Research shows that following insider buying at smaller companies tends to be a more profitable strategy than following insider buying at larger firms. Smaller companies are generally less researched than larger companies, meaning that they offer greater potential for outperformance.
In this report, we are going to highlight some insider buying in a US small-cap stock, Chiasma Inc (CHMA:US). Chiasma is a biopharmaceutical company that is engaged in the development of oral therapeutic options for patients with rare diseases. It is listed on the NASDAQ Global Select Market and currently has a market capitalization of $247 million.
Chiasma: insider buying
Form 4 filings show that on 23 November, Chiasma’s CEO Raj Kannan purchased 120,000 shares at a price of $4.00 per share. This purchase – which increased his holding from 17,095 shares to 137,095 shares – cost the insider a total of $480,492.
High Insider Model score
This insider purchase stands out for a number of reasons. Firstly, it is a large purchase. It has boosted the size of the CEO’s holding by 700%. Our Insider Model sees this as bullish.
Secondly, Kannan – who became CEO in June 2019 and has over 25 years of pharma experience – has a high short-term trading IQ of 118. This tells us his previous trades have been timed well.
Strong revenue growth expected
Chiasma appears to have momentum right now. In September, it launched its key product MYCAPSSA – the first and only oral somatostatin analog (SSA) designed to treat acromegaly – in the US earlier than expected. It is already generating revenues from this product.
More recently, it has announced positive topline results from the MPOWERED Phase 3 clinical trial comparing MYCAPSSA to long acting injectables for the maintenance treatment of adults with acromegaly. As a result of these Phase 3 results, the group intends to submit a marketing application for MYCAPSSA in the EU in mid-202.
Looking ahead, the company has said that it expects “strong revenue growth” in the fourth quarter of 2020 and beyond. In light of this progress, we see the insider purchase here as a bullish signal.