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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.
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):
|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|
|# 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.
Here are some examples of inaccurate news coverage:
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
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|
|Works in Phase 3||0.05|
|Doesn’t work in Phase 3||0.15|
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.