adult biology chemical chemist

Cortexyme (CRTX) was heavily beaten down after lacklustre trial results. The stock fell from $57 to a closing price of $13.50 the next day. The stock chopped around during November, but we think the stock now offers a great buying opportunity for a recovery.

Cortexyme

CRTX is a clinical biotech company working on upstream approaches to Alzheimer’s and other neurodegenerative diseases. The company’s experimental Alzheimer’s disease treatment atuzaginstat flopped in a late-stage trial toward the end of October. However, after this short-coming, the Cortexyme management said that the drug appears to show clinical benefit for Alzheimer’s patients who also tested positive for the gum-disease bacteria Porphyromonas gingivalis.

I spoke with Michael Detke, the Chief Medical Officer at the company, and asked him about the next steps for the company. “We believe the data generated from the first-of-its-kind GAIN Trial adds an important new dimension to our understanding of Alzheimer’s disease and look forward to continuing to advance atuzaginstat. Importantly, the study was successful in accomplishing many of our objectives, including identification of the appropriate population for treatment and the therapeutic dose.” said the CMO.

In regards to the future plans for the drug, Detke said the company “intend to apply our learnings to progress an anticipated confirmatory study, pending discussions with the FDA and global regulators, and expect to update investors on our progress sometime in the first quarter 2022.

Q1 2022 should bring great news for investors who have bought the stock after the fall. Why so?

Short Interest

CRTX have a huge short interest. The borrow cost is 10%, providing a great combination for a potential short squeeze. Bullish momentum will lead to short sellers having to cover positions. This will increase the buying volume and the demand for the stock. Two things could do this. One was mentioned previously in relation to news due out in Q1 2022. Another way that could cause a squeeze is a great technical set up for CRTX.

Currently, the chart is forming a descending wedge along with an RSI divergence. This is a very bullish pattern that many traders will be keeping an eye on, especially with the daily chart closing outside of the wedge yesterday.

Chart provided by TradingView
Chart provided by TradingView

Financials

CRTX currently sits on $120M in cash and current assets. The assets are balanced by $14.7M in total liabilities. The company burns approximately $21M in cash per quarter to fund its operations. The current market cap is $382M.

So…

After the initial drop, the stock recovered a little, but resistance was strong between $17.30 and $18. I believe the stock can recover to these prices in the upcoming weeks. The sell-off was too much and this is a risky sector to short. Cassava Sciences (SAVA) was a similar company that went parabolic during 2021. The stock ran from under $10 to a high of $117. Later in the year, the stock rose again to an all-time high of $146.16. I don’t think we’ll see CRTX 10x in price. But shorts are too comfortable at these levels and there are catalysts in the works that can give this stock a real move.

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