Since last August, biotech firm Cassava Sciences (NASDAQ:SAVA) has had a big issue that’s weighed on SAVA stock.
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That would be the citizen petition filed with the U.S. Food and Drug Administration (FDA). This petition accused it of manipulating data related to its flagship drug candidate, Alzheimer’s treatment simulfilam.
This news caused the stock, at one time a meme favorite, to tank. It fell from well over $100 to less than $50 per share. SAVA stock made several attempts to bounce back, but failed each time.
But a few weeks back, the FDA nixed the petition. On the surface, this is a positive development. It may signal this issue looming over it is coming to an end. Or does it? Based on the headlines, “FDA rejection” sounds like case closed for the data manipulation claims. Unfortunately, that may not be the case. Even if the company winds up putting the allegations behind it, that does not guarantee that it’s smooth sailing ahead for Cassava.
With simulfilam still making its way through clinical trials, it remains far from certain that it’ll get full FDA approval. Approval will likely send SAVA stock to prices many times what it trades for today (around $41.50 per share). Rejection will likely send it to single-digit prices. Keep in mind risk continues to ride high with this name.
SAVA Stock and Recent Developments
It’s no mistake that Cassava Sciences shares only saw a temporary boost from news of the FDA’s rejection of the citizen petition. Clearly, the FDA is looking at citizen petitions with a more critical eye now, as many of these have been filed in concert with short sellers with financial gain in mind.
However, it’s important to note that this petition was really rejected on technical grounds. In the rejection letter, the FDA stated, “This response does not represent a decision by the agency to take or refrain from taking any action relating to the subject matter of your petitions.”
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In other words, investigations into the simulfilam data manipulation allegations are still pending. That’s a key reason why this recent development has not resulted in SAVA stock staying above $50 per share, much less heading back to its highs.
That said, even if it manages to get out of the woods with this issue, that doesn’t necessarily mean investors will pile back into SAVA stock like they did last year. Market conditions have changed. Speculative frenzy has gone away completely. It’ll take updates with simulfilam to make this stock make another major move (whether higher or lower).
Big Gains or Big Losses, There’s No Middle Ground
Let’s assume that the above-mentioned data manipulation issue goes away completely for SAVA stock. Maybe shares see a moderate spike, maybe it results in just keeping it at current price levels. Whatever its impact, it’ll pale in comparison to the impact of the next big event for this company, and for this stock.
That will be when the company releases its next major batch of clinical trial data. Right now, Cassava is in the midst of conducting two separate Phase 3 clinical trials. Positive data from these trials will point to a high chance that it receives FDA approval. This could result in the stock becoming a multi-bagger, as having an effective Alzheimer’s treatment would mean billions in potential revenue.
On the other hand, if Phase 3 trial data points to simulfilam not getting approved by the FDA, you can expect shares to take a massive tumble. A decline even greater (on a percentage basis) than the one sparked by the citizen petition.
Earlier this month, Louis Navellier discussed upside and downside with SAVA stock. When it came to how far shares could fall if simulfilam fails to get approval, Navellier argued that while the stock may not go down to zero, it could fall to a price not too far above the per-share value of its cash position ($6.04). In other words, around 85% below what it trades for today.
The Bottom Line
Don’t let its double-digit stock price and $1.8 billion market capitalization fool you. Cassava is very much like the scores of biotech companies that trade for under $5 per share (penny stocks), and that you could call microcap stocks (market cap under $300 million). The chance to see your investment gain many times over comes with it the risk of a substantial capital loss.
If you are a seasoned biotech investor, SAVA stock may be worth it from a risk/return standpoint. But if you are just dabbling in it? Proceed with caution. Only invest as much as you can afford to lose.
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, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
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