2 Biotechs With Recent Intensive Insider Selling

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 |  Includes: BIIB, CCXI
by: Markus Aarnio

The healthcare sector has been the best-performing sector year to date with a gain of 18.3%.

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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. Biogen Idec (NASDAQ:BIIB) discovers, develops, manufactures, and markets therapies for the treatment of neurodegenerative diseases, hemophilia, and autoimmune disorders in the United States and internationally.

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Insider selling by insider (last 30 days)

  • Alexander Denner sold 2,900 shares on June 14 pursuant to a Rule 10b5-1 trading plan. Alexander Denner currently holds 6,325 shares or less than 0.1% of the company. Alexander Denner serves as a director of the company.
  • Stelios Papadopoulos sold 2,020 shares on June 11 pursuant to a Rule 10b5-1 trading plan. Stelios Papadopoulos currently holds 14,235 shares or less than 0.1% of the company. Stelios Papadopoulos serves as a director of the company.
  • Brian Posner sold 2,020 shares on June 11 pursuant to a Rule 10b5-1 trading plan. Brian Posner currently holds 9,435 shares or less than 0.1% of the company. Brian Posner serves as a director of the company.
  • Lynn Schenk sold 2,000 shares on June 10 pursuant to a Rule 10b5-1 trading plan. Lynn Schenk currently controls 10,020 shares or less than 0.1% of the company. Lynn Schenk serves as a director of the company.
  • George Scangos sold 1,598 shares on June 3 pursuant to a Rule 10b5-1 trading plan. George Scangos currently holds 48,911 shares or less than 0.1% of the company. George Scangos was appointed Chief Executive Officer and a member of the Board of Directors in June 2010.
  • Stephen Sherwin sold 12,825 shares on June 3 pursuant to a Rule 10b5-1 trading plan. Stephen Sherwin currently holds 2,655 shares and 22,175 options or less than 0.1% of the company. Stephen Sherwin serves as a director of the company.

Insider selling by calendar month

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

Month Insider selling / shares Insider buying / shares
June 2013 23,363 0
May 2013 83,448 0
April 2013 25,210 0
March 2013 65,153 0
February 2013 14,098 0
January 2013 0 0
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There have been 211,272 shares sold and zero shares purchased by the insiders this year.

Financials

The company reported the first-quarter financial results on April 25 with the following highlights:

Revenue $1.4 billion
Net income $426.7 million
Cash $3.6 billion
Debt $915.1 million
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As of March 31, Biogen Idec had cash, cash equivalents and a reverse repurchase agreement totaling approximately $3.6 billion, of which the company used $3.25 billion to fund its acquisition of Tysabri rights from Elan (NYSE:ELN) on April 2, 2013.

Outlook

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

  • Revenue growth is expected to be approximately 16% to 18%.
  • Cost of Sales is expected to be approximately 13% to 15% of total revenue.
  • R&D expense is expected to be approximately 22% to 23% of total revenue.
  • R&D expense includes up to $75 million earmarked for potential new business development deals.
  • SG&A expense is expected to be approximately 24% to 26% of total revenue.
  • Tax expense is expected to be approximately 22% to 23% of pretax income.
  • Non-GAAP diluted EPS is expected to be between $7.80 and $7.90.
  • GAAP diluted EPS is expected to be between $6.69 and $6.79.
  • Capital expenditures are expected to be in the range of $250 to $270 million.
  • Company anticipates an ending 2013 cash balance greater than $1 billion, of which the majority will be located in the U.S.

Pipeline

The Tecfidera launch is currently underway in the U.S. The company has three approved multiple sclerosis [MS] products in the U.S. The products are Tecfidera, Tysabri and Avonex. Biogen Idec believes that it is the global leader in the treatment of MS. Here is a picture of Biogen Idec's development pipeline.

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Upcoming milestones

The company has three potential new products coming forward in the next 18 months.

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Competition

Biogen Idec's competitors include Pfizer (NYSE:PFE). Here is a table comparing these two companies.

Company BIIB PFE
Market Cap: 51.08B 198.68B
Employees: 5,950 89,400
Qtrly Rev Growth (yoy): 0.10 -0.09
Revenue: 5.64B 57.60B
Gross Margin: 0.90 0.81
EBITDA: 2.34B 25.34B
Operating Margin: 0.35 0.32
Net Income: 1.50B 10.52B
EPS: 6.30 2.09
P/E: 34.15 13.41
PEG (5 yr expected): 1.34 4.66
P/S: 8.79 3.47
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Biogen Idec is trading at a higher P/S ratio than its direct competitor.

