The U.S. Securities and Exchange Commission prohibits executives and Board members from trading their company’s stock if they possess material non-public information about their company. Nonetheless, corporate insiders are able to buy and sell shares in their own companies if they play by the rules imposed by the SEC.
Some investors monitor insider buying activity because they believe there is only one reason a corporate insider buys shares on the open market: the shares are greatly undervalued. More importantly, investors usually pay much more attention to the insider transactions conducted by top-tier executives such as CEOs and CFOs, but one should be extremely cautious about this kind of insider buying. Allow me to explain…Some companies are increasingly requiring CEOs and CFOs to own more shares in their own companies. In fact, the majority of Fortune 500 companies have stock-ownership guidelines, which require CEOs to hold an equity stake with value that is at least five times their base salary. The five-times-salary standard represents a way to make top-tier executives more accountable for the performance of the companies they are running and it does not necessarily serve as an extremely bullish signal. With this in mind, let’s have a look at a list of three companies that had their corporate insiders report insider buying with the SEC on Tuesday.
Academic research has shown that certain insider purchases historically outperformed the market by an average of seven percentage points per year. This effect is more pronounced in small-cap stocks. Another exception is the small-cap stock picks of hedge funds. Our research has shown that imitating the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month between 1999 and 2012 (read more details here).
Strong Performing Biopharmaceutical Company Sees Board Member Buy Shares
Minerva Neurosciences Inc. (NASDAQ:NERV) had one of its insiders buy big earlier this week. David Kupfer, member of the company’s boardroom since November 2015, reported the purchase of a block of 27,700 shares on Monday and another one of 27,935 shares on Tuesday, with the latter being held by his wife. All these shares were purchased at prices in the range of $10.68 to $10.99 per share. After the recent purchase, Dr. Kupfer currently holds a direct ownership stake of 209,188 shares. The Board member acquired his initial stake of 181,488 shares in mid-March for only $5.51 each.
The shares of the clinical-stage biopharmaceutical company focused on developing medicines for the treatment of central nervous system diseases have skyrocketed by 74% since the beginning of 2016, primarily due to the release of positive results from several mid-stage clinical trials. Precisely, Minerva Neurosciences Inc. (NASDAQ:NERV) announced positive trail results for its antidepressant drug candidate and schizophrenia treatment. In late May, analysts at Jefferies upped their price target on the biopharmaceutical company to $17 from $10, citing the aforementioned positive trial results. More importantly, Jefferies mainly focused on the results from the trial for product candidate designed to treat schizophrenia called MIN-101, saying the drug had minimal adverse effects that are usually associated with schizophrenia drugs. Jefferies analysts assigned a 65% probability of MIN-101 being approved in 2020.
The number of asset managers followed by Insider Monkey with stakes in Minerva climbed to seven from four during the first quarter of 2016. Those seven money managers amassed 13% of the company’s outstanding common stock. James Dondero’s Highland Capital Management LP owns 889,070 shares of Minerva Neurosciences Inc. (NASDAQ:NERV) as of March 31.
Let’s head to the next page of this article, where we will discuss the insider buying activity registered at two other companies.
Six Insiders at This Beleaguered Pharmaceutical Company Participate in Public Offering
Tonix Pharmaceuticals Holding Corp. (NASDAQ:TNXP) registered a cluster of insider buying this week, which involved six different insiders. To begin with, Chief Financial Officer Bradley J. Saenger bought 2,000 shares on Tuesday for $2.00 each, lifting his ownership to 6,039 shares. Board member Samuel R. Saks snapped up 25,000 shares on the same day at $2.00 apiece, which lifted his ownership stake to 63,550 shares. Ernest Mario, another member of the company’s board, purchased 50,000 shares on Monday, boosting his overall holding to 430,724 shares. Seth Lederman, co-founder and CEO of Tonix Pharmaceuticals, reported the purchase of a 25,000-share block held by his spouse, who currently owns 31,000 shares. Dr. Lederman also holds a direct ownership stake of 80,815 shares. A block of 25,000 shares was acquired by John B. Rhodes, yet another Board member, who currently holds a stake of 112,196 shares. Chief Scientific Officer and Secretary Bruce L. Daugherty acquired a new stake of 100,000 shares on Monday, which is entirely held in his Individual Retirement Account. Dr. Daugherty owns an additional 65,777 shares directly.
All corporate insiders purchased the shares through an underwritten public offering of 5.00 million shares, which generated gross proceeds of $10 million. The clinical-stage pharmaceutical company that develops next-generation medicines for common disorders of the central nervous system intends to use the net proceeds of roughly $9.1 million to support the development of product candidate TNX-102 SL for the management of fibromyalgia, develop this candidate for the treatment of post-traumatic stress disorder, as well as to fund the development of other pipeline programs.
Tonix Pharmaceuticals Holding Corp. (NASDAQ:TNXP) has seen its market value plunge by 73% since the beginning of 2016. James E. Flynn’s Deerfield Management had 1.32 million shares of Tonix Pharmaceuticals Holding Corp. (NASDAQ:TNXP) in its portfolio at the end of March.
Canadian Writer of Property and Casualty Insurance Has Executive Buy Shares
Kingsway Financial Services Inc. (USA) (NYSE:KFS) has enjoyed increased insider buying activity in recent months, which may please current and potential shareholders. Executive Vice President John Taylor Maloney Fitzgerald purchased two blocks of 4,596 shares each on Monday and Tuesday at prices varying from $5.20 to $5.24 per share. After the recent purchases, Mr. Fitzgerald currently holds an ownership stake of 249,743 shares.
The Canadian holding company primarily engaged in the property and casualty insurance business has seen its market capitalization jump by 14% since the start of 2016. Kingsway Financial Services Inc. (USA) (NYSE:KFS)’s Insurance Underwriting gross premiums written were $35.8 million, up from $35.2 million recorded in the first quarter of 2015. Meanwhile, net premiums written increased by 1.7% year-over-year to $35.6 million. The increase in both measures was mainly driven by increased premium written in Florida, offset by reduced premium written in California and Virginia. The company stopped writing new business in Virginia in the third quarter of 2015. Jim Simons’ Renaissance Technologies LLC was the owner of 138,699 shares of Kingsway Financial Services Inc. (USA) (NYSE:KFS) at the end of the first quarter of 2016.