Executives at Moderna, a leading contender for a COVID-19 vaccine, have pocketed millions, and the value of biotech companies has exploded. “People feel they can take risks,” says one expert—but for some it could all come crashing down.
BY JESSICA CAMILLE AGUIRRE JULY 30, 2020
GETTY IMAGES.
One early morning in mid-May, biotech company Moderna announced preliminary results from its Phase I test of a potential COVID-19 vaccine, and its stock value soared. A relatively young company focused on developing technology to use genetic material to cure or prevent disease, Moderna hasn’t yet brought any of its products to market. Nevertheless, it is overseeing multiple trials for a potential vaccine and its chief executive, Stepháne Bancel, was one of the first at the forefront of the crisis.
For its prescience and unique approach, the company has been hailed as one of the most promising among those working on a COVID-19 vaccine. The May announcement, though, was unorthodox. It came in the form of a press release instead of the typical publication in a peer-reviewed journal. It was followed, hours later, by an announcement that the company would aim to raise about $1.3 billion by selling more than 17 million additional shares of stock. Two days later Bancel sold some of his shares in the company, pocketing $1.2 million.
Executives at Moderna, it turned out, had reportedly sold $89 million in shares since January. When news of the sales got out, Moderna stock sunk, and one analyst called for an SEC investigation. It was later reported that the sales had been scheduled in advance. As for the release’s timing, Moderna chief corporate affairs officer Ray Jordan said the company published results because of comments from Dr. Anthony Fauci and the cochair of the White House’s coronavirus vaccine project, Moncef Slaoui—who had to drop millions in Moderna stock and step back from its board when he took the program’s helm. “Both Tony Fauci and Moncef had mentioned, you know, good-looking data,” Jordan said.
In some ways, the story of Moderna—including its reported more than 300% jump in stock price since the start of the year, and its $30 billion valuation despite having zero product on the market—perfectly exemplifies the pitfalls of private vaccine investing. There’s a lot of expectation, a lot of risk, and not a huge amount of clarity about the payoff. Although Moderna’s vaccine looks promising, and launched Phase III of its clinical trial earlier this week, there’s no guarantee it will reach the market. As Citron Research, the platform of activist short seller Andrew Left, tweeted: “trading can be profitable but vaccines are not.”
“If you look at the investment side of this, the risk is so high that you’re investing in maybe 19 companies that will fail and one that’ll be your jackpot,” said Supriya Munshaw, a senior lecturer at the Johns Hopkins Carey Business School. “But the jackpot can only be if you have a cancer medication or something that you’re going to sell for hundreds of thousands of dollars a year. So with vaccines, it baffles me. It’s not going to be that profitable.” Because investor interest wanes when the potential market for a vaccine peters out, much of the research needed for development is also subject to volatile financing. Companies working on coronaviruses during the MERS and SARS outbreaks still haven’t produced functional vaccines, which, had they existed, could have jump-started the process for COVID-19.
Right now, though, the proverbial iron is hot. According to data compiled by Equilar for the New York Times, insiders at 11 pharmaceutical companies sold shares worth more than $1 billion since March—often right after their companies made positive announcements about progress. Moderna’s is only one of the more than 165 COVID-19 vaccines currently in development, but it is among the handful of companies backed by the White House effort, Operation Warp Speed. The nearly $10 billion federal initiative also poured $1.6 billion into another biotech company, Novavax, that has yet to bring a product to market. Even companies not anointed by Operation Warp Speed have seen big bumps in their valuations on the private market. “I think it’s driven by speculation,” said Les Funtleyder, a portfolio manager at E Squared Capital Management. “The investment environment is benign enough that people feel they can take risks.”
Since the Moderna controversy, some of the leading companies developing COVID-19 vaccines have followed suit, presumably aiming to get in while the getting is good. Last week, Pfizer and Germany’s BioNTech announced early positive results from their vaccine trials before the data had been peer-reviewed, days before it was announced that the U.S. government would pay Pfizer nearly $2 billion for the first 100 million doses of its vaccine, pending FDA approval. Just a few months into the pandemic, the value of the eight biotech companies in the S&P 500 had gone from $130 billion to $600 billion.
