Shares of pharmaceutical specialist Cassava Sciences (NASDAQ:SAVA) soared earlier Tuesday before giving up most of the gains. Nevertheless, investor enthusiasm spiked over management’s decision to issue a warrant distribution to support the ongoing Phase 3 clinical development of oral simulfilam, a promising therapeutic for patients of Alzheimer’s disease. Subsequently, despite warrant-related risks to SAVA stock, the broader positive implications lifted sentiment.
According to the pharma’s press release, management announced a pro rata dividend distribution of warrants to holders of SAVA stock as of Dec. 22. As of this record date, shareholders will receive four warrants for each 10 shares of common stock held, subject to rounding. Later, on or about Jan. 3, 2024, Cassava will distribute the warrants.
Following the distribution date, the warrants are expected to list and trade on the Nasdaq exchange, separate from SAVA stock. The ticker will be SAVAW. Each warrant entitles the holder to purchase one share of common stock at an initial exercise price of $33.
Cassava President and CEO Remi Barbier emphasized that the warrant distribution underscores the inherent strength of the pharma specialist.
Notably, all warrants will expire following the ringing of the closing bell on Nov. 15, 2024, unless redeemed by Cassava prior to this expiration date. Further, the company holds the right to redeem the warrants on or after April 15, 2024, upon 20 calendar days’ notice.
SAVA Stock Faces Risks But Also Possible Rewards
Similar to a call option, warrants represent financial instruments that give holders the right but not the obligation to buy a certain number of the underlying security at a predetermined (strike) price. Typically, as referenced above, companies usually issue warrants to raise funds. However, they also impose dilution risks as exercised warrants expand the company’s outstanding share count.
Obviously, that’s a major concern for SAVA stock. Even with the big move today, the security is only up about 2% on a year-to-date basis. Over the trailing 52 weeks, SAVA lost about 33% of equity value. Therefore, some longtime shareholders may have concerns regarding dilution risk.
Nevertheless, the current market sentiment appears to focus largely on the promising profile of oral simulfilam. According to an earlier clinical study posted by the U.S. Securities and Exchange Commission (SEC), Cassava noted that simulfilam slowed cognitive decline by 38% versus placebo for over six months in patients with mild-to-moderate Alzheimer’s disease.
Additionally, for mild Alzheimer’s patients, the therapeutic improved cognition scores over six months and stabilized cognition scores over 18 months. Just as significantly, oral simulfilam continues to demonstrate a safe and well-tolerated profile.
By Cassava’s admission, the study represents a small proof of concept with limited data. Further, the size and methodology of the study may introduce bias. Nevertheless, the results have been encouraging overall, thus lifting confidence in SAVA stock.
Why It Matters
Currently, only two analysts cover SAVA stock. However, both experts rate shares a buy with an average price target of $99.50, implying almost 257% upside potential. What’s more, both assessments were issued early last month, suggesting a greater degree of relevance.
On the date of publication, Josh Enomoto 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.
