Over the past week, insider activity at two pharmaceutical companies, IDEXX Laboratories, Inc. (NASDAQ:IDXX) and Onconova Therapeutics Inc (NASDAQ:ONTX), caught my eye. Several insiders have been adding the companies’ stock to their portfolios, and studies show that insider purchases tend to be bullish signals (as they are in fact not only betting on the firm they are involved with, but also ignoring the benefits of diversification). Consequently, I would like to take a closer look at the transactions in order to find out if they could stand as an interesting investment option.
IDEXX Laboratories, Inc. (NASDAQ:IDXX) is a company that provides veterinary medical services, with a market cap of about $5.5 billion. Last Friday, Nov 22nd, V. Sophie Vandebroek, Board Director, started a position at the company: she acquired 1,000 shares for $107.84 each. However, the stock is down since then, and now trades around $105.40.
Nonetheless, Vandebroek must be betting on long-term growth, which analysts estimate will be around 15% per year over the next five years (average annual EPS growth rate), given that valuation-wise, the stock is not very attractive. What is attractive, however, are Idexx’s above average margins and industry leading returns. In fact, its return on assets of 16.4% triples the industry average, same as its 32.6% return on equity.
Besides Vandebroek, and some other insiders like Anne M Szostak, who also bought 1,000 shares in early November, hedge funds are crazy about Idexx. Amongst the funds that we track, Chuck Royce‘s Royce & Associates has the largest position in IDEXX Laboratories, Inc. (NASDAQ:IDXX), worth close to $147 million, comprising 0.5% of its total 13F portfolio. Coming in second is Jim Simons’ Renaissance Technologies, which holds a stake worth about $30.7 million (0.1% of its portfolio). Other noteworthy funds that hold long positions include Bill Miller‘s Legg Mason Capital Management, Ken Griffin‘s Citadel Investment Group and Jacob Gottlieb‘s Visium Asset Management.
Onconova Therapeutics Inc (NASDAQ:ONTX) is a clinical-stage biopharmaceutical company focused on the discovery and development of small molecule drug candidates for the treatment of cancer –as you might have already figured out from the name. After the company released its 8K report on Nov. 12th, at least three insiders added stock to their portfolios:
– S Henry Bienen, Board Director, purchased 1,400 shares on Nov. 15th: 1,248 for $12.18 each, and 152 for $12.09 a piece. He now holds 14,935 shares worth slightly more than $200,000.
– Michael & Jane Hoffman 2013 Descendants, large shareholders, bought 19,700 shares on Nov. 15th, another 5,000 on Nov. 18th, and an extra 5,000 on Nov. 22nd. Prices ranged from $11.95 to $14.39 per share. Stock now trades at around $13,70. These shareholders now own 4,317,500 shares.
– Finally, Premkumar E Reddy, also a Board Director, acquired 5,000 shares on Nov. 18th, for $12.10 each. He now holds 1,278,718 shares.
But, with a market cap around $300 million, negative margins and returns, and no major hedge funds holding disclosed positions in the company, why are insiders buying Onconova Therapeutics Inc (NASDAQ:ONTX)’s stock so intensely? What do they know that we don’t? We’ll have to wait to find this out for now.
However, if you are not risk-averse, you could interpret these purchases as bullish signals and bet on these healthcare companies, as their insiders are.