What happened

Shares of Akebia Therapeutics (NASDAQ:AKBA) had jumped 17.6% higher as of 11:42 a.m. EST on Friday, down from 21% earlier in the day. The nice gain appears to be related to the biotech's Securities and Exchange Commission (SEC) filings announced today that disclosed several key insiders purchased additional Akebia stock.

Two members of Akebia's board of directors, Steven Gilman and Cynthia Smith, along with Akebia's chief medical officer, Steven Burke, bought more shares of the company. In addition, Akebia disclosed in SEC filings on Thursday that CEO John Butler and board member Adrian Adams purchased more shares.

$1 bill folded into an arrow pointing up

Image source: Getty Images.

So what

Insider buying is usually seen as a good sign that a company is on the right track. The idea is that executives and board members wouldn't put more of their own money at risk if they didn't feel optimistic about the company's prospects. The insider purchases referenced in Akebia's SEC filings hint that there could be widespread optimism about the future among the company's leadership team.

Of course, even insiders can be wrong and misjudge how strong a company's prospects are. Buying a stock solely on the basis of insider purchases doesn't always work out so well.

Investors haven't had much to get excited about with Akebia this year since the biotech announced positive results in March from two late-stage clinical studies of the drug vadadustat in treating anemia due to chronic kidney disease (CKD) that were conducted in Japan. Prior to today's jump, Akebia stock was down 37% year to date.

Now what

While investors can be cautiously optimistic about Akebia's insider buying, investing in biotech stocks comes with plenty of risks. Akebia has a lot riding on its U.S. phase 3 studies of vadadustat, which are expected to be announced in 2020. The good news is that the company won't have to worry about cash while it waits on those results, thanks to a non-dilutive $100 million loan announced earlier this month.