A Budding Underdog to Dominate the Alzheimer's Battle

One of the most significant unmet medical needs worldwide is the treatment of Alzheimer’s Disease (AD).

With over 6 million people affected in the US alone and roughly 40 million globally, this number is projected to double by 2050 as the population ages and more individuals live longer lives.

That’s why it comes as no surprise that even though the Centers for Medicare & Medicaid Services decided to limit the coverage of Biogen’s (BIIB) AD drug, Aduhelm, more and more drugmakers continue to move forward with their own candidates.

Eli Lilly (LLY) continues to work on Donanemab, which could be available for review by mid-2023. Meanwhile, Roche (RHHBY) is anticipated to release data on Gantenerumab by the end of 2022.

Among the drugmakers pursuing this field, one name continues to rake in positive reports: Cassava Sciences (SAVA).

Cassava’s lead AD drug candidate is Simufilam, a small oral pill. Thus far, this has shown no safety issues and even released the best clinical AD data.

Notably, this is the only treatment that demonstrated tangible cognitive improvement for longer than 6 months in the clinical studies for AD.

The fact that Cassava’s candidate bested Donanemab and Gantenerumab, which both received breakthrough designations, and Aduhelm, which got an accelerated approval, indicates its candidate’s strong potential.

Between their promising results, convenient storage of the pill, easy dosing method, impressive safety data, and the vast unmet medical market, Simufilam could very well be hailed as the best-selling AD treatment the moment it gains approval.

Another indicator of Simufilam’s promise is the lack—or even absence—of insider trading within Cassava in the past years.

Typically, company insiders know more about the projects than anyone else. Strong insider selling is generally followed by a fall in a company’s stock price.

This has not been spotted anywhere in Cassava, with multiple insiders taking on very big stakes in the company.

However, the strongest indicator for Cassava’s impending win is Simufilam being in clinical progression. In fact, it’s already dosing in Phase 3 trials.

While other drugmakers working on an AD treatment may have promising options, the earlier a candidate is in the clinical trials, the higher the risk of failure and the longer it’ll take to be commercialized.

Each step forward in clinical trials is basically a way to “de-risk” the candidates, which leads to an increased value of the company.

Naturally, one of the questions raised when dealing with a biotech not as large as AbbVie (ABBV) or even Amgen (AMGN) concerns financial health.

Cassava’s recent financial filings showed that the company has roughly $240 million in cash and $0 debt.

Looking at their workflow, Cassava typically burns about $9 million every quarter.

As they ramp up their Simufilam trials, this is obviously expected to change.

After all, Phase 3 trials tend to cost more. So, the company anticipates a bump in spending to reach $12.5 million to $15 million per quarter this 2022.

While this is a substantial increase in capital expenditure, the jump remains within reasonable projections of the price of Phase 3 trials.

Taking into consideration the higher burn rate of roughly $15 million every quarter, Cassava would still have sufficient cash to operate for 16 quarters or 4 years without the need to resort to any additional financing rounds—at least for Simufilam.

If it fails, investors would already know whether Simufilam was a success.

That means if Cassava does pursue financing efforts, it would be for new projects and not for this particular AD treatment.

The market has not been kind to the biotechnology sector lately. It’s because the market tends to overreact to negative news.

Farsighted investors who recognize the enduring potential of a company—even at its vulnerable periods—can sometimes reap outsized returns if they turn out correct.

However, a successful strategy for some investors is to bet on companies that other investors are afraid to touch.

Nevertheless, it’s still prudent to keep in mind that investing in a roller coaster like Cassava means preparing yourself for an unexpected and possibly wild ride.