Investors Tracking Insiders’ Stock Sales for Clues on Amgen : Investments: The sale of shares in biotechnology’s hottest property by company executives has raised some eyebrows.
Early last year, one share of Amgen Inc.’s stock cost $21.50 (adjusted for a split). Today, a single share runs about $125. As investors clamored to buy biotechnology’s hottest stock, 11 insiders at the Thousand Oaks company unloaded some of their holdings, while only one insider purchased Amgen stock--and that was a modest $2,900 investment.
Two notable sellers are Amgen’s current and retired chief executives. Just when corporate insiders--executives and directors--buy or sell their company’s stock is carefully tracked by some investors who believe that it is a barometer of a company’s fortunes. One newsletter devoted to this research is The Insiders, published in Ft. Lauderdale. The newsletter studies insider trades at 3,000 companies.
Alan Hadhazy, senior analyst at the newsletter, said: “Insider sellers of stock are not as indicative of a company’s future performance as are buyers. There are a number of good reasons to sell stock. But there is only one reason to buy stock. You think it will go up.”
Nevertheless, Hadhazy said, “It stands to reason if Amgen’s insiders expect much more immediate gains in the stock, they wouldn’t have sold.” So Hadhazy’s newsletter gives Amgen’s stock a relatively pessimistic 3 rating--10 is the most bullish for a stock and 1 the most bearish.
It is clear why Amgen’s stock has rocketed. The company’s first biotechnology drug, erythropoietin (or EPO), which treats chronic anemia in kidney disease patients, has blossomed into biotechnology’s best-selling drug, with $310 million in sales expected for Amgen’s current fiscal year. Last month Amgen’s second drug, called G-CSF, was approved for sale to combat bacterial infections in chemotherapy patients, and is expected to be an even bigger seller than EPO. Then three weeks ago, Amgen won a key patent case securing its EPO monopoly.
These two drugs will produce $1.2 billion in 1995 sales for Amgen with profits of $310
“Amgen is doing a great job. But the stock is overvalued. The executives are smart to cash in their substantial profits,” said Jim McCamant, editor of the Medical Technology Stock Letter in Berkeley. McCamant guessed wrong on Amgen’s stock last year when he urged investors to unload it at $65 a share, but even with the company’s recent good fortunes, he said, a reasonable stock price is $80.
The soaring stock has enriched not only Amgen’s executives but also the rest of its staff. Each of the company’s 1,200 workers--from secretaries to scientists--get yearly stock options. The amount varies according to their pay, said William Puchlevic, Amgen’s vice president of human resources.
In most cases Amgen gives employees the option to buy a fixed number of shares at a later date for the same price--or slightly below--what the stock traded at on the day the options were granted. Employees have up to seven years to exercise their options, that is, to purchase the stock at that old price. Puchlevic said stock options helped lure talent to Amgen, as its employment has more than doubled since 1989. “People don’t let their options expire. It’s like burning money,” he said.
Amgen employees use their stock profits, he said, to “buy new homes or automobiles, pay for college educations, finance extended dream vacations. And some people absolutely don’t do anything. They just methodically exercise their options and retain the stock certificates.”
But it is the trades of Amgen’s executives that are most closely watched.
In November and December, Gordon Binder, Amgen’s chief executive, sold 22,000 shares of stock--about 15% of his holdings.
But the biggest trade involving Amgen insiders occurred last month, when co-founder and retired chief executive George Rathmann unloaded 150,000 shares for $12.75 million, or $85 a share. “That block was less than 20% of what I still have,” he said. Rathmann still owns 680,000 shares, just under 2% of Amgen’s total.
Rathmann, 63, says in past years he sold some Amgen stock to buy a Colorado condominium for ski vacations, but the recent sale was solely to pay taxes on his stock options and to set up his own retirement fund.
IRS rules do pressure executives to sell some of their stock acquired by options. When Rathmann exercised some Amgen options last summer at the equivalent of $10 per share--the market price was closer to $50--he owed taxes on his $40 paper profit per share, even though he had yet to actually sell any of that stock.
Rathmann also had to contend with a Securities and Exchange Commission rule that required insiders like him with access to important corporate information to wait six months before selling any stock they exercised options on, or sacrifice their profits. (In May the rule changes, and executives will be free to sell immediately.)
So in February, not long after the six-month embargo, Rathmann unloaded his Amgen stock. But if Rathmann is selling, some investors wonder, why should anyone be buying?
Rathmann says he understands both sides of the argument: that Amgen’s stock is too expensive after its recent run-up, and that because it shows the promise of becoming a major pharmaceutical company, its hefty price is justified. “Decide yourself,” he said.
