Case 1:21-cv-00751-DAE Document 81 Filed 10/25/22 Page 1 of 127
`
`IN THE UNITED STATES DISTRICT COURT
`WESTERN DISTRICT OF TEXAS
`AUSTIN DIVISION
`
`§
`§
`§
`§
`§
`§
`§
`§
`§
`§
`
`IN RE CASSAVA SCIENCES, INC.
`SECURITIES LITIGATION
`
`
`
`
`
`
`This Document Relates To:
`
`
`
`ALL ACTIONS.
`
`
`
`
`
`Master File No. 1:21-cv-00751-DAE
`
`CLASS ACTION
`
`MOTION TO DISMISS PLAINTIFFS’ CONSOLIDATED
`COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
`
`Claudia Wilson Frost
`State Bar No. 21671300
`ORRICK, HERRINGTON & SUTCLIFFE LLP
`609 Main Street, 40th Floor
`Houston, Texas 77002-3106
`Telephone: (713) 658-6460
`Facsimile: 713.658.6401
`cfrost@orrick.com
`
`James N. Kramer (admitted pro hac vice)
`Alexander Talarides (admitted pro hac vice)
`ORRICK, HERRINGTON & SUTCLIFFE LLP
`The Orrick Building
`405 Howard Street
`San Francisco, California 94105-2669
`Telephone: (415) 773-5700
`Facsimile: 415.773.5759
`jkramer@orrick.com
`atalarides@orrick.com
`
`William J. Foley (admitted pro hac vice)
`ORRICK, HERRINGTON & SUTCLIFFE LLP
`51 West 52nd Street
`New York, New York 10019
`Telephone: (212) 506-5000
`Facsimile: 212.506.5151
`wfoley@orrick.com
`Attorneys for Defendants
`
`
`
`
`
`
`
`

`

`Case 1:21-cv-00751-DAE Document 81 Filed 10/25/22 Page 2 of 127
`
`TABLE OF CONTENTS
`
`
`Page
`
`
`I.
`II.
`
`III.
`
`D.
`
`E.
`
`INTRODUCTION ............................................................................................................. 1
`FACTUAL BACKGROUND ............................................................................................ 3
`A.
`The Parties ............................................................................................................. 3
`B.
`The Development Of Simufilam ............................................................................ 3
`C.
`The Short-Seller Attacks ........................................................................................ 6
`D.
`Government Inquiries ............................................................................................ 7
`E.
`Media Reporting Concerning The Citizen Petitions .............................................. 8
`F.
`Journal Findings And Ongoing CUNY Investigation ............................................ 8
`G.
`The Complaint ..................................................................................................... 10
`ARGUMENT ................................................................................................................... 10
`A.
`The Rigorous Pleading Standards Governing This Securities Fraud Action ....... 10
`B.
`The Complaint Is A Classic Example Of Improper Puzzle Pleading .................. 12
`C.
`Plaintiffs Have Not Alleged An Actionable Misstatement Or Omission ............ 13
`1.
`There Is No Duty To Disclose Uncharged, Unadjudicated
`Wrongdoing, And The PSLRA Prohibits Plaintiffs From Relying
`On Allegations About Other Allegations And Speculative “Expert”
`Opinions To Plead Securities Fraud ........................................................ 13
`a.
`Allegedly Manipulated Data in Journal Submissions .................. 15
`b.
`Alleged “Pattern” Of Data Manipulation ..................................... 17
`c.
`Allegedly Manipulated Phase 2 Results ...................................... 18
`Several Of The Challenged Statements Are Undisputedly True
`And Not In Any Way False Or Misleading ............................................. 19
`Plaintiffs Have Failed To Allege Particularized Facts Demonstrating A
`Strong Inference Of Scienter ............................................................................... 22
`1.
`Plaintiffs Have Not Alleged Specific Facts Creating A Strong
`Inference Of Conscious Misbehavior Or Recklessness ........................... 22
`Plaintiffs’ Allegations Regarding Motive Do Not Support An
`Inference Of Scienter ............................................................................... 24
`Generalized And Group Pleading Provides No Basis For Scienter
`And Fails To Meet The Fifth Circuit’s Rigorous Requirements For
`Pleading Fraud ......................................................................................... 27
`The Complaint Does Not Adequately Allege Loss Causation ............................. 29
`
`2.
`
`2.
`
`3.
`
`
`
`i
`
`

