Afrezza Spells Trouble for Mannkind Print E-mail
By Vinny Cassano   
Saturday, 06 November 2010 01:55

After opening at $6.17, shares of MannKind Corporation (NASDAQ:MNKD) dropped to as low as $5.07 during trading on Thursday before closing down ten percent at $5.51. Volume behind the drop was more than six times the daily norm.

The news behind the drop was a lawsuit filed by a former employee who alleges that the company had covered-up negative data from the clinical trials for Afrezza, the company's developmental insulin-spray product that delivers insulin to diabetics via absorption through the lungs. Mr. John Arditi, a former Mannkind employee in the regulatory affairs department, also alleges wrongful termination for raising concerns about the data from the trials.

In response to the claims, Mannkind insists that an independant investigation has already been conducted after Mr. Arditi brought his claims to light and that no cover-up, withholding of information or irregularity was noted with the trial results. Furthermore, the company intends to vigorously defend against what it considers to be a bogus lawsuit.

Mannkind has had a rough go-of-it during the year in its attempt to bring Afrezza to market and gain a solid market edge to Generex's competing developmental product, Oral-lyn - which is in the final stages of Phase III, and this lawsuit is yet another setback that could stall the development of the Mannkind pipeline.

That said, it might be jumping the gun to automatically assume that the lawsuit is valid. Investors of Generex would hope that it is, while investors of Mannkind, of course, hope that it isn't. The truth is, it's so easy to file lawsuits in America - in fact, many would claim that filing suit truly is Amerca's National Pastime - and Mr. Arditi may very well be just another disgruntled employee who was fired for some reason or another.

However, if there is any validity to Arditi's arguments, then this could spell the end of Mannkind's attempt to bring Afrezza to market, thereby eliminating any competition for Oral-lyn should that product now make it to commercial launch first.

It's my opinion, however, that competition between the two is none anyway, since Oral-lyn's method of deliverying insulin through the inner lining of the cheek is widely considered a far safer form of delivery than absorption through the lungs.

The FDA is due to issue an approval decision for Afrezza later this year, and the lawsuit will assuredly bring extra scrutiny to the decision, if not from the FDA itself, from the media outlets that may be covering the events.

Additionally, since many consider Oral-lyn to be a similar product because it delivers insulin through a spray, it may also receive extra scrutiny from the FDA and media outlets.

Shareholders of Genrex may consider this development a positive development, but problems for competitors don't always stregnthen the case for your team; this will be a story worth following because the general consensus out there in the investing world, if the GNBT share price is to be an indicator, is that Oral-lyn may have some issues of its own.

Where this could evolve into a major victory for Generex, is if the lawsuit is deemed valid, Afrezza never makes it to market, and Oral-lyn has a free shot at complete market share for the insulin-spray market; but we've also got to entertain the assumptions that the lawsuit is bogus, Afrezza just may make it to market and Oral-lyn - if it makes it that far - is going to be working from behind once approved.

 MNKD is a risky proposition right now, and not nearly the risk/reward buy (with a market cap over 600 million) that GNBT is, but this story is going to be one to keep an eye on leading into the final days of 2010 when the FDA is due to issue its decision.

Vinny also authors the popular stock investing blog VFC's Stock House.

Disclosure: Long GNBT, no position MNKD.


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