Cassava Biosciences (NASDAQ:SAVA) stock is tumbling 30% in pre-market trading after Reuters reported today that the Justice Department has launched a criminal probe of the company. The news service cited two unnamed individuals as its sources for the article.
The Allegations and Cassava’s Denial
The investigation will focus on allegations that the firm “manipulated research results for its experimental Alzheimer’s drug,” according to Reuters.
Cassava “vehemently denies any and all allegations of wrongdoing,” a lawyer for the company stated. The same lawyer “neither confirmed nor denied the existence of the Justice Department criminal probe.”
A Very Controversial Drug
Cassava’s drug, simufilam, which the company says is a potential treatment for Alzheimer’s, has been harshly criticized by many experts and commentators.
In April, I wrote that “nine experts” told The New York Times that “there are no outside studies which indicate that simufilam could positively impact Alzheimer’s patients” through the mechanism of action that Cassava has identified. Moreover, Cassava’s concepts are “implausible and contrived.” The newspaper quoted Dr. Thomas Südhof, a Stanford-based neuroscientist, as saying.
Also importantly, multiple scientific journals have retracted studies on Alzheimer’s produced by the company’s key research partner, Hoau-Yan Wang, a medical professor at the City University of New York (CUNY).
SAVA Stock: Explosive Charges by a Short Seller
In November 2021, I noted that a short selling firm called “Quintessential Capital, which [was] shorting SAVA stock” had issued “a very disturbing new report” about Cassava and the clinical trials of simufilam.
According to Quintessential, Cassava altered subjects’ “initial cognitive scores” and excluded individuals from participating in studies without giving valid reasons for doing so. All while the company directly selected all the subjects used in the trials of its drug. Additionally, Quintessential alleged that a number of trials of simufilam were supervised by multiple people who had been accused of serious improprieties in the past.
After reading about the charges, I wrote that “until the company refutes most or all of the allegations contained in the report, I believe that it’s too risky to hold more than a very small amount of Cassava’s shares.”
In late April 2022, after The Times article was published, despite my earlier bullishness on Cassava, I sold all of my shares of SAVA stock and was urging everyone else to do the same.
I concluded my column by warning that “the unusual nature of the scientists’ charges against Cassava, along with the disturbing report by short seller Quintessential Capital last year, make SAVA stock far too risky for any investor to own.”
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.