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 sellersĀ
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