Cassava Sciences: With Almost Half The Float Shorted, Results Could Be Interesting

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Cassava Sciences' stock is highly shorted, with potential reward tied to the upcoming Phase 3 trial results for simufilam.The bull thesis hinges on simufilam outperforming current treatments or ...

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The company is among the most shorted stocks on Wall Street, with a short percentage approximating 40% of the entire float. The first of two Phase 3 readouts for the company is imminent, with topline data expected by year-end 2024. The big short bet is that the company's drug candidate simufilam will fail to show statistical significance in patients with mild to moderate Alzheimer's disease, and that; therefore, the stock will crash. The bull thesis is that simufilam may outperform approved anti-amyloid antibodies and/or could even be used as an add-on therapy. There is something to say about both of these. In the end, the threshold to outperform anti-amyloid antibodies truly is not so high. Apart from the win-all, lose-all scenarios, several other scenarios are also in play, such as the possibility that simufilam shows good results in one or more subgroups and that further trials are launched to ascertain efficacy in those. These subgroups could be related to the drug target-misfolded filamin A-or to the mild versus moderate Alzheimer's patient population. I believe not all is black and white here, after the company's data releases over the past few years. There are really a number of scenarios where the bulls could claim victory. The market for Alzheimer's disease is so huge that at the current market cap, even a moderate win could warrant a move up. With Cassava's meme-stock-like aspects, even a slightly bullish scenario could inform Cassava investors that the shorts should not be right on this stock. The company just reported that it had $149 million in cash and cash equivalents at the end of Q3 2024. I believe that a further financing either before or after Phase 3 data is not excluded. I hope to do further coverage after the first of the company's two Phase 3 readouts. Company Introduction Cassava Sciences is a late-stage biotechnology company with one lead asset, simufilam, for the treatment of Alzheimer's disease. The company has tied its faith to whether or not this drug will be able to have a meaningful effect on the treatment of mild-to-moderate Alzheimer's disease. To that purpose, the company has launched two Phase 3 trials. Topline data for the first one of these, a 52-week trial in 804 patients, is expected by year-end 2024. Topline data for the second Phase 3 trial, a 76-week trial in 804 Alzheimer's patients, is expected by mid-2025. This is the overview of the Phase 3 program. Phase 3 trial design (Corporate Presentation) The company has a huge, confident investor-base, and has been covered frequently by several authors. Since announcing cognitive improvements in Alzheimer's patients in 2021, investors in Cassava Sciences believe that simufilam will revolutionize the treatment of Alzheimer's disease. Short sellers have focused on the science underlying simufilam. Both the short and long thesis seem to have merit. The remaining bull thesis For long, the thesis of the short sellers has focused on preclinical research. The reason why the stock has started moving, however, was the data released by the company over the course of 2021, namely that simufilam improved cognition in patients with mild-to-moderate Alzheimer's disease. I believe that at least the following data are not put into question at this time: The biomarker analysis below is from a 28-day open-label study performed in 2019 [slide 16]. Biomarkers from 2019 (Cassava Sciences) Nfl, Neurogranin, and p-tau 181 going down by 22%, 32%, and 34%, respectively, is still really impressive. The randomized placebo-controlled Cognition Maintenance Study in patients with mild-to-moderate Alzheimer's disease showed a 38% slowing of cognitive decline compared to placebo over the course of six months of treatment, with simufilam improving cognition in patients with mild Alzheimer's disease. This is data from patients who have been on simufilam for a year already, so any improvement of cognition at that point should no longer be assumed. A further look showed an effect for patients with mild AD, but not for moderate AD. This is the full 18-month data, with results of the first twelve months coming from an open-label study. CMS results (Cassava Sciences CMS results presentation) The open-label trial in 200 patients showed that cognition worsened by 0.5 points on Adas-Cog vs. 6-12 points for historical controls. Cognition of patients with worse disease declined by 4.4 points. The remaining bull thesis, therefore, is based on some interesting biomarkers, a randomized placebo-controlled Cognition Maintenance Study, and an open-label trial in 200 patients. This is still not anything. Cassava Sciences is scheduled to report topline data from its first Phase 3 trial by year-end 2024. This trial has ADAS-Cog12 and ADCS-ADL as co-primary endpoints and has iADRS, NPI, MMSE, CDR-SB, ZBI, and changes in the plasma SavaDx biomarker detecting levels of filamin A as secondary endpoints. Nobody knows