Insider Weekends – December 9, 2011

Welcome to edition seventy nine of Insider Weekends. Insider buying decreased with insiders purchasing $20.6 million of their stock last week compared to $41.01 million in the week prior. Selling increased with insiders selling $926.4 million worth of stock last week compared to $558.9 million in the week prior.

Sell/Buy Ratio: The insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by total insider purchases that week. The adjusted ratio for last week climbed to 44.9. In other words, insiders sold almost 45 times as much stock as they purchased. The Sell/Buy ratio this week compares unfavorably with the week prior when the ratio stood at 13.4.We are calculating an adjusted ratio by removing transactions by funds and companies and trying as best as possible only to retain information about insiders and 10% owners who are not funds or companies.

Note: As mentioned in the first post in this series Introduction to Insider Weekends, certain industries have their preferred metrics such as same store sales for retailers, funds from operations (FFO) for REITs and revenue per available room (RevPAR) for hotels that provide a better basis for comparison than simple valuation metrics. However metrics like Price/Earnings, Price/Sales and Enterprise Value/EBITDA included below should provide a good starting point for analyzing the majority of stocks.

Notable Insider Buys:

1. Furiex Pharmaceuticals, Inc. (FURX): $16.63

Shares of this drug development collaboration company were acquired by 3 insiders:

• Director Fredric N. Eshelman acquired 163,342 shares, paying $17.62 per share for a total amount of $2.9 million. Mr. Eshelman increased his stake by 9.71% to 1,845,624 shares with this purchase.
• Senior VP-Clinical Operations Paul S. Covington acquired 2,850 shares, paying $17.68 per share for a total amount of $50,388. Mr. Covington increased his stake by 3904.11% to 2,923 shares with this purchase.
• Director Stuart Bondurant acquired 2,800 shares, paying $17.87 per share for a total amount of $50,036. Mr. Bondurant increased his stake by 71.85% to 6,697 shares with this purchase.

Mr. Eshelman has been periodically picking up shares since May but this is his largest purchase this year. A Senior Vice President and the CFO also picked up modest amounts of stock last month as you can see from this page. The company has $54.81 million in net cash on its balance sheet representing $5.55 per share in cash.

Like most early stage drug development companies, Furiex has very high R&D expenses and very little revenue, leading to a string of losses. One could speculate that insiders are buying because one or more of the three drugs the company currently has under development are showing promise. The company could also receive milestone payments from drug company Takeda Pharmaceutical if its orally ingested diabetes drug Nesina receives FDA approval in early 2012. This drug received regulatory approval in Japan in the second quarter of 2010. I generally stay away from early stage drug development companies and will pass on Furiex despite the cluster of insider purchases.

You can view the list of recent insider transactions for Furiex Pharmaceuticals, Inc. here.

2. Valeant Pharmaceuticals International, Inc. (VRX): $47.11

EVP and CFO Howard Bradley Schiller acquired 54,500 shares of this Canadian pharmaceutical company, paying $46.14 per share for a total amount of $2.5 million.

The market generally pays attention to CFO purchases, especially if they happen to be 7 figure purchases but Valeant fails to inspire on a number of fronts. The company has chalked up impressive revenue growth but that growth appears to have come from acquisitions. The company has a leveraged balance sheet with nearly $5 billion in net debt and most of its operating income goes towards servicing this debt. Valuation isn’t particularly attractive with the stock trading at 3.5 times book value and sports an EV/EBITDA ratio of 17.59. Goodwill and intangible assets comprise $10.2 billion of assets out of total assets of $11.8 billion.

On the positive side, free cash flow is actually quite high due to high depreciation and low CapEx. The company generated $246 million of free cash flow in 2010 and has already managed to generate $443 million in FCF in the first nine months of this year.

You can view the list of recent insider transactions for Valeant Pharmaceuticals International, Inc. here.

3. United Therapeutics Corporation (UTHR): $42.02

CEO Martine A. Rothblatt acquired 38,687 shares of this biotech company, paying $41.79 per share for a total amount of $1.6 million. These shares were purchased indirectly through various trusts.

It is good to finally come across a healthcare company with insider buying that is trading at a reasonable valuation (7 times EBITDA), has a great balance sheet with $377 million in net cash, great profit margins of 24% and a growing top line. The company saw its stock drop sharply in August following a disappointing trial of its experimental lung-disorder drug. The company held a special call to discuss this development and to reiterate that even without this drug, the company is maintaining its revenue guidance of $750 million, $875 million and $1 billion for 2011, 2012 and 2013, respectively, give or take 5%.

