Cassava Sciences (NASDAQ:SAVA) has been the ultimate zero-to-hero biotech stock. Over the past year, shares have gained a stunning 3,630%. The company went from a virtual nobody to an innovator seemingly capable of developing the next Alzheimer's drug to market.
Not everyone believes in Cassava's potential, however. Short interest has remained consistently high at 10% of shares outstanding -- even after the run-up. So can this mid-cap biotech with just one office location and nine employees succeed where industry leaders have failed?
Just another sketchy treatment?
Investors who are banking on the success of Cassava's silmufilam are generally basing this perception on how the U.S. Food and Drug Administration (FDA) handled Biogen's (NASDAQ:BIIB) Adulhelm. While Adulhelm failed two clinical studies, the agency nonetheless granted the drug conditional approval based on its ability to reduce beta-amyloid markers in patients' brains, which are theorized to cause Alzheimer's disease (the correlation is pretty low). That means Biogen gets to keep its profits even if the drug ultimately fails its confirmatory study. The deal can't get sweeter than this.
Like Adulhelm, Cassava's simufilam failed to meet its trial's primary endpoints last May and was revived only after a post-hoc analysis. In a phase 2b data release, the drug did not demonstrate efficacy in lowering patients' beta-amyloid markers (and in fact raised them), so the company likely can't convince the FDA to approve it that way.
But there is hope for simufilam. In an open-label study, the drug improved patients' cognition by 1.6 points (or 10%) on the 70-point Alzheimer's Disease Assessment Scale-Cognitive Subscale (ADAS-COG) after six months. It's not really much, considering patients with mild to moderate Alzheimer's disease typically see their ADAS-COG scores decline by 6 to 12 points every year.
However, the study is significant, as it shows simufilam might have a small efficacy -- just past what's required for potential approval. Even in an open-label trial, it's unusual for a drug's effects to continue for that long.
So can Cassava do it?
Alzheimer's disease represents a huge unmet medical need; Biogen's drug was the first approved for the condition by the FDA in nearly 20 years. So even though Adulhelm has questionable efficacy, analysts are already predicting $10 billion in peak sales. Based on the available evidence, I see a 50-50 chance Cassava can advance simufilam to market. The drug's effects are just too small and variable to make anything certain. However, the FDA has set the bar really low for Alzheimer's disease drugs, so simufilam might be able to limp into the regulatory pathway with questionable data.
Currently, Cassava has about $300 million in cash, with no debt, and anticipates using only $25 million of capital this year. On July 29 it will release results regarding the nine-month efficacy data of its aforementioned open-label trial. This is definitely an event investors should pay attention to. If simufilam's efficacy in slowing cognitive decline doesn't hold up, then it will have trouble meeting requirements in the placebo-controlled phase 3 trial starting in the second half of the year. Overall, hedge your bets, as the market cap for Cassava has run up to nearly $6 billion during the investor craze. There is a lot to lose if the company's science doesn't back its financials.