Emergent BioSolutions ruined millions of doses of Covid-19 vaccines. Now its $600 million deal is canceled.
WASHINGTON — The federal government has canceled its contract with a troubled Covid-19 vaccine manufacturer that ruined millions of doses and had to halt production for months after regulators raised serious quality concerns.
The decision marks a stark reversal of fortune for the politically connected contractor, Maryland-based Emergent BioSolutions, and an abandonment by the government of a deal that was supposed to be a centerpiece of Operation Warp Speed.
Early in the pandemic, the government decided to bank on the company to be the sole domestic manufacturer of the Johnson & Johnson and AstraZeneca vaccines. But this March, testing found that a batch of the Johnson & Johnson vaccine had been contaminated, and Emergent agreed to pause manufacturing after an inspection uncovered a host of problems at its facility in Baltimore’s Bayview area.
The termination of the contract, disclosed on Thursday by Emergent executives during a call with investors, was the result of negotiations that began after the government earlier this year stopped making payments under the deal, which was awarded in May 2020 and was worth more than $600 million. Emergent will now forgo roughly $180 million of that amount, according to company disclosures.
The company said it would continue working with Johnson & Johnson to produce its vaccine in Baltimore because the arrangement with that company, while endorsed by the government, was not financed under the $600 million deal. While the site has not yet won regulators’ approval, it has resumed operations, and the Food and Drug Administration has allowed roughly 100 million doses to be released for potential use.
The contract cancellation also brings an abrupt end to a nearly decade-old effort by the government that was intended to better prepare for a pandemic. In 2012, the Department of Health and Human Services gave Emergent a $163 million contract to expand the Baltimore site and ready it to rapidly produce vaccines in response to a novel virus.
The decision disclosed on Thursday put a stop to that deal years before it was set to expire, leaving the facility without the stamp of approval that it had long touted in presentations to investors and potential clients.
The Emergent chief executive, Robert Kramer, acknowledged during the investor call that the initiative, “as it was contemplated back in 2012, was a good idea at the time, but unfortunately it didn’t work out as it was anticipated.” Mr. Kramer also sought to put a positive spin on the breakup, writing in a guest essay in The Baltimore Sun that the health department had agreed to Emergent’s “request to end our 9-year pandemic manufacturing partnership.”
Mr. Kramer laid blame on the government, even as he conceded that “not everything went perfectly” during the pandemic. “But if you want companies to engage,” he wrote, “you need to be willing to stand by them through both challenge and achievement.”
But a senior Biden administration official, speaking on the condition of anonymity, disputed Mr. Kramer’s account. The official said that the health department had ended the contract, and that the termination was structured in such a way that the company would not fight it and the government would avoid a costly legal challenge. The company had been asking for payment since spring, the official added, but the government had not paid since the contamination was disclosed.
When the pandemic arrived last year, the Baltimore site still had not won regulatory approval to mass-produce any approved product, and a government assessment warned that relying on the largely untested facility was risky.
Mr. Kramer on Thursday said a lack of experience at the factory was attributable in large part to a lack of consistent government funding over the years. “The necessary operational investments by all administrations fell short of what was needed to maintain capability in case of an emergency,” he said.
Since May, Emergent has said it expected federal regulators to soon certify vaccine production at the Baltimore plant. But regulators have yet to issue that certification, although they have certified Johnson & Johnson’s manufacturing operation in the Netherlands as well as plants that produce vaccines for Pfizer-BioNTech and Moderna vaccines.
Instead of giving the Bayview plant a green light, the F.D.A. cleared multiple batches of AstraZeneca’s and Johnson & Johnson’s vaccines — and then only after special scrutiny, because of the plant’s problems. A batch can include as many as 15 million doses.
The cancellation appears to have no impact on the availability of coronavirus vaccines in the United States. The contract only involved production of AstraZeneca’s vaccine, which is not authorized for distribution in the United States.
Although Johnson & Johnson, one of only three federally authorized vaccines here, produced tens of millions of doses at the Baltimore plant, it did so under a separate contract with Emergent as its subcontractor.
In a statement on Thursday, a spokesman for Johnson & Johnson said that “today’s announcement by Emergent BioSolutions will not impact our collaboration to produce our Covid-19 vaccine.” The company said it would continue to work with authorities to obtain certification of the Bayview site for production of its vaccine.
Johnson & Johnson has played a comparatively minor role in the nation’s vaccination campaign. Slightly more than 15 million people have received one dose of the Johnson & Johnson shot, compared with nearly 71 million who have received two doses of the Moderna vaccine and 107 million who have received two doses of the Pfizer-BioNTech vaccine. In a series of regulatory decisions since mid-September, at least some recipients of all three vaccines became eligible for booster shots.
The manufacturing problems at the Bayview site have affected immunization efforts outside the United States, delaying the distribution of vaccines in Canada, the European Union and South Africa.
Executives emphasized during Thursday’s call that the cancellation would not affect the other government contracts that remain the core of Emergent’s business. In fact, the company noted, health officials this year committed to purchasing another $637 million worth of Emergent’s anthrax and smallpox products in coming months.
The company also disclosed that Mary Oates, a former Pfizer executive who joined Emergent in November 2020 as a senior vice president overseeing manufacturing quality, was leaving “to pursue a new career opportunity.”
In September, Emergent announced that it had reached a five-year agreement with Providence Therapeutics, a Canadian biotechnology company that specializes in mRNA vaccine therapies, to support that company’s Covid-19 mRNA vaccine development.
“Emergent’s commitment to fight the Covid-19 pandemic is anchored in our partnerships with innovators who share the same mission to address public health threats around the world,” Adam R. Havey, the company’s executive vice president and chief operating officer, said in a statement at the time.
Sharon LaFraniere and Sheryl Gay Stolberg contributed reporting.