After the U.S. Food and Drug Administration approved Biogen (NASDAQ:BIIB) Alzheimer’s drug, it fueled an uptrend for Cassava Sciences (NASDAQ:SAVA). But in late July, buying euphoria capitulated. SAVA stock traded as high as $146.16 before plunging. Now it’s at below $97.
Cassava stock broke below the key 50-day moving average but above the 200-day simple moving average of $40. What happened?
Concerns Over Its Alzheimer’s Drug
On July 26, Cassava announced positive data with SavaDx. SavaDx is an investigational diagnostic/biomarker. It detects Alzheimer’s disease through a blood test. In the Phase 2b study, Cassava said, “simufilam significantly reduced plasma levels of altered filamin A in Alzheimer’s patients treated for 28 days. Plasma levels of p-tau181 also dropped significantly in these same patients.”
The results are from the first 50 patients completing at least nine months of treatment.
Before subjects received simufilam treatment, SavaDX detected high plasma levels of altered filamin A in patients. After the treatment, those levels dropped to statistically significant levels. Cassava also noted no safety issues. Furthermore, investors may conclude that the six and nine-month data indicate improved cognition scores for patients with Alzheimer’s disease.
The strong results should not have triggered a decline in shares. Markets may have “sold on the news” after months of anticipation for good news. SAVA shares rewarded patient shareholders with a respectable return. The stock rated as low as $2.78 in the last year, so sellers would still have earned a 2400% return after last week’s drop.
Long-Term Opportunity in SAVA Stock
Investors who ignored the stock volatility need not react. The company published positive clinical data that would validate Wall Street analyst price targets.
On Tipranks, analysts have a price target in the range of $100 to $190. The average is $131.25. After dropping so violently, bargain hunters have a chance to pick up a company on track to sell drugs treating Alzheimer’s. Biogen is the only firm with an FDA-approved product. Yet the FDA’s green light for Biogen’s aducanumab faces resistance. In clinical studies, the drug did not offer a convincing statistical result.
The controversial approval of Biogen’s drug creates an opportunity for Cassava. Hospitals and patients may consider an alternative to aducanumab. This raises Cassava’s revenue potential if the brings a product to market.
Cassava may report disappointing Phase 3. It may also fail to dazzle the markets. This would end any rally in SAVA shares. Even worse is the risk of another selloff. After the stock peaked at $146, recent short sellers already benefited by holding an 11.8% short float. Bears may build on their bet against the stock to capitalize on the negative selling volume in the last week. They would benefit further if the stock fails to bounce back.
SAVA shares formed an uptrend from a $40 base to $100. The stock could have a technical breakdown to below $40.
As a clinical-stage biotechnology company, investors should expect Cassava’s low stock scores on value, growth, and quality. Skittish markets tend to sell off speculative biotech stocks. So, cautious investors should not ignore those low stock scores.
Anavex Life Sciences (NASDAQ:AVXL) rallied starting in June and peaked at $31.50. The stock also fell last week. Just as Cassava reported good clinical results, Anavex announced on July 29 that Anavex 2-73 prevented cognitive deficits in an animal model.
Annovis Bio (NYSE:ANVS) mirrored that of AVXL and SAVA on the stock market. ANVS broke out the upside in May but peaked in July at $132. The stock lost more than half its value after presenting new clinical biomarker data at the 2021 Alzheimer’s Association International Conference. Annovis failed to outperform the placebo. For example, Annovis’ Posiphen failed to improve the severity of dementia under the severity of cognitive impairment measure.
Biotechnology companies targeting Alzheimer’s disease are having a rough time. For the year, they were superb investments. From here, patient investors may wait for the dust to settle. As Cassava plans Phase 3, shareholders will have to wait for results before deciding to double down on the investment.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.