Modern (NASDAQ: MRNA) announced positive interim results from a phase 1 study of its vaccine candidate COVID-19 mRNA-1273 on May 18, 2020. Its actions skyrocketed immediately. And several top executives quickly sold some of their Moderna shares.
While insider trading raised some eyebrows, there was nothing wrong. Each of the Moderna executives who sold shares had done so using a Rule 10b5-1 trading plan. These plans allow the company’s experts to establish business plans to buy or sell preset numbers of shares at preset times.
But now another controversy has arisen regarding the Moderna administration that sells a larger number of shares. Is there something to worry about investors this time?
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Selling more
Moderna filed several Form 4 returns with the United States Securities and Exchange Commission (SEC) last week. This form is used to notify the SEC of any change in ownership of a share by key company people, including directors, officers and beneficial owners of shares amounting to 10% or more of the outstanding shares.
One thing was especially highlighted with two of Moderna’s recent presentations: CEO Stephane Bancel and President Stephen Hoge both significantly increased the number of shares they sold. Those increases were made to executives’ Rule 10b5-1 trading plans first established on December 18, 2018. But the changes were made on May 21, 2020, just three days after the positive update to the Moderna clinical trial for its COVID-19 vaccine candidate.
Both Bancel and Hoge regularly sell some of their Moderna shares by default. However, the adjustments made after Moderna’s good news for mRNA-1273 appear to be the first changes to the two executives’ Rule 10b5-1 business plans in more than a year.
Is it worth worrying about?
You can see the increase in sales by the CEO and President of Moderna from two angles. Skeptics might think that Bancel and Hoge might be trying to make a profit as quickly as possible because they are concerned about the prospects for mRNA-1273.
Even SEC President Jay Clayton warned corporate executives about selling their companies’ shares during the COVID-19 pandemic. He said in a CNBC interview in May that management should practice “good corporate hygiene” and avoid transactions that could make people think they were doing “something inappropriate.”
On the other hand, there is no reason to think that Moderna executives have done anything inappropriate. The SEC established the rule 10b5-1 business plans first to allow people with key insider information to buy and sell, avoiding the appearance of impropriety.
But does the increased sales indicate a lack of confidence in mRNA-1273 or Moderna’s overall outlook? Not really. Both Bancel and Hoge have received additional shares and stock options as part of their compensation since the Rule 10b5-1 business plans were first established. Despite their share sales so far this year, each of the executives owns more Moderna shares than in early 2020.
There doesn’t seem to be anything worth worrying about with the higher sales level of the two Moderna executives. The changes were made in accordance with SEC regulations. Both men remain heavily financially invested in Moderna’s continued success.
Real concerns
The sale of legal inside information should not be a concern for investors. However, there are reasons to worry at least somewhat.
Moderna expects to begin a phase 3 study of the mRNA-1273 on July 27. The COVID-19 vaccine candidate has performed well in clinical trials thus far. However, the study in the final stage will be much larger in scale. The potential for failure is real.
Investors may also be legitimately concerned about Moderna’s valuation. Its market capitalization of around $ 32 billion reflects a strong expectation of success for mRNA-1273. Any hiccups in the phase 3 study would likely cause the biotech stock to drop.
However, these concerns, while valid now, could prove unfounded in the coming months. The chances of success for mRNA-1273 in late stage tests should be quite good. If the COVID-19 vaccine proves to be safe and effective, Moderna’s stock price could skyrocket enough that the company’s biggest sale of inside information by the CEO and president may look like a pocket change in hindsight .
