Aeon Thana Sinsap (AEONTS) reported a 46-per-cent plunge in net profit for the first quarter ended May 31 despite revenue increasing by 3 per cent.
Aeon Thana Sinsap (AEONTS) reported a 46-per-cent plunge in net profit for the first quarter ended May 31 despite revenue increasing by 3 per cent.
The company had a net profit of Bt530 million on revenue of Bt5.65 billion.
Aeon was the first non-bank organisation to announce its financial results after being impacted by the Covid-19 crisis.
The decrease in profit was attributed to higher provision for bad debt and doubtful account, which had increased by 72 per cent to Bt2.39 billion.
Korakot Sawetkruttamat, Kasikorn Securities’ assistant director, said that the performance of Krungthai Card (KTC) would be like AEONT’s, since the two companies were similar to each other.
In the second half of this year, Korakot predicted that the stocks of those credit companies would not recover to their previous level, which will affect profits, especially KTC and Srisawad Corporation that previously charged high interest.
“The performance of credit company stocks will tend to be weak in the next one to three years” he added. “The high coverage ratio of AEONTS reflected that the corporation has prepared itself to deal with the non-performing loan [NPL], which will be heightened in the future. AEONTS’ NPL would rise from the present 3.7 per cent to at most 10 per cent in the worst case”.
However, the stock price of AEONTS on Wednesday (July 8) could return to positive zone, due to its NPL information that would increase investor confidence.
MCOT does not need a rehabilitation plan despite recording a Bt877-million loss in the first quarter, the Ministry of Finance said.
The State Enterprise Policy Office (Sepo) has said that MCOT Pcl is suffering from lack of liquidity, but it is still at a manageable level, a source at the ministry said. MCOT is therefore not on the list of state enterprises that require Sepo’s rehabilitation programme.
“MCOT’s liquidity problem stemmed from the auction of digital TV channels and losing programmes that Chanel 3 used to produce for it, now scrapped due to MCOT’s restructuring of its TV business,” said the source. “Furthermore, several business partners are late in paying advertising fees to MCOT due to the economic impact of Covid-19.
“MCOT’s executives are discussing the problem and should be able to come up with a plan soon, as MCOT’s problem is more manageable than that of Thai Airways International, which has substantial debt on top of lack of liquidity,” added the source.
MCOT reported an Bt870-million loss in the first quarter of 2020, a steep rise from a Bt32-million loss in the same period last year. Revenue in the first quarter was Bt467 million, down 21 per cent year on year. MCOT’s most profitable businesses are radio (29 per cent of revenue), TV (24 per cent), concession contract (22 per cent) and services for digital TV network (19 per cent).
By The Washington Post · Lori Aratani · BUSINESS, TRANSPORTATION, US-GLOBAL-MARKETS, CAREER-WORKPLACE
United Airlines announced Wednesday that despite receiving billions in federal aid, it may furlough nearly 36,000 employees Oct. 1, a scenario one union official called a “gut punch.”
The number represents nearly 40 percent of the Chicago-based airline’s workforce.
Government grants received through the $2 trillion Cares Act require airlines to keep front-line workers on the job through Sept. 30. In addition to receiving $4.9 billion in grants, United signed a letter of intent this week to accept roughly $4.5 billion in loans through the law. But executives said that with demand for air travel unlikely to return in 2020, they have no choice but to warn employees of layoffs.
“The reality is that United simply cannot continue at our current payroll level past October 1 in an environment where travel demand is so depressed,” the airline said in a memo sent to employees. “And involuntary furloughs come as a last resort, after months of companywide cost-cutting and capital-raising.”
Under the Worker Adjustment and Retraining Notification Act, most firms with 100 or more employees must give them 60 days’ notice of mass layoffs or plant closings. What is happening at United will probably be repeated as carriers struggle to survive the worst economic crisis in the industry’s history. Airline executives have already signaled they expect to emerge from the crisis with smaller workforces.
In a message to employees in March, Oscar Munoz, then United’s chief executive, and Scott Kirby, then the airline’s president, said that while taking care of employees would be their top priority, “if the recovery is as slow as we fear, it means our airline and our workforce will have to be smaller than it is today.”
Still, Wednesday’s announcement was a blow to employees.
“The United Airlines projected furlough numbers are a gut punch, but they are also the most honest assessment we’ve seen on the state of the industry,” said Sara Nelson, president of the Association of Flight Attendants-CWA, which represents nearly 50,000 flight attendants at 19 airlines, including United.
United employs roughly 95,000 people worldwide. The number of furloughs could be fewer depending on how many employees accept early retirement, voluntary separation or other programs, executives said. Already, more than 20,000 United employees have taken voluntary unpaid leaves of absence. The airline has also cut other costs, but officials said it is burning through $40 million a day.
