Albany Molecular Research, Inc.

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Albany Molecular Research, Inc.

21 Corporate Circle
Albany, New York 12212
U.S.A.
Telephone: (518) 464-0279
Fax: (518) 464-0289
Web site: http://www.albmolecular.com

Public Company
Incorporated: 1991
Employees: 805
Sales: $169.5 million (2004)
Stock Exchanges: NASDAQ
Ticker Symbol: AMRI
NAIC: 541710 Research and Development in the Physical Sciences and Engineering Sciences

Albany Molecular Research, Inc. is a chemistry-based drug discovery, development, and manufacturing company. The company performs research and development work for major pharmaceutical and biotechnology companies, identifying and developing compounds for applications in the drug market. Albany Molecular offers services that encompass the entire development cycle of a drug, from lead discovery through lead optimization, preclinical testing, clinical trials, and commercial manufacturing. The company operates overseas through subsidiaries in Singapore and India.

ORIGINS

Founders Chester Opalka and Thomas D'Ambra helped legitimize a new way of doing business in the pharmaceutical industry, forsaking stable employment and draining personal bank accounts to carve a new niche in the industry. Opalka and D'Ambra first met while working for a pharmaceutical company named Sterling Winthrop, Inc. Opalka joined the company in 1970 after he earned an undergraduate degree in chemistry from Niagara University. Opalka served in various capacities during his 20-year tenure at Sterling Winthrop, linking up with D'Ambra midway through his stay at the company.

D'Ambra joined Sterling Winthrop in 1982, bringing with him an undergraduate degree in chemistry from the College of Holy Cross and a doctorate degree from the Massachusetts Institute of Technology, which he earned the year he joined the medicinal chemistry department at Sterling Winthrop. During his seven-year stay at Sterling Winthrop, D'Ambra participated in drug research programs in the endocrine, cardiovascular, and analgesic therapeutic areas, work that provided the inspiration for Albany Molecular. He was impressed not by the work that was being done, but by the work that was not being done, watching as numerous projects with potential were abandoned because of a shortage of chemists. "We saw an opportunity to build a company to provide high-value research and development," D'Ambra said in a May 29, 2000 interview with Business Week, explaining the premise behind Albany Molecular.

D'Ambra left Sterling Winthrop in 1989, giving up his post as senior research chemist to begin an entrepreneurial career. Albany Molecular was not his first attempt at launching a start-up venture; he cofounded Coromed, Inc. in 1989, hiring Opalka in early 1991 as a senior research chemist. The pair left Coromed in 1991 to start Albany Molecular, an effort that would require each partner to forego any form of salary for an undetermined length of time. Opalka refinanced his house, while D'Ambra's wife worked in a tollbooth to help pay the couple's bills.

The venture was a gamble of sorts because in 1991 major pharmaceutical companies, often collectively referred to as "Big Pharma," rarely looked for outside help in their drug development efforts. It was up to Opalka and D'Ambra to convince Big Pharma to outsource the methodical chemical research required to turn a compound into a marketable pharmaceutical.

Initially, the scope of Albany Molecular's business was limited. Major pharmaceutical companies were willing only to outsource custom synthesis and process research to such third-party outfits as Albany Molecular. D'Ambra, who took charge of leading the company while Opalka took the title of vice-president, made the best of the situation, however, achieving what would be his company's landmark success during its formative years.

Not long after starting out, the company was hired to purify a substance from a mixture of compounds, an effort that failed with its original intent but eclipsed all hopes in every other respect. D'Ambra and the rest of the nascent company's scientific team were unable to meet the objectives of the original assignment, but the effort resulted in discovering a new way to synthesize fexofenadrine. D'Ambra patented the process, licensing it to Aventis S.A. in 1995. The technology enabled the production of the active ingredient of Allegra, which received Food and Drug Administration approval in 1996, quickly becoming the second-leading allergy medication. Allegra was a so-called "blockbuster" drug, akin to drilling and striking oil, generating revenues that enriched Aventis and provided the major source of income, through royalty payments, for Albany Molecular for the next decade.

