Monday, March 7, 2011

Mannkind: Are The Class Action Lawsuits Without Merit?

If there's one thing that's certain in life, it's that when your luck is down, then there will always be someone around that will kick you while you're down.

There's quite a few websites and bloggers, some supposedly reputable ones, that actually seem to take glee in watching the demise of small-time biotechs looking to bring potential groundbreaking products to market.

In the case of Mannkind, the short term success of the company went south in a hurry when the FDA decided not to approve Afrezza as an inhaled insulin product in January, until an additional trial was conducted testing the company's next-generation inhaler as compared to the one used in the trials put forward fro approval.

That short term potential spiraled even further to the downside after the announcement that a huge portion of the Mannkind staff would be laid off and that the founder and CEO of the company, Alfred Mann, might not be investing any more of his personal fortune into the development of Afrezza.

Mr. Mann has already invested roughly one billion dollars into his company thus far.

Aside from the biotech bloggers that jump at any chance to preach gloom and doom, there's another kind of vulture out there in the investing world - the lawyers.

These guys might be the worst kind of vulture than them all, because they befriend you and would have you believe that they are there to look after you, when in actuality they're looking out for themselves first.

There's always a band of lawyers looking to file class action suits - on your behalf, of course - after the failure of a drug to gain FDA approval, but don't be fooled into believing that you'll ever see too much of those winnings - unless you're a big time investor.

This is a chance for the lawyers to make money and nothing more.

On that note, however, do the class action suits against Mannking have merit?

There's so much inherent risk in investing in the biotech sector - let alone the stock market - that it seems ridiculous to want to cry for a lawyer when your investment goes south.

If you can't accept the risk in trading or investing in FDA decisions, then you've got no place in the biotech sector.

In the case of the most recently announced class action against Mannkind, the complaint is that the company held the information for a day before making the announcement.

Let's be realistic here; are we to believe that if the company made the announcement immediately that the stock would not have dropped?

The lawyers are taking on the companies like Mannkind, but where are they when the investors need them after the shady trading that took place in stocks such as Dendreon (DNDN), Siga (SIGA) or SiriusXM (SIRI) over the past couple of years.

Those are the kind of class action suits that investors would be wise to jump on, if only to get to the bottom of the allegedly fishy trading, but it's easy pickings to go after the company for being denied approval by the FDA.

These lawsuits generally pan out to be nothing except a whole lot of time wasted, but that said, there is one lawsuit that investors of Mannkind should pay attention to.

That's the lawsuit filed and then dropped by a former employee, Mr. John Arditi, that alleges fraud and cover-up in the completed Phase III trial. If there is any merit to that suit, then that could materially damage Mannkind, well beyond what the class action lawyers and the biotech bloggers could do.

The lack of news on that front may be an encouraging sign that there was no merit to the Arditi story, which is good news for Mannkind, but unfortunately, the vultures are still circling - in the form of the class action law firms.

Will they go away? Doubtfully, but the basis of their merit is questionable, at best.

Disclosure: Long MNKD call options. Design Lead

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