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Taking a look at Arrowhead research insider transactions

10/16/2014

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After noting that the CEO at Arrowhead Research bought 16,000 shares yesterday on the open market, several people asked me on twitter if he had previously sold, as the stock is down 75% from its March 6th high of $27.63.

@Emory_R Happy about that, but was he one of the sellers in last 2 months?

— Annie (@bjj15843) October 15, 2014
While the overall predictive power of insider's trades are mixed. I am of the opinion that insider's trades are worth a second look if they meet the following criteria:
  • If the buyer/seller is clearly informed about future developments (C-level executives, not Jr. VP's)
  • If the transaction happens on the open market, not part of a 10b5-1 plan.
  • If the transaction is sufficiently large to be meaningful to the individual. For example if a CEO who makes $1M a year buys $10,000 worth stock, that is meaningless. 

With this criteria in mind, I dove into the insider transaction data, which I've show all the 2014 activity below.
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It appears that Mr. Anzalone has not sold any shares in 2014, and I don't see any shares sold in years past. 

However, other insiders seemed to have actively sold shares, by converting their options and selling the proceeds. The best trader among them seem to be the CFO, having sold at $18.77 in February, and $14.02 in August.  His gross proceeds from these two sales are $861,150 or net $576,140 when you include the cost of exercising the options. 

It is also interesting to note that the CFO and a Director sold on the same day (August 15th) and the CFO got a better price. Perhaps he is a good trader.

Going back to our criteria outlined above:
  • The CEO's purchase yesterday is an open market buy, 
  • He is in the position to know about the companies future prospects, 
  • Do the represent a meaningful amount to Dr. Anzalone? He earned $579,808 in cash, and $463,393 in option awards from Arrowhead in 2013.  Additionally, he owned 244,173 ARWR shares, plus 786,466 options, some of which are underwater.  



I would say that the purchase of $101,120 of ARWR stock, of which he already has a very large position, is a meaningful amount, but not tremendously meaningful. 


Keep in mind, I am not implying anything improper occurs when insiders sell, rather I believe some insiders are in the position to know the intrinsic value of the company better than other investors, and therefor in a position to buy an undervalued stock and sell an overvalued stock.


Geek note: I am using insider transaction data from OpenInsider.com.

Disclosure, I am long Arrowhead Research.
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QVT Financial Buys arrowhead Research on the drop

10/14/2014

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One of the most controversial names in biotech has been Arrowhead Research (ARWR).

The market was very disappointed with ARWR's late-breaking abstract for the American Association for the Study of Liver Disease (AASLD) meeting, part of the ongoing Phase 2a study of ARC-520 for hepatitis B. The abstract was released October 8th, 2014. The meeting is November 7-11, and is commonly referred to as The Liver Meeting.  

Investors were looking for a 1 log reduction in Hepatitis B virus from Arrowhead's ARC-520. However the company delivered a 0.3 log reduction in HBV, falling short of expectations.

The stock has declined more than 50% on the news. Management has tried to assuage investors with an open letter to shareholders.

For a good summary of the situation, I'll refer you to  Adam Feuerstein's article at TheStreet.com. For a more scientific take on the data, check out Dirk Haussecker's RNAi Therapeutics blog.

However, this hasn't stopped Daniel Gold's QVT Financial from increasing it's stake to 4,030,882  shares as of October 8, 2014. The stock closed at $7.03 that day after trading as low as $5.47, they now own 7.62% of the company . This position is up from 1,819,982 shares as of June 30, 2014. 

QVT Financial manages more than $8 billion, and has 27% of its 13F portfolio in healthcare.  QVT originated as a non-traditional proprietary trading group, lead by Deutsche Bank alumni Daniel Gold.

The bull case for Arrowhead Research centers around the signs of efficacy we have seen thus far, and ARC-520 clean safety profile. Bulls think the viral knockdown to be demonstrated in higher/multiple doses (3-4mg/kg) will be sufficient for a high level of HBV knockdown. 
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Geek note: Viral knockdown can be measured in log or percent change. Here is a link to a table that converts between the two. H/T to V. S. Schulz.
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Achillion and RA Capital: my favorite trade

10/9/2014

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We've all heard of doubling down on an investment. How about doubling down 11-fold? This is exactly what RA Capital Management did, raising their holdings of ACHN from 2m shares to 23m as the stock moved against them from 2012 to 2014. Their conviction paid off when shares rallied from as low as $2.52 to over $13 in the summer of 2014.

