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Recapturing customers ‘won’t be easy’ for AMRI after Burlington problems, predicts analyst

By Gareth Macdonald , 09-Nov-2011
Last updated the 09-Nov-2011 at 13:34 GMT

Recapturing customers will not be easy for Albany Molecular Research (AMRI) after the problems at its manufacturing plant in Burlington, Massachusetts according to an analyst.

The prediction – by David Windley at Jefferies & Co – follows AMRI’s publication of a mixed set of quarterly financials that saw total revenue fall 0.8 per cent from the year-earlier quarter to $50.2m (€36.5m).

FDA resolution at the Burlington facility has taken significantly longer than expected and recapturing customers will not be an easy task “ said Windley, adding that manufacturing margins have been impacted by low capacity utilisation.

AMRI has been working to fix the problems at Burlington since August 2010 when it was issued with a warning letter by the US Food and Drug Administration (FDA ) but – despite evidence of some progress in an SEC filing last month – the business has yet to fully recover.

Management continues its push to resolve the outstanding FDA warning letter and subsequent Form 483 ," Windley continued, adding that: "The facility can now produce both clinical and commercial drug product, but customers have been slow in returning. RFP activity has improved, which is a start, but we expect a slow build to meaningful revenue.”

This interpretation is supported by AMRI’s quarterly results, which revealed that contracting brought in $43.8m in the three months to September 30 which, although up 2 per cent on Q3 in 2010, was at the low end of the $43m to $47 range the firm predicted in its second quarter presentation.

The contribution from AMRI’s small and large scale manufacturing business – which includes work done at the Burlington plant and at a facility in the UK - increased 8 per cent to $9.2m and 17 per cent to $25.7m respectively. Royalty revenue from Allegra fell 17 per cent to $6.5m.

AMRI’s other core business – contract discovery services - continued to struggle in the three months to September 30, with revenue falling 29 per cent from Q3 2010 to $8.9m despite the contract it signed with the National Institutes of Health (NIH) in August.

In related news, AMRI signed a discovery-focused agreement with Eli Lilly this week , which will see it provide the US drugmaker with 40 synthetic chemists.

Leaner AMRI in future?

AMRI has also announced plans to halt its internal R&D work on new compounds and that it has started looking at its global operations to in a bid to increase efficiency.

CEO Thomas D’Ambra said: “By the end of 2011 we will cease all internal R&D activities directed to new compounds and focus our efforts on partnering or out-licensing all existing compounds in our proprietary pipeline.

In addition, we are in the process of a thorough review of our global organization to determine additional opportunities to increase efficiencies. We are taking a measured approach and anticipate actions taken will create a leaner company with improved liquidity and a greater ability to achieve profitability,”

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