Insiders bought a total of $1.39 billion worth of stock in 687 separate transactions, and they sold a total of $62.22 billion worth of stock in 477 separate transactions last week. Of this, the healthcare sector accounted for a quarter of the insider activity, with strong insider buying at medical device manufacturer Boston Scientific Corp. (BSX), and at biotech companies, Geron Corp. (GERN) and Halozyme Therapeutics (HALO).
This report, part of our weekly coverage of insider trades by sector (based on last week’s SEC Forms 3, 4, and 5 filings), 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):
Boston Scientific Corp. (BSX): BSX is a developer of medical devices used in cardiology, endoscopy, oncology, neuromodulation and other interventional procedures. Insiders currently hold 5.3% of outstanding shares. During the past week, Director Mario Ernest bought 25,000 shares, increasing his holdings to 306,004 shares. Mr. Ernest has been a Director of BSX since 2001. He is the former Chief Executive of Glaxo Holdings Plc and a number of other pharmaceutical companies, and also former Chairman of the Board of the Duke University Health System. During the past two months, he has purchased 75,000 shares of BSX, compared to a total of 257,600 shares purchased by insiders in the last year (buying 24,511 shares). With BSX shares trading near all-time lows and almost 90% below the $46 high hit in early 2004, Mr. Ernest’s purchase is a strong sign of confidence in the long-term outlook for BSX.
Geron Corp. (GERN): GERN is a developer of telomerase-targeted and stem cell therapies for cancer and chronic degenerative diseases. Insiders currently hold 10.3 million shares or 7.8% of outstanding shares. During the past week, Director Thomas Kiley purchased 64,275 shares. This is in addition to the 50,000 shares that he purchased last month, increasing his holdings to 314,059 shares. The total 114,275 share purchase by Mr. Kiley is significant given that it is the only insider purchase in at least the last eight years. GERN shares have been extremely weak recently, down two-thirds since the beginning of the year, so the 114,275 share purchase by Director Kiley is a sign of confidence in the company.
Halozyme Therapeutics (HALO): HALO develops recombinant human enzymes for the infertility, drug delivery, endocrinology, oncology, and dermatology markets. Insiders currently hold 9.1 million shares or 9.1% of outstanding shares. During the past week, Director Randal J Kirk, billionaire and 10% owner, bought 277,723 shares for $2.23 million. This is in addition to the 638,224 shares that he purchased just last week, and the 1.0 million shares that he bought in August, increasing his holdings to 1.92 million shares. Mr. Kirk is the former founder, chairman, and chief executive of New River Pharmaceutical that he sold to Shire plc in 2007. During the past year, insiders purchased 1.93 million shares, and sold none during that period.
Incyte Corporation (INCY): INCY develops small molecule drugs for hematologic and oncology indications, and inflammatory and autoimmune diseases. Insiders currently hold 2.3 million shares or 1.8% of outstanding shares. During the past week, Director Wendy Dixon purchased 7,500 shares for $0.1 million. This is first insider purchase since July of 2010, while insiders sold 0.95 million shares during the past year.
Sirona Dental Systems (SIRO): SIRO develops high-tech dental equipment including x-ray imaging units and software-driven dental restoration systems. Insiders currently hold 6.8 million shares or 12.1% of outstanding shares. During the past week, Chairman & CEO Fischer and EVP & CFO Blank purchased a total of 43,750 shares for $1.75 million. This is significant due to the size of the purchase, and also because it represents a significant pick-up considering that insiders purchased only an additional 5,000 shares during the remaining 51 weeks of the past year.
Masimo Corp. (MASI): MASI develops non-invasive patient monitoring products that significantly improve patient care, such as the Masimo Signal Extraction Technology (SET) that, via its capabilities of read-through motion and low perfusion pulse oximetry, substantially reduces false alarms and increases pulse oximetry’s ability to detect life-threatening events. Insiders currently hold 2.3 million shares or 4.0% of outstanding shares. During the last week, Chairman & CEO Joe Kiani purchased 35,404 shares, and COO Anthony Allan purchased 7,000 shares for $0.77 million. This is significant due to the size of the purchase, and also as represents a significant pick-up considering that insiders purchased only an additional 64,596 shares during the remaining 51 weeks of the past year (selling 0.53 million shares).
Pacira Pharmaceuticals (PCRX): PCRX develops specialty pharmaceuticals using its proprietary DepoFoam drug delivery technology for use in hospitals and ambulatory surgery centers. Insiders currently hold 3.7 million shares or 14.5% of outstanding shares. During the last week, HBM BioVentures (307,692 shares), MPM BioVentures (461,538 shares), Sanderling Ventures (10,000 shares) and Director Gary Pace (7,692 shares) purchased a total of 0.79 million shares for $5.1 million.
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.
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.
Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our ‘opinions’ and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.