Sketchy Trading In MannKind Prior To Affrezza Rejection (MNKD, DNDN)
Something may have been afoot yesterday in shares of MannKind (NASDAQ: MNKD) prior to the FDA's rejection of its Afrezza insulin device. The FDA asked the company to run two more clinical trials on the inhaler that delivers Afrezza. Ahead of this announcement, MNKD shares were halted at 11:58 EST.
Some very funny activity occurred in the shares yesterday morning prior to the halt. During three minutes, between 10:36 and 10:39 EST, the price of the stock fell from $9.35 to $6.05. By 10:41, the shares were trading above $9.00 again. The NASDAQ announced that all of these trades would stand, despite the suspicious nature of the activity.
This has happened many times before. In April of 2009, Dendreon (NASDAQ: DNDN) shares fell 65% in 75 seconds just before positive clinical test results were released on the company's cancer drug, Provenge.
Yesterday's activity in MNKD, as well as highly similar historical occurrences, raise significant questions. First, did someone know something that they shouldn't have? It seems that yesterday's flash crash in MNKD could have been related to rumors or even inside knowledge about the FDA complete response letter regarding Afrezza.
If the sellers knew ahead of time what the outcome was going to be, then obviously, people should be headed to jail. Another possible explanation is that this was a coordinated "bear raid" designed to steal other investors' shares and make a quick profit.
Anyone who had stop loss orders below the market in MNKD yesterday, likely lost there stock if those orders were set above the $6.05 low. In hindsight, these investors are probably thrilled, seeing as how MNKD fell 40% on the announcement, but what if it had gone the other way?
Furthermore, if a group of traders were colluding to drive the price down and then buy the stock on its lows, or even buying call options while the stock plunged, they made a nice chunk of change if they flipped their inventory once MNKD was back above $9. Again, this would be blatantly illegal.
The most disturbing part about these events is that there will likely never be any answers about what happened. The anomalies that occurred in DNDN on that day in April of 2009, to the best of my knowledge, have never been explained. I wouldn't expect anything different with regard to trading in MNKD on Wednesday.
Unfortunately, it is events like these that undermine the integrity of the market. Given the widespread crackdown on insider trading that is currently sweeping across Wall Street, most investors are aware that malfeasance is a common occurrence in the stock market. Anyone who was involved in MNKD yesterday isn't likely to be swayed from that view any time soon.
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