Spin Control

Spin Control

As has become standard operating procedure for MannKind (NASDAQ:MNKD) statements made by the company create more questions rather than clarify where things really stand. After basically repeating what was written in the press release issued earlier in the afternoon, Al Mann MannKind’s founder noted he was “surprised” by the FDA’s recent decision.

The real fun began during the question and answer section of today’s call. Obviously given the issues in the complete response letter (CRL) everyone wants to know how long it will take to get the studies done and does the company have enough money to make it. Although the company was unwilling to speculate as to how long Afrezza® will be delayed, Diabetic Investor suspects the delay will be at least 12 months possibly longer. The company also avoided all financial questions as they will be holding their fourth quarter earnings call in the next few weeks. Given Al’s already enormous investment in the company and his commitment to see this to the end Diabetic Investor believes if need be he will break into his piggybank to keep the company afloat. That being said, even someone as wealthy as Al Mann does not have unlimited resources.

It was difficult to determine whether the FDA had any safety or efficacy concerns. Based on the press release, the prepared remarks and answers to several questions on the subject it seems the main issue is their new Dreamboat delivery device and how it stakes up against their older MedTone® inhaler. However as several people noted with their questions, what happens if it turns out the new device does not perform as well as the old device or what happens if the new device does not perform as the company expects it too. Frankly, the longer Afrezza is studied the more issues that seem to come to light.

Listening to the editorial comments that came with several questions, there was clear feeling that the company screwed up this entire submission and should have never submitted Afrezza to the FDA with the MedTone inhaler. As usual, Mr. Mann disputed this contention stating that Dreamboat is superior to MedTone in every aspect and he didn’t think the FDA would have any issues with changing delivery devices in the middle of the process. It was also very clear that Mr. Mann is becoming increasingly frustrated with how long this process is taking.

The most intriguing piece of information coming out of the Q&A happened when the company noted they received the FDA CRL late last night. For reasons only MannKind knows and may soon regret, they chose not to make this material information public before the markets opened this morning. Yet one only needs to look at today’s trading pattern which appears to indicate that someone knew what was going on and acted on this information. Up until 10:30am EST the stock was trading with rather light volume and little movement, and then all of sudden more than 1.4 million shares were traded sending shares down nearly 40%. After reaching a low of $6.71 at 10:36am EST, shares quickly rebounded trading at $9.05 at 10:42am EST. Perhaps sensing that something was up the NASDAQ halted trading at 11:56am EST when shares were trading at $9.17.

Bloomberg reported the halt at 12:34 pm EST, and according to their story NASDAQ spokesperson Wayne Lee stated that listed companies “have to contact Nasdaq to let them know in advance that material news is going to be disseminated. Then we review the news to determine whether or not it’s material and what the appropriate course of action is.”

Based on conversations with other NASDAQ listed companies there are no hard and fast rules when it comes to when material has to be released only that the news when material must be released in a timely fashion. As one investor relations person noted what seems like a simple process of issuing a press release actually is a very involved process as everyone at the company including legal counsel takes part. Still, given the nature of this news one just might think that even it took all night MannKind should have released a statement before trading began.

Given how the stock traded today it’s clear someone knew what was going on and other investors were left clueless and will be scrambling tomorrow when the stock opens. Even though Diabetic Investor is no legal expert we can smell a shareholder lawsuit coming quicker than the time it takes to measure a patient’s glucose level. The key questions being who knew what, when did they know it and where did they get their information, welcome to MannKindGate.

Add it all up and it wouldn’t surprise Diabetic Investor at all if shares feel back to their lows experienced back in March 2009 when Afrezza was first submitted to the FDA and shares were trading at slightly over $3. Diabetic Investor also does not want to gloat, well not too much anyway, that once again we knew something was up after Al presented at JPM. It may have been just a gut feeling but as it turned out it was a really good gut feeling.

The bottom line for MannKind is even if everything goes smoothly from here, a highly unlikely scenario given their past performance, Afrezza, if approved, another suspect event; it will arrive in the marketplace and be dead on arrival. By that time, should it come, Bydureon will either be here or right around the corner and one injection a week beats the heck out of multiple insulin puffs per day and yes it is that simple.