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April 25, 2013 7:56 am

Cody Labs founder loses bid to shut it down

Written by CJ Baker

Fired founder in bitter dispute with current owner

A judge has rejected a request from the founder of a Cody pharmaceutical manufacturer to partially shut down the facility and reinstate him as CEO.

Ric Asherman, founder of Cody Laboratories, asked for the temporary restraining order last week. Asherman claimed — among other allegations — that the Cody lab is under-insured, a public safety risk and in violation of city zoning rules.

District Court Judge Steven Cranfill, however, ruled Monday that there was no immediate or irreparable harm at stake and declined to issue a restraining order.

The Cody Labs board of directors fired Asherman as CEO on April 16, shortly after he filed a 60-page complaint in Park County’s District Court. The board said Asherman’s allegations are false, and supposing they were true, it would show Asherman did a poor job as CEO. Either way, the board said it had grounds to fire him.

Based on filings from both parties in state and federal courts, Asherman apparently brought the suit as part of an effort to get Cody Labs’ owner, Lannett Company, to buy out his half-ownership of the Cody facility for millions of dollars and give him a severance package.

That’s what Asherman demanded in a February letter to Lannett’s board of directors, threatening to file suit if they didn’t agree to the terms. Asherman noted new construction pending at the facility — including plans for a state-funded, $2.53 million warehouse — could increase the value of his ownership.

“As a Board, you now have the opportunity to keep 100 percent of your future investment and avoid the negative publicity of litigation which will certainly be newsworthy in Wyoming and the surrounding Rocky Mountain region,” Powell Attorney Joey Darrah wrote on Asherman’s behalf. “My hope is that we can work out a mutually agreeable resolution which is beneficial for all.”

A resolution wasn’t reached. Asherman threatened to shut down the lab in March, prompting Cody Labs’ board to reprimand him. The back and forth continued up through last week’s lawsuits. Lannett, based in Philadelphia, also sued Asherman in U.S. District Court in Eastern Pennsylvania last week over the dispute.

Cody Labs processes tightly controlled substances — including cocaine and raw opiates like poppy straw — that ultimately are used in pain management medications such as anesthetics and painkillers.

With 105 workers, the lab is one of Park County’s larger employers. The company has pledged to add another 23 jobs by June 2014 as part of an agreement with the state of Wyoming.

The state, through the State Loan and Investment Board and Wyoming Business Council, has approved $2.5 million to build a new, 24,000-square-foot warehouse for Cody Labs. Cody Labs will lease the warehouse from the non-profit economic development group Forward Cody and will one day be given the option to buy the facility, if all goes according to plan.

Forward Cody CEO James Klessens said the litigation between Asherman and Lannett was “unfortunate,” but it isn’t affecting the state-funded warehouse project.

“We’re moving forward with the project best as we possibly can and it is our hope, sometime in the near future, to get this thing underway for the greater good of the community and the county,” he said Wednesday.

Asherman had asked Judge Cranfill to force Lannett to put up performance bonds and provide at least $35 million worth of insurance coverage for Cody Labs; Cranfill, however, said a restraining order wasn’t the right remedy. The judge also noted that, according to Lannett, the company decided to increase insurance coverage from $15.3 million to $21.5 million the day Asherman filed his suit.

In arguing for more insurance, Asherman said the facility had “multiple fires, one explosion and frequent chemical spills” since 2006, unmonitored yet significant releases of chemicals into the air and is violating the city of Cody’s zoning regulation by storing hazardous materials at the site.

For those reasons and others, Asherman asked Judge Cranfill to shut down Cody Labs’ work involving active pharmaceutical ingredients. Those are the most-regulated substances and what make drugs work; Asherman said only about a quarter of the employees would be affected.

“Shutting down those operations will not cause financial harm to Cody Labs or Lannett, and will promote the public safety,” Darrah wrote.

Asherman also asked Cranfill to make Lannett keep him on as Cody Labs’ CEO.

Cody attorney Steve Simonton, however, responded for Lannett that Asherman couldn’t have it both ways. He noted Asherman has been the one in charge of Cody Labs over the years.

“Ultimately, his claims amount to saying: ‘The company did all sorts of bad things while I was running it so I want you to compel the company to put me back in charge,’” Simonton wrote.

Shutting down the active pharmaceutical ingredients operations, Lannett said, would mean laying off or furloughing at least 83 of its 105 employees and impact its buyers and doctors and patients.

Lannett also denied the allegation that Cody Labs poses a risk to the public.

“The fact is that Lannett has invested more than $30 million into Cody Labs to ensure a state of the art facility and would never permit its operations to endanger the public or environment,” Lannett Company President CEO Arthur Bedrosian said in an affidavit.

Lannett said it was aware of three “minor” incidents at the facility: one in January 2011, one in December 2011 and another in March 2012.

Cody Labs Vice President Bernhard Opitz said there had been two minor fires and a pressure release.

“None of them caused significant damage, much less posed any danger to the public,” Opitz said in an affidavit.

Asherman submitted an email from Lannett’s insurer that purportedly details the March 2012 incident. In the email, Brett Pizer of Marsh USA, says an explosion occurred at the lab on March 17, 2012 when a container valve failed.

Not quite $50,000 worth of hydromorphone was lost, $10,000 worth of damage done to the equipment and walls and a $15,000 or more loss was expected from the loss in production, Pizer wrote.

Lannett officials apparently have had some concerns about the lab’s management.

In the March letter of reprimand, Bedrosian faulted Asherman for a consultant’s assessment that found “a number of ‘significant employee health and safety risks’” at Cody Labs.

“The assessment also makes it clear that the sizable number and type of alleged violations exist due to the ‘rapid growth’ in the company’s business,” Bedrosian wrote.

In a response, Asherman described the problems as two failed drug tests by employees, a problem with a cleaning glove and regulatory issues that were being addressed.

The company has grown significantly since Asherman started it in 2000. Asherman moved Cody Labs into the former Walmart building in 2006. Lannett — which manufactures, markets and distributes generic versions of branded pharmaceuticals — acquired Cody Labs and its roughly 45 employees the following year. The publicly-traded Lannett reported $123 million net sales in the last fiscal year, with a gross profit of $38.9 million.

As one of the terms for getting the Wyoming Business Council grant, Cody Labs pledged to add 45 new employees between June 2011 and June 2014. That would bring the company to a staff of 128.

Part of the deal required Asherman and Lannett Company, who co-own the building and land, to give the public the acreage where the warehouse would be built. Before signing off on the agreement, Asherman asked Lannett to buy out his half of the lab and property. Asherman contends Bedrosian backed out of a promise to do that.

Bedrosian of Lannett says no deal was ever reached. Simonton, Lannett’s attorney, said the concerns Asherman is raising “are simply an attempt to create trouble to give himself leverage to compel a buy-out.”

In the February letter to Lannett’s board, attorney Darrah said the dispute was very disconcerting to Asherman, but said he was “prepared for a long and protracted court battle if necessary.”

The lawsuits in Park County’s District Court and in Pennsylvania remain pending.

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