2 Biotechs With Recent Intensive Insider Selling

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Includes: GILD, SNTS, XBI
by: Markus Aarnio

The SPDR S&P Biotech Index ETF (NYSEARCA:XBI) was trading as low as $43.06 in March 2009. The index is currently trading at $111.97, or 160.0% above the low made in March 2009.

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In this article, I will feature two biotechs 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. Santarus (NASDAQ:SNTS), a specialty biopharmaceutical company, engages in acquiring, developing, and commercializing proprietary products that address the needs of patients treated by physician specialists.

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Insider selling by insider (last 30 days)

  • Carey Fox sold 17,100 shares on July 8 pursuant to a Rule 10b5-1 trading plan. Carey Fox currently holds 24,567 shares and 51,300 options or 0.1% of the company. Carey Fox is Senior Vice President, General Counsel.
  • Maria Bedoya-Toro sold 10,000 shares on July 8 pursuant to a Rule 10b5-1 trading plan. Maria Bedoya-Toro currently holds 48,695 shares and 32,101 options or 0.1% of the company. Maria Bedoya-Toro is Senior Vice President, Regulatory Affairs and Quality Assurance.
  • Michael Step sold 30,301 shares on July 5 pursuant to a Rule 10b5-1 trading plan. Michael Step currently holds 30,308 options or less than 0.1% of the company. Michael Step is Senior Vice President, Corporate Development.
  • Warren Hall sold 28,749 shares on July 3 pursuant to a Rule 10b5-1 trading plan. Warren Hall currently holds 7,630 shares and 53,870 options or less than 0.1% of the company. Warren Hall is Senior Vice President, Manufacturing and Product Development.
  • David Ballard sold 9,000 shares on July 2 pursuant to a Rule 10b5-1 trading plan. David Ballard currently holds 9,000 options or less than 0.1% of the company. David Ballard is Senior Vice President, Medical Affairs and Pharmacovigilance.
  • William Denby sold 25,050 shares on July 1 pursuant to a Rule 10b5-1 trading plan. William Denby currently holds 73,350 options or 0.1% of the company. William Denby is Senior Vice President, Commercial Operations.

Insider selling by calendar month

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

Month Insider selling / shares Insider buying / shares
July 2013 120,200 0
June 2013 102,715 0
May 2013 5,177,011 0
April 2013 198,316 0
March 2013 334,366 0
February 2013 287,369 0
January 2013 0 0
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There have been 6,219,977 shares sold and there have been zero shares purchased by the insiders this year.

Financials

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

Revenue $79.4 million
Net income $18.7 million
Cash $97.6 million
Debt $9.9 million
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Outlook

Santarus's financial outlook for full year 2013 is as follows:

  • Total revenues of approximately $330 million to $340 million.
  • Net income of approximately $57 million to $64 million, and diluted EPS of $0.72 to $0.81.
  • Adjusted EBITDA, or non-GAAP adjusted earnings, of approximately $81 million to $91 million and non-GAAP adjusted diluted EPS of $1.03 to $1.15.

Upcoming milestones

The company has the following upcoming milestones:

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Competition

Santarus's products have the following competitors.

Uceris competes with many other products, including:

  • branded 5-aminosalicylate prescription products (such as Asacol, Lialda, Pentasa and Apriso);
  • generic 5-aminosalicylate prescription products (such as sulfasalzine, mesalamine, and balsalazide);
  • generic prescription corticosteroids (such as prednisone and hydrocortisone);
  • branded and generic prescription immunosuppressive products (such as aziothioprine and 6-mercaptopurine); and
  • branded anti-TNF- a prescription products (such as Remicade and Humira).

Zegerid (branded and authorized generic) competes with many other products, including:

  • branded PPI prescription products (such as Nexium, Aciphex and Dexilant);
  • generic PPI prescription products (such as delayed-release omeprazole, delayed-release lansoprazole and delayed-release pantoprazole);
  • OTC PPI products (such as Prilosec OTC, Prevacid 24HR and store-brand versions); and
  • other prescription and/or OTC acid-reducing agents (such as histamine-2 receptor antagonists and antacids).

Glumetza competes with many other products, including:

  • other branded immediate-release and extended-release metformin products (such as Fortamet, Glucophage and Glucophage XR);
  • branded extended-release metformin combination products (such as Janumet XR and Kombiglyze XR);
  • generic immediate-release and extended-release metformin products; and
  • other prescription diabetes treatments.

