Concerns about biopharma executives profiting from stock sales aligned with releases of promising COVID-19 vaccine results could result in Congress requiring a cooling-off period for executives’ 10b5-1 plans that provide a safe harbor to insider trading.
Testifying in a Nov. 17 hearing before the Senate Banking Committee, SEC Chair Jay Clayton suggested a mandatory period of four to six months between implementing or materially changing a 10b5-1 plan and the first allowed stock sale. He added that the cooling-off period should at least cover a full quarter.
SEC Rule 10b5-1 plans schedule when executives can sell their stock. For the most part, as long as a trade is scheduled, the timing of it in conjunction with what would otherwise be considered insider information is allowed.
While some companies require a waiting period as part of “good corporate hygiene,” the SEC currently doesn’t. But it does stipulate that the 10b5-1 must be “entered into in good faith and not as part of a plan or scheme to evade” the ban against insider trading.
“We’ve seen a number of incidences recently, which at the very least, I think, undermine public perception that people are not using insider information,” Sen. Chris Van Hollen (D-Md.) said at the hearing.
Most recently, he said, the Pfizer CEO did a stock sale on the same day the New York company announced its breakthrough on a COVID-19 vaccine. Van Hollen noted the sale was scheduled in August when the CEO changed his 10b5-1 plan.
“We also saw a similar situation with Moderna [Inc.], where after announcing their progress towards a COVID-19 vaccine, their stock price increased and then certain Moderna executives changed their 10b5-1 plans, and as a result, made an additional $4.8 million in profit,” Van Hollen said.
Clayton declined to discuss specific company actions, but he said he agreed that tighter guardrails are needed for the 10b5-1 plans.
Van Hollen and Sen. Deb Fischer (R-Neb.) have introduced a bill that would require the SEC to implement a rule calling for a mandatory waiting period for the plans. Van Hollen said the House already passed a similar rule, and even though time is running out for the 116th Congress, he is working to get the legislation passed in the Senate yet this year.
With only a few weeks left in this congressional session, the Senate has a lot on its plate. Besides having to come up with a spending plan the House will sign off on before a continuing resolution expires Dec. 11, the Senate has a stack of bills to consider that the House already passed.
That stack got taller Nov. 17 when the House passed several bipartisan health care-related bills by voice vote:
- H.R. 5668, the MODERN Labeling Act, would allow the FDA to require generic drug companies to update labeling to reflect new information and indications when the reference drug is no longer on the market.
- H.R. 4712, the Fairness in Orphan Drug Exclusivity Act, would close a loophole in the Orphan Drug Act by requiring manufacturers seeking orphan drug designations under the rarely used cost-recovery pathway to demonstrate the absence of any reasonable expectation that they can recoup the costs they incur in developing and making the drugs available in the U.S. for the specified disease or condition. The FDA and the manufacturer would have to take into account the sales of all of the manufacturer’s drugs developed under the same orphan drug designation.
- H.R. 4499, the NIMHD Research Endowment Revitalization Act, would authorize the NIH’s National Institute on Minority Health and Health Disparities to fund research on minority health disparities through endowments at current or former centers of excellence.
- H.R. 2117, the Food Allergy Safety, Treatment, Education and Research Act, would require the CDC to expand the collection of information related to the prevalence of food allergies for specific allergens. It also would amend the Federal Food, Drug and Cosmetic Act to include sesame as a major allergen and allow the FDA, through regulation, to add other food ingredients as major allergens based on the prevalence and severity of allergic reactions to the food ingredient. Additionally, it would require the FDA to include data on food-allergy treatments in its reports on patient-experience data.
The House also passed several bipartisan bills that would provide resources for medical treatments for opioid addiction and curb the diversion of controlled substances. For instance, H.R. 3878, the Block, Report, And Suspend Shipments Act, would create additional requirements for drug manufacturers and distributors who discover a suspicious order for controlled substances.