Implant Manufacturer Targeted by Hedge Funds

FOIAengine Reveals FOIA Requests About Establishment Labs

Food and Drug Administration FOIA records released this month reveal that breast implant manufacturer Establishment Labs (NASDAQ: ESTA), previously targeted by well-known activist short-seller Hindenburg Research, has drawn the interest of two more hedge funds.

In November, Nantahala Capital Management of New Haven, Connecticut and Iron Triangle Partners of New Canaan, Connecticut submitted FOIA requests to the FDA asking for materials documenting the results of any FDA inspections of Establishment Labs’ two manufacturing facilities in Costa Rica.  Frequently, the goal of such requests is to identify adverse plant inspection reports that will lead to stock-price declines.

Establishment Labs describes itself as a global medical technology company dedicated to improving women’s health and wellness with an initial focus on breast health, principally breast aesthetics and reconstruction.  It develops and manufactures an “innovative portfolio” of silicone gel-filled breast implants branded as Motiva Implants, which are produced in FDA-compliant facilities in Costa Rica.  According to the company, its implants currently are approved for commercial distribution in over 70 countries. 

Its stock has been on a wild ride.

On November 9, the company announced that its implants had been approved by Chinese regulators.  But that seemingly good news was eclipsed by the company’s cutting its full-year revenue guidance just one day earlier – due, in part, to removing China sales from its model.  The stock price fell 30 percent on that news. 

Establishment Labs was the target of a lengthy and highly critical Hindenburg report published on October 19, 2022.  The takedown was standard operating procedure for Hindenburg, which also has targeted famed activist investor Carl Icahn and the Indian energy and infrastructure conglomerate headed by Gautam Adani, one of the world’s richest people.  Hindenburg and its founder Nathan Anderson were profiled in our March 30 Insights article.

Hindenburg’s report made clear that it was launching a short-selling attack on Establishment Labs.  An activist short-seller is a trader who looks for looming disasters among public companies, exposes and publicizes it, and then profits when investors dump the stock. Short selling is a legal trading strategy.  Although corporate issuers and meme-stock buyers may vilify them, it can be argued that the activists make the stock market more efficient through their disclosures.

The Hindenburg report argued, among other things, that the company had incurred losses every year as a public company; challenged the validity of its safety studies; described alleged safety problems with the implants; and contended that the company is dramatically overvalued.

Surprisingly, Hindenburg’s report — entitled “Establishment Labs: A Financially Stretched Silicone Safety Charade” – didn’t move the market.  Establishment Labs’ share price held up – until it didn’t.

Nine months after the Hindenburg report came out, the company’s share price began a steady decline, falling to $23 a share since hitting its recent high of $73 in late July. Nantahala Capital owned about 12 percent of Establishment Labs’ outstanding shares as of March 2023, according to a Wall Street Journal report.  Iron Triangle’s ownership interest, if any, is unclear. 

Also affecting Establishment Labs’ stock price has been a failure to meet revenue forecasts, lowered year-end projections, and reduced demand for breast procedures globally.  This is where the new FOIA requests come in.   

Iron Triangle Partners on November 2 requested “materials related to any FDA inspections including any Form 483s over the past 3 years” at the company’s two plants in Costa Rica.  A Form 483 report is issued by FDA inspectors to firm management at the conclusion of an inspection, when investigators have observed conditions or practices that indicate any drug has been adulterated or is being prepared and packed under conditions in which it may become adulterated or injurious to health.  

On November 21, Nantahala Capital Management requested “any Form 483 that has been delivered to Establishment Labs at any of the clinical sites participating in the investigational device study number NCT03579901.” According to a National Library of Medicine website, that study of the safety and efficacy of Motiva implants began in 2018 and is expected to end in 2033.  The study is following 800 participants at numerous locations throughout the U.S., as well as in Germany, and Sweden. 

Nantahala Capital is a New Haven-based hedge founded in 2004 that “invests primarily in micro-cap stocks across a variety of sectors with a multi-year investment time horizon.” The firm characterizes itself as an “alternative investment firm” and that it aims to “maximize risk-adjusted returns and alpha generation through the construction and management of a diversified portfolio of long and short investment ideas with little to no equity market exposure.”

Iron Triangle Partners is a Connecticut-based hedge fund that launched in June 2019 and “seeks to employ an opportunistic, long/short equity strategy focused on investing across the healthcare and related sectors.”

We reached out to both hedge funds for comment, but didn’t hear back.  Establishment Labs also didn’t respond to a request for comment.

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Next:  We’re adding the Commodity Futures Trading Commission and the Federal Trade Commission to our growing FOIA database.  Watch this space.

Randy E. Miller, co-creator of FOIAengine, is a Washington lawyer, publisher, and former government official. He has developed several online information products and was a partner at Hogan Lovells, where he founded the firm’s Brussels office and represented clients on international regulatory matters. Miller also has served as a White House trade lawyer, Senior Legal Adviser to the U.S. Mission to the World Trade Organization, policy director to Senator Bob Dole, and adjunct professor at Georgetown University. He is a graduate of Yale and Georgetown Law.  FOIAengine is a product of PoliScio Analytics (, a new venture specializing in U.S. political and governmental research, co-founded by Miller and Washington journalist John A. Jenkins.  Learn more about FOIAengine here.  Sign up here to become a beta user of FOIAengine. 

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