RA Capital is a a Boston-based healthcare crossover fund, and according tothis study (original here), a great stock picking firm.

I have been following RA for a few years now, and had the pleasure of seeing this trade play out in real time. I also had the good fortune of following them through this trade for myself and client accounts.
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RA Capital first disclosed their position in Achillion in the summer of 2012. You can see the shares held (green and orange) on the right side of the chart above, with the stock price as the blue line. Over the next year, biotech industry observers pontificated that Gilead would dominate the space HCV space with sovaldi. 

However, things were just beginning to get interesting. The FDA put a clinical hold on Achillion's lead drug sovaprevir on July 1, 2013 due to toxicity concerns. On July 22, 2013  Peter Kolchinsky, Managing Partner of RA Capital Management, wrote a piece for xconomy, defending Achillion, and refuting the idea of Gilead capturing the entire market,  stating that Achillion would compete on price, carving out its own niche in the HCV space. By this time, RA had increase their holding from 2m shares to 7.4m.  For those interested, Kolchinsky's book The Entrepreneurs Guide to a Biotech Startup is a great read and can be found here.

When the FDA declined to lift the hold in September 2013, the stock took a beating from the $7's to the high $2's. However, RA Capital stepped up their buying in the rest of 2013, eventually owning 23m shares and over 20% of the company. 

During this time,bulls argued that the liver toxicities only occurred in a small subset of HIV patients, and therefor could be overcome. Bears saw a drug with toxicity issues that was late to market (if at all), and a pipeline that was not mature enough to get excited over.The shares traded as low as 2x cash on the balance sheet. However, those paying attention to RA Capital noticed the buying, and had ample opportunity to buy during the nine months the stock was down, which I did.
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In June of 2014, two events occurred that boosted Achillion price. HCV rival Idenix was acquired, and the next day, the clinical hold was lifted. RA Capital's stake rocketed from $65m to $217m in about two months.

Since then, RA Capital has began to unwind its very large position, selling it down, presumably for risk management purposes, and to book some monster gains. The willingness to go against the grain, the deep level of conviction, and the huge win makes this one of my favorite biotech trades of all time.
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Notes for the data geeks:
  • ACHN price data from Yahoo Finance
  • RA Capital holdings from Whale Wisdom, data sources are the following SEC filings3G, 3, and 4.
  • Price and Cash & STI chart from YCharts
  • This data is for common equity only. RA Capital disclosed option positions (bull call spreads) in the various forms. I have chosen not to include these in this graphic, so their actual economic exposure could be materially different.
  • Between the forms 13F/D/G and the in Insider Forms 3/4, there are reporting differences of how many shares are held. I believe this relates to what accounts/funds get reported. To address this I cleaned up the data to best tell the story. 
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BroadFin Capital Buys Anthera ahead of interim data

10/3/2014

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Today Broadfin Capital, a healthcare specialist investment firm, disclosed a 1,301,622 share position in Anthera Pharmaceuticals ($ANTH), this represents 5.7% stake in the company as of September 25, 2014.  

This is an 70% increased from their June 30, 2014 disclosure of 766,329 shares. 

The timing is interesting because of  the near term of interim data from phase III CHABLIS-SC1 for Systemic lupus erythematosus in Q3'14 for and phase II/III BRIGHT-SC for rare disease IgA nephropathy in  H2’14.
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On the valuation side of things, the company has $20m in cash, and a $40m market cap (round figures), if one believes they will see positive read outs, this could prove to be an attractive valuation. The average analyst price target is $3.33, for which represents an 85% upside from current levels.

Anthera has an impressive institutional shareholder list which includes a  13D from  Orbimed on August 1, 2014. Filing 13Fs as of June 30, 2014 from Great Point Partners, BVF, Perceptive, Sabby, and Abingworth.

I own no shares at this time.
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