Why Cassava Sciences Stock Dived by Almost 11% Today

Cassava Sciences (NASDAQ: SAVA) ended the week with a piece of dispiriting news. It's going to reach deep into its coffers to settle charges brought by the most important financial-markets regulator governing its affairs.

Many investors had enough of the company and sold off its stock to the point where it lost nearly 11% of its value across the Friday trading session. That was a far steeper fall than the 0.2% sag of the S&P 500 index on the day.

A $40 million settlement

Before market open, Cassava announced that it has reached agreement with the U.S. Securities and Exchange Commission (SEC) to settle allegations of negligence-based disclosures. The clinical-stage biotech is to pay $40 million in cash in the settlement, and as part of its terms is neither admitting nor denying the allegations.

The SEC had investigated Cassava's statements about a phase 2b clinical trial of simufilam it had made in 2020. This is an investigational drug aimed at treating Alzheimer's disease. It has since advanced to phase 3 testing.

That payout will put quite a dent in Cassava's finances. The company reiterated a previous forecast that, with the settlement payment, its net cash use in operations should total $80 million to $90 million in the second half of this year. It predicts it will finish calendar 2024 with cash on hand of $117 million to $127 million.

Quickly putting it in the past

Cassava also continued to pledge better oversight of its operations and communications. In its press release, it quoted recently appointed CEO Rick Barry as saying that the company "is pleased to put this matter behind us. We can now focus all of our attention on completion of the ongoing Phase 3 trials of simufilam."

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.