Emergent BioSolutions has approval to resume manufacturing vaccines, but its lawsuit issues haven’t gone away as easily.
Tasos Katopodis/Getty Images
Emergent BioSolutions has approval to resume manufacturing vaccines, but its lawsuit issues haven’t gone away as easily. The most recent class-action lawsuit was filed a month ago. Like the others, the allegation is that the company’s senior executives and board members sold more than $20 million in inflated stock despite knowing – but not publicly disclosing – that there were serious manufacturing problems at the company’s Bayside, Maryland manufacturing facility.
Emergent’s woes are significant, but not insurmountable, Laurie Mims, partner at Keker, Van Nest & Peters, told BioSpace. Mims, a corporate defense attorney, is not involved in any of the Emergent cases.
In an interview, Mims explained that the purported wrong-doing addressed in the most recent lawsuit is insider trading.
“The allegation is that insiders sold their stock when they knew there were big problems with their plant and they hadn’t yet disclosed that information to the public,” Mims said. “Therefore, the stock was artificially inflated.”
“Security lawsuits are not atypical” for biopharma companies, she said. “Any time bad news is disclosed, such as when a clinical trial fails or manufacturing issues result in FDA actions, the stock routinely falls and it’s likely that investors will sue the company.”
The Emergent case “is more difficult for the company because of its close ties to the government and the ongoing Congressional investigation.” Government investigations provide a way for plaintiffs and their lawyers to get additional information that may be helpful for private class action lawsuits. So far, the SEC has not filed suit, she noted.
Initial findings from the U.S. House of Representatives’ Select Subcommittee on the Coronavirus Crisis, and the Committee on Oversight and Reform, released in May, revealed that:
- In May 2020, the U.S. government signed a contract with Emergent, paying it $27 million per month to hold its vaccine manufacturing facility on standby, so vaccines could be produced quickly once they received Emergency Use Authorization by the FDA.
- Emergent failed to address systemic failures that led to the destruction of millions of vaccine doses, despite specific recommendations from Janssen Pharmaceutical’s virtual audit in June 2020.
- Emergent had privately admitted to serious manufacturing problems to the FDA in April 2021, as well as to inadequately trained personnel.
- The official who awarded the contract, Dr. Robert Kadlec, had worked as a consultant for Emergent, receiving at least $360,000 in consulting feed before awarding the company three contracts totaling nearly $3 billion.
- Company executives reaped a windfall as vaccines were destroyed. Emergent’s senior executives were awarded millions in raises and bonuses despite the failure of the Maryland facility. The Executive VP for manufacturing received a “special bonus award” of $100,000 in recognition of his “exceptional performance in 2020.”
Currently, law firms are looking for lead plaintiffs for class-action lawsuits.
“If the cases are resolved short of trial, which they almost always are, all of the plaintiffs in the class would receive some settlement, though it will likely be a small proportion of the claimed losses,” Mims said.
As part of a settlement of the shareholder derivative action, Emergent is likely to undergo various reforms, she suggested. Remedies may include “having more independent members of the board, more training for board members, stronger internal compliance programs and possibly more frequent external compliance audits.”
The latest lawsuit was filed July 7 by Schubert Jonckheer & Kolbe in the U.S. District Court for the District of Maryland. The firm is investigating claims relating to possible false statements to investors and insider trading by officers and directors. The Schubert firm suggests the stock sales may have been a breach of fiduciary duty.
Emergent signed deals with Johnson & Johnson and Astra Zeneca to manufacture COVID-19 vaccines at the company’s Baltimore manufacturing facility. Schubert Jonckheer & Kolbe LLP, citing several other class action lawsuits, alleged that Emergent “aggressively touted these deals to investors while withholding critical information about its then-ongoing history of inadequate quality control at the facility, including results of a devastating FDA inspection in April 2020.”
These events occurred one year before the widespread reports of contaminated vaccines that culminated in an order by the U.S. government that Emergent hand over vaccine production at that facility to Johnson & Johnson.
Despite all this, soon after the filing, analysts considered the stock a “buy,” according to NASDAQ, despite falling from a high of nearly $135 August 2020 to below $60 per share in July and showing a slight gain in early August. Chardan Capital, as of July 30, maintained its “buy” recommendation, while The Street considers it a “hold,” and some others advising reducing holdings in the company.
“Vaccine manufacturing is very complicated,” and FDA actions that require biopharma companies to halt production and make changes to ensure compliance with good manufacturing practices aren’t uncommon. “Other companies have done it,” Mims pointed out.
“It’s too early to tell whether the company can come back, but class-action lawsuits are unlikely to end the business,” she said. “Shareholder lawsuits are typical. They’re just part of the ecosystem.”
