Cassava Sciences (NASDAQ:SAVA) stock took off once again during September. Rumors about the Securities and Exchange Commission (or SEC) clearing its investigation of the scandal-tarnished biotech firm resulted in a big spike for SAVA stock on Sept. 22.
While partially pulling back immediately after, as Cassava’s management dispelled the rumors, news indirectly related to the company’s efforts to bring its Alzheimer’s treatment candidate, Simulfilam, to market, helped to briefly sustain the rally.
Since then, however, SAVA has slid lower, from the low-$50s to the low-$40s per share, as the speculative frenzy starts to calm down.
Barring any additional “big news,” this stock is likely to continue moving back towards its pre-rally prices. This makes it unappealing as a buy today.
Nevertheless, biotech investors with an appetite for risk shouldn’t write it off completely, as shares could fall back to more favorable prices.
SAVA Stock in the Short-Term
Initially, it seemed as if the rally with Cassava Sciences was about to end as quickly as it began. Yet a few days following its big bolt, another news item enabled the speculative mania surrounding the stock to continue.
At the market open on Sept. 28, excitement about trial data for Alzheimer’s drug candidate lecanemab, co-developed by Biogen (NASDAQ:BIIB) and Eisai (OTCMKTS:ESALY), spilled over to other Alzheimer’s treatment plays, including SAVA stock. Unfortunately, the impact of this news extending its rally didn’t last long.
Cassava wound up giving back these gains and then some that same trading day. It’s very likely the post-spike pullback will continue for SAVA in the coming weeks. Sure, if it’s confirmed that the SEC is closing its investigation of Cassava, over allegations that it manipulated Simulfilam trial data, we may see another spike for the stock.
But outside of that, don’t expect something like big news about Simulfilam to send shares back into hyperdrive. As InvestorPlace’s Eddie Pan reported on Sept. 23, Phase 3 trial results for its flagship candidate won’t be released until mid-2024. Still, while not a buy today, two factors could push it back to a more compelling entry price.
Wait for More Downside
There’s a big risk that buying SAVA stock today ends up being a “falling knife” situation. If no further positive news or rumors emerge about Cassava in the near term, the speculators who dived into it during September are likely to continue cashing out.
That’s not all. It’s hard to prove, but between the stock’s high short interest, and its propensity to make big moves lower on negative news, SAVA appears to be a target of the short-selling community. More negative headlines about the data manipulation allegations, even if ultimately proven to be false, could send the stock into freefall.
Such an event played out back in July, when Reuters reported that the U.S. Department of Justice (or DOJ) had launched a criminal investigation of the company. Cassava CEO Rene Barbier fought back, but the damage had been done. SAVA stock fell from around $21.50 per share to as low as $13.90 per share on this news.
However, while these two factors signal it’s wise to approach Cassava shares cautiously. If the stock tumbles again for these reasons, it may fall to a price that puts the odds with this moonshot biotech play back in your favor.
Bottom Line on SAVA Stock
So, what exactly is a “can’t miss” price for Cassava Sciences stock? Admittedly, figuring this out is more art than science, but some back-of-the-envelope calculations suggest it’s a price well below current levels.
Encouraging results from Simulfilam’s Phase 3 trials would likely enable the stock to re-hit its past high of $146.06 per share, at the minimum. Bringing this candidate to market could send shares to prices well above this high-water mark.
Conversely, it’s far from a lock this candidate makes it fully through the pipeline. 90% of all drug candidates fail. Alzheimer’s drug candidates have so far had a nearly 100% failure rate.
With this in mind, SAVA stock has a ways to go before it’s a buying opportunity again, but given the chance recent excessive optimism morphs back into excessive pessimism, it’s still worth keeping on your watchlist.
SAVA stock earns a B rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.