Demand for travel has increased slowly but remains far below 2019 levels. In its June forecast, the International Air Transport Association estimated that carriers worldwide would lose $84.3 billion in 2020. Revenue is expected to fall 50 percent, from $838 billion in 2019 to $419 billion this year.
United said even though it has begun to add flights, capacity is expected to be down 75 percent in July compared with the same month last year. Some growth is anticipated in August, but the numbers are still projected to be down 65 percent compared with last August.
The recent spike in coronavirus cases in numerous states, including California, Florida, Texas and Arizona, is further diminishing hopes of a recovery, with many saying demand probably won’t return to normal levels until treatments or a vaccine become widely available. On Wednesday, the number of confirmed infections in the United States surged past 3 million, according to data tracked by The Washington Post, and there have been more than 129,00 deaths.
The AFA and other unions have called on Congress to extend payroll support offered through the Cares Act, warning that layoffs in aviation will ripple through the entire economy. U.S. airlines and cargo carriers directly employ an estimated 750,000 worldwide.
“Should October 1 arrive without extending the [Payroll Support Program] grant job program mass layoffs are inevitable, as airline executives have acknowledged. Hundreds of thousands of workers will lose their jobs and health insurance – not only in aviation, but across our entire economy,” union officials said in a letter last month to Democratic and Republican leaders on Capitol Hill. “Airline industry employment cannot simply be put back together overnight, and mass layoffs will do great damage to the sector, with potentially irrevocable consequences.”
Added Nelson on Wednesday: “Congress must extend the PSP in order to avoid hundreds of thousands of layoffs from an industry that normally drives economic activity for every other sector and supports more than 11 million jobs. Failing to maintain this successful jobs program will have a ripple effect across the economy. Conversely, a clean extension of the program helps prime us for economic recovery.”
Joe DePete, president of the Air Line Pilots Association, International – which represents more than 63,000 pilots at 34 airlines in the United States and Canada said: “The economic impact COVID-19 has had on the airline industry has been profound for the workers who keep our skies safe and our world connected. Unfortunately, in the past few weeks, thousands of pilots and crew members have received furlough notices and, absent congressional action, it is likely that there will be more to come.”
On a phone call with reporters Wednesday, United executives said they were aware of the unions’ push for an extension to the payroll support program, and while they would continue to engage with leaders in Washington, they were not counting on Congress to act.
“We don’t feel like we can count on additional government support,” a United executive on the call said.
At least one lawmaker signaled support for an extension.
“United’s announced furloughs are a canary in the coalmine for the industry,” Sen. Richard Blumenthal, D-Conn., said in a statement. “It’s clear that an extension of the Payroll Support Program is necessary to help airline workers keep their jobs and health insurance in the months ahead. I will continue to push for additional aid that puts workers and consumers first – and keeps airlines accountable.”
Of the 36,000 United employees who could be affected, roughly 15,000 are flight attendants, and 11,000 are customer service or gate agents. About 1,800 catering workers, 1,000 contact center employees, 5,500 technical operations employees and 225 network operations workers also could be affected. Among pilots, 2,250 could be harmed.
“Furloughing employees is corporate triage with a terrible impact on thousands of United families,” said Todd Insler, chairman of the United Master Executive Council of the ALPA. “This is a direct result of the global pandemic which has affected millions around the world and nearly grounded our industry. ALPA is doing everything we can do to support our fellow pilots, and we expect to have final agreement on several voluntary programs which will mitigate these furloughs.”
Earth Tech Environment (ETC), a subsidiary of Better World Green (BWG), will be listed on the Market for Alternative Investment (mai) and launch its initial public offering (IPO) in August.
The funds will be used to construct additional garbage power plants, expecting the government to open additional electric power bidding over 400 megawatts this year.
This move followed the BWG shareholders’ resolution.
Aekkarin Luengviriya, ETC president and chief executive officer, said that the company’s registered capital was Bt1.120 billion, while there are 2.240 billion shares with par value of Bt0.50 per share.
“The company will sell 600 million shares of which 60 million shares, or 10 per cent, have greenshoe option to gain confidence among investors during market volatility,” he said.
He added that to reward the current BWG shareholders and increase the value of BWG shares, the company will allow current BWG shareholders to subscribe to ETC’s 95.8 million newly issued ordinary shares.
“Shareholders who hold 40 BWG shares can subscribe for one new ETC ordinary share,” he added.
