MannKind Trades May Lure Regulators as FDA Decision Disappoints

(Bloomberg) The 38 percent drop in MannKind Corp.’s stock five hours before the drugmaker failed to win approval for a diabetes treatment may draw attention from the Securities and Exchange Commission, said James Angel and Tamar Frankel, finance professors who follow the industry.

MannKind fell as low as $6.05 at 10:36 a.m. New York time yesterday, from $9.37 the prior minute, according to data compiled by Bloomberg. The stock traded for $9.11 at 11:57 a.m., when Nasdaq OMX Group Inc. halted trading through the 4 p.m. close of U.S. exchanges. Shares of Valencia, California-based MannKind slumped $4.02, or 44 percent, to $5.09 at 9:31 a.m. today in Nasdaq Stock Market composite trading.

The Food and Drug Administration asked the company for two new studies of Afrezza, an inhaled insulin, the night before MannKind revealed that fact in a statement at 3:34 p.m., Chief Financial Officer Matt Pfeffer said in an interview yesterday. Nasdaq and NYSE Euronext decided not to cancel the MannKind trades that drove the shares down between 10:36 a.m. and 10:39 a.m. after originally saying they may be erroneous.

“Anybody who sold at that time definitely should be getting some good lawyers,” said Angel, who teaches at Georgetown University in Washington and serves on the board of Direct Edge Holdings LLC, which owns two U.S. stock exchanges. “It looks like somebody was executing a large trade fast and basically just dumped it on the market.”

John Nester, an SEC spokesman, didn’t respond to a telephone call and e-mail requesting comment.

‘Would Be Irrational’

“It would be irrational not to have some concern” that yesterday’s plunge resulted from the FDA decision leaking, Pfeffer said. The CFO said he doesn’t have “any reason to believe that was the case.”

MannKind said on Dec. 28 that the FDA was delaying a decision originally scheduled for the next day to take more time to complete its evaluation. The shares rose 3.3 percent. Yesterday’s decline was the biggest intraday since April 2008, when Pfizer Inc., the world’s largest drug company, reported an increase of lung cancer among patients who used its discontinued inhaled insulin Exubera.

The FDA told MannKind to conduct more patient trials of an inhalation device that the company introduced after conducting studies using a previous one. While the company had completed studies to demonstrate that the devices were equivalent, the FDA demanded new 12-week human trials comparing them. The FDA action may delay the drug’s approval by 18 to 24 months, said Jon Lecroy, an analyst at Hapoalim Securities in New York.

‘News Pending’

Nasdaq halted trading at 11:57 a.m. because of “news pending,” according to data sent to Bloomberg. Nasdaq uses that designation only when companies it lists inform the exchange of material announcements, said Wayne Lee, a spokesman for the owner of the Nasdaq Stock Market.

Trading volume for MannKind jumped to 1.42 million shares at 10:36 a.m., compared with the 20-day average of 79,396 during that minute, according to data compiled by Bloomberg. The retreat by MannKind shares to $6.05 at that time was a return to levels last seen in November.

“The SEC or a committee that examines systemic risk should look” at MannKind’s drop, said Frankel, a corporate governance professor at Boston University. “Not only because of the possible foul play, but mostly for an attempt to understand well how the markets work today and decide as a matter of policy whether fluctuations of this sort are desirable and if they’re not desirable, then what to do about it.”