Bloomberg Law
Free Newsletter Sign Up
Bloomberg Law
Free Newsletter Sign Up

Covid Vaccine Makers Are ‘Tempting Targets’ for Investor Suits

July 15, 2021, 9:36 AM

Shareholder lawsuits over the contamination of millions of Covid-19 vaccine doses mark the latest in a shifting landscape for corporate accountability as the private sector treads through challenges wrought by the pandemic.

Emergent Biosolutions Inc. and its leadership face at least five lawsuits from disgruntled investors after shares plummeted following findings that the manufacturer’s staff mixed up ingredients for the Johnson & Johnson and AstraZeneca vaccines. The complaints allege Emergent leaders failed to disclose quality control issues while promising to get vaccines out the door—which artificially inflated stock prices.

The cases spotlight a growing trend of shareholders pursuing litigation amid public crises and game-changing social movements. The Covid-19 pandemic is the most recent minefield for shareholder blowback, with companies like Inovio Pharmaceuticals Inc. being targeted for financial losses stemming from corporate activity allegedly gone wrong.

Some attorneys say the threat of litigation can push public companies to cut down on risky behaviors and ensure a certain level of discipline over their operations.

“There’s naturally something ironic about claiming that the true victim of spoiled vaccines are the investors, but if it works to generally make companies behave more responsibly, that’s a good thing,” Ann Lipton, a professor at Tulane Law who focuses on corporate governance, said.

Companies in the Covid-19 solutions space may be at a heightened risk of shareholder suits given pressure for executives to publicly remark on developing vaccines, treatments, and other innovations while struggling to bring their efforts to market.

Covid-19 treatment and prevention are “so high profile, it’s very likely that companies that claim to be in that business will see a particular boost in share price,” Lipton said. “That makes them very tempting targets for securities lawyers when they overhype their capabilities or cut corners.”

Troubled Facility

Emergent pulled in around $1.5 billion in Covid-19 deals, first from vaccine manufacturing agreements with AstraZeneca and J&J and then through the Trump administration’s Operation Warp Speed vaccine development program, according to the lawsuits. The company’s stocks soon soared, hitting $134 a share in August 2020.

But that price was “artificially inflated,” stockholders alleged in a case filed in the U.S. District Court for the District of Maryland. Emergent “failed to disclose to investors a myriad of manufacturing and quality control issues” that stopped it from “effectively manufacturing the vaccines,” they said.

Media reports revealed that an Emergent facility contaminated up to 15 million J&J vaccine doses, and that the company had been called out by the Food and Drug Administration for poor internal controls, according to the complaint.

The company made a series of “false statements” that opened it to liability, causing it to lose about $4.1 billion in the market value of its outstanding shares, the Lincolnshire Police Pension Fund said in a separate lawsuit. Company executives and board members allegedly sold off $20 million in stock based on nonpublic information about the facility’s problems.

Emergent and its leaders face at least three class actions under the Securities Exchange Act of 1934. In a separate derivative suit brought on behalf of the company, shareholders accuse leadership of breaching fiduciary duty and unjust enrichment. They seek stronger corporate control over manufacturing facilities and financial reporting and a company proposal to strengthen board supervision of operations.

Emergent didn’t immediately respond to a request for comment on the lawsuits.

The FDA July 13 cleared a batch of the main ingredient for J&J’s vaccine made at the problematic Emergent facility, which will allow 10 million doses to be released.

‘On A Roller Coaster’

Drugmakers and others in their orbits have been wary of lawsuits in the pandemic era, and shareholder suits are no exception.

“In general, life sciences companies that experience high profile manufacturing issues run the risk of getting sued. But the pandemic magnifies things,” said Kevin LaCroix, executive vice president of RT ProExec. “Vaccine companies, diagnostic testing companies, or others that may be in a position to have their operations influenced, they’re kind of on a roller coaster.”

In the Covid-19 era, about 30 companies have been sued for “a variety of pandemic-related violations,” LaCroix said. For example, an investor sued diagnostics company Co-Diagnostics Inc. last June over statements that its Covid-19 tests were 100% accurate.

In the Inovio case, a class of shareholders took action against the company after it failed to live up to its promise of having a vaccine by the end of 2020.

Inovio’s case may be a harbinger for other pandemic-related lawsuits. In February a federal judge declined to dismiss the complaint, a move that LaCroix said shows “at least some of these cases will survive.”

Corporate Police

Public companies as a whole face around 200 federal shareholder suits a year, about 10 to 15% of which are against pharmaceutical companies, James Park, a UCLA law professor who focuses on corporate law and securities regulation, said.

Typically the allegation is that the company told investors a promising drug will be approved and generate revenue while knowing “significant problems would endanger the product,” such as it might not work or get through the regulatory process, he said.

While “securities law isn’t meant to generally police corporate activity,” Park said, it’s “something that has been happening more and more for the last four or five years.”

For example, shareholders sued BP over the Deepwater Horizon oil spill, leading to a $175 million class-action securities settlement in 2016.

“There is a very robust argument that the securities laws in general not only inform investors about the nature of the companies in which they invest, but act to constrain corporate behavior,” Lipton said.

Given that corporate leaders could face litigation for misleading or incomplete disclosures, discovering a problem like a drug’s side effects forces them to “clean it up, admit it, or risk liability by lying about it,” she said.

To contact the reporter on this story: Ian Lopez in Washington at

To contact the editors responsible for this story: Fawn Johnson at; Alexis Kramer at