Biogen Inc. (NASDAQ:BIIB) and Cassava Sciences, Inc. (NASDAQ:SAVA) are completely different companies with one notable similarity, stock price movement that's highly dependent on news related to their respective Alzheimer's Disease (AD) drug treatment candidates. Both come with their own risks and upside potential, but they have completely different purposes in an investment portfolio. At the moment, BIIB's diversification, low sentiment, and profitability make it more suitable to a wider audience of investors, but SAVA's upside potential could have a place for someone looking to make a high-risk bet on recently initiated Phase 3 Simufilam trials.
Biogen is a neuroscience-focused medical drug developer targeting diseases like Multiple Sclerosis (MS), AD, neuromuscular disorders, Parkinson's disease, Neuropsychiatry, Immunology, Neurovascular diseases, and Neuropathic pain. The company also has a biosimilars segment primarily treating arthritis/inflammation like BIIB's Imraldi, for which the reference medicine is Humira. Total revenue and Non-GAAP Diluted EPS were down 18% and 15% YoY respectively as multiple generics to Tecfidera, Biogen's blockbuster MS drug, emerged while the company's latest MS drug, Vumerity, had difficultly ramping during Covid.
Biogen Stock Price 5-Year Chart
Biogen's stock has done very little for by-and-hold investors over the past five years although an AD fueled cycle of optimism and pessimism has made the stock very tradable. Earlier this year the FDA approved Aduhelm, aducanumab's brand name, sending Biogen shares flying 38%, but controversy since then coupled with difficulty in MS has brought the share price back down to pre-approval levels. Despite recent difficulties, Biogen has a deep pipeline of drug candidates across multiple disease categories, high profit margins, and a few potential catalysts that could make the stock a good portfolio diversifier.
Cassava Sciences is much smaller and simpler compared to Biogen with the primary similarity being their focus in neuroscience, specifically Alzheimer's disease. SAVA is a pre-revenue stage drug developer with two investigational products related to Alzheimer's disease, Simufilam for treatment, and SavaDx for diagnosis. On Oct 6, SAVA announced Simufilam's first phase 3 trial which will "Evaluate Safety and Efficacy of Simufilam Over 52 Weeks in 750 Patients with Alzheimer’s Disease." A 2nd phase 3 study is also planned to begin by the end of the year which will assess 1,000 patients over 78 weeks. Phase 2 results, the well-covered controversy aside, delivered generally positive results, although it's important to remember that these were small studies; Phase 2b enrolled 64 patients.
SAVA's future is entirely dependent on AD, a crowded field where FDA-approved success remains elusive. Still, the positive AD news that sent Biogen up 38% would have been equivalent to 400% for SAVA given similar news adjusted for its lower market cap. That makes SAVA a high risk, high reward, speculative bet on Simufilam's success.
Both BIIB and SAVA are managing their balance sheets well given their respective situations. SAVA took the opportunity to triple its cash holdings earlier this year by raising $190 million worth of shares at an offering price of $49/share after years of the stock trading in the single digits. That raise gives the company time to deal with delays and the resources to move as quickly as possible. Total expenses were up to $5.1 million in 2Q21 compared to $1.2 million in the year ago quarter, as the company prepared for Phase 3 trials. Total liabilities were under $5 million, so the February raise should put SAVA in a comfortable cash position throughout the trials. The company may not have enough for marketing and manufacturing, but if Simufilam comes through Phase 3 with positive results, the corresponding surge in stock price should make raising cash for those efforts trivial.
Biogen is on the opposite end of the spectrum, buying back $750 million worth of shares in 3Q21. It wasn't opportunistic, but the buybacks were covered by $763 in free cash flow meaning no additional debt. Management has been more opportunistic in the past, for example when the stock dropped in March of 2019, the board quickly authorized a $5 billion buyback and the company quickly began repurchasing shares before the stock bounced back later that year. Net debt sat at $3.3 billion to end 3Q21, which should be easily manageable for a high-margin business with $10+ billion annual sales.
For 2Q21, SAVA spent $3.9 million on R&D up from $0.6 million a year ago. "This increase was due primarily to costs related to manufacture of clinical trial supplies in anticipation of launching a Phase 3 clinical program in Simufilam, costs of an ongoing open-label study in Simufilam, as well as increased personnel expenses." Outside Simufilam, SAVA's only potential product is SavaDx, a blood-based biomarker/diagnostic candidate to detect Alzheimer’s disease. According to the company, the SavaDx "clinical-stage program is funded by research grants from the National Institutes of Health (NIH)." Because SAVA only has two potential products, and one is covered through research grants, R&D is focused and minimal leaving the company a good cash runway.
As a mature biotech company, BIIB expects to spend ~$2.5 billion on R&D in 2021 to develop its extensive neuroscience focused pipeline:
Biogen Pipeline 3Q21, Source: 3Q21 Presentation
While every analyst question on the 3Q21 conference call except one had to do with Alzheimer's disease the company does have a future beyond AD. Biogen's pipeline leans very heavily into the trend of longer lifespans, not only in the U.S., but in Europe, Japan, China, and globally. Even its biosimilars, primarily in Rheumatoid Arthritis are geared to enable people to live better and with less pain, while living longer.