`

`Case 1:21-cv-00751-DAE Document 81 Filed 10/25/22 Page 3 of 127
`
`TABLE OF CONTENTS
`(continued)
`
`Page
`
`
`
`IV.
`
`1.
`
`The Alleged “Corrective Disclosures” Are Merely Accusations;
`They Do Not Reveal Any “Pertinent Truth” Regarding
`Defendants’ Prior Statements. ................................................................. 30
`New Commentary Or Detail On Already Public Information Is Not
`“Corrective” ............................................................................................. 34
`Plaintiffs Have Failed To State A Section 20(a) Violation .................................. 35
`F.
`CONCLUSION ................................................................................................................ 35
`
`2.
`
`
`
`
`
`ii
`
`
`
`

`

`Case 1:21-cv-00751-DAE Document 81 Filed 10/25/22 Page 4 of 127
`
`
`
`Cases
`
`TABLE OF AUTHORITIES
`
`Page(s)
`
`ABC Arbitrage Pls. Grp. v. Tchuruk,
`291 F.3d 336 (5th Cir. 2002) ...................................................................................................11
`
`Abrams v. Baker Hughes Inc.,
`292 F.3d 424 (5th Cir. 2002) .................................................................................22, 25, 26, 28
`
`In re Alamosa Holdings, Inc. Sec. Litig.,
`382 F. Supp. 2d 832 (N.D. Tex. 2005) ..............................................................................12, 13
`
`In re All Am. Pipeline, LP Sec. Litig.,
`245 F. Supp. 3d 870 (S.D. Tex. 2017) ...............................................................................27, 35
`
`In re AOL Time Warner, Inc. Sec. Litig.,
`503 F. Supp. 2d 666 (S.D.N.Y. 2007) ......................................................................................35
`
`Applestein v. Medivation, Inc.,
`561 F. App’x 598 (9th Cir. 2014) ............................................................................................15
`
`Archdiocese of Milwaukee Supporting Fund, Inc. v. Halliburton Co.,
`597 F.3d 330 (5th Cir. 2010), rev’d on other grounds, 563 U.S. 804 (2011) ..............29, 30, 35
`
`Ashcroft v. Iqbal,
`556 U.S. 662 (2009) .................................................................................................................10
`
`Carlton v. Cannon,
`184 F. Supp. 3d 428 (S.D. Tex. 2016) .....................................................................................27
`
`Catogas v. Cyberonics, Inc.,
`292 F. App’x 311 (5th Cir. 2008) ..........................................................................30, 32, 34, 35
`
`In re Dell, Inc. Sec. Litig.,
`591 F. Supp. 2d 877 (W.D. Tex. 2008) ..............................................................................24, 32
`
`Dura Pharms., Inc. v. Broudo,
`544 U.S. 336 (2005) .....................................................................................................29, 31, 35
`
`Emps.’ Ret. Sys. v. Whole Foods Mkt., Inc.,
`905 F.3d 892 (5th Cir. 2018) .............................................................................................30, 34
`
`Ernst & Ernst v. Hochfelder,
`425 U.S. 185 (1976) .................................................................................................................11
`
`Fin. Acquisition Partners LP v. Blackwell,
`440 F.3d 278 (5th Cir. 2006) .................................................................................14, 23, 24, 28
`
`
`
`iii
`
`

