Until May, it was a little-known biotech company. In just a few months, since it became a significant player in the hunt for a Covid-19 vaccine, Moderna has become a familiar stock to most traders across the market. Its vaccine candidate, mRNA-1273, and its CEO, Stephane Bancel are now relatively well known.
Messaging from companies involved in developing a vaccine has been amplified through the media by the urgency to find a cure in the midst of a pandemic.
There are only two reasons for notoriety: Either you did something good, or you did something bad. On its face, Moderna is doing good — it is developing a vaccine — but it has also attracted a lot of attention over its insider trading.
This is not surprising when, after the company issues news, often fronted by CEO Stephane Bancel on CNBC, its share price shoots to the moon, as it did in May and July, by anything from 15% to 30%.
To some people, the price jumps are not necessarily good news:
Jim Bianco is not alone. Many traders, investors and strategists have concerns over Moderna’s insider activity.
Here, I have tried to gather everything I know of the company’s insider dealings, and added some thoughts on the Phase I trial preliminary report.
Following a press release on May 18, which claimed Moderna’s Phase I trial data is “encouraging and represent an important step forward”, its share price peaked at $80, a 30% jump from the previous close. It peaked again over July 15–17, following another press release on July 14 which again claimed ‘encouraging’ results from its Phase I clinical trial.
Insider Stock Sales
There were two insider sales outside the 10b5–1 Plan, on May 21 and 22, by Flagship Ventures Fund IV. The fund is managed by Flagship Pioneering, a company in which Moderna’s CEO, Stephane Bancel, has a significant interest. It owns 10% of Moderna, according to Fintel. The fund sold a million shares for $68 million.
The 10b5–1 Plan was amended on May 21, a few days after the news release of May 18. While this is perfectly permissible, Morrison Foerster — known as MoFo — explicitly advises against it, and for good reason:
Can a Rule 10b5‐1 plan be modified?Morrison Foerster, Rule 10b5–1 Plans FAQ
While amendments to Rule 10b5‐1 plans are permitted as long as the modifier does not possess material non‐public information at the time of the modification and meets all of the elements required at the inception of the plan, modifications should be avoided because they create the perception that the person is manipulating the plan to benefit from material non‐public information, jeopardizing the good faith element and the availability of the affirmative defense. As a result, Rule 10b5‐1 plans should be modified rarely and should be designed to prevent the need for amendment.
The following day, May 22, and again on May 29, CEO Stephane Bancel sold a total of 41,604 shares to realise over $2.6m.
The details of a 10b5–1 plan are confidential. There is no requirement for public disclosure of the plan details or its amendments:
Public DisclosureHarvard Law School
Although public disclosure of Rule 10b5–1 plans is not required, issuers should consider publicly disclosing (e.g., through a Form 8-K) the establishment, but not complete details, of plans for themselves as corporate entities…
The sales of May 22 and 29 are not recorded in the Form 4 footnotes as “effected pursuant… as amended on May 21,” but regardless, MoFo make an important point: Given that the details of the amendment are not public, and given the timing of Mr Bancel’s share sales in relation to the amendment, it is reasonable for investors to perceive that Mr Bancel “is manipulating the plan to benefit from material non‐public information” and perhaps also that the amendment is in some way connected to the announcement of May 18.
The amendment is noted on subsequent sales from June 10 onwards.
At the very least, the poor optics of this activity are persistent.
Indeed, Mr Bancel’s insider activity has increased alongside his company’s involvement with a Covid-19 vaccine. According to Wallmine, “On average, Stephane trades about 12,790 units every 4 days since 2016”, but the average does not tell the real story.
In July, Mr Bancel realised $12,708,713 on sales of stock in his own company; his ‘best’ month yet!
It is worth mentioning that a proportion of the shares sold “are owned directly by a trust for the benefit of Mr. Bancel’s children,” as stated in the Form 4 footnotes. We would all like to provide for our children in this way if we could. However, it is also worth noting that a proportion of the shares sold were owned directly by either Boston Biotech Ventures, LLC or OCHA LLC, both incorporated in 2011. Mr Bancel appears to be the sole name in these limited liability companies, according to the Schedule 13G form. It would therefore be natural to assume that they are used for tax purposes.
In principle, there is nothing illegal or wrong with this arrangement, but when coupled with the volume of insider dealing by the CEO, and within Moderna as a whole, this arrangement can, rightly or wrongly, provide fuel to arguments raising doubt or suspicion surrounding insider integrity which, in turn, can undermine confidence in the company’s wider dealings.
May and June saw a record total of over $200 million in insider sales.
The complete list of insider activity makes interesting reading.
Legal Investigations and Ongoing Legal Battles
On July 23, the US Patent and Trademark Office (USPTO) found that an Arbutus patent should not be revoked. This could mean some profit-sharing and future royalty claims against Moderna. The decision may be appealed.
The stock was down 15% by market close on Friday, July 24.
Clinical Trials and Criticism
Hours after Moderna’s May 18 announcement, a detailed article in STAT NEWS noted that Moderna’s report was criticised by experts for a lack of key data necessary to properly assess what Moderna’s claims for its Phase I trial. Perhaps unsurprisingly, this news triggered a dramatic drop in Moderna’s share price.
