After surging from $7 per share to around $120 per share this year, Cassava Sciences (NASDAQ:SAVA) stock may not have room to make more “to the moon” moves higher.
There’s no doubt that the clinical-stage biotech company has big potential with its Simufilam Alzheimer’s treatment candidate.
As it makes more progress with its flagship treatment, shares may have a little more runway, even after their more than seventeen-fold surge.
Then again, shares could see a pullback more severe than the temporary one experienced late last month.
Awaiting future trials of Simufilam, investors who bid it up before may take a more cautious approach going forward.
If Cassava’s candidate continues to perform well in Phase 3 clinical trials shares have room to zoom to even higher price levels.
If Phase 3 trials show Simufilam isn’t as much of a game-changer as prior trials have shown it to be this top performing stock could fall massively from its current trading levels.
So, ahead of more news that could make or break it, what’s the call? If you own it, take some risk off the table, by selling part of your position. If you don’t own it yet tread carefully, keeping in mind its high-risk nature.
More Than Just Hype Behind SAVA Stock
One of the most talked-about stocks on Reddit’s r/WallStreetBets subreddit, some may chalk up the bulk of the stock’s success this year to “meme stock madness.”
Sure, Reddit traders buying on headlines, hype, and momentum have dabbled in it a bit. But these kinds of investors have not been the ones in the driver’s seat.
Instead, it was biotech investors, pricing it on the facts, that have sent SAVA stock soaring nearly 1600% year-to-date.
Investors are willing to value the business at $4.81 billion, based on early clinical data that suggests it’ll be a big success once approved for use.
As a Seeking Alpha commentator broke it down July 30, this is the first Alzheimer’s treatment to show cognitive improvement at the nine-month mark. Other factors point to its other advantages as a way to manage/treat this disease.
With its advantages, some, including InvestorPlace’s Mark Hake, see the stock possibly trading for $900 per share one day.
It may sound far-fetched that a stock that’s already soared many-fold before could do so again, but take a look at his rationale, and his assessment makes sense.
That being said, there’s a reason why shares today trade for what could be just 13.33% of their eventual value.
As Phase 3 trials could produce results in contrast to the narrative currently surrounding it, don’t rule out a possible sell-off down the road for SAVA stock.
What Could Shift Sentiment For Cassava
Based on recent headlines, success may seem inevitable for Cassava’s Simulfilam.
Once it completes Phase 3 clinical trials, not only will it obtain Food and Drug Administration (FDA) approval, but it will also achieve the kind of commercial success that justifies a stock price leaps and bounds above the heights it’s already achieved.
Yet, that’s not the sole possible outcome for SAVA stock from here. Phase 3 results may differ (in a bad way) from the strong preliminary data from its Phase 2 trials.
If this happens shares could see an immediate double-digit percentage decline. Also, another factor behind the off-the-charts enthusiasm for the stock has to do with the approval of another Alzheimer’s treatment candidate: Biogen’s (NASDAQ:BIIB) Aduhelm.
Its FDA approval was controversial, but it may have also created the perception that the bar set for Alzheimer’s treatments may have come down some, increasing the odds Cassava will have a much easier time getting their candidate approved.
Yet what if what happened with Aduhelm decreases rather than increases Simulfilam’s odds of approval?
That is, the controversy surrounding Aduhelm’s approval leads the FDA to look at subsequent candidates like this one with a more critical eye. In turn, creating a bumpy road ahead for the future direction of SAVA stock.
Big Potential but Big Risk, So Be Careful
The success Cassava has had so far with Simulfilam may imply a degree of inevitability in its continued success.
Investors may have bid up its shares more on substance than on hype, but don’t take that to mean it’s guaranteed to continue winning. In other words, make its way to the sky-high price target mentioned above.
Given it’s at risk of a severe pullback if it stumbles going forward? If you own, take some risk off the table, by partially paring down your position.
If you’re looking to enter it today, position accordingly, as you could end up with big losses if things start moving in the wrong direction.
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, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.