Biopharmaceutical company Cassava Sciences, Inc. (SAVA) shot to the limelight earlier this year following the positive results from clinical trials of its Alzheimer’s drug. SAVA gained 574% year-to-date on the prospect of becoming a leading drug developer for the disease, which affects one in nine people older than 65 years. The drug is currently in Phase three of clinical trials.

However, the company came under fire in August after a citizen petition was filed with the SEC, claiming that SAVA manipulated the clinical trial results. The stock plummeted 41.8% over the past six months and 34.8% over the past month.

Here’s what could shape SAVA’s performance in the near term:

SEC Investigations

SAVA is currently being investigated for alleged manipulation of clinical trial results for its Alzheimer’s drug. This follows a public petition filed with the U.S. FDA requesting the suspension of the clinical trials in August. Several doctors and medical journals have stated that there is no merit in these allegations. However, microbiologist and image-manipulation consultant Elisabeth Bik said, in an interview with the Wall Street Journal, that specific western blot images supporting SAVA’s Alzheimer’s drug appear to be photoshopped, along with certain other images in the published papers.

Besides the SEC, the National Institutes of Health, which funded SAVA’s drug development and trial, is also investigating the legitimacy of these data manipulation claims.

Lawsuits

Several shareholder rights law firms are currently investigating whether SAVA’s Board of Directors breached their fiduciary duties. Several class-action lawsuits have also been filed against the company, alleging that the company made false and misleading statements to the shareholders. The lawsuits allege that the company overstated its Alzheimer’s drug’s efficiency, the likelihood of the drug being approved by the FDA, thereby exaggerating its growth prospects.

POWR Ratings Reflect Bleak Prospects

SAVA has an overall F rating, which equates to Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

SAVA has a grade of F for Quality and a D for Momentum and Sentiment. The company’s negative trailing-12-month ROE is in sync with the Quality. In addition, SAVA is currently trading below its 50-day and 200-day moving averages of $54.52 and $63.08, indicating a downtrend, justifying the Momentum grade. Furthermore, analysts expect the company’s EPS to remain negative until at least next year, accounting for the Sentiment grade.

Of the 473 stocks in the F-rated Biotech industry, SAVA is ranked #468.

In total, we rate SAVA on eight different levels. We have also rated SAVA for Growth, Stability, and Value. Click here to view all SAVA ratings.

Bottom Line

SAVA has vehemently denied the allegations that it manipulated its clinical results. However, the scientific community is still divided, with several medical professionals have stated that the published images might be photoshopped. With so much uncertainty surrounding his company, I believe the stock is best avoided now.

How Does Cassava Sciences, Inc. (SAVA) Stack Up Against its Peers?

While SAVA has an F rating in our proprietary rating system, you might want to consider looking at its industry peers, Sino Biopharmaceutical Limited (SBHMY), Otsuka Holdings Co Ltd. (OTSKY), and Vertex Pharmaceuticals Incorporated (VRTX), which have an A (Strong Buy) rating.

SAVA shares were trading at $45.56 per share on Tuesday afternoon, up $0.71 (+1.58%). Year-to-date, SAVA has gained 568.04%, versus a 24.49% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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