More than 5.8 million adults in the U.S. live with Alzheimer's disease, and there are more than 487,000 new cases each year. There have been no novel treatments approved for the indication since 2003.

A little-known biotech with a market cap just north of $2 billion, Cassava Sciences (NASDAQ:SAVA), is seeking to change that. The stock is already up 668% over the past 12 months.

Large-cap biotechs such as Pfizer, Eli Lilly, and H Lundbeck A/S have all tried their hands at developing a drug for treating Alzheimer's disease -- and none have succeeded. If Cassava can pick up the slack, it will arguably become a millionaire-maker stock, as industry giants will go crazy bidding for the company's assets. But just how likely is that scenario to play out?

IMAGE SOURCE: GETTY IMAGES.

How do the results look?

In a placebo-controlled phase 2b study, patients with Alzheimer's disease saw statistically significant improvement in all illness-related biomarkers after treatment with Cassava's medication, simufilam. Keep in mind, however, these biomarkers are surrogate endpoints, with only a 30% to 48% correlation to cognitive enhancements in the real world.

That said, simufilam also did well there, showing 17% to 46% improvement in patients' episodic and spatial working memories. CANTAB, a neuropsychological test developed at the University of Cambridge, was the mechanism in assessing patients' cognition. Participants showed a noticeable reduction in both neurodegeneration and neuroinflammation.

The results are comparable to those of an open-label study in which patients with Alzheimer's disease saw a 10% gain in their cognitive abilities after dosage with simufilam. Here, the instrument used was the ADAS-cog11 scale, a neuropsychological questionnaire that assesses the severity of dementia.

Based on the results, on Feb. 8, Cassava announced it would enroll a further 50 patients into its ongoing open-label trial, bringing the total number to 150. Management also plans a second interim analysis of the study after 12 months of treatment.

Moreover, the company expects to bring simufilam to two phase 3 studies by the second half of this year. One study will evaluate whether simufilam can slow the progression of Alzheimer's disease vs. placebo over 18 months. The other will evaluate simufilam's ability to improve cognitive abilities over six months.

That's good news, as the two studies have far shorter time spans than average clinical trials for Alzheimer's disease, so it will take a lot less funding to carry them through. Cassava's cash balance currently amounts to $93 million with no debt, and management expects to use just $25 million of that this year. However, it recently announced a $200 million stock offering -- possibly to finance its phase 3 study while its stock price is high.

What are the risks involved?

Right now, positive results from multiple studies using different metrics and endpoints seem to converge on the conclusion that simufilam has a good chance of beating placebo in phase 3. I have no interest in contesting that -- I'm more concerned about how the drug will perform against the current standard-of-care treatments.

There have been just four drugs approved to treat Alzheimer's disease over the past century. The most promising of these is donepezil, which increased patients' cognition on the ADAS-cog11 scale by 2.8 to 3.1 points in clinical studies. According to the U.S. Food and Drug Administration (FDA), even patients with mild or moderate Alzheimer's disease see their ADAS-cog11 scores decline by six to 12 points per year. The scale ranges from 0 to 70.

That's a problem, as the 10% improvement in ADAS-cog11 demonstrated by simufilam only translates to 1.6 points. While we can't draw definitive conclusions from cross-study comparisons, it's apparent that both simufilam and donepezil provide only small cognitive improvements when given to patients. Hence, the former may very well come up short in a non-inferiority study in which the controlled group receives donepezil, not placebo. Donepezil is currently off-patent, with many generic variants available at low cost.

Should you buy the stock?

Investing in a smaller biotech with one single flagship candidate in its pipeline is about as risky as it gets. Take the following example: In 2017, Axovant Gene Therapies (now known as Sio Gene Therapies) whipped investors into a frenzy with its own Alzheimer's drug candidate, interperdine. The company theorized that when taken together with donepezil, interperdine would become a game-changer in terms of slowing patients' cognitive decline. Analysts predicted the drug candidate had a 65% chance of success in a late-stage study.

When the results came out, everyone was stunned. The non-inferiority study failed to achieve its primary goals. Axovant had a $2.7 billion market cap at the time and subsequently lost 70% of its stock value in a single day.

The same risk is present investing in Cassava -- and arguably in all small-cap biotechs, in general. If simufilam succeeds, it would probably become a blockbuster drug and turn the company's shareholders into millionaires with just a small investment -- assuming it can also prove itself against donepezil. Should it fail, however, the stock will likely trade near zero.

If that kind of volatility or binary outcome doesn't appeal to you, don't invest in shares of Cassava. I wouldn't buy a stake unless the company shows solid top-line data for simufilam in a non-inferiority study. Until it does so, it's best to stay away from the risky stock.