During previous coronavirus outbreaks, including the MERS outbreak in 2012 and SARS in 2003, investors made similar calls about some of the biotech companies researching potential vaccines and a few stocks soared, only to crumble again as it became clear that the viruses’ scale would be limited. Even when vaccines do reach the market, they don’t necessarily generate the kind of windfall that would make sticking around, as an investor, worth it. Ben Yeoh, a senior portfolio manager at RBC Global Asset Management, told me that the problem with vaccine pricing is a function of contradictory ideas about the value of saving a life, and perceptions around how accessible life-saving therapies should be. “Nobody cares that your iPhone 10 cost you a thousand dollars, right? Even though it doesn’t cost that much to make. Yet we worry that a drug costs a thousand dollars,” Yeoh said.
With COVID-19, the scale of the pandemic is such that it will likely keep investors making big bets on biotech companies for now, especially given the federal government’s outsize role in the market. While some investors are likely to stick around for the long-term research prospects, others have already reaped rewards—including the Moderna leadership. “It’s a little bit tough to argue with selling stock when you have a $30 billion market cap and no data,” Jefferies analyst Jared Holz told me, referring to the fact that Moderna’s May press release didn’t contain full data sets. “So this management team was probably being opportunistic and using the stock price to essentially take profit like any other investor would.”
Depending on how the virus itself develops, it could become lodged into the regular annual cycle of sickness, much like the flu. Moderna’s Jordan told me that the company is fully expecting that most of the first batches of any vaccine will be bought by governments, but if COVID-19 becomes a seasonal outbreak, he noted there may be potential to generate regular revenue.
Until then, the race for a COVID-19 vaccine has already made at least one newly minted billionaire. “All of the vaccine stocks have proven to be pretty profitable, since the onset of the pandemic,” Holz said. “Since early or mid-January of this year, there have been multiples made on all of these stocks so far.” Because the actual vaccine market will ultimately be beholden to ideas about fair pricing and the degree of government intervention, the best chance for many biotech companies to cash in on the vaccine race could end up being before a vaccine becomes available. If demand drops off, investors could flee as they did with previous outbreaks. “Human nature being what it is,” Funtleyder said, “the market can be a little bit fickle.”
For its prescience and unique approach, the company has been hailed as one of the most promising among those working on a COVID-19 vaccine. The May announcement, though, was unorthodox. It came in the form of a press release instead of the typical publication in a peer-reviewed journal. It was followed, hours later, by an announcement that the company would aim to raise about $1.3 billion by selling more than 17 million additional shares of stock. Two days later Bancel sold some of his shares in the company, pocketing $1.2 million.
Executives at Moderna, it turned out, had reportedly sold $89 million in shares since January. When news of the sales got out, Moderna stock sunk, and one analyst called for an SEC investigation. It was later reported that the sales had been scheduled in advance. As for the release’s timing, Moderna chief corporate affairs officer Ray Jordan said the company published results because of comments from Dr. Anthony Fauci and the cochair of the White House’s coronavirus vaccine project, Moncef Slaoui—who had to drop millions in Moderna stock and step back from its board when he took the program’s helm. “Both Tony Fauci and Moncef had mentioned, you know, good-looking data,” Jordan said.
In some ways, the story of Moderna—including its reported more than 300% jump in stock price since the start of the year, and its $30 billion valuation despite having zero product on the market—perfectly exemplifies the pitfalls of private vaccine investing. There’s a lot of expectation, a lot of risk, and not a huge amount of clarity about the payoff. Although Moderna’s vaccine looks promising, and launched Phase III of its clinical trial earlier this week, there’s no guarantee it will reach the market. As Citron Research, the platform of activist short seller Andrew Left, tweeted: “trading can be profitable but vaccines are not.”
