The Afrezza Paradigm Shift Article

I have finished a comprehensive article on why Afrezza will cause a complete Paradigm Shift in the treatment of diabetes.  I hope it adds value in your due diligence process and I welcome your feedback.

http://klljinvestments.blogspot.com/p/afrezza-paradigm-shift.html

I'll put this up on Seeking Alpha next week for wider distribution.  Have a great Thanksgiving holiday and good investing.

Hedge Fund "Insider Trading"

I applaud the SEC for finally looking into what many of us have known for a long time!  It should come as no surprise that many hedge fund managers will go to great lengths to gain an edge in the market to make a buck, often at the expense of average retail investors.  Just look at DNDN's bear raid or ARNA's suspicious drop at the exact same time their briefing documents were released.  It happens all of the time, especially in biotech.  "Experts for hire" to any fund willing to pay them a few thousand dollars for their time.  In biotech, those experts are often former FDA employees who were in charge of regulating the industry and bringing new drugs to market.  Some of those experts may even share inside information to those who contract out their services.  Have you ever worked someplace for a number of years and maintained a relationship with former co-workers?  It isn't presumptive to think that a former FDA employee in charge of a specific class of drugs would know the status of a drug under review by their former co-workers, the likelihood of approval or concerns the agency may have.  All of which is ‘insider knowledge’ that a hedge fund could profit extensively from.

You can never completely clean up the system but people will be hesitant to 'bend the rules' if they think they might get caught.  This may hurt certain hedge funds keep their competitive edge but it helps even the playing field for retail investors.

I just completed an extensive write-up to demonstrate how I think MannKind's Afrezza will cause a Paradigm Shift in the treatment for diabetes that I'll get out next week.  Did you know that 2 new cases of diabetes are diagnosed every 10 seconds worldwide? 

Happy Thanksgiving and good investing.

MannKind Attacked by Bears

Today, MannKind was subjected to a well-orchestrated bear raid by hedge funds.  There is no other explanation to today’s activities.  As a long-term investor, it allowed me to add some cheap shares but it sure was painful to watch.  Stop Loss orders and weak-handed retail longs were the targets and the hedgies did a great job of robbing them of their holdings.  I don’t have much sympathy because biotech investors should know that Stop Loss orders are worthless and should not be used.  It will be an expensive lesson for some, while the hedgies made millions today scaring them out of their holdings. 

In MNKD’s  10-Q filed on Friday for Q3, they reported the following:

“Litigation — On September 16, 2010, John Arditi, the Company’s former Senior Director — GCP — Regulatory Affairs, filed a lawsuit in the Law Division of the Superior Court of New Jersey (Bergen County), against the Company and its Chief Scientific Officer and its Vice President — World Wide Regulatory Affairs. In the lawsuit, Arditi v. MannKind Corporation, Docket No. BER-L-8783-10, Mr. Arditi alleges that the Company terminated his employment in retaliation for his purported reporting of alleged unlawful practices in connection with the Company’s clinical trials. Mr. Arditi has asserted claims for violation of the New Jersey Conscientious Employee Protection Act, wrongful discharge, breach of contract, breach of the implied covenant of good faith and fair dealing and intentional infliction of emotional distress.  Mr. Arditi is seeking, among other relief, compensatory and punitive damages and counsel fees, costs and interest. The Company’s deadline to respond to the complaint is December 3, 2010. Before Mr. Arditi filed his complaint, the Company had completed an internal investigation of his claims and retained an independent outside firm to conduct an independent investigation of his claims. Neither investigation found any basis for his claims. The Company believes that the allegations in the complaint are without merit and intends to defend against them vigorously.

From time to time, the Company becomes involved in various legal proceedings and other matters. In accordance with general accounting guidance for recording contingencies, the Company records a provision for a liability related to a legal proceeding when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company does not believe that any liability from any reasonably foreseeable disposition of such claims and litigation, individually or in the aggregate, would have a material adverse effect on its consolidated financial position or results of operations.” 

Now how do we know this is a bear raid?  Well, the lawsuit data has been out since Friday before the market opened.   This is old news in Wall Street time.  In fact, the lawsuit was filed in September!  If it was of any significance, worried funds would have sold off MNKD on Friday on huge volume, followed by additional selling on Monday.  They didn’t.  Why?  Because the lawsuit is without merit and the Street knows it.  MNKD performed an investigation through a 3^rd party who found no basis for the claims.  If there was any merit to it, the FDA would have to be notified and the company would have had to set aside some money to cover the lawsuits.

So hypothetically speaking, here is what could have happened today spurred on by one or more of the following parties.  1)  Hedge Fund who wants to steal cheap shares from retail investor.  2)  Hedge Fund who wants to short, cover lower and then go long.  3)  A short Hedge Fund who wants to cover their position and then go long lower.  It could be any of those or some other off-shoot.  Who knows, but that is what happened in my opinion. 

·         MNKD starts the day off lower on above average volume.

·         Oppenheimer Note is released referring to the lawsuit.

·         The Street releases an article titled “MannKind Accused of Fraud Coverup.”  LOL!  Could you come up with a scarier headline?

·         In combination with those news releases, the stock falls off a cliff taking out the stops set at the $5.50 support level (after knocking out the $6 stops earlier.)

·         Capitulation among weak retail longs takes place.  Volume goes off the chart after the bear raid.

·         Hedge funds made millions and lots of retail shareholders are taken advantage of.

·         Stock recovers back to the $5.50 support level

It is likely that the Hedge Fund(s) who orchestrated this started planning it on Friday when they saw the reference to the lawsuit in the 10-K.  I’d bet there was a large increase in shorting since Friday in preparation for the bear raid.  It is perfectly legal and nothing can be done about it.  I’d feel sleazy if I was one the Hedge Fund managers but that is just me.  I’d like to say that I can’t wait to see the shorts burn after MNKD is approved and partnered but the reality is that these guys are probably well protected with Options if they are still short or will cover and go long before PDUFA.

Days like this make you go back and double-check your due diligence and reason for investing in the stock to begin with.  If you trust Al Mann and that the company has in fact conducted a 3^rd party investigation that showed there is no merit to the lawsuit, then hopefully you added to your position at lower prices today.  If you are nervous and aren’t sure, then you should sell and wait until approval to buy back in.  I’m still confident on approval and glad I was able to pick up some more shares this afternoon at lower prices.  I just hope we don’t have too many more of days like today before 12/29!!!!  Good luck MNKD longs.