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Trading Biotech Stocks – Analyze Form 4

Kyle DennisKyle Dennis ·

When you’re trading biotech stocks, you need to conduct your own due diligence. Now, there’s a lot to look at. However, there are key items to look at when you’re deciding when to buy or sell stocks. One factor that could potentially affect a biotech stock is insider buying and selling. Insiders who are buying or selling shares of a biotech stock could signal a potential rise or fall in the stock, respectively. That said, let’s take a look at the SEC Form 4, which indicates whether insiders are buying or selling stock.

Trading Biotech Stocks – Analyze Form 4

SEC Form 4 is just insider buys or insider sells. It pays to analyze insider buying and selling when you’re trading biotech stocks. Now, here’s a screenshot of part of an SEC Form 4 for an insider buy.

biotech stocks

Now, you’ll notice the insider’s name, and then in box 5, it shows that Barbara White is the Chief Medical Officer, and you would want to see that the company’s officers are purchasing the stock and want to own it. Moving on, Table II is what you’ll need to focus on when you’re doing your due diligence. If you look at Table II, this would show the transaction, the title of the derivative security, transaction date, the conversion price, etc. In the first column of Table II, you could see that these securities were stock options (right to buy). If we look more into the table, refer to the transaction code. If it shows an A, that means the insider acquired the security. On the other hand, if it shows D, that means they sold. Here, we could see that the Chief Medical Officer bought 150K stock options with an exercise price of $8.71. However, you’ll notice that the price of the stock option was $0. As we stated earlier, companies could also give their employees stock options in their compensation package.

Analyzing Form 4

Take a look at the Explanation of Responses, and we’re I’m highlighting:

biotech stocks

In other words, this is just saying that the Chief Medical Officer would receive shares, these stock options would go into effect next year. Now, this isn’t really bullish or bearish activity. This is just telling us that the Chief Medical Officer is going to get free shares.

Again, what we want to see is insiders going out and purchasing the stock with their own money. Here’s an example of that:

biotech stocks

This SEC Form 4 was filed by the same officer. This transaction shows that Barbara White went on the open market and purchased 38K shares at around $3.15 per share, and, at the time, she owned 161,067 shares of the company.

Now, generally, I would look into these ahead of a catalyst date. However, keep in mind that insiders cannot buy or selling shares or securities too close to the catalyst date because they would have material information. You might see insider buying and selling months ahead of a catalyst. There’s one thing we should note here, and that’s the Rule 10b5-1. This rule is simply an agreement that allows major holders to set up a plan to sell shares at some predetermined time, and insiders might use 10b5-1 plans to avoid accusations of insider trading. If you see some selling under a 10b5-1 plan, it might not be as important as an insider outright selling the stock.

Final Thoughts

When you’re trading biotech stocks, you need to stay up to date on SEC filings. The SEC Form 4 could potentially indicate whether a stock is poised to rise or fall. When you combine the analysis of SEC Form 4 filings and catalyst events, it could increase the probability of success for a trade. For example, if an insider is buying ahead of an upcoming catalyst, it might signal the stock could rise.


Kyle Dennis runs Kyle Dennis’ Biotech Breakouts (biotechbreakouts.com). He is an event-based trader, who prefers low-priced and small-cap biotech stocks. He’s also using his knowledge and looking to multiply his capital through options trades.

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