Executive Summary / Key Takeaways

• Cassava Sciences is undergoing a significant strategic pivot, discontinuing its Alzheimer's disease program for simufilam following unsuccessful Phase 3 trial results and focusing instead on developing simufilam for Tuberous Sclerosis Complex (TSC)-related epilepsy and other CNS disorders.
• The new strategic direction is underpinned by preclinical research suggesting simufilam's potential in TSC-related seizures by targeting altered filamin A, and is supported by a recent exclusive license agreement with Yale University for relevant intellectual property.
• Financially, the company reported a net loss of $23.4 million in Q1 2025, driven by operating expenses of $24.6 million, including increased legal costs and stock-based compensation, partially offset by decreased R&D spending due to the AD program wind-down.
• As of March 31, 2025, Cassava held $117.3 million in cash and cash equivalents, which management believes is sufficient to fund operations for at least the next 12 months, although future funding may be required.
• Significant risks remain, including the inherent uncertainty of clinical trial success in the new indication, ongoing U.S. government inquiries and multiple securities/shareholder lawsuits, and dependence on third-party manufacturers and clinical research organizations.

A Strategic Pivot in the Pursuit of CNS Therapies

Cassava Sciences, Inc. is a clinical-stage biotechnology company dedicated to the discovery and development of proprietary pharmaceutical product candidates for disorders of the nervous system. The company's journey has been marked by strategic shifts, most recently a significant pivot away from its long-standing focus on Alzheimer's disease (AD) following disappointing clinical trial outcomes. This transformation underscores the inherent volatility and high-stakes nature of drug development, particularly within complex neurological conditions.

Historically operating as Pain Therapeutics, Inc., the company was involved in the abuse-deterrent opioid space before focusing its R&D efforts on central nervous system disorders. This evolution culminated in the advancement of simufilam, a novel small molecule targeting the protein filamin A, into large-scale Phase 3 studies for mild-to-moderate AD. However, the recent top-line results from the RETHINK-ALZ and REFOCUS-ALZ trials, reported in November 2024 and March 2025 respectively, demonstrated no treatment benefit across pre-specified cognitive, functional, and biomarker endpoints. These unambiguous results prompted the decision to phase out the AD program entirely by the end of the second quarter of 2025.

The company is now channeling its resources and scientific expertise towards a new potential indication for simufilam: Tuberous Sclerosis Complex (TSC)-related epilepsy. This strategic redirection leverages prior preclinical research and aims to address a significant unmet medical need within a rare disease population.

The Science of Filamin A: A Novel Target in Neurobiology

At the core of Cassava's scientific approach is the targeting of filamin A (FLNA), a scaffolding protein found in the brain. The company's research, supported by academic collaborators, suggests that altered FLNA expression or conformation is linked to neuronal abnormalities and neuroinflammation in certain CNS disorders. The hypothesis is that restoring the proper shape and/or function of FLNA could offer therapeutic benefits.

Simufilam is a proprietary oral small molecule designed to target FLNA. While its application in AD did not yield positive Phase 3 results, preclinical studies conducted at Yale University have indicated that simufilam may be effective in reducing TSC-related seizure activity and limiting neuronal abnormalities in mouse models genetically altered to model TSC and focal cortical dysplasia type II (FCDII). These studies showed that simufilam treatment limited neuronal abnormalities and reduced seizure activity at a level similar to genetic knockdown of FLNA expression, notably without lowering the overall level of FLNA in the brain. This suggests a potential mechanism distinct from simply reducing protein levels.

The tangible benefit of this approach, if successful in humans, could be a novel treatment option for patients suffering from treatment-resistant seizures associated with TSC, a population where approximately 60% do not achieve seizure control with existing anti-seizure medications. The "so what" for investors is the potential for simufilam to be a first-in-class therapy in this specific indication, addressing a clear unmet need with a differentiated mechanism.

To support this new focus, Cassava entered into an exclusive worldwide License Agreement with Yale University in February 2025, gaining rights to intellectual property potentially useful for developing and commercializing simufilam for TSC-related epilepsy and other indications. This agreement involves a nominal upfront fee, potential milestone payments up to $4.5 million, tiered royalties on net sales (low- to mid-single digit percentage), and tiered minimum annual royalties. The company intends to conduct exploratory preclinical studies in collaboration with the Tuberous Sclerosis Alliance (TSCA) and other researchers to build further support for a potential Investigational New Drug (IND) application and a proof-of-concept clinical trial in TSC-related epilepsy. The recent appointment of Dr. Angelique Bordey, a key researcher from Yale with expertise in this area, as Senior Vice President, Neuroscience, further underscores the commitment to this new strategic direction and brings critical scientific leadership in the field.

Separately, the company maintains an early-stage investigational diagnostic program, SavaDx, aimed at detecting AD from a blood sample. However, this program remains a low priority, accounting for less than 1% of the research budget, with formal validation studies not expected in 2025.

Financial Performance and Resource Reallocation

Cassava Sciences operates as a single business segment focused on the development of novel drugs and diagnostics. The company has not generated product revenue to date and continues to incur significant operating losses, resulting in an accumulated deficit of $428.5 million as of March 31, 2025.

For the three months ended March 31, 2025, the company reported a net loss of $23.4 million, compared to net income of $25.0 million in the same period of 2024. The net income in Q1 2024 was primarily attributable to a large non-cash gain from the change in fair value of warrant liabilities, which were not outstanding in 2025.