Currently, ETC’s main business is the garbage power plant, while the company will recognise revenue from three power plants with production capacity totalling 16.5MW by this year. The company’s electricity charge rate was between Bt5.83 and Bt6.83 per unit.
ETC’s parent company will be responsible for the distribution of refuse-derived fuel, a material for producing electricity, while subsidiaries will be responsible for the construction of power plants.
Meanwhile, ETC’s earnings before interest, tax, depreciation and amortisation (EBITDA) was Bt25 million per megawatt, higher than other types of power plants.
ETC also gained support from the Board of Investment (BOI) for eight years and the company can ask for BOI’s assistance for another five years.
ETC reported revenue of Bt362.39 million in 2019, up from Bt325.24 million in 2018, while the company’s EBITDA was Bt202.90 million, down from Bt224.40 in 2018 due to expenditure incurred in the construction of two additional power plants.
Meanwhile, ETC’s net profit in 2019 was Bt57.55 million, down from Bt66.96 million in 2018.
The company’s revenue and net profit in the first quarter of this year was Bt134.90 million and Bt24.18 million respectively.
Petrochemical firm IRPC said its performance in the second half should improve since its profit margin will rise in line with the increasing price of petroleum and petrochemical products.
Noppadol Pinsupa, director of IRPC, said the company’s refinery should be able to produce 205,000 barrels per day, and its primary profits should be between US$9 and $10 (Bt281 and Bt312) per barrel, rising from $8.7 per barrel last year.
However, he said, this depends on the direction the crude oil takes, adding that the price of crude oil for the rest of this year should hover between $40 and $50 per barrel, versus $60 per barrel last year.
Noppadol added that IRPC should do better than it did in the first quarter, when it was at a deficit of Bt8.91 billion, after the market GIM had increased to $8 or $9 dollar per barrel.
Also, due to several improved factors, its earnings before interest, taxes, depreciation and amortisation (EBITDA) should not contract in the second quarter, like it did by Bt6.44 billion in the first quarter.
In addition, IRPC has launched a five-year (2020 to 2025) strategy called “Strengthen IRPC” in a bid to cope with the Covid-19 fallout. Under this strategy, its EBITDA should reach Bt20 billion in 2025 and Bt30 billion in 2030. The firm’s EBITDA was Bt5.94 billion in 2019, the director added.
IRPC’s new strategy focuses on increasing specialised products as well as the expansion of sales channels. The strategy was relevant to the stock-and-cost management and the total budget spent in each aspect of “Strengthen IRPC” added up to Bt2.18 billion.
Noppadol added that IRPC holds a 50 per cent state in Mytex Polymers, the manufacturers of PP compound plastic. He said this investment will help the corporation expand into the automobile industry at a faster rate.
By The Washington Post · Renae Merle, Taylor Telford · BUSINESS, WORLD, US-GLOBAL-MARKETS Deutsche Bank has agreed to pay $150 million to settle allegations that it maintained weak internal controls, including processing hundreds of transactions for Jeffrey Epstein despite the billionaire’s troubled history.
The penalty announced Tuesday by New York State Department of Financial Services marks the first time regulators have punished a bank for its relationship with Epstein, a convicted sex offender.
Despite knowing Epstein’s “terrible criminal history,” the bank “inexcusably failed to detect or prevent millions of dollars of suspicious transactions,” Linda Lacewell, the superintendent of financial services, said in a statement.
The settlement comes almost exactly a year after Epstein was arrested on accusations he had abused women and girls for decades, and enlisted his victims to recruit others. Prosecutors said Epstein preyed on the financial needs of his victims by promising them career opportunities and educational assistance, and used a convoluted web of shell companies to conceal the trafficking and abuse. He allegedly used private planes, helicopters, boats and cars to transport them to his secluded islands.
Epstein, 66, hanged himself last summer in his cell at the Metropolitan Correctional Center in Manhattan.
Epstein’s longtime confidant Ghislaine Maxwell – daughter of the late media tycoon Robert Maxwell – was arrested July 2 in New Hampshire on charges she recruited and groomed underage girls for abuse by her then-boyfriend. Starting in at least 1994, a grand jury indictment alleges, she “enticed and groomed multiple minor girls to engage in sex acts with Jeffrey Epstein, through a variety of means and methods.”
Deutsche Bank expressed regret for its relationship with Epstein in a statement. “Our reputation is our most valuable asset and we deeply regret our association with Epstein,” said company spokesman, Daniel Hunter.
The German bank’s ties to Epstein began in 2013, years after the billionaire pleaded guilty to two prostitution charges in Florida, according to the consent decree filed by the New York regulator. Deutsche Bank knew about Epstein’s past, classifying him as a “high-risk” client, but also considered the relationship potentially lucrative – $100 million to $300 million in revenue over time.
