Analyzing Thursday's Noteworthy Insider Trades In The Healthcare Sector

by: GuruFundPicks

We present here noteworthy insider trades in the healthcare sector from Thursday's (March 29th, 2012) over 315 separate SEC Form 4 (insider trading) filings, 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):

Amylin Pharmaceuticals (AMLN): AMLN develops drugs for the treatment of diabetes, obesity and other diseases. On Thursday, VP Lloyd Rowland filed SEC Form 4 indicating that he exercised options to acquire 5,000 shares, and sold those shares and an additional 3,000 shares for $0.19 million, pursuant to a 10b5-1 plan. While a small sale in absolute terms, it is only significant to note in the sense that over a dozen insiders have filed SEC Forms 4 in the last two months, selling over 90,000 shares, this compared to a total of just over under 0.11 million shares sold by insiders in the past year.

AMLN shares have mounted a strong rally recently, up about 120% YTD, the latest rally earlier this week after news broke that the company rejected a $3.5 billion unsolicited bid from Bristol-Myers Squib (BMY). A number of brokers since have spoken in favor of the company, speculating that it could see M&A interest from other drug makers, with AstraZeneca Plc (AZN) and Sanofi (SNY) mentioned as potential suitors. The BMY bid effectively puts a $22 floor on the stock, with speculative upside in case other potential suitors get into a bidding war to acquire the company, with the possibility remaining that AMLN could remain independent to realize the value of Bydueron for the treatment of type 1 and type 2 diabetes on its own.

Mylan Inc. (MYL): MYL 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. Also, through its India-based subsidiary, it is also one of the world's largest manufacturers of active pharmaceutical ingredients. On Thursday, two insiders filed SEC Forms 4 indicating that they sold 212,220 shares for $4.9 million. Of these, CEO Heather Bresch exercised options and sold the resulting 197,306 shares, under a 10b5-1 plan, with an additional 24,684 shares resulting from the exercise of options withheld for tax liabilities. This is in addition to the sale of 166,875 shares that we reported insiders sold earlier this month. In comparison, insiders sold a total of 0.85 million shares in the past year.

MYL reported its Q4 in February, beating earnings (53c v/s 50c) and missing revenue estimates ($1.53 billion v/s $1.56 billion). Its shares are within striking range of its recent highs, and they trade at 8-9 forward P/E and 2.6 P/B compared to the averages of 13.2 and 2.9 for its peers in the generics drug group, while earnings are projected to rise at a 14.0% annual rate from $2.04 in 2011 to $2.65 in 2013.

Curis Inc. (CRIS): CRIS is a development stage biotech company focused on the development of targeted cancer therapies that modulate signaling pathways controlling the repair and regeneration of tissues. On Thursday, Director Martyn Greenacre filed SEC Form 4 indicating that he exercised options and sold the resulting 80,000 shares for $0.39 million, ending with 35,138 shares after the sale (not including derivative securities). While a small sale, it is notable only in that insider selling is uncommon at CRIS, with a total of only 0.23 million shares sold in the past year, and 0.32 million shares in the past two years. CRIS shares currently trade within striking range of 10-year highs, at 9.6 P/B compared to the 3.7 average for its peers in the biotech group. A number of brokers, including Piper Jaffray, Brean Murray, Summer Street Research and others, have come out in support of the stock recently, after at the end of January its Erivedge Capsule (vismodegib) product gained FDA approval for the treatment of advanced basal cell carcinoma.

On top of these, an additional large insider sale reported on Thursday in the healthcare sector included a $3.2 million sale by SVP James Bloem at Humana Inc. (HUM), a provider of managed healthcare services through HMO, PPO and government contracts to about 11.2 million members in the U.S. Also, a noteworthy buy on Thursday in the healthcare sector on Thursday was in Biomimetic Therapeutics (BMTI), a biotech company engaged in the development of regenerative protein therapeutic products primarily used for bone and tissue regeneration, repair and healing of musculoskeletal injuries, and conditions affecting bones, tendons, ligaments and cartilage, in which Director Larry Papasan purchased 10,400 shares for $24,148, in comparison to insiders purchasing 73,450 shares 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 The information and data is believed to be accurate, but no guarantees or representations are made.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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.