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:
- The stock was sold by three or more insiders within one month.
- The stock was not purchased by any insiders in the month of intensive selling.
- 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.
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%|
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|
There have been 543,740 shares sold, and there have been zero shares purchased by insiders since January 2013.
Cubist reported the third-quarter financial results on October 22 with the following highlights:
|Net loss||$33.9 million|
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.
(Source: December presentation)
Cubist's upcoming milestones include the following:
|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|
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|
Only Cubist has seen intensive insider selling during the last 30 days.
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.