Comments
on our May 29, 2003, column, “A 12-stock strategy for
the biotech boom”
-
and -
Full
remarks by Roger Longman, our source for the column.
Bill Egan:
Subject: [SPEC-LIST] biotech
insider buying
Date: 05/25/2003 10:39:25
How many of these insider buys
were done by people new to the company? At a
number of companies, it is
expected that higher level new hires purchase
some stock when they join. The
quality of the buy signal then has little to
do with the insider expecting
the stock to outperform because new hires are
not yet privy to all the
internal information of the company.
Conversely, an insider who has
been at the company for a few years and
is buying sends a more
significant signal. A larger amount also has more meaning.
PCOP reports tiny 401K/ESPP
purchases (less than 100 shares at a time) as
"insider buys" but
there are also some purchases in the thousands of shares.
401(k) purchases have the tax
incentive, and ESPP buys generally have an
automatic 15% discount to
market, and present an arbitrage opportunity every
six months (get stock 15% less
than lowest price of beginning and end of period,
and sell the instant you
acquire). For ARQL, one fund, a "beneficial owner," has
been buying, but real insiders
other than one director, have not.
Most companies in biotech issue
options, so if an actual employee who has been
around for a few years buys,
that really means something. Director types
are next best, I think. CRGN
represents an interesting mix of two of these:
Rothberg, the Chairman and CEO,
is buying a lot, but he founded the company
and therefore may have an issue
with pride.
It might be beneficial for you
to go back and categorize the number of
buyers, types of buyers, and
amounts of stock they bought and see if any
signal rises above the noise.
Bill Egan is a PhD research scientist working in the pharmaceuticals industry.
Original comments from
Roger Longman:
Date: 05/23/2003 12:06:22
Am getting the suspicion
that things may be turning around for biotech.
Have no understanding of
investor mentality but there's been some
intriguing bits of news
lately and I'm sensing (perhaps because my
sensors are largely
focused inward)...change.
1) Genentech's Avastin news. Good for Genentech, but more
importantly, lots of
biotechs have angiogenesis inhibitors in their
pipelines-and those
projects have largely been written off because
angiogenesis inhibitors
haven't shown great medical value...now it
appears that the value
just might take a while to uncover. But
it's
there.
2) Amgen's deal with Tularik. Big deal; discovery focused--Amgen
buying a discovery
capability in small molecules-and it's discovery that
investors are most scared
of (which is why all the big deals have
focused on late-stage products,
in which the discovery risk has largely
been bypassed).
3) Some other bits of scattered good news:
Novartis' 51%
acquisition of Idenix;
Roche's deal with Maxygen on antivirals...all of
which point to the crying
need Big Pharma has for biotech. What's
interesting, however, is
that they're not simply turning to biotech's
later-stage products, but
to earlier stage and discovery programs.
4) Consolidation possibilities within
biotech could also drive
share values. Biotech is totally unconsolidated and likely
to remain so
as long as market
conditions remain as they are: no biotech that doesn't
already have strong cash
flow (and there are very few of those) is
willing to buy a
money-losing, cash-burning discovery operation (the
vast majority of biotechs
today). They might have been willing to
buy
these companies at one
point-when Pharmas were willing to do discovery
deals and an acquisition
of an important technology-oriented company
might have helped
accomplish such an alliance-but not now, when Pharmas
have shown themselves
unwilling to do big-dollar discovery deals.
However, if some of the
better financed later-stage biotechs can raise a
bunch of money now, they
might buy some earlier-stage discovery
companies, which would
drive up the value of the better independent
discovery companies. Trickle down economics works in biotech, if
nowhere else.
In any event, this bears
watching.
Roger Longman
Managing Partner and
Editor
Windhover Information
Publishers of IN VIVO,
Start-Up, and In Vivo Europe Rx
10 Hoyt St., Norwalk
CT 06851
www.windhoverinfo.com