Overall, during the past week, corporate insiders traded a number of healthcare stocks, including purchasing shares in Dendreon Corp. (DNDN), Sequenom Inc., and Dynavax Technologies, and selling shares in Inhibitex Inc. and Amgen Inc. This report is part of our weekly coverage of insider trades by sector (based on last week’s SEC Forms 3, 4, and 5 filings). It summarizes last week’s major insider filings in the healthcare sector (for a general discussion on how to interpret insider trades, please look at the end of this article):
Dendreon Corp. (DNDN): Dendreon develops targeted therapeutics to treat cancer using active immunotherapies, monoclonal antibodies and small molecules. Among investor circles, it is probably best known as the maker of Provenge® for Prostate Cancer. Insiders currently hold 3.2 million shares or 2.2% of outstanding shares, and last week CFO Gregory Schiffman and Director John Johnson purchased 30,030 shares and 2,500 shares respectively. These purchases are significant given their size and timing. Dendreon shares have plunged recently, down over 80% since July on back-to-back disaster quarter reports for the latest June and September quarters, leading investors to question the long term potential and competitive strength of its lead drug Provenge, an FDA approved immunotherapy for prostate cancer. Furthermore, over the last twelve months, insiders have only bought an additional 20,000 shares (selling a total of 435,075 shares), so last week’s insider purchase of a total of 32,530 shares is significant even by historical standards of insider buying.
Inhibitex Inc. (INHX): Inhibitex develops differentiated anti-infective products to prevent and treat serious viral and bacterial infections, including primarily shingles and chronic infections caused by hepatitis C virus (HCV). Insiders currently hold 22.0 million shares or 28.1% of outstanding shares. Last week Chief Scientific Officer Joseph Patti (209,596 shares) and Director Christopher McGuigan (50,000 shares) sold a total of 259,596 shares for $2.1 million under 10b5-1 plans, with 35,000 of those shares resulting from exercise of options. Post sale, Mr. Patti owns no shares of Inhibitex, which is significant given that shares surged over 100% a week ago after the company reported positive top-line safety and anti-viral data from the first cohort of its ongoing clinical trial of INX-189 in hepatitis C. Furthermore, the sale is also large in a historical context given that insiders sold only an additional 175,479 in the remaining 51 weeks of the past year. Also, in our coverage of the prior week’s insider trades in the healthcare sector, we wrote extensively about Director Michael Henos exercising options to purchase 36,000 shares of Inhibitex just prior to the release of the company’s trial results last week, and the potential benefit in terms of possibly a lower tax rate by exercising the options ahead of the surge in price.
Amgen Inc. (AMGN): Amgen develops therapeutics based on cellular and molecular biology to treat anemia, cancer, and inflammatory diseases. Its principal products include Aranesp and Epogen erythropoietic-stimulating agents that stimulate the production of red blood cells; Neulasta and Neupogen to stimulate the production of neutrophils, which is a type of white blood cell that helps the body to fight infections; and Enbrel, an inhibitor of tumor necrosis factor that plays a role in the body’s response to inflammatory diseases. Insiders currently hold 2.0 million shares or 0.2% of outstanding shares. Last week three corporate insiders sold a total of 64,000 shares (at $3.7 million), all of which were regular sales (not part of any 10b5-1 plans). The sellers included CEO and Chairman of the Board Kevin Sharer (52,500 shares), EVP of Operations Fabrizio Bonanni (10,000 shares) and COO Anna Richo (1,500 shares). Overall, during the last twelve months, insiders only sold an additional 70,200 shares during the remainder 51 weeks of the year, so the 64,000 shares sold last week was a significant acceleration based on historical trends.
Sequenom Inc. (SQNM): Sequenom operates in the field of industrial genomics, providing products, services, diagnostic testing, applications, genetic analysis products that translate the results of genomic science into solutions for biomedical research, translational research, molecular medicine applications, and agricultural and livestock research. Insiders currently hold 9.4 million shares or 9.5% of outstanding shares. Last week EVP of R&D Ronald Lindsay purchased 20,000 shares, increasing his stake in the company to 57,950 shares. Overall, insiders purchased only an additional 38,850 shares during the remainder 51 weeks of the past year, and sold 22,623 shares during that period.
