Cassava Sciences (NASDAQ:SAVA) is a small biotechnology company. It is focused on a drug, simufilam, which it believes may help treat patients with Alzheimer’s disease. SAVA stock ran up more than 1,000% at one point last year on hopes of an imminent breakthrough in the treatment of Alzheimer’s. However, that euphoria has given way in 2022. Increasing concerns around the clinical data for the drug and various scientific study retractions have caused SAVA stock to slump.
A recent article in the New York Times raised some more serious concerns about Cassava’s processes and outlook. The Times article featured quotations from a number of doctors raising issues with simufilam’s alleged method of action, its safety and the potential of the drug to succeed.
For investors that aren’t scientists, it’s awfully difficult to make heads or tails of this controversy. It’s hard for an outsider to assess this sort of thing, which requires specialized biology expertise. That said, as more serious criticisms pile up, the odds of the drug succeeding appear to keep on dropping.
This leaves the question of what happens to Cassava if and when simufilam ends up being shelved. Suppose the skeptics are right and the drug simply doesn’t work at a level sufficient to garner Food and Drug Administration (FDA) approval. What would SAVA stock be worth in that case?
The company is focused almost entirely on simufilam, meaning that there is minimal value to the rest of the company’s current operations if and when simufilam is discontinued. As of December 31, the company had $233 million in cash, or just shy of $6 per share in cash. Biotech companies tend to trade around cash value if their lead drug candidate doesn’t work. This would suggest SAVA stock could end up at $6 — or at minimum in the single digits — if and when investors give up on simufilam.
Also note that the company’s cash balance will decrease over time as it continues spending on its clinical operations. Therefore, that $6 isn’t necessarily a hard floor for valuation going forward, either.
Historically, Alzheimer’s has been an incredibly difficult medical condition to treat. Biotech companies have about the worst track record against Alzheimer’s as any illness. So there’s no shame for Cassava if simufilam doesn’t end up reaching the clinical success threshold. What is more difficult to excuse, however, is the incredible amount of drama and recriminations around the drug’s clinical data. At this point, it’s exceptionally difficult for any neutral party observer to have confidence in simufilam given all the controversy that’s happened over the past year. With that being the case, SAVA stock may end up trading for little more than its cash value, meaning the stock could end up at $6 in the fullness of time.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.