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As the biotech stock rally soldiers on, a recent Reuters article wonders if and when the biotech bubble will burst. Whether biotech is a bubble or not, we thought it would be a good idea to scan the industry for rallying biotech stocks with additional indicators that suggest good things are still to come.

We began with a universe of biotech stocks, screening for stocks that are rallying above their 20-day, 50-day, and 200-day moving averages. This indicates that these stocks have strong upward momentum.

Next, we looked for stocks with significant net insider purchases over the last six months representing close to 2% of share float or higher. Since insiders work at the companies in question, they have more knowledge about the firm than outsiders. Therefore, when they use their own money to purchase shares of their company's stock, it indicates they are bullish about the firm's future and believe current share price is undervalued.

Finally, we ran a screen on the remaining stocks to isolate those that have outperformed over the last quarter, with over 20% return.

The List

For an interactive version of this chart, click on the image below. Average analyst ratings sourced from Zacks Investment Research.

Do you think insiders are right to invest in these stocks, or do you think they're about to go bust? Use this list as a starting point for your own analysis.

1. Targacept, Inc. (NASDAQ:TRGT): Engages in the design, discovery, and development of novel Neuronal Nicotinic Receptors (NNR) Therapeutics for the treatment of diseases and disorders of the central nervous system.

  • Market cap at $191.63M, most recent closing price at $5.70.
  • Over the last six months, insiders were net buyers of 2,023,840 shares, which represents about 8.92% of the company's 22.69M share float. (4 insider purchases and 0 sales in this period)
  • Performance over the last quarter at 31.64%
  • The stock is currently trading 6.84% above its 20-day moving average, 19.83% above its 50-day moving average, and 23.47% above its 200-day moving average.

Targacept's revenue fell by 84.7% to $3.5 million in the first quarter of 2013 from $22.9 million in the same period last year. The company reported a net loss of $8.1 million, or -$0.24 adjusted earnings per share, compared to income of $2.3 million, or $0.07 adjusted earnings per share, during the first quarter of 2012.

Over the last month, Targacept has returned 23.64%, which places it in great standing amongst its peers. Since April 30th, ACADIA Pharmaceuticals, Inc. (NASDAQ:ACAD) has returned 11.33% and Biogen Idec Inc. (NASDAQ:BIIB) has returned 9.12%.

In the pipeline:

On May 29th, Targacept announced that it will be launching clinical trials of its new overactive bladder treatment drug TC-5214. The Business Journal reports that 69.5 million top seven pharmaceutical markets suffered from overactive bladder in 2009, and, according to the Urology Care Foundation, at least 33 million Americans suffer from an overactive bladder. As the Business Journal notes, the condition's prevalence in major markets will likely give TC-5214 broad appeal.

2. XOMA Corporation (NASDAQ:XOMA): Engages in the discovery, development, and manufacture of therapeutic antibodies to treat inflammatory, autoimmune, infectious, and oncological diseases.

  • Market cap at $350.62M, most recent closing price at $4.23.
  • Over the last six months, insiders were net buyers of 4,722,670 shares, which represents about 9.79% of the company's 48.22M share float. (The insider transactions in this period were 1 purchase by Director Julian Baker and 0 sales)
  • Performance over the last quarter at 55.51%
  • The stock is currently trading 7.59% above its 20-day moving average, 16.02% above its 50-day moving average, and 33.17% above its 200-day moving average.

During the first quarter of 2013, XOMA reported $9.5 million in revenue, a 4.0% decrease from $9.9 million in the first quarter of 2012. As for income, XOMA had a net loss of $24.9 million, or $0.30 per share, which is a % improvement from $30.4 million, or $0.69 per share, in the previous year.

XOMA has performed solidly over the last month, returning 20.86% since April 30th. The biotech's return is better than competitors Immunogen Inc. (NASDAQ:IMGN) and Biogen Idec Inc. , but lags behind Immunomedics Inc. (NASDAQ:IMMU), which returned 53.13% during the same period.

In the pipeline:

Zacks reports that XOMA is currently enrolling patients into two trials for gevokizumab that will focus on the drug's ability to treat interleukin-1 beta-mediated inflammatory diseases. Gevokizumab is a promising drug for XOMA - the Motley Fool notes that shares of the biotech stock surged by 19% after the release of first quarter earnings because of data from earlier gevokizumab studies.

3. MannKind Corp. (NASDAQ:MNKD): Focuses on the discovery, development, and commercialization of therapeutic products for diabetes and cancer.

  • Market cap at $1.91B, most recent closing price at $6.58.
  • Over the last six months, insiders were net buyers of 39,997,650 shares, which represents about 25.93% of the company's 154.23M share float. (There was one insider transaction for the purchase of 40M shares, and 1 insider sale for 2,350 shares)
  • Performance over the last quarter at 156.03.07%
  • The stock is currently trading 30.41% above its 20-day moving average, 55.16% above its 50-day moving average, and 130.46% above its 200-day moving average.

As it did back in the first quarter of 2012, Mannkind didn't report any revenue in the first quarter of the year. The company had a net loss of $41.0 million, or $0.15 per share, compared to a net loss of $38.2 million, or $0.27 per share, during the first quarter of 2012.

MannKind did quite well this past month, recording great gains in comparison to its closest competitors. The stock returned 66.58% since April 30th, surpassing Threshold Pharmaceuticals Inc. (NASDAQ:THLD) and Merrimack Pharmaceuticals, Inc. (NASDAQ:MACK), which returned 21.37% and 11.59%, respectively.

In the pipeline:

The World Health Organization reports that 347 million people suffer from diabetes today, and the disease is expected to be the 7th leading cause of death by 2030. Additionally, Research and Markets expects the global diabetes drug industry to reach $56.9 billion in 2018. Mannkind could potentially capitalize on the demand for diabetic medication with Afrezza, its inhalable insulin treatment. The company just announced the completion of phase 3 clinical study for Afrezza and will release the data from the study later this summer.

*Insider ownership sourced from Yahoo! Finance. All other data sourced from Finviz.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: Business relationship disclosure: Kapitall is a team of analysts. This article was written by Mary-Lynn Cesar, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.

Source: Insiders Are Buying These 3 Rallying Biotech Stocks