Why Is SAVA Stock Being Shorted? Controversy Around Alzheimer's Drug

Cassava Sciences, a clinical-stage biopharmaceutical firm focused on neuroscience, has given hope to some families dealing with Alzheimer’s disease. The company has mainly been focused on Alzheimer’s research. Cassava Sciences has also been working to develop a blood test that can detect the illness.

However, speculation that Cassava Sciences might have provided false or misleading claims about its Alzheimer’s therapeutic drug has caused SAVA stock to drop. The company recently announced a key agreement with the FDA regarding some of its Phase 3 studies, which citizens are petitioning to have stopped.

Another biopharmaceutical company, Biogen, received FDA approval for an Alzheimer’s drug treatment in June.

Simufilam is Cassava Sciences’ key potential drug to treat Alzheimer’s disease. It’s designed to restore the normal shape and function of a mutating protein in the brain called filamin A, rather than treat amyloid plaques in the brain (a typical strategy for treating the disease).

In February and July 2021, Cassava Sciences released clinical trial results that seemed to show positive potential for simufilam. In July, the drug was said to have “significantly improved cognition in Alzheimer’s patients, with no safety issues.”

However, as Motley Fool noted, the studies were “open-label,” which means that doctors and patients knew who was receiving treatment. This might have led to a placebo effect. Patients’ expectations might have influenced more positive results.

In August, a citizen petition was filed with the FDA that questioned the scientific integrity of Cassava Sciences’ clinical trials. The company had an agreement with the FDA to conduct its Phase 3 trial using a Special Protocol Assessments arrangement.

Cassava Sciences quickly released a statement refuting the claims of the petition. CEO and president Remy Barbier said, “As a science company, we champion facts that can be evaluated and verified.”

A microbiologist who specializes in identifying falsified images in scientific literature, Elizabeth Bik, has investigated several of Cassava’s papers. She located issues of concern and the FDA will likely investigate the allegations of misleading statements.

According to MarketBeat, August brought an increased short interest in SAVA stock. As of Aug. 13, 5.4 million shares had short interest, which was 35 percent higher than its previous short interest total of 4 million shares.

At that point, 14.47 percent of Cassava Sciences shares were being sold short. For reference, a number above about 10 percent being sold short tends to indicate a pessimistic investor outlook. Often, if a stock has a low number of outstanding shares, or low float, as well as high short interest, it might be attractive to short squeeze investors.

While there has been considerable short interest in SAVA over the past month, that doesn't necessarily mean that the conditions are right for a short squeeze. If the stock price increases and the company still has a high level of short interest, investors could be forced to buy shares to cover themselves, which drives up the price.