MannKind Shares Fall on Downgrade, Suit

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Shares of MannKind Corp. tumbled today after an analyst downgraded the company over several concerns, including a recent lawsuit accusing it of making false statements to the Food and Drug Administration.


MannKind, a Valencia-based developer and manufacturer of diabetes and cancer drugs, fell 16.3 percent, or $1.86, to a 52-week low of $9.55 in afternoon trading. Piper Jaffray & Co. analyst Thomas Wei downgraded shares of MannKind to “market perform” from “outperform,” reducing the target price from $20 to $13.


Among Wei’s concerns: MannKind’s ability to maintain its timeline on its inhaled insulin delivery product Technosphere Insulin, pulmonary safety issues, a possible failure to achieve a partnership to manufacture the product and the pending litigation.


MannKind’s former chief medical officer Wendell Cheatham’s suit, filed May 23 in California Superior Court, accuses MannKind of firing him in retaliation and to silence claims made since 2002 that the company improperly changed the formulation of Technosphere Insulin, which “could potentially lead to injury or fatalities in the clinical trials.”


The product, aimed at Type II diabetics, would represent a major advance in insulin delivery systems and would be the company’s first product on the market. Cheatham is seeking $2 million for lost compensation, punitive damages and attorney’s fees.


The suit alleges that Cheatham repeatedly and personally told MannKind founder, billionaire Alfred Mann, that a different formulation was being applied in clinical testing in humans because the original formulation, approved by the FDA, did not have a sufficiently long shelf life to be competitive. He also reported his accusations in a letter to the FDA.


Cheatham claims he was first promoted to a position away from clinical testing and then fired. Later, he was offered a new, better-paying job as company spokesman on condition he keep quiet, which he refused, said his attorney, Jay Coggan.


MannKind denies Cheatham’s claims, saying an independent counsel specifically hired to investigate the claims found them lacking in merit.

“We deny all this,” said David Thomson, the company’s corporate vice president and general counsel.

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