When the stock took off in anticipation of Phase III results, I recommended selling a sizeable chunk of the position, ensuring gains, even if disaster struck, which it did.
Will history repeat itself with MDV3100? In fairness, it appears to be a better-run study than the Dimebon trial. However, the company's track record and recent run-up in the stock suggests to me that investors will be better off if they take the money and run.
Black Box Warning
ISIS Pharmaceuticals (Nasdaq: ISIS) – I've been banging on this one for a while now. ISIS, along with partner Roche, plans on filing for FDA approval for cholesterol drug Mipomersen before the end of the year.
Mipomersen treats a rare genetic form of extremely high cholesterol. The drug works. There's little controversy about that. The problem is that in every clinical trial, the drug has raised liver enzymes, which is a sign of toxicity.
Supporters say no patients have actually gotten sick on the drug and that the elevated enzymes are no big deal. Detractors argue that patients will have to stay on therapy for life and that the toxicity will become a problem as patients take the Mipomersen over many years.
My prediction is that the FDA either asks for more information (as they have done in the past) or approves it with a black box warning label, which should hurt sales. A black box warning cautions doctors and patients as to the severe side effects that are possible with the medication. ISIS is near its lows, but I don't think this one is worth the considerable risk.
Come On, Mann…
MannKind (Nasdaq: MNKD) – If you're in the plumbing supplies business, it's alright to name your company after yourself. Same thing if you're opening a law firm. Not so much, though, if you're starting a biotech company.
Yet that's what Al Mann did at MannKind. The CEO was nominated by TheStreet.com's biotech reporter Adam Feuerstein as one of the Worst Biotech CEOs of the year. I've seen him speak at investor conferences before. And while he's charismatic, you get the impression if this was 100 years ago, he'd be selling snake oil instead of inhalable insulin.
Inhalable insulin has so far not been shown to be commercially viable. Nektar Therapeutics' (Nasdaq: NKTR) and Pfizer's (NYSE: PFE) Exubera was a commercial disaster. Despite projections of $2 billion in sales, it only generated $12 million in revenue before being pulled from the market. MannKind's version, called Afrezza, hasn't even been able to obtain FDA approval, despite several attempts.
The company has $224 million in assets, of which $196 million is property, plant and equipment, while it has $210 million in debt. Stockholders' equity is negative $280 million. Over the past year, it has burned an average of $33 million a quarter. At the end of the September quarter, it has just $22 million in cash.
Somehow the stock still has a market cap of $365 million. If you own the stock, I suggest get out now while there's still something left to sell.
Although the rewards can be great, investing in small cap biotech stocks can be risky even under the best circumstances. In these three situations, the reward does not justify the enormous risks.