Sahm Adrangi is the founder and Chief Investment officer for Kerrisdale Capital Management. This company researches the telecommunications, biotechnology and mining industries. Their goal is to correct misinformation and/or misconception about overvalued short stock and underfollowed long stock. In March 2018, Sahm Adrangi’s company issued a scathing report about Proteostasis Therapeutics Incorporated (PTI).
PTI is a Cambridge, MA based company that is working on a drug to treat cystic fibrosis. On March 18th, the company announced that it received the Breakthrough Therapy Designation for the drug PTI-428. The Food and Drug Administration (FDA) gives this designation to expedite the development and review of new drugs. The FDA believes this drug will offer substantial improvement over existing drug treatments. The designation resulted from an announcement by Proteostasis that its Phase II trials showed meaningful improvement in patient’s pulmonary function relative to a placebo.
Kerrisdale Capital warns that Proteostasis is providing investors misleading information on the effectiveness of the drug. In a report completed at the end of March 2018, Kerrisdale stated the stock price spiked by 100% after the FDA announcement. After only five days, Proteostasis share count doubled (suggesting influx of new and possibly uninformed investors). PTI immediately offered a nine million share public offering within days. Proteostasis want to sell shares at the new higher rate.
Sahm Adrangi believes the data provided by PTI does not represent the true outcome of the trial. When one digs deeply into the trial, the data shows minimal improvement from using PTI-428 against a reasonable baseline. The improvements shown was a result of the placebo group doing extremely poorly. As a result, the test group performance looked promising when compared to the placebo. Phase II trial results mirrored the disappointing results of the Phase I trials. Therefore, Sahm Adrangi plans to short PTI’s shares (believes the share price will decrease in the future). Kerrisdale believes PTI’s actual value is about 70% to 90% less than its current market price (at time of article, the valuation was $6.99 per share).