Every investor knows that the path to profits is to buy low and sell high. This is a fundamental principle of any economic trading system. However, the trick is to know when the stock is low enough to buy. The key moment to buy is when the stock hits the bottom; This will maximize returns when the stock price starts to rise again.
There are many potential clues that investors can use to find the lowest price; Today, we’re going to take a look at insider buying trends.
Insiders — company officials, board members, and other insiders — not only run businesses, they know the details. Legally, they are not supposed to share that knowledge, or blatantly trade it, and disclosure rules by government regulators help keep insiders honest. However, their honest financial transactions can be very beneficial. These are the people who have a deeper knowledge of specific stocks. Therefore, when buying or selling, especially in large quantities, pay attention.
As George Muzia, a former market advisor to George Soros, commented recently, after a career studying and investing in insider trading, “Insiders are basically value investors. They buy at twice the price…”
So let’s put this into practice. We used TipRanks’ Insiders’ Hot Stocks tool to find stocks with recent “helpful” insider buys — and we sorted them further to find three whose stock price went down. Let’s take a closer look.
MARSANA TREATMENTS (Mersen)
We’ll start with Mersana Therapeutics, a clinical-stage biopharmaceutical company focused on developing antibody-conjugated drugs (ADCs) to treat different types of cancer. These proprietary drug candidates follow a highly targeted approach to overcome tumor growth, combining monoclonal antibodies with current anticancer drugs. The result is a cancer drug that attacks specific antigens on the surfaces of cancer cells. One supposed advantage is greater patient tolerance.
However, in September last year, Mersana reported a second patient death in an ongoing phase 1 clinical trial of upifitamab rilsodotin (UpRi). This candidate drug is a potential treatment for ovarian cancer — but a report of a second death — like the first, from pneumonia — spooked investors and stocks plunged sharply. Over the past 12 months, Mersana’s stock is down 64%.
On the plus side, provisional data from nearly 100 patients participating in the clinical trial showed a 34% objective response rate (ORR), which is a positive presentation of a key measure of an early-stage trial.
It is clear that insiders are focusing more on the potential of UpRi. Andrew Hack, of Mersana’s board of directors, made a big buy this week, spending more than $10 million to purchase up to 1,690,000 shares of MRSN.
Hack isn’t the only rookie here. Kaveri Pullman, an analyst at BTIG, notes that this company’s drug platform has a well-known safety profile, increasing the tolerance of conventional anticancer drugs. “Mersana has what appears to be the safest payload technology, and we think the world is just beginning to take notice,” Polman wrote. “The safety profile of Mersana allows it to be combined with its earlier toxic chemotherapies that remain an SOC for most types of tumors. This is important, because The cancer treatment landscape is becoming more focused on combination therapies. Likewise, the immune system and then technology (a STING agonist that delivers antibodies) looks promising, and the company perhaps receives little credit for this approach.”
Pullman describes MRSN as the top pick of the year and rates it as a buy. Its price target of $26 points to a 292% rise in the next 12 months. (To watch Pullman’s track record, click here)
Overall, MRSN has received 6 ratings from Street analysts and is divided into 5 buys and 1 contract, giving a strong consensus rating of buy. The stock is currently trading at $6.63 and has an average target price of $22.67, an increase of ~242% over the next 12 months. (See MRSN stock analysis on TipRanks)
Bridge Bio Pharma (BBIO)
Some medical research companies take a narrowly focused approach, while others develop a broader research program. BridgeBio is one of those; It is working on “advanced medicines” to treat genetic diseases with high unmet medical needs. The company was founded in 2015, but has already expanded its pipeline to 19 separate drug development programs. The pipeline is divided into several tracks, including precision oncology, heart resolution, and gene therapy.
With so many pipeline software out there, it’s no wonder BridgeBio has multiple catalysts in the near future. The first is a preliminary proof-of-concept clinical readout from the Ph1/2 trial of low-dose infigratinib, which is expected to occur at 1H22.
The second clinical trial to monitor is the Phase 1/2 study of the drug candidate BBP-631. This drug trial is testing a new treatment for CAH, and the company plans to release preliminary data from the trial by the middle of this year.
However, in other news, BridgeBio doesn’t look rosy. The company recently reported the results of a phase III clinical trial of acoramides, the leading candidate drug and potential treatment for amyloid-transmitterin cardiomyopathy (ATTR-CM). This data has been eagerly awaited – but it is a disappointment. The data indicated that acuramides did not improve patient outcomes—and that disappointment led to a lower stockpile.
