Record profits warranted record bonuses. That was the recommendation in January by executives at the biotech firm Emergent BioSolutions. The board of directors agreed, signing off on nearly $8 million in cash and stock awards for five company leaders.
The bonuses arrived this spring even as Congress was investigating the company’s production of Covid-19 vaccines in Baltimore, where manufacturing mistakes have rendered 75 million doses unusable and forced a two-month-long shutdown of operations.
Emergent has nonetheless enjoyed the best financial year in its two-decade history, thanks largely to the government’s largess and decision to sidestep the usual contracting rules, interviews and previously undisclosed documents show.
Without seeking competitive bids, federal officials in May 2020 not only committed to reserve production space at the troubled Baltimore plant, but also booked two Emergent facilities nearby to bottle and package vaccines and coronavirus drugs. Regulators have criticized those sites for quality shortcomings in recent years, according to previously unreported inspections, including one just this April when health investigators found that a factory was not taking adequate steps to prevent contamination.
The two additional facilities have seen little use, while the company has collected tens of millions of dollars in fees for keeping production lines largely on standby — with “minimal costs” to the company, Emergent’s chief financial officer said to investors last summer.
The lucrative agreement with Emergent reflects the early chaotic days of the pandemic when the Trump administration was engaged in what one government official called “panic buying” with little outside scrutiny.
Emergent was in a good position to benefit. A longtime federal contractor based in Gaithersburg, Md., the company had effectively cornered the market for federal biodefense contracts, building a successful business over the past two decades atop its sales of anthrax vaccines to the nation’s emergency medical stockpile, The New York Times reported in March.
Even though it had never won regulatory approval to mass-produce anything at its main Baltimore plant, the politically connected company was tasked with making two Covid-19 vaccines there.
The Times previously disclosed contamination problems with that vaccine production, but the new documents and interviews show the government also enlisted the two other Emergent facilities despite a record of quality concerns. Taken together, payments for the three plants helped propel the company to its banner year.
Emergent and the Department of Health and Human Services told The Times that the generous deal was meant to compensate Emergent for giving up other work at the three plants. The government’s cost “was based on the comparable reservation fees that commercial parties were willing to pay if Emergent had contracted with them,” the company said in a statement. “Suggestions that Emergent improperly inflated prices are not accurate.”
But a review of the company’s filings with the Securities and Exchange Commission shows that its entire contract manufacturing business, which includes the three Maryland factories and others elsewhere, had never brought in anything close to the amount the federal government paid in 2020. Those payments exceeded the revenue the company had earned from all of its contract manufacturing in the previous three years combined.
The 2020 agreement with the government, which was among the documents recently made public by congressional investigators, promised Emergent $542 million to reserve the three plants for periods ranging from three to 20 months. Until last week, the suspended factory in Baltimore’s Bayview section had failed to deliver a single usable vaccine dose for distribution in the United States, and then only with a special warning from the Food and Drug Administration. In addition, the production lines at the two other sites — in the Camden section of Baltimore and in Rockville, Md. — have mostly sat idle.
A memo from June last year suggests that the government paid to reserve substantially more capacity at the Camden plant than Emergent had used the previous year for its commercial clients. Carlo de Notaristefani, the Trump and Biden administrations’ top manufacturing expert for the pandemic response, wrote that the Camden plant had bottled about three million vials of pharmaceuticals in 2019. The government reserved enough space to bottle about 4.3 million vials on an annual basis, more than a 40 percent increase in business.
A half-dozen industry executives and consultants said the terms of Emergent’s deal would be highly unusual among private companies. Typically, a customer pays part of the manufacturing cost up front and the rest when the job is done, they said. But in Emergent’s case, the government agreed to pay the full estimated cost of manufacturing even if none took place.
As some other companies vied for similar bottling and packaging work in a competitive bidding process, the federal health officials skirted regular contracting rules and appended the new business to an existing deal with Emergent made eight years earlier, documents show. While not the norm, such amendments are sometimes used to expedite contracts.
