Good Article from Bret Jensen, love that he is addressing the law firms that are circling like vultures.
Egalet (NASDAQ: EGLT) is another name that was hurt early this year by the FDA decision to approve all three versions of a pain management candidate ARYMO ER but tagged only the IV version with the coveted label "Abuse Deterrent". The drug's Ad Comm Panel had voted overwhelmingly to approve the drug and put the label on all three versions. The FDA also gave exclusivity to the label in the intranasal category to a competitor until 2018. ARYMO should still be a viable drug and the stock's sell-off seems overdone down to the under $5.00 level. Cantor Fitzgerald reiterated a Buy and $15.00 a share price target on EGLT soon after the decision and that is where the current median analyst price target also stands on the stock.
In addition to angry shareholders, lost sales or additional development costs when an adverse FDA action goes against a small cap concern; management usually needs to deal with nuisance lawsuits as the result of the stock price drop as well.
Unfortunately, there are three sure things in life. Death, taxes and if a small biotech stock drops more than 15% for any reason, some unscrupulous law firm will initiate a class action lawsuit in the name of the "shareholder". 95% of the time turns out to be nothing but an immaterial nuisance.
I personally wish this country would initiate the United Kingdom "loser pays" rules in regards to this kind of litigation. 90% of these actions would cease overnight. Unfortunately, given at any given time, 50% to 60% of congress is made up of lawyers; I don't see that happening in my lifetime. However, if the administration is successful in reforming the FDA; hopefully biotech companies will face less of these challenges in coming years.