Total operating expenses increased to $24.6 million in Q1 2025 from $19.9 million in Q1 2024. Research and development expenses decreased by 16% to $13.7 million, primarily reflecting the wind-down of the large Phase 3 AD clinical trials. This decrease was partially offset by a $1.4 million increase in stock-based compensation expense within R&D. General and administrative expenses, however, saw a significant increase to $10.9 million from $3.7 million in the prior year period. This surge was largely driven by higher legal-related expenses, including a $3.0 million estimated loss accrual related to ongoing litigation, and a $1.5 million increase in stock-based compensation expense within G&A. The prior year period also benefited from $3.0 million in insurance recoveries, which did not recur in Q1 2025.

Interest income decreased to $1.3 million in Q1 2025 from $1.8 million in Q1 2024, primarily due to lower interest rates. The company also recorded a net loss of $0.1 million from its property leasing activities in Q1 2025, compared to a net gain of $0.2 million in Q1 2024, attributed to higher vacancy rates in its Austin office complex.

As of March 31, 2025, Cassava held $117.3 million in cash and cash equivalents, a decrease from $128.6 million at December 31, 2024. Net cash used in operating activities was $11.3 million for the three months ended March 31, 2025, a decrease from $19.1 million used in the prior year period. Net cash provided by financing activities was minimal at $0.1 million, primarily from stock option exercises, a sharp decline from $22.2 million provided in Q1 2024 from warrant exercises. The successful warrant distribution and exercise program in 2024 generated approximately $123.6 million in net proceeds, significantly bolstering the company's liquidity prior to the AD program discontinuation.

Management believes the current cash position is sufficient to fund operations for at least the next 12 months. However, the company expects future cash requirements to be significant, depending on the pace of development in the new indication, and may seek additional funding, though availability and terms are uncertain. Cost curtailment efforts, including a workforce reduction of 33% (10 employees) in Q1 2025 at a cost of approximately $0.4 million, are being implemented to manage expenses following the strategic shift.

Competitive Landscape and Positioning

The landscape for CNS drug development, particularly in areas like AD, is highly competitive and dominated by large pharmaceutical companies with substantial resources and established market presence, such as Biogen (BIIB), Eli Lilly (LLY), and Roche (RHHBY). These companies have advanced pipelines, approved products (like Leqembi and donanemab for AD), extensive global manufacturing and distribution capabilities, and robust financial profiles. Their strategies often involve leveraging diversified portfolios and established market penetration.

Cassava, as a clinical-stage company, operates on a vastly different scale. It lacks approved products and revenue streams, relying instead on its cash reserves and potential future financings. Its financial metrics, such as zero revenue and significant operating losses, stand in stark contrast to the multi-billion dollar revenues and substantial net incomes of its large pharma counterparts.

However, Cassava's strategic pivot to TSC-related epilepsy positions it in a different competitive arena, focusing on a rare disease with a high unmet need for effective seizure control. While the competitive landscape within TSC-related epilepsy includes existing anti-seizure medications, a large portion of patients remain refractory to current treatments. Cassava's potential competitive advantage lies in its novel scientific approach targeting Filamin A, which is distinct from the mechanisms of currently approved therapies for TSC-related epilepsy. The oral small molecule format of simufilam could also offer potential advantages in administration compared to infused therapies, although this was more relevant in the AD context.

The company's in-house discovery and development of simufilam, coupled with the exclusive license for Yale's intellectual property in TSC, provide a foundation for its competitive moat in this specific indication. However, the company faces significant disadvantages due to its smaller scale, limited financial resources compared to large competitors, and dependence on third parties for manufacturing and clinical trials. Success in this new area will depend on demonstrating a compelling clinical benefit that differentiates simufilam from existing treatments and addresses the high rate of treatment-resistant seizures in TSC.

Risks and Uncertainties

Investing in Cassava Sciences involves significant risks, inherent in the clinical-stage biotechnology sector and compounded by company-specific challenges. The primary risk is the uncertainty of clinical success in the new TSC-related epilepsy indication. Preclinical data, while promising, does not guarantee efficacy or safety in human trials. The path to regulatory approval is long, costly, and uncertain.

The company also faces substantial legal and regulatory risks. The SEC investigation resulted in a $40 million penalty, and the DOJ investigation remains ongoing, although the company does not currently anticipate criminal charges against it. Multiple securities class actions and shareholder derivative lawsuits are pending, alleging misleading statements and other claims. These legal proceedings are costly, divert management resources, and their outcomes are inherently uncertain, with the potential for material adverse effects beyond the $3.0 million currently accrued for potential settlements.

Operational risks include dependence on third-party contract development and manufacturing organizations (CDMOs) for drug supply and contract research organizations (CROs) for conducting clinical trials. Any issues with these third parties could delay development. The company's financial health, while currently sufficient for the next 12 months, will require additional funding in the future if development progresses, and there is no guarantee that such funding will be available on favorable terms. Furthermore, the company's property leasing activities are expected to result in increasing losses due to higher vacancy rates, adding to operational expenses.

Conclusion

Cassava Sciences stands at a critical juncture, having decisively pivoted away from its Alzheimer's disease program after Phase 3 failures. The company is now charting a new course, focusing on Tuberous Sclerosis Complex-related epilepsy with its lead candidate, simufilam, based on a novel scientific approach targeting filamin A and supported by a strategic partnership with Yale University.

While the preclinical rationale for this new indication is intriguing and addresses a high unmet need, the investment thesis is now fundamentally tied to the successful execution of exploratory preclinical studies and the potential subsequent clinical development in TSC. The company's financial position provides a runway for the near term, bolstered by prior capital raises and cost-cutting measures, but significant future funding will be required for late-stage development. The backdrop of ongoing litigation and regulatory scrutiny adds layers of complexity and risk. For discerning investors, Cassava represents a high-risk, high-reward opportunity, contingent on the successful translation of its novel science into a clinical benefit within the challenging landscape of CNS disorders and the effective navigation of its legal and financial challenges.