This seems like another story of the greed of corporate executives, at least at first glance. On Monday, Pfizer (NYSE:PFE) and BioNTech (NASDAQ:BNTX) announced exciting news. Their coronavirus vaccine candidate BNT162b2 achieved efficacy of at least 90% — a lot better than expected. This revelation was so good that it sparked a major stock-market rally.
Then came more news: Pfizer CEO Albert Bourla sold some of his shares in the company on the same day of the big announcement about BNT162b2. Should you be outraged? Or are objections to the timing of Bourla’s stock sale much ado about nothing?
The full story
First of all, it’s true that Pfizer’s CEO sold shares of the pharmaceutical company on Nov. 9, the same day that Pfizer and BioNTech announced the great interim efficacy results for BNT162b2. To be specific, Albert Bourla sold 132,508 shares at $41.94 per share.
It’s also understandable why some might think it’s fishy that the head of a big drugmaker pocketed more than $5.5 million on a day when the pharma stock jumped as much as 15% on a major announcement. The timing could easily appear to be suspicious.
However, there’s no need for any conspiracy theories in this case. Why? Because Bourla’s stock sale was scheduled nearly three months in advance.
The transaction for Bourla to sell those shares of Pfizer was put into effect on Aug. 19, 2020. That was well before anyone at Pfizer (or anywhere else, for that matter) knew how the interim results for BNT162b2 would turn out. Actually, Bourla stated in an interview that he wasn’t told what the results were until the afternoon of Sunday, Nov. 8.
A common practice
Bourla used a Rule 10b5-1 trading plan to schedule his sale of Pfizer shares. The U.S. Securities and Exchange Commission (SEC) established Rule 10b5-1 trading plans in 2000 to give company insiders a way to buy or sell a predetermined number of shares at a predetermined time. The reasoning behind setting up this kind of trading plan was actually to allow insiders to complete stock transactions without the appearance of insider trading.
It’s merely a coincidence that this particular sale of shares by Bourla happened to fall on the same day as the big story about Pfizer’s COVID-19 vaccine candidate results. The independent data monitoring board for the late-stage study of BNT162b2 controlled the timing of when the interim analysis would be performed, and when the results would be shared with Pfizer.
Many corporate executives use Rule 10b5-1 trading plans. For example, Moderna CEO Stephane Bancel has completed multiple stock transactions this year that were scheduled well in advance. It’s a common practice that isn’t limited to one sector.
Don’t follow the leader
Clearly, any outrage over Bourla’s stock sale is much ado about nothing. However, the faux controversy does raise a good question for investors: With Pfizer’s CEO selling shares, should you sell the stock too?
You should first know that Bourla still owns close to $3 million worth of Pfizer shares. He certainly hasn’t completely bailed out.
More importantly, the momentum for Pfizer is probably just beginning. The company should have another major announcement next week about safety data for BNT162b2. That announcement could set the stage for Pfizer and BioNTech filing with the Food and Drug Administration for emergency use authorization (EUA) for their COVID-19 vaccine. When the partners secure EUA for BNT162b2, they stand to receive $1.95 billion from the U.S. government to supply 100 million doses of the vaccine.
Albert Bourla’s sale of Pfizer shares was totally on the up and up. But this is a great example of a case where you shouldn’t follow the leader.