The stock price of government contractor Emergent BioSolutions has fallen sharply since the disclosure at the end of March that production problems at the firm’s plant in Baltimore had ruined 15 million doses of Johnson & Johnson’s coronavirus vaccine. Since then, AstraZeneca moved production of its own vaccine out of the facility, and Emergent temporarily halted work there altogether.
Those developments came after Emergent’s stock price had tumbled on Feb. 19, following the company’s published financial results. Emergent stock has fallen since mid-February to about $62 a share from $125 a share, or 51%.
But the decline has had less of an impact than it might have on the personal finances of Emergent’s chief executive, Robert Kramer, who sold more than $10 million worth of his stock in the company in January and early February, securities filings show. Based on the market price, the stocks that Kramer sold would now fetch about $5.5 million.
The transactions were Kramer’s first substantive sales of Emergent stock since April 2016, according to a review of securities filings by The Washington Post.
Those 2016 sales by Kramer, along with sales by other Emergent executives about the same time, were the subject of a lawsuit brought by investors who alleged that executives offloaded stocks after making misleading claims about the scale of an upcoming order from the government for an anthrax vaccine. When the order turned out to be smaller than analysts anticipated, the share price fell. Emergent denied the allegations, but the parties later agreed to a settlement in which Emergent paid the investors $6.5 million.
Kramer made his recent sales by exercising stock options that Emergent had awarded him as part of his compensation package in past years. Those options allowed him to buy the stocks for about $2.5 million; he then sold them at market price. Kramer’s remaining stake in Emergent is worth about $10.1 million, according to securities filings, and he has almost 60,000 stock options that he may begin exercising next year.
Kramer’s sales were made as part of a trading plan that he adopted on Nov. 13, according to securities filings. Such plans, which establish in advance when stocks are to be bought and sold, are intended to protect company insiders from suggestions that they traded on the basis of confidential information that would influence the stock price, which is unlawful.
Citing internal logs, The New York Times reported this month that one batch of AstraZeneca’s coronavirus vaccine that was being prepared at Emergent’s plant was discarded in October 2020 because of suspected contamination, and that a quantity of Johnson & Johnson vaccine was discarded at some point in November after an error by workers involving a gas line.
Months earlier, in April 2020, a Food and Drug Administration inspector discovered violations at the Baltimore site, including inadequate training and a failure to follow testing procedures, The Post recently reported.
In July 2020, a company that had hired Emergent to make an experimental ricin vaccine filed a confidential arbitration demand for $19 million in damages, saying Emergent had disclosed after study participants had already received doses that it had supplied drugs that were outside of specification, The Post also reported. Emergent has denied liability for the damages. The company that hired Emergent disclosed the arbitration demand in its securities filings.
Kramer did not respond to an email seeking comment.
Emergent spokeswoman Nina DeLorenzo did not directly respond to questions from The Post about whether Kramer was aware of problems in Emergent’s coronavirus vaccine production or information from upcoming financial results when he adopted his trading plan.
“All of Mr. Kramer’s sales were previously scheduled under 10b5-1 trading plans,” DeLorenzo said, referring to the Securities and Exchange Commission rule on trading by insiders. “Mr. Kramer, our executive team, and our board of directors are held to the highest ethical standards and follow strict compliance with all laws and regulations governing financial transactions. Any insinuation of wrongdoing is without evidence or merit,” DeLorenzo said.
Investors sued Emergent, Kramer and other executives in federal court in Maryland last week, alleging that the firm artificially inflated its stock price by boasting of its ability to make coronavirus vaccines and by not disclosing problems at the Baltimore site, which is known as Bayview.
At least three other law firms announced this month that they were looking into the company’s handling of the information about production problems.
Kramer, 64, has led Emergent as chief executive since April 2019 and serves as the company’s president and as a member of its board of directors. He was previously the firm’s chief operating officer and, before that, its chief financial officer. Kramer joined Emergent in 1999, the year after the firm, then named BioPort, bought a state-run laboratory in Lansing, Mich., and took over its contract to supply anthrax vaccine to the government.
