Activist short-sellers often get a bad rap. They research companies, identify potential accounting irregularities or frauds, take a short position in the company (i.e. they make money if the share price falls) and then make their findings public. When you hear criticism of activist short-sellers remember this story, because while they do make mistakes, their work can often identify problems that other investors and regulators miss. And in this case, they have challenged a whole field of scientific knowledge.
This story starts with two neuroscientists and activist short-sellers researching a company developing an Alzheimer’s drug, Cassava Sciences. It ends with a third neuroscientists, paid by the first two to investigate the company’s studies, finding a potentially deeper fraud that goes to the assumed understanding of the disease.
One of the seminal Alzheimer’s studies, published in 2006, found that plaques in brain tissue are the primary cause of Alzheimer’s. This finding has spawned a whole field of study and a raft of drugs intended to remove these plaques or stop them occurring in the first place.
But in researching Cassava Sciences this third neuroscientist, Matthew Schrag, found some irregularities in this 2006 study. He identifies them as “red flags, not final conclusions” but they challenge the current assumed knowledge in the field. Science, the author of this article, conducted a 6 month study and found “strong support for Schrag’s suspicions”.
This article tells the story of this seminal paper, published in 2006, and the recent questions about its findings. Questions that wouldn’t have been raised if it wasn’t for two activist short-sellers taking a closer look at a company working on Alzheimer’s drugs.
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