While Cassava Sciences Is a Risky Play, It Has Substantial Payoff Potential

The perils of investing in volatile stocks is on full display with Cassava Sciences (NASDAQ:SAVA). Last month, SAVA stock skyrocketed in price thanks to a positive update on an ongoing issue that’s been putting pressure on the biotech company’s shares for months.

Cassava Sciences Inc logo visible on display screen

Source: Pavel Kapysh / Shutterstock.com

But after zooming from around $45 per share to just above $90 per share in recent weeks it’s given back the lion’s share of these gains. Predicting where it heads in the short term is easier said than done. Yet no matter what direction it moves next, it’ll likely be in a big way.

Why does Cassava make such wild moves in price? The company’s flagship drug candidate, Alzheimer’s treatment simufilam, could be a gamechanger. Going with a different approach than other treatments currently on the market, it could become a blockbuster for the company — assuming it eventually gets Food and Drug Administration (FDA) approval.

On the other hand, there is a chance it could fail to get such approval. If this candidate fails to make it through the pipelines, shares could see an even more dramatic drop in price. Even so, while it’s not for everybody, for some a small position may be worth the risk.

SAVA Stock and its High Volatility

Earlier in 2021, this speculative biotech play went from single-digits to triple-digits thanks to enthusiasm surrounding the potential for its main drug candidate to get approved.

But starting in late August, clouds of doubt began to loom over SAVA stock. This was due to allegations that the company manipulated trial data. A citizen petition was filed which called for the FDA to halt trials of the drug. Right after this story broke, shares experienced a tremendous drop in price. In a matter of days, it dropped from near $120 per share, to the low-$50s per share.

In response to the claims and to the subsequent tanking of its stock price, management fought back, arguing that the allegations were the product of a coordinated attack on the company by short-sellers. Cassava shares saw a bit of bounce back a few weeks after that when the company released promising top-line results from an open-label study of its flagship candidate. However, the market absorbed this good news and shifted their focus back to the uncertainty surrounding the data manipulation claims. This, in turn, pushed it back below $50 per share.

Then, on Nov. 4, the company came out with an update on the situation that sparked its short-lived run-up in price. With The Journal of Neuroscience concurring that there was no evidence of data manipulation, bullishness returned with a vengeance. This resulted in an incredible — albeit temporary — rebound in price.

Caution is Key if You Decide to Buy

So, with a respected medical journal in its corner, why are investors souring about SAVA stock again? This may or may not be due to its popularity among traders on Reddit. Perhaps due to its high short-interest (around 22% of float), this crowd dived back in to cause a short-squeeze. It quickly took profit, resulting in its whipsaw-move trending higher and then lower. However, this is far from certain.

More importantly, no matter the cause of this latest drop-off in price, there’s a key takeaway. Even if you’re bullish that the company has a successful Alzheimer’s treatment in the making, caution is key. Cassava’s current market capitalization ($1.79 billion) is based entirely on this candidate’s potential.

What if it ends up becoming completely out of the running in terms of FDA approval? There’s little else to keep the stock from plummeting back to the sub-$10 per share prices it traded for at the start of the year.

Sure, this clinical-stage biotech firm has more than just simulfilam in its pipeline. It also has SavaDx, a diagnostic candidate that may be able to detect Alzheimer’s disease using a simple blood test. SavaDx would certainly be a breakthrough for the company. Its ability to help keep the stock from sinking if its main catalyst fizzles out, however, is doubtful.

The Verdict on SAVA Stock

It’s important to be aware of the risks with Cassava Sciences. But at the same time, I wouldn’t say this high-risk is in any way a reason to stay away. If the skeptics are wrong and simulfilam is the real deal, it will become worth far more than the $44.53 per share it trades for today.

Whether you buy this or not comes down to a few factors. For one, you need to have an ability to handle its wild moves. Secondly, it’s wise to dive into the details when it comes to this company and its flagship candidate. If you can stomach the volatility, you may want to enter an appropriately-sized position in SAVA stock.

Cassava currently has a grade of “B” in my Portfolio Grader.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

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