In 2014, the bank’s anti-financial crime unit grew concerned about Epstein after new reports emerged about his alleged victims. Deutsche Bank executives met with Epstein at his New York home and asked about the veracity of the allegations.
The bank ultimately decided to continue doing business with Epstein but established new safeguards, which were largely ignored, according to the consent decree.
“The Bank’s fundamental failure was that . . .[it] failed to scrutinize the activity in the accounts for the kinds of activity that were obviously implicated by Mr. Epstein’s past,” the consent decree says.
Deutsche Bank processed more than $7 million in settlement payments to Epstein’s alleged co-conspirators, as well as more than $800,000 in suspicious cash withdrawals, the regulator said. But it didn’t inquire or block the transactions with “named co-conspirators” or ask what Epstein was spending $200,000 per year in cash on.
Instead of monitoring his accounts for “all potential crimes and suspicious activities,” one of the bank’s anti-financial crime official, for example, simply searched the Internet to verify that transactions didn’t involve girls younger than 18.
Deutsche Bank should have known Epstein’s transactions were suspicious but suffered from “a series of procedural failures, mistakes, and sloppiness” in how it oversaw his accounts, according to a statement from the New York regulator. The bank didn’t end its relationship with Epstein until 2018, a month after the Miami Herald published damaging details about an Epstein plea deal.
“For years, Mr. Epstein’s criminal, abusive behavior was widely known, yet big institutions continued to excuse that history and lend their credibility or services for financial gain,” New York Gov. Andrew Cuomo said in a statement.
Deutsche Bank said it cooperated with the investigations, spent $1 billion to improve its internal compliance systems, and tripled the size of its anti-financial crime team to 1,500. The state regulator credited the bank for its “exemplary cooperation” with investigators.
“We all have to help ensure that this kind of thing does not happen again,” Christian Sewing, the bank’s chief executive, said in a note to the company’s employees. “It is our duty and our social responsibility to ensure that our banking services are used only for legitimate purposes.”
The $150 million penalty also covered Deutsche Bank’s conduct in two money laundering cases. The New York Financial Services Department said Deutsche failed to properly monitor the activities of two foreign bank clients, Danske Estonia and the Federal Bank of the Middle East, or FBME. The bank ignored red flags in its relationships with the financial institutions, including Danske Estonia, which is at the center of one of the world’s largest money laundering schemes.
Deutsche Bank is also at the center of another high-profile, legal fight.
The U.S. Supreme Court is considering whether the House Financial Services and Intelligence committees can subpoena documents related to President Donald Trump’s finances – many of which are held by Deutsche Bank, the only major lender to do business with him in recent years. The bank remains his biggest creditor, having loaned him more than $2 billion, the New York Times reported.
The share price of packaging and food supply companies skyrocketed by more than 100 per cent because these businesses were left unscathed by the Covid-19 impact.
The shares of Polyplex (Thailand) (PTL), AJ Plast (AJ), Starflex (SFLEX) and R&B Food Supply (RBF) rose by 132 per cent, 170 per cent, 166 per cent, and 283 per cent, respectively.
PTL managing director Amit Prakash said now that the company has started producing polyester plastic beads, it expects sales in Indonesia to rise by up to 16 per cent during the April 1, 2020 to March 31, 2021 period. He added that the production of polyester beads is currently 90 per cent, which should shift to 100 per cent soon.
“PTL has benefited from the pandemic because demand for flexible packaging has risen,” he said.
Meanwhile, SFLEX executives expect the company’s revenue and profits to rise this year, adding that the firm will soon start producing rice bags and sachet to expand its customer base.
“The company’s aims to boost this year’s revenue by 15 to 20 per cent year on year, while it is targeting a 21 to 23 per cent rise in gross profit,” the executives said. “Meanwhile, we aim to raise funds by launching initial public offerings to build a new factory so production can be expanded by another 30 per cent.”
A stock analyst at DBS Vickers Securities said RBF’s revenue in the next two years is expected to increase by approximately 30 per cent per year as the company’s sales continues to rise, and the company has also successfully managed to control costs.
“Projects that will help boost the company’s growth are new breadcrumb factories in Vietnam and Indonesia, the procurement of new machines to boost efficiency and a new factory in Indonesia’s Surabaya.”
Jul 08. 2020Paiboon Nalinthrangkurn, chair of the Federation of Thai Capital Market Organisations (Fetco).
By The Nation
Even though the Stock Exchange of Thailand (SET) Index experienced large negative returns of minus 13 per cent, bank shares have suffered a sharp 34 per cent downfall from early this year.
