Last week (May 14th to 18th, 2012), insiders made noteworthy buys (see definition below) in two beaten down biotech stocks, and noteworthy trades in several other healthcare companies. Insider buys, especially unusually large ones, in such stocks that are beaten down and trading near their lows, may give bulls comfort that the long-term fundamentals may be intact and that a turn may be under way in the next couple of quarters; sells, on the other hand, at depressed prices after the plunge may lend even further credence to the bear thesis. Similarly, noteworthy buys in surging stocks may give investors some confidence that knowledgeable insiders are finding value at such elevated prices after a strong surge.
The transactions in this article were selected based on a review of over 2,200 separate SEC Form 4 (insider trading) filings last week, as part of our daily and weekly coverage of insider trades. 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):
Halozyme Therapeutics (HALO): HALO develops recombinant human enzymes for the infertility, drug delivery, endocrinology, oncology, and dermatology markets. On Wednesday, Director Kenneth Kelley filed SEC Form 4 indicating that he purchased 20,000 shares for $149,800, increasing his holdings in the company to 130,000 shares. In comparison, corporate insiders purchased 39,000 shares in the past two years.
Besides Director Kelley, last Thursday, Director Randall Kirk, an insider by virtue of the 10% ownership by Radford, VA-based biotech and communications technology-focused venture capital firm Third Security LLC, of which he is CEO and Sr. MD, filed SEC Form 4 indicating that he purchased 1.07 million shares for $8.0 million, increasing its holdings to 19.7 million shares. Mr. Kirk is one of Virginia's wealthiest residents, with a net worth estimated by Forbes at $1.6 billion in 2009.
HALO shares currently trade near six-month lows, after two sharp plunges in early and mid-April sent shares reeling down over 45%. The first plunge came April 10th after Jefferies cut its rating on the company from Buy to Hold, with a price target of $10, noting that the upcoming launches of three products by its partners would likely be slow, and that HALO's approximately 5% royalty on those sales is unlikely to provide much upside to the stock. Later, in mid-April, shares plunged even more sharply on an update from the company and partner Baxter Intl (BAX) that the FDA had requested additional information to complete its review of their immunotherapy drug HyQ's Biologics License Application (BLA).
Novavax Inc. (NVAX): NVAX is a development stage biotech company focused on the development of recombinant vaccines using its virus-like particle (VLP) platform technology, targeting pandemic and seasonal influenza, and other infectious diseases. Last week, two insiders purchased 55,000 shares for $73,650. Of these, SVP Timothy Han purchasing 30,000 shares, increasing his holdings to 50,000 shares, and the remaining 25,000 shares were purchased by Chief Scientific Officer Gregory Glenn, increasing his holdings to 29,000 shares. This is in addition to the 50,000 shares insider reported purchasing in April, and a total of 0.46 million shares purchased by insiders since the stock hit recent lows last August. In comparison, insiders purchased 0.51 million shares in the past two years.
NVAX shares have been in a multi-year slide from the most recent peak at above $7 in 2009 to $1.16 at Friday's close, down about 85% from those highs almost three years ago. The company reported its Q1 (March) two weeks ago, on Friday, missing both revenue and earnings estimates (6c loss v/s 4c loss estimate). Its shares trade at 2.6 P/B compared to the average of 3.5 for its peers in the biotech group.
In addition to the above two, insiders also reported noteworthy buys last week in the healthcare sector in:
- PROLOR Biotech Inc. (PBTH), an Israeli clinical-stage biotech engaged in the development of longer-acting proprietary versions of already-approved therapeutic proteins, in which Phillip Frost, on behalf of Frost Gamma Investments Trust, filed SEC Form 4 indicating that he purchased one million shares for $5.0 million, increasing his holdings to 12.6 million shares;
- Specialty pharmaceutical company Valeant Pharmaceuticals International Inc. (VRX), in which Director Laurence Paul filed SEC Form 4 indicating that he purchased 5,000 shares for $255,140, increasing his holdings to 37,397 shares;
- Myrexis Inc. (MYRX), a clinical-stage biotech developing small molecule drugs for the treatment of cancer and autoimmune diseases, in which Director Gerald Belle filed SEC Form 4 indicating that he purchased 36,630 share for $100,219, increasing his holdings to 126,760 shares; and
- Opko Health Inc. (OPK), that develops a broad range of pharmaceuticals and diagnostics as well as ophthalmic instrumentation products. On top of 340,000 shares purchased by Frost Gamma Investors Trust, of which CEO & Chairman Philip Frost is the Trustee, Director Richard Lerner also filed SEC Forms 4 indicating that he purchased 54,400 shares for $249,841, increasing his holdings to 80,000 shares.
Also, last week, insiders reported noteworthy sales in the healthcare sector stocks in:
- Vertex Pharmaceuticals (VRTX), which engages in the discovery, development and commercialization of small molecule drugs for the treatment of hepatitis C, cystic fibrosis, epilepsy and other life-threatening diseases, in which five insiders filed SEC Forms 4 indicating that they sold 0.25 million shares for $15.7 million, in comparison to 0.78 million shares sold in the past year;
- cardiovascular medical products company Edwards Lifesciences Corp. (EW), in which two insiders filed SEC Forms 4 indicating that they sold 104,100 shares for $8.8 million, in comparison to 1.6 million shares sold in the past year;
- Medivation Inc. (MDVN), which develops novel small molecule drugs for the treatment of prostate cancer, Alzheimer's disease and Huntington's disease, in which three insiders filed SEC Forms 4 indicating that they sold 70,640 shares for $6.1 million, in comparison to 1.09 million shares sold in the last two years;
- Biomarin Pharmaceuticals (BMRN), which is a developer of enzyme replacement therapies and oral solutions to treat debilitating, life-threatening, chronic genetic disorders and other diseases and conditions, in which seven insiders filed SEC Forms 4 indicating that they sold 157,297 shares for $6.0 million, in comparison to 1.06 million shares sold in the past two years; and
- Mylan Inc. (MYL), which is one of the world's leading developers of generic and branded drugs, providing products that cover a vast array of therapeutic categories to customers in over 150 countries and territories, in which Executive Chairman Robert Coury filed SEC Form 4 indicating that he sold 91,875 shares for $2.0 million, in comparison to 0.88 million shares sold 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 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.
Credit: Fundamental data in this article and company descriptions are based on SEC filings, Zacks Investment Research, Yahoo, 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.