During the past week, corporate insiders traded a number of healthcare stocks, including UnitedHealth Group Inc. (NYSE:UNH) and Stryker Corp. (NYSE:SYK). Many of these were regular trades in the open market, and others were automatic trades made under SEC Rule 10b5-1.
It is generally believed that regular insider share purchases and sales in the open market carry more predictive value as they are made voluntarily by the insiders. Conversely, trades made under SEC Rule 10b5-1, called “Automatic Buys” and “Automatic Sells”, are part of a pre-determined plan or contract, and it is assumed that the plan was created before the insider had any privileged non-public information.
While insiders are prohibited from trading based on nonpublic information, most believe that such trading does occur around the edges. The thinking goes that corporate insiders, because of their access, have the most up-to-date information on the health of their companies and the industries they operate in. Investors, as a result, can benefit from the timely knowledge of insider transactions. In fact, one University of Michigan study found that when executives bought shares in their own companies, the stocks tended to outperform the total market by 8.9% over the next 12 months. Conversely, when they sold shares, the stock underperformed by 5.4%.
Furthermore, even automated trades made under 10b5-1 have some predictive value due to loopholes in the rule that, for example, allow the insider to cancel the trading plan without any penalty or legal liability. So, the insider could set up a 10b5-1 trading plan before they have inside information (for example, from a quarterly report and guidance) while retaining the option to later cancel the plan based on the inside information. So, in effect, the execution of an automated trade also carries some predictive value as insiders retain the option under the existing rules to cancel their trades without penalty or legal liability.
Insider trading as defined here (and by the SEC) includes not just corporate insiders, such as company executives and key employees, but also directors and large shareholders that have access to non-public information. Large shareholders are defined by the SEC for this purpose as those that have beneficial ownership of ten percent of more of the firm’s equity securities (including institutional investors). Furthermore, like in the 13-D and 13-G filings for Institutions, the SEC Forms 3 and 4 on insider filings are extremely timely, and hence of greater significance, as they must be reported within two business days of the trade.
The following is our summary of the most recent major insider filings in the healthcare sector during the last week:
UnitedHealth Group Inc. (UNH): UNH is a provider of managed healthcare services through HMO and government contracts to over 75 million members in the U.S. Insiders currently hold 0.8% of company shares, and during the last week, Director Richard Burke sold in the open market 100,000 shares or 1.09% of the total number of shares held (directly and indirectly) by insiders. During the past year, 36 UNH insiders have sold a total 1.89 million shares or 17.2% of the total number of shares held by insiders; only two insiders bought UNH stock in the last year, buying a total of 3,000 shares.
Anadys Pharmaceuticals (NASDAQ:ANDS): ANDS is a biopharmaceutical company, engaged in developing novel medicines for the treatment of hepatitis C in the U.S. Insiders currently hold 2.2% of company shares, and during the last week, ex-Deutsche Bank proprietary trader Daniel Gold’s hedge fund QVT Financial sold 650,100 shares; QVT by virtue of holding 10.77 million shares of ANDS or 18.84% of outstanding shares is considered an (institutional) insider. During the past year, no other insiders have sold ANDS. However, six insiders bought 2.9 million ANDS shares, or 10.8% of the total number of shares held by insiders, during the past year.
Stryker Corp. (SYK): SYK is a developer of orthopedic implants, surgical instruments, imaging systems and operating room and emergency medical equipment. Insiders currently hold 1.5% of company shares, and during the last week, Director Ronda Stryker sold in the open market 18,000 shares or 0.02% of the total number of shares held (directly and indirectly) by insiders. During the past year, 175 SYK insiders have sold a total 1.91 million shares or 1.68% of the total number of shares held by insiders; only three insiders bought SYK stock in the last year, buying 2,750 shares.
Nanosphere Inc. (NASDAQ:NSPH): NSPH is a developer of an advanced molecular diagnostic platform to enable low-cost and highly sensitive genomic and protein testing. Insiders currently hold 20.7% of company shares, and during the last week, Director and 10% owner Mark Slezak bought 285,235 shares in the open market, increasing his holdings in the company to 8.84 million shares or 20.1% of the outstanding shares. During the past year, 15 NSPH insiders have bought a total 3.58 million shares; no insiders sold NSPH stock in the last year.
Neoprobe Corp. (NEOP): NEOP is engaged in the development and commercialization of gamma-guided surgery products for the diagnosis and treatment of cancers. It is actively developing two radiopharmaceutical agent platforms, Lymphoseek® and RIGScanTM CR, to help surgeons better identify and treat certain types of cancer. Furthermore, NEOP's subsidiary, Cira Biosciences, Inc., is also advancing a patient-specific cellular therapy technology platform called ACT. Insiders currently hold 4.8% of company shares, and during the last week, Director David Bupp sold 50,000 shares as part of a 10b5-1 plan adopted on September 13th, 2011. During the past year, six NEOP insiders have sold a total 0.88 million shares or 16.6% of the total number of shares held by insiders; fifteen insiders bought NEOP stock in the last year, buying a total 159,720 shares.
Synergistics USA Inc. (NASDAQ:SURG): SURG develops micro-surgical instruments for use in ophthalmic surgery and neurosurgical applications. Insiders currently hold 11.5% of company shares, and during the last week, Director Patricia Williams bought 4,500 shares in the open market. During the past year, three SURG insiders have bought a total 6,000 shares; in contrast, thirteen SURG insiders sold 631,000 shares during the last years.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.