As I put it last month, Cassava Sciences (NASDAQ:SAVA) stock wasn’t immune to a price reversal. Sure, I didn’t predict anything about data integrity allegations sending it into free fall. But I did make the case why it was a risk of tumbling on any sort of stumble.
“Stumble” is the best way to put what kicked off on Aug. 24. Before then, it seemed that the biotech company’s key candidate, Alzheimer’s treatment Simufilam, was on its way to obtaining U.S. Food and Drug Administration (FDA) approval. Now, with said fraud allegations casting some doubt on the company’s trial data? What was already a speculative play to begin with looks all the more risky.
With its drop from $118 to $50 per share, some may say the market has already absorbed the data controversy. Further news on this issue could be in the favor of Cassava. This could result in a big move back to prior price levels for SAVA stock.
That said, you may still want to be careful. Things could continue to get worse with this headwind. Not only that, both existing and emerging concerns are on the table as well.
What Sunk SAVA Stock Last Month?
So, what’s the story here with Cassava and its big controversy? Here’s a brief recap. First, news broke of a citizen petition being filed with the FDA by a whistleblower. This petition called for the regulatory agency to put clinical trials of Simufilam on hold, given data quality/integrity concerns.
With SAVA stock tumbling immediately afterward, the company went on the defensive. CEO Remi Barbier denied the whistleblower’s claims of data manipulation. Besides picking apart the allegations, Barbier also framed it as a “short-and-distort” attempt by short-sellers. However, while quick to fight back, the CEO’s response failed to stem the losses. After falling from $118 per share down to around $80 per share on the news, the stock took another plunge.
In recent days, the stock has started to settle. Some may see this as a great time to buy. If the above-mentioned controversy proves to be overblown, it may be a quick move back to triple-digit price levels. However, while it may look as such, don’t view this as a slam-dunk opportunity. The data allegation could continue to get worse, sending Cassava even lower.
Also, the concerns I raised about the stock in my last article remain in play too. Given that even “meme stock” investors are no longer so psyched about it? You may not want to “buy the dip.”
Beyond Allegations, Other Issues Pose Risks
I’ll concede that Barbier’s claim of short-sellers being behind this incident could prove true. Whoever was on the short side of SAVA stock before the news has seen a big windfall. In hindsight, this former “meme stock” favorite was a prime target for short-sellers not afraid to create their own catalyst.
If the FDA also finds the whistleblower claims to be a ‘nothingburger’, Cassava shares could be in for another big spike. Yet while it could double from here, a concern that I’ve discussed previously may still make it a stock to approach cautiously.
That is, following the controversy surrounding the approval of Biogen’s (NASDAQ:BIIB) Aduhelm Alzheimer’s treatment, the FDA may already be looking with a more critical eye at new candidates to treat this disease. The recent allegations, whether true or false, could further ramp up the scrutiny.
On top of this, there are new concerns that have cropped up as of late. For example, notice how I called it a “former meme stock.” Per the r/WallStreetBets tracker, chatter about it on the popular Reddit subreddit is coming down. Even the most recent thread, in which the original poster tried to make the case that the data allegations are hogwash, most of the responses take the position that the claims are valid.
If the “meme stock” community, which played a big role in its 20x rally earlier this year, has moved on? It’s questionable whether it can get back to prior levels, on renewed hope and hype.
Continue to Tread Carefully
In time, investors will find out whether this recent controversy has substance. Or, if it was a ploy by the shorts to sink it for a quick profit. If you believe the former, obviously you are staying away from the situation. But even if you believe the latter, keep in mind it’s still risky.
Simufilam’s eventual fate is still uncertain. Its fading popularity among the Reddit set remains a concern as well. Even after its 57%+ price haircut, approach SAVA stock cautiously.
On the date of publication, Thomas Niel 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.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
