The Cassava Sciences saga: short sellers, FDA 'gaming,' and the negative consequences
Cassava Sciences' situation reads like a nonfiction scientific thriller: a little-known biopharmaceutical company, a groundbreaking new drug candidate for Alzheimer's disease, and two short sellers, one with ties to Big Pharma, who have a personal stake in driving the stock price down.
Cassava's laboratory-based studies for its experimental drug, simufilam, appeared to show beneficial effects in human brains with Alzheimer's disease, a progressive brain disorder that destroys memory and thinking skills. Cassava received grants from the National Institutes of Health (NIH) and filed an investigational new drug (IND) application for simufilam with the Food and Drug Administration (FDA) after its research yielded promising results.
Cassava began a Phase 1 study in 2017 after the FDA approved the IND to assess the safety of simufilam in 24 healthy adults. It moved forward with Phase 2 clinical studies in Alzheimer's disease patients in 2019. According to Cassava, the results of the Phase 2 study showed that simufilam not only stabilized but also improved cognition in Alzheimer's patients, with no serious side effects.
For the company, things were going swimmingly. Cassava's stock hit its all-time high of $135.30 on July 28, 2021. A month later, the company announced that it had reached an agreement with the FDA for Phase 3 simufilam studies under a special protocol assessment (SPA).
According to the FDA, the SPA process allows the FDA to provide feedback on the design and size of a clinical trial or clinical study prior to its start "to determine if they adequately address scientific and regulatory requirements for a study that could support marketing approval."
The FDA's approval of the scientific and regulatory parameters of Cassava's Phase 3 studies of simufilam was a major win for the company, as it could speed up the approval process in the future. It also meant that Cassava's Phase 3 studies would be subjected to a thorough safety and efficacy review, which it continued to do in November 2021.
The citizen's petition
Jordan Thomas, a partner at law firm Labaton Sucharow at the time, filed a "whistleblower submission" with the FDA's citizen petition (CP) process in August 2021. In that submission, Thomas expressed concerns on behalf of his anonymous clients about Cassava's lab-based studies' "accuracy and integrity," implying Cassava had engaged in "scientific misconduct."
After the original submission, Thomas filed addendums that went into greater detail about how Cassava allegedly manipulated data. Thomas demanded that Cassava's clinical trials be halted while the FDA conducts an audit and that the FDA report its findings to law enforcement and regulatory authorities.
"To the best knowledge and belief of the undersigned, this petition includes all information and views on which the petition relies, and that it includes representative data and information known to the petitioner which are unfavorable to the petition," Thomas certified in the original CP, dated Aug. 18.
Nonetheless, on August 26, Labaton Sucharow released a press release revealing that Thomas' clients "also hold short positions in Cassava stock." Short selling is a strategy in which investors bet on a company's stock price falling, which the DOJ is currently investigating.
Individuals who made allegations against Cassava had a vested interest in the company's stock price falling, which is relevant to Cassava.
Short sellers
David Bredt, who was later identified as one of the Cassava short sellers, was appointed an executive partner at biotechnology investment firm MPM Capital four months before the CP was filed, in April 2021. He was to "take a leading role in helping MPM explore a range of opportunities, including those presented by new developments in the understanding of neurological dysfunction," according to MPM.
Geoffrey Pitt, a cardiologist and professor at Weill Cornell Medical College, was the other short seller. Pitt had never shorted a stock before, according to a January 2022 article in The New Yorker, but decided to do so after Thomas agreed to take their case.
Three significant events in the Cassava case occurred on November 17, 2021:
1. According to "people familiar with the matter," the Securities and Exchange Commission (SEC) is investigating claims about Cassava's research, according to the Wall Street Journal.
2. In a third addendum to the CP, Thomas revealed the short sellers' identities, as well as referencing the entire WSJ report.
3. MPM announced that Protego Biopharma, a preclinical-stage biotechnology company developing a competing Alzheimer's drug, had raised $51 million in funding. Bredt worked at Johnson & Johnson before joining MPM, and Protego is a spinoff of the company.
On Nov. 15, Cassava disclosed in a securities filing that it had received requests for "corporate information and documents" from "certain government agencies." Cassava stated in that filing that it had not been informed of any wrongdoing.
