One Vehicle-Repair Giant and Two Biotech Companies with Clusters of Insider Buying

The insider trading activity decreased quite significantly last week as compared to the activity observed during the previous one, partially owing to the four-day workweek. However, the decline in the dollar volume of both insider buying and selling was too massive to be fully explained by the holiday-shortened week. Some companies may have started to close the trading windows for insiders ahead of the approaching first-quarter earnings season, which can serve as one explanation for last week’s sluggish insider trading activity. With analysts anticipating first-quarter earnings to decline a whopping 8.7% year-on-year, some investors may be worried that U.S. equities could resume the bearish course experienced at the beginning of the year. On the other hand, the first-quarter earnings season may serve as a positive catalyst for stock if bearing in mind the somewhat grim outlook on earnings, which could increase the odds of seeing more positive earnings surprises. Although last week’s volume of insider buying decreased remarkably week-over-week, there were some companies with clusters of insider buying. Thus, the following article primarily focuses on the insider buying activity witnessed at three companies.

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).

Let’s begin our discussion with LKQ Corporation (NASDAQ:LKQ), which had five different insiders purchase shares this March. Nonetheless, this section will solely focus on those purchases that occurred last week. Paul M. Meister, member of the company’s Board of Directors since February 1999, purchased 10,000 shares on Thursday at prices that ranged from $30.03 to $30.04 per share, lifting his overall holding to 184,998 shares.

LKQ Corporation (NASDAQ:LKQ) is the largest provider of alternative vehicle collision and mechanical replacement parts in the United States, serving most major markets across the North American continent. The company primarily derives its revenue from two categories: parts and services; and other. LKQ’s parts and services revenue is mainly generated from the sale of vehicle replacement products and related services to collision and mechanical repair shops, while the company’s other sources of revenue involve scrap sales and sales of aluminum ingots and sows. Declining aluminum prices, which were impacted by excess production, falling crude oil prices, and weak demand, put some pressure on LKQ’s stock performance throughout the first two months of this year. However, the stock has quickly recovered since mid-February, gaining almost 2% year-to-date. It is anticipated that cheap gas prices will encourage more driving across the nation, which could subsequently result in a higher number of car accidents and more business for LKQ Corporation. The company’s 2015 total revenue reached $7.19 billion, up from $6.74 billion in 2014. Parts and services revenue, which accounted for approximately 93% of total revenue, increased 10.3% year-on-year to $6.71 billion. Meanwhile, LKQ’s other revenue declined 26.7% year-on-year, mainly due to a decline in the price of scrap steel and other metals. The company’s income increased to $423.22 million in 2015 from $381.52 million in 2014. More importantly, LKQ’s management anticipates adjusted net income in the range of $490 million t0 $520 million for 2016, which equates to adjusted diluted earnings per share in the range of $1.59 to $1.69. The stock is priced around 16-times expected earnings, significantly above the forward P/E multiple of 10.5 for the Auto Parts and Equipment industry. The hedge fund sentiment towards LKQ decreased dramatically in the fourth quarter of 2015, as the number of funds with stakes in the company declined to 27 from 35 quarter-on-quarter. Alan Fournier’s Pennant Capital Management owns 4.70 million shares of LKQ Corporation (NASDAQ:LKQ) as of December 31.

The next two pages of this article discusses the insider buying activity registered at two biotech companies, Ignyta Inc. (NASDAQ:RXDX) and BioDelivery Sciences International Inc. (NASDAQ:BDSI).

Ignyta Inc. (NASDAQ:RXDX) saw three top-tier executives purchase shares in the past two weeks. On March 17, Jonathan E. Lim, Chairman, Chief Executive Officer and Co-Founder of Ignyta, purchased 24,852 shares at prices that ranged from $5.35 to $5.78 per share, all of which are held by City Hill Venture Partners I LLC that currently owns 3.35 million shares (Mr. Lim is the manager of City Hill Ventures LLC, which is the manager of City Hill Ventures Partners I LLC). The CEO also holds a direct ownership stake of 97,000 shares. Chief Medical Officer James L. Freddo snapped up a new stake of 3,000 shares on the same day at a weighted average cost of $5.39 per unit. Last but not least, Chief Financial Officer Jacob Chacko bought two separate blocks of 5,000 shares on March 17 at a weighted average price of $5.64, boosting his overall stake to 42,838 shares.

