Cubist Pharmaceuticals: 4 Different Insiders Have Sold Shares This Year

Jan.17.14 | About: Merck & (MRK)

In this article, I will feature one healthcare stock 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%.

Cubist Pharmaceuticals (CBST) focuses on the research, development, and commercialization of pharmaceutical products for various medical needs in the acute care environment in the United States.

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Insider selling during the last 30 days

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

Name Title Trade Date Shares Sold Rule 10b5-1 Current Ownership Decrease In Ownership
Gregory Stea SVP Jan 15 5,312 Yes 14,523 shares + 19,688 options 13.4%
Robert Perez COO Jan 13-15 20,000 Yes 42,411 shares 32.0%
Kenneth Bate Director Jan 9 10,000 Yes 7,914 shares 55.8%
Steven Gilman CSO Jan 2 25,000 Yes 25,411 shares 49.6%
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There have been 60,312 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 Cubist's insider-trading activity by calendar month.

Month Insider selling / shares Insider buying / shares
January 2014 60,312 0
December 2013 12,500 0
November 2013 62,812 0
October 2013 0 0
September 2013 15,872 0
August 2013 1,024 0
July 2013 43,125 0
June 2013 17,625 0
May 2013 156,863 0
April 2013 20,000 0
March 2013 18,125 0
February 2013 10,030 0
January 2013 125,452 0
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There have been 543,740 shares sold, and there have been zero shares purchased by insiders since January 2013.

Financials

Cubist reported the third-quarter financial results on October 22 with the following highlights:

Revenue $266.0 million
Net loss $33.9 million
Cash $997.8 million
Debt $840.8 million
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News

On January 13, Cubist announced unaudited fourth quarter and full-year 2013 revenues and a pipeline update. Total net revenues for the fourth-quarter 2013 were $299.7 million.

Pipeline and upcoming milestones

Cubist has three approved products and several product candidates in the pipeline.

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(Source: December presentation)

Cubist's upcoming milestones include the following:

Milestone Timing
Ceftolozane/tazobactam NDA submission H1/2014
Ceftolozane/tazobactam MAA submission H2/2014
Tedizolid phosphate PDUFA date June 20, 2014
Interim Phase 3b clinical trial data of DIFICID Q1/2014
Top line data from the surotomycin Phase 3 studies 2015
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Competition

Cubist's competitors include Abbott Laboratories (NYSE:ABT), Pfizer (NYSE:PFE), and Teva Pharmaceutical Industries (NYSE:TEVA). Here is a table comparing these companies.

Company CBST ABT PFE TEVA
Market Cap: 5.55B 61.12B 202.08B 37.19B
Employees: 762 91,000 78,400 45,948
Qtrly Rev Growth (yoy): 0.12 0.02 -0.02 0.02
Revenue: 1.00B 40.21B 56.25B 20.13B
Gross Margin: 0.76 0.62 0.81 0.53
EBITDA: 194.50M 11.04B 24.62B 5.51B
Operating Margin: 0.16 0.23 0.32 0.19
Net Income: 25.27M 6.63B 10.68B 1.21B
EPS: 0.39 1.91 3.62 1.41
P/E: 194.57 20.66 8.61 31.23
PEG (5 yr expected): -277.44 1.62 4.77 -166.00
P/S: 5.53 1.52 3.57 1.86
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Cubist has the highest P/S ratio among these four companies.

Here is a table of these competitors' insider-trading activities during the last 12 months.

Company Insider buying / shares Insider selling / shares
ABT 10,000 385,316
PFE

0

1,428,368
TEVA N/A N/A
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Only Cubist has seen intensive insider selling during the last 30 days.

Conclusion

There have been four different insiders selling Cubist, and there have not been any insiders buying Cubist during the last 30 days. All four of these insiders decreased their holdings by more than 10%. Cubist has an insider ownership of 0.10%.

There are 10 analyst buy ratings, seven neutral ratings, and zero sell ratings with an average price target of $74.41. Before going short Cubist, I would like to get a bearish confirmation from the Point and Figure chart. The two main reasons for the proposed short entry are bearish analyst price targets, 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.