- Cassava Sciences (SAVA) is risky but worthwhile after clarity emerges following scandal.
- The biotech company is well-funded and has blockbuster potential with its Alzheimer’s drug, Simufilam.
- Bullish investors should pick up SAVA stock on the chance it will rise.
Investing in Cassava Sciences (NASDAQ:SAVA) makes sense based on its fundamental financial position, but it remains a gamble. The company has run up against serious allegations in pursuit of Food and Drug Administration (FDA) approval for its Alzheimer’s treatment. However, all hope is not lost for SAVA stock.
SAVA Stock Is a Well-Funded Biotech Company
Biotech investors know most companies in the space suffer prolonged periods without substantial revenues, if any at all. These companies rely on candidate drugs that generate windfall revenues upon FDA approval.
That very often makes biotech investing hit-or-miss. They rapidly increase in price once it becomes clear FDA approval is inevitable, or they slowly trickle down to zero chasing said approval.
In Cassava Sciences’ case, it is all about chasing approval for its leading candidate, Simufilam. If successful, the drug will be a gamechanger. It’s used to treat mild to moderate Alzheimer’s disease.
According to one study of Alzheimer’s drugs, “the value of a drug candidate at or ready for Phase 3 trial would be worth $20.2 billion to $20.7 billion, and a Breakthrough Therapy Designation has a value of $13.4 billion.” Upon FDA approval, that value rises to $43.4 billion.
The reason investors shouldn’t worry about Cassava Sciences’ ability to reach that goal is that it is well-funded. The company anticipates using between $25 and $35 million in the first half of 2022. It reported $233.4 million of liquidity in its Feb. 28 earnings report.
So at least from a financial perspective, Cassava Sciences makes sound investment sense. Beyond that, the question becomes whether you believe short-sellers in their claims against SAVA stock.
Citizens Petition Rejected
In August 2021, an attorney filed a citizen petition on behalf of short sellers against SAVA stock. That petition was based on the idea that Cassava Sciences falsified data regarding Simufilam. The company responded to the allegations soon thereafter. But it didn’t matter, the damage was done.
SAVA stock dropped from above $115 to the $50 range in a matter of days. When the news was released, investors were aware short sellers have plenty of incentive to fabricate so-called truths. The name of their game is tanking a stock.
This has become a case of who an individual investor believes. I’d side with Cassava Sciences here, because the proponents of its case simply seem more convincing.
For one, Neuroscience concluded in late December that there was no evidence to support the notion that data was manipulated. Neuroscience is a neutral, academic journal primarily concerned with fact-finding. However, that news didn’t affect SAVA stock prices much at all.
On Feb. 10, the FDA denied the citizen petition in addition to four supplements to the petition. CEO Remy Barbier felt vindicated, stating:
“The news is very welcome but not surprising … We said from the outset that the allegations are false. I think the message may be that the FDA’s citizen petition privilege is not to be trifled with by stock market participants.”
Despite the seemingly positive news, SAVA share prices slid from there but have rebounded some. The point I want to make is Cassava Sciences looks to be in the right here. So investors should give it a chance if they were willing to do so before.
What to Do With SAVA Stock
The company hasn’t been granted FDA approval for Simufilam, but it still has a chance. Even though the short sellers’ claims were rejected, the damage was done. SAVA stock continues to reel from that blow.
So for the bullish biotech investor, now is a great chance to pick up a stock that could rise quickly again. If Simufilam fulfills its promise, share prices are going to multiply.
That’s an obvious assertion to make, but it’s worth stating because the scientific community is backing Cassava Sciences. That doesn’t mean Simufilam will definitively become an Alzheimer’s treatment in the future, but it lends credibility to the argument.
On the date of publication, Alex Sirois 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.