Cassava Sciences 1-year share price performance. Source: TradingView.
In my last note on Cassava Sciences (NASDAQ:NASDAQ:SAVA) back in January, I gave the stock a neutral rating and suggested that the company faced an uphill battle to persuade regulators that, in PTI-125, its small-molecule drug targeting the protein Filamin A ("FLNA") it had a potential Alzheimer's treatment in the making.
Despite some early signs of progress - most notably a series of research articles in reputable peer-reviewed science journals, and a successful phase 2a clinical trial that demonstrated reductions in levels of neurodegeneration, disease pathology, and neuroinflammation - PTI-125 failed to meet its primary endpoint in its subsequent phase 2b trial. The negative results have been heavily punished by the market, with the stock losing 84% of its value and dropping to a price to $1.6 shortly after the failure was announced.
Although there are plenty of very persuasive reasons to leave Cassava stock well alone - its limited financial resources, management's track record of failed commercialization attempts, and the failure, by any company, no matter the size of their resources, to successfully bring an effective Alzheimer's treatment to market - I believe there is still some home for Cassava, and for its investors.
In fact, the share price has already enjoyed a mini-revival - rising to a price of $3.4 at the time of writing - on the strength of a presentation delivered by Cassava management stating that it plans to re-evaluate the trial results, and providing numerous credible reasons for the failure of the phase 2b trial.
Another reason for optimism relates to Cassava's diagnostic program, named SavaDx, which is derived from the same science as PTI-125. SavaDx uses a simple blood test with the goal of detecting Alzheimer's at a much earlier stage than current diagnostics, before the patient begins to experience memory loss and other symptoms. SavaDx benefits from long-term funding by the National Institutes of Health ("NIH") and Cassava expects to initiate further studies this year.
Until recently, it had looked as though Biogen (BIIB) was on the verge of delivering a blockbuster new Alzheimer's drug, Aducanumab, but the well-resourced Pharma's late stage trial results have delivered mixed results, which speaks to the difficulty of unlocking the secrets of Alzheimer's.
As such, I believe that Cassava - if it can show enough from its re-evaluation of the PTI-125 trials and from SavaDx, may be able to push for further clinical trials. Investing in Cassava is undoubtedly very risky, but any progress the company does make is likely to be richly rewarded in terms of share price gains.
In my last note I described the transition that Cassava has gone through from a pain management, to an Alzheimer's specialist, and the 4 successive failures that CEO Remi Barbier endured trying to secure approval for a tamper resistant opioid treatment.
I would not necessarily read anything into past failures, however. Barbier appears to have assembled a strong team around him at Cassava which includes a Chief Scientific officer, in Nadav Friedmann Ph.D., who has secured eight FDA approvals in his career, and several veterans from big Pharma.
Cassava Sciences team. Source: June '20 company presentation.
On the Board of Directors sits Robert Gussin, formerly Chief Scientific Officer at Johnson & Johnson (JNJ), and the company has secured on-going financial backing from the National Institutes of Health on the strength of the numerous in-depth, peer-reviewed research reports it has published in Scientific Journals about its novel and innovative approach to treating Alzheimer's.
Cassava's approach to treating Alzheimer's is unlike any other. The company's flagship, proprietary small molecule targets a scaffolding protein anchored in the cell membrane known as Filamin A ("FLNA") which interacts with a host of proteins, influencing signalling pathways.
How FLNA enables a second toxic signaling pathway with Amyloid Beta. Source: Cassava-funded research paper
FLNA can become mis-folded, possibly as a result of its interactions with amyloid beta and hyperphosphorylated tau proteins, which, Cassava believes enables the toxic signalling of amyloid beta ("AB") and tau - which form the "plaque" that is consistently found within the brains of Alzheimer's patients. Whilst most Alzheimer's treatments focus on clearing up this plaque caused by mutant AB and Tau, PTI-125 binds to misfolded FLNA and attempts to restore its proper shape and function, preventing it from releasing the inflammatory cytokines that cause AB and Tau to misfold and mutate.
