Why Cassava Sciences Stock Is Sinking Today

Shares of Cassava Sciences (SAVA -2.61%) were 5.3% lower as of 11:05 a.m. ET on Monday after falling as much as 19% earlier in the morning. The decline came on the heels of the federal indictment on Friday of Hoau-Yan Wang, a former consultant to Cassava. Wang was accused of fraud related to grant applications made to the U.S. National Institutes of Health (NIH) for work on Cassava's experimental drug simufilam. These grants led to awards of roughly $16 million from the NIH between 2017 and 2021 to Wang and Cassava. What does this mean for Cassava Sciences? Cassava has revealed that some government agencies have asked for information and documents. The company cooperated with these inquiries. Cassava has not been charged with any misconduct at this point, although the biotech acknowledged in its more recent 10-K filing, "We cannot predict the outcome or impact of these ongoing matters, including whether a government agency may pursue an enforcement action against us or others." In a public statement about Wang's indictment, Cassava didn't disclose if there had been further contact with government agencies. However, the company emphasized in this statement that Wang and the medical school where he previously worked "have had no involvement in the Company's Phase 3 clinical trials of simufilam." Is Cassava Sciences stock a bad-news buy? I think investors are better off remaining on the sidelines with regard to Cassava Sciences. Even without the uncertainty associated with Wang's recent indictment, there are plenty of other biotech stocks that offer better risk-reward propositions.