3 Bio-Pharmaceuticals Insiders Love
Mohsin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Insiders are privy to information that is not available to other investors interested in a stock. Considering the fact that our stock picks and the overall stock market is driven by information, this information edge can make all the difference. This is the very reason there is an entire investment strategy on following insider trades. Following these trades gives investors an edge over others who are totally dependent on publicly available fundamental information or technical trends. This strategy is even more effective in the biopharmaceutical industry where valuations are sometimes tied to the potential of the pipeline. The insiders are in a better position to asses this potential as compared to outside analyst and investors. Therefore I have always believed that insider trades are one of the best methods to asses the potential of healthcare stocks. The following three companies have seen insider interest and present a buying opportunity for investors.
MannKind (NASDAQ: MNKD)
MannKind focuses on the discovery, development and commercialization of treatments for diabetes and cancer. The leading candidate of the company is AFREZZA, which is an orally administered insulin in late stage clinical trials. The drug will target patients with type I and type II diabetes. The primary oncology candidate of MannKind is MKC1106-MT which is in Phase II clinical trials.
The company is entering a market where other big pharmaceutical players have already failed. The recent multibillion dollar failure of Exubera is still fresh on investors mind. Exubera was Pfizer’s attempt at providing an inhalable insulin product to the market, but it failed due to high price and its adverse effects on lungs. AFREZZA tries to rectify these mistakes and has a much better shot at success. It is a ultra-rapid insulin which means that the drug spends a minimum time in the system reducing exposure to the lungs and it also reduces chances of hypoglycemia and obesity. The insulin solution will also be available at lower price points as compared to Exubera, with it being only 10% more expensive as compared to regular insulin products.
Insiders have increased their stake in the company by 31,269,350 shares which comes down to an increase in insider ownership of a staggering 48%. During the same time frame of six months, institutional investors have reduced their holding of MannKind by 2,485,390 shares i.e. 7%. The stock is currently trading at a 65% discount to the mean sell side target price of $5.5. The market is discounting MannKind due to previous failures of Exubera, but insider trust and cheap valuations make it a good investment option.
Merrimack Pharmaceuticals (NASDAQ: MACK)
Merrimack is a biopharmaceutical company involved in the discovery, development and commercialization of medicines for the treatment of cancer. The company’s leading product candidate is MM-398, which is a novel and stable nanotherapeutic encapsulation of the chemotherapy drug irinotecan. The candidates MM-398, MM-121 and MM-111 are all in Phase I and Phase II clinical trials.
In the last six months insiders have purchased 239,796 shares of the company increasing their stake by 2.9%. In the same time frame institutional investors have increased their stake in the company by 12,277,400, an increase of approximately 34%. The stock is currently trading at a 50% discount to its mean sell side target price of $12. These valuations make Merrimack an interesting option especially considering insider interest.
Tesaro (NASDAQ: TSRO)
Tesaro is a US biopharmaceutical company focused on the identification, acquisition, development and commercialization of oncology therapeutics. The company’s candidate portfolio includes Rolapitant and TSR-011. Rolapitant is a neurokinin-1 receptor antagonist and is currently in Phase III clinical trials for the controlling nausea and vomiting induced by chemotherapy. TSR-011 is still in preclinical development phase for the treatment of non-small cell lung cancer, amongst others.
In the last 6 months insiders have purchased 2,243,700 shares of the company, increasing total insider holdings by 13.8%. These insider transactions should increase investor confidence in the ability of Rolapitant to be successful in Phase III clinical trials. The company is currently trading 20% percent below mean sell side target price of $22 and is an interesting investment option.
The statistics and analysis shows that insiders and institutions are interested in these companies. Considering the fact that insiders have information about drug candidates that are not publicly available, investors should investigate these options further. From amongst these companies, I recommend investors go for MannKind because its inhalable insulin product shows much promise.
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