Re-Assessing EBS CEO Kramer's Recent Planned Sales

Mike Stein - Senior Research Associate

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Between Jan. 15 and Feb. 8, Emergent BioSolutions Inc. (EBS) CEO and President Robert Kramer sold a total of 88,555 shares pursuant to a 10b5-1 trading plan adopted on Nov. 13 (see Jan. 20 article). Usually, such planned sales are not considered investment signals because of the pre-meditated nature of the transaction. However, these trades have recent come under renewed scrutiny (see a Washington Post investigation published April 25) due to the stock's drop following disclosures of problems producing the Johnson & Johnson vaccine at their Baltimore plant. As shown on the graph below, the stock has fallen 42.7% since Kramer's January sale, and 48.7% since his February sale.

The biopharmaceutical company claims that because the plan was adopted in November, that Kramer had no influence over the timing of the transactions and did not have material non-public information at the time the plan was adopted. While this may be the case, Kramer's recent sales represent his largest disposition at the company (see graph below). Additionally, while a portion of the shares sold were acquired via the exercise of stock options expiring in March, the majority of the shares were acquired via options that expire between 2022 and 2024, which suggests that Kramer could have held off on selling those shares for months.

Kramer's prior sales at the company have also been well-timed before short-term drops in price, adding further intrigue to his recent dispositions. In the three months following his first five sales (four of which were pursuant to a 10b5-1 program), the stock slid an average of 9.3%. Additionally, Kramer has tended to sell shares under a plan in short bursts, rather than spacing them out over time as is recommended. While The Washington Service does not make a determination on the legality of insider transactions, what is clear from reviewing Kramer's selling activity is that investors should not discount Kramer's planned selling as an investment decision going forward.

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