2 Healthcare Companies With Recent Intensive Insider Selling

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 |  Includes: ALKS, PFE
by: Markus Aarnio

The healthcare sector has been the best-performing sector YTD with a gain of 20.1%.

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In this article, I will feature two healthcare companies that have seen intensive insider selling during the last 30 days. Intensive insider selling can be defined by the following three criteria:

  1. The stock was sold by three or more insiders within one month.
  2. The stock was not purchased by any insiders in the month of intensive selling.
  3. At least two sellers decreased their holdings by more than 10%.

1. Pfizer (NYSE:PFE), a biopharmaceutical company, discovers, develops, manufactures, and sells medicines for people and animals worldwide.

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Insider selling by insider (last 30 days)

  • Amy Schulman sold 70,000 shares on May 15 pursuant to a Rule 10b5-1 trading plan. Amy Schulman currently holds 223,497 shares or less than 0.1% of the company. Amy Schulman is Executive Vice President and General Counsel; Business Unit Lead, Consumer Healthcare.
  • Ian Read sold 69,900 shares on May 15 pursuant to a Rule 10b5-1 trading plan. Ian Read currently holds 1,061,463 shares or less than 0.1% of the company. Ian Read is Chairman of the Board and Chief Executive Officer of Pfizer.
  • Frank Damelio sold 100,000 shares on May 15 pursuant to a Rule 10b5-1 trading plan. Frank Damelio currently holds 485,682 shares or less than 0.1% of the company. Frank Damelio is the Executive Vice President, Business Operations & Chief Financial Officer of Pfizer.

Insider selling by calendar month

Here is a table of Pfizer's insider trading activity by calendar month.

Month Insider selling / shares Insider buying / shares
May 2013 239,900 0
April 2013 0 0
March 2013 307,667 0
February 2013 0 0
January 2013 26,752 0
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There have been 574,319 shares sold and zero shares purchased by the insiders this year.

Financials

The company reported the first-quarter financial results on April 30 with the following highlights:

Revenue $13.5 billion
Net income $2.8 billion
Cash $35.3 billion
Debt $40.4 billion
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Outlook

The company's guidance for the full year 2013 is as follows:

Revenue $55.3-$57.3 billion
EPS $1.44-$1.59
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Competition

Pfizer's competitors include Merck & Co. Inc. (NYSE:MRK), Novartis AG (NYSE:NVS) and Sanofi (NYSE:SNY). Here is a table comparing these companies.

Company PFE MRK NVS SNY Industry Average (Drug Manufacturers - Major)
Market Cap: 201.66B 142.68B 178.37B 141.65B 64.52B
Employees: 89,400 83,000 129,000 111,974 99.49K
Qtrly Rev Growth (yoy): -0.09 -0.09 0.02 -0.09 0.11
Revenue: 57.60B 46.21B 57.80B 45.54B 27.01B
Gross Margin: 0.81 0.65 0.68 0.69 0.61
EBITDA: 25.34B 16.36B 17.15B 15.16B 10.37B
Operating Margin: 0.32 0.21 0.22 0.20 0.16
Net Income: 10.52B 6.02B 9.66B 5.39B N/A
EPS: 2.09 1.96 3.94 2.03 3.27
P/E: 13.61 24.11 18.42 26.38 14.20
PEG (5 yr expected): 4.70 4.47 2.58 2.01 0.96
P/S: 3.50 3.06 3.09 3.11 2.23
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Pfizer is trading above the industry average P/S ratio, which could explain some of the insider selling.

My analysis

There have been three different insiders selling the shares and there have not been any insiders buying the shares during the past 30 days. The company has an insider ownership of 0.05%. The stock is trading at a P/E ratio of 13.61 and a forward P/E ratio of 12.15. The company has a book value of $11.59 per share and the stock has a dividend yield of 3.38%. Before entering short this stock, I would like to get a bearish confirmation from the Point and Figure chart. The two main reasons for the proposed short entry are relatively high P/S ratio and the intensive insider selling activity.

2. Alkermes (NASDAQ:ALKS), an integrated biopharmaceutical company, develops medicines that enhance patient outcomes.

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Insider selling by insider (last 30 days)

  • James Frates sold 8,350 shares on June 12 pursuant to a Rule 10b5-1 trading plan. James Frates currently holds 101,314 shares or less than 0.1% of the company. James Frates serves as Chief Financial Officer of Alkermes.
  • Robert Breyer sold 5,000 shares on June 3 pursuant to a Rule 10b5-1 trading plan. Robert Breyer currently holds 54,506 shares or less than 0.1% of the company. Robert Breyer has been a director of Alkermes since July 1994.
  • Elliot Ehrich sold 44,545 shares on May 20 - June 3 pursuant to a Rule 10b5-1 trading plan. Elliot Ehrich currently holds 16,579 shares or less than 0.1% of the company. Elliot Ehrich is Senior Vice President, Research and Development, and Chief Medical Officer.
  • Rebecca Peterson sold 50,936 shares on May 17-29 pursuant to a Rule 10b5-1 trading plan. Rebecca Peterson currently holds 80,000 options or less than 0.1% of the company. Rebecca Peterson is Senior Vice President, Corporate Communications.
  • Gordon Pugh sold 4,555 shares on May 28 pursuant to a Rule 10b5-1 trading plan. Gordon Pugh currently holds 16,842 shares and 86,698 options or less than 0.1% of the company. Gordon Pugh is Senior Vice President, Chief Operating Officer and Chief Risk Officer.

