From yesterday’s decision by Judge Gregory Woods (SDNY) in Cassava Sciences, Inc. v. Bredt:
Cassava Sciences, Inc. (“Cassava”) is a biotechnology company that is conducting clinical trials for an Alzheimer’s drug called simufilam. After the second phase of simufilam clinical trials, several short sellers, most of them scientists, expressed concerns about the integrity of the clinical trials and other studies related to simufilam. They sent letters to the Food and Drug Administration (the “FDA”) that thoroughly analyzed the published findings, data and methodology, published investor presentations that summarized the letters and analyzed public representations of Cassava, and published hundreds of tweets, which were, by their nature, much less rigorous.
Cassava vigorously disagreed with the concerns expressed by short sellers. Members of the scientific community in Cassava’s position have a variety of options. They can publish a thorough, fact-backed rebuttal. They can facilitate replication of their results by a neutral, unaffiliated laboratory. They can invite scientists who raise concerns to review their underlying unpublished data. Here Cassava is pursuing another approach: a lawsuit against people who have criticized his scientific findings….
Because the Court finds that the majority of defendants’ statements were protected by the First Amendment as statements of opinion or scientific debate, and that the fraction of statements properly deemed defamatory were not published with actual malice, it dismisses plaintiff’s claims against all defendants.
The opinion is long and I can’t do it justice in this post, but you can read it here. However, there is an element that goes beyond the normal analysis of the facts:
Plaintiff alleges that Defendants’ short positions in Plaintiff’s actions gave them an improper motive to make defamatory statements about Plaintiff. But short positions alone do not support a demonstration of true malice. The short positions could be found to support the contrary inference of Defendants’ genuine belief that Plaintiff’s shares were overvalued rather than undervalued. Although the short position plausibly created a profit motive to publicize the short seller’s criticisms, this does not lead the Court to infer that they subjectively disbelieved those criticisms. After all, by shorting stocks, the defendants invest their money in the belief that the stocks are overvalued.
Plaintiff also states a number of reasons why Defendants’ sources, including Dr. Bredt and various consultants hired by Defendants, may have been biased. The plaintiff claims that “Dr. Bredt is the named inventor of a neurobiology patent that may compete with Cassava….” and that “Dr. Bredt has also been affiliated with companies…that directly compete with Cassava .” Such weak allegations are not sufficient to infer that at the time he published his statements, Defendant Bredt personally benefited from the depreciation of Plaintiff’s stock or that he harbored prejudice against Plaintiff, and therefore have little bearing on the Court’s analysis of the real malice. By the same token, Plaintiff’s allegations that some of Defendants’ sources acted as consultants to “competing” pharmaceutical companies at unspecified times do not raise the inference that they had a bias against Plaintiff when they provided their criticisms of Plaintiff’s research. Plaintiff.
Plaintiff further alleges that “one or more” donors to a website operated by a consultant, Dr. Bik, which is funded by reader donations and which investigates science fraud “is a defendant, affiliated with a defendant, and/or affiliated with other short sellers of Cassava stocks.” Plaintiff does not allege that Dr. Bik was aware of the donation or the identity of the donor, and this allegation is too vague to raise an inference of bias. Furthermore, “biases do not establish actual malice without additional facts suggesting that the speaker acted on that bias.” Plaintiff does not allege such facts here. Consequently, the appellant’s statements are not sufficient to support the hypothesis of a malicious act.
See also Magistrate Judge/Zoologist Recommends Dismissal of Drug Company’s Defamation Lawsuit Against Scientists, which discusses one of the magistrate judge’s reports and recommendations in this case.