Is the recent pullback in Cassava Sciences (NASDAQ:SAVA) a sign that it’s time to give up on this risky biotech play? Or, is it an opportunity to enter and/or add to a position in SAVA stock, at a more favorable price?
I would say the latter. Yes, this is a very speculative stock. If it fails to make further progress with its Alzheimer’s treatment, Simulfilam? Shares could see a tremendous drop in price. But a year or so down the road, once the data from its just-initiated Phase 3 study of the drug starts to come out?
The stock, beaten down in recent months by short-sellers, could start to make a tremendous recovery. As I put in my last article on it, the potential gains from success with Simulfilam more than exceed possible heavy losses.
That said, I wouldn’t enter a position in it all at once. With the next bit of big news is likely months away? There’s opportunity in the meantime to ease into it, at or below today’s prices. As seen from its recent price action, the retail-heavy long side is getting impatient, and is cashing out. You may want to take advantage of this, and slowly build a position on any weakness.
SAVA Stock and The Simulfilam Phase 3 Trials
After popping in price in late September, due to the release of positive top-line results from an open label study of its Alzheimer’s treatment, Cassava has been on a constant slide in the past few weeks.
This comes even as more seemingly positive news for SAVA stock has come out. For example, the Phase 3 initiation mentioned above. In addition, news of a Citizen’s Petition in the company’s favor. This could be seen as a possible counter to the negative Citizen’s Petition that sank the stock back in August, which the company and its supporters allege was the work of short-sellers creating their own catalyst to send shares lower.
To some degree, it makes sense why shares have moved lower, despite the latest news about Cassava being largely positive. During its run-up earlier this year, retail traders dived into this, expecting big gains in a short period of time. But after the negative Citizens Petition came out in August, claiming data from a past Simulfilam study was manipulated? The hope and hype behind this stock took a serious hit.
With fewer retail investors interested in diving back into it, those still holding it are left with two options. They can either wait things out, and possibly exit their positions once some game-changing news comes out. Or, they can accept their losses, and move on to the next fast money opportunity. Clearly, they’re going with the more short-term minded approach. However, if you’re bullish on Simulfilam’s chances of eventual Food and Drug Administration (FDA) approval? This may be to your advantage.
The Best Approach With Cassava Shares
Until it releases preliminary data from its just-started Phase 3 trials, SAVA stock could get stuck trading sideways. Worse yet, it may drift lower, as the traders who bid it up earlier this year cash out of impatience.
In other words, Cassava isn’t likely to make its way back to $100 per share, or even toward its high of $146.16 per share, between now and the end of 2021. It may not be until far into 2022 that this biotech play sees another big spike. But between now and then, you may be able to cautiously build up a position, by only entering/adding to it on further dips/weakness.
Slowly buying it in the months ahead may not only enable you to gain exposure at prices where risk/return is in your favor. It could also minimize your risk of getting burned, if this company experiences a true “game over” moment. Namely, if more evidence comes out about the data manipulation allegations, showing them to be accurate.
Of course, future fallout from the data manipulation controversy isn’t the only thing that could sink shares. Just because it’s made it to Phase 3 trials doesn’t mean full approval is guaranteed. There’s still a chance Simulfilam fails to make it to market. This would more than likely send SAVA stock back down to penny stock levels.
The Bottom Line
In the end, Cassava Sciences is either going to experience a triple-digit percentage rise in price, or take a more than 90% dive. Most investors like that upside potential. But fewer are willing to stomach such high downside risk.
There’s no way to mitigate its high risk nature completely. But if you’re bullish on Simulfilam? Buying SAVA stock on weakness, between now and when the data from its Phase 3 trial starts rolling in, may be the best move.
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.