MannKind's (NASDAQ:MNKD) marketing partner Sanofi (NYSE: SNY) might be in big trouble. In a lawsuit filed last week, a former Sanofi employee claims she was fired after resisting the approval of nine contracts with consulting firms worth $34 million, because she believed the money was destined to be used for kickbacks to doctors and pharmacists to prescribe Sanofi's diabetes drugs.
Should investors be concerned? Let's take a closer look.
The lawsuit claims the illegal scheme goes all the way to the top of the pyramid, with former CEO Christopher Viehbacher involved. Viehbacher was fired in October, but the board didn't give a reason for removing its CEO. Although, there was a hint in the press release that Viehbacher wasn't working closely enough with his board: "Going forward, the Group needs to pursue its development with a management aligning the teams, harnessing talents and focusing on execution with a close and confident cooperation with the Board."
Sanofi is MannKind's new marketing partner on its inhaled insulin drug Afrezza, so if Sanofi has done something illegal -- and that certainly hasn't been proved yet -- then MannKind technically would be in bed with crooks. But it remains a "maybe" at this point, since it hasn't been proved in court, nor has Sanofi admitted any wrongdoing.
Unfortunately, this kind of thing happens far too often in the pharmaceutical industry. In fact, Sanofi settled a lawsuit by the Department of Justice and several states a few years ago that claimed doctors were given free samples of an arthritis medication, Hyalgan, as a way to encourage them to prescribe the drug.
While giving out free samples is legal for patients covered under private insurance, patients covered under Medicare and Medicaid can't receive discounts because the government is worried that it'll encourage writing of prescriptions for drugs that the patient doesn't need.
And because Hyalgan is administered by the doctor, the free samples resulted in a lower average price that the doctors had to pay for the medication, but government insurance plans reimbursed at the full sale price.
Sanofi had to pay $109 million to settle the lawsuit. It's hard to know for sure, but it wouldn't surprise me if the French company made more than that off the scheme.
Afrezza isn't even due to launch until next year, so MannKind isn't in any way associated with the current lawsuit. And I doubt any settlement that might come about would cause Sanofi to be unable to sell Afrezza.
You could argue that Sanofi's name might be tainted, making it harder to market Afrezza to doctors, but of all the things investors need to worry about, I think that ranks pretty low. Investors should be much more concerned about whether doctors will prescribe Afrezza, especially given the lung warnings on the label, and whether insurers will pay for the drug.
Brian Orelli and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.