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Investor sues Emergent BioSolutions for alleged fraud, seeks class action

Emergent BioSolutions is headquartered in Gaithersburg. (The Daily Record/File Photo)

Emergent BioSolutions is headquartered in Gaithersburg. (The Daily Record/File Photo)

Emergent BioSolutions Inc.’s ruination of 15 million doses of COVID-19 vaccine at its Baltimore plant was not as unexpected as the Gaithersburg-based company would have the public believe, an investor has alleged in a potential class-action lawsuit accusing the business of having committed securities fraud.

Alan I. Roth claims Emergent knew the federal government was concerned with the company’s Baltimore drug manufacturing facility as early as April 2020 yet Emergent executives publicly and unreservedly touted for a full year the $135 million deal it had signed with Johnson & Johnson that month to make its vaccine candidate.

Those “materially false and misleading statements” drew investors and drove up the stock price until March 31, 2021, when The New York Times reported on the accidental contamination of up to 15 million doses, stated Roth’s complaint in U.S. District Court in Greenbelt. Operations at the facility were suspended, resulting in the halting of another 24 million doses, the complaint added.

Emergent’s stock, which had reached more than $134 per share on Aug. 13, 2020, fell to $67.87 per share on April 19, 2021, according to the complaint alleging violations of the federal Securities Exchange Act.

Roth’s attorneys are asking the district court to certify the lawsuit as a class action under which anyone who invested in Emergent between April 24, 2020 – the day after the contract with Johnson & Johnson was announced — and April 16, 2021, could join as a plaintiff. In addition to Emergent, the named defendants are the company’s president, chief financial officer and head of contract development and manufacturing.

“During the class period, defendants materially misled the investing public, thereby inflating the price of Emergent common stock, by publicly issuing false and misleading statements and failing to disclose material facts necessary to make defendants’ statements not false and misleading,” the attorneys wrote in the complaint.

“The declines in the price of Emergent stock after the truth came to light were a direct result of the nature and extent of defendants’ fraud finally being revealed to investors and the market,” added the attorneys with Tydings & Rosenberg LLP in Baltimore and Kessler Topaz Meltzer & Check LLP in Radnor, Pennsylvania. “The timing and magnitude of Emergent’s common stock price declines negate any inference that the loss suffered by plaintiff and the other class members was caused by changed market conditions, macroeconomic or industry factors, or factors unrelated to defendants’ fraudulent conduct.”

Neither Emergent nor the company’s attorney immediately responded Wednesday to a request for comment on the allegations.

The company, represented by Howard M. Shapiro, has not yet filed a response to the complaint in federal court. Shapiro is with WilmerHale in Washington.

According to the complaint, Emergent was told in April 2020 that a U.S. Food and Drug Administration inspection of the Baltimore facility revealed “quality control shortcomings,” including a failure to ensure electronic data “was protected from deletion or manipulation” and to “follow proper testing and lab procedures.” The inspection also noted “carelessness in the handling of rejected materials,” the complaint stated.

After signing the deal with Johnson & Johnson, Emergent President Robert G. Kramer touted the Baltimore facility’s “unique capabilities … to prepare for production of commercial volumes to meet customer demand,” the complaint added.

The self-adulation continued after Emergent signed a similar vaccine manufacturing deal with AstraZeneca. In the ensuing months, Kramer said Emergent was “’uniquely prepared to answer the call for (the) COVID-19 pandemic’ because of its ‘proven manufacturing capabilities in place,’” the complaint added.

Syed T. Husain, Emergent’s head of contract development and manufacturing, said the company “stands ready alongside leading innovators…to help meet the substantial demand for the vaccine – anchored on our foundational expertise in development and manufacturing and propelled by our commitment to our mission – to protect and enhance life,” the complaint stated.

Richard S. Lindahl, the company’s chief financial officer, touted the company’s “history … of high-quality manufacturing (and) delivering on complex problems,” the complaint added.

But then The New York Times report came out, prompting the Biden administration to put Johnson & Johnson in charge of Emergent’s Baltimore facility and bar it from producing the AstraZeneca vaccine. On April 19, Emergent issued a statement that, at FDA’s request, the company agreed to not initiate the manufacturing of any new material and to quarantine existing material at its Baltimore facility.

Roth, the investor, filed suit on May 14.

The company issued a statement June 11 that it is “actively addressing issues identified by the FDA at its (Baltimore) facility and plans to resume manufacturing of the Johnson & Johnson vaccine drug substance after Emergent, Johnson & Johnson, and FDA are confident that the steps taken have remedied shortcomings.”

The lawsuit is docketed at the U.S. District Court as Alan I. Roth v. Emergent BioSolutions Inc. et al., No. 8:21-cv-01189-PX.

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