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Drug company insiders are profiting handsomely from the world’s desperate hope for a COVID-19 vaccine

From left to right Leonard Schleifer, President and CEO of Regeneron, Tal Zaks, Chief Medical Officer at Moderna, and Stephane Bancel, Chief Executive Officer at Moderna, who have combined to sell over 213 million dollars worth of stock since March 1.
From left to right Leonard Schleifer, President and CEO of Regeneron, Tal Zaks, Chief Medical Officer at Moderna, and Stephane Bancel, Chief Executive Officer at Moderna, who have combined to sell over 213 million dollars worth of stock since March 1.John Hancock

They are, in many ways, the hope of humanity as the global death toll from one of the worst infectious disease outbreaks in history climbs past 1.1 million, with cases surging in many countries around the world.

But insiders at companies developing experimental vaccines and treatments to ward off COVID-19 aren’t waiting until they finish the job to collect their reward. Executives, board members, and related investment funds have made fortunes from the dizzying rise in their companies' stock prices before a single vaccine has proven safe and effective or a game-changing treatment has been approved.

Since the pandemic upended life in the United States in March, these insiders at a dozen companies in the race to create a new vaccine, treatment, or test have sold more than $1.3 billion in company stock, up from just $74 million in the same period last year, according to information compiled by Equilar, a data provider based in Redwood City, Calif., and analyzed by the Globe.

Three of the companies — Regeneron Pharmaceuticals of Tarrytown, N.Y.; Moderna of Cambridge; and Vaxart of South San Francisco, Calif. — accounted for more than $1.1 billion of the stock sales, attracting regulators' attention and generating uncomfortable publicity. Earlier this month, Tal Zaks, chief medical officer for Moderna, faced criticism for systematically liquidating all of his company stock in a series of pre-planned trades that have made him roughly $1 million richer each week. And Vaxart has faced shareholder suits accusing it of misleading investors while a hedge fund with ties to board members cashed in hundreds of millions of dollars in stock.

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Tal Zaks, chief medical officer at Moderna, spoke at the 2019 Chief Medical Officer Summit.
Tal Zaks, chief medical officer at Moderna, spoke at the 2019 Chief Medical Officer Summit. Conference Forum

The trades have been particularly controversial, because many of the companies have received lucrative support from the US government to help finance studies of the drugs and ramp up production of potential vaccines as part of Operation Warp Speed. The federal government has offered Moderna nearly $1 billion to sponsor clinical trials for its experimental vaccine, including a massive study of 30,000 volunteers now underway. And it has agreed to spend up to another $1.5 billion to help Moderna manufacture and deliver the vaccine, including buying 100 million doses.

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“These drug companies have a great scheme going,” said Eli Zupnick, a spokesman for Accountable.US, a progressive group in Washington, D.C., that says it is committed to exposing corruption. “Taxpayers cover the upfront investment costs and shoulder any downside, while their executives and shareholders can capture the upside if their drugs pan out and are shoveling obscene amounts of money into their pockets throughout the process.”

To be sure, companies have made rapid progress developing potential treatments and vaccines. Pfizer said it hopes to request emergency authorization for its experimental vaccine as early as next month. And Moderna chief executive Stéphane Bancel said his company hopes to win emergency approval of its vaccine by the end of the year. Bancel has personally sold nearly $58 million in stock since March, including transactions this month, but has held onto the vast majority of his shares.

Insiders sell stocks for many reasons, including time limits on when they can exercise stock options and a need for cash, but when senior executives and board members liquidate significant portions of company stock, it can raise questions about their faith in the company’s prospects.

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One business professor who has followed the biotechnology industry for decades says executives and board members appear to be hedging their bets by continuing to sell their holdings. Historically, the vast majority of promising drugs flame out in clinical trials as harmful side effects emerge or medications prove ineffective.

“What insiders at the company know is that it is a lot easier to get a little bit of data that is encouraging than it is to get a product on the market,” said Erik Gordon, clinical assistant professor at the University of Michigan’s Ross School of Business. “You announce a sliver of positive hope about a product and your stock price goes up. You know the chances of that product panning out might be relatively low.”

And even if companies are able to successfully produce an effective vaccine or treatment, there is no guarantee the products will ultimately generate enough sales to justify a firm’s current stock prices, let alone drive them any higher, especially since companies are likely to face so much competition.