Paiboon Nalinthrangkurn, chair of the Federation of Thai Capital Market Organisations (Fetco), said that though investors are regaining their confidence, they are still neutral where SET Index is concerned.
If broken down, retail investors remain negative, while brokerage accounts and institutional investors have shifted to neutral from negativity about the market. Only foreign investors are positive.
“It is interesting to see that different investors now have contradictory views compared to the past few months, when almost everyone believed the market would rebound. Since the market has rebounded to a range of 1,300 to 1,400 points, we have witnessed some share selling. However, I personally don’t think the index will rise any higher, unless we have a clearer picture of the economic situation,” Paiboon said.
Most investors are not interested in bank shares even though the price has gone down by 40 per cent, he said, adding that they are more interested in shares in the food and beverage category.
Jeff Suteesopon, mutual fund manager at Bualuang Fund, said the Covid-19 fallout is expected to drive up banks’ non-performing loans (NPLs), while the interest rate is on a decline. These factors are putting banks’ profits under pressure, though they are doing better in terms of lending. Loan growth is expected to be 4 per cent this year, compared to just 2 per cent last year, because businesses require more liquidity.
The central bank’s debt moratorium for businesses has eased the possibility of bad debts, otherwise the banking sector would have been hit hard by bad debts in the second quarter.
Debt repayment has been suspended for a combined Bt6.8 trillion or 37 per cent of total loans. Under the assumption that 40 per cent of loans have to be restructured, then NPLs could rise to 4.5 per cent this year and 5 per cent next year, he said.
On the positive side, however, banks may not need to boost their capital as they have large reserves against risk assets now.
Though no cash is flowing into banks during the debt moratorium period, it is doing so in accounting practice. So, if debtors are unable to pay their debts after the moratorium, then banks will have to write off this supposed revenue.
Bank profits are expected to drop by 45 per cent, or from a combined Bt200 billion in profits last year to Bt120 billion this year. This is largely because banks need to set aside large reserves worth about Bt250 billion, up from Bt160 billion last year.
Return on equity (ROE) is also expected to drop to 5 per cent from 10 per cent.
On the positive side, since bank shares have fallen sharply, the risk of a further downturn is low. Though bank shares may not be attractive in the short term, they are fine for two- to three-year investment, he said.
Worawat Saisuphatphol, an analyst at UBS Securities (Thailand), said bank profits in the second half of this year will be lower than the first half as banks have to boost their already large reserves.
According to UBS studies conducted over the past 10 to 15 years, banks’ shares generally rise during three or four quarters before bad debts peak. This means share prices rise before profits can increase, he added.
Oil and gas conglomerate PTT Plc has conducted a feasibility study on restructuring its electricity generation business to futher boost growth and ensure it keeps pace with global energy trends, chief executive officer Auttapol Rerkpiboon said.
PTT’s electricity business includes electricity generated from conventional sources, such as natural gas or coal, and that generated by what he calls “the new energy” such as renewable energy and also an energy storage system.
He added that Global Power Synergy Plc is still PTT group’s power business flagship.
PTT has also assigned other companies in its group, such as Thai Oil Plc, PTT Global Chemical and IRPC to jointly study the possibility of supporting PTT’s new energy business.
Insiders sold shares as vaccine news hit the market
By The Washington Post · Christopher Rowland, Carolyn Y. Johnson · NATIONAL, BUSINESS, HEALTH, SCIENCE-ENVIRONMENT
As shares of biotech firm Moderna soared in May to record highs on news that its novel coronavirus vaccine showed promise in a clinical trial, the nation’s senior securities regulator was asked on CNBC about news reports that top executives had been selling their stock in the company.
Jay Clayton, chairman of the Securities and Exchange Commission, responded that companies should avoid even the appearance of impropriety. “Why would you want to even raise the question that you were doing something that was inappropriate?” he said.
Notwithstanding Clayton’s statement, there is little public evidence that company leaders slowed their stock selling. Now, corporate governance experts and some lawmakers say the trades could cast a shadow over Moderna, one of the biopharmaceutical industry’s most remarkable stories. The questions come as the 10-year-old company is leading the race in the United States for a coronavirus vaccine – a feat rooted in a government partnership formed years ago that could change the path of a disease afflicting the world.
In total, seven corporate executives and board members as well as a venture capital fund run by Moderna’s board chairman collectively sold almost $101 million following Clayton’s comments. The trades were part of more than $200 million in sales by insiders since Moderna announced Jan. 21 that it was pursuing a vaccine in partnership with the National Institutes of Health. That’s according to an analysis of SEC filings that the national executive compensation research firm Equilar performed at the request of The Washington Post – the first such comprehensive examination of the company’s stock sales this year.