It's an interesting theory that Cassava management says has been in development for more than a decade, and initially at least, proved to be successful in trials.
In a small scale study of just 13 patients with mild-to-moderate Alzheimer's taking 100mg oral tablets twice daily for 28 days, PTI-125 seemed to achieve clinically significant results.
As we can see, PTI-125 appeared to reduce pathology, neurodegeneration and neuroinflammation in the trial patients, and in both cerebrospinal fluid (CSF) and plasma. Biomarker effects were seen in every patient, which management says (in its recent Q120 10Q submission) has never been done before by an Alzheimer's-treating drug.
In some respects, given the small sample size and supposedly breakthrough science, the results remind me of the recent coronavirus vaccine trials conducted by Moderna (MRNA), in which 8 patients out of 8 responded to treatment, but the results were almost immediately called into question as management decided to opportunistically raise$1.34bn via a share offering, whilst simultaneously selling their own stock - which led to the share price paring all of its gains.
No such luck for Cassava, however. Although the results did boost the company share price by nearly 500%, from $1.6 to $9.6 when they were announced in December 2019, management did the right thing by purchasing stock rather than selling it, but were either unable, or unwilling, to secure further funding, settling for a $200m mixed shelf agreement in March this year.
Cassava's subsequent phase 2b trials were also conducted over a 28-day period, with 64 patients involved in the study. This time however, the results were inconclusive and the trial failed to meet its primary endpoint of reducing levels of tau protein in cerebrospinal samples and other biomarker assessments.
Although disappointing, the trial did meet its secondary endpoint, significantly reducing levels of IL1-beta, and this trial also introduced a cognition assay, based on the Cambridge Neuropsychological Test Automated Battery ("CANTAB") test. CANTAB assesses Paired Associates Learning ("PAL") - a type of memory test that asks patients to pair items in their memory across increasing levels of difficulty, and it will be interesting to see results from this element of the trial when they become available.
After digesting the results and subsequent collapse in its share price, Cassava has responded, pointing out a number of inconsistencies and differences in the trial from the phase 2a study which may provide grounds for a re-assessment or a new trial under different conditions.
Management has pointed to the fact that patients in the placebo arm of the trial showed "significant swings (in both directions) in levels of certain CSF biomarkers of disease", with CSF tau ranging from +34%, to -49%, and p-tau ranging from -54% to +253% from baseline over the trial period.
It also notes the use of different enzyme-linked immunosorbent assay ("ELISA") to quantify biomarkers in the larger trial that may have been too sensitive to small assay volumes, and that errors with calibration and sample maintenance may have corrupted results, concluding:
Rhetorically, is it possible to accurately detect a 10-15% drug effect over 28 days under such conditions?
In my view, management must accept a significant share of responsibility if any aspects of its trial were mismanaged, and to anybody who does not have an intimate knowledge of clinical trial testing for Alzheimer's, the objections it raised about the trial conditions may not provide much comfort. That was the conclusion that one analyst covering Cassava came to when downgrading the stock to a "Hold" and retracting their $12 price target.
When we consider that even major pharmaceutical companies like Biogen - whose Aducanumab is one of the most hotly anticipated new Alzheimer's treatments in more than a decade - cannot generate sufficiently strong results to warrant an approval from the FDA or an endorsement from physicians, however, it suggests to me that Cassava is right to want to try again with PTI-125, given the treatment field remains wide open.
Given the size of the unmet need and the growing number of Alzheimer's sufferers (5.8m Americans are currently living with Alzheimer's and it is the sixth leading cause of death in the US) a narrow trial miss, whilst hitting a secondary endpoint, is sufficient reason for persevering with the treatment, in my opinion. Management have probably taken the only decision available to them by returning to the trial samples and re-analyzing them - this time using the same ELISA used in the phase 2a trial - but whether the samples will hold up to re-examination after such time is open to debate. Biogen did something similar when it withdrew Aducanumab in March last year after disappointing trial results, only to decide to seek regulatory approval in October, after a re-evaluation. Of course, the effect that this had on the company's share price (sending it soaring) should also be factored into the equation.
