When we think of this year's biggest stock market movers, GameStop probably comes to mind. Bullish traders on Reddit triggered a short squeeze that pushed the stock through the stratosphere earlier this year.
GameStop soared more than 1,700% in the first few weeks of January. Since then, the movement has settled. Still, the stock remains up more than 1,000% in the first half of the year.
But there's a biotech company that has rewarded investors even more than the video game maker in the short term. Cassava Sciences (SAVA +4.43%) has climbed about 1,120% year to date.
The company is working on an Alzheimer's treatment candidate and a potential diagnostic. The recent approval of Biogen's controversial Alzheimer's drug has put the spotlight on others in the field. Now the question is whether Cassava can advance its investigational products -- and deliver lasting share gains.
Image source: Getty Images.
A controversial rival
First, a little background on the excitement around potential Alzheimer's treatments. The U.S. Food and Drug Administration's (FDA) action on Biogen's Aduhelm is the first approval of a new Alzheimer's drug since 2003. And it's the first drug said to reduce clinical decline.
Why is the drug controversial? Because the FDA approved it based on a post hoc analysis -- and against the advice of an FDA advisory committee.
The story has spurred optimism about potential drugs that may rival Aduhelm in the near future. And voila... that and positive data from Cassava's Alzheimer's program have lifted the shares.
Cassava's drug candidate works differently than Aduhelm. Alzheimer's is associated with deposits of protein pieces called beta amyloid in the brain. The Biogen treatment aims to clear these plaques. Cassava's candidate, simufilam, works to stabilize a protein called filamin A. The idea is to bring this protein back to its normal shape and function.
In phase 2 trials, patients taking the treatment showed statistically significant benefit in eight disease biomarkers, compared to the placebo group. Additional data showed simufilam lowered levels of pro-inflammatory protein HMGB1 and improved the blood-brain barrier (BBB). The BBB protects the brain from molecules that may create injury.
Cassava is set to launch two phase 3 trials in mild-to-moderate Alzheimer's in the second half. One trial will measure the improvement of symptoms, and the second will examine the ability of the investigational treatment to modify the course of the disease. Researchers will study simufilam in 1,600 trial participants over a period of 12 to 18 months.
Cassava also is working on SavaDx, an Alzheimer's diagnostic. The company used it to test patients given simufilam versus the placebo group. It will present results from that study at the Alzheimer's Association International Conference in late July.
It looks like Cassava has the resources to at least advance simufilam. Cassava says its $282 million in cash ensures the company's ability to pay for simufilam's phase 3 trials.
A potential long-term bet?
Will Cassava leave behind its reputation as a short-term success and become a stock you'll want in your long-term portfolio? Everything is riding on future data.
As mentioned above, Alzheimer's treatment options are limited. The global Alzheimer's treatment and diagnostics market, at a 5.4% compound annual growth rate, is expected to reach more than $9 billion by 2026, according to Mordor Intelligence. All of this means that a company that commercializes an efficacious drug could make billions of dollars in revenue annually.
With this in mind, any positive trial reports likely will lift Cassava's shares. And that means Cassava could continue to outperform meme stocks, such as GameStop. As for the long term, a potential approval of Cassava's treatment or diagnostic candidate should translate into lasting share gains.
Disappointing trial data, however, could be devastating for the share price. The company doesn't have other programs in the pipeline, so success depends on bringing one or both of its candidates through to commercialization. This is what makes Cassava particularly risky at the moment -- even though clinical data so far has been encouraging.
What does this mean for investors?
If you're an aggressive investor looking for a company with a potentially game-changing candidate, you might consider shares of Cassava right now. But if you're more of a cautious investor, it's too early to buy shares of this biotech stock. Some investors think the FDA's approval of Aduhelm signals an easy path down regulatory lane for other Alzheimer's treatment candidates, but that won't necessarily be the case.
Cautious investors are better off waiting for at least some phase 3 data on simufilam. Only solid trial data will offer us clues about the likelihood of regulatory approval down the road -- and reduce the risk of investing in this innovative company.