NIH-funded Moderna vaccine study participant William Webb got a nose swab by University of Miami Miller School of Medicine nurse Loreta Padron in Miami last month.
NIH-funded Moderna vaccine study participant William Webb got a nose swab by University of Miami Miller School of Medicine nurse Loreta Padron in Miami last month.Taimy Alvarez/Associated Press

McKinsey and Co., a management consulting firm, identified 250 coronavirus vaccine candidates around the world, while the World Health Organization recently counted 44 vaccines already in human trials with more more in earlier stages of research. Companies are also testing an arsenal of potential drugs to treat the disease, including the first one to win federal approval, Gilead Sciences’ remdesivir, though some say it offers only modest benefits.

It’s still far from clear which of the vaccines and treatments, if any, will become blockbusters, but companies are seeing skyrocketing stock prices driven by the promise that they might have the winner — Vaxart, for instance, has seen its stock rise from 27 cents a share to as high as $17.49 over the past year. The company has just begun clinical trials of its vaccine, which has been particularly notable because the company says it could be swallowed as a tablet, rather than injected like most traditional vaccines.

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Several companies that have had big insider sell-offs pointed out that directors and executives have made most of the stock trades based on automatic trading plans set up long in advance. Under some plans, stock sales are triggered when the stock hits a certain threshold, which could help explain why stock sales have increased recently as pharmaceutical shares have soared. Regeneron also pointed out it’s natural for executives and board members to cash in some of their shares when the stock is doing well. In addition, many insiders have continued to retain much of their holdings.

“When the stock and company are performing well, people are inclined to exercise long-held options or sell long-held shares, which is why it’s not surprising to see an increase in trading activity,” said Regeneron spokesperson, Alexandra Bowie, in an e-mail.

In many ways, the scientific response to the coronavirus pandemic has been unprecedented, compressing a vaccine development process that would normally take years into months and quickly assembling a pipeline of potential medications.

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But the insider stock sales have fueled suspicion that some insiders may be inflating the potential for treatments or downplaying possible obstacles to goose stock prices — and increase their personal profits.

Two shareholder lawsuits have already accused Vaxart of misleading investors about its involvement in Operation Warp Speed, the federal initiative to support the development of vaccines, treatments, and diagnostic tests. And, on Oct. 14, the company disclosed that it received a federal grand jury subpoena for documents about its role in the program.

Vaxart was not one of the main companies the government selected for deals to produce hundreds of millions of doses of potential vaccines. But in June, Vaxart issued a press release titled “Vaxart’s COVID-19 Vaccine Selected for the U.S. Government’s Operation Warp Speed.” Shortly after the press release was released, Armistice Capital, a New York hedge fund that employs two Vaxart board members, sold $266 million in stock in the firm.

Vaxart said the press release correctly reported that a Vaxart study in animals was organized and funded by Operation Warp Speed. “The statements made in that press release are accurate and any allegation to the contrary is baseless,” according to a Vaxart statement provided by an outside spokeswoman, Gloria Gasaatura. Armistice, the hedge fund that sold the stock, did not respond to a request for comment. A Vaxart spokesman said none of its executives or board members personally sold any of their stock since the news release was issued.

Accountable.US, the Washington D.C. watchdog, also asked the SEC in June to investigate Moderna after reports that executives sold tens of million of dollars in stock in May after announcing early results of clinical trials involving its experimental vaccine.

Moderna CEO Stephane Bancel attended a meeting with President Trump, members of the Coronavirus Task Force, and pharmaceutical executives in the Cabinet Room of the White House on March 2.
Moderna CEO Stephane Bancel attended a meeting with President Trump, members of the Coronavirus Task Force, and pharmaceutical executives in the Cabinet Room of the White House on March 2.Andrew Harnik/Associated Press

“This misconduct was particularly egregious because it involved not only financial fraud and manipulation of the financial markets, but also because it exploited widespread fears surrounding the ongoing COVID-19 pandemic,” wrote Kyle Herrig, the group’s president, in the letter.

Accountable.US said it received no response from the SEC, and in early August Moderna reported it was not involved in any significant legal proceedings. A Moderna spokesman declined to comment on Accountable.US’s allegations.

