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MannKind: Addressing The Recent Turbulence

|About: MannKind Corporation (MNKD), Includes: MNKD

Summary

MNKD's recent pre-planned insider selling may indicate expected FDA approval.

There is a high positive correlation between positive ADCOM and FDA approval.

There will be no more complete response letters from the FDA. This could indicate expected FDA approval.

The only issue is labeling and not safety. The FDA would be absurd to reject Afrezza based off labeling issues.

There was a recent article published on seekingalpha.com by Markus Aarnio, 4 Different Insiders Have Sold Shares During The Last 30 Days. He only provides us with a table that shows the different insiders selling; however, he does not explain what this could mean. I am going to take this opportunity to address what the selling could mean.

4 insiders sold recently all through Rule 10b5-1.

What is rule 10b5-1?

"A rule established by the Securities Exchange Commission (SEC) that allows insiders of publicly traded corporations to set up a trading plan for selling stocks they own. Rule 10b5-1 allows major holders to sell a predetermined number of shares at a predetermined time. 10b5-1 plans are used by many corporate executives in an attempt to avoid accusations of insider trading."

(Source: investopedia)

To summarize, 10b5-1 plans are pre-planned and must be set when the individual is unaware of any material non-public information. For example, insiders have to setup 10b5-1 plans in order to prevent acting on insider knowledge. If they knew a drug was not going to be approved, they would not be able to sell all their shares the day before. They have to setup 10b5-1 plans at a time when they were unaware of information that potentially affect the stock price. What does this all mean for MannKind's recent insider selling?

On April 7th, MannKind ( MNKD) announces FDA extension of PDUFA date for Afrezza

"MannKind announced that the FDA has extended the Prescription Drug User Fee Act, or PDUFA, date for Afrezza by three months to July 15 in order to provide time for a full review of information submitted by MannKind in response to the FDA's requests."

(Source: Mannkindcorp)

The original PDUFA date was set on April 15th, 2014.

Insider selling during the last 30 days

Here is a table of MannKind's insider activity during the last 30 days.

Name

Title

Trade Date

Shares Sold

Option Exercise & Sale

Rule 10b5-1

Current Ownership

Decrease In Ownership

Matthew Pfeffer

CFO

June 4

10,000

Yes

Yes

146,257

shares + 636,753 options

1.3%

Juergen Martens

VP

May 19-June 5

287,940

Yes & No

Yes

114,024

shares + 378,206 options

36.9%

David Thomson

VP

May 19-June 4

148,091

Yes & No

Yes

102,286 shares + 397,060 options

22.9%

Diane Palumbo

VP

May 15-June 3

193,033

Yes & No

Yes

158,858 shares + 9,043 options

53.5%

(Source: Markus Aarnio)

Why this could actually be positive news?

It could be predicting that they were expecting FDA approval. The insider selling plans were planned before April 2014, meaning they set their sell plans for after expected approval. Look at the expected decrease in ownership. After approval, one would expect some selling to take profit from an increase in share price, while retaining some shares for the future. Who wouldn't want to enjoy some profits from FDA approval alone? If they thought Afrezza was not going to be approved, they would have set their pre-selling-plans to before April 2014.

There is a high probability MannKind will be approved.

Analysis between FDA Approved Drugs vs. Advisory Committee Meetings

Of the 121 products that received FDA approval from 2008-2012, "88% (99/121) had positive advisory committee votes. Of the 48 products that were not approved, 30 (62.5%) had negative advisory committee votes." There is a strong positive correlation between positive ADCOM and FDA approval.

(Source: Cyril Carrere)

Analysis of a subset of 63 FDA advisory committee meetings from 2001 to 2010, out of the 45 approved drugs, 43 had positive recommendations from ADCOM (95% approval rate with recommendation from ADCOM).

(Source: Jeffrey Smith et al.)

MannKind's Afrezza had an almost unanimous positive ADCOM vote (13 to 1 for Type 1 Diabetes, 14 to 0 for Type 2 Diabetes).

Third times the charm.

Let's not forget this is MannKind's third time submitting their application for FDA approval. The chances for approval increase every time they submit their application because the FDA provides them with a complete response letter each time to indicate what they need to fix or what they are still looking for.

Second complete response letter issues from the FDA.

In the second complete response letter, the FDA requested "clinical studies to confirm the bridging and handling of the next-generation device in order to compare it to the device used in MannKind's extensive clinical program."

In the recent conference, Pfeffer stated they were able to "demonstrate the efficacy of the new device and also bridge the pretty extensive safety database compiled with the old device."

Source: MannKind's (NASDAQ:MNKD) Management Presents at Jefferies Global Healthcare Conference (Transcript)

In the 2014 annual shareholder meeting, Mr. Edstrom stated, "We are done with CRLs. We are certainly not expecting that. We just had a very good conference call last week with the agency, and we are confident that we are well on our way." This is really big news for MannKind. This statement alone predicts a high probability for FDA approval.

(Source: MannKind's Annual Shareholder Meeting 2014)

ADCOM Concern of Lung Cancer Risk

The concern of lung cancer was addressed in the recent Jefferies Global Healthcare Conference. Pfeffer stated the incident rate of lung cancer they saw "would be expected in a similar population of patients, what they saw was pretty similar.

But that led to some concerns and it was talked about at some length at the Advisory Committee. It's important to note that we too, we only have had a couple of cases. So it's really small. It's very hard to draw any conclusions and the number we've seen is not in excess of what you would expect in a similarly matched target group.

So we don't think there is a signal here, but it doesn't mean the FDA isn't concerned about it as they should be with anything like this."

(Source: MannKind's (MNKD) Management Presents at Jefferies Global Healthcare Conference (Transcript))

Al Mann responded to this concern stating, "you get a much greater scrutiny during new drug trials." And with that, "they saw no effects to lung tissue in any of the trials."

(Source: MannKind's Annual Shareholder Meeting 2014)

The only issues brought up by the FDA are leading more toward labeling and not safety concerns. The likely hood of the FDA rejecting Afrezza based on labeling is absurd. It is more likely they will approve Afrezza and work with MannKind on their labeling issues.

Disclosure: The author is long MNKD. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.