Tourbillion Wins Shorting MannKind Corporation, GT Advanced Technologies Inc

Tourbillion Wins Shorting MannKind Corporation, GT Advanced Technologies Inc
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MannKind Corporation (NASDAQ:MNKD) shares tumbled 46% between July 1 and September 30. GT Advanced Technologies Inc (OTCMKTS:GTATQ) had a market value of $3 billion in one month, and almost wiped out the next. Jason Karp’s hedge fund Tourbillon Capital Partners made a killing shorting MannKind and GT Advanced Technologies during the September quarter. Tourbillion said shorting these two stocks contributed the most to its quarterly profits.

MannKind stock would fall to $1

MannKind has entered a marketing agreement with Sanofi SA (ADR) (NYSE:SNY) (EPA:SAN) to sell its insulin inhaler Afrezza. The treatment is expected to be launched early next year. But Tourbillion remains bearish on the stock. Karp expects MannKind shares to decline from about $6 today to $1. The hedge fund, which manages about $1.3 billion, returned a staggering 71% during the third quarter, according to Bloomberg.

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GT Advanced Technologies filed for Chapter 11 bankruptcy on Oct.06 without specifying why. Investors were expecting its scratch-proof sapphire display to be used in Apple Inc. (NASDAQ:AAPL)’s new products. The Cupertino-based tech giant imposes onerous contract terms on its component suppliers. Tourbillion said in its letter to investors that its main fund has gained 8.7% this year through September. The hedge fund returned 21% in 2013.

Lakewood Capital also benefits shorting GT Advanced Technologies

Lakewood Capital Management also reaped benefits of the crumbling fortunes of GT Advanced Technologies. The fund posted a net loss of 1.10% in the quarter ending September 30, according to an investor letter reviewed by ValueWalk. But its short positions performed better than its long positions. Short equity positions returned +7% during the quarter, compared to a 4% decline it suffered from long equity positions. However, the fund’s greater exposure to long positions resulted into a small net loss.

Lakewood Capital said in its letter to investors that the tech component industry has seen a recurring theme over the past few years. These companies command sky-high valuations as early entrants into a fast-growing industry. But their stocks meet a grave fate later due to “customer concentration issues” or fierce competition. GT Advanced Technologies also witnessed a similar outcome.

Specifically, the fund stated in a discussion of its INVN short (which ValueWalk will cover soon) that:

We often find that the anticipation of something grand often proves to be more exciting than the economic reality, and we believe that this is likely the case with InvenSense’s now-confirmed placement in the iPhone. While we do not doubt that this business will help the company grow, selling commodity components to companies like Apple is a tough way to make money. Investors would be well-served to study the experience of GT Advanced Technologies, a company I referenced above that the fund has been short in recent months. GT’s stock soared on investor excitement that the company was awarded a contract to supply sapphire to Apple. The company was a $3 billion market capitalization darling one month, and literally gone the next, as the company crumbled under onerous contract terms imposed by Apple, leading to a Chapter 11 filing. Be careful what you wish for.

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