Insider selling by calendar month

Here is a table of Alkermes' insider trading activity by calendar month.

Month Insider selling / shares Insider buying / shares
June 2013 50,214 0
May 2013 68,172 0
April 2013 89,500 0
March 2013 93,999 0
February 2013 95,000 0
January 2013 490,091 0
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There have been 886,976 shares sold and zero shares purchased by the insiders this year.

Financials

The company reported the full fiscal year 2013, which ended March 31, financial results on May 23 with the following highlights:

Revenue $575.5 million
Net income $25.0 million
Cash $304.2 million
Debt $375 million
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Outlook

Alkermes' outlook for the nine-month period ending Dec. 31, 2013 is as follows:

  • Alkermes expects total revenues to range from $395 million to $425 million for the nine months ending Dec. 31, 2013.
  • The company expects a GAAP net loss in the range of breakeven to a loss of $25 million.
  • The company expects non-GAAP net income to range from $85 million to $105 million.

Upcoming milestones

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Competition

With respect to Alkermes' proprietary injectable product platform, Alkermes is aware that there are other companies developing extended-release delivery systems for pharmaceutical products. Risperdal Consta and Invega Sustenna may compete with a number of other injectable products including Zyprexa Relprevv ((olanzapine) For Extended Release Injectable Suspension), which is marketed and sold by Lilly (NYSE:LLY); a once-monthly injectable formulation of Abilify (aripiprazole) developed by Otsuka Pharmaceutical Co., Ltd., which was approved by the FDA in February 2013 and is commercialized under the name Abilify Maintena; and other products currently in development. Risperdal Consta and Invega Sustenna may also compete with new oral compounds currently on the market or being developed for the treatment of schizophrenia.

In the treatment of alcohol dependence, Vivitrol competes with Campral (acamprosate calcium) sold by Forest Laboratories (NYSE:FRX) and Antabuse sold by Odyssey Pharmaceuticals as well as currently marketed drugs also formulated from naltrexone. Other pharmaceutical companies are developing product candidates that have shown some promise in treating alcohol dependence and that, if approved by the FDA, would compete with Vivitrol.

In the treatment of opioid dependence, Vivitrol competes with methadone, oral naltrexone, and Suboxone (buprenorphine HCl/naloxone HCl dehydrate sublingual tablets), Suboxone (buprenorphine/naloxone) Sublingual Film, and Subutex (buprenorphine HCl sublingual tablets), each of which is marketed and sold by Reckitt Benckiser Pharmaceuticals, Inc. (OTCPK:RBGPF) in the U.S. It also competes with generic versions of Subutex and Suboxone sublingual tablets. Other pharmaceutical companies are developing product candidates that have shown promise in treating opioid dependence and that, if approved by the FDA, would compete with Vivitrol.

Bydureon competes with established therapies for market share. Such competitive products include sulfonylureas, metformin, insulins, thiazolidinediones, glinides, dipeptidyl peptidase type IV inhibitors, insulin sensitizers, alpha-glucosidase inhibitors and sodium-glucose transporter-2 inhibitors. Bydureon also competes with other glucagon-like peptide-1 (GLP-1) agonists, including Victoza (liraglutide (rDNA origin) injection), which is marketed and sold by Novo Nordisk A/S (NYSE:NVO). Other pharmaceutical companies are developing product candidates for the treatment of type 2 diabetes that, if approved by the FDA, could compete with Bydureon.

Ampyra/Fampyra is, to Alkermes' knowledge, the first product that is approved as a treatment to improve walking in patients with MS. However, there are a number of FDA-approved therapies for MS disease management that seek to reduce the frequency and severity of exacerbations or slow the accumulation of physical disability for people with certain types of MS. These products include Avonex from Biogen Idec (NASDAQ:BIIB), Betaseron from Bayer HealthCare Pharmaceuticals (OTCPK:BAYZF), Copaxone from Teva Pharmaceutical Industries Ltd. (NYSE:TEVA), Rebif from Merck Serono, Tysabri and Tecfidera from Biogen Idec, Gilenya and Extavia from Novartis AG, and Aubagio from Sanofi-Aventis.

My analysis

There have been five different insiders selling the shares and there have not been any insiders buying the shares during the past 30 days. The company has an insider ownership of 0.71%. The stock is trading at a P/E ratio of 163.89 and a forward P/E ratio of 28.10. Before entering short this stock, I would like to get a bearish confirmation from the Point and Figure chart. The main reason for the proposed short entry is the intensive insider selling activity.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.