(Reuters) — The U.S. Justice Department has opened a criminal investigation into Cassava Sciences Inc. involving whether the biotech company tampered with research results for its experimental Alzheimer’s drug, two people familiar with the investigation said.
Justice Department personnel conducting the investigation into Cassava in Austin, Texas, specialize in investigating whether companies or individuals have misled or defrauded investors, government agencies or consumers, according to the sources, who spoke on condition of anonymity. The sources did not provide details on the probe’s focus and whether the department was investigating any specific individuals.
As with any Justice Department investigation, this one could lead to criminal charges or be closed without charges.
In an email, Kate Watson Moss, an attorney representing Cassava, neither confirmed nor denied the existence of the Justice Department̵
7;s criminal investigation.“To be clear: Cassava Sciences vehemently denies any allegations of wrongdoing,” Watson Moss said, adding that the company “has never been accused of a crime, and for good reason — Cassava Sciences has never engaged in criminal conduct.”
Watson Moss added that Cassava Sciences has received confidential requests for information from government agencies, but declined to identify those agencies. Watson Moss said that “Cassava Sciences has provided information in response to these requests in full satisfaction of its legal obligations.” Watson Moss added that no government agency has accused the company of wrongdoing.
A Justice Department spokesperson declined to comment.
The company already faced scrutiny from the US Securities and Exchange Commission and investors after two doctors outside of Cassava last year made allegations of data manipulation and misrepresentation involving research supporting the company’s Alzheimer’s drug, called Simufilam.
Cassava, a small company with about two dozen employees, in a statement last year called the allegations of data manipulation and misrepresentation “false and misleading.”
Cassava on its website describes simufilam as a “brand new approach” to treating Alzheimer’s, the most common form of dementia and a progressive brain disease that affects nearly 6 million Americans. The oral medication restores the normal form and function of a key protein in the brain, the company said.
A petition to the FDA
The criminal investigation began, according to the sources, sometime after a petition was filed in August 2021 with the US Food and Drug Administration by a lawyer on behalf of two doctors who asked the agency to halt clinical trials of simufilam. The doctors are David Bredt, a neuroscientist formerly at Johnson & Johnson’s Janssen, and Geoffrey Pitt, a cardiologist who serves as director of Weill Cornell Medicine’s Cardiovascular Research Institute in New York.
The petition, filed by Jordan Thomas, a New York-based attorney representing both doctors, said Cassava’s published studies on clinical trials involving simufilam in various journals contained incorrect data and images of experiments that appeared to have been manipulated by photo-editing software. The FDA denied the petition and allowed the trials to continue.
Mr. Bredt and Mr. Pitt revealed last November in an article published by The Wall Street Journal that they shorted Cassava’s stock, betting that the price would drop when investors learned of the manipulation they alleged. They later told The New Yorker magazine that they no longer have a short position in Cassava, a claim that Reuters could not independently verify.
the short sale represents “a major conflict of interest,” Watson Moss said in a statement to Reuters.
“Cassava Sciences is interested in helping those with Alzheimer’s disease, not an easy payday,” added Watson Moss.
Stock drop
Cassava’s stock fell sharply after the petition filed with the FDA by Mr. Thomas, which means an opportunity for Mr. Broad and Mr. Pitt to profit from his venture against the company.
Thomas declined to comment on the matter.
The FDA in February said the so-called citizen petition filed by the two doctors urging it to open an investigation into simufilam was not an appropriate avenue for such a request. Requests for FDA to initiate an enforcement action are “expressly excluded from the scope of FDA’s citizen petition procedures,” the agency said, adding that it exercises its own discretion in such matters.
An FDA spokesman declined to comment.
Cassava shares rose on the Nasdaq from around $7 in January 2021 to over $135 in July 2021 on investor hopes that the company was on the verge of a breakthrough in the treatment of Alzheimer’s. The stock fell weeks later after word of the petition questioning Cassava’s research findings.
The company’s shares closed at $21.72 on Tuesday.
Cassava has received more than $20 million from the US National Institutes of Health to support the development of simufilam.
The NIH told Reuters that it does not discuss potential cases of research misconduct in connection with grants, but that officials “take research misconduct very seriously. Research misconduct can distort NIH’s funding decisions, the overall integrity of the research we support, and the public’s trust in science and resulting results.”
Cassava is also facing the SEC investigation, the sources said. The Wall Street Journal last November first reported on the SEC probe, saying the agency was looking into the allegations in the FDA petition. Reuters was unable to determine which specific claims, if any, received the agency’s review.
An SEC spokesperson said the agency “does not comment on the existence or non-existence of a possible investigation.”
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