Since 2012, the first year that his full pay package was publicly reported by Emergent, Kramer has received compensation totaling $20.1 million, according to the company’s securities filings. Most of that has been awarded to him in the form of Emergent stock and stock options, which have grown in value as Emergent’s share price has risen. Kramer received a 51% increase to his total compensation in 2020, the company disclosed this month.
Unlike several of his fellow senior Emergent executives and directors, who have sold company stock more frequently, Kramer has rarely sold holdings in the company in recent years, a review of securities filings shows. For almost five years before his 2021 stock sales, Kramer disposed of comparatively small amounts of stock – about $161,000 worth every 12 months – apparently to cover taxes triggered when he received stock awards, according to the filings. Such transactions are common and have their own classification code in securities filings to distinguish them from ordinary sales.
The last time Kramer made substantive sales of Emergent stock, in the spring of 2016, involved the transactions that were scrutinized as part of the lawsuit against the firm. The suit was filed in July of that year by a Connecticut-based investor named William Sponn, who sued Emergent, Kramer and three other senior Emergent executives in a federal court in Greenbelt, Md.
Sponn was soon joined by a pair of pension funds for police officers and firefighters in Florida that also owned Emergent stock. In their suit, the group said the company made overly positive statements about a possible government contract for several months, culminating in a May 5, 2016, announcement that it had secured a government contract for “significantly increased deliveries” of anthrax vaccine. Emergent’s share price increased by 15% in the weeks after that company announcement.
On June 22, the company disclosed that the contract actually entailed a significant decrease in deliveries in the short term, and the company’s share price subsequently fell by 20%.
The investors noted in their complaint that the four senior executives had sold Emergent stock totaling more than $14.5 million between March and the disappointing news in June that dragged down the share price. Kramer, Emergent’s chief financial officer at the time, sold 87,146 shares for $3.2 million in multiple transactions during the first six days of April 2016, securities filings show. The investors accused Kramer and his fellow executives of participating in a “fraudulent scheme” against ordinary shareholders, which Emergent and the executives denied.
The investors said Daniel Abdun-Nabi, Emergent’s chief executive at the time, tried to boost the share price by saying in a May 5, 2016, conference call with Wall Street analysts that the anthrax vaccine contract would be “one big, beautiful package.”
Emergent denied that assertion, saying that Abdun-Nabi’s statement was merely “puffery” and that the company had warned that the government’s demand for anthrax vaccine could change. Emergent asked U.S. District Judge Roger Titus to dismiss the lawsuit.
Titus denied Emergent’s motion, saying at a hearing that Abdun-Nabi’s remark “created a false belief in the minds of the market and the plaintiffs” and that the investors’ allegations were sufficient to proceed, according to a transcript filed in court.
Titus said at the July 2017 hearing that the investors’ allegation of deliberate wrongdoing was “bolstered by the insider trading that took place,” adding that “to see these sales take place is disturbing.”
When asked by an attorney for Emergent to clarify how Abdun-Nabi’s remark had figured in his decision, Titus said, “I think May 5th is where this case goes from puffery to fraud,” according to the transcript.
Attorneys for Emergent emphasized that Kramer and other executives had made their sales under a predetermined trading plan, as Kramer did for the transactions this year. But the investors said in response that plans were adopted by Kramer and another executive within the period that they were saying Emergent made misleading statements about the anthrax vaccine order, a point that Titus noted in court.
Titus granted the investors class-action status, opening the door for other investors who had bought Emergent stock during the disputed period to make their own claims for compensation. Emergent appealed that decision at the U.S. Court of Appeals for the 4th Circuit, which declined to hear the matter.
In October 2018, Emergent and the investors settled the case, agreeing that Emergent would pay $6.5 million. The agreement emphasized that Emergent and its executives continued to deny any wrongdoing and that both sides had agreed to settle to save on judicial resources and litigation expenses.
In the years since the lawsuit, Emergent’s stock price has risen on the back of steadily increasing revenue that has been fueled by contracts with the federal government. Emergent has acquired new products, including a smallpox vaccine for which it signed a supply deal with the Strategic National Stockpile worth up to $2.8 billion in September 2019. The company reported total revenue of $1.56 billion in 2020, a 41% increase over 2019.
