Cassava Sciences (NASDAQ:SAVA) took a big hit last week on July 29 right after it released absolutely excellent results from its Alzheimer’s drug, Simufilam. As a result, SAVA stock looks deeply undervalued here and is likely to rebound.
In short, 9 months of an open-label study of 50 patients taking the drug showed continued improvement, rather than decline, which the company called “encouraging.” This is the first time ever that has happened with a trial Alzheimer’s drug at 9 months, according to one analyst on Seeking Alpha. The excellent results were both for positive cognition data and positive biomarker data.
As the Seeking Alpha analyst pointed out, the Simufilam drug, which is taken orally as a pill rather than intravenously, showed a growing behavioral benefit as well. In fact, Remi Barbier, President and CEO, said there were three benefits:
“Simufilam improved cognition, biomarkers and behavior, a triple-win for study participants. These clinical data combined with a clean safety profile and easy oral administration suggest highly encouraging and durable treatment effects for people living with Alzheimer’s disease.”
The average investor can clearly see this in two different graphs on pages 7 and 8 of the investor presentation from the Alzheimer’s conference on July 29. The first graph shows that a study of 20,000 patients clearly shows that those with Alzheimer’s will have a decline in their cognition by week 39 (9 months). The chart shows there are 90% confidence intervals around the average which also show a negative decline. However, the second graph shows that those taking Simufilam showed an improvement, not a decline. This is truly amazing.
What Happened With SAVA Stock
So why did SAVA stock fall so much after the results? Just prior to July 29, the stock closed at a peak of $135.20 on July 28. By the end of the day on July 29, it was down to $103.35, and the next day, the last day of the month, it was down further to $69.53.
It most likely was a mix of “Sell on the news,” profit-taking from hedge funds and investors on the last day of the month, and sales after being lumped in with other Alzheimer’s drugs. There certainly was no rational reason why the stock fell.
But it doesn’t really matter why the stock fell. I pointed out in my last article that fireworks were likely, given the huge options premiums. The underlying truth is that the value of the company did not fall 40% like the stock did last week. So investors should not lose their nerve and take the long view.
What is the long view? Let’s take a look at what investors can look forward to from here.
Where Things Stand With Cassava Sciences
Going forward, here is what investors can expect. First, in September, the company will report 12-month results for the same open-label study as the 9-month results that were just released.
In addition, Cassava Sciences plans to initiate two Phase 3 clinical study programs in the fall. This is necessary before it can request a New Drug Approval (NDA) from the FDA. Another Seeking Alpha article goes into the significance of these two studies and the potential valuation of the stock.
I pointed out in my last article that if these studies also show truly amazing results from Simufilam, investors can expect to see SAVA stock rise much higher. I believe that it could rise over $900 per share over the next year.
What To Do With SAVA Stock
If you own SAVA stock, first do not sell. If you can, buy more on margin use as a moderate amount of leverage. Short of that, you might consider picking up long-dated call options — at least dated in the fall in terms of their expiration month.
Others should consider taking a long-term position in the stock at these prices since it appears to be so cheap.
On the date of publication, Mark R. Hake did not hold a position in any security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.