$SAVA Monster Writeup Part 3: Valuation for Cassava Sciences

If you would like to learn more about Simufilam trials, you can find patient information and trial sites here. Part 1 is here. Part 2 is here. This is the only $SAVA DD you'll need to read to understand what's going on with Alzheimer's research. I broke it up into 3 parts so your tiny attention spans would be able to read it over time. This is the third part, the part i know you all care about: Valuation. TLDR: I present an extremely conservative Discounted Cash Flow model of Simufilam sales (if successful) that values SAVA at $18.91B or $472 per share. This model only includes US sales until 2027. SAVA was recently attacked by short selling, dishonest journalism, and unreasonable lawsuits. At current price ($96.04), it presents a buy opportunity. The CEO has hinted at a major announcement in the near future. I believe that SAVA is a daunting buyout opportunity and an attractive partnership opportunity. If a Big Pharma company were to buy SAVA, I believe the size of the buyout would need to be one of the largest ever, perhaps even larger than Gilead's purchase of Immunomedics for $21B. Another way for SAVA shareholders to unlock the value of its research is in a licensing deal with a Big Pharma. In this case, we can expect the value of SAVA to continually grow into the $18B+ valuation I provided from US and global sales of Simufilam running to 2037. Valuation Let's run a simple and conservative Discounted Cash Flow model for Simufilam sales in the next 7 years (assume 5 years of sales starting 2023): Year 2021 2022 2023 2024 2025 2026 2027 Number of mild to moderate US AD patients 3,636,000 3,792,000 3,948,000 4,104,000 4,260,000 4,416,000 4,572,000 Market Penetration 0% 0% 10% 16% 22% 27% 33% # of US Patients Being Treated with Simufilam 0 0 394,800 649,800 923,000 1,214,400 1,524,000 Annual Cost of Drug 0 0 15000 15000 15000 15000 15000 Total Revenue from Simufilam 0 0 5.922B 9.747B 13.845B 18.216B 22.86B 50% Revenue split 0 0 2.961B 4.873B 6.922B 9.108B 11.43B Based on an extremely conservative discount rate of 12%, the net present value is $18.91B. This simple model only looks at 5 years of sales and only 10% market penetration in the first year of sales. SAVA has patents on Simufilam running till 2037. Additionally, the model does not include global sales. Cassava Sciences at the current market cap of 3.86B is an asymmetric risk opportunity. At current valuation, the market gives SAVA a 20% chance of reaching this valuation. I believe this percentage should be much higher. Phase 3 is de-risked by 9 month data results. Simply put, as time passes and each of SAVA's trials progress and return positive data, the likelihood that Simufilam succeeds in Phase 3 increases (see Addendum). As the likelihood of success increases, the valuation of SAVA should also increase. Recent Price Manipulation Here are some examples of inaccurate news coverage: Cramer said SAVA was a sell because SAVA was "trying to get people off opioids". Benzinga released an article titled “Cassava Sciences Shares Fall Sharply Lower After STAT News Reports 'FDA calls for federal investigation into its controversial Alzheimer's drug approval'” Then, Benzinga revised their title to Cassava Sciences Shares Fall Sharply Lower After STAT News Reports 'FDA calls for federal investigation into [Biogen's] controversial Alzheimer's drug approval' Stat News Article - Adam Feurerstein, a writer for Stat news with known history for bashing biotech (take a look at what he said about Moderna: Tweet History%20until%3A2019-07-01%20-filter%3Areplies&src=typed_query)) released this article. I wrote a DD exposing major conflict of interest for all 3 scientists he quoted (who he has previously quoted as well). Lawsuit Announcement by Pomerantz - After SAVA was shorted down from 146 to 73, this law firm, released a PR claiming it is “investigating claims on behalf of investors” alleging possible securities fraud. The firm claims that Cassava’s PR was inappropriate because Cassava said its cognition data was positive (it is) but that Simufilam wasn’t proven to be more affective than Biogen’s Aduhelm (it was). The CEO has even recently made remarks about the price action in a recent earnings call, responding to unfair criticism. You can read more here. In my opinion, SAVA is attracting so much bear attention because it represents a very real David vs Goliath threat to big pharmaceutical companies Biogen and Eli Lilly. I also believe that the deliberate or accidental misinformation and FUD campaigns will ultimately serve to benefit SAVA as investors realize the full story of what is going on. Due to this recent price action following the release of positive 9 month open label data, I believe SAVA provides an even better asymmetric risk opportunity. In other words, I think the stock is currently trading at a discount. Positions: 3954 SAVA, $10c 01/21/22, $20c 01/21/22, $45c 01/21/22, $22.5c 01/20/23 More resources: Here is a 50 minute discussion on SAVA for those of you who can't read Here is a link to SAVA's most recent corporate presentation for those of you who can Addendum: If the drug doesn’t work in 9 month, it will not work in p3. Let's construct a simple probability chart where we have 4 different possibilities and the probability of each possibility below: Works at 9 month OL Doesn’t Work at 9 month OL Works in Phase 3 0.05 0 Doesn’t work in Phase 3 0.15 0.8 In this example, given that Simufilam works for 9 month Open Label, it now has a much better chance of working in Phase 3. To illustrate this, we just cross out "Doesn't Work at 9 month OL" Works at 9 month OL Doesn’t Work at 9 month OL Works in Phase 3 0.05 0 Doesn’t work in Phase 3 0.15 0.8 Prior to knowing 9 month data, the drug has a 5% chance of working (sum the top two cells). After 9 month data it has a 0.05/(0.05+0.15) = 25% chance of working at phase three.