The Post reported last year that the company had benefited as government health officials overseeing the stockpile prioritized defenses against biological and chemical terrorist attacks over preparations for a national pandemic, which many experts considered the more pressing threat. The Post reported that Robert Kadlec, the preparedness chief at the Department of Health and Human Services under President Donald Trump, had been paid as a consultant by Emergent and formed a start-up with the company’s founder, Fuad El-Hibri, before joining Trump’s administration.
Kadlec did not mention either role in a questionnaire about his career that he submitted to the Senate as it considered his nomination. Kadlec and the firm said his past roles had no impact on the contracts with the government.
Emergent also has contracts worth up to $195 million with the State Department and the Defense Department to supply injectors containing treatments for exposure to chemical weapons. The Post reported last year that Emergent’s injector program suffered production problems and that the company had recalled tens of thousands of devices from foreign customers. Emergent said that a flaw in a small minority of devices had been discovered by the company’s “rigorous quality processes” and that no injectors sold to U.S. authorities were affected.
Emergent’s rise continued last year when the company on June 1 announced a $628 million contract with the government’s Operation Warp Speed, which helped fund the rapid development of coronavirus vaccines. Emergent signed additional deals worth hundreds of millions of dollars with Johnson & Johnson and AstraZeneca to make their vaccines at the Baltimore plant. The company’s shares reached a record closing price of almost $135 on Aug. 13, before slowly falling and climbing again to reach more than $125 by Feb. 12 – its highest closing price in 2021.
Kramer made all of his 2021 sales during the four weeks before that February high point, an analysis of the transactions shows. All of the sales involved Kramer promptly selling stock that he obtained by exercising stock options awarded by Emergent as compensation in past years. Under this system, company executives are given the right to buy a defined number of Emergent shares at a predetermined price before a specific expiration date.
On Jan. 15, Kramer exercised his right to buy 19,026 Emergent shares at an average of $25.62 per share, according to a securities filing, then sold all 19,026 the same day for an average of $106 per share, netting him $1.5 million. On Jan. 20 and Jan. 21, Kramer exercised his right to buy 24,132 Emergent shares at $26.45 per share and sold them all for a little over $110 per share, netting him $2 million. Then, on Feb. 8, Kramer exercised his right to buy 45,397 Emergent shares at an average of $30.79 per share and sold them all for $120.03 per share, netting him $4.1 million.
In all, the transactions appear to have brought Kramer gains of about $7.6 million before taxes and other possible costs and fees that are not detailed in public filings.
The stock options that Kramer exercised on Jan. 15 were due to expire on March 10, meaning that he had to purchase the stocks by that date. The options that he exercised later that month and in February were not due to expire until dates falling between March 2022 and February 2024. In general, recipients of stock options may also choose to exercise the options and hold the stock rather than sell it.
On Feb. 19, Emergent’s stock price dropped by almost 12%. The firm published its annual report that day and had issued headline results the day before. Some Wall Street analysts said the firm’s revenue – and projected revenue for the first quarter of 2021 – was lower than they had anticipated, according to reports.
Emergent’s share price slumped to $92.91 when markets closed on March 31, a few hours before news of the coronavirus vaccine contamination at Emergent’s Baltimore plant. On April 1, the next day of trading, Emergent’s share price fell by more than 13%. On April 19, when Emergent announced that it was temporarily shuttering the Baltimore facility while the FDA continued to investigate, the price fell by an additional 12.6%.
The FDA on Wednesday issued a report on its inspection of the Bayview plant, stating that the firm had failed to adequately investigate the incident involving contamination of coronavirus vaccine. The report also cited unsanitary conditions at the facility, said waste material was not decontaminated and noted that inspectors had found peeling paint in sensitive manufacturing areas.
Kramer defended Emergent in an opinion article for The Baltimore Sun this month in which he paid tribute to people who had made personal sacrifices to produce the vaccines that promise to bring an end to the coronavirus pandemic.
“That includes our Baltimore-area workforce at Emergent, to whom I will be forever indebted,” he wrote.