Here's a story that might smell fishy to you. A small biotech sees its shares skyrocket after advancing to a clinical study with its promising COVID-19 vaccine candidate. And on the day that this biotech announces encouraging early results from that study, one of its top executives begins to sell shares. Over the next two days, three other top execs, including the company's CEO, unload a lot of shares.
This scenario is exactly what unfolded for Moderna (MRNA -0.07%) last week. On Monday, May 18, the biotech reported positive preliminary results from its phase 1 study of novel coronavirus vaccine candidate mRNA-1273. That same day, CFO Lorence Kim sold some of his shares. Within the next two days, CEO Stephane Bancel, Chief Medical Officer Tal Zaks, and General Counsel and Secretary Lori Henderson sold a combined total of more than 200,000 shares of Moderna stock.
It's the kind of thing that certainly raises eyebrows. It might even make some Moderna shareholders worry that there's something they don't know that insiders do. But no worries are needed at all about the insider selling in this case.
More to the story
Sure, the timing of the Moderna executives' stock sales seems like the company's leaders were attempting to profit off of good news in anticipation that the stock could soon go down. But appearances can be deceiving.
All of the stock sales in question were done using a Rule 10b5-1 trading plan. What is Rule 10b5-1? The Securities and Exchange Commission (SEC) established this rule in 2000 to allow company insiders to put trading plans into effect that buy or sell a predetermined number of shares at a predetermined time. The SEC actually adopted Rule 10b5-1 to enable insiders to trade shares without engaging in insider trading.
The important thing to know is that the sales by the four top Moderna executives last week were all planned well before they could know anything about the preliminary results from the phase 1 study of COVID-19 vaccine candidate mRNA-1273. The top execs simply benefited from lucky timing.
Using predefined trading plans doesn't always work out so well. In fact, Moderna CEO Stephane Bancel sold shares of the biotech stock on May 15 using a Rule 10b5-1 trading plan -- before the big spike last week.
What isn't a coincidence at all is that Moderna took advantage of the timing of its positive clinical results to raise additional capital. On the same day as the biotech announced the preliminary results from the phase 1 study of mRNA-1273, it also announced a $1.25 billion secondary offering.
There's nothing wrong with timing a stock offering to be simultaneous with the announcement of good news. Companies do it frequently. It was a smart move for Moderna to issue new stock with its share price up tremendously. The biotech will now have plenty of cash to fund its operations and advance its clinical programs.
And if those clinical programs are successful, Moderna insiders will make a lot more money than they did last week. More Rule 10b5-1 transactions are almost certainly on the way.