“While Moderna blitzed the media, it revealed very little information — and most of what it did disclose was words, not data … Experts suggest we ought to take the early readout with a big grain of salt.”STAT, Vaccine experts say Moderna didn’t produce data critical to assessing Covid-19 vaccine, May 19, 2020
Phase I Clinical Trial
When scientists question the quality of data, or draw attention to its absence, it is worth doing some homework and reading the report.
On July 14, Moderna finally published a preliminary report in the New England Journal of Medicine on its Phase I clinical trial, two months after the media release of May 18. The trial started in March.
There are a few aspects worth noting.
The initial sample size was 45 adults aged 18 to 55. A Phase I study can perhaps be excused for a small sample size, but the disease was known from the outset to be of greatest threat to people over 70. In April the trial was expanded to 120 participants, some of whom were over 55 according to the Center for Infectious Disease Research and Policy, but I have been unable to find details of this older group in the report.
One participant developed urticaria — an allergic skin reaction to the vaccine — some days after the first dose. It was serious enough to withdraw the person from the trial. Three others did not receive a second dose because of urticaria.
The following side-effects were noted:
Local adverse events, when present, were nearly all mild or moderate, and pain at the injection site was common. Across both vaccinations, solicited systemic and local adverse events that occurred in more than half the participants included fatigue, chills, headache, myalgia, and pain at the injection site.New England Journal of Medicine, An mRNA Vaccine against SARS-CoV-2 — Preliminary Report
To a lay-person, like myself, the “adverse events” sound quite serious, as does the fact that “more than half the recipients” had “local adverse events”. In the world of clinical trials, adverse reactions are expected, and to the clinicians the listed events are categorised as “mild to moderate” in “nearly all” cases. I will bow to their expertise, but I do know that what is ‘mild and moderate’ for me may be close to intolerable for others, and vice versa.
The trial uses a tiny sample size. Managing reactions to the drug is a much simpler task in a small sample of 120. The Phase III trial is imminent (July 27) and will be administered across thirty-thousand (30,000) individuals of all ages and (I think) ethnicity. I would argue that this will be a massive undertaking given the side-effects already identified.
I am sure the learned authors of the report feel reassured by their results, but to investors, the insider sales activity to date is not encouraging. It runs contrary to a company on the verge of a great breakthrough and reason to be wary of not only the impact the drug may have on a much larger trial size, but also to be suspicious that, to some degree, the report is down-playing, minimising or diminishing the negatives, perhaps to enhance what is only a preliminary report on a Phase I early-stage trial; something which, arguably, helps it to carry more traction with the media than it does with its clinical peers.
Immune response durability could not be measured at day 57 and the Phase I participants are to be monitored for a year.
There remains a very long way to go. If, in the Phase I trial, immune response durability cannot be measured at day 57 and those individuals need to be tracked for a year, how long is it going to take to properly assess the results and the immune response durability of thirty-thousand people?
Politicians, the head of the US National Institute of Allergy and Infectious Diseases, Dr Anthony Fauci, and Mr Bancel, have publicly indicated that they are, in Dr Fauci’s words, “cautiously optimistic” that a vaccine could go forward for approval in the US by the end of the year. Dr Fauci is talking in broad terms, of course, but Mr Bancel is referring specifically to his company’s drug. From Mr Bancel’s perspective, on the strength of preliminary results from a Phase I trial, it is simply too soon to be issuing timescales. Surely, all he can say is the results will be released as soon as possible and he does not know when that will be. Yet, for the results of the Phase III trial he is stating ‘hope’ for October/November of this year, and this is a trial which only started allocation on July 27.
The treatment requires two doses, which is at least twice the work of one dose.
This drug is at a similar stage to many other Covid-19 vaccines and treatments, and like them, it may never come to market. The interim report, like the initial announcement about the trial in May, is attempting to present the results as ‘worthy of remark’ when in fact, they are not. Indeed the Phase I and Phase II trials, are both still underway, with the Phase III trial starting soon. It is all a work in progress with nothing particularly remarkable to report. If there were no side-effects and immune response durability was high, then there would be something to report, but since durability is dependent on time since exposure, it was always going to be too early to report.
Moderna’s work, like many of the trials being conducted by other companies and organisations, is remarkable mainly in that it is attempting to find a cure for Covid-19. What is most remarkable, however, and arguably a cause for concern, is the speed at which this and other ground-breaking vaccine technologies are being moved (pushed?) through the testing and trial process.
It is to be expected, and obvious, that all the organisations involved will select their best research candidates for trial and those candidates, by definition, should give tentatively positive results. There is nothing remarkable about an initial trial which produces expected results.
A young man invented the wheel and showed it to his father. “Very nice,” he said. “It’s round with sticks in the centre… Great! But it’s of no use to me.” As his son showed him how it worked, his eyes widened and he started to smile as he thought of the endless possibilities.
The research and trials should and must continue, but there is nothing among Moderna’s work to date which suggests that the vaccine will, could, or should be administered at scale across the world any time soon. Therefore, there is nothing remarkable about Moderna’s results to date that is worthy of public consumption. All that exists at present, is hope.
Consequently, it is difficult not to conclude that Moderna’s CEO is exploiting an environment of urgency for a vaccine by feeding scant data and ambitious optimism to an anticipatory market, in the knowledge that the effect will be positive on his company’s share price. To some extent it explains why he has recently sold more shares than ever, but it does not explain why the Chief Executive Officer of a company which he claims is doing so well, is so keen to sell his shares.
At the time of writing, Stephane Bancel owns 7,814,880 units of Moderna stock, according to Wallmine.