CODY, WYO. — Philadelphia-based pharmaceutical manufacturer Lannett, Co. has approved a plan to sell Cody Laboratories, a wholly owned subsidiary that produces active pharmaceutical ingredients used in prescription opioids.
In a US 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,” and significant ongoing investment and operational costs.
It was not clear from the 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 loan agreement with the Wyoming State Loan and Investment Board. The company wanted public assistance for construction of a new facility at the north side of town that backers said would create more than 50 new jobs.
Cody Labs had initially sought $11 million in project funding in 2016, with state leaders eventually approving an increased loan for $23 million last year. Cody Labs President Bernhard Opitz told the Wyoming Business Council two years ago that the planned expansion 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 and never closed on the $23 million state loan.
That expansion project remains in limbo — with construction less than halfway complete — as Lannett has sought to cut costs and raise cash in an effort to pay down hundreds of millions in debt, and 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. Lannett’s stock traded Friday at $3.33, its lowest point in more than five years. That’s down from more than $30 per share late last year, and 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. Lannett paid $1.23 billion in 2015 to acquire New Jersey-based drug maker Kremers Urban Pharmaceuticals Inc.
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 staggering 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. Over a three-month period in 2016, the company raised prices by 1,650 percent for a generic anti-psychotic medication, according to Forbes.
Reducing opioid addictions has snowballed as a national priority in recent years, bringing more regulation and less certainty about demand and pricing for many of the opioid-based pharmaceutical ingredients manufactured by Cody Labs.
Cody Labs holds one of only a few permits issued by the US Drug Enforcement Administration allowing import of raw narcotic materials like poppy straw. The rare permit is tied to the facility, and is an asset that could attract a buyer looking to start or bolster a vertically integrated line of pain management drugs.
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. “Trying to put millions into an existing, out-of-state company to relocate or expand in a rural area of Wyoming” is difficult.
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.”
Contact Ruffin Prevost at 307-213-9818 or [email protected].