The licensing agreement with Aventis enabled Albany Molecular to post its first profit in 1995, marking the beginning of a string of profitable years that would extend into the 21st century. The process developed by D'Ambra became the financial lifeblood of the company, both in terms of the revenue collected directly from the licensing agreement and from the new business opportunities created by the company's success in drug discovery chemistry. In an April 4, 2005 interview with Chemical Market Reporter, the company's senior vice-president, Michael Trova, marked the ten-year anniversary of the seminal achievement by noting, "1995 was in fact the first example, that we're aware of, of a medicinal chemistry-related project being outsourced." Albany Molecular's pioneering work convinced Big Pharma that outsourcing drug discovery chemistry worked, leading drug companies to assign far greater responsibilities to companies of Albany Molecular's ilk.

With a steady stream of cash coming in (the company collected more than $20 million a year from the Aventis deal during the latter half of the 1990s), D'Ambra and Opalka presided over an enviable operation. Start-up ventures in the pharmaceutical industry generally took years before becoming profitable, but Albany Molecular was not only profitable, it was recording substantial profits in relation to its revenue volume. In 1998, for example, the company recorded $33.9 million in revenue, from which it posted $10.4 million in net income.

While it was demonstrating such financial vitality, D'Ambra and Opalka decided to sell the company on Wall Street, completing an initial public offering of stock in early 1999. With the proceeds from the public offering, the founders pressed ahead with increasing capacity, broadening their service offerings, and increasing the size of their customer base. They began making a series of investments and acquisitions, building the company along two lines, its chemistry services contract business with other pharmaceutical companies and its drug discovery platform that called for collaborations with pharmaceutical and biotechnology firms.

COMPANY PERSPECTIVES

Customers work with us for a number of reasons: to enhance their internal R&D efforts, to supplement internal chemistry resources, to add problem-solving contributions or access unique technologies, and many others. Our comprehensive, integrated contract chemistry services platform provides near-term revenue opportunities, while our biotech/proprietary R&D platform provides longer-term upside potential.

INVESTMENTS AND ACQUISITIONS AT THE START OF THE 21ST CENTURY

Albany Molecular's business model, a chemistry services platform on one side and a drug discovery platform on the other, offered the company the best of both worlds in the pharmaceutical industry. Its contract business offered potentially steady, short-term growth opportunities, while its drug discovery business offered potentially big rewards in the long term. With its footing firmly established by the dawn of the 21st century (the company placed fourth on Business Week 's list of the 100 fastest-growing companies in 2000), Albany Molecular began to bolster its size and capabilities, becoming a more comprehensive player in the industry niche it had helped to create.

Perhaps the most important development was the company's acquisition of a minority interest in Organichem Corp., which was created after a management-led buyout of Nycomed-Amersham's pharmaceutical plant in December 1999. The plant, located in Rensselaer, New York, was situated on a 25-acre site that included a pilot plant, 170,000 liters of reactor capacity, and the capability of large-scale manufacturing, having been engaged in producing drugs for more than a century. Albany Molecular acquired its stake, a 37.5 percent interest, before the end of 1999, intending to exercise its options to acquire full control over the company by the end of 2002.

Albany Molecular's financial success continued as the company entered the 21st century. Revenues swelled to $69 million in 2000 and net income increased to $23.5 million, enabling the company to raise $119.5 million in a secondary stock offering during the year.

Opalka retired in 2000, leaving D'Ambra to superintend the fortunes of the pair's entrepreneurial creation. D'Ambra's biggest complaint was voiced in an October 23, 2000 interview with Investor's Business Daily : "We can't grow fast enough to keep up with demand for the potential contracts that are out there."

His most pressing problem was finding enough chemists to perform the work the company was obtaining. D'Ambra spent $1 million on recruiting chemists in 1999, adding 45 chemists during the year. In 2000, he added another 45 chemists, as he struggled to find the personnel to keep pace with Albany Molecular's bounding growth.