what the company will report, nor what the stock will do afterward. Rather than choosing one side or the other, I am setting out some possible scenarios, and their potential impact on investor confidence and valuation. Scenario 1: a total win for the bears The first scenario is one in which Cassava Sciences will report that simufilam did not outperform the placebo on any of the first trial's co-primary endpoints, namely ADAS-Cog12 and ADCS-ADL, nor on any subgroup. I think that in that case, the win for the bears is total and there is no future for simufilam and, in the longer run, probably for Cassava Sciences. Scenario 2: a win for the bulls The second scenario is a scenario in which simufilam outperforms placebo both on the ADAS-Cog12 as on the ADCS-ADL rating scales in a statistically significant manner, meaning with a p-value of 0.05 or less. In that scenario, there are two options:  either simufilam slows down cognitive decline by less than 30%, i.e. less than anti-amyloid antibodies  or simufilam slows down cognitive decline by more than 30%  If simufilam slows down cognitive decline by less than 30%, then it is unlikely that simufilam will change the treatment paradigm for the treatment of Alzheimer's disease entirely. However, that is not excluded, as simufilam has so far been shown to be safe and tolerable. It is possible that the drug will still be approved in that scenario, and that a certain number of patients will choose for an oral therapy instead of an intravenous infusion with potentially lethal side effects. If simufilam slows down cognitive decline by more than 30%, then the drug outperforms the anti-amyloid antibodies that are currently approved in the U.S. In that scenario, simufilam may change the treatment paradigm for the treatment of Alzheimer's disease. For the record, both Phase 3 trials of Cassava Sciences are in patients with mild-to-moderate Alzheimer's disease. The approved anti-amyloid antibodies are approved for the treatment of mild cognitive impairment and mild Alzheimer's disease. Also, in both of the above scenarios, it is possible that therapies combining anti-amyloid antibodies and simufilam may yield stronger efficacy, as the mechanism of action of both is differentiated. These scenarios could represent a clear win for the bulls in my eyes. Scenario 3: mixed results The third scenario actually encompasses a variety of scenarios, the most likely of which are mentioned below. It is very well possible that simufilam will only outperform placebo in patient groups that are more likely to benefit from simufilam or even others. Simufilam's mechanism of action addresses misfolded filamin A. Cassava Sciences has held that patients with Alzheimer's disease also have misfolded filamin A. It is therefore possible that the company identifies a subgroup with elevated markers of filamin A, which outperforms the placebo and performs better than the other patients. It is also well-known that patients on the milder end of the disease have better chances of being affected by therapy than patients on the moderate or severe end of the disease. For this reason, most trials are run in patients with early Alzheimer's disease. This makes sense, as the underlying neurodegeneration is probably already taking place years before diagnosis. Additionally, results from the Cognition Maintenance Study that simufilam's benefit in patients with mild Alzheimer's disease performed better than those with moderate Alzheimer's disease. During the latest earnings call [min. 23], the company said that 70% of the patients in the trial have mild Alzheimer's disease and that the company will provide subgroup analyses of patients with mild and patients with moderate Alzheimer's disease. The company also added that, if the primary endpoint is missed because of the moderate subgroup with only good results on patients with mild Alzheimer's disease, the company would need to talk to the FDA. Possibly, the company may be able to revise and resubmit its statistical analysis plan and change the second Phase 3 trial, to put more weight on patients with mild Alzheimer's disease [min. 27-28]. Mixed results are not necessarily unlikely. We have seen such results in the case of Anavex (AVXL), Annovis (ANVS), and Cognition Therapeutics (CGTX). Any of these scenarios may not be a clear win but could indicate a path forward for simufilam, either because a certain subgroup had been prespecified, or because a better-designed Phase 3 trial could overcome certain issues. The unpredictability of Cassava's stock moves The stock of Cassava Sciences has been shown to move rather unpredictably. The same may hold true when the company reports topline data from the first of two Phase 3 trials. If, for whatever reason, the company believes that there is a path forward even in case of a partial win, then investors may decide to take positions in Cassava Sciences. There is, in fact, ample upside, even if it would mean that a new trial would need to be initiated. Valuation About 14 million patients have been diagnosed with Alzheimer's disease in Europe and in the U.S., namely about 7 million in each territory. In the chart below, I am setting out various scenarios with the accompanying valuation in my eyes. In the case of a clear win, I am assuming approval in 