INVESTORS BET on vaccine developers.
On June 26, a small San Francisco company called Vaxart made a surprise announcement: A coronavirus vaccine it was working on had been selected by the U.S. government to be part of Operation Warp Speed, the federal initiative to quickly develop drugs to combat the coronavirus.
Vaxart’s shares soared. Company insiders, who weeks earlier had received stock options worth a few million dollars, saw the value of those awards increase sixfold. And a hedge fund that partly controlled the company walked away with more than $200 million in instant profits.
The race is on to develop a coronavirus vaccine, and some companies and investors are betting that the winners stand to earn vast profits from selling hundreds of millions — or even billions — of doses to the public.
Across the pharmaceutical and medical industries, senior executives and board members are capitalizing on that dynamic.
They are making millions of dollars after announcing positive developments, including support from the government, in their efforts to fight the virus. After such announcements, insiders from at least 11 companies — most of them smaller firms whose fortunes often hinge on the success or failure of a single drug — have sold shares worth well over $1 billion since March, according to figures compiled for The New York Times by Equilar, a data provider.
In some cases, company insiders are profiting from regularly scheduled compensation or automatic stock trades. But in other situations, senior officials appear to be pouncing on opportunities to cash out while their stock prices are sky high. And some companies have awarded stock options to executives shortly before market-moving announcements about their vaccine progress.
MARKETING VS. REALITY
Some companies are attracting government scrutiny for potentially using their associations with Operation Warp Speed as marketing ploys.
For example, the headline on Vaxart’s news release declared: “Vaxart’s COVID-19 Vaccine Selected for the U.S. Government’s Operation Warp Speed.” But the reality is more complex.
Vaxart’s vaccine candidate was included in a trial on primates that a federal agency was organizing in conjunction with Operation Warp Speed. But Vaxart is not among the companies selected to receive significant financial support from the program produce hundreds of millions of vaccine doses.
“The U.S. Department of Health and Human Services has entered into funding agreements with certain vaccine manufacturers, and we are negotiating with others. Neither is the case with Vaxart,” said Michael Caputo, the department’s assistant secretary for public affairs.
“Vaxart’s vaccine candidate was selected to participate in preliminary U.S. government studies to determine potential areas for possible Operation Warp Speed partnership and support. At this time, those studies are ongoing, and no determinations have been made.”
Some officials at the Department of Health and Human Services have grown concerned about whether companies including Vaxart are trying to inflate their stock prices by exaggerating their roles in the vaccine program, a senior Trump administration official said.
The department has relayed those concerns to the Securities and Exchange Commission, said the official, who spoke on the condition of anonymity.
It isn’t clear if the commission is looking into the matter. An SEC spokeswoman declined to comment.
“Vaxart abides by good corporate governance guidelines and policies and makes decisions in accordance with the best interests of the company and its shareholders,” Vaxart’s chief executive, Andrei Floroiu, said in a statement Friday. Referring to Operation Warp Speed, he added, “We believe that Vaxart’s COVID-19 vaccine is the most exciting one in OWS because it is the only oral vaccine (a pill) in OWS.”
REAPING PROFITS
Well-timed stock transactions are generally legal. But investors and corporate governance experts say they can create the appearance that executives are profiting from inside information, and could erode public confidence in the pharmaceutical industry when the world is looking to these companies for a cure.
“It is inappropriate for drug company executives to cash in on a crisis,” said Ben Wakana, executive director of Patients for Affordable Drugs, a nonprofit advocacy group. “Every day, Americans wake up and make sacrifices during this pandemic. Drug companies see this as a payday.”
Executives at a long list of companies have reaped seven- or eight-figure profits thanks to their work on coronavirus vaccines and treatments.
Vaxart, though, is where the most money was made the fastest.
At the start of the year, its shares were around 35 cents. Then in late January, Vaxart began working on an orally administered coronavirus vaccine, and its shares started rising.
Vaxart’s largest shareholder was a New York hedge fund, Armistice Capital, which last year acquired nearly two-thirds of the company’s shares. Two Armistice executives, including the hedge fund’s founder, Steven Boyd, joined Vaxart’s 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.
Vaxart has never brought a vaccine to market. It has just 15 employees. But throughout the spring, Vaxart announced positive preliminary data for its vaccine, along with a partnership with a company that could manufacture it. By late April, with investors sensing the potential for big profits, the company’s shares had reached $3.66 — a tenfold increase from January.
On June 8, Vaxart changed the terms of its warrants agreement with Armistice, making it easier for the hedge fund to rapidly acquire the 21 million shares, rather than having to buy and sell in smaller batches.
One week later, Vaxart announced that its chief executive was stepping down, though he would remain chairman. The new CEO, Floroiu, had previously worked with Boyd, Armistice’s founder, at the hedge fund and the consulting firm McKinsey.
On June 25, Vaxart announced that it had signed a letter of intent with another company that might help it mass-produce a coronavirus vaccine. Vaxart’s shares nearly doubled that day.
The next day, Vaxart issued its news release saying it had been selected for Operation Warp Speed. Its shares instantly doubled again, at one pointing hitting $14, their highest level in years.
“We are very pleased to be one of the few companies selected by Operation Warp Speed, and that ours is the only oral vaccine being evaluated,” Floroiu said.
‘VALUABLE CHANGE’
Armistice took advantage of the stock’s exponential increase — at that point up more than 3,600% since January.
On June 26, a Friday, and the next Monday, the hedge fund exercised its warrants to buy nearly 21 million Vaxart shares for either 30 cents or $1.10 a share — purchases it would not have been able to make as quickly had its agreement with Vaxart not been modified weeks earlier.
Armistice then immediately sold the shares at prices from $6.58 to $12.89, according to securities filings. The hedge fund’s profits were immense: more than $197 million.
“It looks like the warrants may have been reconfigured at a time when they knew good news was coming,” said Robert Daines, a professor at Stanford Law School who is an expert on corporate governance.
“That’s a valuable change, made right as the company’s stock price was about to rise.”
At the same time, the hedge fund also unloaded some of the Vaxart shares it had previously bought, notching tens of millions of dollars in additional profits.
By the end of that Monday, June 29, Armistice had sold almost all of its Vaxart shares.
Boyd and Armistice declined to comment.
Floroiu said the change to the Armistice agreement “was in the best interests of Vaxart and its stockholders” and helped it raise money to work on the covid-19 vaccine.
He and other Vaxart board members also were positioned for big personal profits.
When he became chief executive in mid-June, Floroiu received stock options that were worth about $4.3 million. A month later, those options were worth more than $28 million.