Cassava still has the results of the cognition tests to come, and has also announced (in March) the launch of an open-label study of PTI-125 in ~100 patients, which is currently 20% enrolled.
The other asset that Cassava has in its arsenal is its diagnostic test, SavaDx. Cassava say (in their 2019 10K submission) that "it is widely accepted" that pathological changes in the brain occur 10-15 years before the appearance of clinical symptoms, and that SavaDx, using a small blood sample, can potentially detect biomarkers that reveal the presence of a disease at a much earlier stage than any currently available treatment.
The company bases this assumption on the 10-year cycle of research that led to the discovery of the FLNA protein misfolding issues, but does not provide much in the way of explanation, and the test is yet to be reviewed by the FDA.
Cassava SavaDx trial results to date. Source: June '20 company presentation.
Still, the company has already conducted 4 blind studies, 3 of which have returned positive results, with the fourth inconclusive. There is certainly a significant unmet need here and the simplicity of SavaDx, requiring only a small blood sample, means it could be deployed as part of a standard health screening, not just in patients deemed to be at risk. As with PTI-125, the research is being funded by NIH. The next stage, management says, is to develop proprietary antibodies and detection systems to enhance the validity of its results.
Cassava is not burning through vast quantities of cash, making an operating loss of $4.6m in 2019 and $6.6m in 2018, and the company says it has a cash balance of $25.6m, and only expects its net cash used in FY20 to be $5m. Funds have been boosted by a further $2.9m cash injection from NIH. In 2019, the company earned $5.9m, from the exercise of warrants, and a further $3.6m from 2.9 warrants exercised in Q120. There is also a $100m shelf agreement in place, paying commission of 3%, which remained untapped in Q120.
It's tricky to assess Cassava as an investment opportunity since the Alzheimer's treatment field is so wide open. Pretty much anybody can claim to have a potential cure for the disease and go out and raise money on the strength of the unmet need and the desperation of physicians, patients and their families to find a cure.
This may be too cynical a viewpoint to express in relation to Cassava however. The company's research, although far from proven, has been a decade in the making, and it has always sought to make it available for public and professional scrutiny. It is not a cash guzzling company either, and its processes seem professional and as thorough as its small budget will permit. There are a number of academics within the management team and some notable Board members, which adds credibility. There is significant know-how too, with team members having been instrumental in >12 successful FDA approvals.
Balanced against that is the company's history of failure with the FDA as Pain Therapeutics, and the rapid way in which it abandoned its pain relief portfolio to swiftly prioritize PTI-125 might raise an eyebrow in some quarters.
Then again, even the smallest trial win in the Alzheimer's field is likely to secure a fast-track to potential approval and commercialization, so if PTI-125 were to negotiate its way into phase 3 trials the excitement generated would be massive and the share price gains would be exponential. Currently, Cassava has no commercial partners of any significance but it does have the support of the NIH. In many ways, the company is similar to a publicly traded research program.
In my final assessment, I remain skeptical about Cassava, but less skeptical about the company than I do about many other early stage biotechs, and I can see a clear path to another share price spike - perhaps before the end of 2020. The company has the funds to continue operations at least until the end of next year, I believe, and I like the fact it has more than one "shot at goal", with PTI-125 and SavaDx.
Unfortunately, I do not possess sufficient scientific knowledge to run the rule over the FLNA thesis (very few people do), but I can understand the concept and compare it with the research done by big Pharma - and my instinct, for what it's worth, is that the thesis is worth testing further. After all, there are so few other credible attempts being made to tackle Alzheimer's and who knows what data further trials may throw up - serendipitously, the company could stumble across an exciting new treatment paradigm altogether.
Although I remain neutral on Cassava, if I had to recommend a highly speculative biotech play for a risk-on portfolio, Cassava would be one of my picks, especially at the current price.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.