Cycloset competes with many other products, including:

  • dipeptidyl peptidase IV inhibitors, or DPP-4, products (such as Januvia and Onglyza);
  • glucagon-like peptide 1, or GLP-1, receptor agonist products (such as Byetta, Victoza and Bydureon);
  • thiazolidinedione, or TZD, products (such as Avandia and Actos);
  • sulfonylureas products (such as Amaryl and Glynase); and
  • branded and generic metformin products.

Fenoglide competes with many other products, including:

  • other branded and generic formulations of fenofibrate (such as Tricor, Antara and Lipofen), gemfibrozil (such as Lopid), and fenofibric acid (such as Trilipix); and
  • other prescription treatments for primary hyperlipidemia, mixed dyslipidemia, and hypertriglyceridemia (such as statins and niacin).

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 0.60%. The stock is trading at a P/E ratio of 46.66 and a forward P/E ratio of 17.71. 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.

2. Gilead Sciences (NASDAQ:GILD), a biopharmaceutical company, discovers, develops, and commercializes human therapeutics for the treatment of life threatening diseases in North America, Europe, and Asia.

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Insider selling by insider (last 30 days)

  • Robin Washington sold 45,600 shares on July 1 pursuant to a Rule 10b5-1 trading plan. Robin Washington currently holds 27,130 shares and 268,200 options or less than 0.1% of the company. Robin Washington joined Gilead in 2008 and is currently Senior Vice President and Chief Financial Officer.
  • John Martin sold 282,242 shares on July 1 pursuant to a Rule 10b5-1 trading plan. John Martin currently holds 4,057,121 shares and 1,411,210 options or 0.4% of the company. Dr. Martin joined Gilead Sciences in 1990 and currently serves as Chairman of the Board of Directors and Chief Executive Officer.
  • Gregg Alton sold 30,000 shares on July 1 pursuant to a Rule 10b5-1 trading plan. Gregg Alton currently holds 55,938 shares and 66,742 options or less than 0.1% of the company. Gregg Alton is Executive Vice President, Corporate and Medical Affairs.
  • John Cogan sold 17,000 shares on July 2 pursuant to a Rule 10b5-1 trading plan. John Cogan currently holds 39,542 shares and 17,000 options or less than 0.1% of the company. John Cogan joined Gilead's Board of Directors in July 2005 and was appointed Lead Independent Director in May 2013.

Insider selling by calendar month

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

Month Insider selling / shares Insider buying / shares
July 2013 374,842 0
June 2013 422,242 0
May 2013 312,242 0
April 2013 326,210 0
March 2013 416,346 0
February 2013 312,242 10,000
January 2013 267,671 0
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There have been 2,431,795 shares sold and there have been 10,000 shares purchased by the insiders this year.

Financials

The company reported the first-quarter financial results on May 2 with the following highlights:

Revenue $2.5 billion
Net income $722.2 million
Cash $2.6 billion
Debt $8.0 billion
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Outlook

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

Net product sales $10,000 - $10,200 million
Non-GAAP product gross margin 74%-76%
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Competition

Gilead Sciences' competitors include GlaxoSmithKline (NYSE:GSK), Pfizer (NYSE:PFE) and Roche Holding AG (OTCQX:RHHBY). Here is a table comparing these companies.

Company GILD GSK PFE RHHBY
Market Cap: 83.53B 126.45B 201.65B 213.44B
Employees: 5,000 99,488 89,400 79,132
Qtrly Rev Growth (yoy): 0.11 -0.03 -0.09 0.12
Revenue: 9.95B 42.21B 57.60B 50.83B
Gross Margin: 0.75 0.71 0.81 0.75
EBITDA: 4.35B 14.49B 25.34B 19.12B
Operating Margin: 0.41 0.28 0.32 0.33
Net Income: 2.87B 6.78B 10.52B 10.22B
EPS: 1.79 2.74 2.09 2.99
P/E: 30.72 19.08 13.62 21.05
PEG (5 yr expected): 1.05 3.98 4.68 2.17
P/S: 8.34 2.96 3.49 4.17
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Gilead Sciences has the highest P/S ratio among these four companies.

My analysis

There have been four 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 0.60%. The stock is trading at a P/E ratio of 30.72 and a forward P/E ratio of 18.46. The company has a book value of $6.67 per share. 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.

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.