Blue Orca Capital announced a short position on Insulet (NASDAQ:PODD) on Tuesday, as well as a long position on South Korean firm EOFlow, citing a significant legal setback for Insulet.
According to Blue Orca, the Court of Appeals for the Federal Circuit recently overturned a preliminary injunction that had protected Insulet's monopoly on tubeless automated insulin delivery (AID) systems against competition from EOFlow.
This appellate court decision, undisclosed to investors, allows EOFlow to resume its business operations and opens the door for potential acquisitions by industry giants like Medtronic.
Blue Orca criticizes Insulet for not informing investors about this material legal defeat, especially since the company had previously highlighted the injunction victory.
Insulet's failure to disclose this event on its recent earnings call, in an 8-K, or in its 10-Q is seen as misleading by Blue Orca, considering the significant market impact of the injunction when it was initially granted.
Blue Orca anticipates an immediate drop of over 15% in Insulet's share price as the market adjusts to the new competitive landscape.
Conversely, for KOSDAQ-listed EOFlow, the order "gives an immediate lifeline to a desperate business, permitting not only EOFlow to once again sell competing tubeless patch pumps but to reengage with potential acquirers, like Medtronic, who are eager to aggressively challenge Insulet's valuable monopoly," said Blue Orca.
"Following the injunction, EOFlow shares traded to a low of KRW 3,390 in February 2024, meaning that investors could see a ~600% gain if, as we expect, EOFlow recovers to its pre-injunction price," adds the short-selling firm.