Since then, Moderna insiders have continued to steadily sell stock in the company, even as the company is awaiting interim results, expected next month, from a critical study involving 30,000 volunteers to confirm whether the vaccine is effective and safe. Overall, Moderna insiders have sold $309 million in company stock since March, up from less than $2 million during the same period last year.

Moderna officials pointed out that their executives are generally required to sell stock using automatic trading plans, called 10b5-1 plans, that are typically filed well in advance. They also point out that stock sales are not pure profit since insiders often must spend money to acquire some of their shares.

But securities filings show that some of the Moderna executives who sold shares created or modified their trading plans after Moderna began work on a coronavirus vaccine. Chief Medical Officer Tal Zaks, who has sold nearly $70 million in stock since March, created a new trading plan on March 13, as the pandemic was beginning to shut down much of the US economy.

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Moderna’s chief executive, Bancel, modified at least one of his trading plans on May 21, shortly after the firm reported initial positive results for its experimental vaccine. And a Flagship Ventures fund with ties to Moderna’s chairman sold $68 million without such a plan.

Moderna spokesman Ray Jordan said executives can only create or modify the plans during certain windows and must wait during a “cooling off period” before the changes can go into effect. A 2018 Morgan Stanley survey found most companies require a waiting period of at least 30 days.

As at many companies, Jordan said insiders are not allowed to trade company stock during blackout windows before key news is released.

In addition, Moderna announced in early August that executives agreed not to further modify their plans to sell more shares or sell shares outside the plans until the trial is complete. But that doesn’t mean the stock sales will stop. The automatic sales will continue under existing plans, unless executives make changes, Jordan noted.

But some watchdogs are skeptical that automatic trading plans alone can ensure that insiders do not take advantage of confidential information, particularly since the plans can often be modified.

“The loose rules governing these plans, which executives can modify at any time, mean they can profit off of insider knowledge,” said Rick Claypool, a research director for Public Citizen, a liberal consumer rights group based in Washington, D.C. Claypool argued that executives should be required to hold shares for the long term, rather than taking advantage of early hopes that some of the experimental coronavirus treatments could become blockbusters.

Scientists worked with a bioreactor at a Regeneron facility in New York state, for efforts on an experimental coronavirus antibody drug. Antibodies are proteins the body makes when an infection occurs; they attach to a virus and help the immune system eliminate it.
Scientists worked with a bioreactor at a Regeneron facility in New York state, for efforts on an experimental coronavirus antibody drug. Antibodies are proteins the body makes when an infection occurs; they attach to a virus and help the immune system eliminate it. Associated Press

The Equilar data show executives and board members at Regeneron, the company that made the experimental antibody cocktail taken by President Trump after he tested positive for COVID-19 earlier this month, have also sold nearly $510 million in stock since March, taking advantage of a significant rise in shares this year.

The drug companies that have seen the biggest gains in stock price tend to be smaller, with prices that can change rapidly in response to the latest news about their COVID-19 candidates.

By contrast, stock prices at diversified pharmaceutical giants in the vaccine hunt, like Pfizer and Johnson & Johnson, tend to be more stable and less influenced by any individual development. As a result, executives haven’t had the same opportunity to cash in on surging stock prices this year.

Equilar data show Pfizer executives have sold just $7 million in stock since March, less than they did during the same period in 2019. Johnson & Johnson insiders have sold a similar amount since March.

A number of major pharmaceutical companies have also suffered some setbacks in their research — a reminder that developing vaccines and treatments remains inherently challenging and there are no sure bets.

AstraZeneca and Johnson & Johnson were forced to temporarily pause their vaccine studies after a few participants became ill; researchers have since concluded the illnesses were unrelated to the vaccines, clearing the way for trials to resume.

“Some things that looked good two weeks ago or two months ago maybe are a lot riskier than we thought,” said Gordon, the professor at the University of Michigan business school.

But in the meantime, executives and directors at many drug companies are continuing to steadily sell shares, becoming quite a bit richer every month.

In the first two weeks of October alone, insiders at the dozen companies the Globe examined earned more than $21 million in stock sales.

Jonathan Saltzman of the Globe staff contributed to this report.


Todd Wallack can be reached at todd.wallack@globe.com. Follow him on Twitter @twallack.