Insight: Novavax bosses cash out for $46 mln with COVID-19 vaccine trials still under way

Acura Pharmaceuticals

11/01/2021 12:00

By Jessica DiNapoli
    Jan 11 (Reuters) - Top executives at U.S. pharmaceutical
company Novavax Inc  NVAX.O  aren't waiting to see how well
their COVID-19 vaccine works before they reap the financial
rewards.
    Chief Executive Stanley Erck and three of his top
lieutenants have sold roughly $46 million of company stock since
the start of last year, according to a Reuters review of
securities filings, capitalizing on a near 3,000% rally in
Novavax shares fueled by investors betting on the success of the
shot under development.
    Erck cashed out $8.7 million over the course of 2020,
eclipsing the $2.2 million in shares he sold in the previous
five years. The stock sale amounts to more than 20% of his
vested stake in Novavax, or less than 10% if stock options that
are yet to vest are counted, according to the review of the
filings, an analysis by compensation consultant Farient Advisors
LLC and a company spokeswoman.
    The lucrative liquidations, which have not previously been
reported, underscore the transformation in Novavax's fortunes
during the global pandemic and the opportunity for its
executives to lock in big profits from market optimism.
    There is no certainty that Novavax, which has yet to bring a
vaccine to market, will be successful in its latest endeavor.
The 34-year-old company has become a key contender in a global
race to develop vaccines against COVID-19 thanks to $1.6 billion
in taxpayer funding it received under the U.S. government's
"Operation Warp Speed" program.
    The Gaithersburg, Maryland-based company was worth only $250
million until about a year ago, when news of its experimental
vaccine and its participation in Operation Warp Speed drove its
valuation up to as much as $11 billion.
    A Novavax spokeswoman said the executives were responsible
for the stock sales.
    "Our leaders remain confident in the value and potential of
our vaccines and are passionately committed to contributing to
ending the COVID-19 pandemic and improving public health around
the world," Novavax said in a statement. "They continue to hold
substantial personal and professional interest in Novavax'
success as well as a financial one."    
    The executives did not respond to requests for comment. The
Novavax spokeswoman did not make the executives available for
interview.
    
     Only peers at rival biotech company Moderna Inc  MRNA.O 
have sold more stock than Novavax executives among major firms
that received U.S. taxpayer funding to develop or manufacture
COVID-19 vaccines, according to an analysis by consumer advocacy
group Accountable.US which looked at transactions from May to
November 2020. Moderna's COVID-19 vaccine is already being
rolled out after it was approved by the U.S. Food and Drug
Administration on Dec. 18.
    To be sure, many of the other companies in the vaccine race
are far larger than Moderna and Novavax, limiting the impact of
news on their shares.  
   Pfizer Inc's  PFE.N  vaccine was the first to be approved by
the United States on Dec. 11. AstraZeneca Plc  AZN.L  won
approval in Britain for its vaccine on Dec. 30, and Johnson &
Johnson  JNJ.N  is scheduled to report trial data in January,
lining it up for U.S. authorization in February. 
    Novavax, meanwhile, announced last month that it had begun a
late-stage trial of its COVID-19 vaccine in the United States,
after delaying it twice due to issues in scaling up its
manufacturing. It expects to see the results from another
late-stage trial, in the United Kingdom, sometime in the first
quarter of 2021. urn:newsml:reuters.com:*:nL4N2J81HW 
    Early-stage data from Novavax's small clinical trial of its
vaccine have shown it produced high levels of virus-fighting
antibodies and the company has already inked supply deals for it
with countries including Japan, Canada, Australia and the UK as
well as with the United States.  urn:newsml:reuters.com:*:nL4N2HE3IR
    Some corporate governance experts said Novavax offered a
striking example of how boards use company stock to incentivize
their management teams without always linking them closely to
their long-term prospects.
    "Board members should have insisted that the executives held
onto their shares," said Sanjai Bhagat, a finance professor at
the University of Colorado. "Then they would have the incentive
to do everything that they could to get the vaccine out sooner."
    The chairman of Novavax's board, James Young, did not
respond to requests for comment.
    Jesse Fried, a Harvard Law School professor and a member of
the research advisory council at proxy advisor Glass, Lewis &
Co., said he didn't think it was inappropriate to reward
executives during the drug development process.
    "It may be a once in a lifetime opportunity to lock in huge
gains," said Fried. "I don’t have a problem with them making a
lot of money even though they don’t have a drug yet."
    Investors will get to express their views on the stock sales
this summer at Novavax's annual shareholder meeting, where they
will be asked to approve the company's board of directors and
executive compensation.
    "If investors think the actions were unreasonable, they will
ask what the board's role was in overseeing this disposition of
stock," said Peter Kimball, head of advisory and client services
at ISS Corporate Solutions, which advises companies on corporate
governance. 
    To be sure, last year Novavax awarded more than $85 million
worth of stock options to executives, including $41.1 million to
Erck, that are specifically tied to the vaccine's development
and cannot be exercised until they start vesting in August.
However, this award was contingent on the vaccine entering a
mid-stage clinical trial, not its eventual success, Reuters
reported in July.  urn:newsml:reuters.com:*:nL2N2ET01Q
    
    TRADING PLANS
    Development milestones for drugs can trigger big share price
moves so pharmaceutical executives sometimes adopt a fixed
schedule for stock sales -- known as a 10b5-1 plan -- to avoid
any suggestion of insider trading.
    Novavax executives disclosed in regulatory filings that they
sold some of their shares using such trading plans.
     A Novavax spokeswoman said executives adopted the plans in
the summer, but did not provide the exact dates.
    Moderna and Pfizer disclosed the dates when trading plans
were adopted by executives in their filings. Such disclosure is
not required and is less common across U.S. companies, said Dan
Taylor, a professor at the Wharton School at the University of
Pennsylvania. 
    Out of the approximately $46 million of stock sold, Novavax
chief commercial officer John Trizzino sold about $13 million,
while Novavax's head of research and development, Greg Glenn,
sold about $13.4 million, according to securities filings. The
company's chief legal officer, John Herrmann, sold $10.9
million. 
    Executives at Emergent BioSolutions Inc  EBS.N , Pfizer and
Johnson & Johnson, also recipients of federal funds, sold $24
million, $10 million and $4 million worth of stock,
respectively, according to Accountable.US. Moderna executives
sold $166 million worth, according to Accountable.US.
    Nina DeLorenzo, a spokeswoman for Emergent BioSolutions,
said in a statement that the majority of the transactions were
planned in advance under a 10b5-1 trading plan adopted in
February by the company's executive chairman Fuad El-Hibri. 
    "Our executive team and board of directors are held to the
highest ethical standards and follow strict compliance with
company policies for equity holding, as well as all laws and
regulations governing financial transactions,” according to the
statement.
    Pfizer and Moderna did not respond to requests for comment.

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 (Reporting by Jessica DiNapoli in New York
Editing by Greg Roumeliotis and Carmel Crimmins)
 ((Jessica.DiNapoli@thomsonreuters.com; 646-223-4678;))