Trusts related to Board of Directors member Thomas Tisch purchased about 21,000 shares of Synageva Biopharma Corp (NASDAQ:GEVA) on January 9th at an average price of $47.53 per share. Tisch and these trusts now own about 750,000 shares, but any increased exposure at all to the company is of questionable wisdom. Insiders are already exposed to company-specific events which can hurt them economically, and so for the trust to purchase more shares would likely reflect high confidence that the stock price will increase in the future. This is one explanation for why insider purchases tend to be bullish signals (see our analysis of studies on insider trading). Our database of insider trading filings last recorded purchases related to Tisch in July 2012 at $41.20 per share.
Synageva is a biotech company whose primary product would be used to treat patients with lysosomal acid lipase (LAL) deficiency. Since the company is mostly in the development stage, it has been unprofitable and is expected to show net losses in 2013 as well, but the market’s perception of its potential has carried it to a market capitalization of $1.2 billion. The stock is up 300% since shortly after its initial public offering in July 2011. At the end of September, Synageva had about $230 million in cash and cash equivalents on its balance sheet, as opposed to $14 million in total liabilities and $17 million in cash used in the first nine months of 2012. As a result we wouldn’t be worried about the company’s cash needs for at least a few more years. We would note that the most recent data has 16% of the outstanding shares held short.
Synageva was one of the top stock picks of Baker Brothers Advisors, a healthcare focused fund, at the end of September. According to the fund’s 13F, it had 8.4 million shares in its portfolio at that time- a 12% increase from three months earlier (find more of Baker Brothers’ favorite stocks). Felix Baker, who co-manages the fund, currently serves on Synageva’s Board of Director. However, the rest of the hedge fund community was cool on Synageva: very few other funds reported positions, while billionaires Ken Griffin and Steve Cohen had their hedge funds sell their shares. Check out which stocks Griffin’s Citadel and Cohen’s SAC Capital liked instead.
Some biotech companies with a similar market cap to Synageva despite also have negative profits forecast for 2012 are Dendreon Corporation (NASDAQ:DNDN), Halozyme Therapeutics, Inc. (NASDAQ:HALO), Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY), and Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX). Dendreon is also a popular short target, with the short interest equal to 30% of the float, and that stock has fallen 54% in the last year as the company’s primary product has had a disappointing reception in the market. Halozyme has also slumped over the last year. The other two companies’ stocks are up, though not as strongly as Synageva’s: Alnylam has almost doubled from its levels a year ago while Lexicon is up 45%. Of course the recent performance of the stock price doesn’t tell investors much about the value of the business going forward, but we think it serves as a microcosm of the major news events that have befallen each company.
We like to be able to put our finger on some sort of value underpinning a company’s stock price, which generally amounts to earnings at least on a forward if not an a trailing basis. As a result we can’t say that it’s particularly wise to imitate this insider purchase in Synageva, though the size of the transaction is notable and is worth keeping in mind should more news unfold about the company.
Disclosure: I own no shares of any stock mentioned in this article.
