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

(click to enlarge)

Insider selling during the last 30 days

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

NameTitleTrade DateShares SoldRule 10b5-1Current OwnershipDecrease In Ownership
Gregory SteaSVPJan 155,312Yes14,523 shares + 19,688 options13.4%
Robert PerezCOOJan 13-1520,000Yes42,411 shares32.0%
Kenneth BateDirectorJan 910,000Yes7,914 shares55.8%
Steven GilmanCSOJan 225,000Yes25,411 shares49.6%

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.

MonthInsider selling / sharesInsider buying / shares
January 201460,3120
December 201312,5000
November 201362,8120
October 201300
September 201315,8720
August 20131,0240
July 201343,1250
June 201317,6250
May 2013156,8630
April 201320,0000
March 201318,1250
February 201310,0300
January 2013125,4520

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

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:

MilestoneTiming
Ceftolozane/tazobactam NDA submissionH1/2014
Ceftolozane/tazobactam MAA submissionH2/2014
Tedizolid phosphate PDUFA dateJune 20, 2014
Interim Phase 3b clinical trial data of DIFICIDQ1/2014
Top line data from the surotomycin Phase 3 studies2015

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.

CompanyCBSTABTPFETEVA
Market Cap:5.55B61.12B202.08B37.19B
Employees:76291,00078,40045,948
Qtrly Rev Growth (yoy):0.120.02-0.020.02
Revenue:1.00B40.21B56.25B20.13B
Gross Margin:0.760.620.810.53
EBITDA:194.50M11.04B24.62B5.51B
Operating Margin:0.160.230.320.19
Net Income:25.27M6.63B10.68B1.21B
EPS:0.391.913.621.41
P/E:194.5720.668.6131.23
PEG (5 yr expected):-277.441.624.77-166.00
P/S:5.531.523.571.86

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.

CompanyInsider buying / sharesInsider selling / shares
ABT10,000385,316
PFE

0

1,428,368
TEVAN/AN/A

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.

Source: Cubist Pharmaceuticals: 4 Different Insiders Have Sold Shares This Year