It's not surprising for top executives and board members to sell some of their shares in a company from time to time. Most shareholders don't begrudge a modest level of such activity, but when insiders sell too much, it can cause concerns.
Some investors might have such worries about Moderna (NASDAQ:MRNA) right now. The biotech reported 17 insider sale transactions in August. So far this month, it's reported seven insider sale transactions. That's an average of nearly one insider sale per trading day over the last six weeks.
Should you be worried? Here are three things you'll want to know about Moderna's insider selling.
1. Who's selling
Start at the top. Moderna CEO Stephane Bancel is doing the most selling of all of the company's executives. During August and so far in September, well over half of the company's insider sale transactions were made by Bancel. Two other leaders of Moderna have also done quite a bit of selling: Moderna President Stephen Hoge and Chief Medical Officer Tal Zaks.
2. Why they're selling
Companies don't have to report reasons behind insider sales transactions. However, there are some clues that shed light on why the three Moderna executives are likely selling the biotech stock.
Several -- though not all -- of the sales by Moderna insiders in August and September were related to exercising stock options. The company's president and chief medical officer, in particular, frequently acquired shares at low prices via the exercise of stock options, and then immediately sold them at higher prices.
Many of Bancel's sales were for shares owned directly by a trust established for the benefit of his children. These types of trusts are relatively common.
Was there any common denominator for all of the sales by Moderna insiders during August and September? Yes. They were all set up under Rule 10b5-1 trading plans. These trading plans were established by the Securities and Exchange Commission two decades ago. Rule 10b5-1 trading plans allow company insiders to buy or sell a predetermined number of shares at a predetermined time. These plans were adopted by the SEC to give company insiders a way to buy and sell shares without violating insider trading rules.
3. How much stock they still have
It's arguably more important to know how much stock key Moderna insiders still have than it is to know how much they've sold. All of the Moderna executives who've been selling shares still have similar positions in the biotech as they've held in the past.
Bancel directly owns close to 7.8 million shares, roughly in line with the number he owned at the end of July. In addition, Boston Biotech Ventures (a company where Bancel is a majority equity unit holder and sole managing member) owns over 9.1 million shares of Moderna, close to the level owned at the end of July.
Hoge directly owns around 1.9 million shares now, near the same number of shares he owned at the end of July. Zaks owns exactly the same level of Moderna shares now that he owned at the end of July -- zero. Every time he exercises his stock options, he sells all of the shares that he acquires via the options.
Is any of this insider selling a cause for investors to worry? Not at all.
The pattern of selling by top Moderna executives in August and so far in September is basically the same thing that went on earlier this year. While the frequency of transactions might seem superficially concerning, all the activity is making only a small impact on the ownership stakes of key insiders.
Most importantly, Bancel and Hoge -- Moderna's two top executives -- still have plenty of skin in the game. Their financial interests are aligned with shareholders' interests. As long as that's the case, any criticism of the insider transactions is much ado about nothing.