`

`Case 1:21-cv-00751-DAE Document 81 Filed 10/25/22 Page 5 of 127
`
`
`
`Flaherty & Crumrine Preferred Income Fund, Inc. v. TXU Corp.,
`565 F.3d 200 (5th Cir. 2009) .......................................................................................11, 25, 26
`
`Heinze v. Tesco Corp.,
`971 F.3d 475 (5th Cir. 2020) ...................................................................................................11
`
`Ind. Elec. Workers’ Pension Tr. Fund IBEW v. Shaw Grp., Inc.,
`537 F.3d 527 (5th Cir. 2008) .............................................................................................11, 27
`
`In re Inv. Tech. Grp., Inc. Sec. Litig.,
`251 F. Supp. 3d 596 (S.D.N.Y. 2017) ......................................................................................20
`
`Janbay v. Canadian Solar, Inc.,
`2012 WL 1080306 (S.D.N.Y. Mar. 30, 2012) ...................................................................29, 35
`
`In re KBR, Inc. Sec. Litig.,
`2018 WL 4208681 (S.D. Tex. Aug. 31, 2018) ......................................................14, 17, 18, 21
`
`In re Key Energy Services, Inc. Sec. Litig.,
`166 F. Supp. 3d 822 (S.D. Tex. 2016) ...............................................................................14, 17
`
`Lentell v. Merrill Lynch & Co.,
`396 F.3d 161 (2d Cir. 2005).....................................................................................................29
`
`In re Lions Gate Ent. Corp. Sec. Litig.,
`165 F. Supp. 3d 1 (S.D.N.Y. 2016)..........................................................................................21
`
`Local 731 I.B. of T. Excavators & Pavers Pension Tr. Fund v. Diodes, Inc.,
`810 F.3d 951 (5th Cir. 2016) .............................................................................................22, 27
`
`Lormand v. US Unwired, Inc.,
`565 F.3d 228 (5th Cir. 2009) ...................................................................................................29
`
`Metzler Inv. GMBH v. Corinthian Colls., Inc.,
`540 F.3d 1049 (9th Cir. 2008) .................................................................................................31
`
`Meyer v. Greene,
`710 F. 3d 1189 (11th Cir. 2013) ........................................................................................32, 33
`
`In re Molycorp, Inc. Sec. Litig.,
`2015 WL 1540523 (D. Colo. Mar. 31, 2015) ..........................................................................15
`
`Mun. Emps.’ Ret. Sys. of Michigan v. Pier 1 Imps., Inc.,
`935 F.3d 424 (5th Cir. 2019) ...................................................................................................24
`
`Nat’l Junior Baseball League v. Pharmanet Dev. Grp. Inc.,
`720 F. Supp. 2d 517 (D.N.J. 2010) ..........................................................................................35
`
`iv
`
`

`

`Case 1:21-cv-00751-DAE Document 81 Filed 10/25/22 Page 6 of 127
`
`
`
`In re Omnicom Grp., Inc. Sec. Litig.,
`541 F. Supp. 2d 546 (S.D.N.Y. 2008) ......................................................................................35
`
`Parker v. Hyperdynamics Corp.,
`126 F. Supp. 3d 830 (S.D. Tex. 2015) ............................................................................. passim
`
`Plotkin v. IP Axess Inc.,
`407 F.3d 690 (5th Cir. 2005) .............................................................................................11, 12
`
`Primo v. Pacific Biosciences of California, Inc.,
`940 F. Supp. 2d 1105 (N.D. Cal. 2013) ...................................................................................13
`
`Pub. Emps. Ret. Sys. of Mississippi, Puerto Rico Tchrs. Ret. Sys. v. Amedisys, Inc.,
`769 F.3d 313 (5th Cir. 2014) .............................................................................................30, 33
`
`Rosenzweig v. Azurix Corp.,
`332 F.3d 854 (5th Cir. 2003) ........................................................................................... passim
`
`Sgarlata v. PayPal Holdings, Inc.,
`409 F. Supp. 3d 846 (N.D. Cal. 2019), aff’d, 831 F. App’x 366 (9th Cir. 2020) ....................15
`
`Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc.,
`552 U.S. 148 (2008) .................................................................................................................11
`
`Tellabs, Inc. v. Makor Issues & Rights, Ltd.,
`551 U.S. 308 (2007) ...........................................................................................................22, 23
`
`Weiss v. Amkor Tech., Inc.,
`527 F. Supp. 2d 938 (D. Ariz. 2007) .......................................................................................24
`
`Statutes
`
`15 U.S.C. § 78u–4(b)(1) ..........................................................................................................11, 12
`15 U.S.C. § 78u-4(b)(1) .................................................................................................................11
`15 U.S.C. § 78u-4(b)(2) .................................................................................................................11
`15 U.S.C. § 78u-4(b)(4) .................................................................................................................29
`17 C.F.R. § 240.10b-5 ..............................................................................................................10, 11
`21 C.F.R. § 10.30 .............................................................................................................................6
`
`Rules
`
`Fed. R. Civ. P. Rule 9(b) ..........................................................................................................10, 25
`Fed. R. Civ. P. Rule 10(b) ..................................................................................................10, 11, 35
`Fed. R. Civ. P. Rule 12(b)(6) .........................................................................................................10
`
`
`v
`
`

