Cassava Sciences (NASDAQ: SAVA) stock has been on a downward trend since last summer, falling from a peak of $135 to today’s $20 or so. Back two and a bit years it was more like $2, so there’s obviously something pretty strong driving that Cassava stock price.
The issue is an Alzheimer’s drug. Within Big Pharma, this is something of a holy grail. There are no effective treatments for this at present and yet there are tens of millions of rich world people at any one time who would happily – or their insurers would – pay large sums each year to have one. It’s a crippling disease, one with a large patient base, it would be worth billions upon billions to any company that was able to demonstrate realistically that they had such a treatment.
The issue at Cassava Sciences is that there’s some indication that they might have such a drug. Also, some indications that they don’t – we’re in a sort of Schroedinger’s Cat situation here, and that’s what’s driving the volatility in Cassava stock. That $2 of a couple of years back was about the right price for a company that was researching away but didn’t really have very much to show for having done so.
Then came the results of the first set of trials of what they did have, and the FDA knocked it back – said it wasn’t, really, all that good. Then came a reconsideration and a maybe. The argument here is over two things. Firstly, does the proposed Alzheimer’s treatment really, in fact, do anything? Secondly, is it worth having what it does do?
Those are technical arguments with hte FDA though. For what is obvious is that if the drug does gain FDA approval then there will be that massive market for it. Simply because everyone will demand it even if it isn’t all that effective.
This is what explains that jump to $135, as the decisions seemed to be going toward approval. Subsequent drops to $50, a bounce back up toward $90. Then the more consistent decline down to the current $20 a Cassava stock – all driven by the ongoing arguments over effectiveness and thus the desirability of full FDA approval.
Back in early March, for example, there was a warning from Cassava of a potential clinical hold on simufilam – that treatment under discussion.
The future of the Cassava Sciences stock price is not just bound up in this discussion about the Alzheimer’s drug it’s is likely wholly determined by it. Full approval – whatever the real clinical effectiveness – will be a vast money pot. Final denial would mean that there’s very little of value in Cassava at all. So, any investment decision is based upon opinions of that approval process.
In the shorter term any trading decisions need to be based upon opinions of what other people – other traders – think the outcome of that process is going to be. There is just the one validation point here, so, what’s the answer going to be?
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Tim Worstall is a freelance writer specialising in economics and the financial markets.