Every Tuesday, Moderna’s top doctor gets about $1 million richer.
As the world awaits results from Moderna’s pivotal Covid-19 vaccine study, Chief Medical Officer Tal Zaks has been selling his existing stock like clockwork every week through pre-scheduled trades — earning him more than $50 million since the dawn of the pandemic, according to disclosures made to the Securities and Exchange Commission.
Zaks is not alone among Moderna executives who have personally profited from the company’s Covid-19 work, and his trades were done through a plan established by the SEC that allows insiders to sell stock legally. But corporate governance experts told STAT that the frequency, timing, and sheer volume of Zaks’ insider sales — more than 1 million shares since February — are uniquely alarming, especially given his pivotal role in Moderna’s ongoing vaccine trial.
“It’s atrocious,” said Rosanna Landis Weaver, a corporate governance expert at the nonprofit watchdog As You Sow. “It is indefensible, and it shows why many investors are concerned about options.”
Since Zaks began selling his shares, Moderna’s stock price has roughly tripled. If the company’s Covid-19 vaccine succeeds and helps the world return to normalcy, the company’s best days — and highest stock price — likely still lay ahead. But Zaks isn’t waiting for the answer. By STAT’s estimate, Zaks is on pace to sell roughly $90 million worth of stock by the end of 2020, regardless of whether the vaccine he’s helping to develop actually works.
“Moderna’s management team and board of directors are aware of the questions that have been raised related to stock sales by members of its executive team,” company spokesperson Ray Jordan said in an email to STAT. The sales were done under SEC-compliant plans, he said, “which require them to commit to a trading plan well in advance of executing any transactions.”
Jordan did not offer an explanation for the frequency of Zaks’s stock sales and didn’t respond to questions about the details of his trading plan and how many more shares he intends to sell.
Zaks made his first pre-planned weekly trade on Feb. 21, three days before Moderna announced that its coronavirus vaccine was ready for human testing. He sold 10,000 shares. For the next 10 weeks, Zaks sold 10,000-share blocks of Moderna stock. By the beginning of May, his ownership stake in the company had been liquidated, netting him $3.4 million.
With no more shares to sell, he then moved to exercising his Moderna stock options. Every Tuesday for the ensuing 23 weeks, as Moderna’s share price rose from $50 to as high as $90, Zaks exercised more than 989,000 stock options in total. He sold all the resulting Moderna shares immediately, netting him an additional $48.9 million.
At the median, Zaks made $1 million per week.
The sales were conducted under an SEC rule called 10b5-1, which allows corporate insiders to buy and sell shares without violating insider trading laws. Leaders of public companies often have most of their wealth tied up in stock. Selling shares under 10b5-1 plans allows them to access cash, and scheduling those trades in advance, when executives don’t have insider information, makes it all legal.
But to Nell Minow, vice chair of the corporate governance watchdog ValueEdge Advisors, Zaks’s weekly stock sales strain credulity. Minow told STAT that in her 20 years of shareholder advocacy, she could not recall an executive at a public company who had sold stock as frequently as Zaks has in 2020.
“When I complain about stock sales by insiders, they always say, ‘Oh, their kids are going to college. They have liquidity concerns.’ Give me a break,” Minow said. “They’ve got plenty of cash, and you can always borrow against your stock holdings if it comes to that…. It’s impossible for me to imagine any legitimate reason for this.”
In August, after months of media scrutiny, Moderna promised that none of its insiders would start new trading plans until the company’s Covid-19 vaccine was ready for review by the Food and Drug Administration or declared a failure. Existing plans, like the one Zaks uses to sell thousands of shares a week, would continue uninterrupted until their undisclosed expiration dates.
To governance experts, Zaks’s insider selling underlines long-standing concerns about how major corporations pay their executives. Stock options — of which Zaks had more than 1.6 million at the end of 2019 — are meant to align executives’ interests with those of shareholders. If the company does well, the stock price goes up, and everyone benefits. But Zaks’s decision to sell nearly 1 million options in 2020 alone undercuts that idea, Weaver said. The same goes for his choice to own zero shares.
His behavior would violate the rules at most major companies. Roughly 96% of firms in the S&P 500 have rules that require their executives to own a minimum amount of stock, according to the financial services company Aon. And Moderna will eventually join them. In 2019, the company adopted a rule that would require Zaks to own stock adding up to three times his annual salary, which was $832,426 last year. The rule doesn’t take effect until 2024.
Zaks is currently not in compliance with Moderna’s stock-ownership rules for executive officers, according to its proxy statement for 2019 filed with the SEC. Three other Moderna’s named executives, including CEO Stéphane Bancel, meet this standard, according to the same proxy statement. Jordan, Moderna’s spokesman, said the company’s ownership guidelines would count 50% of the value of vested but unexercised options, a detail that is not in the company’s SEC filing, and added that Zaks “continues to hold vested stock options worth well in excess of three times his annual salary.” Jordan did not disclose how many options Zaks holds.
Two of Zaks’s former coworkers, speaking to STAT on condition of anonymity, described him as an ethical and professional colleague in the workplace. His pattern of insider selling looks problematic from afar, they said, but neither had any doubts about Zaks’s confidence in Moderna’s vaccine or the company’s underlying science.
Insider selling, even when it’s covered by 10b5-1 plans, has raised alarm since the outset of the coronavirus crisis, which has led to market volatility and inflated the valuations of biotech companies like Moderna. In May, SEC Chairman Jay Clayton advised companies to “practice good corporate hygiene” during the pandemic, telling CNBC that while there may be “idiosyncratic circumstances” that might justify selling shares, “why would you want to even raise the question that you were doing something that was inappropriate?”
Even outside of a pandemic, 10b5-1 stock sales have long alarmed corporate watchdogs. A 2006 study from Stanford University analyzed more than 3,000 planned insider trades and found that executives’ stock sales reliably came just before bad news and right after good, maximizing returns and minimizing losses. A 2012 study from Harvard University looked at two decades of irregularly timed trades — subtracting the ones pegged to the calendar — and found a similarly concerning result. Those transactions beat the market by as much as 25% each year, researchers found, suggesting insiders have a demonstrable edge over outside investors.
Zaks, a physician and cancer expert, joined Moderna from Sanofi in 2015. Moderna went public in late 2018. Throughout 2019, Zaks executed a single planned stock sale for $1.9 million. So far in 2020, he has sold 34 times at an average price of $64.52 per share. If he keeps the same pace, he’ll have sold between $86 million and $94 million worth of stock. Accounting for the cost of exercising options, he would pocket between $65 million and $72 million.
Moderna and its shareholders are waiting on the results of a Covid-19 vaccine clinical trial.