`

`Case 1:21-cv-00751-DAE Document 81 Filed 10/25/22 Page 7 of 127
`
`
`
`I.
`
`INTRODUCTION
`
`This securities fraud action was filed on the heels of a “Citizen Petition” alleging that
`
`Cassava Sciences, Inc. (“Cassava” or the “Company”) committed research misconduct and fraud.
`
`The Citizen Petition and its subsequently filed supplements (together, “Citizen Petitions”) are
`
`strategic reports that were authored and widely publicized for the personal financial benefit of
`
`“short sellers.”1 The Citizen Petitions were drafted by two highly conflicted market players with
`
`an admitted financial interest in destroying the value of Cassava’s stock price and are based on
`
`rank speculation, rumors and maliciously false characterizations of Cassava’s research.2
`
`Plaintiffs’ Consolidated Complaint (“CC” or “Complaint”) uncritically assumes the factual
`
`accuracy of these and related accusations to claim that Cassava and its personnel defrauded
`
`investors for years by making public statements that concealed “rampant data manipulation and
`
`significant anomalies” in Cassava’s research. But the Citizen Petition’s allegations are just that—
`
`allegations. They are unproven and remain stoutly contested by Cassava and uncorroborated by
`
`even a single witness. The “facts” underlying Plaintiffs’ theory of fraud are not facts at all and
`
`cannot be blindly relied on to plead a securities claim. That, alone, compels dismissal of this
`
`action. But it also must be dismissed for a host of other reasons.
`
`First, the Complaint violates basic pleading rules. Rather than (1) identifying the specific
`
`statements Plaintiffs believe were false, and (2) explaining why those statements are misleading,
`
`the Complaint includes dozens of confusing paragraphs quoting Cassava’s public statements and
`
`summarily claims that these statements must have been false by referencing a list of fifteen or
`
`
`1 “Short sellers” are market participants who have made a financial wager that a company’s
`security price will fall.
`2 The authors of the Citizen Petitions made numerous, wild allegations about Cassava and the U.S.
`Food and Drug Administration (“FDA”) subsequently denied the Petitions in their entirety.
`
`
`
`

`

`Case 1:21-cv-00751-DAE Document 81 Filed 10/25/22 Page 8 of 127
`
`
`
`more supposed “facts.” This tactic is known as “puzzle pleading,” and it is entirely inadequate
`
`under the stringent pleading standards applicable to this case.
`
`Second, Plaintiffs have failed to plead an actionable misstatement or omission. Their
`
`theory of fraud runs contrary to the well-settled principle that there is no duty to “confess” to
`
`unadjudicated allegations of wrongdoing. Defendants appropriately disclosed the existence of the
`
`Citizen Petitions and related regulatory investigations, but they cannot be liable for failing to issue
`
`a public confession to contested and unadjudicated accusations. Additionally, the balance of the
`
`“misstatements” alleged in the Complaint were unambiguously not false when made.
`
`Third, Plaintiffs fall far short of pleading the requisite “strong inference” of scienter. The
`
`federal securities laws require Plaintiffs to allege specific facts creating a powerful inference that
`
`Defendants acted with, at a minimum, deliberate recklessness—a state of mind that strongly
`
`suggests actual intent to mislead. The Complaint is devoid of factual allegations indicating any
`
`individual Defendant’s state of mind. Rather, it relies entirely on the unsubstantiated allegations
`
`in the Citizen Petitions to claim that Defendants “must have known” that their positive statements
`
`about Cassava’s investigational drug, called “simufilam,” and the Company’s peer-reviewed
`
`research were incorrect. Nor have Plaintiffs adequately alleged a motive to commit fraud. There
`
`is no dispute that the individual Defendants, all significant stockholders in Cassava, did not sell a
`
`single share of Cassava stock throughout the class period. See, e.g., Rosenzweig v. Azurix Corp.,
`
`332 F.3d 854, 867 (5th Cir. 2003) (where “there is no allegation that defendants sold their . . .
`
`shares,” it “call[s] into question the alleged motive to artificially inflate the stock price”).
`
`Fourth, Plaintiffs have failed to plead loss causation. The “corrective disclosures” alleged
`
`in the Complaint do not, as they must, “reveal the truth” of a previously false or misleading
`
`statement. Rather, these disclosures are nothing more than accusations of unadjudicated
`
`2
`
`

