Cassava Sciences: Is The Fraud Investigation Just Smoke...or an Actual Fire? - 7investing 7investing
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Cassava Sciences: Is The Fraud Investigation Just Smoke…or an Actual Fire?

This micro-cap biotech company is working on an innovative cure to Alzheimer's Disease but is surrounded by controversy. Is it worth the risk for investors?

July 1, 2024

Cassava Sciences (Nasdaq: SAVA), the independently-owned biotech company who’s developing a cutting-edge cure for Alzheimer’s Disease, continues to be mired in controversy.

Dr. Hoau-Yan Wang, who did much of the early-stage clinical work for Cassava, is now under investigation by the DOJ for fraud. The DOJ is alleging that he falsified data in his lab notebooks and official reports that led to $16 million in NIH grants.

For the time being, this is only an investigation and there hasn’t been a conviction. It’s also worth noting that this investigation applies to Dr Wang and not to Cassava as a company.

But if things do turn sour, the natural next question will be whether Wang also falsified data for Cassava’s clinical trial of simufilam as well. And if he did, that could potentially nullify all of the work that’s been completed and all of the data that’s been reported thus far.


It’s becoming very hard to tell whether this smoke actually indicates a fire, as we’ve seen an unsettling number of allegations like this in the past.

That has included a high-profile piece written by the New York Times that questioned Cassava’s scientific effectiveness. It’s included Johnson & Johnson scientist Dr David Brett publicly dismissing Cassava’s research and then personally creating a firm to short the stock.

The DOJ is obviously a formal authority and this is not an investigation that should be taken lightly. Yet Cassava has also tirelessly found itself in the crosshairs of short sellers campaigns through its existence as a publicly-traded enterprise. This is largely due to its micro-cap valuation (currently just $560 million) and the ease of using fear, uncertainty, and doubt to influence the emotions of its retail investors.

It feels like there’s constantly either excessive optimism or pessimism engulfing the company. Cassava’s stock price has ranged from $1 per share to $135 per share during the past five years.

The Signal Vs the Noise

But none of that really matters.

What does really matter, at least for investors, is whether Cassava’s Phase 3, fully-enrolled clinical trial for simufilam will show statistically-significant improvements in the cognition scores of both mild and moderate Alzheimer’s patients.

If the drug ultimately gets approved, Cassava will almost certainly be a multibagger for investors. Alzheimer’s affects more than 6 million people in the US every year and our country is spending $321 billion annually to treat it. If the FDA gives its blessing and acknowledges that Cassava truly came up with an innovative cure, its stock price will go parabolic.

However, investors should also consider the downside scenario as well. If Wang’s data provided for Cassava is proven to be fraudulent or if the simufilam trial turns out to be a bust, Cassava will likely become worthless (or nearly worthless). There are no other research programs in the pipeline, so the stock could fall all the way to zero.

The 7investing Key Takeaway

Investing is personal, and there’s a case to be made for Cassava being either a Strong Buy or a Strong Sell. Yet in my objective opinion, I believe maintaining a small allocation in Cassava due to its incredible potential upside remains a prudent investment decision.

We’ll watch to see how hot simufilam’s results are. And hopefully not get burned in the process.

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