MannKind Accused of Data Fraud Coverup

(Updated throughout with with more information, including comments from MannKind management and new stock price.)

VALENCIA, Calif. (TheStreet) -- A MannKind (MNKD) senior manager says he uncovered potentially serious problems with clinical trials of the company's Afrezza inhaled insulin device and accuses the company of willingly keeping the information from U.S. regulators, according to a wrongful termination lawsuit filed in September.

The MannKind senior manager, John Arditi, who filed the lawsuit against the company in New Jersey Superior Court, claims he was wrongfully fired by MannKind after internal audits he conducted in November 2009 uncovered "potential fraud and scientific misconduct" involving Afrezza clinical trial data, according to a copy of the lawsuit obtained by TheStreet.

Arditi, in his lawsuit, says he urged his superiors at MannKind to report his findings to the U.S. Food and Drug Administration but the company refused because "if the FDA was notified of these concerns, it might delay approval of MKC's [MannKind's] New Drug Application for Afrezza," the lawsuit states.

The FDA is currently reviewing Afrezza and is expected to make an approval decision on Dec. 29.

Mannkind Chief Financial Officer Matthew Pfeffer, reached by phone, says Arditi's lawsuit is without merit because the company's investigation of the allegations conducted by an outside auditing firm found nothing wrong with the Afrezza clinical data.

The FDA has not raised any questions about the clinical data and Arditi was fired for "good cause," Pfeffer added.

Mannkind has not submitted a copy of its internal investigation to the FDA because the company's auditors found "nothing substantive to report to FDA. Had we found something, we would have reported it to FDA," said Pfeffer.

MannKind, in its most recent quarterly filing with the SEC, discloses that before Arditi filed his lawsuit on Sept. 16, the company "completed an internal investigation of his claims and retained an independent outside firm to conduct an independent investigation of his claims. Neither investigation found any basis for his claims."

Before being fired on May 11, Arditi was MannKind's senior director of worldwide regulatory affairs. His lawsuit names as defendants MannKind as well as Peter Richardson, MannKind's chief scientific officer, and Patricia Mayer, MannKind's vice president of worldwide regulatory affairs.

MannKind is based in Valencia, Calif. But Arditi, Richardson and Mayer worked at the company's facility in Paramus, N.J.

Arditi claims he was fired by MannKind on the "spurious ground that he exceeded his authority in authorizing and/or signing imaginary purchase orders," the lawsuit states.

The lawsuit further claims that "Mayer, Richardson and MKD [MannKind] terminated Arditi's employment due to his objection and refusal to withhold information from the FDA concerning potential safety concerns surrounding Afrezza and its clinical study data, resulting in potential fraud on the FDA and the public, in violation of law and policy."

The alleged Afrezza clinical data fraud and misconduct was discovered during audits of clinical trial sites in Russia and Bulgaria conducted by Ariditi, the lawsuit states.

At one clinical trial site in Russia, for example, records showed patients with "consistent blood pressure readings" over several months, even though variations in blood pressure readings would be expected, suggesting that clinical data was not being recorded properly or even that records were being kept on fictitious patients, the lawsuit states.

At another Afrezza clinical trial site in Bulgaria, Arditi's audit uncovered similar data discrepancies, including records showing that patients were being treated with Afrezza when packing slips indicated that Afrezza hadn't been delivered until weeks or months later, according to the lawsuit.

The lawsuit doesn't specify how many patients were enrolled at the clinical trial sites in Russia and Bulgaria. Mannkind's clinical trial program for Afrezza included multiple phase III studies that enrolled patients across the globe, including the U.S., South America, Europe and Eastern Europe.

MannKind CFO Pfeffer says he doesn't know how many patients were enrolled at the Russian and Bulgarian clinical trial sites.

Mannkind has not yet filed a response to Arditi's lawsuit with the court but Pfeffer said a response would come "reasonably soon."

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