`

`Case 1:21-cv-00751-DAE Document 81 Filed 10/25/22 Page 9 of 127
`
`
`
`wrongdoing (e.g., the Citizen Petitions), which cannot support loss causation as a matter of law.
`
`Additionally, most of the alleged corrective disclosures do not reveal any new information; they
`
`only provide additional commentary on the allegations set out in the initial Citizen Petition.
`
`For these and other reasons discussed below, the Complaint should be dismissed.
`
`II.
`
`FACTUAL BACKGROUND
`
`A.
`
`The Parties
`
`Cassava is a clinical stage biopharmaceutical company focused on developing medicines
`
`for people with debilitating neurodegenerative conditions. CC ¶¶ 56, 297. Its investigational drug,
`
`simufilam, is a novel treatment for people with Alzheimer’s disease and is currently in late-stage
`
`Phase 3 clinical testing. Id. ¶¶ 80, 302 n.8.3 Cassava is also working to develop SavaDx, an
`
`investigational diagnostic to detect Alzheimer’s disease from a small sample of blood. Id. ¶ 80.
`
`Defendant Remi Barbier is Cassava’s President, Chief Executive Officer and Chairman of
`
`the board of directors. Id. ¶ 59. Defendant Lindsay Burns, Ph.D. serves as Cassava’s Senior Vice
`
`President of Neuroscience, a leader of Cassava’s research team. Id. ¶ 61. Defendant Nadav
`
`Friedmann, Ph.D., M.D., is Cassava’s Chief Medical Officer and a member of its board of
`
`directors. Id. ¶¶ 64-65. Defendant Eric Schoen is Cassava’s Chief Financial Officer. Id. ¶ 67.
`
`B.
`
`The Development Of Simufilam
`
`Simufilam uniquely targets an altered form of a scaffolding protein known as filamin A
`
`(“FLNA”), which is present in people with Alzheimer’s disease. Id. ¶¶ 83-84. It is believed that
`
`simufilam reverts FLNA back to its normal conformation. Id. Cassava’s thesis is that simufilam’s
`
`action in the brain may slow the course of Alzheimer’s disease. Id. ¶ 304. Over the last ten years,
`
`
`3 Alzheimer’s disease is the sixth leading cause of deaths in adults and afflicts tens of millions of
`people worldwide. CC ¶ 81. There is no cure for Alzheimer’s disease and to date almost all
`investigational drug treatments have failed. Id.
`
`3
`
`

