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1/ A Thread On Perverse Incentives I posted yesterday about the slick move by $MRNA raising money on the back of their vaccine progress announcement. Incentives are everything, so I worried openly about the perverse incentives it highlighted. Well...
2/ Let’s look at a simple story of these perverse incentives at play. Imagine you are a biotech CEO and are developing a vaccine. It’s not going well and you are running out of cash. More money might help, right? “Wow, Moderna played it well,” you muse. So what do you do?
3/ You issue an overly-optimistic, non-peer reviewed release on progress, of course. You need cash to continue working for the greater good, so it feels morally sound. Now you sit and watch as your share price soars. You go on @CNBC and @business for your victory tour.
4/ At market close, you announce a share offering. Naturally, this will be at your, now much higher, share price. “We need the money to save the entire world,” you tell the markets. You might even be inclined to sell some of your stock at this new share price. You deserve it.
5/ You might even tell your buddy on the WH task-force that he should probably divest his shares, as it seems like a real conflict (it wasn’t at the lower share price). You sit in your chair and marvel at your CEO superpower - a strong balance sheet and some $ in your pocket!
6/ So now we have a juiced balance sheet, a rich executive, and a public that is no closer to a cure. “Modern capitalism is bloody brilliant,” you might say, “I think I’ll go play 18.”

My Notes:

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Sahil Bloom

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