4 Biotech Stocks With Insider Interest
Mohsin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As the S&P 500 Biotechnology Index shows below, the last year was a good one for the biotechnology industry. Stocks such as Amarin, Vivus, and Arena Pharmaceuticals saw impressive runs after their respective drugs received FDA approval, but have since then become circumspect investments.
A very good method of judging the potential in any stock is to monitor insider and institutional trades. This method is even more effective for the Biotechnology industry because with most Biotechnology companies, especially startups, fundamental information is utterly useless in determining the value of the stock, because the value of stocks is usually linked to results of drug trials; and once the results are released, the market quickly adjusts to reflect new valuations. Institutional investors have more knowledge and resources in general, which makes their trades a good indicator of a stock's true value. Thus, one of the best ways to judge potential of any biopharmaceutical stock is to monitor insider and institutional trades.
Figure 1: S&P 500 Biotechnology Index/Bloomberg
Infinity Pharmaceuticals (NASDAQ: INFI)
Infinity Pharmaceuticals is involved in the discovery and development of biopharmaceutical products. The company has a number of candidates in various stages of clinical trials. In the last six months insiders have purchased more than 5 million shares of Infinity, increasing insider ownership by almost 35%. However in the same period institutional ownership has reduced by approximately 18%. The mean sell side estimate for INFI is $25; the stock is currently trading at a 40% premium to this target.
Serapta Therapeutics (NASDAQ: SRPT)
Sarepta Therapeutics is a biopharmaceutical company, currently in Phase 2 of clinical trials of its leading drug candidate Eteplirsen, a drug for the treatment of Duchenne muscular dystrophy. The company is focused on the discovery and development of serious and life-threatening rare and infectious diseases. Aside from Eteplirsen, it also has a number of other candidates in initial trials such as, AVI-7537 for Ebola virus; AVI-7288 for Marburg virus; and AVI-7100 for influenza etc. In the last six months there has been a decline in both institutional and insider ownership, with insider ownership declining by 15,000 shares. The reduction in insider ownership seems insignificant and the real concern is the net decrease of 3.5 million shares from institutional ownership. The mean sell side price target for SRPT is $42, approximately 44% above current price levels.
Arena Pharmaceuticals (NASDAQ: ARNA)
Arena Pharmaceuticals is involved in the discovery, development and commercialization of pharmaceutical products aimed at eradicating various ailments. The company’s primary drug candidate is Belviq, which has already achieved FDA approval. The drug would be launched in the market during 2013 and this launch would be a major catalyst for stock price movement. You can read a detailed analysis of Arena Pharmaceuticals' prospects here. The insider ownership in Arena has been reduced by approximately 13% in the last six months, as insiders have sold approximately 160k shares. During the same period, institutional ownership of ARNA has increased by 5.7%. The mean sell side target price for Arena is $9.6, i.e. offering a 6% return at current levels.
Merrimack Pharmaceuticals (NASDAQ: MACK)
Merrimack Pharmaceutical is involved in the discovery, development and commercialization of cancer related drugs. Merrimack’s leading drug candidates include MM-398, a novel and stable nano-therapeutic encapsulation of marketed chemotherapy drug Irinotecan. The company aims to discover and develop treatments using its Network Biology discovery platform, which integrates research from biology, engineering and computing fields. In the last six months, insider ownership has increased by 2.8%, while institutional ownership has increased by a staggering 34%. The mean sell side target price of MACK is $12.6, which is more than a 100% upside at current levels. At these levels Merrimack seems a definite buy, but any investors should do their own, comprehensive due diligence before taking any position.
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