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In this article, I will feature one biotech that has 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%.

Alkermes (ALKS) has a diversified portfolio of more than 20 commercial drug products and a substantial clinical pipeline of product candidates that address central nervous system disorders such as addiction, schizophrenia and depression.

(click to enlarge)

Insider selling during the last 30 days

Here is a table of Alkermes' insider-trading activity during the last 30 days by insider.

NameTitleTrade DateShares SoldRule 10b5-1Current OwnershipDecrease In Ownership
Floyd BloomDirectorDec 2620,000Yes110,281 shares15.4%
Gordon PughSVPDec 2022,500Yes68,301 shares24.8%
Elliot EhrichSVPDec 16-1860,854Yes16,579 shares + 1,748 options76.9%
James FratesCFODec 11-1767,874Yes89,514 shares43.1%
Robert BreyerDirectorDec 25,000Yes53,756 shares + 400 options8.5%
Paul MitchellDirectorDec 21,500Yes8,000 shares + 11,000 options7.3%
James BotkinSVPDec 411,000Yes2,509 shares + 56,000 options15.8%

There have been 188,728 shares sold by insiders during the last 30 days. All these shares were sold pursuant to a Rule 10b5-1 plan.

SEC Rule 10b5-1 is a regulation enacted by the United States Securities and Exchange Commission (SEC) in 2000. The SEC states that Rule 10b5-1 was enacted in order to resolve an unsettled issue over the definition of insider trading, which is prohibited by SEC Rule 10b-5. After Rule 10b5-1 was enacted, the SEC staff publicly took the position that canceling a planned trade made under the safe harbor does not constitute insider trading, even if the person was aware of the inside information when canceling the trade. This staff interpretation raises the possibility that executives can exploit this safe harbor by entering into 10b5-1 trading plans before they have inside information while retaining the option to later cancel those plans based on inside information.

For example, a CEO of a company could call a broker on January 1 and enter into a plan to sell a particular quantity of shares of his company's stock on March 1, find out terrible news about his company on February 1 that will not become public until April 1, and then go forward with the March 1 sale anyway, saving himself from losing money when the bad news becomes public. Under the terms of Rule 10b5-1(b) this is insider trading because the CEO "was aware" of the inside information when he made the trade. But he can assert an affirmative defense under Rule 10b5-1(c), because he planned the trade before he learned the inside information.

In general, it is a safer way for an insider to sell shares pursuant to a Rule 10b5-1 trading plan than without it.

Insider selling by calendar month

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

MonthInsider selling / sharesInsider buying / shares
December 2013188,7280
November 201351,0710
October 201325,2180
September 2013159,9330
August 2013242,7500
July 2013345,9800
June 201365,4890
May 201368,1720
April 201389,5000
March 201393,9990
February 201395,0000
January 2013490,0910

There have been 1,915,931 shares sold, and there have been zero shares purchased by insiders this year.

Financials

Alkermes reported the fiscal 2014 second-quarter, which ended September 30, financial results on October 31 with the following highlights:

Revenue$139.8 million
GAAP Net loss$7.8 million
Cash$395.2 million
Debt$365.9 million

Outlook

Alkermes' guidance for the nine-month period ending December 31, 2013 is as follows:

Revenue$395-$425 million
GAAP net loss$0-$25 million
Non-GAAP net income$85-$105 million

Pipeline and upcoming milestones

Alkermes has more than 20 commercial products and seven product candidates in the clinical stage pipeline.

(click to enlarge)

(Source: November presentation)

Alkermes has completed enrollment in the Aripiprazole Lauroxil multinational Phase 3 program and expects to report top-line data in the first half of 2014.

(click to enlarge)

(Source: November presentation)

Competition

Alkermes' competitors include Eli Lilly and Company (LLY) with Zyprexa Relprevv, and Forest Laboratories (FRX) with Campral. Here is a table comparing these companies.

CompanyALKSLLYFRX
Market Cap:5.58B55.36B16.06B
Employees:1,23038,3505,800
Qtrly Rev Growth (yoy):0.130.060.14
Revenue:577.76M23.26B3.21B
Gross Margin:0.680.790.79
EBITDA:153.86M7.26B148.81M
Operating Margin:0.120.25-0.01
Net Income:18.83M4.78B-14.90M
EPS:0.144.37-0.06
P/E:297.8111.73N/A
PEG (5 yr expected):N/AN/A1.01
P/S:9.732.374.97

Alkermes has the highest P/S ratio among these three companies.

Here is a table of these competitors' insider-trading activities this year.

CompanyInsider buying / sharesInsider selling / shares
LLY0122,646
FRX059,197

Only Alkermes has seen intensive insider selling during the last 30 days.

Conclusion

There have been seven different insiders selling Alkermes, and there have not been any insiders buying Alkermes during the last 30 days. Five of these seven insiders decreased their holdings by more than 10%. Alkermes has an insider ownership of 0.70%.

There are five analyst buy ratings, three neutral ratings, and two sell ratings with an average price target of $36.17. Before entering short Alkermes, I would like to get a bearish confirmation from the Point and Figure chart. The three main reasons for the proposed short entry are bearish analyst price targets, relatively high P/S ratio, and the intensive insider-selling activity.

Source: Alkermes: 7 Different Insiders Have Sold Shares This Month