FDA scrutiny of the Burlington, MA sterile plant AMRI bought in 2010 has made the takeover a “money pit”, an analyst said.
Manufacturing was a second quarter highlight at AMRI, with both small and large-scale increasing sales by close to 20 per cent. However, AMRI continues to face regulatory scrutiny at the Burlington, Massachusetts sterile syringe and vial filling plant it acquired in the 2010 takeover of Hyaluron.
“This acquisition has become a money pit, suffering from the combination of revenue impairment from regulatory holdups and higher costs to fix those issues. Regaining clients if and when these items are cleared is a steepening hill to climb”, David Windley, equity analyst at Jefferies & Company, said.
In August 2010 AMRI received a US Food and Drug Administration (FDA) warning letter following an inspection of the plant. A re-inspection lasting most of June found AMRI had fixed the issues raised in the warning letter, but discovered seven other concerns that led to the FDA sending a Form 483.
AMRI is working to fix the new problems and get the facility back to normal operation. However, it is unclear how long this will take and “there can be no assurance that the FDA will be satisfied with [its] response”, AMRI said in a US Securities and Exchange Commission filing .
The discovery services unit was another drag on second quarter results, with sales dropping 25 per cent year-on-year. However, AMRI is encouraged by request for proposals (RFP) activity and is in talks with up to eight large pharma companies interested in outsourcing discovery work.
AMRI had hoped to ink deals in 2011 but next year is now more likely. “Due to budget delays and portfolio rationalisation, the RFPs are not expected to be awarded and produce revenue until early 2012. Given that backdrop, the eventual timing should be viewed with caution”, Windley said.
While the timing of the recovery is unclear companies seem increasingly confident the situation will improve. In the past week Charles River has spoken of an uptick in discovery outsourcing talks and AMRI expressed similar views.
“We believe we are at a turning point in the discovery market, and remain optimistic that the market will recover in 2012 as pharmaceutical companies move more decisively to outsource high-end discovery and biotech services”, Thomas D’Ambra, CEO of AMRI, said in a press statement.
On a day when double-digit drops were fairly common, with both Parexel and Charles River experiencing such declines, shares in AMRI closed down 11.7 per cent.