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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%.

Intercept Pharmaceuticals (NASDAQ:ICPT) focuses on the development and commercialization of novel therapeutics to treat chronic liver diseases utilizing its proprietary bile acid chemistry.

(click to enlarge)

Insider selling during the last 30 days

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

NameTitleTrade DateShares SoldRule 10b5-1Current OwnershipDecrease In Ownership
Srinivas AkkarajuDirectorJan 163,250Yes2,916 shares + 8,749 options21.8%
Barbara DuncanCFOJan 155,625Yes10,708 shares + 16,875 options16.9%
Mark PruzanskiCEOJan 1610,000Yes430,298 shares + 240,960 options1.5%
David ShapiroCMOJan 84,928Yes8,663 shares + 98,339 options4.4%
Luciano AdoriniCSOJan 71,634Yes6,392 shares + 8,000 options10.2%
Lorenzo TallarigoDirectorJan 71,839Yes5,940,530 shares0.03%

There have been 27,276 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 Intercept's insider-trading activity by calendar month.

MonthInsider selling / sharesInsider buying / shares
January 201427,2760
December 20135,2760
November 20136,8920
October 20131,672,0630
September 201340,1000
August 201329,0290
July 201393,8690
June 201395,0910
May 201339,4410
April 20133,7500
March 201300
February 201300
January 201300

There have been 2,012,787 shares sold, and there have been zero shares purchased by insiders since January 2013.

Financials

Intercept reported the third-quarter financial results on November 14 with the following highlights:

Revenue$0.5 million
Net loss$6.2 million
Cash$156.8 million

Outlook

Based upon currently expected level of operating expenditures, Intercept believes that it will be able to fund its operations through early 2016.

News

On January 9, Intercept announced that the FLINT trial of obeticholic acid (OCA) for the treatment of nonalcoholic steatohepatitis had been stopped early for efficacy based on a planned interim analysis showing that the primary endpoint of the trial had been met.

Pipeline and upcoming milestones

Intercept's product candidates have the potential to treat orphan and more prevalent liver and intestinal diseases for which there currently are limited therapeutic solutions.

(Source: January presentation)

Intercept has the following upcoming milestones:

(Source: January presentation)

Competition

Intercept's competitors include Eli Lilly (NYSE:LLY), and Exelixis (NASDAQ:EXEL). Here is a table comparing these companies.

CompanyICPTLLYEXEL
Market Cap:5.66B59.58B1.49B
Employees:2538,350174
Qtrly Rev Growth (yoy):-0.470.06-0.59
Revenue:2.09M23.26B34.81M
Gross Margin:1.000.790.98
EBITDA:-22.23M7.26B-170.83M
Operating Margin:-10.690.25-5.02
Net Income:-53.05M4.78B-226.21M
EPS:-5.534.37-1.23
P/E:N/A12.62N/A
PEG (5 yr expected):N/A-7.200.26
P/S:3,310.132.5743.13

Intercept doesn't have any approved products yet.

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

CompanyInsider buying / sharesInsider selling / shares
LLY0122,646
EXEL10,0000

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

Conclusion

There have been six different insiders selling Intercept, and there have not been any insiders buying Intercept during the last 30 days. Three of these six insiders decreased their holdings by more than 10%. Intercept has an insider ownership of 33.10%.

Before going short Intercept, 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.

Source: Intercept Pharmaceuticals: 6 Different Insiders Have Sold Shares This Year