We present here three noteworthy buys and seven noteworthy sells from Tuesday'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 350 separate transactions in over 210 different companies filed by insiders on Tuesday. 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):
Biomarin Pharmaceuticals (BMRN): BMRN develops enzyme replacement therapies and oral solutions to treat debilitating, life-threatening, chronic genetic disorders and other diseases and conditions. On Tuesday, four insiders filed SEC Forms 4 indicating that they exercised options to acquire 179,349 shares and sold those and an additional 5,000 shares for $6.4 million, with the large majority of the sales by EVP Robert Baffi (91,313 shares) and CFO Jeffrey Cooper (83,036 shares). In comparison, insiders sold 0.5 million shares in the past year.
BMRN just reported its Q4 about two weeks ago, missing earnings (23c loss v/s 36c loss) and revenue estimates ($108 million v/s $115 million). Its shares have performed well, up 50% in the past six months and within striking range of its all-time high from 2008, driven mostly by its strong pipeline of enzyme replacement therapies for orphan diseases. A number of brokers have recently upgraded and raised their prices on the stock, including Summer Street Research, Deutsche Bank, RBC Capital Markets and Piper Jaffray just in the last six months alone, with no downgrades.
JDS Uniphase Corp. (JDSU): JDSU is a provider of communications test and measurement solutions and optical products to telecommunications service providers, cable operators and network equipment manufacturers. On Tuesday, CEO Thomas Waechter filed SEC Form 4 indicating that he exercised options to acquire 150,000 shares and sold those and an additional 4,749 shares for $2.2 million, pursuant to a 10b5-1 plan, ending with no direct holdings in the company after the sale (not including derivative securities). In comparison, insiders sold 0.45 million shares in the past year. JDSU shares are currently in consolidation mode after a sharp rally in January, and they currently trade at 14-15 forward P/E and 3.0 P/B compared to averages of 14.0 and 1.7 for its peers in the communications components group.
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 Tuesday, Corporate VP Juergen Martens filed SEC Form 4 indicating that he purchased 13,745 shares for $30,788, increasing his holdings in the company to 110,508 shares. This is in addition to the purchase of 20,000 shares that we reported on just yesterday by COO Hakan Edstrom, and the two together are the only insider purchases at MNKD in the past year. MNKD shares were among the biggest biotech losers last year, down almost 70%, and they currently trade within striking distance of its all-time lows. We have written about the company several times before, and continue to believe that the stock has limited upside under current fundamentals.
On top of these, some additional large insider sales reported on Tuesday included:
- A $1.2 million sale by EVP Stacey Goff at Centurylink (CTL), an integrated communications company that provides a range of communications services, including voice, Internet, data and video services in the continental U.S.
- A $2.7 million sale by two insiders at Qualcomm Inc. (QCOM), a designer of CDMA-based, RF and power management ICs for system software used in wireless handsets, modem cards and networks, with 12,500 of the 42,500 shares sold pursuant to a 10b5-1 plan;
- A $1.0 million sale by three insiders at SanDisk Corp. (SNDK), a manufacturer of non-volatile removable memory cards used in various computing and electronic devices, with 10,000 of the 19,348 shares sold pursuant to a 10b5-1 plan;
- A $1.8 million sale by two insiders at UnitedHealth Group Inc. (UNH), a diversified health and well-being company serving more than 70 million Americans;
- A $2.3 million sale by two insiders, pursuant to 10b5-1 plans, at Vivus Inc. (VVUS), a biopharmaceutical company developing therapeutic products to address unmet medical needs in obesity, diabetes and sexual health; and
Furthermore, insiders also reported noteworthy buys on Tuesday in:
- Silicon Graphics (SGI), a global leader in large-scale clustered computing, clustered storage, high-performance computing and data center enablement and services, in which two insiders purchased 6,000 shares for $56,120, the only buys in the past year; and
- Patterson Companies Inc. (PDCO), distributors serving the dental, companion-pet veterinarian and rehabilitation supply markets in North America, in which Director Jody Feragen purchased 1,000 shares for $32,280, out of a total 5,500 shares purchased in 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 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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.