Kerrisdale Capital is at it again, this time revealing a short position in struggling biotech firm Altimmune (NASDAQ:ALT). The acclaimed short seller has just released a damning short report on the company, saying that its only viable product, a weight-loss drug, has little chance of commercial success and will “bomb” in upcoming Phase 3 trials. As of this writing, ALT stock is down roughly 20%.
Altimmune has been struggling for months, failing to demonstrate any real growth. Positive clinical trial results did boost ALT stock out of penny stock territory in December 2023. However, Kerrisdale makes a convincing case as to why shares may end up falling again.
Should investors follow the short seller’s advice and bet against ALT stock? While Altimmune did post positive results in Phase 2 obesity trials, the company still seems to be facing a difficult road ahead, especially as the bears close in.
Kerrisdale Is Shorting ALT Stock. Should You?
Since Kerrisdale announced its short position in Altimmune this morning, ALT stock has plunged significantly. What’s more, despite rising almost 180% since December’s positive results, shares are still down more than 20% year-to-date (YTD). Kerrisdale accounted for the company’s late-2023 boost but also made it clear that it still believes ALT is headed downward. Per the report:
“Since that release, Altimmune’s stock has more than tripled on the hopes that a big-pharma partnership, or even acquisition, will follow. But investors are in for a rude awakening: a deeper examination of Altimmune’s data reveals a drug with little chance of competing against either the approved incumbents or the other GLP-1 agonists progressing through clinical trials.”
It certainly makes sense that mounting competition would pose a significant threat to Altimmune’s growth prospects. After all, the small-cap company competes against industry leaders like Eli Lilly (NYSE:LLY) and AstraZeneca (NASDAQ:AZN). But the truth is all companies in this space appear to be vying for second place behind Novo Nordisk (NYSE:NVO), the owner of weight-loss winners Ozempic and Wegovy. It’s hard to compete with a product that has even received an endorsement from Elon Musk.
Kerrisdale has also been correct in its bearish calls before. In September 2023, the firm announced a short position in cannabis firm Tilray Brands (NASDAQ:TLRY). TLRY stock has fallen more than 35% since that report came out.
Alternatives to ALT Stock
It’s no secret that the weight-loss drug market is hot right now. Even while doctors have made clear the risks, demand continues to surge. If a company in a booming market is struggling as much as Altimmune, Kerrisdale’s thesis is definitely worth considering.
Accordingly, investors interested in this space may want to consider other investments. NVO stock may represent an industry frontrunner, but names like WW International (NASDAQ:WW) could also offer investors valuable exposure to this market.
All told, if Kerrisdale is correct and Altimmune’s funding dries up when potential partners decline to “spend hundreds of millions of dollars and years of trials pursuing an obvious dead end,” ALT stock stands to spend the year deep in penny stock territory.
On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
