Last summer, investors flocked to biotechnology company Emergent BioSolutions. Jim Cramer, the host of CNBC’s “Mad Money,” is in a hurry about Maryland’s business, which has won a favorable government contract to produce the Covid-19 vaccine for Johnson & Johnson and AstraZeneca. did.
“I love this story,” Cramer said in August last year, praising the company’s stock price hike. “Why bet on individual vaccine makers when you can bet on weapons merchants working with almost everyone?”
Some investors are in rebellion this summer.
Emergent needs to dispose of 75 million doses of vaccine due to potential contamination, and production at the Baltimore plant is trying to convince regulators that it has fixed a serious quality problem. It has been suspended for more than 2 months.
As the federal government works with Emergent to resume production, some investors are seeking refunds and reviewing the company’s corporate governance.
With the halved share price, Emergent faced several derivative suits accusing it of securities fraud, and the pension fund last Tuesday with some executives and board members (including a few former federal officials). Complained that it engaged in insider trading by unloading more shares over $ 20 million in the last 15 months.
Illinois-based Lincolnshire police said that while executives and board members “have important non-public information that has artificially soared prices,” “profiting from fraud and being important. Unfairly rich due to misuse of inside information. ” The pension fund insisted.
An emergent spokesman refused to discuss in detail, saying that all proceedings were “no merit.”
“Our executives strictly follow the law and our own internal policies to prevent improper securities trading,” said spokesman Matt Hartwig.
The proceedings add to the issue of politically linked companies, which is also the subject of expanded parliamentary investigations into the issue of vaccine production and favorable deals with the government.
Emergent’s fate soared last year when the government tapped it as the only domestic manufacturer of vaccines developed by Johnson & Johnson and AstraZeneca.The company advertised itself in Paid posts In national media including the New York Times. In an internal presentation earlier this year, executives cited it as one of the justifications for a successful “corporate reputation campaign.” Record bonusAccording to a document released as part of a parliamentary investigation.
The boastful statement of company officials to investors is now at the heart of the proceedings. In a phone call with investors last July, CEO Robert Kramer highlighted a $ 628 million deal the company recently signed with the federal government under Operation Warp Speed. This is an effort by the Trump administration to quickly track Covid-19 vaccines and treatments.
“Emergent is ready to respond independently to this call,” Kramer noted of the company’s “proven manufacturing capacity.”
For the next few months, management continued to assure investors that the company’s vaccination work was going well.During financial results briefing In February, an analyst asked if Emergent was experiencing “manufacturing challenges.” The company responded “on schedule,” and along with other vaccine makers, “literally, we were on the verge of having multiple vaccine candidates available hundreds of millions of times,” Kramer replied.
A few months ago, millions of AstraZeneca doses were discarded due to contamination or suspected contamination. Times reported in April.. And in March, the company learned that a batch of Johnson & Johnson vaccines was contaminated.After a federal inspector A serious quality control flaw was found On the site, Emergent Production stop In April at the request of the Food and Drug Administration.
The agency is After being allowed Approximately 40 million factory-manufactured Johnson & Johnson will be distributed for use, but there are warnings that regulators cannot guarantee that Emergency is in good manufacturing practice.But in The latest batch allowed to be released on Friday, Johnson & Johnson maintains nearly 40 million doses, less than the 100 million doses required by the federal contract.
As a rosy picture painted by emergent executives before pollution was publicly known Reported by the Times on March 31st — It was a deception, the derivative suit claims.
A series of audits conducted by customers, federal authorities, and Emergent’s own quality evaluators in the summer of 2020 flagged serious quality issues, including improper steps to prevent pollution.
The police pension fund lawsuit claims that instead of notifying investors of the problem, management and board members have enriched themselves by selling shares in the company at high prices. According to a document filed with the Securities and Exchange Commission, Emergent’s founder and chairman, Fuad El-Hibri, sold $ 42 million worth of shares in 2020.
suit It also focuses on recent stock sales, including more than $ 10 million in January and February transactions by Kramer and a total of about $ 10.5 million in transactions by half a dozen directors since April 2020. .. Dr. Luis Sullivan, a secretary of health and welfare services under former President George HW Bush and a member of Emergent’s board of directors in 2006, sold about $ 3 million in shares in September.
I couldn’t ask Dr. Sullivan for comment. Emergent spokesman Hartwig reiterated that no improper transactions have occurred and the proceedings have no merit.
In total, Emergent faces at least four derivative suits, three of which seek class action status. Plaintiffs include both individual investors and institutional investors such as retirement funds and pension funds.
Such proceedings are not uncommon, and if shareholders win, they often regain only a dollar penny. But James Park, a law professor specializing in securities proceedings at the University of California, Los Angeles, said it could have a deterrent effect on businesses.
“The idea is to try to convey the seriousness of these types of violations by imposing financial penalties,” he said.
In addition to monetary damages, the Police Pension Fund seeks to force internal emergency policy reforms to improve board oversight and prevent repeated recent problems.
The proceedings can also be a headache for emergent executives who may have to take oath testimony and submit documents. 2016 shareholder proceedings forced Emergent to disclose email Lobbying details About previous federal contracts.
Despite the trouble, Emergent recently said it expects investors to make record returns this year. However, the company’s share price has been around $ 60, about half of what CNBC’s Cramer defended last summer.
In May, Emergent reappeared on the show.
“It’s a disaster,” Kramer told viewers. “And I’m a really, really nice person.”
Biotech companies failing vaccines face investor rebellion
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