Given the potential, tremendous benefits of Cassava’s Alzheimer’s drug for millions of patients and the high probability of the drug being approved, I believe that Cassava Sciences (NASDAQ:SAVA) stock is vastly undervalued.
Additionally, my calculations indicate that the shares could easily soar over 200x after the company’s Alzheimer’s treatment, simufilam, is approved by the FDA.
Meanwhile, there’s evidence that strong support for the drug is building among the public, making the FDA more likely to allow it to proceed to Phase 3 trials and eventually approve it .
Superior Results
According to a post by an anonymous Reddit user who claims to be an medical doctor and a professor at a medical school, “Alzheimer’s is the 6th leading cause of death in the US,” and “there is NO effective treatment for the disease.” The Centers for Disease Control and Prevention back up the claim.
Echoing the assessment of multiple other sources this Redditor says that simufilam has achieved superior cognitive and behavioral results to any other drug tested as an Alzheimer’s treatment.
SAVA Stock Is Tremendously Undervalued
Using figures that the Redditor calls “ridiculously conservative,” the poster suggests that Cassava could charge $20,000 for a year of treatment of simufilam. That’s slightly over one-third the $56,000 annual price of Biogen’s (NASDAQ:BIIB) highly problematic Alzheimer’s treatment, aducanumab.
I am going to be less conservative and say that Cassava will be able to charge $50,000 annually for the drug. And instead of estimating that 25% of America’s roughly 6 million Alzheimer’s patients will be given the drug, as the Redditor does, I’ll raise that to 50%.
That works out to $150 billion of revenue per year. If SAVA stock trades at a relatively conservative price-sales ratio of 3, that equates to a market capitalization of $450 billion, or 250x the current figure.
And that’s without factoring in any potential international sales of the drug.
Given Cassava’s highly encouraging cognitive and behavioral data, which nobody has challenged in any way, and the lack of serious, adverse side effects among the patients who have taken it, the drug has at least a 70% to 80% chance of being approved.
Strong Indications of Public Support
On Stocktwits, Reddit, Seeking Alpha, and elsewhere, I’ve seen many posters in recent weeks identify as supporters of at least allowing Cassava to carry out Phase 3 trials of simufilam.
Many have contended that these trials should determine whether the drug is safe and effective, and that the FDA should deny a request by lawyer Jordan Thomas to halt those trials. Thomas reportedly represents investors who are or were shorting SAVA stock.
For example, on Sept. 6, Lewis Robinson, who represents himself as a doctor and clinical neurologist, wrote:
“What I find quite objectionable in the original request from the law firm, is that they ask that the current clinical trial of Simufilam be STOPPED.
This is appalling. The data in question is about laboratory results, not clinical response. Cassava’s data shows a degree of clinical improvement at 9 months. This is unheard of in Alzheimer’s disease, and something I never saw over decades as a clinical neurologist.
One member of the public recently took matters a step further. In an Oct. 12 petition to the Food and Drug Administration, Andrej Tokamov asked the agency to approve simufilam and to quickly launch Phase 4 trials. Such trials are initiated only after a drug has been approved, so it appears that Tokamov is asking the agency to approve the drug based on the current evidence.
In his petition, Tokamov noted that the cognition score of Alzheimer’s patients taking the drug had, on average, improved and that over half of the patients had no behavior disorders.
“No medication has shown this degree and duration of cognitive and behavioral improvement,” he added.
While I don’t expect the agency to grant Tokamov’s request, I do think that the agency is influenced by public opinion. Therefore, I think that the public support for allowing simufilam to proceed to Phase 3 trials has had an impact on the agency and will continue to do so.
The Bottom Line
Simufilam’s vast potential and strong data does not come close to being reflected in Cassava’s shares. Therefore, I advise long-term investors to buy the shares.
On the date of publication, Larry Ramer held a long position in SAVA stock.
Larry Ramer has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.