Companies · Health Care · Insiders Trades

Drug developers and medical technology firms spend heavily on research whose results management sees first. Aboody and Lev (2000, Journal of Finance) find that insider gains in R&D-intensive firms are substantially larger than in firms without R&D, and that insiders trade on advance knowledge of planned changes in R&D budgets. Huddart and Ke (2007, Contemporary Accounting Research) find that whether a firm reports R&D spending is one of the information asymmetry measures consistent with how insiders trade.

Clinical trials

Overgaard, van den Broek, Kim and Detsky (2000, Journal of Investigative Medicine) studied biotechnology share prices before Phase III and FDA advisory panel results between 1990 and 1998. Before Phase III announcements, prices of eventual winners rose and those of losers fell, which the authors present as indirect evidence that insider trading may be common in biotechnology. The study looks at prices, not at insiders' filings, and the advisory panel difference was not significant.

Reading the filings

Large pharmaceutical groups run many programmes at once, so one trial weighs less than in a single-product biotech. Trades close to a trial readout fall under closed periods and inside information rules; a purchase made after results are public reflects a view on published data.