MannKind Corporation (MNKD), PDL BioPharma Inc. (PDLI) & Optimer Pharmaceuticals, Inc. (OPTR): 2 Biotechs to Avoid, 1 to Buy

Keeping a close eye on two particular classes of investors can tell you a lot about how stocks might move in the future. Institutional investors have resources at their disposal that ordinary investors lack. Moreover, they own such large stakes in their investments that their moves can materially influence a stock’s price.

Meanwhile, important information about upcoming catalysts is more readily available to the insiders, compared to the rest of the market. Therefore, investors in medium/small biotechnology companies should keep any eye out for insider and institutional transactions. Let’s see how those sales and purchases have affected three stocks in the biotech sector.

MannKind Corporation (NASDAQ:MNKD)

MannKind Corporation (NASDAQ:MNKD) discovers and develops innovative therapies for diabetes and cancer. Its best-known candidate is the inhalable insulin product AFREZZA. It’s also working on the MedTone and Dreamboat inhalers to deliver that drug.

The company will be the second to launch an inhalable insulin product, after Pfizer. Its Exubera was one of the most expensive failures of the entire healthcare sector, posting poor sales due to concerns about its effects on patients’ lungs.

The market’s perception of the success of AFREZZA is the primary catalyst driving the share price of MannKind Corporation (NASDAQ:MNKD). Shares have fluctuated between $1.50 and $5.50 during the last year. MannKind has been rallying since February, with shares up approximately 110%.

During the last six months, insiders have purchased approximately 40 million shares of the company. This has increased insider holdings by 95%. During the same period, institutional investors have also increased their holdings by 14%. Despite the 110% rally, MannKind Corporation (NASDAQ:MNKD) is still trading below its mean sell-side target price of $6.10, which I think makes it worth a closer look.

PDL BioPharma Inc. (NASDAQ:PDLI)

PDL BioPharma Inc. (NASDAQ:PDLI) has a unique model in biotechnology. It primarily  manages IP assets and distributes these dividends to investors, but it’s also involved in the humanization of monoclonal antibodies and targeted treatments for immunologic diseases and cancer.

The company has one of the highest dividend yields in the entire healthcare sector. The company has a staggering dividend yield of 7.3%, above the industry average of 0.61% and the sector average of 1.51%. On top of that yield, the company has also shown strong stock price appreciation of 28% in the last year. But in the last six months, institutional investors have reduced their holdings by approximately 23%, selling almost 23.8 million shares of PDL BioPharma Inc. (NASDAQ:PDLI).

The demand for high dividend stocks has increased during the last year, which is the primary reason behind the appreciation of PDL. The shares are trading at a 19% premium to the mean sell-side target price of $6.90. That might make PDL BioPharma Inc. (NASDAQ:PDLI) too expensive at these levels, despite its high dividend. Income investors should wait for a price decline before going for PDL