Ignyta is a precision oncology biotechnology company focused on developing drug candidates that not only shrink tumors, but also eradicate the source of cancer relapse and recurrence. The company’s leading product candidate, entrectinib (previously known as RXDX-101), is a small molecule tyrosine kinase inhibitor studied in a Phase 2 clinical study and two Phase 1 clinical studies for the treatment of solid tumors, as well as one Phase 1/1b clinical study in pediatric patients with advanced solid tumor malignancies. Ignyta’s current pipeline of compounds also includes taladegib, a small molecule hedgehog/smoothened antagonist; RXDX-105, a small molecule multikinase inhibitor with potent activity against targets as RET and BRAF; and RXDX-106, a pseudo-irreversible inhibitor of TAM (Tyro-3, Axl and Mer) and cMET. Shares of Ignyta are down 34% in the past 12 months, after having dropped 53% in 2016 alone. Therefore, the recent insider buying activity at the company is pointing to the management’s confidence in the future potential of Ignyta’s current pipeline. A total number of 15 hedge funds from our database were invested in the biotechnology company at the end of 2015, amassing 32.20% of its total number of outstanding shares. Kevin Kotler’s Broadfin Capital LLC was the largest shareholder of Ignyta Inc. (NASDAQ:RXDX), among the funds we track, with 2.26 million shares, held as of the end of 2015.

BioDelivery Sciences International Inc. (NASDAQ:BDSI) also had a cluster of insider buying in the past two weeks. To start with, Director Charles J. Bramlage purchased 8,850 shares last Monday for $2.82 each, lifting his ownership to 28,150 shares. Chief Technology Officer Niraj Vasisht snapped up 1,000 units of common stock on March 18 at $2.80 apiece, which increased his direct ownership stake to 68,420 shares. Director Barry I. Feinberg bought a 10,000-share block on the same day at a weighted average price of $2.74, which is entirely held by the BIF Family Trust. The Director’s trust fund continues to hold a stake of 15,000 shares. Lastly, Ernest R. De Paolantonio, Chief Financial Officer, Secretary and Treasurer, purchased 4,000 shares a day earlier for $2.60 each, boosting his stake to 13,383 shares.

BioDelivery Sciences International is a specialty pharmaceutical company that focuses on the development and commercialization of new applications of approved therapeutics to address unmet medical needs, with a primary focus on pharmaceutical products related to pain management and addiction. The company’s first FDA-approved product, ONSOLIS, as well as its BUNAVAIL and BELBUCAL buccal films, utilize BioDelivery’s proprietary BioErodible MucoAdhesive (BEMA) drug delivery technology. This drug delivery technology represents an erodible polymer film that is applied to the buccal mucosa, the lining inside the cheek. These BEMA films are designed to deliver a dose of drug across the mucous membranes of a patient. BioDelivery Sciences recognized $4.2 million in product sales for 2015, up from only $0.1 million in 2014. The increase entirely reflects the launch of the company’s BUNAVAIL, which obtained FDA approval for the maintenance treatment of opioid dependence in June 2014, in November 2014. BELBUCA, a partial mu-opioid agonist and a treatment for the management of severe pain, received FDA approval in October 2015. Shares of BioDelivery Sciences have lost 78% in the past 52 weeks and are down 38% year-to-date. The number of hedge funds with stakes in the pharmaceutical company declined to 17 from 22 during the December quarter. Steven Boyd’s Armistice Capital had 2.62 million shares of BioDelivery Sciences International Inc. (NASDAQ:BDSI) in its portfolio at the end of 2015.

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