My analysis

There have been six 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%. The stock is trading at a P/E ratio of 34.15 and a forward P/E ratio of 21.24. The company has a book value of $30.99 per share. The stock has a $160 price target from the Point and Figure chart. I believe there is an opportunity for a short entry with the $160 target price. I would place a stop loss at $243, which is the all time 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. ChemoCentryx (NASDAQ:CCXI), a biopharmaceutical company, focuses on the discovery, development, and commercialization of orally-administered therapeutics to treat autoimmune diseases, inflammatory disorders, and cancer in the United States.

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Insider selling by insider (last 30 days)

  • Petrus Bekker sold 10,000 shares on June 17-27 pursuant to a Rule 10b5-1 trading plan. Petrus Bekker currently holds 53,594 shares or 0.1% of the company. Petrus Bekker has served as Senior Vice President of Clinical and Medical Affairs since February 2009.
  • Markus Cappel sold 8,033 shares on June 18-21 pursuant to a Rule 10b5-1 trading plan. Markus Cappel currently holds 31,250 shares or less than 0.1% of the company. Markus Cappel has served as Chief Business Officer since February 2007, and Treasurer since August 2004.
  • Roger Lucas sold 5,000 shares on June 3 pursuant to a Rule 10b5-1 trading plan. Roger Lucas currently holds 50,000 shares or 0.1% of the company. Roger Lucas has served as a member of the board of directors since September 1997.

Insider selling by calendar month

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

Month Insider selling / shares Insider buying / shares
June 2013 23,033 0
May 2013 65,513 0
April 2013 21,035 0
March 2013 126,643 0
February 2013 157,634 0
January 2013 38,784 0
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There have been 432,642 shares sold and zero shares purchased by the insiders this year.

Financials

The company reported the first-quarter financial results on May 13 with the following highlights:

Revenue $1.9 million
Net loss $10.2 million
Cash $109.7 million
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ChemoCentryx completed its first follow-on offering in April 2013 of 5,750,000 shares of common stock resulting in net proceeds of $64.4 million. Proceeds are anticipated to be used to fast track the company's CCX140 program, expand its renal franchise and execute an optimal partnership strategy.

Outlook

Projected 2013 cash utilization is expected to range from $40.0 million to $45.0 million.

Upcoming milestones

The company is anticipating the following key milestones in 2013:

  • CCX140, an inhibitor of the chemokine receptor CCR2, and the company's lead independent drug candidate, 12-week interim data from a 52-week Phase II study in diabetic nephropathy expected Q3 2013;
  • Vercirnon (the FDA United States Adopted Name, or USAN designation; also known as Traficet-EN, CCX282 or GSK1605786), an inhibitor of the chemokine receptor CCR9 and the company's most advanced drug candidate, top-line data readout from the SHIELD-1 Phase III clinical trial in Crohn's disease expected 2H 2013 with partner GlaxoSmithKline (NYSE:GSK); and
  • CCX168, an inhibitor targeting the chemoattractant receptor known as C5aR (which binds to the complement fragment C5a) for the treatment of ANCA vasculitis - option decision expected from GSK by Q4 2013.

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Competition

If approved for marketing by the FDA, vercirnon, ChemoCentryx's lead drug candidate for the treatment of inflammatory bowel disease [IBD], would compete against existing IBD treatments such as Remicade, Humira, and other TNF- a inhibitors, immunomodulatory drugs and corticosteroids and potentially against other novel IBD drug candidates that are currently in development. Remicade is a humanized monoclonal antibody targeted to TNF- a, indicated for the treatment of Crohn's disease, ulcerative colitis, rheumatoid arthritis, psoriasis, psoriatic arthritis and ankylosing spondylitis. Annual sales for Remicade totaled at least $7.5 billion in 2012. Humira, a similar drug, is also a human monoclonal antibody that acts as a TNF- a inhibitor. Marketed by Abbott Laboratories in the United States and Europe, Humira is approved for the treatment of Crohn's disease, rheumatoid arthritis, psoriatic arthritis and ankylosing spondylitis. Annual worldwide sales for Humira totaled $9.5 billion in 2012.

ChemoCentryx believes that vercirnon offers three distinct potential advantages as compared to currently used biologic therapies such as Remicade and Humira. First, unlike Remicade and Humira which are given by infusion or injection, vercirnon would be administered orally as a capsule or a tablet. ChemoCentryx expects that oral administration of vercirnon will have a positive effect on patient compliance. Second, given that vercirnon is a small molecule which can be synthesized using standard chemistry processes, the molecule will be cheaper to manufacture than biologic agents which require complex and expensive cell based systems to produce a given biologic agent. The lower cost of goods for vercirnon could result in a more favorable pricing structure which, in turn, could lead to pharmaco-economic benefits for patients and healthcare providers. Third, vercirnon's mode of action may not lead to the broad suppression of the patient's immune system which is often seen with TNF- a inhibitors.

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 5.50%. The company has enough cash to last for another 2-3 years. 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, but may initiate a short position in BIIB over 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.