8% in the last year, but has demonstrated considerable weakness in the past three (-5%), six (-33%), and nine months (-41%).
Cassava Advances Simufilam in Alzheimer's Treatment Trials
Cassava Sciences conducted a Cognition Maintenance Study [CMS] to investigate the effects of simufilam on patients with mild-to-moderate Alzheimer's disease. In the study, simufilam was found to slow cognitive decline by 38% in comparison to a placebo, and even more dramatically in mild Alzheimer's cases. Simufilam was also found to be safe, with no significant drug-related adverse events.
However, there were several limitations to the study. Its small size might not provide definitive conclusions, and the results were not statistically significant for the given sample sizes. The study design and lack of comparison with existing Alzheimer's treatments might also restrict understanding of simufilam's efficacy.
Cassava is progressing in its examination of simufilam by building on the encouraging findings and acknowledging the existing limitations. The firm has recently enrolled over 1,587 participants in a Phase 3 study, an uptick of more than 340 individuals in the last quarter, with an overall goal of around 1,750 patients. This broader exploration could tackle some of the previous study's restrictions and provide more convincing proof of simufilam's efficacy.
The expected completion of patient enrollment in Cassava's Phase 3 trial is set for the final quarter of 2023, symbolizing an essential landmark in the research process. The continued progress reflects the company's commitment to rigorously evaluating simufilam, which might pave the way for a novel and efficient Alzheimer's treatment, depending on the success of the trial results.
My Analysis & Recommendation
In conclusion, Cassava Sciences' continued push to develop simufilam as a potential solution for Alzheimer's treatment has drawn both interest and skepticism. The recent growth in patient enrollment and the company's commitment to reaching Phase 3 trial completion by the end of 2023 underscores an ambitious roadmap. The preliminary data from the Cognition Maintenance Study offers promising indications but also raises considerable concerns due to its small size, lack of statistical significance, and methodological limitations.
Financially, the increased net loss in Q2 2023 and the overall trend of escalating expenses, particularly in research and development, underscore the considerable economic risks tied to the Phase 3 trials. With an accumulated deficit of $334.20 million and a continual cash burn, the company might soon face the need for additional financing, which can bring further uncertainty to the already volatile path towards commercialization.
The stakes are high for Cassava and its investors. On the one hand, successful Phase 3 data could lead to the emergence of a groundbreaking treatment for Alzheimer's disease, bringing potential windfall returns. On the other hand, the high failure rates typical in Alzheimer's drug development, coupled with Cassava's specific methodological issues, make this binary outcome highly uncertain. The road ahead could also be laden with regulatory challenges, competition, and the inherent risks of translating clinical successes into market acceptance.
In light of the complexities and unknowns surrounding Cassava's clinical and financial path forward, I maintain my previous investment recommendation of "Strong Sell." In my view, the outcome of the Phase 3 data is completely uncertain due to the lack of rigorous data beforehand, and investors should assume a very low probability of success for this Alzheimer's candidate. The risks, in this case, seem to outweigh the potential rewards, and caution is advised for those considering a stake in Cassava's ambitious yet precarious journey towards finding a treatment for a disease that continues to baffle the medical community.
Risks to Thesis
When the facts change, I change my mind.
It's essential to acknowledge that my "Strong Sell" recommendation for Cassava Sciences does come with its own set of risks.
First, the ongoing Phase 3 trials could yield positive and statistically significant results, defying expectations. Such a breakthrough in Alzheimer's treatment could lead to a sharp increase in the stock's value, contrary to my recommendation. Cassava's path may prove more successful than anticipated, given the lack of current effective treatments for Alzheimer's and the significant market opportunity this presents.
Second, the company's cash position and current assets versus liabilities do provide some cushion, which might enable them to weather increased expenses and continue the advancement of simufilam. Strategic partnerships or additional financing could further strengthen their financial position, mitigating some of the financial risks I've identified.
Finally, market sentiment and investor enthusiasm for biotechnology, especially in an area as critical and emotionally resonant as Alzheimer's treatment, can sometimes defy analytical expectations. A wave of optimism or significant endorsements from influential figures could drive the stock higher, regardless of the underlying fundamentals.
For further details see:
Cassava Sciences: Quest For Alzheimer's Treatment A Risky Bet On Simufilam