“If you look at the investment side of this, the risk is so high that you’re investing in maybe 19 companies that will fail and one that’ll be your jackpot,” said Supriya Munshaw, a senior lecturer at the Johns Hopkins Carey Business School. “But the jackpot can only be if you have a cancer medication or something that you’re going to sell for hundreds of thousands of dollars a year. So with vaccines, it baffles me. It’s not going to be that profitable.” Because investor interest wanes when the potential market for a vaccine peters out, much of the research needed for development is also subject to volatile financing. Companies working on coronaviruses during the MERS and SARS outbreaks still haven’t produced functional vaccines, which, had they existed, could have jump-started the process for COVID-19.
Right now, though, the proverbial iron is hot. According to data compiled by Equilar for the New York Times, insiders at 11 pharmaceutical companies sold shares worth more than $1 billion since March—often right after their companies made positive announcements about progress. Moderna’s is only one of the more than 165 COVID-19 vaccines currently in development, but it is among the handful of companies backed by the White House effort, Operation Warp Speed. The nearly $10 billion federal initiative also poured $1.6 billion into another biotech company, Novavax, that has yet to bring a product to market. Even companies not anointed by Operation Warp Speed have seen big bumps in their valuations on the private market. “I think it’s driven by speculation,” said Les Funtleyder, a portfolio manager at E Squared Capital Management. “The investment environment is benign enough that people feel they can take risks.”
Since the Moderna controversy, some of the leading companies developing COVID-19 vaccines have followed suit, presumably aiming to get in while the getting is good. Last week, Pfizer and Germany’s BioNTech announced early positive results from their vaccine trials before the data had been peer-reviewed, days before it was announced that the U.S. government would pay Pfizer nearly $2 billion for the first 100 million doses of its vaccine, pending FDA approval. Just a few months into the pandemic, the value of the eight biotech companies in the S&P 500 had gone from $130 billion to $600 billion.
During previous coronavirus outbreaks, including the MERS outbreak in 2012 and SARS in 2003, investors made similar calls about some of the biotech companies researching potential vaccines and a few stocks soared, only to crumble again as it became clear that the viruses’ scale would be limited. Even when vaccines do reach the market, they don’t necessarily generate the kind of windfall that would make sticking around, as an investor, worth it. Ben Yeoh, a senior portfolio manager at RBC Global Asset Management, told me that the problem with vaccine pricing is a function of contradictory ideas about the value of saving a life, and perceptions around how accessible life-saving therapies should be. “Nobody cares that your iPhone 10 cost you a thousand dollars, right? Even though it doesn’t cost that much to make. Yet we worry that a drug costs a thousand dollars,” Yeoh said.
With COVID-19, the scale of the pandemic is such that it will likely keep investors making big bets on biotech companies for now, especially given the federal government’s outsize role in the market. While some investors are likely to stick around for the long-term research prospects, others have already reaped rewards—including the Moderna leadership. “It’s a little bit tough to argue with selling stock when you have a $30 billion market cap and no data,” Jefferies analyst Jared Holz told me, referring to the fact that Moderna’s May press release didn’t contain full data sets. “So this management team was probably being opportunistic and using the stock price to essentially take profit like any other investor would.”
Depending on how the virus itself develops, it could become lodged into the regular annual cycle of sickness, much like the flu. Moderna’s Jordan told me that the company is fully expecting that most of the first batches of any vaccine will be bought by governments, but if COVID-19 becomes a seasonal outbreak, he noted there may be potential to generate regular revenue.
Until then, the race for a COVID-19 vaccine has already made at least one newly minted billionaire. “All of the vaccine stocks have proven to be pretty profitable, since the onset of the pandemic,” Holz said. “Since early or mid-January of this year, there have been multiples made on all of these stocks so far.” Because the actual vaccine market will ultimately be beholden to ideas about fair pricing and the degree of government intervention, the best chance for many biotech companies to cash in on the vaccine race could end up being before a vaccine becomes available. If demand drops off, investors could flee as they did with previous outbreaks. “Human nature being what it is,” Funtleyder said, “the market can be a little bit fickle.”
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