Graceway officials say they are 'taking drastic steps to avoid bankruptcy'

In early February, Bristol, Tenn.-based Graceway Pharmaceuticals LLC announced it would continue sponsoring a NASCAR racing team as part of its efforts to raise awareness of a skin condition resulting from sun exposure.

Now, in the wake of deep employment cuts announced this week, the company wishes it could get out of the sponsorship contract.

“If there was any way to recoup $1 [of the sponsor fees] we would,” John Bellamy, executive vice president and general counsel for Graceway, said Wednesday by phone.

In federal court filings Tuesday, Graceway revealed that it will lay off 130 of its 323 employees, and that it is “taking drastic steps to avoid bankruptcy.”

Graceway attributes its sudden crisis to the Feb. 25 launch of a generic product by Nycomed U.S. Inc. Graceway claims that Nycomed has infringed the patent of its most profitable drug, Aldara Imiquimod cream, and that the generic product has contributed to Aldara’s devastating loss of market share in recent weeks. Aldara is used to treat actinic keratosis, basal cell carcinoma and genital and perianal warts.

On March 8, a New Jersey federal judge denied Graceway’s petition to halt Nycomed from making, selling or shipping its imiquimod product. Since then, Graceway claims that its Aldara sales have dropped by 85 percent.

“This drastic drop in Graceway’s most significant revenue stream has already crushed Graceway,” the company’s attorneys state in a brief filed Tuesday, seeking another injunction against Nycomed. “If the bleeding does not stop, the restructuring required to keep the company afloat may necessitate additional layoffs.”

Bellamy confirmed Tuesday that Graceway was dismissing about 40 percent of its employees, but refused to provide any further details about how many people and what positions were affected. Those details were spelled out in court filings later Tuesday: Graceway has lopped off 60 percent of its payroll; cancelled matching contributions to its 401k program; and eliminated subsidies for vision coverage and dependent life insurance.

In a declaration supporting Graceway’s bid for an injunction against Nycomed, a senior executive painted a grim picture of the workplace environment.

“Graceway’s entire workforce is distracted, unsettled, and in poor spirits,” according to the declaration by John William Musick, senior vice president for human resources. “Their work performance and productivity has suffered dramatically. Rather than devoting their time to researching and developing new products or marketing and selling existing products, they are worrying about keeping their jobs and beginning to look for new jobs.”

Musick also says of the 4-year-old Graceway, “Never in the history of the company has such a devastating reduction taken place.”

If a federal judge does not stop Nycomed from further marketing its imiquimod product, Graceway argues it “will likely be forced to make further cuts, leaving Graceway a shell of a company whose principal asset is a several hundred million dollar damage claim against Nycomed.”

Tennessee law requires employers to notify the state and affected employees 60 days before it lays off 50 people or more. Because Graceway did not anticipate the need to make cuts, Bellamy said, the company is instead compensating the dismissed employees for an additional 60 days.

The company’s financial predicament will not affect its commitment to serve as the primary sponsor for the No. 51 NASCAR truck team, operated by Billy Ballew Motorsports and driven by Aric Almirola.

“Had we been able to guess or foresee that these restructuring events would be necessary, we never would have entered into the NASCAR sponsorship or some of our other marketing contracts,” Bellamy wrote in an e-mail response to the Bristol Herald Courier. “Since these contracts are pre-paid, we want some benefit from them, and, consequently, we intend to use the NASCAR sponsorship and other binding agreements to promote our products and a new product which we expect the [Federal Drug Administration] to approve soon.”

Bellamy added, “To suggest or imply in any way or form that Graceway is maintaining NASCAR or other pre-paid marketing programs in place of, or at the expense of, employees is wholly wrong. It is ludicrous to even think so.”

Asked about his partnership with Graceway, Ballew said by phone Wednesday, “We have a great relationship with them. Everything’s going just wonderful.”

Graceway’s declared goal in the sponsorship is to raise awareness of actinic keratosis, a condition caused by long-term exposure to the sun that can result in skin cancer if left untreated. Aldara cream is prescribed to treat the condition.

Asked about Graceway’s recent layoffs, Ballew said, “I have no idea about it.”

When informed that the company raised the specter of bankruptcy in its court filings, Ballew said, “There again, their business is their business, and my business is my business. It’s not of any concern at all to me.”

The Graceway employee who handled the company’s NASCAR sponsorships had no comment Wednesday.

“I’m no longer employed there,” he said.

dgilbert@bristolnews.com| (276) 645-2558