Keep Risk in Mind With Cassava Sciences Stock, but Don’t Dismiss Upside Potential

There is good news and bad news with the big sell-off of Cassava Sciences (NASDAQ:SAVA). The good news is that much of its decline over the past month, which has taken SAVA stock from $50 down to around $34 per share today, can be blamed on market volatility.

Cassava Sciences (SAVA) company logo icon on website
Source: Postmodern Studio / Shutterstock.com

The bad news is that the move by more investors to adopt a “risk-off” mentality around SAVA and other “hot stocks” on the heels of many uncertainties isn’t the sole reason why it has taken a dive. It may have put one possible hindrance to it getting U.S. Food and Drug Administration (FDA) approval for its flagship candidate, Alzheimer’s treatment Simufilam, largely behind it. But that doesn’t necessarily mean it is smooth sailing from here.

A recent admission by management highlights the possibility of further hurdles down the road. That said, I wouldn’t say this has become a situation where risk outweighs reward. Far from it. If Simufilam does make it through the pipeline, it could help shares, which are down over 75% from its all-time highs, re-hit its past high and hit new ones.

As past clinical trials have shown promise and as it carries on with Phase 3 trials, there is still ample upside potential. Investors looking for lower-risk plays will want to keep staying away. Yet, if you’re active in biotech and can handle what is likely to remain swingy price action, it may be a name worth considering.

The Latest With SAVA Stock

Simufilam has created a lot of buzz for Cassava Sciences stock since early last year. But this buzz has also made it very volatile even before the market began to sour on speculative growth stocks in November. For example, it was a bumpy ride for SAVA between August and September 2021.

During this timeframe, accusations that the company manipulated trial data caused SAVA stock to swan dive from over $100 to under $50 per share. Shortly after that, it made a failed attempt to bounce back as it largely fought off these allegations.

Last month, concerns about this issue cooled further, as the FDA denied the citizen petition that made the allegations. Although the FDA’s response did state it was investigating the claims made, it largely put to bed any fears that this petition will be Cassava’s undoing.

Even so, that doesn’t mean this has become a less risky situation. Something else could delay and/or prevent the company from bringing out Simufilam.

Recent News About a Possible Hold on Simufilam

SAVA stock saw a brief boost from the above-mentioned news of the FDA rejecting the petition. Of course, the boost didn’t last long. Again, in large part due to external factors, shares took another dive both last month and early this month. But that is not all. Something company-specific has also played a role in pushing it down to the low-$30s per share.

On Mar. 2, Cassava Sciences warned its investors that the FDA may put a hold on Simufilam this year. Not for the reasons argued in the citizen petition. Rather, it is due to news of two rival Alzheimer’s treatments receiving clinical hold orders. You may see this and think it as a red flag and a reason to hold off on the stock. However, the takeaway from this may not be so cut-and-dry.

On one hand, the fact that similar treatments have received clinical holds is a concern. This could indicate that, after the controversy surrounding another Alzheimer’s treatment approved last year by the FDA, the agency may be more carefully assessing the efficacy and safety of other potential treatments for the disease. If that is the case, Simufilam’s chances of approval may be more remote than previously believed.

On the other hand, there is just a possibility of this happening. After all, many types of risks, no matter how remote, must be disclosed in annual 10-K filings with the U.S. Securities and Exchange Commission. That is where management made this statement.

So, what is the best way to view this development? I’d view it as a sign to be aware of the risk before making this stock a buy. In other words, I wouldn’t make it a large position in my portfolio.

The Verdict With SAVA Stock

SAVA stock currently earns a “B” rating in my Portfolio Grader.

Keep in mind Cassava’s high risk nature, but don’t take a hard pass on it without taking a look for yourself. Admittedly, more risk averse investors may want to stay away. If you can’t stomach a possible high double-digit percentage drop — which could happen if a hold is placed on Simufilam — I’d recommend passing up on it and moving on.

However, if you can stomach the risk and have experience investing in clinical stage biotech plays, SAVA stock remains an interesting situation. If uncertainties around it clear up, it could make an epic recovery. After its recent weakness, you may want to take a closer look.

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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