Sunday, February 1, 2015

Reading the Tea Leaves on Regulus Insider Sales

Revelations Friday night that the CEO (here) and CSO (here) of Regulus Therapeutics had sold sizeable amounts of Regulus stock just days ahead of an important phase I data release, initially sent shivers down my spine I could soon be ridiculed a 'bagholder' on Twitter and by Benitec shareholders.  

What confidence does it betray in the upcoming results when the CSO sells what appears to be ALL his shares in the company (worth ~$1.5M) and the CEO about a third of his holdings in his Family Trust  slightly more than a quarter of his combined position, including his Family Trust (~$710M for original position).  

Let me be clear, whether the stock goes up or down and regardless of whether these sales occurred according to a 10b5-1 insider trading plan (which can be cancelled anyway and thus makes them a farce), such shenanigans are unwarranted and officers of publicly traded companies should refrain from such actions.

Nevertheless, since I am doing nothing but wait for the results, let me indulge in providing a timeline to provide context to these sales.


October 22, 2014
Regulus reports truly stunning results where they reveal that a SINGLE dose of 2mg/kg of RG-101 was able to knock down HCV virus by over 4logs, with each patient, no matter the genotype, responding to the drug.  The company says that dosing in the next higher dose cohort, 4mg/kg, was ‘ongoing’ and results therefrom would be reported in Q1 2015.

November 5, 2014
On the Q3 2014 conference call, the company updated investors that the 4mg/kg cohort had then been fully enrolled. Maintains guidance of providing results sometime in Q1 2015.

November 12, 2014
At the Credit Suisse Healthcare Conference, the company narrowed down data release to occur in January 2015.

November 25+26, 2014
The two persons most familiar with progress with the clinical progress of RG-101, the CEO and CSO of Regulus Therapeutics, set up 10b5-1 trading plans that apparently foresaw the selling of Regulus shares last week.  IF the January 2015 data release guidance was made in good faith two weeks earlier, this means that they likely hoped to cash in after the results. Fair enough and well deserved- even if the trial is open-label and they thus likely knew where the knockdown curves were headed by that time.

December 3, 2014
A week after setting up the automated trading plans, at the Piper Jaffray Conference, the time frame for data release was widened and shifted back with ‘January-February’ which means that the sales would either occur before or after the results.

January 8, 2015
Regulus Therapeutics announces 2015 goals under their ‘Clinical Map Initiative’ according to which 4mg/kg results would be announced in ‘early February’, i.e. right after the planned share sales.

According to the above, the stock sales can be interpreted both to portend good or bad results.  One scenario is that the CEO/CSO may have originally wanted to cash in on what they knew were good upcoming results, but then lawyers became involved and said that this could draw some unwanted attention and the data release was slightly pushed back.  If the results would be good and the stock were to go up, they would look like heroes anyway and countless bonus options would come their way in perpetuity to more than compensate for the loss.

Another scenario is that they were afraid of an impending stock drop triggered by the 4mg/kg data and simply wanted to get ahead of that train wreck.  Par for the course in biotech.  But in that case, I’m wondering why they wouldn’t just sell their shares well ahead of the event to avoid the attention they now have.

Until now, Regulus Therapeutics has been a comparatively credible and fairly low-key publicly traded biotech company to the degree that until October 2014 they had not even recognized the jewel that RG-101 could become for the company.  Besides the animal pharmacokinetics-human efficacy relationship, it is one of the reasons why I am long RGLS going into the results, believing the market is yet to appreciate the full value of RG-101.  Unfortunately, the insider sales have somewhat shaken this belief and I hope management will learn from it. 

20 comments:

Anonymous said...

Surely they aren't so stupid (and greedy) to front run a bad release with a big sale and then go before the investing community and answer questions on a data release conference call

Anonymous said...

In any event, even if the data is good, it's poor judgement to proceed with a sale as this before a big data release. They will have to answer questions about their "thought process" in going forward with the sale which is diverting from time on real management issues. Just plain stupid.