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Aug 10, 2021

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$SAVA Monster Writeup Part 3: Valuation for Cassava Sciences

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If you would like to learn more about Simufilam trials, you can find patient information and trial sites here. Part 1 is here. Part 2 is here.

This is the only $SAVA DD you'll need to read to understand what's going on with Alzheimer's research. I broke it up into 3 parts so your tiny attention spans would be able to read it over time. This is the third part, the part i know you all care about: Valuation.

TLDR:

  1. I present an extremely conservative Discounted Cash Flow model of Simufilam sales (if successful) that values SAVA at $18.91B or $472 per share. This model only includes US sales until 2027.
  2. SAVA was recently attacked by short selling, dishonest journalism, and unreasonable lawsuits. At current price ($96.04), it presents a buy opportunity. The CEO has hinted at a major announcement in the near future.
  3. I believe that SAVA is a daunting buyout opportunity and an attractive partnership opportunity. If a Big Pharma company were to buy SAVA, I believe the size of the buyout would need to be one of the largest ever, perhaps even larger than Gilead's purchase of Immunomedics for $21B. Another way for SAVA shareholders to unlock the value of its research is in a licensing deal with a Big Pharma. In this case, we can expect the value of SAVA to continually grow into the $18B+ valuation I provided from US and global sales of Simufilam running to 2037.

Valuation

Let's run a simple and conservative Discounted Cash Flow model for Simufilam sales in the next 7 years (assume 5 years of sales starting 2023):

Year 2021 2022 2023 2024 2025 2026 2027
Number of mild to moderate US AD patients 3,636,000 3,792,000 3,948,000 4,104,000 4,260,000 4,416,000 4,572,000
Market Penetration 0% 0% 10% 16% 22% 27% 33%
# of US Patients Being Treated with Simufilam 0 0 394,800 649,800 923,000 1,214,400 1,524,000
Annual Cost of Drug 0 0 15000 15000 15000 15000 15000
Total Revenue from Simufilam 0 0 5.922B 9.747B 13.845B 18.216B 22.86B
50% Revenue split 0 0 2.961B 4.873B 6.922B 9.108B 11.43B

Based on an extremely conservative discount rate of 12%, the net present value is $18.91B.

This simple model only looks at 5 years of sales and only 10% market penetration in the first year of sales. SAVA has patents on Simufilam running till 2037. Additionally, the model does not include global sales. Cassava Sciences at the current market cap of 3.86B is an asymmetric risk opportunity. At current valuation, the market gives SAVA a 20% chance of reaching this valuation. I believe this percentage should be much higher.

Phase 3 is de-risked by 9 month data results. Simply put, as time passes and each of SAVA's trials progress and return positive data, the likelihood that Simufilam succeeds in Phase 3 increases (see Addendum). As the likelihood of success increases, the valuation of SAVA should also increase.

Recent Price Manipulation

Here are some examples of inaccurate news coverage:

  1. Cramer said SAVA was a sell because SAVA was "trying to get people off opioids".
  2. Benzinga released an article titled “Cassava Sciences Shares Fall Sharply Lower After STAT News Reports 'FDA calls for federal investigation into its controversial Alzheimer's drug approval'” Then, Benzinga revised their title to Cassava Sciences Shares Fall Sharply Lower After STAT News Reports 'FDA calls for federal investigation into [Biogen's] controversial Alzheimer's drug approval'
  3. Stat News Article - Adam Feurerstein, a writer for Stat news with known history for bashing biotech (take a look at what he said about Moderna: Tweet History%20until%3A2019-07-01%20-filter%3Areplies&src=typed_query)) released this article. I wrote a DD exposing major conflict of interest for all 3 scientists he quoted (who he has previously quoted as well).
  4. Lawsuit Announcement by Pomerantz - After SAVA was shorted down from 146 to 73, this law firm, released a PR claiming it is “investigating claims on behalf of investors” alleging possible securities fraud. The firm claims that Cassava’s PR was inappropriate because Cassava said its cognition data was positive (it is) but that Simufilam wasn’t proven to be more affective than Biogen’s Aduhelm (it was).

The CEO has even recently made remarks about the price action in a recent earnings call, responding to unfair criticism. You can read more here.

In my opinion, SAVA is attracting so much bear attention because it represents a very real David vs Goliath threat to big pharmaceutical companies Biogen and Eli Lilly. I also believe that the deliberate or accidental misinformation and FUD campaigns will ultimately serve to benefit SAVA as investors realize the full story of what is going on.

Due to this recent price action following the release of positive 9 month open label data, I believe SAVA provides an even better asymmetric risk opportunity. In other words, I think the stock is currently trading at a discount.

Positions: 3954 SAVA, $10c 01/21/22, $20c 01/21/22, $45c 01/21/22, $22.5c 01/20/23

More resources:

Addendum:

If the drug doesn’t work in 9 month, it will not work in p3. Let's construct a simple probability chart where we have 4 different possibilities and the probability of each possibility below:

  Works at 9 month OL Doesn’t Work at 9 month OL
Works in Phase 3 0.05 0
Doesn’t work in Phase 3 0.15 0.8

In this example, given that Simufilam works for 9 month Open Label, it now has a much better chance of working in Phase 3. To illustrate this, we just cross out "Doesn't Work at 9 month OL"

  Works at 9 month OL Doesn’t Work at 9 month OL
Works in Phase 3 0.05 0
Doesn’t work in Phase 3 0.15 0.8

Prior to knowing 9 month data, the drug has a 5% chance of working (sum the top two cells). After 9 month data it has a 0.05/(0.05+0.15) = 25% chance of working at phase three.

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