Insiders selling included Moderna Chief Executive Officer Stéphane Bancel, Chief Financial Officer Lorence Kim and Chief Medical Officer Tal Zaks. The trades were preprogrammed, according to the company’s required public disclosure filings, meaning they were made in accordance with a predetermined schedule or triggering event such as a share-price threshold. Moderna said it will not disclose any details of the preprogrammed trading rules for its executives.
On May 21 and 22, the co-founder and chairman of the company, Noubar Afeyan, reported selling $68 million worth of stock held by Flagship Pioneering, the venture capital fund he founded that is Moderna’s largest shareholder. Afeyan did not sell any of his personal stock holdings in Moderna, according to Flagship and public filings. These trades were not preprogrammed, according to the company’s public disclosures.
Moderna’s stock rose by 200 percent from January to June – as company news releases and news reports described early progress in its quest for a vaccine. In May, it was up as high as 300 percent after the release of the results of the clinical trial. The company made a public offering of stock on May 18 at the very peak of its share value.
Federal securities law requires officers, directors and large shareholders of publicly traded companies to report their trades in company stock to the SEC. Companies typically prohibit sales of stock by executives for 180 days after the initial public offering, specialists said.
The very first insider stock sales reported at Moderna occurred infrequently last fall, with the first in September 2019, 10 months after the company went public in a record-setting IPO in December 2018. Bancel began routinely selling shares starting in the fourth quarter of 2019 under his preprogrammed plan. The pace of selling picked up among Moderna’s other executives in 2020, according to the public filings.
“Executive sales are made under preplanned 10b5-1 plans, which are entered into during open trading windows in accordance with the company’s insider trading policy,’ ” said company spokesman Ray Jordan in an email. “As a matter of practice, Moderna does not intend to comment on any alleged or potential litigation or investigation; nor on purchases or sales by individual executives, investors or groups.”
Moderna did not make company officials available for interviews.
Bancel has a “long-term commitment to Moderna and to the development of the . . . technologies being developed by the company,” which he joined as its second employee nine years ago, Jordan added. “He has liquidated a small portion of his holdings each month through a planned 10b5-1 selling program. . . . Substantially all of his family’s assets remain invested in Moderna.”
The company has nearly 150 employees who operate under 10b5-1 plans, he added.
Flagship spokesman Gregory Kelley said in an email that the fund’s stock sales, which were not preprogrammed, “were made in accordance with [Moderna’s] policies and during an open trading window as determined by [Moderna’s] general counsel.”
Experts in securities law say the rules for preprogrammed stock trading plans are ambiguous enough that executives could gain unfair advantages, particularly when it comes to their control over the timing of release of market-moving data, and deserve scrutiny. The sales at Moderna in May raise potential concerns, the experts said.
“All of the activity in the days leading up to the announcement and the offering, and the days following the announcement, are ripe fodder for SEC investigation,” said Jacob Frenkel, a former top SEC investigator now in private practice as chair of government investigations and securities enforcement at the law firm Dickinson Wright. Frenkel said a likely subject of scrutiny would be what policies Moderna has for “blackouts” on executive trades during major news events and whether such policies were followed. The company said blackout dates are included in its insider trading policies, but the dates are not public.
The SEC said it would not comment. The agency typically does not publicly disclose whether it is investigating a company.
Nell Minow, an expert in corporate governance and vice chair at ValueEdge Advisors, said it is inadvisable for Moderna’s corporate insiders to be selling stock, particularly in the midst of major news about its leading product.
“It can send the market a signal that is opposite to all of the positive things that they are trying to communicate,” she said. “By definition, it is very concerning.
“Whether it is preprogrammed or not, it’s hard to believe that anybody who thought the company was going to be tremendously successful with this vaccine would be selling,” Minow said.
Harvey Pitt, a former SEC chairman who now heads Kalorama Partners, told CNN in May that the timing of the trades was “highly problematic” and that the SEC should review communications inside the company to find out “what was going on in people’s minds before all these transactions.”
Bloomberg in May estimated Bancel’s stake in the company as worth more than $2.2 billion, when measured at Moderna’s peak stock price. He has sold about $17 million worth of shares since Jan. 21, according to the Equilar analysis. Flagship’s 11 percent share of the company was worth $3.2 billion, Bloomberg said, and its sales of Moderna stock represented about 2 percent of that value. Given the large value of those holdings, the relatively small value of stock sales does not raise a major concern, said Jesse Fried, a Harvard Law School professor and expert on executive pay and insider trading.
