Insider Buying Reveals Ra Pharma's Upside. Worth Adding Shares?
Ra Pharmaceuticals Inc (Nasdaq: RARX) insiders have bought $42.0 million worth of stock since last Wednesday. It's worth taking a closer look at the company with the stock down 50% in the last three months
Insider Buying: Ra Pharmaceuticals
Two insiders have been buying shares of Ra Pharmaceuticals according to recent form 4 filings with the SEC. Notable insiders include New Enterprise Associates (10% owner) and RA Capital Management (10% owner and board member), as shown in the table below. Total insider buying has totaled $42.0 million since last Wednesday which is approximately 17.5% of Ra Pharmaceuticals's total market capitalization. This activity seems highly significant.
Note that Mr. Rajeev Shah is a Managing Director and Portfolio Manager at RA Capital Management.
| Insider Trading | Relationship | Date | #Shares | Value ($) |
|---|---|---|---|---|
| New Enterprise Associates | 10% Owner | Feb 16 | 2,000,000 | $12,000,000 |
| RA Capital Management | Director | Feb 14 | 2,500,000 | $15,000,000 |
| Rajeev Shah | Director | Feb 14 | 2,500,000 | $15,000,000 |
| TOTAL | 7,000,000 | $42,000,000 |
New Enterprise Associates (10% Owner) most recently bought $12.0 million worth of shares on Friday, February 16th that was revealed yesterday via a Form 4 filing. This is what propelled me to take a closer look at the company's insider activity.
Potential Reasons For Insider Activity
Ra Pharmaceuticals is a clinical-stage biopharmaceutical company. The company is engaged in the discovery and development of therapeutics for the treatment of diseases caused by excessive or uncontrolled activation of the complement system in the United States.
Analysts covering the stock often compare the company to a peer group that includes ArQule (Nasdaq: ARQL), Palatin Technologies (NYSEMKT: PTN), Spring Bank Pharmaceuticals (Nasdaq: SBPH) and Adaptimmune Therapeutics plc (Nasdaq: ADAP). Although the pharma company is virtually pre-revenue, it's still helpful to analyze Ra Pharmaceuticals' balance sheet ratios relative to its peer group. It may offer helpful insight into why insiders are buying shares.
Debt to Capital measures a company's current capital structure, financial solvency, and degree of leverage. The higher the percentage, the more debt the company has in its capital structure and the lower the equity cushion. This can be quite meaningful for a company that is not yet making money.
The company currently has no debt on its balance sheet. This compares favorably to ArQule (9.2%) and Palatin Technologies (6.0%).
The Current Ratio is another helpful metric that measures whether a firm is capitalized with enough assets to pay its obligations over the next twelve months by comparing a firm's current assets to its current liabilities. The current ratio, also referred to as the quick ratio and can be defined as:
Current Ratio = Current Assets / Current Liabilities
While ratios vary by industry and circumstances, a higher ratio is preferred for pre-revenue biotech stocks such as Ra Pharmaceuticals. The company's current ratio of 62.8x is well above all of its selected comparable public companies: ARQL (16.8x), PTN (3.9x), SBPH (44.1x) and ADAP (23.5x).
Ra Pharma's Stock Price and Valuation
The company's shares last traded at $7.02 as of Wednesday, down -67.9% over the last year and 50.0% over the prior three months. While the stock has lost significant value, the recent insider transactions could signal a promising road ahead for shareholders.
In addition, finbox.io's average fair value estimate of $16.23 implies 131.2% upside and is calculated from 4 valuation models as shown in the table below. Each analysis uses consensus Wall Street estimates for the projections when available.
| Analysis | Model Fair Value | Upside (Downside) |
|---|---|---|
| 10-yr DCF Revenue Exit | $23.60 | 236.1% |
| 5-yr DCF Revenue Exit | $8.98 | 27.9% |
| 10-yr DCF EBITDA Exit | $26.83 | 282.2% |
| 5-yr DCF EBITDA Exit | $5.50 | -21.6% |
| Average | $16.23 | 131.2% |
While executives are always happy to tell you all the reasons why their stock is a buy, their actions can tell a different story about the company’s future prospects. A trend of buying activity may indicate that insiders think the stock is going up over the upcoming time period, and are trying to buy before the price rises.
Keep in mind that insider activity is only one aspect of stock research and that there are other important items to consider. I recommend you continue to research Ra Pharmaceuticals to get a more comprehensive view of the company's fundamentals by looking at:
Valuation: how much upside do shares of Ra Pharma have based on Wall Street's consensus price target? Take a look at our analyst upside data explorer that compares the company's upside relative to its peers.
Risk Metrics: what is Ra Pharma's cash ratio which is used to assess a company's short-term liquidity. View the company's cash ratio here.
Risk Metrics: what is Ra Pharma's Altman Z score? It's a famous formula used to predict the probability that a firm will go into bankruptcy within two years. View the company's Altman Z score here.
Author: Brian Dentino
Expertise: financial technology, analyzing market trends
Brian is a founder at finbox.io, where he's focused on building tools that make it faster and easier for investors to research stock fundamentals. Brian's background is in physics & computer science and previously worked as a software engineer at GE Healthcare. He enjoys applying his expertise in technology to help find market trends that impact investors.
Brian can be reached at brian@finbox.io.
As of this writing, Brian did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.