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Emergent BioSolutions Faces Investor Revolt Over Botched Vaccines

Last summer, investors flocked to the biotech company Emergent BioSolutions. The host of CNBC’s “Mad Money,” Jim Cramer, gushed about the Maryland business, which had secured a lucrative government contract to manufacture Covid-19 vaccines for Johnson & Johnson and AstraZeneca.

“I love this story,” Mr. Cramer said last August, hailing the company’s soaring stock price. “Why bet on the individual vaccine makers when you can bet on the arms dealer that’s working with just about everybody?”

This summer, some investors are in revolt.

Emergent has had to throw out 75 million vaccine doses because of potential contamination, and production at its Baltimore factory has been halted for more than two months as the company tries to convince regulators that it has fixed serious quality problems.

As the federal government works with Emergent in an effort to restart production, some investors are asking for their money back and seeking an overhaul of the company’s corporate governance.

With its stock price cut in half, Emergent faces several shareholder lawsuits accusing it of securities fraud, and a pension fund filed a complaint last Tuesday claiming that some executives and board members — including several former federal officials — had engaged in insider trading by unloading more than $20 million worth of stock over the past 15 months.

The executives and board members sold the stock “while in possession of material, nonpublic information that artificially inflated the price” and “profited from their misconduct and were unjustly enriched through their exploitation of material and adverse inside information,” the Illinois-based Lincolnshire Police Pension Fund asserted.

An Emergent spokesman said all of the lawsuits were “without merit” and declined to discuss them in detail.

“Our executives strictly follow the law and our own internal policies to prevent any improper securities trading,” said the spokesman, Matt Hartwig.

The litigation adds to the troubles of the politically connected company, which is also the target of a widening congressional investigation into its vaccine production problems and the favorable deals it has secured with the government.

Emergent’s fortunes soared last year when the government tapped it to be the sole domestic manufacturer of the vaccines developed by Johnson & Johnson and AstraZeneca. The company promoted itself with paid posts in national media outlets, including The New York Times. In an internal company presentation earlier this year, executives cited a successful “corporate reputation campaign” as one of the accomplishments justifying record bonuses, according to documents released as part of the congressional investigation.

Company officials’ boastful statements to investors have now become grist for the lawsuits. During a call with investors last July, the chief executive, Robert Kramer, highlighted the $628 million deal the company had recently struck with the federal government under Operation Warp Speed, the Trump administration’s effort to fast-track Covid-19 vaccines and treatments.

Pool photo by Stefani Reynolds

“Emergent is uniquely prepared to answer the call,” Mr. Kramer said, pointing to the company’s “proven manufacturing capabilities.”

In the ensuing months, executives continued to assure investors that the company’s vaccine work was on track. During an earnings call in February, one analyst asked whether Emergent was experiencing “manufacturing challenges.” The company was “right on schedule,” Mr. Kramer responded, and with other vaccine manufacturers was “on the verge of literally being able to make available hundreds of millions of doses of multiple vaccine candidates.”

Months earlier, millions of AstraZeneca doses had been discarded because of contamination or suspected contamination, The Times reported in April. And in March, the company learned that a batch of the Johnson & Johnson vaccine had been contaminated. After federal inspectors found serious quality-control deficiencies at the site, Emergent halted production in April at the request of the Food and Drug Administration.

The agency has since allowed about 40 million Johnson & Johnson doses manufactured at the factory to be distributed for use — but with a warning that regulators couldn’t guarantee that Emergent had followed good manufacturing practices. Even with the latest batch cleared for release on Friday, Johnson & Johnson remains nearly 40 million doses short of the 100 million doses called for in its federal contract.

The rosy picture painted by Emergent executives before the contamination was publicly known — as reported by The Times on March 31 — was a deception, the shareholder suits assert.

A series of audits conducted during the summer of 2020 by customers, federal officials and Emergent’s own quality evaluators flagged serious quality problems, including inadequate procedures to prevent contamination.

Rather than inform investors of the problems, executives and board members enriched themselves by selling company stock while the price remained high, the police pension fund lawsuit asserts. Emergent’s founder and chairman, Fuad El-Hibri, sold shares worth $42 million during 2020, according to documents filed with the Securities and Exchange Commission.

The suit also highlights some more recent stock sales — including trades in January and February by Mr. Kramer that were worth more than $10 million, as well as trades worth a total of about $10.5 million by a half-dozen board members since April 2020. Among them were sales of about $3 million in stock in September by Dr. Louis Sullivan, who served as secretary of health and human services under former President George H.W. Bush and joined Emergent’s board in 2006.

Dr. Sullivan could not be reached for comment. Mr. Hartwig, the Emergent spokesman, reiterated that no improper trading occurred and that the litigation was without merit.

In all, Emergent is facing at least four shareholder lawsuits, including three that are seeking class-action status. The plaintiffs include both individuals and institutional investors, such as retirement and pension funds.

Such lawsuits are not uncommon, and if shareholders win, they often recover just pennies on the dollar. But James Park, a law professor specializing in securities litigation at the University of California, Los Angeles, said they could have a deterrent effect on companies.

“The idea is that you’re going to try to convey the seriousness of these types of violations by imposing financial penalties,” he said.

In addition to money damages, the police pension fund is looking to force reforms to internal Emergent policies to improve board oversight and ensure that recent problems aren’t repeated.

The litigation could also create headaches for Emergent executives, who may have to give sworn testimony and turn over documents. A shareholder suit in 2016 forced Emergent to disclose emails detailing its lobbying efforts on a previous federal contract.

Despite its troubles, Emergent recently told investors it expected record revenues this year. The company’s stock price, however, has been hovering around $60 — about half of what it was when CNBC’s Mr. Cramer championed the company last summer.

In May, Emergent came up again on the show.

“That’s a disaster,” Mr. Cramer told his viewers, “and I’m being really, really nice.”

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