“You don’t want to be exploiting a crisis to make money, but the truth is that any company that is going to sell the vaccine is going to be making money on the crisis,” Fried said, “and that’s great, because we want to incentivize people to wake up early in the morning and stay in their labs late at night coming up with something that will help us.”
But the Moderna sales are triggering political debate.
“Moderna executives used this opportunity to capitalize on the covid-19 crisis, and to add insult to injury, the value of their stocks increased based on the taxpayer-funded investment in the development of the vaccine,” Sen. Chris Van Hollen (D-Md) said in an email. Van Hollen is the sponsor of legislation that would require the SEC to revisit its rules for preprogrammed insider trades.
– – –
The enormous success of Moderna shows how pharmaceutical companies, often with help from the government, can achieve fantastic results even without delivering a product to market.
Its speedy response to the covid-19 pandemic was enabled by its vaccine technology based on messenger RNA, which carries genetic codes instructing human cells to produce what is known as a “spike protein” molecule. The spike protein, which was invented jointly by scientists at the National Institutes of Health and the University of Texas at Austin, triggers the immune system to create antibodies against the coronavirus. The technology allowed Moderna in March to become the first company to test a vaccine in a human, just 66 days after the coronavirus genetic code was published.
On May 18, Moderna announced partial clinical results from 45 human test subjects suggesting the vaccine was safe and triggered an immune response. It said it measured neutralizing antibodies in eight test subjects, which was seen as early evidence that its vaccine may work. The news release did not contain detailed data from the patients in the trial, and crucial test results on some subjects were not available at the time the release was issued.
The news drove the share price to a record peak of $80. On that day, the chief financial officer, Kim, who is leaving the company in a previously planned departure, sold $19.5 million in shares in preprogrammed trades, according to public filings. In all since Jan. 21, Kim sold $54 million in shares, according to the Equilar analysis. As of June 2, he still held $70 million worth of shares.
Minutes after the end of trading on May 18, Moderna announced it would issue $1.3 billion worth of new stock at $76 per share. The company said cash from the offering would be plowed into coronavirus vaccine manufacturing, including hiring 150 new production staff, as well as other company priorities. But as the stock dropped from its peak in subsequent days and weeks, plaintiff lawyers quickly announced that they would prepare class-action lawsuits, suggesting that the company’s news release overhyped the data.
Moderna said it “worked cooperatively” with NIH on the content of its news release and expects NIH to make detailed data from the Phase 1 trial public at a later date. NIH confirmed that it reviewed the data in the news release and said it was accurate.
The chain of events in the midst of the pandemic has generated negative attention for a company that is competing with much larger corporations – including Pfizer, Merck, Johnson & Johnson, and AstraZeneca – to develop the first coronavirus vaccine.
Unlike those companies, Moderna has no approved products and zero revenue stream from sales, according to the company’s disclosure reports. Fifteen drugs in its pipeline, ranging from virus vaccines to heart treatments and a cancer vaccine, are still in early or mid-stage development.
The company is built on the notion that cells inside the body can produce drugs and vaccines, if they are directed to do it by delivering the messenger RNA directly into the cells. Investors are wagering that Moderna’s technology will work for other medicines down the road, including more viral targets and a cancer vaccine, say drug industry specialists.
“If it works for this one virus, you can bet that it works for many, many others . . . and that kind of franchise will be incredibly valuable,” said Andrew W. Lo, the Charles E. and Susan T. Harris professor of finance at the MIT Sloan School of Management, who does not have holdings in Moderna but who has personal investments and financial ties to other biotechnology companies and biotech venture capital funds.
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The Cambridge, Mass., company, founded in 2010, has attracted more than $5 billion in private-sector investment, according to company figures, including partnerships with Merck and AstraZeneca, multiple rounds of venture capital financing, and public stock offerings worth about $2.5 billion. The company has $483 million in government commitments to develop a coronavirus vaccine but said it has not tapped the money yet. Over its history, Moderna has received about $77 million in funding for various projects, the company said.
Moderna’s rapid response gave it a leg up in the markets. Older vaccines relied on deactivated or weakened virus, grown in chicken eggs, in a slow process. The new breed of RNA vaccines like Moderna’s can be designed on computers based on the genetic code of the virus and manufactured quickly. Pfizer also is working to develop an RNA-based coronavirus vaccine and began a Phase 1 trial in May.
Still, the delivery system needs to be proved safe and effective in large numbers of people.
“There is not a single drug approved with this technology. This is really the bet we are making, that all this is going to work,” said Otello Stampacchia, the founder and managing director of Omega Funds, a life sciences venture capital firm in Boston.