`

`Case 1:21-cv-00751-DAE Document 81 Filed 10/25/22 Page 10 of 127
`
`
`
`Cassava’s development of simufilam has progressed steadily and successfully through preclinical
`
`stages and clinical trials. Id. ¶¶ 87-89, 95, 297.
`
`In 2008, Dr. Burns and Cassava’s academic adviser, Dr. Hoau-Yan Wang, published
`
`foundational research on FLNA.4 This basic research subsequently led to the discovery of
`
`simufilam in approximately 2011. Id. ¶ 86. Between 2011 and 2017, Cassava engaged in pre-
`
`clinical testing of simufilam in animal models, which resulted in findings of “dramatic
`
`improvements in brain health.” Id. ¶ 87. Drs. Burns and Wang’s findings were accepted for
`
`publication in peer-reviewed scientific journals. Id.
`
`In 2017, the FDA accepted Cassava’s Investigational New Drug application, which enabled
`
`the Company to begin testing simufilam in humans. Id. ¶ 88. From 2017 through 2019, Cassava
`
`proceeded through Phase 1 and Phase 2a clinical studies successfully, receiving scientific and
`
`financial support from the National Institutes of Health (“NIH”). Id. In late 2019, Cassava
`
`initiated a Phase 2b clinical study, a placebo-controlled, blinded trial. Id. ¶ 89. The initial
`
`bioanalysis of cerebrospinal fluid (“CSF”) for this study was conducted by a lab at Lund University
`
`in Sweden in April and May 2020. Id. ¶ 94. Lund University generated an anomalous data set in
`
`which, among several other issues, biochemical indicators for the presence of Alzheimer’s disease
`
`moved in opposite directions over a 30-day period in patients who received placebo, including in
`
`the same patients. Id. ¶¶ 94, 304. This anomalous data therefore suggested (implausibly) that
`
`Alzheimer’s disease in patients who took placebo was both worsening and improving at the same
`
`time in the same patient, which is a significant departure from expected clinical patterns. Id. ¶¶
`
`94, 96, 304. Critically, the initial Phase 2b data did not demonstrate poor results; rather the data
`
`
`4 Dr. Wang, an Associate Medical Professor at the City University of New York Medical School
`(“CUNY”), is a co-inventor of simufilam, a science consultant to Cassava, and a member of its
`scientific advisory board. CC ¶ 57.
`
`4
`
`

`

`Case 1:21-cv-00751-DAE Document 81 Filed 10/25/22 Page 11 of 127
`
`
`
`was anomalous and uninterpretable, apparently due to laboratory or human error. Id. Accordingly,
`
`Cassava timely disclosed the anomalous results from Lund University and notified its shareholders
`
`that back-up samples would be analyzed at a different lab. Id. ¶¶ 268-70, 304. Cassava later
`
`requested that Dr. Wang’s lab at CUNY conduct a bioanalysis on the back-up CSF patient samples
`
`from the Phase 2b study. Id. ¶¶ 95, 304. In order to eliminate bias, at all relevant times, Dr. Wang
`
`remained “blinded” to the experiment—i.e., he did not know whether the samples he was analyzing
`
`were from patients who took simufilam or who took the placebo, or if the samples were from Day
`
`1 or Day 30. Id. ¶ 304.
`
`The final results of the Phase 2b testing were promising. There was no pattern of anomalies
`
`in the placebo data and, more importantly, Dr. Wang’s bioanalysis demonstrated a significant
`
`reduction of indicators of Alzheimer’s disease in patients who took simufilam versus placebo,
`
`consistent with previous studies of simufilam. Id. ¶¶ 97, 304. Additionally, Dr. Wang’s
`
`bioanalysis of CSF samples was corroborated by a bioanalysis of plasma (blood) samples
`
`performed by Quanterix Corporation, an independent external lab. Id. ¶ 16, 317. In other words,
`
`two separate parties generated matching data from two separate biological indicators (i.e., brain
`
`fluid and blood), which is key to the validation of a scientific process. Id. ¶¶ 93, 97; see also id.
`
`¶¶ 16, 317. On February 2, 2021, these findings were supported by interim results from an open-
`
`label extension study.5 These results showed that the first fifty patients, including patients
`
`recruited into the open-label study from the Phase 2b trial, who completed at least six months of
`
`simufilam treatment experienced improved cognition scores with no safety issues. Id. ¶ 289.
`
`
`5 An open-label study is one in which both the researchers and the study-participants know which
`treatment the patient is receiving.
`
`5
`
`

