Moderna’s stock popped up to 30% last week upon the announcement of promising early vaccine results. It is up nearly 250% for the year. One of the front runners in the race to develop a COVID-19 vaccine, the company has secured up to $483 million in public monies via the BARDA deal. Undoubtedly part of the recently announced Operation Warp Speed, much is riding on a successful vaccine by January 2021. In fact, with taxpayer money involved—lots of it—not to mention a deadly pandemic (1.6m cases and just under 100K deaths within 12 weeks), some would argue the company’s incentivization scheme should direct material transactions toward the highest order imperative—successful vaccine. However, the recent trades are part of a “trading plan”—e.g., SEC Rule 10b5-1—that exists to prevent improper trading. Hence, trading plan timing favored the chief financial officer and chief medical officers, leading to $30 million in windfall profits. Some, however, are suspicious as to a number of activities and arrangements all occurring recently.
TrialSite News’ Investor Watch analyst offers a brief breakdown of this news.
This stock sale coincided with recent positive news about the Cambridge, MA’s COVID-19 vaccine candidate mRNA-1273.
What was the recent good news?
After two doses, all participants evaluated to date across the 25 µg and 100 µg dose cohorts seroconverted with binding antibody levels at work above levels seen in convalescent sera. Moreover, they reported that mRNA-1273 elicited neutralizing antibody titer levels in all eight initial participants across the 25 µg and 100 µg use cohorts, reaching or exceeding neutralizing antibody titers generally seen in convalescent sera. Overall thus far, mRNA-1273 appears generally safe and well-tolerated. In a separate preclinical study, mRNA-1273 offered full protection against viral replication in the lungs in a mouse challenge model. Finally, the company’s leadership suggests a Phase III could commence in July 2020. Note, some critics fretted that the company failed to disclose enough material information about the Phase I trial data thus far.
How does this fit into Operation Warp Speed?
Donald Trump declared there would be a safe and effective vaccine by January 2021. If Moderna starts its study in July and is able to build in accelerated timelines, it may be able to generate enough safety and efficacy data to have something perhaps in Q1 2021. Operation Warp Speed involves a massive federal effort to support the development of vaccines, therapies, and other treatments that address the devastating COVID-19 pandemic.
Who were the insiders, and how much did they sell?
CFO Lorence Kim first exercised $3 million worth of options and thereafter sold $19.8 million worth of stock, generating windfall profits of $16.8 million. The next-day, chief medical officer Tal Zaks exercised $1.5 million worth of options and directly sold shares for $9.77 million, generating $8.2 million.
Are there any red flags associated with the timing of these transactions?
No. The trades were conducted via a prearranged SEC Rule 10b5-1 trading plan. Such plans are set up to defend against charges of insider trading—e.g., insiders improperly selling based on confidential and proprietary knowledge. If insiders, such as a CFO and the finance team, actually modify a 10b5-1 plan due to insider knowledge, then that could become a problem.
What happened over the past week?
It has been a roller coaster ride. Last week the stock went as high as $87 but then descended below $70 with a very public dialogue about their recent news.
STAT critiqued the company’s recent release of information—claiming they weren’t disclosing enough sufficient information for the Phase I study and the stock price declined to $71.67 or 10%
Toward the end of the week, the stock price fell to $67.05 (Thursday) and then rebounded a bit to $68.60 by Friday when Dr. Anthony Fauci praised the company’s news noting “Although the numbers were limited, it was quite good news because it reached and went over an important hurdle in the development of vaccines.” Fauci remains “cautiously optimistic” about mRNA-1273.
What is the current valuation?
At present, the shares are trading at $69 with a staggering market capitalization of $25.6 billion. The company has no marketed products. The value is based purely on the possibility of a big future, including an approved vaccine.
What was the recent public offering of common shares?
The company recently announced the pricing of an underwritten public offering of 17.6 million shares of common stock at a public offering price of $76 per share (before underwriting discounts and commissions to investment banker Morgan Stanley). The company granted the underwriters a 30-day option to purchase up to an additional 2.64 million shares of common stock at the public price, fewer discounts, and commissions.
How much is the company raising?
$1.34 billion gross proceeds.
Does the timing of this fund-raising raise regulatory attention?
CNBC former senior counsel for the SEC and now with a law firm, Dickinson Wright, is, of course, yes. This should draw SEC scrutiny. He is concerned about the prospect of insider trading and manipulation, but of course, he could be considered to have a specific vantage, or point of view.
Frankel suspects recent flurries of timed press releases and related activity points toward the type of issue that co-director of enforcement Steven Peikin highlighted in his keynote address just a week ago at Securities Enforcement Forum—the preeminent forum for enforcement lawyers.
Frankel questions the stock price movements and associated after-market company activity—e.g., disseminating of select information via the press releases after-market hours and commented that the market reaction actually “defines materiality.” He even raised the specter of “trading suspensions” based on COVID-19 claims. The SEC is certainly looking into COVID-19-based statements in the context of trading suspensions.
Of course, attorneys need business, and laws are in place, in part, to secure just such a consideration. Many race to the “Pump and Dump” allegation, but the company will need lots of cash to execute Phase III of the clinical trial as well as commercialize the product. If their stock price is high, why not issue more of it capitalizing on the moment? That’s good for the company. The executive’s trading plan aligned with the right news—who wouldn’t take advantage of that!
But of course, the “devil is in the details” and it is perfectly legitimate to publish legitimate news. Moderna must understand that there are many eyeballs on the company given the stakes (pandemic, taxpayer money committed, etc.) and plan and execute accordingly.
Who are Moderna’s top investors?
Flagship Pioneering owns 13.7% while FMR, LLC owns 6.67%; Vanguard Group, Inc. 5.54%; Blackrock 3.3% and Theleme Partners LLP 2.41%. The CEO, Stephane Bancel, owns about 6%, totaling 24.4 million shares.