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The foundation of the Moderna vaccine was laid years before a mysterious respiratory illness was reported in Wuhan, China. In 2012, another deadly coronavirus, Middle East respiratory syndrome, jumped from camels into humans. Barney Graham, the deputy director of the federal Vaccine Research Center, which is part of NIH, said in an interview that he wanted to use cutting-edge technologies that examined the precise shape of a virus – down to individual atoms – to design a vaccine against the threat.
But Graham and academic collaborators had to solve a problem. The target the scientists were interested in – the distinctive spiky protein on the virus surface – was unstable and tended to shape-shift.
Nianshuang Wang, a postdoctoral researcher then at Dartmouth, spent months trying to identify genetic mutations that would stabilize the shape-shifting spike protein, eventually finding a solution that worked in multiple coronaviruses. The paper, published in 2017, took persistence to publish – it was rejected five times.
“People generally at that time said, ‘Coronavirus is not a big concern,’ ” Wang said. “They didn’t get the idea that this can be a great technology in the future, to prevent another coronavirus pandemic.”
Graham was interested in using new technologies to speed up MERS vaccine development and in October 2017 began working with Moderna. The company’s technology could deliver messenger RNA to normal human cells that instructs them to churn out the spike protein with the crucial mutations. The presence of the spike protein in the body triggers the creation of antibodies against the virus. But with MERS sparking only small, occasional outbreaks, it wasn’t until January 2020 that the approach drew the world’s attention.
Even before anyone knew for certain what was causing a mysterious pneumonia in Wuhan, Graham and Bancel began talking about working together. Graham also called Wang’s boss, Jason McLellan, now at the University of Texas at Austin, to see if they could design a stabilized spike protein that could be used in a vaccine.
Researchers in Graham’s and McLellan’s labs designed the protein through computer modeling in a single weekend. Moderna scientists helped finalize the genetic sequence for the vaccine platform they had spent years developing. Within days, the company began producing the coronavirus vaccine in a factory south of Boston. The NIH and UT Austin teams filed a joint patent application on the mutated spike protein. Moderna has a “nonexclusive” license to the protein, which means that NIH can license it to other companies, NIH said.
In record time – 66 days after the genome of a never-before-seen virus was posted on an online server – the first doses were injected into human beings through a clinical trial supported by more than $700,000 in federal funding. Moderna announced the beginning of a Phase 2 trial in May and said its Phase 3 trial in 30,000 subjects is scheduled to start in July.
Bancel has said it may be known whether the vaccine works by Thanksgiving – a view echoed in an interview with Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases.
McLellan said that his laboratory has created a second version of the spike protein that is even more potent and that it has already signed an agreement with the Bill & Melinda Gates Foundation to ensure global access, which will enable companies with different technologies the ability to test and further develop potential covid-19 vaccines.
Two months after the first human subject was dosed with the Moderna vaccine, the public got its first glimpse of its potential effectiveness.
Before stock markets opened on May 18, Moderna issued a news release with positive but preliminary results of its Phase 1 safety trial. Eight trial subjects who received the vaccine had virus-fighting antibodies in their blood at levels similar or greater than people who have recovered from covid-19. Another 37 had promising immune responses, but tests were not available to see whether they had neutralizing antibodies.
As soon as markets opened on May 18, Moderna’s stock jumped. By the close of trading, it had risen more than 20 percent. But Moderna was criticized for releasing limited data by Fauci in an interview published by Stat on June 1.
“I didn’t like that. What we would have preferred to do, quite frankly, is to wait until we had the data from the entire Phase 1 – which I hear is quite similar to the data that they showed – and publish it in a reputable journal and show all the data,” he told Stat. “But the company, when they looked at the data, as all companies do, they said, wow, this is exciting. Let’s put out a news release.”
Two days later, Bancel offered an explanation for the company’s actions. A concern about leaks drove the decision to issue early information, he said in a June 3 video hosted by the Wall Street investment banking firm Jefferies that was publicly posted online.
Moderna had received preliminary data from NIH, which sponsored the Phase 1 trial, on May 14, Bancel said. The next day, Moncef Slaoui, a Moderna board member who had just left the company to go to the White House and assume leadership of President Trump’s Operation Warp Speed initiative to develop vaccines, expressed confidence in a Rose Garden news conference that a vaccine could be ready by the end of 2020. Slaoui said from the lectern that he had just seen positive data from a vaccine manufacturer. Slaoui did not identify the trial or manufacturer.
Moderna determined that too many people knew about the data, Bancel said, and that the company needed to publicly release limited results to level the playing field for all investors.
“I have no idea if tomorrow it’s going to be tweeted by somebody, it’s going to be mentioned at a conference, on TV,” he said. “That’s a risk our legal team said you cannot take.”