2026, and otherwise, I am assuming approval in 2030. Each time, a drug price of $25,000 similar to Biogen's (BIIB) Leqembi, a 5x revenue multiple, and a 30% risk discount have been assumed. I have assumed linear growth for five years until peak penetration is reached. I am assuming different peak penetrations of 5%, 10%, and 20%. In case simufilam is approved in 2026, then Cassava's market cap should be $30.3 billion. Logically, in the case of higher market penetrations of 10% and 20%, that number doubles or quadruples up to $121.1 billion. In the case of drug approval in 2030, with an assumed peak penetration of 5%, the market valuation should be $6 billion. With 10%, it would almost double to $11.9 billion, and so on. The numbers remain dazzling. Logically, in case simufilam would be placed in the market at a much lower price, the valuations would need to be adapted proportionally. For full information, Wall Street analysts' average consensus is still a Buy rating with a price target more than 3 times the current market cap. Analyst price target (Seeking Alpha) The above also means that, even if simufilam would show a statistically significant benefit in only half the patients, there may still be a reason to move forward with the approval process, or possibly a further trial. The market cap of Cassava Sciences is about $1.2 billion right now, which is actually little for a well-funded company pursuing Alzheimer's disease, which is about to report topline data of two long Phase 3 trials. Short interest The above valuations create an interesting setup, knowing that about half of the stock is currently shorted, making Cassava Sciences one of the most shorted stocks right now. Besides that, Cassava Sciences has often been mentioned to be a meme-stock. In the case of mixed results, with that setup, there may really be no telling where the stock should move to in the immediate term, as there may be something for the bulls and the bears to believe in. There is also another interesting aspect that comes into play here. If the stock of Cassava Sciences reaches the $5 billion market cap point for 20 consecutive days, which would mean about 4x the current market cap, the cash incentive bonus plan would be considered fully achieved, allowing cash bonus awards from a minimum of $111.4 million up to a hypothetical maximum of $289.7 million. The company, therefore, has an incentive to get the price up to that range, an achievement that had almost been accomplished in 2021. Financials As of September 30, 2024, Cassava had $149 million in cash and cash equivalents, as compared to the $207 million in cash and cash equivalents it had on June 30, 2024. The $40 million related to the SEC settlement has been placed in escrow and is not considered part of the company's cash anymore. The Company estimates to have about $117 to $127 million left by year-end. With $55.7 million net cash used in operations over the first 9-months of the year and the company's expectation that net cash used for operations during the second half of 2024 is $40-50 million, I am looking at a yearly cash burn of about $80-90 million. I believe that further financing either before or after Phase 3 data is not excluded. Risks Investing in Cassava Sciences at this time comes with high risk. There is really no telling where the stock may go, as nobody knows whether the Phase 3 trials will have a positive or negative result. The point of my coverage is that even in the case of mixed results, there is no certainty how investors may react to the news. The meme stock character of the stock and the high short interest are additional risk factors. It is also not excluded that, if the first Phase 3 trial leads to an undesirable result for the company, then the FDA may decide to halt the second Phase 3 trial. Conclusion Cassava Sciences is one of the most shorted stocks on the market right now. By year-end 2024, the company will report on the first of two large Phase 3 trials. Both the bear and the bull thesis have merit, and the fact is that nobody knows what lies ahead for the company. Apart from a clear win for the bulls or for the bears, there are also scenarios in which simufilam may be seen to outperform placebo in certain subgroups. The most logical of these subgroups would be patients at the milder end of Alzheimer's disease or patients with elevated levels of misfolded filamin A. In such a scenario, it is unclear in which direction the stock could be headed. Bears are all-in at this point, and Cassava's market cap is actually fairly low for an end-stage Phase 3 company focusing on the treatment of Alzheimer's disease. Besides, the meme stock-like qualities of the stock convey it an extra volatile character. As of September 30, 2024, Cassava had $149 million in cash and cash equivalents, as compared to the $207 million in cash and cash equivalents it had on June 30, 2024. The $40 million from the SEC settlement has been excluded from the last reported cash position. I do not exclude the possibility of further financing, either before or after the results of the first of two Phase 3 trials.  In light of the above, I am giving the company a Hold rating, and hope to do further coverage after the company has released data.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2481461491"}