Cassava Sciences Is in a Bleak Midwinter Waiting for Spring and Better Days

Cassava Sciences (NASDAQ:SAVA) is a clinical-stage biotechnology company trying to fight and cure Alzheimer’s disease. Its laudable mission is “to detect and treat Alzheimer’s disease.” The “mission” of SAVA stock, on the other hand, is unclear.

Since 2016, this biotechnology company has had no revenue at all.

None.

This is a strong reason to perform stock analysis elsewhere because investors are ignoring a key problem Cassava Sciences fails to address.

Let’s Talk About Predictability of Business

Business and entrepreneurship resemble the stock market in many ways. Both are risky endeavors. A higher risk is taken in anticipation of higher returns. There are times of happiness, sadness, and stress according to economic conditions. And a great way to mitigate risk in business is to invest in ways of business activity that provide predictable and stable revenue and profits. Just like the stock market!

So, I do not know why SAVA stock has a 52-week range of $31.44 – $146.16 and quite frankly how it still manages to trade at nearly $36 per share.

So, under what justification does a rational investor buy shares of Cassava Sciences at $146?

If this “rational” investor was asked to deliver a short pitch and in 30 seconds justify their purchase, what the key point would be?

I assume it could be speculation. But this is gambling. Gambling does not have a reason to back it up. It is like stealing a bank, getting caught in surveillance cameras of doing it without wearing any mask, and then at the court insisting you are innocent when the judge has just watched the video as proof of evidence. Would you gamble $1 million that the judge would dismiss the case?

I hope not.

Investing Isn’t Built on Just Hope

Investing is not about hoping, and it should not be about gambling either.

At some point, SAVA stock was a meme stock and had its fame. The irrational fear of missing out (FOMO) and fear, uncertainty and doubt (FUD) trading sent the stock to the price level I highlighted. Then this game of manipulating stock prices, which is illegal by the way, ended and SAVA stock crashed.

Investors need to be asking themselves real grounded questions here. For example: what is the future now for Cassava Sciences and its lead drug candidate, simufilam to cure Alzheimer’s disease?

Cassava Sciences’ Phase 3 Studies: It Is All or Nothing Now

The biotech company has just released its full-year 2021 financial results providing updates on its business operations and clinical trials.

Was the news good? It depends on which side you are on, the management of the company, or the investment community.

It is a rare event to read any management team of a public company to show disappointment or as the “Peaky Blinders” series used to say “In the bleak midwinter” expressing pessimism and a downbeat mood.

“We are encouraged by our clinical investigators’ high level of enthusiasm,” said Jim Kupiec, MD, Chief Clinical Development Officer. And that: “looking ahead, we see continued collaboration with the clinical community to ensure qualifying patients with Alzheimer’s disease are successfully enrolled into our Phase 3 studies.”

The latest financial data showed that the balance sheet on Dec. 31, 2021, had $233.4 million of cash, and that “higher cash use may indicate faster enrollment rates.” according to Eric Schoen, Chief Financial Officer.

Should the Food and Drug Administration (FDA) approve simufilam then Cassava Sciences will have a great catalyst to boost revenue and hopefully achieve profitability too. But is this scenario likely any time soon?

No one really knows for sure.

Back to Reality With SAVA Stock

Let’s return to reality, to what we do know for sure. The fact that Cassava Sciences does not have any debt is very positive. Unfortunately, it is not enough to support the stock price nor its very weak fundamentals.

I find the decision to spend $22.2 million for the purchase of office property in Austin, Texas as the Company’s corporate headquarters in 2022 and beyond a bad joke. The firm is struggling to make any revenue at all and is burning cash to support the research and development costs. Thus it is beyond any logic to buy an office property right now. Buy it at a later stage when you have the luxury of having generated free cash flow.

Net loss for full-year 2021 widened to $32.38 million versus $6.33 million in 2020. Total operating expenses increased to $32.86 million compared to $6.44 million in 2020.

Additionally, SAVA stock is relatively overvalued based on its price to book (PB) ratio (6.4x) compared to the U.S. Pharmaceuticals industry average (2.2x).

Why Would Anyone Invest in SAVA Stock?

Why would investors now invest in SAVA stock, as the biotech company reported a widening net loss?

If you said because of the expectation of a future FDA approval for the simufilam drug, this could take months or even years. It does not seem like a smart move.

Could the stock soar if there is an FDA approval?

Sure, but what are the odds of this rally being sustainable?

Cassava Sciences is not the only biotech company developing an Alzheimer’s drug.

SAVA stock now looks like a big bet with no time stamp on it. Not attractive at all.

On the date of publication, Stavros Georgiadis, CFA  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.