Kerrisdale Capital Management’s Sahm Adrangi issued a report in support of his decision to short the stock of Proteostasis Therapeutics, Inc. This is a biopharmaceutical firm who has a drug in development called PTI-428. The value of this company largely depends on the success of this one drug which is being clinically studied to treat cystic fibrosis. Their stock doubled when the FDA designated PTI-428 as both a Breakthrough Therapy and as an Orphan Drug. However, the analysts working for Sahm Adrangi say that this drug is in all likelihood ineffective and will never be released.
There are two main problems with PTI-428, Sahm Adrangi says. The first is that his analysts have shown that the pattern of data for this candidate drug is of low quality. Secondly, he says that Proteostasis Therapeutics has been omitting some critical information in their public disclosures. He said this company released their Phase 2 clinical trial results in December 2017 which claimed that PTI-428 showed improved lung function over the results of a placebo.
However, Sahm Adrangi says that once his analysts dug into the details they saw that these Phase 2 results are not nearly as meaningful as investors have been led to believe. He said the drug didn’t actually improve patient’s health, it was that the four patients who had taken placeboes did very poorly which made PTI-428 look a lot more effective than it actually is. Phase 1 had shown the PTI-428 didn’t improve lung function in any meaningful way and in reality that was what Phase 2 confirmed. Later in the day after he issued his report Sahm Adrangi had held a teleconference in order to further explain his negative position on Proteostasis Therapeutics.
After graduating from Yale University with a bachelor of arts in economics, Sahm Adrangi found his first position at Deutsche Bank. He went on to work for two other investment firms before founding Kerrisdale Capital Management and starting his own hedge fund. He says his personal investment style is value. His company now manages $300 million which is mostly in long-term value investments. The rest is shorting the stocks of companies that he sees as overvalued.