Lawsuit Alleging Bad Data Could Derail MannKind's Diabetes Blockbuster

Last Updated Nov 5, 2010 3:04 PM EDT

In some ways it is not surprising that Mannkind (MNKD), the developer of an inhaled insulin product for diabetes, has been sued by its former chief regulatory affairs officer alleging "unlawful" clinical trial data practices, according to its Q3 2010 SEC filing: The suit is a potential explanation of many of the mysteries surrounding MannKind, which expects the FDA to act on Afrezza on Dec. 29.

Among those mysteries:

The new suit, from former MannKind senior director/GCP/regulatory affairs John Arditi, alleges that (per the 10-Q):
... the Company terminated his employment in retaliation for his purported reporting of alleged unlawful practices in connection with the Company's clinical trials.
("GCP" usually stands for "good clinical practice" in the drug business.) The company says nothing is wrong:
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.
In fact, something is wrong. Arditi filed his suit Sept. 16. His allegations could derail the entire company if they are true and if they are about Afrezza -- MannKind's only currently viable product -- but the company did not disclose the litigation until Oct 29*. It didn't include the info in its investor press release and it didn't mention the case in its Oct. 29 conference call, either. Between then and now, however, when MNKD dropped 18 percent of its value, several company managers sold stock. CEO Alfred Mann (pictured) bought some, also. To be clear: It is common for such sales to be scheduled ahead of time. There is no indication that any insider trading, or any other kind of wrongdoing, occurred.

Nonetheless, management knew of a suit that would move the stock in September, sales occurred, and only after that did the company disclose the suit's existence. That does not look good.

With Afrezza's date with the FDA looming, analysts once again asked CEO Mann if he had found someone to help him sell the drug:

Jon Lecroy â€" Hapoalim Securities: Okay. And then I think in the past, you guys have said how many partners were still in the running. Do you have any comment on what you've narrowed it down to?

Alfred Mann: No comment at this point, until we have [something] definitive to announce.

As you can see from the transcript, Mann is a bit of a personality. In addition to naming the company after himself and funding it with more than $900 million of his own money, he's also unusually voluble and ebullient for a drug CEO. His silence between September and today is, therefore, out of character.

*Correction: This item originally stated incorrectly that the 10-Q was filed Nov. 4. Apologies for the error.
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