Months after Cody Laboratories' owners halted a planned expansion of its facilities, roughly 50 people are being laid off, as Cody Labs’ parent company focuses its resources elsewhere.
The layoffs — announced publicly in a Friday morning news release — represent more than a third of Cody Labs’ staff, which stood at around 135 employees last fall.
Cody Labs’ owner, Philadelphia-based Lannett Company, says it expects to save $10 million a year from the layoffs and other changes that will be in place by December. Lannett said its restructuring in Cody will initially cost the company about $5 million, mostly due to “severance and employee-related costs.”
Some of the pharmaceutical products that had been produced at Cody Labs will now be produced at Lannett’s facilities in Carmel, New York, while other, less-profitable products are being discontinued and Cody Labs operations are “rationalized,” Lannett said in its release.
It’s a stunning turnabout for a local company that, as of last fall, was poised to complete a massive $50.5 million expansion and add 57 new jobs in the coming years. The State of Wyoming had agreed to help kickstart the project, with the state’s five elected officials approving a $23 million loan. However, that loan was never finalized and Lannett has shifted its focus under its new CEO, Tim Crew, who took over the company late last year.
Lannett leaders announced in April that they were indefinitely postponing the expansion, leaving a new production facility on Cody's northern edge as an empty shell for the time being.
In announcing the “restructuring and cost reduction plan” for Cody Labs on Friday, Crew said a changing market and regulatory environment for pain-killing drugs meant it would take longer than expected for Cody Labs’ expansion to become profitable.
“We determined the substantial continuing investment to attain the size and scale necessary to become a broad competitive force in that space was inconsistent with our renewed focus on our core business, where we see a great deal more near-term opportunities to grow high-value assets,” said Crew, who has put a focus on paying down Lannett’s hundreds of millions of dollars of debt.
Forward Cody CEO James Klessens, who has worked for years to help the company grow here, described his organization as “really disappointed” with the layoffs.
“We had high hopes for what that company was going to do for our community and for the region and for the state,” Klessens said Friday. “So this is obviously a little bit of a departure from the track that we were on.”
He said Forward Cody will do whatever it can to help the people who are losing their jobs and the people who remain at Cody Labs. And Klessens said he still sees the opportunity to do “great things” with the company, which will remain a major employer in Cody.
“The angst that we feel isn’t about ‘positions’ and it’s not about whether they [Lannett] obligated and committed anything and now they’re retracting on it,” Klessens said. “It’s that there’s some people that are going to be hurting in about 60 days because they’re not going to know what to do and the jobs that they’re going to get are probably not going to be the same as the jobs that they did. And maybe I signed a mortgage, maybe I bought a car; that’s a tough place for people to be.”
Cody Labs President Bernhard Opitz hinted to the State Loan and Investment Board in early June that Lannett might choose to sell off its subsidiary in Cody and said there would be more clarity about the company’s plans in a couple months. However, in response to a question from State Auditor Cynthia Cloud at the June 7 meeting, Opitz said it was “correct” to say that production at Cody Labs was staying at the same volume and that there hadn’t been any pullback from Lannett.
Cloud, who is from Cody, described Friday’s layoffs as being “in direct contradiction of what they answered to my question at the board meeting ... which is disappointing.”
“They’re a really important piece of diversification of our economy in Park County, and communication is vital, I think, especially with the ongoing discussion that we have about the delay of the loan,” she said Friday.
Some of the active pharmaceutical ingredients produced at Cody Labs are opioids, produced from poppy straw that the federal Drug Enforcement Administration allows the company to import. That rare license gives Lannett an opportunity to produce the painkilling drugs from start to finish — that is, to be vertically integrated.
Crew said Cody Labs “continues to offer intriguing vertical integration opportunities.”
“We remain committed to investing in Cody's operations, albeit in a more targeted and selective manner,” he said, adding that, “We have also begun evaluating strategic alternatives to unlock even more value from Cody.”
Painkilling drugs — and opioids in particular — have come under increased scrutiny by regulators and authorities across the United States, because of their potential for abuse and death.
Cloud said her question at the state board meeting, about whether Lannett was pulling back, stemmed from the national dialogue about opioids and pain medications — and those drugs’ importance to Cody Labs’ business.
“... I was concerned about the future of that and if they could possibly re-diversify or change course and produce something else,” she said.
Crew recently told investors that while he still sees “substantial” opportunity for Lannett in producing more pain management drugs, “There are tragedies occurring across this country that must be addressed — and we welcome and support all those initiatives that we think at the end of the day will reduce the use of these products as they get back down to an appropriate base.”
Shares of the publicly traded company have dropped more than 40 percent in 2018. On Wednesday, Lannett Company shares on the New York Stock Exchange fell to their lowest price in roughly five years — to $12.70 per share — before rebounding.
As the company grew, its price skyrocketed from around $5 per share in December 2012 to more than $71 per share by April 2015. But within a year, Lannett’s stock had sunk back to around $18 per share. Part of the fall followed the company’s acquisition of Kremers Urban Pharmaceutical in the latter part of 2015. That purchase, which was viewed unfavorably by investors, added around $1 billion in debt to Lannett’s books — debt that Crew is now focused on paying down.
Cody Laboratories was started in the garage of a former local resident, Ric Asherman, in 2000 and the company moved into the former Walmart store on Cody’s Yellowstone Avenue in 2004. Lannett purchased Cody Labs in 2007 and opened a new warehouse on Road 2AB in 2015; the production facility shell is attached to that warehouse.
That warehouse was built with the aid of a state grant — just one way that state and local government and economic development officials tried to entice Lannett to invest in Cody Labs. The Wyoming Legislature created a new large loan program with Cody Labs’ expansion in mind.
As Cody Labs sought a loan from that program, Opitz said the creation of the large loan program allowed Lannett Company “really to think of Wyoming as the place” to expand.
“This expansion project is the real anchor to make us a Wyoming company and be here for the long run,” he told the Wyoming Business Council in September 2016.
State leaders approved a $11 million loan that year, then agreed to up the sum to $23 million last fall as Cody Labs’ vision for the expansion grew.
“It is hard to see Wyoming workers laid off, and I am hopeful the company’s restructuring will provide a turnaround and be positive in the long term,” Gov. Matt Mead said in a statement to the Tribune on Friday. “The State of Wyoming was prepared to put significant investment into Cody Labs to help them expand. We would like the company to remain a staple of the business community in Cody and Wyoming and will endeavor to work with them as they make changes to their business.”
Klessens, the Forward Cody CEO, is hoping this “is a momentary pause.”
“... I have faith that somebody’s going to see the light and we’re going to get this thing turned around,” he said. “I have to believe that way — that’s what I’m here for.”