His efforts at expanding the company's business offered no respite in recruiting qualified personnel. In February 2000, he completed the $2.3 million acquisition of American Advanced Organics, a Syracuse, New York-based developmental-scale contract manufacturer that was renamed the Syracuse Research Center. D'Ambra set his acquisitive sights to the west at the end of the year, spending $22.4 million for a drug discovery company based outside of Seattle, Washington, named New Chemical Entities Inc. New Chemical Entities, which was renamed AMRI Bothell Research Center, possessed a library of more than 100,000 natural compounds that D'Ambra could use to discover and to create new drugs.

Against the backdrop of recessive economic conditions during the first years of the decade, Albany Molecular recorded impressive growth. Between 2001 and 2003, revenues nearly doubled to $196.3 million, propelled by the growth of the company's contract business. After acquiring laboratory facilities outside of Chicago in late 2001 and announcing a $30 million expansion plan the following year, the company completed its acquisition of Organichem in 2003, purchasing the 62.5 percent it did not already own.

After years of uninterrupted financial progress, Albany Molecular hit a bump in the road during its 13th year in business. The company cited increasing competition from Asia, the closure of its laboratory operations in Chicago, and decreased royalties from Allegra as causes for an $11.6 million loss in 2004. Revenues suffered as well, dropping from $196.3 million to $169.5 million. D'Ambra responded to the difficult year by initiating significant changes in 2005 that promised to mark the beginning of a new era of existence for Albany Molecular.

EXPANSION OVERSEAS IN 2005

D'Ambra sought to improve the company's financial performance by expanding overseas, taking his first steps in a globalization plan in early 2005. In February, the company was preparing to begin production at its new research center in Singapore, where it could benefit from reduced operating costs and access to a relatively inexpensive pool of chemists.

KEY DATES

1991:: Albany Molecular is founded.
1995:: The company formulates the active ingredient in Allegra.
1999:: The company completes its initial public offering of stock.
2003:: The acquisition of Organichem Corp. is completed.
2005:: Laboratory facilities are established in Singapore and India.

"Our customers are under a lot of pressure and looking for cost savings," D'Ambra explained in a February 7, 2005 interview with Chemical Market Reporter. "So we believe this step is important to maintaining our leadership position, particularly in the early stages of chemistry outsourcing."

By the time the Singapore facility had gained its first customer in mid-2005, Albany Molecular was establishing another overseas research center in Hyderabad, India, aping the trend established by its customers, drug companies, of reducing research and manufacturing costs by moving operations overseas. Further, chemists, increasingly in short supply in the United States, were relatively abundant in India, where they typically earned $1,000 per year, helping to lower Albany Molecular's operating costs by approximately 75 percent.

As Albany Molecular concluded its first 15 years in business, further international expansion was expected. Company officials were scouting locations in Eastern Europe, South America, and China, hoping to increase Albany Molecular's exposure to worldwide markets and to insure a steady supply of qualified scientists. The company had achieved much during its first decade and a half in business, but in one sense its enviable success posed an important question about its future. Allegra royalty payments, which had proved instrumental to the company's rise, were beginning to decline, with patents scheduled to expire in 2013.

One of D'Ambra's most daunting challenges was weaning Albany Molecular off its dependence on Allegra-related income, an objective that seemed to be within his grasp considering the company's pioneering record of accomplishments in providing chemistry services to pharmaceutical companies. D'Ambra's chances of future success also were improved by the comprehensive capabilities the company was able to acquire from the riches of its Allegra work. In the years ahead, Albany Molecular, supported by its contract business for steady financial gains and its drug discovery platform for large financial rewards, promised to play a prominent role in the industry niche it had helped to create.

PRINCIPAL SUBSIDIARIES

AMR Technology Inc.; AMRI Bothell Research Center Inc.; Albany Molecular Research Export Corporation; Organichem Corporation; Albany Molecular Research Singapore Research Centre, Pte. Ltd.; Albany Molecular Research Hyderabad Research Centre, Pte. Ltd. (India).