SAVA's future clearly hinges on Simufilam. External factors made for rocky Phase 2 trials, but even the best Phase 2 narratives can fall apart in Phase 3, especially when it comes to treating AD. I don't have a PhD in neuroscience, so I can only point readers to other resources I've found helpful in understanding Simufilam's odds for success. I first learned about SAVA in early January of this year, when the stock still traded in the single digits, from this article on Seeking Alpha. The article was obviously well-timed, but the depth of analysis is the reason it remains one the best articles I've ever read on SA or anywhere else. I bought shares after reading this article partially because sentiment was low, and SAVA had spent over a decade as a disappointment to investors meaning there was huge upside for very little risk. There is still upside potential implied by Biogen's Aduhelm, which has a $9 billion consensus for peak sales despite the controversy surrounding its approval and efficacy. If Simufilam can deliver an improvement over Aduhelm, SAVA stock's price could 10x and still not be expensive on future earnings. However, that future is far from guaranteed.
A lot of Biogen's investors' focus is on Aduhelm right now, but there are other catalysts that could send the stock price higher. First Lecanemab, also a treatment for AD, could be the improvement over Aducanumab that the company needs to put the latter's troubled approval in the rearview. Phase 2 results were positive, but management pumped the brakes during the 3Q21 call stating that sometimes Phase 2 results look really good, but time will tell. The more immediate issue for BIIB is MS franchise sales, specifically those of Tecfidera:
BIIB MS revenue in millions of USD, Source: 3Q21 Presentation
Investors have known generic competitors were coming for Tecfidera since 2015, but Vumerity, essentially Tecfidera with fewer severe gastrointestinal side-effects, had a difficult launch in December of 2019 as the medical world's focus turned to Covid-19. During the 2Q20 conference call CEO Vounatsos stated: "We did launch VUMERITY in December and we had encouraging platforms start forms and then COVID came, and this impacted significantly the patients' new starts and the switches." It's difficult to be sure, but Vumerity saw meaningful sales in 3Q21, although that came with an even greater drop in Tecfidera. There's a possibility for Vumerity to surprise to the upside, but patients that were stable on Tecfidera may simply switch to lower-cost generics. Spinraza is also suffering from competition, but with relative stability from the remaining marketed drugs and a deep pipeline, BIIB has non-AD upside potential for investors willing to wait.
SAVA and BIIB have more differences than similarities, but they share a common risk, failure of their AD drugs to perform. When I bought SAVA in the single digits, it didn't take much, in this case, good phase 2 data to send the stock up 1000%. There could still be another 1000% upside in the stock, but it comes with more risk at today's prices. I sold out at various points before exiting the last of my original position at $100/share. SAVA's stock price is still making wild moves based on Phase 2 data, but I think a significant move higher from today's value hinges on a positive read-out from Phase 3 trials, which are just getting started. Bad results could easily send the stock back into the single digits, although the company may now have enough cash to pivot if the drug is a partial success.
It's not a binary outcome for SAVA because Simufilam could face delays along the path to patient availability. Delays can be a significant problem for pre-revenue drug developers because the costs of additional trials, data analysis, etc., often lead companies into bankruptcy before their drug candidates even get a fair shot. SAVA's cash raise in February significantly de-risks the impact of delays bringing Simufilam to market as long as it is eventually successful. However, delays can still be a big problem in a crowded treatment space like AD. Data from the beginning of 2021 showed there were 126 agents in clinical trials for AD. 28 of those were in Phase 3 with another 74 in Phase 2, so while Simufilam looks promising today, there could be a lot of competition coming. If we see positive Phase 3 data, Simufilam's small-molecule nature should decrease the chances for FDA delays that can occur for drugs that have complicated manufacturing and delivery mechanisms like many CAR-T drugs. However, Simuflam's Phase 2b data provides the perfect cautionary tale that delays and confusion can come from unexpected places.
Biogen's Aduhelm only delivered $300 thousand in sales during 3Q21 as questions around effectiveness and reimbursement hinder the uptake. The FDA, despite approving the drug, has called for a federal investigation, and politicians have announced their own investigations with some focusing on the $56,000 cost. Medicare would be the biggest payer, so Biogen is going to have to navigate government involvement, just as SAVA will if Simufilam is approved. If Aduhelm isn't picked up, and Lecanemab doesn't show positive phase 3 results, investors could be in for a 30% drop, similar to that experienced in March 2019 before Aducanumab's revival. Over time, BIIB's remaining pipeline should pick up some of the slack, and sentiment is already low, so the stock reaction might not be as severe.
SAVA and BIIB share some interesting qualities, like low correlation to the broader stock market, and volatility driven by binary news releases regarding their Alzheimer's drugs. Both have significant upside potential at the cost of risk in the form of unknowable drug outcomes. In my opinion, deciding which is the better investment comes down more to the investor than the investment. The volatility and wild sentiment swings make both companies tradable, which is how I've chosen to be involved. Traders have had multiple opportunities over the previous 5 years to pick up BIIB shares under $270 and sell over $325. Upcoming events should continue to cause dramatic moves in the stock price. On the 3Q21 call, CEO Vounatsos reminded investors of "the upcoming Medicare national coverage determination expected by next April, which would clarify Medicare reimbursement for the entire class of antibodies directed against amyloid."
For buy-and-hold investors, Biogen provides a higher probability return in the long term because its pipeline provides so many opportunities for success as the company devotes billions to R&D each year. Speculative investors looking to make a small investment for the possibility of a 10x return with low odds of success could be better off with SAVA. Both companies are subject to the scientific and regulatory risks of drug development, but Biogen's diversified income streams likely make it suitable to more investors than SAVA.
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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in BIIB, SAVA over 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.