We present here two noteworthy buys and three noteworthy sells from Monday's SEC Form 4 (insider trading) filings in the healthcare and technology sectors, as part of our daily and weekly coverage of insider trades. These were selected by a review of over 375 separate transactions in over 230 different companies filed by insiders on Monday. The filings are noteworthy based on the dollar amount sold, the number of insiders buying or 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):
Vivus Inc. (VVUS): VVUS is a biopharmaceutical company developing therapeutic products to address unmet medical needs in obesity, diabetes and sexual health. On Monday, CFO Timothy Morris filed SEC Form 4 indicating that he exercised options and sold the resulting 0.33 million shares for $7.0 million, pursuant to a 10b5-1 plan, ending with no holdings (not including derivative securities). This is on top of the sale of 0.49 million shares for $10.1 million, also pursuant to 10b5-1 plans, by four other insiders (including CEO Leland Wilson and three VPs) last Thursday, that we reported just this past weekend. Thus, overall, insiders at VVUS have reported selling a total of 0.82 million shares in the last three trading days. In comparison, insiders reported selling 0.85 million shares in the past year.
VVUS shares have more than doubled in the last week, after the company announcement Wednesday that an FDA advisory panel voted 20 to 2 in favor of recommending Qnexa, the company's treatment for obesity. The shares were further bolstered by an appearance by CEO Leland Wilson on CNBC early Monday afternoon. While the FDA decision is still pending for the scheduled April 17th PDUFA date, approval seems very likely, and many analysts have been making upbeat statements and raising their ratings and/or price targets. Perhaps the most optimistic statements have come from Rodman & Renshaw that upgraded the stock and raised its price target to $39, estimating Qnexa sales in 2010 at $3 billion in the U.S. and $1.8 billion overseas. Besides Rodman, the bevy of analysts joining the party included JPMorgan and JMP Securities, both of whom raised their price target to $45.
Dell Inc. (DELL): Dell provides desktop PCs, mobility products, servers and networking products to individuals, businesses and governments. On Monday, President Stephen Felice filed SEC Form 4 indicating that he exercised options to acquire 427,118 shares and sold those and an additional 50,035 shares for $8.36 million, ending with 0.50 million shares in direct and an additional 1,694 shares in indirect holdings. In comparison, insiders at DELL sold 2.0 million shares in the past year.
Dell shares have done well so far this year, up about 20% YTD, as the company makes aggressive moves in expanding outside its core PC business into enterprise IT systems, in an effort to drag it out of a 12-plus year slump during which shares have generally traded flat to lower. Just yesterday, the company unveiled new enterprise solutions that are aligned with this strategy and aimed squarely at rivals Cisco systems (CSCO) and Hewlett Packard's (HPQ) dominance in the enterprise server market. Recent financial results, however, have been lackluster, as in the Q4 released last Tuesday, Dell missed on earnings (51c v/s 52c) and guided FY13 revenues below and EPS above consensus. A number of brokers downgraded the stock on the earnings miss and weak guidance, and its shares are currently slightly lower after the report, trading at 8 forward P/E and 3.5 P/B compared to averages of 8.4 and 4.2 for its peers in the micro-computer group. Earnings are projected to rise modestly from $2.13 in 2012 to $2.18 in 2014.
Mannkind Corp. (MNKD): MNKD develops treatments for cancer, diabetes, inflammatory and autoimmune diseases. Its lead product candidate is the AFREZZA dry powder insulin formulation and its proprietary light, discrete and easy-to-use AFREZZA inhaler through which the powder is inhaled deep into the lungs. On Monday, COO Hakan Edstrom filed SEC Form 4 indicating that he purchased 20,000 shares for $44,380, increasing his holdings to 0.56 million shares. This is the only insider purchase in the last year. MNKD just reported its Q4 last Wednesday, beating its earnings estimates (30c loss v/s 32c loss). Its shares were among the big biotech losers last year, falling almost 70% during the year, and they currently trade within striking distance of its all-time lows.
We have written earlier about MNKD in August 2011 shortly after the company released positive news on AFREZZA, opining that the positive development amounted to only a slight re-calibration upward in the stock's valuation, and that overall we would still be sellers into any rally into the $3.50s. Well, the stock did twice give investors the opportunity to get out above $3.50s, first in September and then again earlier this year in January (topping at $3.48), before settling down again near $2 lows. For those interested in knowing more about the pros and cons on MNKD, a piece by fellow Seeking Alpha contributor Scott Matusow would make a good read.
DISH Network Corp. (DISH): DISH provides direct broadcast satellite subscription TV services nationwide. On Monday, EVP Stephen Wood filed SEC Form 4 indicating that he exercised options and sold the resulting 30,000 shares for $0.9 million, under a 10b5-1 plan, ending with 148 shares in direct and another 701 shares in indirect holding after the sale (not including derivative securities). In comparison, DISH insiders sold 0.55 million shares in the past year. DISH reported its Q4 last Thursday, beating earnings estimates (70c v/s 61c) and reporting revenues in-line. Its shares currently trade at 10 forward P/E compared to the 21.8 average for its peers in the cable TV group.
Bazaarvoice Inc. (BV): BV is a provider of social commerce solutions through Bazaarvoice, a software-as-a-service platform that enable clients to capture, display and analyze online word of mouth for analysis and sharing. On Monday, Chairman Scott Booth of venture capital firm Eastern Advisors, a corporate insider by virtue of his 10% ownership of the company, filed SEC Form 4 indicating that he purchased 100,000 shares for $1.2 million, increasing his holdings to over 3.2 million shares (in indirect holdings). BV just went public this past week, on Friday, at $12, the purchase price for Eastern's 100,000 share purchase; its shares currently trade well above that price at over $16.
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 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 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, Zacks Investment Research, Thomson Reuters and Briefing.com. 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.