2023-07-05 15:05:31 ET
Summary
- Cassava Sciences' Alzheimer's drug, simufilam, reduced cognitive decline by 38% in a small study, but the results were not statistically significant, raising doubts about its efficacy.
- Despite a cash reserve of $187.5 million, Cassava's Q1 2023 net loss was $24.3 million, mainly due to increased patient enrollment costs for Phase 3 trials and other simufilam studies.
- Despite promising results, I maintain my "Strong Sell" recommendation for SAVA stock due to concerns about financial sustainability and the historically high failure rates of Alzheimer's drugs.
Introduction
Cassava Sciences, Inc. (SAVA) is a biotech firm targeting neurodegenerative diseases like Alzheimer's. They're developing simufilam, a Phase 3 Alzheimer's treatment candidate, and SavaDx, a potential diagnostic tool using minimal blood samples.
Previously, I shared mixed views on Cassava, recognizing the potential of their Alzheimer's drug, simufilam, yet highlighting the inconsistent findings and study limitations, such as a small sample size and non-randomized design. I also raised concerns about their increasing R&D and administrative expenses, questioning the firm's long-term financial sustainability. Considering the notorious failure rate of Alzheimer's drugs, I advised investors to exercise caution. Based on these factors, I had rated Cassava as a "Strong Sell." Since this recommendation, there's been an 8% decrease in Cassava's stock, in contrast to an 8% rise in the S&P 500 (SP500).
Recent developments: Cassava's simufilam reduced cognitive decline by 38% compared to a placebo in a small study on mild-to-moderate Alzheimer's patients, demonstrating safety and tolerability.
Cassava Sciences Q1 2023 Earnings
Let's first review Cassava's most recent financial report : As of March 31, 2023, Cassava reported having $187.5 million in cash and no debt. Their net loss for Q1 2023 was $24.3 million or $0.58 per share, a rise from the $17.5 million loss, or $0.44 per share, in Q1 2022. This increase in losses primarily stems from heightened patient enrollment costs for their Phase 3 trials and other simufilam studies. The net cash used in operations during Q1 2023 was $13.3 million. Cash usage for H1 2023 is now forecasted to be between $30 to $40 million, lower than the initially estimated $45 to $50 million, largely due to the timing of certain payments for simufilam studies. The company saw a rise in R&D expenses to $22.1 million and G&A expenses to $4.4 million, compared to Q1 2022, due to increased patient enrollment costs and legal service expenses respectively.
Simufilam: Promising Results, Market Skepticism
Cassava Sciences' Cognition Maintenance Study [CMS] aimed to evaluate the effect of simufilam on patients with mild-to-moderate Alzheimer's disease. This double-blind, randomized study involved 157 patients, all of whom initially received a 12-month simufilam treatment before being randomly assigned to either continue with simufilam or switch to a placebo for the subsequent six months.
In terms of efficacy, the data from the trial suggested a 38% reduction in cognitive decline over a six-month period with simufilam compared to the placebo. In patients diagnosed with mild Alzheimer's disease, the study noted an over 200% reduction in cognitive decline with simufilam relative to the placebo.
The safety profile of simufilam was also highlighted in the study, with the drug being deemed safe and well-tolerated, and no serious adverse events linked to the drug being reported.
However, despite these outcomes, Cassava's stock has seen a 13% decline. A possible reason for this might be the limitations inherent in the study design. As a small-scale, proof-of-concept study, the results, while indicative of potential, do not provide definitive evidence of simufilam's safety or efficacy. This could lead to investors waiting for more extensive data from larger trials before making investment decisions.
Further, the design of the trial, which had all participants initially receive simufilam before being divided into groups, could be a source of concern. The potential for residual effects from the drug in the placebo group could have influenced the results, adding to the uncertainty for investors.
Crucially, the reduction in cognitive decline observed with simufilam was not statistically significant given the sample size of the study (95% CI, - 2.1 to 1.0). This lack of statistical significance implies that the difference could be due to chance, thus casting doubt on the actual efficacy of the drug.
