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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%.

GenMark Diagnostics (GNMK) engages in the development, manufacturing, marketing, sale, and support of instruments and molecular tests based on its proprietary eSensor detection technology in the United States.

(click to enlarge)

Insider selling during the last 30 days

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

NameTitleTrade DateShares SoldRule 10b5-1Current OwnershipDecrease In Ownership
Michael GleesonSVPJan 1520,000Yes165,587 shares10.8%
Jon KayyemSVPJan 2-16156,000Yes838,048 shares15.7%
Jennifer WilliamsSVPJan 1325,000Yes203,663 shares10.9%

There have been 201,000 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 GenMark's insider-trading activity by calendar month.

MonthInsider selling / sharesInsider buying / shares
January 2014201,0000
December 201300
November 201300
October 20136,0000
September 201300
August 201300
July 20136,0000
June 201300
May 201300
April 20136,0000
March 201397,2530
February 201300
January 201300

There have been 316,253 shares sold, and there have been zero shares purchased by insiders since January 2013. The month of January 2014 has seen the most insider selling.

Financials

GenMark reported the third-quarter financial results on November 12 with the following highlights:

Revenue$4.6 million
Net loss$10.8 million
Cash$112.5 million
Debt$160,000

Outlook

GenMark's 2013 revenue guidance is $27 million.

Richard Slansky, Chief Financial Officer of GenMark, commented on November 12:

"Based on prolonged reimbursement challenges and the recently published CMS rates for the new pharmacogenetics or PGX test codes, we expect emerging PGX sector to experience additional downward pressure in the near term. Primarily, as a result of these changes, we are adjusting our 2013 revenue guidance to approximately $27 million and now expect more modest PGX purchasing patterns in 2014."

Competition

GenMark's competitors include Cepheid (CPHD), Hologic (HOLX), and Nanosphere (NSPH). Here is a table comparing these companies.

CompanyGNMKCPHDHOLXNSPH
Market Cap:577.84M3.28B6.17B159.24M
Employees:1309455,615151
Qtrly Rev Growth (yoy):-0.120.240.051.74
Revenue:30.40M380.46M2.48B8.16M
Gross Margin:0.450.500.620.67
EBITDA:-24.01M22.33M842.55M-30.62M
Operating Margin:-0.860.000.13-4.03
Net Income:-27.70M-2.00M-1.17B-33.43M
EPS:-0.84-0.03-4.37-0.58
P/E:N/AN/AN/AN/A
PEG (5 yr expected):-0.52-14.652.00-0.25
P/S:19.178.812.4920.78

GenMark has the second-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
CPHD0438,550
HOLX

0

721,384
NSPH70,0000

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

Conclusion

There have been three different insiders selling GenMark, and there have not been any insiders buying GenMark during the last 30 days. All three of these insiders decreased their holdings by more than 10%. GenMark has an insider ownership of 2.20%.

Before going short GenMark, I would like to get a bearish confirmation from the Point and Figure chart. The two main reasons for the proposed short entry are weak revenue guidance, and the intensive insider-selling activity.

Source: GenMark Diagnostics: 3 Different Insiders Have Sold Shares This Year