Hedge funds flourish on covid misery

As the vaccine race heats up, holders of the right pharma shares are making a killing out of insider trading.

Proletarian writers

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Proletarian writers

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There can be no better illustration of the truly barbaric nature of US imperialism than the way in which the race to find an anti-covid vaccine has instantly morphed into a race to take maximum advantage of the chance to make a killing on the stock exchange.

Whilst countries like China and Cuba are sharing their knowledge of the coronavirus with the world as part of international efforts to combat the pandemic, corporate America can only see new opportunities for making a fast buck.

If a genuine vaccine is actually found in the US, the race will be on to corner the market, slap on a patent and ramp up the price to astronomic levels. Meanwhile, even before that, a killing is already being made by dodgy insider deals on the stock exchange.

As speculation intensifies over which pharmaceutical company might be progressing towards the holy grail, or might be finding favour with the federal government, share prices become volatile, making dizzying ascents and descents. And those who are prescient enough, or bent enough, to be able to forecast these highs and lows are able to buy shares cheap and sell them dear.

None of this gets anyone an inch closer to beating the pandemic, but it does wonders for the bank balances of a tiny minority of bloodsuckers who look at suffering humanity and see only dollar signs.

Picking its way gingerly through a legal minefield, a recent article in the New York Times gives us a flavour of the stunts that are being pulled on Wall Street. (Corporate insiders pocket $1bn in rush for coronavirus vaccine by David Gelles and Jesse Drucker, New York Times, 25 July 2020)

The author’s scope is wide, but one company emerges as the quintessential example of capitalism at its most incestuous, corrupt and parasitical. The story is worth relating.

Vaxart is a small company in San Francisco employing just fifteen people. At the beginning of 2020 its shares were around 35 cents apiece. But then the company started working on a covid vaccine in pill form. As investors scented an opportunity, lured on by clever company PR, its shares began to climb.

Although it’s a tiny outfit, behind Vaxart stood a New York hedge fund called Armistice Capital. In 2019 this hedge fund grabbed the lion’s share of Vaxart’s shares.

“Vaxart’s largest shareholder was a New York hedge fund, Armistice Capital, which last year acquired nearly two-thirds of the company’s shares. Two Armistice executives, including the hedge fund’s founder, Steven Boyd, joined Vaxart’s board of directors. The hedge fund also purchased rights, known as warrants, to buy 21 million more Vaxart shares at some point in the future for as little as 30 cents each.”

So with remarkable prescience, Armistice fixed things so that if the share value rose in the future it would be able to buy at the old price and sell at the new.

The tale continues: “Throughout the spring, Vaxart announced positive preliminary data for its vaccine, along with a partnership with a company that could manufacture it. By late April, with investors sensing the potential for big profits, the company’s shares had reached $3.66 – a tenfold increase from January.

“On 8 June, Vaxart changed the terms of its warrants agreement with Armistice, making it easier for the hedge fund to rapidly acquire the 21 million shares, rather than having to buy and sell in smaller batches.

“One week later, Vaxart announced that its chief executive was stepping down, though he would remain chairman. The new CEO, Mr Floroiu, had previously worked with Mr Boyd, Armistice’s founder, at the hedge fund and the consulting firm McKinsey.

“On 25 June, Vaxart announced that it had signed a letter of intent with another company that might help it mass produce a coronavirus vaccine. Vaxart’s shares nearly doubled that day.

“The next day, Vaxart issued its news release saying it had been selected for Operation Warp Speed. Its shares instantly doubled again, at one point hitting $14, their highest level in years.”

Operation Warp Speed (OWS) was the ludicrous Star Trek name given by the government to its quest for a vaccine. Although it turned out that Vaxart had only a minor role in OWS, the smell of government approval was enough to send its share prices rocketing, giving Armistice the precise circumstances for which it had planned.

“Armistice took advantage of the stock’s exponential increase – at that point up more than 3,600 percent since January. On 26 June, a Friday, and the next Monday, the hedge fund exercised its warrants to buy nearly 21 million Vaxart shares for either 30 cents or $1.10 a share – purchases it would not have been able to make as quickly had its agreement with Vaxart not been modified weeks earlier.

“Armistice then immediately sold the shares at prices from $6.58 to $12.89 a share, according to securities filings. The hedge fund’s profits were immense: more than $197m …

“At the same time, the hedge fund also unloaded some of the Vaxart shares it had previously bought, notching tens of millions of dollars in additional profits.

“By the end of that Monday, 29 June, Armistice had sold almost all of its Vaxart shares.”

Vaxart’s CEO also did well personally. “When he became chief executive in mid-June, Mr Floroiu received stock options that were worth about $4.3m. A month later, those options were worth more than $28m.” As he told an investor conference: “It’s OK to make a profit from covid vaccines, as long as you’re not profiteering.” Quite so.

It is possible that the readiness of the New York Times to dish the dirt quite so freely indicates that Vaxart/Armistice may be in line for scapegoating. But the string of similarly ‘lucky’ share-dealing adventures detailed in the article makes it clear that this case is not exceptional – just exceptionally brazen.