Swing,this one's for you...

2 Biotechs With A Strong Risk Of Failure

The biotechnology industry can be one of the most alluring spaces for investors to try and achieve outsized returns. Unfortunately, success stories aren't anywhere near as common as failures, and investors can be wiped out easily. The following 2 biotech stocks that are set up for failure were selected based on the following criteria:

• Upcoming Catalyst
• Market Capitalization Of At Least $1 Billion
• Average Trading Volume Of At Least 500,000 Shares

MannKind Corporation (MNKD)

MannKind Corporation is a development-stage biopharmaceutical company. The company is focused on the discovery, development and commercialization of therapeutic products for diseases such as diabetes and cancer. The company's flagship product is Afrezza, used in the treatment of diabetes.

Afrezza is an insulin therapy that is currently in late stage clinical investigation for the treatment of adult patients with Type 1 and Type 2 diabetes. It is a drug-device combination product, consisting of Afrezza inhalation powder pre-metered into single use dose cartridges and the Afrezza inhaler.

MannKind certainly has a long history in trying to get Afrezza approved and available for public use. The original Phase III trial results (Study 009) were revealed on September 16, 2008. The release claimed that Afrezza has shown a significant reduction in post-meal glucose fluctuations, the ability to achieve comparable levels of overall glucose control, lower fasting glucose levels, a lower risk of hypoglycemia, and less weight gain than is normally associated with other insulin treatments. However, despite these claims, the FDA rejected Afrezza with a complete response letter on January 19, 2011.

In the letter, the FDA requested that two new clinical trials be completed. One trial was requested to be completed in Type 1 diabetes and another trial in the more common Type II diabetes. The FDA wanted MannKind to prove that a second-generation version of its device, known as the Dreamboat, is equivalent to a first-generation inhaler known as MedTone. More specifically, the FDA wanted additional information about the performance characteristics, usage, handling, shipment and storage of the device, an update of safety information and information on proposed user training.

Well roughly two years later, MannKind is headed back to the FDA. This time its trials are called Affinity 1 and 2 and the company is hoping against hope that they will satisfy the FDA. The company expects to reveal the data at some point in August and ideally get FDA approval sometime in early 2014. I don't expect these trials to be successful. Back in 2008, the trials didn't show great improvement vs. the placebo and I don't expect that they will this time. Not only that but lets focus on the recent run-up in the share price.

As the chart below shows, investors have enjoyed outsized returns over the past year.

This large gap in stock price has pushed the company valuation to over $1 billion dollars.

Here are the facts about MannKind. On their last annual income statement, MannKind generated $35,000 in revenue. The company had a net operating loss of $147 million and a total net income loss of $1269 million. I'm not quite sure how that justifies a $1 billion market capitalization.

I truly feel the company is in for a hard fall later this year. And this time, the company won't be able to recover. With no other products to keep the company afloat, the data that will be released in August will determine its fate. And unfortunately, I don't see a good ending for shareholders.

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It continues on talking about Vivus but I thought it might be getting to long to post.