Seeking Alpha
Long/short equity, insider ownership
Profile| Send Message| ()  

In this article, I will feature one biotech 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%.

Gilead Sciences (GILD) discovers, develops, and commercializes human therapeutics for the treatment of life threatening diseases in North America, Europe, and Asia.

(click to enlarge)

Insider selling during the last 30 days

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

NameTitleTrade DateShares SoldRule 10b5-1Current OwnershipDecrease In Ownership
Paul CarterEVPFeb 1016,728Yes15,133 shares + 24,632 options29.6%
John MartinCEOFeb 3140,625Yes4,256,267 shares + 1,406,258 options2.4%
Gregg AltonEVPJan 21-Feb 3153,000Yes85,516 shares + 58,367 options51.5%
Kevin YoungEVPJan 23100,000Yes

216,418 shares + 107,508 options

23.6%
Norbert BischofbergerCSOJan 1490,000Yes0 shares + 90,000 options50.0%

There have been 500,353 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 Gilead's insider-trading activity by calendar month.

MonthInsider selling / sharesInsider buying / shares
February 2014190,3530
January 2014599,2250
December 2013477,2420
November 20131,676,7930
October 2013477,2420
September 2013537,8420
August 2013570,9620
July 2013713,8420
June 2013422,2420
May 2013312,2420
April 2013326,2100
March 2013416,3460
February 2013312,24210,000
January 2013267,6710

There have been 7,300,454 shares sold, and there have been 10,000 shares purchased by insiders since January 2013.

Financials

Gilead reported the full-year 2013 financial results on February 4 with the following highlights:

Revenue$11.2 billion
Net income$3.1 billion
Cash$2.6 billion
Debt$6.7 billion

(Source: Earnings presentation)

Outlook

Gilead's guidance for the full-year 2014 is as follows:

Net product sales$11,300 - $11,500 million
Non-GAAP product gross margin75%-77%

(Source: Earnings presentation)

Upcoming milestones

Gilead has the following upcoming milestones in 2014.

HIV

(Source: Earnings presentation)

Liver Disease

(Source: Earnings presentation)

Oncology/Inflammation

(Source: Earnings presentation)

Cardiovascular

(Source: Earnings presentation)

Competition

Gilead's competitors include GlaxoSmithKline (GSK), Pfizer (PFE), and Roche Holding AG (OTCQX:RHHBY). Here is a table comparing these companies.

CompanyGILDGSKPFERHHBY
Market Cap:125.85B131.25B205.45B242.01B
Employees:N/AN/AN/A85,080
Qtrly Rev Growth (yoy):0.210.02N/A0.01
Revenue:11.20B42.60B51.58B52.08B
Gross Margin:0.570.700.820.75
EBITDA:4.88B13.45B23.11B20.03B
Operating Margin:0.410.260.330.34
Net Income:3.07B8.74B11.34B11.96B
EPS:1.813.553.203.46
P/E:45.2915.419.9120.57
PEG (5 yr expected):0.642.006.602.45
P/S:11.213.054.014.68

Gilead has the highest P/S ratio among these four companies.

Here is a table of these competitors' insider-trading activities during the last 30 days.

CompanyInsider buying / sharesInsider selling / shares
GSKN/AN/A
PFE0160,000
RHHBYN/AN/A

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

Conclusion

There have been five different insiders selling Gilead, and there have not been any insiders buying Gilead during the last 30 days. Four of these five insiders decreased their holdings by more than 10%. Gilead has an insider ownership of 0.40%.

Gilead has a $69 price target from the Point and Figure chart. I believe there is an opportunity for a short entry with the $69 price target. I would place a stop loss at $85, which is the all-time high. The three main reasons for the proposed short entry are bearish Point and Figure chart, relatively high P/S ratio, and the intensive insider-selling activity.

(click to enlarge)

Source: Gilead Sciences: 5 Different Insiders Have Sold Shares This Year