What happened
Shares of Cassava Sciences (SAVA -7.32%) were 19.2% higher as of 3:20 p.m. EDT on Wednesday. The big jump came after Jones Trading analyst Soumit Roy initiated coverage on the stock with a buy rating. Roy set a one-year price target of $110, a 111% premium over Cassava's closing price on Tuesday.
So what
It's not a good idea to buy a biotech stock just because an analyst is bullish about it. But understanding what an analyst likes about the stock can be helpful.
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In this case, Jones Trading's Roy is optimistic about the prospects for Cassava's experimental Alzheimer's disease drug simufilam. The company met in February with the Food and Drug Administration about advancing the drug candidate into a pivotal late-stage clinical study.
Success for experimental Alzheimer's disease drugs has been hard to achieve in the past. Several once-promising candidates ultimately flopped in late-stage testing. Cassava CEO Remi Barbier stated last month that the company "believe[s] the underlying science [for simufilam] is solid." If the biotech's pivotal studies go well, its stock will likely be worth a lot more than even the significantly higher target price set by Jones Trading.
Now what
Cassava plans to start the first of its two late-stage studies of simufilam in the third quarter of this year. That study will evaluate the disease-modifying effects of the drug in treating Alzheimer's. The biotech expects to kick off the second pivotal study -- to evaluate symptomatic improvement in patients who receive simufilam -- in the fourth quarter.
