Are JNJ Insiders Hinting About The Upcoming Abiomed Acquisition?

Consumer health and pharmaceutical mega-company Johnson & Johnson (NYSE: JNJ) is poised to make a large acquisition early next year, but insiders may be giving a hint at how they feel the trade will affect the stock in the short term.

Johnson & Johnson Background

Johnson & Johnson is a $460 billion market cap company that manufactures consumer health products, pharmaceuticals and medical devices. The company is currently posed to acquire Abiomed Inc, which is the market leader in heart pump sales behind leading product Impella, in order to bolster its medical-device segment. JNJ is trying to kick start the revenue growth of this division with this acquisition as the company will soon be shedding its consumer products business into a separate company. 

Johnson & Johnson's stock price has fluctuated between $160 and $170 within the past year and is currently flirting with highs near $175. The stock price throughout 2022 is plotted below.

Johnson & Johnson Insider Trading

Let's now examine the trading activity of JNJ insiders. The trading activity from the start of 2021 to December 2022 is shown below:

The red bars coming down from the top represent sales of JNJ stock by top executives. In this instance, all trades are made by officers of the company. 

We immediately notice that JNJ insiders have been able to time the sales in an impressive fashion despite fluctuations in the price of the stock. Most of the sales have occurred at a price point above $170 and the earlier sales from this spring occurred before the subsequent dip in the stock price starting in July. 

Three of the recent insider transactions in particular were made by JNJ insiders Thibaut Mongon, Peter Fasolo, and Jennifer Taubert. All three are executive vice presidents within JNJ. Mr. Mongon is the worldwide chairman of the JNJ consumer health division, Mr. Fasolo is the chief HR officer, and Ms. Taubert is the worldwide chair of the pharmaceutical division. The trades were as follows: Mr. Mongon sold 35,246 shares on November 4th, Mr. Fasolo sold 78,458 shares on October 24th, and Ms. Taubert sold 76,923 shares on November 22nd. All shares were acquired from the exercise of options and then immediately sold at the market price. The shares sold on these three transactions represented over $32 million in total value.

While we sometimes see strong timing exhibited by one or two insiders only, in this instance we see each insider making one or two trades by themselves and the suggestive pattern only emerges when viewing the trades by the insiders collectively. This suggests that the kind of information driving these trades is not the kind of information that would be available to just a subset of insiders, but rather is something that would be shared by all officers. As an example, the summer downturn was initiated on issued guidance that reported a profit decline given worsening macroeconomic conditions.

It is possible that insiders feel that the upcoming Abiomed acquisition may similarly cause a brief dip in the stock price. We cannot say for sure, but we do note that some analysts have echoed this sentiment, with one writing, "In the short term, Johnson & Johnson investors may feel a little pain [due to the acquisition]." This is mainly due to the fact that JNJ agreed to pay $380 per share for Abiomed, $128 more per share than Abiomed's share price back in November, and the financing required to make the purchase will be slightly dilutive to earnings per share figures initially. Insider watchers should take note of these sales by JNJ insiders and what they could mean for 2022 Q4 earnings.

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