Under the agreement, the Trump administration agreed to set aside $97 million to reserve two production lines at the Camden plant that Mr. de Notaristefani soon after characterized as out of date and capable of handling only small volumes of Covid-19 drugs. The two lines, booked through the end of this year, have been used only “sparingly,” according to a senior health department official who spoke on the condition of anonymity to discuss what the agency called sensitive contracting issues.
Health department officials declined to specify how many vials Emergent had bottled for the government, saying only that it had performed some of that work on Covid-19 treatments developed by Humanigen and Regeneron Pharmaceuticals.
Another $16 million reserved a small bottling line for five months at the Rockville plant. The line has never been used, apparently because vaccine developers have preferred partners that can handle bigger volumes, according to two federal officials.
In addition, the government committed $78 million for Emergent to build a new production line in Rockville and nearly $10 million to reserve it for the last three months of this year, when it is expected to be completed.
A cornerstone of Operation Warp Speed, the Trump administration’s Covid-19 initiative, was to pay for large-scale manufacturing of promising vaccines or therapeutics, even if they might fail in clinical trials. The government went beyond those terms with its Emergent deal, however, agreeing to pay the company regardless of whether it produced anything.
Two senior health department officials, speaking on the condition of anonymity, said the deal was necessary to prepare for unexpected developments throughout the pandemic. At least one other company was also paid for backup manufacturing capacity that turned out to be unnecessary, they said.
After awarding Emergent the no-bid contract, the Trump administration reverted to traditional contracting rules and sought competitive proposals for additional bottling and packaging, known in the industry as fill-finish work, the documents show. Ology Bioservices, based in Alachua, Fla., agreed to provide essentially the same services as Emergent’s Camden and Rockville plants for three-quarters to nearly one-third of the cost, according to a calculation based on the contracts.
Under an agreement reached in August, Ology would charge the government fees equating to $6.83 per vial. By comparison, Emergent’s existing lines would cost it between $9.03 and $18.40 a vial.
A health department spokeswoman said Ology was cheaper in part because it can bottle more than 100,000 vials in a single batch, as much as five times what Emergent can handle. That “lowers the per vial price by spreading the fixed costs over more vials,” she said in an email.
Even after bringing on Ology, the government has continued its agreement with Emergent, at the higher cost, to ensure “additional capacity is available if or when needed to fill vaccines or therapeutics,” she said. At the time of the contract, former and current federal officials said, the government wanted to secure as much manufacturing power as possible before commercial ventures snapped it up.
Over the years, Emergent has grown by getting the government to fund expansions of its manufacturing sites and amass reserves of its products.
In November 2019, the company announced a plan to double its revenue, in part by expanding its contract manufacturing business. A senior vice president, Syed Husain, outlined a “game plan” that included “cross-selling additional services” to existing customers, including the federal government. Six months later, Emergent struck the deal that broadened its existing government contract to include work at the Camden and Rockville sites.
Dr. Robert Kadlec, a former Trump administration official who oversaw the agency that awarded Covid-19 contracts, had previously worked as a consultant for Emergent. Dr. Kadlec has said that he did not negotiate the Emergent deal but did approve it. Emergent said it negotiated the agreement with career government officials.
In the case of Camden, the government stood by the payments despite concerns raised by Mr. de Notaristefani, its manufacturing expert.
After visiting the Camden plant last year, he wrote that its production lines were “obsolete” and relied too heavily on manual labor instead of automated systems, heightening the risk of contamination. If the government turned to the plant, he wrote, a new line, then under construction, “should be used exclusively.”
The two senior health department officials said Mr. de Notaristefani’s concerns were noted but did not warrant changing the contract. “Folks can walk through the site and say, ‘Oh, wow, this equipment was state of the art 20 years ago,’” one of them said. “But I can also walk through many sites for many biopharmaceutical companies out there and say exactly the same thing.”
Nor were officials unduly concerned by F.D.A. inspection reports that cited quality control problems, which have also plagued Emergent’s Baltimore vaccine-making factory. While the fill-finish process draws far less notice than the production of vaccines and therapeutics, it is highly sophisticated and tightly regulated because violations of manufacturing standards pose a risk of harming the public.
