Cassava Plunges After Alzheimer’s Data Draws Scrutiny, Shorts

Meme Stock Cassava Tumbles After Alzheimer’s Results Questioned

Cassava Sciences Inc. plummeted 31% on Wednesday after a lawyer sought to stop studies of the biotech company’s experimental treatment for Alzheimer’s disease. 

A citizen petition from a former Securities and Exchange Commission enforcement lawyer questioned the quality and integrity of the results from the more than 20-year-old company with no products on the market. 

“As a science company, we champion facts that can be evaluated and verified,” Remi Barbier, Cassava’s chief executive officer and founder, said in a statement countering the claims in the request.

The stock has rallied more than 1,086% this year, gaining momentum on day trader enthusiasm for the space following the approval of Biogen Inc.’s Aduhelm, the first new drug approved for the brain disease in more than a decade, as well as Cassava’s own trial results.  

Cassava Plunges After Alzheimer’s Data Draws Scrutiny, Shorts

Lawyer Jordan Thomas, who litigates whistleblower cases for Labaton Sucharow, alleged that some of Cassava’s results appeared to show signs of data manipulation, which Cassava denies.

In February, Cassava said its experimental tablet, called simufilam, showed improvement in reasoning and behavior in a trial with less than 100 patients and without a control arm to gauge the impact of a placebo. 

“I’ve never heard of a Citizen’s Petition for a pre-Phase 3 drug, Especially on a drug that appears to be as safe as simufilam,” Barbier wrote in an email to Bloomberg. “We see the filing of a citizen’s petition as a technique intended to add to the pile of fear and doubt generated by their initial document.”

Cassava said Tuesday it had reached an agreement with U.S. regulators on the trial design for a much larger study which is expected to kick off this year.

The FDA says it is reviewing the petition and will respond directly to the petitioner. The agency didn’t comment on whether the trial would continue as planned. 

Short Bets

Bearish bets against the Austin, Texas-based company have risen by about $83 million over the past month and now stand at $598 million, or roughly 14% of the company’s available shares, according to S3 Partners data. 

The petition could have some valid points, said Soumit Roy, an analyst with JonesTrading who has the highest price target on Wall Street at $215. But it is also potentially “over-interpreted with excessive digital analysis of figures published 15+ years ago in [a] few instances,” he said in a note to clients.

For Mayank Mamtani, an analyst with B. Riley Securities, investors should buy Cassava shares on weakness following the petition. 

“To our knowledge, citizen petitions are commonly associated with public endorsement (or lack thereof) of drug effects from experts and medical associations, rather than from law firms representing anonymous clients without disclosing conflict of interest,” he wrote. 

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