The investigation is still going on. "We intend to vigorously defend ourselves and our stakeholders against false and misleading allegations," Cassava Chief Executive Remi Barbier said of the allegations and the SEC investigation.
According to The New Yorker, Bredt and Pitt no longer have a short position in Cassava. They could, however, make millions by successfully shorting the stock. Cassava's stock price dropped by more than $2 billion the week the allegations were made public, according to the company.
Gaming the FDA
The allegations levelled against Cassava have sparked heated debate among academics and scientists, both in support of and against Cassava's research. Although it is difficult to determine the independence and integrity of all opinions, including those cited in the CP, they are all adamant that their findings are irrefutable and conclusive.
However, from the perspective of regulatory compliance, the FDA CP process is not, and has never been, the appropriate vehicle for filing allegations of scientific misconduct. The FDA's citizen participation process (CP) was established in the 1970s to allow citizens to voice their concerns about food, drugs, and FDA regulations.
In the scientific community, there are a variety of ways to express concerns about scientific misconduct. The Office of Research Integrity of the Department of Health and Human Services, as well as the Committee on Publication Ethics, are two of them.
The FDA and the Federal Trade Commission (FTC) have recently issued warnings about the prevalence of those in the pharmaceutical industry "gaming" the FDA's CP process to delay generic drug approval and competition.
"Although some citizen petitions raise genuine issues for scientific consideration, many do not and are denied as lacking merit," the FTC stated in 2018. "Answering a petition requires significant FDA resources and time, including careful consideration of the issues by appropriate FDA staff, and preparation, review, and vetting of the response across the FDA."
The practice of abusing the FDA's CP process has become so widespread that the agency issued guidance in 2019 outlining how it determines whether a petition's intent is to delay approval of a competing drug. In releasing the guidance, then-FDA Acting Commissioner Norman Sharpless said, " key area of focus in the FDA’s Drug Competition Action Plan is our work to deter brand-name drug companies from ‘gaming’ the system by taking advantage of certain rules, or exploiting loopholes, to delay competition."
Sharpless explained that one anticompetitive strategy involves drug companies submitting CPs "to delay FDA action on a generic or other abbreviated application." "While the FDA has rarely delayed specific drug approvals because of citizen petitions, there’s no doubt these shenanigans can burden the drug review process."
The FTC expressed these concerns in a 2018 comment letter to the FDA, citing previous enforcement actions resulting from similar anticompetitive tactics. The FTC also stated, "We stand ready to work closely with the FDA on citizen petition abuse and other issues that may harm competition."
When the regulatory process is abused, as was the case with Cassava, it can become a farce. For instance, many of the 218 public comments received as of Feb. 9 are snarky and nonsensical, written in the form of poetry and parodies. One was filed by the "Dewey Cheatham & Howe law firm," which is a well-known gag name.
Several comments in support of Cassava were submitted by people whose relatives have Alzheimer's disease or have died from it, pleading with the FDA to support the company. According to Compliance Week's analysis, only 11 of the 218 comments supported the shorts.
The citizen's petition was denied
The FDA denied the short sellers' petitions on Feb. 10 six months after the allegations against Cassava were filed, claiming they did not "purport to set forth all relevant factual information," as required.
The FDA stated, "We are denying your petitions to the extent that they request, through the citizen petition process, that FDA initiate an investigation" CPs can request the FDA “take or refrain from taking an administrative action,” the agency said, but “an investigation is not an administrative action, and, as your petitions implicitly acknowledge, investigations necessarily require fact finding beyond what is presented in the current administrative record.”
Its response "does not represent a decision... to take or refrain from taking any action relating to the subject matter," the FDA added.
"No government agency has accused us of any wrongdoing," Cassava CEO Barbier told Compliance Week. "No whistleblower has stepped up to corroborate any of the CP allegations, and the co-authors of the CP have not been able to produce any evidence to support their allegations." The FTC is keeping an eye on Cassava's clinical trials with Alzheimer's patients.
Thomas, who has since left Labaton Sucharow, has declined to comment further.
"My clients and I have provided extensive information and materials about Cassava Sciences to federal legislative, law enforcement, and regulatory authorities,” he told Compliance Week. “While these key stakeholders do their important work, which is likely to take more than a year, we don’t anticipate making further public comments about the case."
By fLEXI tEAM