Analyzing Wednesday's Noteworthy Insider Buys And Sells

by: GuruFundPicks

Insiders reported that on Wednesday, January 11th, they bought and sold stock in over 200 separate transactions in over 110 different companies. These transactions have to be reported within two days of the trade, so the transactions occurred sometime earlier this week. We culled through these 200 or so insider buys and sells (based on SEC Forms 3, 4, and 5 filings) as part of our daily and weekly coverage of insider trades, and present here the most notable trades reported Wednesday; notable based on the dollar amount sold, the number of insiders selling, and based on whether the overall buying or selling represents a strong pick-up based on historical buying and selling in the stock (for more info on how to interpret insider trades, please refer to the end of this article):

Achillion Pharmaceutical (NASDAQ:ACHN): ACHN is a clinical-stage biotech focused on developing new treatments for patients with infectious diseases, including HIV, hepatitis C and resistant bacterial infections. On Wednesday, five insiders sold a total of 162,947 shares for $1.7 million, pursuant to 10b5-1 plans. The sellers included CEO Michael Kishbauch, SVP and Chief Compliance Officer Gautam Shah, CSO Milind Deshpande, CFO Mary Fenton and SVP Elizabeth Olek. Overall insiders sold 0.89 million shares in the past year. ACHN has rallied strongly this week, up almost 50%, after Bristol-Myers Squibb (NYSE:BMY) announced an agreement to buy Inhibitex (NASDAQ:INHX) for $2.5 billion at a massive buyout premium of over 160%, triggering a rally in ACHN and its peer in the hepatitis C space, Idenix Pharmaceuticals (NASDAQ:IDIX).

Regeneron Pharmaceutical (NASDAQ:REGN): REGN develops medicines for the treatment of serious medical conditions. It has two products, ARCALYST and EYLEA, on the market, and additional in development to treat inflammatory conditions, allergic and immune conditions, and cancer. On Wednesday, three insiders sold a total of 60,695 shares for $4.5 million, pursuant to 10b5-1 plans. The sellers included Director Joseph Goldstein, VP William Roberts and SVP Robert Terifay. Overall insiders sold 0.45 million shares in the past three months, and 1.63 million shares in the past year. REGN shares have rallied almost 50% since the beginning of this year on a spate of positive news releases, first on news on January 4th that Express Scripts Inc. (NASDAQ:ESRX) was distributing its EYLEA drug via a subsidiary, and then on an update on January 10th that disclosed that the initial launch of its EYLEA drug has exceeded expectations with sales projected at $24-$25 million in 2011 versus analyst projections of $5 million.

Vivus Inc. (NASDAQ:VVUS): VVUS is a biopharmaceutical company developing therapeutic products to address unmet medical needs in obesity, diabetes and sexual health. On Wednesday, three insiders sold a total of 82,086 shares for $1.0 million, pursuant to 10b5-1 plans. The sellers included President Peter Tam, VP Wesley Day and VP Lee Perry. Overall insiders sold a total of 93,142 shares in the past year. VVUS shares have mounted a strong rally since the beginning of the year, up almost 30% YTD, most of it this week after the company announced on Monday that the FDA asked the company to remove the Qnexa contraindication for women of childbearing potential contained in the proposed label. The company is on schedule on February 22nd this year for a decision by the FDA's Endocrinologic and Metabolic Drugs Advisory Committee of its New Drug Application for Qnexa for the treatment of obesity.

Gamestop Corp. (NYSE:GME): GME is a retailer of video game products and personal computer (PC) entertainment software. On Wednesday, Chairman International and Director Richard Fontaine sold 270,000 shares for $6.6 million. Overall insiders sold 3.6 million shares in the past year. GME shares are up about 20% in the past year, and it trades at a discount 7-8 forward P/E compared to the 8.9 average for its peers in the consumer electronics retail group.

On top of these, some additional large insider trades on Wednesday included a $1.0 million sale by insiders COO Robert Perez and SVP Gregory Stea at clinical-stage biotech company Cubist Pharmaceuticals (CBST), pursuant to 10b5-1 plans; a $1.1 million sale by EVP Fusen Chen at semiconductor equipment company Novellus Systems Inc. (NASDAQ:NVLS-OLD), pursuant to a 10b5-1 plan; a $2.0 million sale by CFO Peter Minihane and CTO Patrick Melampy at session delivery network solutions provider Acme Packet Inc. (NASDAQ:APKT), pursuant to 10b5-1 plans; a $2.2 million sale by CEO Frank Sullivan at RPM International (NYSE:RPM), a manufacturer of specialty paints, protective coatings, roofing systems, sealants and adhesives for industrial and commercial applications; and a $3.2 million sale by SEVP, Group President Jerome Rossi at off-price apparel and home fashions retailer TJX Companies Inc. (NYSE:TJX).

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 10% or 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 toughest 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 non-public 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 may be 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.

Credit: Fundamental data in this article were based on SEC filings, I-Metrix by Edgar Online, Zacks Investment Research, Thomson Reuters and The information and data is believed to be accurate, but no guarantees or representations are made.

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.