Who would have thought, a year ago, that at Thanksgiving 2020 the nation would be waiting with bated breath for pharmaceutical press releases? But as companies have released increasingly positive news about their vaccine trials, public interest in these interim results has soared. So have financial markets, hoping for an end to the pandemic.
News alerts may update the public, but they’re primarily used to update investors. In the past few weeks, there has been a glut of them. And the particular way news releases are now coinciding with investment moves has some financial experts worried. In part, they’re concerned that executives may be engaging in trading practices that, thanks to current law, may be just on the right side of legal. But they’re also worried that such profiteering in the present moment could signal issues with the companies or their products—and could lead to public mistrust in the vaccines themselves.
“Science by press release,” as the release of preliminary drug results is sometimes called, has pitfalls: Press releases only include the details the company wants to share. The Pfizer/BioNTech press release on November 9, for instance, said their vaccine was 90 percent effective at preventing the disease caused by the virus but didn’t offer a demographic breakdown of those results. The press release also didn’t say whether it reduced the severity of the illness in the 10 percent who did get it, nor did it say whether some participants may have caught asymptomatic Covid-19 that could be passed on to others. AstraZeneca’s announcement on Monday that its vaccine is 70 percent effective also lacked details: It didn’t say how many of the 131 Covid-19 cases among trial participants developed among people taking the placebo, versus how many developed among people who had received a half-dose of the vaccine or a full dose—important information for evaluating the early results.
The public and financial markets have reacted with relief to the preliminary good news. Last week, after the Pfizer/BioNTech and Moderna announcements, stock markets rallied. Stock prices in pharmaceutical companies producing Covid-19 vaccines and therapeutics have risen drastically this year, aided in part by the U.S. government’s promise of billions of dollars for Covid-19 vaccines. But some of this financial activity, especially on the part of pharma executives, has caught the attention of analysts who specialize in pharmaceutical investing and insider trading.
Moderna’s top management has, collectively, sold more than $350 million in stock or investments in the company over the course of this year, Travis Whitfill, a venture capitalist and a health policy researcher at Yale, told me. Leaders of the company began frequently trading their stock options in May, after the company announced positive initial results with its phase 1 trial and the price of shares began to soar. “It’s really crazy—every single week, they’re selling their shares,” Whitfill said. “Moderna is a really important example of them just pumping up their stock and selling their shares and making a ton of money.”
“I have never seen anything like Moderna in my career,” said Daniel Taylor, an associate professor of accounting at the University of Pennsylvania’s Wharton School. “In the current environment that we are in, where any data release can send the stock price flying or plummeting, it is very, very important that they are careful with how they trade. And I would definitely say that Moderna is not practicing, what you would say, good corporate governance. Whether that crosses the line to illegal or not is another question. But … there’s definitely a lot of smoke.”
According to Taylor’s examinations of key investment documents, both Moderna and Pfizer executives scheduled sell-offs with 10b5-1 plans. These 10b5-1 plans are a tool used by people who may count as “insiders” to avoid insider trading; the plans pre-schedule stock sales with specific attention to relevant securities law. But in both cases, Taylor found, these schedules were put in place or modified soon before the companies announced positive results.
On the same day that Pfizer announced that its vaccine with BioNTech was 90 percent effective, for instance, CEO Albert Bourla sold $5.6 million worth of stock in the company. His 10b5-1 plan to sell stock was put in place back in August, the day before Pfizer announced positive results with its phase 1 trial, Taylor said. That means Bourla didn’t plan the sell-off right before the November announcement—but he already knew the sell-off was scheduled when the company chose to announce the good news on November 9, and that sell-off was planned right before the first positive results were released months ago. Similarly, in March, three Moderna executives created new 10b5-1 plans before an announcement the next business day that phase 1 trials had begun, which made stock prices surge by 24 percent.
“This is the danger of these pre-planned trades,” Taylor said. The actions aren’t illegal, per se. But they expose weaknesses in how investments by top executives are made. It’s a “Jedi mind trick,” he added. Companies say “pre-planned trade, nothing to see here”—but “it’s the timing of when the plan was put in place, and that timing looks suspicious.”
Moderna’s corporate affairs lead, Ray Jordan, defended the practice of filing 10b5-1 plans, which he says were created—just as the law requires—with no inside knowledge. But as the company entered phase 3 trials, he told me, “all members of our executive team and board of directors have agreed not to enter into new 10b5-1 trading plans, nor add new shares to existing trading plans, nor engage in additional unscheduled sales of Moderna stock in the open market,” until it files for a license with the U.S. Food and Drug Administration or the drug development ends. Existing plans will still continue, however.
Pfizer responded shortly after press time to say that Bourla’s share sales had been scheduled in February, re-authorized in August, and went through on November 9 specifically because “the stock reached the plan’s threshold price target for the first time.” A spokesperson also emphasized that Bourla had only been trading a small portion of his owned stock—unlike, for example, Moderna executives.*
Pharmaceutical companies have also been capitalizing on the pandemic and positive press releases more broadly. Vaccine makers like Inovio and Vaxart, which don’t have late-stage vaccine candidates, are still benefiting from the wave of investment. Gilead, which produces the antiviral remdesivir, announced in a press release that it was “aware of positive data” on remdesivir, despite the drug not performing well in clinical trials.
There could be a downside to companies misleading investors, intentionally or not, with positive press releases. “If the executives had bad information but sat on it and didn’t disclose it, and then either traded or that information subsequently came to light and stock prices dropped, they could be sued,” Taylor said. Similarly, releasing results too soon that end up being inaccurate could also cause issues. “They can run into trouble if they’re too fast and they have to backpedal … then they’re going to look really bad, and that’s potentially going to open them up to litigation,” Taylor said.
These P.R. practices aren’t new. But now that news alerts are reaching a wider audience, they are a lot more visible—and they have the potential to affect everything from finances to public trust in the companies’ products.
“I think executives in the company should be profiting from the vaccine,” Taylor said. But when pharma executives sell off stock on a scale like this, “I do think that some people will interpret it negatively about their vaccine.”
Whitfill agreed. “I think it erodes public trust,” he said. “When you have management that has made a quarter of a billion dollars this year off of their stock price before they launched the vaccine, I think that just tells you that they’re more interested in making money than they are distributing this vaccine to millions and billions of people worldwide.” Making that much money before the vaccine even reaches the market is “crossing the line,” he argued. “If management really believed in their company and their vaccine, and they thought that there was real long-term value, you typically don’t see that much insider selling. Just imagine, if they had a vaccine that was approved, their stock would go up twice as much as it is now.” The sales, then, are “a definite sign that they don’t believe in the long-term value of [the vaccine]. And that’s concerning.”
It would reassure scientists—and the public, and investors—if companies released their full data either alongside their press releases or within a few days, experts said. But in some cases, especially with phase 1 and phase 2 trials, it’s not clear a product will ever come to market. And in those cases, pharma executives have the potential to make millions while the public gets nothing.
None of this is to say that the coronavirus vaccines currently getting good results won’t work—they very well may. But the pandemic is showing why it may make sense to rethink the ways company leaders profit from pharmaceutical investments. That’s particularly true when U.S. taxpayers have billions of dollars in investments—and hundreds of thousands of lives—on the line.
*This piece has been updated to incorporate Pfizer’s statement.
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