Neoprobe v. Short Seller Over Lymphoseek

DUBLIN, Ohio (TheStreet) -- As Neoprobe(NEOP) prepares to seek U.S. approval for its lymph node mapping agent, a New York hedge fund manager has shorted the stock and is taking an unusual step to prevent the company from getting a review by regulators.

Martin Shkreli of MSMB Capital Management filed a citizen petition with the U.S. Food and Drug Administration last week requesting Neoprobe's Lymphoseek be denied a review due to "severe deficiencies and flaws" in the conduct of two phase III clinical trials.

Betting against FDA drug approvals is a well-worn (and often profitable) strategy in Wall Street's biotech trading canon. Shkreli, however, is pushing new boundaries by seeking to directly influence the FDA review process in his favor.

"I'm protecting my interests using whatever means are available to me… I think investors filing citizen petitions should be done more," says Shkreli.

Neoprobe shareholders have taken to various stock message boards accusing Shkreli of using the citizen petition to manipulate the company's stock price unfairly, or perhaps even illegally. Neoprobe share at Friday's close of $3.75 are down 32% since the stock reached a 12-year high of $5.48 on May 31.

Healthcare attorney and regulatory expert Peter Safir says Shkreli is within his rights to lobby FDA in this way.

"The first word is citizen and that means citizen petitions are open to anybody, including investors with a financial interest in the companies involved," says Safir, a partner and co-chairman of the food and drug practice group at Covington & Burling in Washington, D.C. Safir does not represent Shkreli or Neoprobe.

Citizen petitions are rarely if ever filed for altruistic reasons. For example, Teva(TEVA) is financially motivated to keep a competitive version of Copaxone developed by Momenta Pharmaceuticals(MNTA) off pharmacy shelves, so the Israeli drug maker has filed three citizens petitions with FDA seeking to delay or derail the agency's review. [FDA rejected all of Teva's citizen petitions but has not yet made an approval decision on Momenta's version of Copaxone.]

Is what Shkreli is doing with respect to Neoprobe any different than what Teva sought to do against Momenta?

"It's unusual," says Safir, referring to Shkreli's decision to file a citizen petition. Most are filed by companies, organizations or their representative law firms. "No one files a citizen petition when it is not in their competitive advantage to do so," he adds.