Cassava Sciences: A Hot Stock to Trade, Invest, or Avoid?

Key Points

• Cassava Sciences has become a hot topic among traders due to its recent surge in volatility, liquidity, and overall market performance.
• The stock has surged 133% in the past month and is now trading over 190% above its 52-week low, driven by recent volatility and market interest.
• Despite legal challenges and high short interest (33.6%), the stock's Moderate Buy rating and potential upside of 357% reflect a mix of caution and optimism, making it a volatile yet intriguing play.

Cassava Sciences NASDAQ: SAVA has become a hot topic among traders and active market participants thanks to its recent surge in volatility, liquidity, and overall market performance. Over the past month, shares have climbed 133% and are now more than 190% above their 52-week low. 

With its recent spike and increasing volatility and popularity in the headlines, the question arises: Is this a stock to avoid, trade, or invest in? Let's take a closer look at the catalysts driving this surge, the heightened short interest, volatility, and significant analyst price targets that make SAVA an exciting topic.

What is Cassava Sciences?

Cassava Sciences, Inc. is a clinical-stage biotechnology company that develops drugs for neurodegenerative diseases. Its lead therapeutic product candidate is simufilam, a small molecule drug that has completed Phase 2 clinical trials and is now in Phase 3 clinical studies.

The company also works on SavaDx, an investigational blood-based biomarker/diagnostic to detect Alzheimer's disease. Formerly known as Pain Therapeutics, Inc., Cassava Sciences rebranded in March 2019. 

According to the company's website, they "translate novel scientific insights into new medicines," with a primary focus on creating first-in-class treatments for debilitating neurodegenerative conditions. Their mission is to detect and treat Alzheimer's disease.

SAVA's Recent Challenges and Catalysts

Cassava Sciences has faced significant legal challenges, including issues involving former consultant Dr. Hoau-Yan Wang, who was indicted for allegedly making false statements in grant applications related to the early development of simufilam. Despite these legal hurdles, the company continues its clinical trials for Alzheimer's drugs, with investors closely monitoring these developments.

Earlier this month, Cassava ended its defamation lawsuit against four short sellers who had expressed doubts about its experimental Alzheimer's drug. This move followed the indictment of Dr. Wang, whose research underpinned the treatment, on charges of fraud. The company decided to drop the lawsuit, stating that "pursuing this defamation lawsuit is an unnecessary distraction from our mission of developing a treatment for Alzheimer's disease."

Cassava's Earnings Overview

Yesterday, on August 8th, Cassava Sciences reported its Q2 2024 financial results, showing a net income of $6.2 million, a significant turnaround from the $26.4 million net loss in the same period last year. The company used $37.4 million in operations during the first half of 2024, consistent with previous guidance. For the second half of 2024, Cassava expects to use between $80 and $90 million in net cash, including a $40 million loss contingency related to advanced discussions with the SEC regarding their investigation. Research and development (R&D) expenses were $15.2 million in Q2 2024, down from $25.0 million in Q2 2023, mainly due to the completion of patient screening and enrollment for the Phase 3 clinical program in late 2023.

Overall Sentiment for SAVA: Analyst Ratings and Short Interest

The overall sentiment surrounding Cassava Sciences is a complex mix of pessimism, caution, and optimism. Critical factors like analyst ratings, consensus price targets, and short interest reflect this. For example, the stock has an abnormally sizeable short interest of 33.6%, making it one of the most heavily shorted names with a market capitalization of over $1 billion. This high short interest is a bearish indicator, suggesting that a significant portion of the market is betting against the stock.

On the other hand, analyst ratings have shown a shift towards optimism. Based on two analyst ratings, the stock currently has a Moderate Buy rating, an upgrade from its hold rating just a month ago. The consensus price target is $119, forecasting an impressive 357% potential upside from current levels. This mix of contradicting sentiments—bearish short interest and optimistic analyst ratings—has recently added to the stock's volatility, making it a particularly intriguing play for traders and investors alike.

Cassava: Trade, Invest, or Avoid?

The volatility in Cassava Sciences' stock may be enticing for traders looking to capitalize on rapid price movements. However, from a long-term perspective, the company faces numerous challenges, including ongoing legal issues and the inherent risks of developing a treatment for a complex disease like Alzheimer's. While the potential rewards could be substantial if the company's treatments prove successful, the risks are equally significant. Investors should weigh these factors carefully before deciding whether to trade, invest, or avoid SAVA altogether.