Corporate insiders pocket $1 billion in federal rush for coronavirus vaccine
On June 26, a small South 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 flagship federal initiative to quickly develop drugs to combat COVID-19.
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 a desperate 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 COVID-19. 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.
The sudden windfalls highlight the powerful financial incentives for company officials to generate positive headlines in the race for coronavirus vaccines and treatments, even if the drugs might never pan out.
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 Warp Speed to 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 R. 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 Warp Speed, 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.”
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 to cure COVID-19.
“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 sevenor eight-figure profits thanks to their work on coronavirus vaccines and treatments.
Shares of Regeneron, a biotech company in Tarrytown, N.Y., have climbed nearly 80 percent since early February, when it announced a collaboration with the Department of Health and Human Services to develop a COVID-19 treatment. Since then, 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.
Moderna, a 10-year-old vaccine developer based in Cambridge, Mass., that has never brought a product to market, announced in late January that it was working on a coronavirus vaccine. It has issued a stream of news releases hailing its vaccine progress, and its stock has more than tripled, giving the company a market value of almost $30 billion.
Moderna insiders have sold about $248 million of shares since that January announcement, most of it after the company was selected in April to receive federal funding to support its vaccine efforts.
Executives and board members 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.