Dynavax Technologies (DVAX): Dynavax is a developer of drugs to treat and prevent allergies, infectious diseases, and chronic inflammatory diseases using versatile, proprietary approaches that alter immune system responses in highly specific ways. Dynavax's clinical development programs are based on immunostimulatory sequences, which are short DNA sequences that enhance the ability of the immune system to fight disease and control chronic inflammation. Insiders currently hold 28.3 million shares or 24.5% of outstanding shares, and last week Director Arnold Oronsky purchased 160,000 shares, increasing his stake in the company to 189,008 shares. Overall, insiders purchased only an additional 20,050 shares during the remainder 51 weeks of the past year, and they sold no shares during that period.
NPS Pharmaceuticals (NPSP): NPS develops treatments for endocrine and gastrointestinal disorders. Its lead product GATTEX is in phase 3 development for parenteral nutrition dependent short bowel syndrome, and another drug NPSP558 is also in phase 3 development as hormone replacement therapy for hypoparathroidism. Insiders currently hold 5.5 million shares or 6.4% of outstanding shares, and last week three insiders purchased a total of 70,000 shares. This included CEO Francois Nader (30,000 shares), CFO Luke Beshar and SVP Ed Stratemeier (20,000 shares), increasing their stake in the company to 132,690 shares, 22,639 shares and 24,560 shares respectively. These insider purchases are even more significant given that this is the first insider purchase in almost four years; during the past year, insiders sold 50,000 shares.
Gentiva Health Services Inc. (GTIV): Gentiva provides home healthcare services and hospice care in the U.S. via over 300 locations nationwide. Insiders currently hold 1.4 million shares or 4.6% of outstanding shares. Last week seven insiders, including the CEO, CFO, Chief Clinical Office, General Counsel, a Sr. VP and two directors purchased a total of 292,622 shares. Besides being a large purchase, it is also significant because during the past four years, company insiders purchased only an additional 1,000 shares (in May this year). They sold 133,000 shares during the past year.
General Discussion on Insider Trading
The reports in this series identify last week’s insider trades of noteworthy significance by sector or industry group, either by virtue of their timing, their size, the number of insiders buying or selling, based on who is buying or selling, or by the trend of their buys and sales over the long-term. The rest of the series by sector and by week can be accessed from our author page.
What is Insider Trading?: 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 are those that having beneficial ownership of ten percent of more of the firm’s equity securities (including institutional investors). Also, in the U.S., “insiders” are not just limited to corporate officials and major shareholders, but also when a corporate insider “tips” a friend about material non-public information, the duty the corporate insider owes the company is now imputed to the friend who is now in violation of a duty to the company if he or she trades on the basis of that information. The U.S. is generally viewed as having the strictest laws against illegal insider trading, and makes the most serious efforts to enforce them.
While most insider trading is legal, the term is commonly used to refer to the illegal kind when a corporate insider trades based on material non-public information that can have an effect on the company’s share price. By law, insiders are prohibited from trading based on nonpublic information, but 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%.
Timeliness of Information: 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.
Insider Buying More Informative than Selling: As a rule, insider buys are more informative than sells. This is because insiders sell often, and they sell for a variety of reasons that may be completely unrelated to the health of the company, including, for example, to diversity their holdings or to pay for an upcoming personal expense. In contrast, insider buying is relatively uncommon, and since they have an exclusive window into their own company’s performance, it is reasonable to presume that they probably have good reasons based on information at their disposal when they are risking their own assets to buy company stock.
Regular and Automatic Trades: Insider trades maybe regular trades, or they may be automatic trades made under SEC Rule 10b5-1. It is generally believed that regular insider share purchases and sales 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. Generally, almost all automatic trades are sells, not buys.
Furthermore, even automated trades made under 10b5-1 have some informative or 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.
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