Overall, the financial market's response appears to reflect a measure of skepticism, possibly linked to the traditionally high failure rates of Alzheimer's drug development. Investors may be showing prudence, potentially discounting the results due to the study's small scale and the absence of statistical significance. Larger, more decisive trials will likely be necessary to reinforce market confidence and boost Cassava's stock value. Moving forward, Cassava aims to enroll roughly 1,750 patients in two global Phase 3 studies testing simufilam for mild-to-moderate Alzheimer's by the end of 2023.
My Analysis & Recommendation
In conclusion, the latest developments with Cassava Sciences and their Alzheimer's treatment candidate, simufilam, continue to substantiate my "Strong Sell" thesis. While the data from their small-scale CMS reveals a notable reduction in cognitive decline in patients taking simufilam, several factors suggest caution. Not least of these is the statistically insignificant results given the study's sample size, alongside the methodological design where all participants initially received simufilam, which could potentially muddy the results.
Moreover, the recent financial performance and future projections of the company amplify my skepticism. Although Cassava reports a decent cash reserve of $187.5 million as of March 31, 2023, the firm's Q1 net loss of $24.3 million, primarily due to increased patient enrollment costs for their Phase 3 trials and other simufilam studies, raises questions about the sustainability of their financial model. This concern becomes more acute when considering the company's plans to enroll roughly 1,750 patients in two global Phase 3 studies by the end of the year. This ambition will likely increase their operating costs considerably, and with an already high net loss, this could lead to further cash burn.
The decline in Cassava's stock, despite the seemingly positive outcomes of the CMS, illustrates the market's skepticism and possibly mirrors a prudent wait-and-see approach, given the traditionally high failure rates of Alzheimer's drug development. The journey to a successful Alzheimer's treatment is fraught with scientific, regulatory, and market challenges, which investors should keep in mind.
Therefore, with a market capitalization nearing $1 billion despite the firm's low cash reserve, anticipated higher costs due to the large-scale, Phase 3 clinical trials, and the uncertainties surrounding the clinical prospects of simufilam, my investment recommendation for Cassava remains a "Strong Sell." In the volatile biotech industry, especially within the Alzheimer's drug development sphere, I recommend that investors approach Cassava with caution. Until there is more compelling and statistically significant clinical evidence to support simufilam's efficacy, and clear strategies to manage the financial sustainability of the firm, the risks associated with investing in Cassava appear to outweigh the potential benefits.
Risks to Thesis
When the facts change, I change my mind.
While my bearish thesis on Cassava Sciences is rooted in thorough analysis, it's essential for me to acknowledge the risks that could challenge my stance. Here are the key factors that could put my perspective to the test:
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Clinical Results Could Be Promising: Although recent trial results lack statistical significance due, in part, to a small sample size, it's plausible that future studies involving larger groups could deliver statistically significant positive results. This outcome would invigorate investor confidence and potentially drive up the stock price.
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Phase 3 Trials Could Be Successful: The upcoming Phase 3 trials involving 1,750 patients globally might generate solid evidence of simufilam's efficacy and safety. If these trials are successful and lead to regulatory approval, it could be a game-changer for the company, likely causing a surge in the stock price.
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Potential for Strategic Partnerships or Funding: There's always a chance that Cassava Sciences could secure additional funding or enter strategic partnerships that might strengthen its financial position and enhance market confidence. This could include collaborations with larger pharmaceutical companies, additional equity offerings, or grants from government or non-governmental organizations.
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Market Demand Is Undeniable: The escalating need for effective Alzheimer's treatments, driven by an aging global population, is unmistakable. If simufilam gains approval, the potential market size could result in significant revenues for Cassava Sciences.
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Regulatory Changes Can Influence Outlooks: Any changes in the regulatory landscape or policies that could expedite drug approval processes or support Alzheimer's research could work in Cassava's favor.
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SavaDx Holds Potential: The company's diagnostic tool, SavaDx, carries its own potential. If successfully developed and commercialized, it could establish an additional revenue stream and bolster the company's overall valuation.
For further details see:
Cassava Sciences: Why Market Skepticism Persists Despite Positive Findings On Simufilam