Washington Editor

WASHINGTON – Shares of MannKind Corp. tumbled for the second day Friday on news that the company's former vice president of worldwide regulatory affairs had filed a lawsuit claiming he was wrongfully fired in May for reporting problems with clinical data involving the firm's inhaled diabetes drug Afrezza (insulin human rDNA origin), which currently is under review at the FDA.

After falling as low as 18 percent Thursday, when reports of the suit first emerged, and losing 4.7 percent earlier Friday, shares of Valencia, Calif.-based MannKind (NASDAQ:MNKD) recovered slightly, gaining 3 cents, to close at $5.54 Friday.

The company actually had acknowledged the lawsuit, which was filed Sept. 16 by John Arditi in the Superior Court of New Jersey, in its Oct. 29 10Q filing with the SEC, but had failed to reveal it to investors and analysts that same day during its third-quarter earnings call.

Arditi is alleging in his suit that internal audits he conducted last year revealed potential fraud and scientific misconduct involving Afrezza's trials in Bulgaria and other sites, but the company had refused to report those findings to the FDA. For instance, he said all patients at one Russian site had consistent blood pressure readings over several months, even though blood pressures generally vary from time to time, indicating potential protocol violations or fraudulent study results, including the possibility of fictitious patients or that the site had failed to properly document potential safety issues in connection with Afrezza.

In its SEC filing, MannKind said that before the lawsuit was filed, the company had completed an internal investigation of Arditi's accusations and retained an outside firm to conduct an independent investigation of his claims.

"Neither investigation found any basis for his claims," MannKind stated in its 10Q filing.

The company reiterated its assertions in a statement Thursday night, noting that its independent investigator was provided with "unfettered access" to data related to the FDA submission for Afrezza, including studies conducted in Bulgaria and Russia.

"The independent investigator concluded that MannKind is, and was, taking prudent measures under good clinical practice regulations to meet the requirements of good clinical practices, and that there was no evidence of any deception or intent on the part of MannKind to deceive the FDA," the company stated.

"We believe that Mr. Arditi's claims have no merit, and the company will vigorously defend the lawsuit in the normal course of business," said MannKind's Chief Financial Officer Matthew Pfeffer.

Arditi's suit is not the first time a former MannKind executive has claimed to have been fired over reporting questionable clinical activities.

The company in 2005 was sued by its former vice president of medical and regulatory affairs, Wayman Cheatham, who claimed that MannKind hid lab test results demonstrating that Afrezza's potency was higher than expected.

MannKind settled the suit with Cheatham in 2007.

Afrezza has had an arduous journey making its way to the U.S. marketplace.

MannKind in March received a complete response letter (CRL) from the FDA on the drug's application, which cited the need for more information about Afrezza's clinical utility, along with a request for comparison data about the newer version of the diabetes medicine's inhaler device vs. the one tested in pivotal clinical trials. The agency also wanted updated safety data about the product. (See BioWorld Today, March 16, 2010.)

With the FDA set to act again on Afrezza by Dec. 29, the big question is whether the agency's current conservative stance around diabetes drugs will translate into another CRL for the drug, said Rodman & Renshaw analyst Simos Simeonidis.

He said he would not be surprised if the agency pulled another "Bydureon" by asking MannKind for something the two sides have not yet discussed.

The FDA last month surprised Amylin Pharmaceuticals Inc. and its partners Eli Lilly and Co. and Alkermes Inc. with a CRL requesting a thorough QTc study to evaluate the risk of higher-than-therapeutic doses of Bydureon on the cardiovascular safety profile, even though the agency had not raised those concerns earlier. (See BioWorld Today, Oct. 21, 2010.)

SEC Proposes Expanded Whistleblower Program

The SEC last week took its first step in creating a program mandated under financial reform to reward whistleblowers who provide the agency with high-quality tips that lead to successful enforcement actions.

New rules proposed last week by the SEC map out a "simple, straightforward procedure" for would-be whistleblowers to provide critical information to the SEC, regulators said.

Prior to the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law by President Obama on July 21, the SEC's so-called bounty program was limited to insider trading cases with awards capped at 10 percent of the penalties collected in the action. But the Wall Street reform bill substantially expanded the agency's authority to compensate whistleblowers.

To be considered for an award, a whistleblower must voluntarily provide the SEC with original information about a violation of the federal securities laws that leads to the successful enforcement of a federal court or administrative action in which the government obtains monetary sanctions of more than $1 million.

"Whistleblowers can be a source of valuable firsthand information that may otherwise not come to light," said SEC Chairman Mary Schapiro.

The agency is accepting comments from the public on its proposal until Dec. 17.

The Wall Street bounty program is separate from whistleblower suits filed under the False Claims Act.

A measure under that law, known as qui tam, provides incentives for private citizens with evidence of fraud against the government to sue on its behalf.

Under the qui tam provision, which accounts for about 90 percent of all health care fraud cases in the U.S., whistleblowers are entitled to receive up to 25 percent of money recovered by the federal government in the outcome of a False Claims Act lawsuit. Since 1986, qui tam whistleblowers have been paid about $2.4 billion, according to the Justice Department. (See BioWorld Today, May 17, 2010.)