Alzheimer's disease (AD) causes severe hardships to patients and their families. The disease also comes with a high societal cost of $291 billion per year, according to the U.S. government's Centers For Disease Control and Prevention. Moreover, the number of people with AD -- currently about six million in the U.S. -- is projected to continue growing.
Given these factors, it isn't surprising that several biotechs are working hard at developing medicines for this disease. Two companies that have thrown their hats into this ring are Biogen (NASDAQ:BIIB) and Cassava Sciences (NASDAQ:SAVA).
Other than their interest in AD, these biotechs don't have a whole lot in common. The first is an established drugmaker with a rich lineup that racks up billions in revenue every quarter. The other is a clinical-stage biotech with no products on the market. But could the smaller of these drugmakers, Cassava Sciences, be a better buy at the moment?
Who has the better AD program?
It might be tempting to declare Biogen the runaway leader in this contest. The biotech's medicine for AD, Aduhelm, has already earned approval from the U.S. Food and Drug Administration (FDA). Meanwhile, Cassava Sciences' Simufilam hasn't even started a phase 3 clinical trial yet. But things are a bit more complex than that.
Biogen's Aduhelm works by reducing a toxic type of protein known as beta-amyloid plaque. This protein is thought to be one of the causes of AD, but whether removing amyloid plaque actually helps patients is still debated. That's one of the reasons a panel of experts convened by the FDA in November 2020 overwhelmingly opposed the drug's approval.
Because the regulatory agency still went ahead, Aduhelm has attracted some negative attention. That isn't good for Biogen and its shareholders, at least in the short term. Meanwhile, in a phase 2b study of AD patients, Simufilam successfully improved several biomarkers of the disease. Cassava Sciences announced these results in September 2020.
Cassava Sciences said in a press release, "The ability to improve multiple biomarkers from distinct biological pathways with one drug has never been shown before in patients with Alzheimer's disease." Simufilam works by restoring the normal shape and function of the filamin A protein in the brain, which is thought to be linked to AD.
So far, the data seems encouraging for Cassava Sciences' leading pipeline candidate, but it could still flunk in a late-stage clinical trial. Unforeseen regulatory roadblocks should also be factored in when comparing Cassava Sciences' potential AD drug to Biogen's already-approved medicine. While Simufilam could eat into Aduhelm's market share if it proves highly effective and earns FDA approval, that won't happen anytime soon, if at all.
What else does Cassava Sciences have to offer?
Cassava Sciences did not generate a single dollar in revenue all year. As of June 30, the company had $278.3 million in cash and cash equivalents -- and under $5 million in debt. It expects its net cash used in its operating activities to be between $20 million and $25 million for the full fiscal year 2021. Operating expenses will likely increase given that it is planning to start a phase 3 clinical trial for Simufilam soon.
Even so, the company's current cash balance seems more than capable of sustaining its operations for a year and a half, which should be long enough for the biotech to publish interim results from this late-stage study for its Alzheimer's drug candidate. If these results are positive, the company's stock will skyrocket.
Beyond that point, funding will no longer be an issue. The company could take advantage of its soaring stock price to conduct a secondary offering and raise additional capital, for instance. But those are many "ifs" to count on, especially considering the potential downside. If Simufilam fails to prove effective in late-stage studies, Cassava shares will fall off a cliff.
Now, there is another potential risk for the company. On Aug. 23, the FDA received a citizen petition by Labaton Sucharow, a law firm based in New York. The petition questioned the legitimacy of the data Simufilam has produced in clinical trials and requested that the FDA halt ongoing studies involving the investigational AD medicine.
It's important to note that the citizen petition was filed on behalf of some of Labaton Sucharow's clients with short positions in Cassava Sciences' stock. In other words, these clients have a lot to gain if shares of the biotech drop. So investors might be advised to take them with a grain of salt. That said, these new developments certainly don't help the company.
Which is the better buy?
Biotech behemoth Biogen has a lineup of drugs beyond Aduhelm. In the second quarter ended June 30, the company's sales came in at $2.8 billion. That represented a 25% year-over-year decrease, mainly because the company's multiple sclerosis drug Tecfidera has been facing biosimilar competition since last year. But once revenue from Aduhelm starts coming in, Biogen's top line will start growing again. And the company has a much richer pipeline than Cassava Sciences does, with more than a dozen clinical programs underway.
Furthermore, shares of Cassava Sciences have skyrocketed more than 1,600% in the past year, even after a recent pullback related to the citizen petition. Biogen's stock meanwhile is up some 17% in the same period. Cassava Sciences may still have significant upside potential given that its market cap is only $2.3 billion as of this writing vs. Biogen's $50.5 billion.
But this upside potential hinges on a single drug that may (or may not) produce solid results in remaining clinical trials. For investors comfortable with the risk, Cassava Sciences might be worth consideration. And even then, I'd advise initiating only a small position in this biotech stock. But for more conservative investors, Biogen is clearly the better option.