Does Public Operation Warp Speed Inadvertently Help Private Insiders Secure Windfall Profits?

Jul 26, 2020 | Investor Watch, News, Operation Warp Speed

Does Public Operation Warp Speed Inadvertently Help Private Insiders Secure Windfall Profits

South San Francisco’s Vaxart announced a surprise on June 26: its COVID-19 vaccine was selected to be a part of Operation Warp Speed. Shares soared, and insiders who had received stock options weeks before, “saw the value of those awards increase sixfold.” So reports the New York Times July 25 in, “Corporate Insiders Pocket $1 Billion in Rush for Coronavirus Vaccine: Well-timed stock bets have generated big profits for senior executives and board members at companies developing vaccines and treatments.” And a hedge fund with partial control of Vaxart, “walked away with more than $200 million in instant profits.” Added up, insiders from at least 11 firms have, “sold shares worth well over $1 billion since March.” Most of these companies are smaller entities often dependent upon, “the success or failure of a single drug.” While often insiders are using scheduled compensation/automatic stock trades, “in other situations, senior officials appear to be pouncing on opportunities to cash out while their stock prices are sky high.”  

Headlines Equal Windfalls?

Firms have a strong incentive to put out good news in the race for vaccines and treatments for COVID-19. And some companies may be using ties to Operation Warp Speed as “marketing ploys.” While Vaxart’s release declared selection for Warp Speed, “the reality is more complex.” In fact, the vaccine candidate was used on primates in a trial “in conjunction” with the program, and the firm, “is not among the companies selected to receive significant financial support from Warp Speed to produce hundreds of millions of vaccine doses.” DHHS officials have complained about this exaggeration to the SEC per anonymous sources, and the SEC “declined to comment.” 

Experts note that even legal “well-timed” stock deals, “can create the appearance that executives are profiting from inside information” and may hurt public confidence in the Pharma industry. The Tarrytown, NY biotech firm Regeneron’s shares have gone up 80% since February when it announced work on a COVID-19 treatment. Since, “the company’s top executives and board members have sold nearly $700 million in stock. The chief executive, Leonard Schleifer, sold $178 million of shares on a single day in May.” And since Moderna’s positive news releases its “stock has more than tripled” leading to a nearly $30 billion market value. And insiders have sold about $248 million in shares since January. Some sales have been “spur of the moment”: Flagship Ventures “sold more than $68 million worth of Moderna shares on May 21.” These were not scheduled transactions. 

Many Companies Profiting

Looking at other firms, insiders at Luminex, Quidel, and Emergent BioSolutions, “have sold shares worth a combined $85 million after announcing they were working on vaccines, treatments or testing solutions.” Some firms have granted large stock options just before “good news that lifted the value of those options.” Novavax started work on a vaccine, and this spring reported both positive preliminary results and a $1.6 billion deal with Trump’s administration. With shared below $24 in April, the firm issued new stock awards to all employees. Four executives, “including the chief executive, Stanley Erck, received stock options that were worth less than $20 million at the time.” The, the stock “rocketed to more than $130 a share.” If the company “hits a milestone with its vaccine testing” executives “will be able to use the options to buy discounted Novavax shares as early as next year, regardless of whether the company develops a successful vaccine.” Also, Translate Bio and Inovio gave insiders “large batches of stock options” just before announcing vaccine progress, but both firms indicate these, “were regularly scheduled annual grants.” 

From 35 Cents to $14 Per Share at “Warp Speed”

Vaxart, “is where the most money was made the fastest.” At year’s beginning their stock was worth 35 cents. After beginning vaccine work in January, “its shares started rising.” Two-thirds of the firm’s shares are owned by New York hedge fund Armistice Capital. And two Armistice executives joined the Vaxart board of directors. The, “hedge fund also purchased rights, known as warrants, to buy 21 million more Vaxart shares at some point in the future for as little as 30 cents each.” With 15 employees and no marketable product, after positive vaccine data in the spring shares were at $3.66. Then on June Vaxart “changed the terms of its warrants agreement with Armistice” so the hedge fund could buy 21 million shares and avoid “smaller batches.” June 25, after a letter-of-intent with a firm that could help mass-produce a vaccine, “Vaxart’s shares nearly doubled that day.” The very next day, after its “Warp Speed” announcement shares doubled again, topping out at $14. Armistice “took advantage” of a 3,600 percent stock value increase on June 26 and June 29 by using its warrant to buy 21 million shares for “either 30 cents or $1.10,” purchases which would have been disallowed but for the recent changes in its deal with Vaxart. Next, they “immediately sold the shares at prices from $6.58 to $12.89,” earning $197 million for the hedge fund. 

TrialSite News supports both the entrepreneurship and risk-taking that mark our economic system and the rewards that can come with success. At the same time, history has shown that a watchful press can help keep folks playing by the rules. 

2 Comments

  1. JOHN JACKSON MD

    As usual, the rich and connected get richer!

  2. Mark

    And the covid vaccine will also be protected from lawsuits coming from harm it produces. Like all the other vaccines. A reason to be cautious about rushing it. Companies announce these things, get big govt grants in some cases, stock prices go up, insiders cash in even if no vaccine makes it to market or it has problems. A sweet deal for them. A reason not to be first in line to get the shot. We don’t even know if the antibody protection will last or if they will even be produced in older people.

    Since there is no approved cheap treatment for anyone who isn’t hospitalized, vaccines are going to be the only game in town. Is that intentional?

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