BBIO shares have been falling for the year, but after the release of Acuramides data, shares are down about 70%. Overall, the stock is down over the past 52 weeks by 77%.
While stocks are down, insiders are making purchases. Of those purchases, three, by board members James Momtazi, Brent Saunders and Farid Hassan, are considered beneficial. Last week, Mumtaz spent $1.16 million on 80,000 shares, Hassan spent more than $270,000 to buy 19,300 shares, while Hassan bought 17,600 shares for $254848.
In a coverage of JPMorgan, analyst Anupam Rama points to the company’s recent stock price disaster, but adds that the catalysts ahead are numerous.
“Looking ahead, we see an interesting trajectory for the catalyst but acknowledge that gains from the broader pipeline must be disseminated to shift sentiment. This, along with the current assessment, forms the basis for maintaining our overrated rating.”
The Overweight rating (i.e. buy) comes with a price target of $36, which indicates that BBIO has room for an impressive 141% growth next year. (To watch Rama’s track record, click here)
Overall, it’s clear from the Strong Buy consensus rating that Street stock professionals have remained quiet in this rating, even after the disappointment of the clinical experience. All nine ratings here are positive, giving the stock a strong buy consensus rating. The shares are trading at $16.31 with an average target of $27.40 indicating scope for another 83% rally. (See BBIO stock analysis on TipRanks)
Rita Pharmaceuticals (straight)
The last on the list, Reata Pharmaceuticals, is another clinical-stage biomedical researcher. Reata has two main research tracks, in the treatment of chronic kidney disease and neurological disease, and each track contains a separate candidate drug. Bardoxolone methyl appears on the renal pathway, while omaveloxolone is present on the nervous pathway. Both drugs target the transcription factor Nrf2, and have several effects on target cells, including restoring mitochondrial function, decreasing oxidative stress, and decreasing inflammation.
Reata stock has been hit hard recently. The stock has fallen 76% over the past year, and the lion’s share of it came in the first and second weeks of last December. The reason for this blow is worth a look.
The company has submitted its NDA to the Food and Drug Administration for bardoxolen methyl, based on completed Phase 3 clinical trials. In December, the Food and Drug Administration’s advisory panel released its findings — by unanimous vote of 13-0 “no” on the drug’s candidate. In the panel’s view, bardoxolone was not effective in its targeted application, which is the treatment of chronic kidney disease caused by Alport syndrome. The FDA’s final decision on approval of methylbardoxolone is due for February 25, and although the agency is not bound by an advisory committee vote, it is taking that into account. This was a huge setback for Rita.
However, it is not the end of everything for the company. In November 2021, Reata received a fast-track designation from the FDA for its other lead candidate, omaveloxolone, for the treatment of the neurological condition Friedreich’s ataxia. Fast-track mapping aims to accelerate the development and review of new drugs. The company plans to offer an NDA for omaveloxolone in 1Q22.
5-star analyst Charles Duncan, in his coverage or RETA of Cantor Fitzgerald, notes that the Food and Drug Administration has left open the possibility of a new Phase 3 trial of bardoxolone, to address trial design issues raised by the advisory panel, and that Reata’s omaveloxolone program remains On the right track.
“Some AdCom members expressed hope that there might be a way forward for bard” in AS with a better designed trial, possibly using a precision medicine strategy focused on younger patients, and with a lower baseline for eGFR. To reflect this possibility, we maintain a 15% success probability in our market models and are making a projected commercial launch year to 2025 from 2022 in the US model AS, and to 2027 from 2024 in the previous US model AS. We also point to omaveloxolone (omav’) in Frederick’s ataxia (FA) as now the major contributor to our 12-month target price,” Duncan said.
That price target, $68, means a 140% increase in the coming year. Duncan rates stocks as overweight or overweight. (To watch Duncan’s record, click here)
Wall Street generally gives this stock a moderate buy rating, based on a 6 to 3 split between recent reviews, in buy versus hold. The stock is selling for $28.32 and an average price target of $93.67 – actually more bullish in Cantor’s view – suggests a one-year upside potential of about 231%. (See RETA stock forecast at TipRanks)
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disclaimer: The opinions expressed in this article are only those of our featured analysts. The content is intended for informational use only. It is very important to do your own analysis before making any investment.