Putting it simply, Cassava Sciences (NASDAQ:SAVA) stock could be a trap. Or, it may be the ultimate “buy the dip” opportunity.
As you may know, a citizen’s petition was filed in August with the U.S. Food and Drug Administration (FDA). This petition has cast doubt whether everything’s on the up-and-up with clinical trial data for its Simulfilam Alzheimer’s treatment.
If more comes out to indicate there’s merit to these allegations this hard-hit stock will likely see another sharp decline lower, as its chances of getting FDA approval will go from solid to slim.
On the other hand, if the citizen’s petition proves to be little more than a ploy by short-sellers to send shares tumbling this, plus further developments similar to its Sept. 22 release of top-line data for Simulfilam, could help send shares back toward past price levels.
Not only that if it obtains regulatory approval this stock could ultimately sport a price in the high triple-digits down the road. It trades today at a little more than $54.
Whether Cassava is out of the woods with this controversy is up for debate. The most recent findings help boost the narrative that the citizen’s petition is just “short and distort” tactics at their finest.
At the same time though, there’s still plenty that could play out that isn’t in the company’s favor.
That said, the highly volatile nature of this stock could mean an opportunity for investors with a healthy risk appetite. Buying now, ahead of further positive news, may be a worthwhile move.
A Closer Look at SAVA Stock
In the days following its data release late last month, Cassava shares attempted to reverse their recent heavy declines. But after rallying from around $52 per share to around $70 per share, it again started to pull back.
You can chalk some of this up to overall uncertainty in the stock market, but further worries about data integrity is likely playing a role as well.
At first glance, the data from an open-level study helps boost the bull case. The results were not only encouraging, but they were analyzed by third-party biostatisticians. That fact takes a lot of bite out of the concerns raised in the citizen’s petition.
Nevertheless, as a Seeking Alpha commentator recently discussed, more could still come out that shows validity to the data manipulation accusation.
The FDA has also yet to respond to the petition. Their response could make (or break) SAVA stock. Again, it’s clear Cassava is anything but out of the woods with this controversy.
The chance of it taking another dive runs high. However, investors willing to live with possible big losses in exchange for potentially large gains may still want to buy.
The short side remains crowded. Negativity remains heavily priced-in. Risk/return may be more in favor of those choosing the long side of the trade.
How to Approach Cassava Shares Right Now
Valued almost entirely on Simulfilam’s future potential, SAVA stock will be in big trouble in the event this catalyst is no longer on the table.
If that were to happen, it wouldn’t take long for the stock to make its way back to the single-digit prices it traded for twelve months ago. Even so, the upside potential may still outweigh this heavy downside risk.
If nothing more comes out about the data manipulation allegations, and/or the FDA takes no action with the citizen’s petition, shares could quickly make their way back to prior levels ($118 per share), to their all-time high ($146.16 per share) or perhaps even higher. Especially if the Phase 3 clinical kicks off as expected this fiscal quarter.
Getting in now, as its recent troubles still weigh on it, and as market-wide uncertainty sends it sliding as well, could be a highly profitable move. Not only because of the potential to buy it now, but also the possibility of it ultimately rising to as much as $900 per share, if Simulfilam gets approved.
Bottom Line: Caution is Key, But Consider It a Buy
From here, Cassava Sciences is either going to implode, or take off, in price. Worries about its recent controversy may be holding it down at current prices. Yet given it could spike again in the coming months, and skyrocket in the years ahead? You may want to buy it now, despite the risk.
Like with any biotech situation, where it’s big possible gains against large possible losses, caution is key. But for investors who approach SAVA stock accordingly, and are able to ride out any future near-term dips in price, it may be a gamble worth taking.
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.