`

`Case 1:21-cv-00751-DAE Document 81 Filed 10/25/22 Page 12 of 127
`
`
`
`In February 2021, Cassava’s successful completion of its Phase 1 and 2 clinical studies
`
`resulted in the FDA green-lighting Cassava to conduct randomized, placebo-controlled Phase 3
`
`trials of simufilam in people with Alzheimer’s disease. Id. ¶ 297. These Phase 3 trials are currently
`
`ongoing.
`
`C.
`
`The Short-Seller Attacks
`
`Following the announcement of the Phase 3 trials, Cassava’s stock price rose to a high of
`
`$146 per share on July 29, 2021, eclipsing $5 billion in market value. Id. ¶ 6. Less than a month
`
`later, two highly conflicted individuals anonymously filed a Citizen Petition with the FDA
`
`accusing Drs. Burns and Wang of research misconduct and data manipulation. Id. ¶ 105.
`
`The Citizen Petition, which was filed on August 18, 20216 by an attorney7 acting on behalf
`
`of his anonymous clients, scientist David Bredt and his long-time friend Geoffrey Pitt, requested
`
`that the FDA “halt” any future Phase 3 trials of simufilam over allegations that “a series of
`
`anomalies” in Cassava’s published research “strongly suggests systematic data manipulation.” Id.
`
`¶¶ 105, 117; Ex. 1 (Citizen Petition) at 1-2. Bredt and Pitt did not disclose in the Citizen Petition,
`
`as they were required to do under FDA regulations,8 their massive conflicts of interest, including
`
`that they both held “short” positions in Cassava’s stock and thus would reap huge profits if
`
`Cassava’s stock price declined. See id.9 Instead, they waited eight days to disclose those
`
`
`6 The Citizen Petition became public on August 24, 2021. CC ¶ 12.
`7 This attorney, Jordan A. Thomas, was a partner at Labaton Sucharow at the time, a law firm that
`specializes in filing securities lawsuits after stock price drops. Id. ¶ 105; see also generally
`Labaton Sucharow, https://www.labaton.com/about-us (last visited Oct. 19, 2022).
`8 See 21 C.F.R. 10.30 (requiring petitioner to certify that the “petition . . . includes representative
`data and information known to the petitioner which are unfavorable to the petition.”).
`9 Short selling occurs when a market participant borrows and sells a stock on the market and
`repurchases the same stock later, hoping to profit from a decline in the price. A short-seller attack,
`known as a “short and distort” scheme, refers to an unethical and illegal practice that involves
`investors shorting a stock and then spreading rumors in an attempt to drive down its price.
`
`6
`
`

`

`Case 1:21-cv-00751-DAE Document 81 Filed 10/25/22 Page 13 of 127
`
`
`
`conflicting interests in a footnote to a press release, and then only after Cassava’s stock price
`
`dropped from $114 to $71. Exs. 2 (Press Release) & 3 (Stock Price Chart).10 Between August
`
`and December 2021, Bredt and Pitt’s attorney filed four supplements to the Citizen Petition that
`
`restated their allegations of data manipulation and misconduct. CC ¶¶ 18-19, 31-32, 328, 330,
`
`380-85. Importantly, none of the allegations in the Citizen Petitions are based on evidence, first-
`
`hand knowledge or witnesses; rather, the allegations are baseless, speculative, confusing and often
`
`contradictory.11
`
`After the initial Citizen Petition was made public, a wave of other financially interested
`
`individuals, including other short sellers and a self-proclaimed expert in research misconduct,
`
`Elisabeth Bik, began publicly accusing Cassava of having engaged in potential data manipulation.
`
`See id. ¶¶ 24, 132, 135, 137-38, 375, 490. Like the authors of the Citizen Petitions, these additional
`
`public critics had no first-hand knowledge regarding the research at issue and thus their criticism
`
`was, at best, speculative, purported opinion. See, e.g., id. ¶¶ 24, 124, 135, 137, 321.
`
`D.
`
`Government Inquiries
`
`After publication of the initial Citizen Petition, the U.S. Securities and Exchange
`
`Commission (“SEC”) and U.S. Department of Justice (“DOJ”) asked Cassava “to provide them
`
`corporate information and documents.” Id. ¶¶ 5, 26. Cassava has been fully cooperating with all
`
`regulatory inquiries since August 2021. To date, no government agency has pursued an
`
`enforcement action against Cassava or made any determination that the Company or its personnel
`
`
`10 Bredt and Pitt did not disclose their short-seller status until after market closing on August 26,
`2021. See Ex. 2.
`11 The Citizen Petition focuses broadly on two key allegations. First, it claims that the Western
`blot analyses published in journal articles used to support simufilam’s connection to Alzheimer’s
`disease are “strongly suggestive of systematic data manipulation and misrepresentation.” CC ¶
`107. Second, it claims that Cassava’s presentation of Phase 2b clinical biomarker data shows
`“signs of data anomalies or manipulation.” Id. Cassava has consistently denied these
`allegations—as of today, these allegations are unproven and contested. Id. ¶¶ 26, 369, 436.
`
`7
`
`