The regulatory reports, obtained by The Times, detail a series of failings at the Camden plant over the past seven years, the most serious of which were identified in 2018. The manufacturing for one pharmaceutical product was “not within a state of control,” inspectors found, noting a recurring issue with broken vials. They wrote that the facility was “not maintained in a good state of repair,” and that its crowded setup increased the risk of mixing up materials.
A follow-up inspection in 2019 found Emergent had corrected those issues. But this April, investigators returned to the factory and noted similar problems, including cracked vials and employees who were not following procedures meant to prevent contamination.
Regulators had observed similar issues at the Rockville plant in 2019, criticizing Emergent for failing to properly control contamination there, too. Employees who discovered particulates or defects in vials discarded them but did not try to identify the underlying causes, the inspector noted, and on two occasions, hair was found on equipment.
“Your firm has not implemented any investigations or corrective actions for the low-level molds recoveries which continue to be found within the manufacturing facility,” the inspector wrote, repeating almost verbatim a finding from the previous year’s inspection of the Camden site.
One of the health department officials said that none of the issues was “so dramatic that it changed our assessment” that the facilities were “fit for purpose and in a state of compliance.” Matt Hartwig, a spokesman for Emergent, said the company “takes all FDA observations seriously and works expeditiously to address them.”
In interviews with The Times, two former employees who helped enforce quality control at the Rockville plant said that Emergent managers regularly played down deviations from manufacturing standards.
One of them, Matthew Witmer, was a quality investigator at Rockville from June last year to January.
“They were sugarcoating their deviations,” he said. “They would even go so far as to say, ‘We know that this is one of the root causes, but we’re not focusing on that.’”
In the end, Mr. Witmer said, the plant was trying to “mitigate impacts and make it look like the issue wasn’t as bad as it was” so it could take “the minimum required corrective actions.”
Another former quality engineer, who spoke on the condition of anonymity for fear of repercussions from Emergent, said his superiors told him it was “better to disclose less detail than more” in written reports about problems so as not to raise suspicions among F.D.A. inspectors.
Mr. Hartwig said he could not comment on the allegations because they were being raised by former employees who had not reported them at the time or were now “re-evaluating earlier situations with the benefit of hindsight.”
Quality control failures have had momentous consequences at Emergent’s Bayview plant. Behind the scenes, concerns mounted last year as a series of confidential audits identified serious shortcomings, The Times previously reported. Problems broke into public view in March after workers accidentally contaminated a batch of Johnson & Johnson’s vaccine with a key ingredient in AstraZeneca’s, prompting a federal crackdown.
Officials ordered the plant to pause production while they inspected it, stripped Emergent of its responsibility to produce the AstraZeneca vaccine and instructed Johnson & Johnson to assert direct control over the manufacturing of its vaccine at the site.
On Friday, the F.D.A. decided that the equivalent of 60 million doses of Johnson & Johnson’s vaccine produced by Emergent could not be used because of possible contamination. That brought the number of Johnson & Johnson doses ruined by Emergent’s poor manufacturing practices to 75 million.
Separately, the agency has allowed about 25 million Johnson & Johnson doses to be distributed — including 15 million cleared on Tuesday — but with a warning that regulators could not guarantee that Emergent had adhered to manufacturing standards. The equivalent of more than 100 million additional doses of Johnson & Johnson and AstraZeneca produced at the plant are being held as regulators review records and tests to determine if they are safe.
A full-blown inspection to ensure the factory has corrected a pattern of lapses is still in progress. A decision on whether it can reopen is not expected until later this month.
Even with the setbacks, Emergent has projected another year of record revenues, in large part because of its Covid-19 manufacturing contracts. The company recently told investors that revenue from its contract manufacturing business would probably be between $50 million and $200 million less than previously projected, but that the shortfall was likely to be made up next year.
Sheryl Gay Stolberg contributed reporting.