Cody Labs up for sale

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Philadelphia-based pharmaceutical manufacturer Lannett Company has approved a plan to sell Cody Laboratories, a wholly-owned subsidiary that produces active pharmaceutical ingredients used in prescription opioids and other medications.

In a U.S. Securities and Exchange Commission statement filed Friday, the company cited an effort to “focus on nearer term opportunities and an overall strategic shift toward the company’s core competencies and optimization of its cost structure” as the basis for the planned sale. Publicly traded Lannett also cited concerns about Cody Labs’ “timeline to profitability,” the continuing investments needed to be competitve and the annual $18 million expense of operating the facility.

It was not clear from Friday’s filing whether Lannett has fielded or negotiated offers for Cody Labs, or at what stage the company is in seeking a buyer. The filing states that Lannett approved a plan to sell Cody Labs in September, with any likely fair value of the subsidiary estimated to be approximately $30 million less than its recorded book value. A company spokesman did not respond to an inquiry seeking additional information.

The decision comes four months after Lannett CEO Tim Crew announced layoffs for approximately 50 workers at Cody Labs, saying at the same time that the company remained “committed to investing in Cody’s operations.” The company was expected to employ approximately 100 workers following the layoffs.

Just before that June layoff announcement, Cody Labs was on the verge of finalizing a $23 million loan with the Wyoming State Loan and Investment Board. The company wanted the state’s money to help construct a new facility off Road 2AB on Cody’s northern edge. Backers said it would create more than 50 new jobs and Cody Labs’s then-President Bernhard Opitz once told state leaders that the project was a “real anchor to make us a Wyoming company and be here for the long run.”

But after starting the project with company funds, Lannett halted construction in April and never closed on the $23 million state loan.

Opitz told the State Loan and Investment Board members in early June that Lannett might sell off the business; Opitz has since been replaced as Cody Labs’ president, with John Abt taking over.

The expansion project remains in limbo — with just the shell of one new building erected — as Lannett has sought to cut costs and raise cash in an effort to pay down hundreds of millions in debt from a $1.23 billion acquisition of another drug maker in 2015.

Lannett is also hoping to reverse a punishing collapse in its stock valuation. Wall Street has hammered Lannett since August, when the company announced that a key supplier would not be renewing a lucrative, longtime partnership that had yielded gross profits of up to 60 percent. CEO Crew previously described the lost partnership with Jerome Stevens Pharmaceuticals as “critically important” for Lannett.

Lannett’s stock traded Friday at $3.33, its lowest point in more than five years. That’s down from $13.75 in mid-August, from $30 per share late last year and from a high of more than $70 per share in April 2015.

Lannett is the country’s oldest manufacturer of generic pharmaceuticals, a market sector that has seen steep price hikes in recent years as consolidation has dampened competition. Though generic drugs are often cited as a key check on spiraling health care costs, Lannett and other generic drug makers have faced criticism for big price hikes on medicines that had long been sold for just a few cents per dose.

Lannett hiked the price of Digoxin, its generic heart medicine, by 1,000 percent after one of two other suppliers stopped making the drug, according to Congressional documents. And over a three-month period in 2016, the company raised prices by 1,650 percent for a generic anti-psychotic medication, according to Forbes.

Cody Labs had been a key part of Lannett’s future under former CEO Arthur Bedrosian — particularly because of its ability to produce pain-killing opioids. Cody Labs holds one of only a few permits issued by the U.S. Drug Enforcement Administration allowing import of raw narcotic materials like poppy straw.

“The company believes that the demand for controlled substance, pain management drugs will continue to grow as the ‘Baby Boomer’ generation ages,” Lannett officials wrote in their 2017 annual report. “By concentrating additional resources in the development of opioid-based APIs and abuse deterrent features to current dosage forms as well as drugs to treat addiction to opioids, the company is well-positioned to take advantage of this opportunity.”

However, Bedrosian was later replaced by Crew as CEO and reducing addictions to opioids has snowballed as a national priority. That’s brought more regulation and less certainty about demand and pricing for many of the opioid-based pharmaceutical ingredients manufactured by Cody Labs.

Still, as the company goes up for sale, its permit to import poppy straw is an asset that could attract buyers looking to start or bolster a vertically integrated line of pain management drugs. Not only is the permit rare, it’s tied to the facility in Cody.

Lannett plans to retain ownership of one product, cocaine hydrochloride, that’s now produced in Cody. The material makes up the company’s first-ever branded product, an anesthetic called C-Topical.

Cody Mayor Matt Hall said he was disappointed to hear that Lannett was seeking a buyer for Cody Labs. No one from the company had contacted him about the planned sale, Hall said Monday, but he hoped any potential new owner would bring renewed investment in and commitment to the company and community.

“I have friends who work there, and they’re a major local employer, so it would be really sad to see it all go away,” he said. 

Hall said he thought pain management was an important field of medicine, and there ought to be a long-term place in the market for a manufacturer like Cody Labs, despite ongoing concerns about opioid abuse.

Hall said he appreciated the economic development efforts aimed at expanding operations at Cody Labs, but there also ought to be a focus on smaller, homegrown businesses.

“The lesson I’ve learned from this is that economic development has to have a grassroots, bottom-up approach,” he said, adding that it’s difficult “to put millions into an existing, out-of-state company to relocate or expand in a rural area of Wyoming.”

Hall said he favored an economic development approach that focuses on “helping local entrepreneurs take their dream from the kitchen table to a spot downtown, or warehouse nearby, investing in people within the community who can grow a business.”

Former Cody resident Ric Asherman founded Cody Labs in 2000. Lannett acquired the business in 2007.

(Yellowstone Gate is an independent, online news service about Yellowstone and Grand Teton parks and their gateway communities. Tribune Editor CJ Baker contributed reporting.)

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