There are circumstances crueler than death, and Alzheimer’s disease may be one of them. For patients and their families, suffering from and witnessing the deterioration of mental and physical faculties is utterly devastating. From that angle, I completely understand the moral sentiment bolstering Cassava Sciences (NASDAQ:SAVA). We all want SAVA stock to win because it implies progress in the fight against this dreaded disease.
But at the same time, an investment is like a marriage. It may be a joy to hang out with the thrill-seeking adventurist, but that type might not be the ideal life partner, particularly if that individual is a thrill seeker simply to compensate for deeply rooted personality flaws, such as a wandering heart or plagiarizing hands. It’s quite telling that almost 50% of all marriages in the U.S. will end in divorce or separation.
Then again, this is America, so we should say that half of all marriages last forever, per comedian Joe Wong.
Now, I’m not implying that the science behind Cassava Sciences is faulty. But I will say with absolute confidence is that the arena which the company is competing in is filled to the brim with failure. In a recent story about SAVA stock, I mentioned that rival Annovis Bio (NYSEAMERICAN:ANVS) also had a much-hyped Alzheimer’s treatment candidate. But a disappointing clinical test sent ANVS cratering.
That really should be the lesson behind SAVA stock. It’s fun to bank on the unknown right now, the fine line between hope and despair that catalyzes investor sentiment toward high-risk, high-reward biotechnology wagers. Historically, though, the narrative for Alzheimer’s disease treatments more aligns with what just happened to ANVS than anything else.
True, this time could be different for SAVA stock. But you should always perform your due diligence before jumping on these types of trades.
Insider Transactions a Possible Boost for SAVA Stock
If that wasn’t enough to cool your jets regarding SAVA stock, you should note that the underlying company disclosed this very risk. Here’s what management had to say near the top of its risk factors disclosure on its Form 10-K for its full year 2020 results:
“Since 2017, we have concentrated a substantial portion of our research and development efforts on the treatment and detection of Alzheimer’s disease, an area of research that has seen significant failure rates. Further, our product candidates are based on new scientific approaches and novel technology, which makes it difficult to predict the time and cost of product candidate development and likelihood of success.”
So then, is SAVA stock off the table as a viable biotech bet? Not quite, if you believe in the power of insider transactions. From 2004 throughout 2005, Cassava insiders were busy loading up on shares. Sure enough, in early 2016, those wagers paid off handsomely.
But soon enough, sell orders (mixed in with buy orders) began trickling in, then the red ink took on a darker hue toward the back half of 2007. Of course, we all know what eventually happened in 2008, which did not spare SAVA stock.
Curiously, insiders were selling throughout 2010 and up till late May of 2011, despite the fact that SAVA stock was generally rising from its 2008 lows. It didn’t matter as shares continued hemorrhaging all the way till spring of 2019, when it finally bottomed out.
In other words, the insiders have been calling their own stock quite accurately. So what’s the latest verdict? Since May of 2019 to September of last year, it’s been nothing but buy orders, according to Gurufocus.
I guess you can make of that what you will.
A Cautious Approach Is Still Prudent
Still, I don’t want to leave the matter out in the open without stating this: the last insider trading transaction occurred in September 2020. So it’s very possible that over the next several weeks and months, the tune could change.
Of course, if insiders continue to buy into this momentum, there might be something here based on how they have previously proven prescient. However, if they start selling, that too should be taken into serious consideration.
On the date of publication, Josh Enomoto 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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.