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The healthcare sector has been the best-performing sector YTD with a gain of 21.3%.

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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. Illumina (NASDAQ:ILMN) develops, manufactures, and markets life science tools and integrated systems for the analysis of genetic variation and biological function in North America, Europe, Latin America, the Asia-Pacific, the Middle East, and South Africa.

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Insider selling by insider (last 30 days)

  • David Walt sold 15,000 shares on May 15 - June 12 pursuant to a 10b5-1 plan. David Walt currently holds 961,488 shares or 0.8% of the company. David Walt is one of the founders and has been a director and Chairman of Scientific Advisory Board since June 1998.
  • Mostafa Ronaghi sold 24,000 shares on June 11 pursuant to a 10b5-1 plan. Mostafa Ronaghi currently holds 30,051 shares and 222,000 options or 0.2% of the company. Mostafa Ronaghi is Senior Vice President & Chief Technology Officer.
  • Karin Eastham sold 10,000 shares on June 3 pursuant to a 10b5-1 plan. Karin Eastham currently holds 8,284 shares or less than 0.1% of the company. Karin Eastham has been a director since July 2004.
  • Mark Lewis sold 13,000 shares on May 31 pursuant to a 10b5-1 plan. Mark Lewis currently holds 44,552 shares or less than 0.1% of the company. Mark Lewis is Senior Vice President and General Manager of Molecular Biology and PCR at Illumina.
  • Michel Bouchard sold 20,517 shares on May 15-29 pursuant to a 10b5-1 plan. Michel Bouchard currently holds 29,961 shares or less than 0.1% of the company. Michel Bouchard is Vice President, Finance.
  • Matthew Posard sold 2,836 shares on May 30 pursuant to a 10b5-1 plan. Matthew Posard currently holds 30,858 shares or less than 0.1% of the company. Matthew Posard is Senior Vice President and General Manager of Illumina's Translational & Consumer Genomics Business.
  • Jay Flatley sold 24,000 shares on May 21-23 pursuant to a 10b5-1 plan. Jay Flatley currently holds 399,509 shares and 390,000 options or 0.6% of the company. Jay Flatley was appointed President and CEO of Illumina in 1999.
  • Marc Stapley sold 2,843 shares on May 20 pursuant to a 10b5-1 plan. Marc Stapley currently holds 24,851 shares and 91,003 options or 0.1% of the company. Marc Stapley is Senior Vice President and Chief Financial Officer for Illumina.
  • Nicholas Naclerio sold 2,000 shares on May 15 pursuant to a 10b5-1 plan. Nicholas Naclerio currently holds 24,559 shares and 181,000 options or 0.2% of the company. Nicholas Naclerio is Senior Vice President, Corporate Development.

Insider selling by calendar month

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

MonthInsider selling / sharesInsider buying / shares
June 201339,0000
May 2013179,1960
April 2013244,3970
March 201326,6010
February 201310,0000
January 2013100,5000

There have been 599,694 shares sold and zero shares purchased by the insiders this year.

Financials

The company reported the first-quarter financial results on April 22 with the following highlights:

Revenue$331.0 million
Net loss$22.6 million
Cash$1.1 billion
Debt$860.7 million

Outlook

For 2013 Illumina is projecting 15% total company revenue growth and non-GAAP earnings per fully diluted share of $1.55 to $1.62.

Competition

Illumina's competitors include Affymetrix (NASDAQ:AFFX), Life Technologies Corporation (NASDAQ:LIFE) and Luminex Corporation (NASDAQ:LMNX). Here is a table comparing these companies.

CompanyILMNAFFXLIFELMNXIndustry Average (Biotechnology)
Market Cap:8.46B251.69M12.76B837.56M71.76B
Employees:2,4001,10010,000687450.00
Qtrly Rev Growth (yoy):0.210.200.030.090.27
Revenue:1.21B308.32M3.82B207.05M13.93B
Gross Margin:0.690.550.650.710.72
EBITDA:343.43M19.02M1.20B35.40M1.51B
Operating Margin:0.23-0.070.210.100.13
Net Income:102.46M-21.92M419.41M6.37MN/A
EPS:0.78-0.312.360.160.61
P/E:87.39N/A31.40129.1018.43
PEG (5 yr expected):2.40N/A1.771.231.51
P/S:7.000.843.344.143.64

Illumina's P/S ratio is above the industry average, which could explain some of the insider selling.

My analysis

There have been nine 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 1.52%. The stock is trading at a P/E ratio of 87.39 and a forward P/E ratio of 34.34. The company has a book value of $10.54 per share. The stock has a $61 price target from the Point and Figure chart. I believe there is an opportunity for a short entry with the $61 target price. I would place a stop loss at $75, which is the 52-week high. The three main reasons for the proposed short entry are relatively high P/S ratio, bearish Point and Figure chart and the intensive insider selling activity.

2. Alnylam Pharmaceuticals (NASDAQ:ALNY), a biopharmaceutical company, engages in discovering, developing, and commercializing novel therapeutics based on RNA interference [RNAi].

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Insider selling by insider (last 30 days)

  • Akshay Vaishnaw sold 15,000 shares on June 11 pursuant to a Rule 10b5-1 trading plan. Akshay Vaishnaw currently holds 12,588 shares and 86,250 options or 0.2% of the company. Akshay Vaishnaw is Executive Vice President and Chief Medical Officer.
  • Laurence Reid sold 5,000 shares on May 28 pursuant to a Rule 10b5-1 trading plan. Laurence Reid currently holds 11,681 shares and 30,000 options or less than 0.1% of the company. Laurence Reid is Senior Vice President, Chief Business Officer.
  • Barry Greene sold 22,822 shares on May 28 pursuant to a Rule 10b5-1 trading plan. Barry Greene currently holds 4,572 shares or less than 0.1% of the company. Barry Greene is President and Chief Operating Officer.

Insider selling by calendar month

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

MonthInsider selling / sharesInsider buying / shares
June 201315,0000
May 201327,8220
April 201300
March 2013106,9390
February 201363,5030
January 201304,967

There have been 213,264 shares sold and 4,967 shares purchased by the insiders this year.

Financials

The company reported the first-quarter financial results on May 6 with the following highlights:

Revenue$18.6 million
Net loss$9.0 million
Cash$400.8 million

Outlook

The company expects that its cash, cash equivalents and total marketable securities balance will be greater than $320 million at December 31, 2013.

Upcoming milestones

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Competition

Companies working on chemically synthesized siRNAs include Merck (NYSE:MRK), through its subsidiary Sirna Therapeutics, Inc., Novartis (NYSE:NVS), Takeda (OTCPK:TKPHF), Kyowa Hakko Kirin, Marina Biotech, Inc., Arrowhead and its subsidiary, Calando, Quark, Silence Therapeutics plc, Tekmira (NASDAQ:TKMR), Sylentis and Dicerna Pharmaceuticals, Inc.

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 0.10% and the company has a book value of $5.01 per share. 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.

Source: 2 Biotechs With Recent Intensive Insider Selling