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 US 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 US 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 seven- or eight-figure profits thanks to their work on coronavirus vaccines and treatments.
Shares of Regeneron, a biotech company in Tarrytown, New York, have climbed nearly 80% 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.
Alexandra Bowie, a spokeswoman for Regeneron, said most of those sales had been scheduled in advance through programs that automatically sell executives’ shares if the stock hits a certain price.
Moderna, a 10-year-old vaccine developer based in Cambridge, Massachusetts, 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.
While some of those sales were scheduled in advance, others were more spur of the moment. Flagship Ventures, an investment fund run by the company’s founder and chairman, Noubar Afeyan, sold more than $68 million worth of Moderna shares on May 21. Those transactions were not scheduled in advance, according to securities filings.
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.
At other companies, executives and board members received large grants of stock options shortly before the companies announced good news that lifted the value of those options.
Novavax, a drugmaker in Gaithersburg, Maryland, began working on a vaccine early this year. This spring, the company reported promising preliminary test results and a $1.6 billion deal with the Trump administration.
In April, with its shares below $24, Novavax issued a batch of new stock awards to all its employees “in acknowledgment of the extraordinary work of our employees to implement a new vaccine program.” Four senior executives, including the chief executive, Stanley Erck, received stock options that were worth less than $20 million at the time.
Since then, Novavax’s stock has rocketed to more than $130 a share. At least on paper, the four executives’ stock options are worth more than $100 million.
So long as the company hits a milestone with its vaccine testing, which it is expected to achieve soon, the executives will be able to use the options to buy discounted Novavax shares as early as next year, regardless of whether the company develops a successful vaccine.
Silvia Taylor, a Novavax spokeswoman, said the stock awards were designed “to incentivize and retain our employees during this critical time.” She added that “there is no guarantee they will retain their value.”
Two other drugmakers, Translate Bio and Inovio, awarded large batches of stock options to executives and board members shortly before they announced progress on their coronavirus vaccines, sending shares higher. Representatives of the companies said the options were regularly scheduled annual grants.
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.
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 a share, 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.
Normally when companies issue stock options to executives, the options can’t be exercised for months or years. Because of the unusual terms and the run-up in Vaxart’s stock price, most of Floroiu’s can be cashed in now.
Vaxart’s board members also received large grants of stock options, giving them the right to buy shares in the company at prices well below where the stock is now trading. The higher the shares fly, the bigger the profits.
“Vaxart is disrupting the vaccine world,” Floroiu boasted during a virtual investor conference Thursday. He added that his impression was that “it’s OK to make a profit from COVID vaccines, as long as you’re not profiteering.”
David Gelles and Jesse Drucker c.2020 The New York Times Company