You can view the list of recent insider transactions for United Therapeutics Corporation here.

4. FXCM Inc. (FXCM): $10.74

Director Eduard Yusupov acquired 71,375 shares of this foreign exchange trading company, paying $9.95 per share for a total amount of $709,853. Mr. Yusupov increased his stake by 355.65% to 91,444 shares with this purchase.

We wrote about FXCM in May of this year following an insider purchase by another director for $9.01. The stock is up 19% since his purchase. We wrote the following about the stock back then, “This is an interesting company that went public last December offering 15.06 million shares at $14 per share. FXCM provides a technology platform that allows its customers to trade up to 56 currency pairs in 184 countries. It also operates the DailyFX.com website.

The stock has dropped steadily after hitting an intraday high of $15.34 on its first day of trading. It shed more than 16% last Monday after reporting first quarter earnings of 18 cents, missing analyst estimates by 2 cents. The company announced a $30 million stock buyback the following day.

Interestingly neither the stock buyback nor this insider purchase have done much for the company as the stock dropped 8% after announcing the buyback and barely budged despite the insider purchase filing coming in during regular market hours. Assuming analysts estimates for full year earnings are revised down to 74 cents from the current 82 cents, we get a forward PE of about 12. The stock currently sports a dividend yield of 2.7%.”

You can view the list of recent insider transactions for FXCM Inc. here.

5. Opko Health, Inc. (OPK): $4.82

CEO & Chairman Phillip Frost M.D. acquired 75,000 shares of this medical appliances & equipment company, paying $4.93 per share for a total amount of $369,525. These shares were purchased indirectly by Frost Gamma Investments Trust.

You can view the list of recent insider transactions for Opko Health, Inc. here.

You can view the full list of purchases from this Insider Buying page.

Notable Insider Sales:

1. Apollo Group Inc. (APOL): $50.36

Shares of this for-profit education company were sold by 2 insiders:

• Exec Chairman of the Board John G. Sperling sold 166,467 shares for $49.81, generating $8.3 million from the sale. These shares were sold indirectly through a trust.
• Vice Chairman of the Board Peter V. Sperling sold 83,233 shares for $49.81, generating $4.1 million from the sale.

You can view the list of recent insider transactions for Apollo Group Inc. here.

2. Cornerstone OnDemand, Inc. (CSOD): $18.75

Shares of this multimedia & graphics software company were sold by 5 insiders:

• Director Rob Ward sold 436,265 shares for $17.78, generating $7.8 million from the sale. These shares were sold indirectly by Meritech Capital Partners.
• SVP and GM of EMEA Vincent Belliveau sold 150,000 shares for $17.92, generating $2.7 million from the sale. These shares were sold as a result of exercising options immediately prior to the sale.
• President & CEO Adam L. Miller sold 58,320 shares for $18.13, generating $1.1 million from the sale. These shares were sold indirectly through a trust.
• Senior Vice President of Sales David Joseph Carter sold 25,000 shares for $16.31, generating $407,807 from the sale. These shares were sold as a result of exercising options immediately prior to the sale.
• Director R C. Baker sold 20,000 shares for $18.28, generating $365,610 from the sale.

You can view the list of recent insider transactions for Cornerstone OnDemand, Inc. here.

3. CommVault Systems, Inc. (CVLT): $49.18

Shares of this application software company were sold by 3 insiders:

• Chairman, President & CEO N Robert Hammer sold 176,000 shares for $50.46, generating $8.9 million from the sale.
• VP, Mkt & Bus. Development David R. West sold 21,304 shares for $50.00, generating $1.1 million from the sale. These shares were sold as a result of exercising options immediately prior to the sale.
• VP Finance and CAO Brian Carolan sold 9,835 shares for $50.00, generating $491,750 from the sale. These shares were sold as a result of exercising options immediately prior to the sale.

You can view the list of recent insider transactions for CommVault Systems, Inc. here.

4. IPG Photonics Corporation (IPGP): $37.86

CEO & Chairman of the Board Valentin P. Gapontsev sold 200,000 shares of this optical fiber-based lasers company for $40.55, generating $8.1 million from the sale. These shares were sold indirectly by the Valentin Gapontsev Trust.

You can view the list of recent insider transactions for IPG Photonics Corporation here.

5. Tutor Perini Corporation (TPC): $14.66

Chairman & CEO Ronald N. Tutor sold 509,996 shares of this construction services company for $15.66, generating $7.9 million from the sale. These shares were sold indirectly through a trust.

You can view the list of recent insider transactions for Tutor Perini Corporation here.

You can view the full list of sales from this Insider Sales page.