Anonymous said...

How does one explain the Deutsch Bank valuation of $30 per share?

Anonymous said...

I do not like it either. They already know the data. Sell the stock and leave us minions holding the bag

Anonymous said...

Thanks, Dirk, for laying out the timeline!

I am going to make the guess that they were trying to be clever in their planning last year and intended / hoped to do the stock sales right after the announcement in order to benefit from a lift in the stock.

Exciting week to come either way!

Bill Belichick said...

F the Seahawks - Go Patriots

Anonymous said...

Dirk, what is the underlying hypothesis you hold that says this selling is directly related to quality of data?

Fantastic data will not stop a short attack if these miscreants and their media/blogger lackeys wish for one. Witness ARWR.

Perhaps some kind of transaction is about to materialize for third party IP because of the success in the data, where the currency of the transaction is paper, cutting its value by a half or more. A form of quantitative easing if you like.

To assert that this selling is related to data simply because it is assumed they already know the data is disingenuous and not a little bit derogatory to the integrity of the vendors.

Accordingly, all eyes should be on PFE and maybe BIIB to see what their response will be.

Anonymous said...

the 80,000 he sold he held. he had the right to acquire another 121,789 according to the 2014 Proxy. The K will have detail on the strikes. Didn't have time to look

Anonymous said...

You might want to read about the board. Little chance COB would have allowed insider sales in light of negative news.

Steve_382 said...

Not sure I would try to translate the sales into an opinion on upcoming data. KX still has over a million options and gets more every year. Seems like good financial planning, similar to that practiced by JM at Alnylam.

Anonymous said...

Surely somebody can relate this back to BLT? SURELY !!

Dirk Haussecker said...

Steve- I somewhat agree. However, all these gazillion in options have not vested yet and he wants to upgrade his house srtl to keep up with the Joneses in San Diego.

It's the timing of these sales that gets me. Of note, in October, the same day they announced (good) results, shares got vested for a number of company officers. Now that was a lucky coincidence.

Anonymous said...

They sold because they don't believe the captain has to go down with the ship. They are planning to spin the results but the street is getting wise to BS since we are late in the game with regard to HEP C. The other latecomer ACHN is looking at developing 6 week therapy. From the data so far, RG-101 looks like it will need 2 doses and oral antivirals in combination.

Gordon Gekko said...

The insider trading in the Feb calls is quite obvious

Anonymous said...

You will be ridiculed by Benitec shareholders regardless of RGLS because of your track record of putting it down whilst having once applied for a job with them. Notwithstanding the Kay/Avocell epoch.

Even your RGLS interest carries the feeling of begrudgement in it; denigrating the CEO and CFO, talking up negative data while having accumulated quite a stock pile with calls on top.

Dirk Haussecker said...

Can you refer me to somebody at the company that will attest that I have applied for a job there? Am curious where these theories come from.

Newsurfer said...

Dirk,

Pay these anonymous posters who chirp unsubstantiated nonsense no mind. And thanks for posting the extremely informative work you do.

Anonymous said...

Who needs the company? It was La Jolla that picked up the tab.

Anonymous said...

ARWR MkII. Who couldn't see the possibility of a short attack coming? Especially after the inside sales.

Basic fallacy being held out as fact is share price depends on data quality. We'd all like to think so but the market is not that simple. Even if the data is miles ahead of anyone and everything else, it should be understood by followers that SP appreciation won't happen unless its pumped or the technology is confirmed by independent third party with premium.

For that reason, the overt absence of PFE and BMY in the RNAi space says it all. To understand the reasons why that is, one needs to consider the TPP.

Not until closure on the TPP in principle not necessarily actuality (we may not know its closed til after a commercial transaction) will hands be revealed.

Until then, days like today are the shorts delight.

PFE's fireside chat this week should be interesting.

Anonymous said...

Dirk's tweet: Amazing. Most potent ever HCV drug to be developed.

Yeah? According to who?

So, what's it worth to them?

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