NEW YORK ( TheStreet) -- Insider buying in biotech is a rare thing. Even more rare: Large insider buying. Executives and directors of biotech companies generally don't need to buy their own stock in the open market because of generous stock option grants. Those options become very valuable if a company succeeds and the stock price prices.
Over the last few days, however, insiders at Auxilium Pharmaceuticals (AUXL) and Aveo Pharmaceuticals (AVEO) have purchased significant blocks of their respective company's stock. I've started small positions in both stocks because of this insider buying.
Interestingly, both Auxilium and Aveo have had a very rough go of it lately, albeit for different.
Auxilium markets two drugs. Testim is a testosterone replacement therapy, a steady grower in a mature and entrenched market. More recently, Testim sales have flattened a bit due to competition. Auxilium is trying to squeeze more production from its sales force but growth will likely only come from demographic changes (as men get older, they're more likely to try testosterone therapy) and some price increases.The Auxilium drug with greater growth potential is Xiaflex, approved last year to treat Dupuytren's contracture, a thickening of tissue beneath the skin of the hand that causes involuntary bending of the fingers and palm. The Xiaflex commercial launch has been disappointing because physicians have been slow to try Xiaflex injections in lieu of surgery. Expansion of Xiaflex into additional indications is a significant growth driver. Auxilium is studying the drug in Peyronie's disease (a syndrome that causes the penis to bend) with positive phase III data reported over the summer. Xiaflex may also work in frozen shoulder syndrome and cellulite reduction -- perhaps the biggest market opportunity of all. Proof of concept data, somewhat mixed, from a phase Ib trial in cellulite reduction were reported last week. Auxilium's stock price took a hit last month after Pfizer (PFE) decided to stop selling Xiaflex in Europe, returning marketing rights to Auxilium. Auxilium CEO Adrian Adams purchased almost $1 million of company stock on the open market, according to a regulatory filing Monday. This was the largest insider buy at the company in almost a decade. What's interesting here is that Adams was previously the chief executive at three other biotech companies that were eventually acquired: Sepracor, Inspire Pharmaceuticals and Kos pharmaceuticals. He was also a director at Amylin Pharmaceuticals, acquired by AstraZeneca (AZN) and Bristol-Myers Squibb (BMY).
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