This is such a bullish move on the part of James McNabb our Chairman of the Board and nobody commented about it? He just exercised almost 400,000 options at a cost of $556,000. These options don't expire for years. There is a grant of 62,500 that expire in June 2012 but the rest expire beginning in 2016 and later. The board Chairman just plunked down over a half million dollars and nobody noticed?
The reason this is so bullish is because the only reason for him to exercise before they are set to expire is to start the clock ticking for long term capital gains treatment which means he thinks the price will be rising dramatically from here IMO. By exercising now, I believe he just created taxable income to the tune of over $600,000, although it is alternative minimum taxable income, it is still income for the difference between his cost and the price of the stock at the time of his conversion. The options are not qualified stock options so the tax treatment might be different but I don't think so. If anything it could be worse for him and it could create ordinary income but don't quote me on it. This type of tax issue trapped many unsuspecting dot com millionaires in the late 90's only to see their fortunes plummet when the internet bubble burst. They had huge tax liabilities and no assets to pay them, oops!
Since the options are not set to expire for years, why plunk down over a half million dollars? These options are his and he could continue to hold them until just before they expire then exercise and sell the same day and he wouldn't have to lay out any cash but he decided to do so on Friday, why? This to me is as bullish as the results of the Roche trial results. Wall Street will wake up some day and for those of us who continue to hold or buy at these levels you will be rewarded IMO.
I can't see any reason that he would exercise the options if he plans on selling later this year. If that was his plan, why not just wait until he is ready to sell and have the whole transaction occur the same day. My guess is it is his intention to hold these shares for at least a year. To me that should also cut down on the speculation that the company will be taken over in the near future. Surely if the Chairman of the board plans on holding stock for over a year to get long term capital gains treatment, he must not think that at the present time there is a likelihood of a takeover IMO.
Now that you have mentioned long-term-vs-short term gains DD, here's a scenario to consider. If Roche (or a better buyer) does buyout CRIS, then how about accepting the tender offer and getting into Roche shares??(understand they are not a US company). Then, hold for the L/T gain - - Roche's share price could go on up, and our gain continue to improve, then we cash out long-term. Just beginning to think about unhatched chickens out there. I'll spend some time with my tax guy... there are tradeoffs to consider.
Most of my shares are in Roth IRA's so I don't have to worry about any taxes on the gains for those shares and the ones held outside would count for LT treatment anyway so I would just sell and move on. I still don't buy into the buyout theories though. I don't think it is going to happen this year, probably in the future after more clarity about their programs but not this year.
I think you have overlooked the obvious. The most logical explanation is McNabb thinks the options may become worthless and wants the opportunity to cash in beforehand. Hedgehog has already failed it's first two indications anymore failures and the PPS becomes less than a dollar. The fact they wouldn't disclose how many deaths occurred is problematic and more importantly Roche will most likely not be able to file a NDA without a Phase III.
I guess if it is so obvious, then McNabb must be an idiot as he just plunked down a half million dollars andd HELD ON TO THE SHARES. If he thought it was going down, he would have exercised then sold the same day like many who are granted stock options do every day in public companies. It is rare when you see someone exercise and hold as McNabb just did. The fact they didn't disclose the deaths is because the treatment population that was tested were already very sick and there was no doubt there would be deaths in the study from the cancer not the hedgehog treatment but you already knew that and just show up to try to sow seeds of doubt.