`

`Case 1:21-cv-00751-DAE Document 81 Filed 10/25/22 Page 14 of 127
`
`
`
`have engaged in any wrongdoing. Id. ¶ 5. On February 10, 2022, the FDA denied the Citizen
`
`Petitions, stating that “[r]equests for the [FDA] to initiate enforcement action and related
`
`regulatory action are expressly excluded from the scope of FDA’s citizen petition procedures.”
`
`Ex. 4 (FDA Response Letter to Citizen Petition) at 3; see also CC ¶ 411.
`
`E. Media Reporting Concerning The Citizen Petitions
`
`On November 17, 2021, the Wall Street Journal published a story concerning the
`
`allegations in the Citizen Petitions (which, for the first time, revealed the identities of Bredt and
`
`Pitt) and interviewed several other scientists about the accusations against Cassava. See CC ¶¶ 22,
`
`369-70. Later, on April 18, 2022, the New York Times published a similar article, interviewing
`
`many of the same experts as the Wall Street Journal, none of whom had any personal knowledge
`
`concerning Cassava’s research or data. Id. ¶¶ 40, 427. These articles included no new facts, but
`
`simply rehashed the allegations from the Citizen Petitions with new commentary. Id. ¶¶ 40, 137,
`
`245, 428-30. On July 27, 2022, over eight months after Cassava disclosed that government
`
`agencies had requested information as part of ongoing investigations, Reuters published an article
`
`further detailing that the DOJ had “opened a criminal investigation into Cassava.” Id. ¶¶ 5, 26, 44.
`
`F.
`
`Journal Findings And Ongoing CUNY Investigation
`
`Given the allegations in the Citizen Petitions, and in response to further accusations by
`
`Elisabeth Bik, several academic journals performed a reassessment of certain peer-reviewed
`
`articles previously published by Dr. Wang and/or Dr. Burns. See, e.g., id. ¶¶ 22, 37-39, 387-88.
`
`While Bik and the petitioners only reviewed the “as published” Western blot images, Drs. Burns
`
`and/or Wang provided the journals with the underlying images. Id. ¶ 387. No journal has
`
`concluded that Dr. Burns or Dr. Wang manipulated data or engaged in any misconduct. Id. One
`
`online journal (PLOS One) retracted articles because of concerns raised about the published data,
`
`id. ¶¶ 37, 39, 42, however, none of the papers retracted by PLOS One concerned simufilam or
`
`8
`
`

`

`Case 1:21-cv-00751-DAE Document 81 Filed 10/25/22 Page 15 of 127
`
`
`
`Alzheimer’s disease. The majority of the journal inquiries have resulted in exonerations for Drs.
`
`Wang and/or Burns, id. ¶¶ 22, 38, 453, 387-88. For example:
`
`• Neuroscience: After reviewing a 2005 article authored by Drs. Burns and Wang, the
`journal released an Editorial Note stating: “After careful examination of these original
`material, Neuroscience found no evidence of manipulation of the Western blot data or
`other figures of this publication.” Id. ¶¶ 387-88 (emphasis added). Then, on March 29,
`2022, Neuroscience published a Corrigendum to a 2021 Neuroscience article authored by
`Dr. Wang, stating that “two errors pertaining to the visual display of representative western
`blot images . . . have no material impact on the findings of the research (the dat