Moderna (NASDAQ:MRNA) announced positive interim results from a phase 1 study of its COVID-19 vaccine candidate mRNA-1273 on May 18, 2020. Its shares immediately skyrocketed. And several top executives promptly sold some of their Moderna shares.
While the insider selling raised some eyebrows, there was nothing amiss. Each of the Moderna executives who sold shares had done so using a Rule 10b5-1 trading plan. These plans allow company insiders to establish trading plans to buy or sell preset numbers of shares at preset times.
But now another controversy has arisen regarding Moderna's management selling increased numbers of shares. Is there anything for investors to worry about this time?
Moderna submitted several Form 4 statements to the U.S. Securities and Exchange Commission (SEC) last week. This form is used to notify the SEC about any changes in ownership of a stock by key company insiders including directors, officers, and beneficial owners of stock amounting to 10% or more of outstanding shares.
One thing especially stood out with two of Moderna's recent filings: Both CEO Stephane Bancel and president Stephen Hoge significantly increased the number of shares they sold. Those increases were made to the executives' Rule 10b5-1 trading plans first set up on Dec. 18, 2018. But the changes were made on May 21, 2020 -- only three days after Moderna's positive clinical trial update for its COVID-19 vaccine candidate.
Both Bancel and Hoge regularly sell some of their Moderna shares on a predetermined basis. However, the adjustments made after Moderna's good news for mRNA-1273 appears to be the first changes to the two executives' Rule 10b5-1 trading plans in more than a year.
You can look at the increased selling by Moderna's CEO and president from two angles. Skeptics could think that Bancel and Hoge could be attempting to profit as quickly as possible because they're concerned about the prospects for mRNA-1273.
Even SEC Chairman Jay Clayton has cautioned corporate executives about selling shares of their companies during the COVID-19 pandemic. He stated 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's no reason to think that Moderna's executives have done anything inappropriate. Rule 10b5-1 trading plans were established by the SEC in the first place to allow key insiders to buy and sell while avoiding the appearance of impropriety.
But does the increased selling indicate a lack of confidence in mRNA-1273 or Moderna's overall prospects? Not really. Both Bancel and Hoge have received additional shares and stock options as part of their compensation since the Rule 10b5-1 trading plans were first established. Despite their stock sales so far this year, each of the executives owns more shares of Moderna than at the beginning of 2020.
There doesn't appear to be anything worth worrying about with the higher level of selling by the two Moderna executives. The changes were made in accordance with SEC regulations. Both men remain heavily vested financially in Moderna's continued success.
Legal insider selling shouldn't be a concern for investors. Reasons to be concerned at least somewhat do exist, though.
Moderna expects to begin a phase 3 study of mRNA-1273 on July 27. The COVID-19 vaccine candidate has performed well in clinical testing thus far. However, the late-stage study will be much larger in scale. The potential for failure is real.
Investors could also be legitimately concerned about Moderna's valuation. Its market cap of around $32 billion reflects an expectation of solid success for mRNA-1273. Any hiccups in the phase 3 study would likely cause the biotech stock to tumble.
However, these concerns, while valid now, could turn out to be unfounded over the next few months. The chances for success for mRNA-1273 in late-stage testing should be quite good. If the COVID-19 vaccine proves to be both safe and effective, Moderna's share price could skyrocket enough that the increased insider selling by the company's CEO and president could look like pocket change in retrospect.