AMRI snaps up two manufacturing sites in India

The US company, whose contract business has suffered of late from sub-optimal profitability at its Large Scale Manufacturing subsidiary in Renhsselaer, New York, has signed a definitive agreement to acquire two pharmaceutical production sites, together with additional land for future expansion, in Aurangabad and Navi Mumbai, India. Under the deal with India's Runwal Group, AMRI will acquire the assets, including facilities, employees, products and equipment, of Ariane Orgachem Pvt Ltd in Aurangabad and Ferico Laboratories Ltd in Navi Mumbai for around $11m (€8m) in cash. The facilities manufacture a wide range of pharmaceutical intermediates and bulk active ingredients, including treatments for diabetes, heart disease and asthma. In the fiscal year 2006, these assets collectively generated revenues of around $5m. The transaction, which is expected to close during the second or third quarter of 2007, should be neutral to slightly dilutive (approximately $0.01 to $0.02 per share) to AMRI's earnings this year and accretive by the end of 2008, the company said. As part of the deal, AMRI is acquiring additional land in Aurangabad, and it plans to invest around $15m in expanding capabilities at the site over the next three years. This will include boosting capacity and bringing the existing facilities into compliance with US Food and Drug Administration (FDA) regulations for manufacturing clinical trial materials and commercial drug substances. The current production capacity of the acquired Indian facilities is around 1100 metric tons per year, AMRI said. The plan is to more than double this capacity as well as bringing in alternate technologies such as bioprocess capabilities. The Indian plants will initially augment, and provide a reliable and cost-effective supply chain for, AMRI's existing US-based contract manufacturing operations, the company noted. "It offers us the flexibility to produce raw materials and process intermediates to support our Rensselaer, New York plant,"​ explained chairman, president and chief executive officer Thomas D'Ambra. In the longer term, and as the company's capabilities in India grow, he added, "we expect to leverage AMRI's small-scale/development resources on both continents - including our laboratory operations in Hyderabad, India - and offer our customers cost-competitive solutions for their outsourcing needs".​ While the Indian plants are being brought into line with US current Good Manufacturing Practice (cGMP) standards, AMRI will continue to use them to manufacture generic pharmaceutical ingredients for customers in Europe and Asia, said AMRI director of communications David Albert. The Indian facilities can also provide starting materials for the Rensselaer site, which will continue to supply the US market for the time being. Once the Indian facilities have cGMP status - which is likely to be a three-year process - they will be able to feed active pharmaceutical ingredients (APIs) and clinical trial materials into the US, but as a complement to the Rensselaer plant, Albert stressed. With turnover of $5m, the Indian plants are still a modest proposition compared with the US Large Scale Manufacturing business, which generated revenues of $77m in 2006, he pointed out. While manufacturing in India "certainly"​ offers cost advantages, the key benefit is flexibility for customers, a strategy AMRI has been pursuing for several years, Albert commented. It means clients can have all or part of their products manufactured in the US or India, depending on their specific requirements. The company has followed a similar model in globalising its drug discovery and development business, which includes the Hyderabad laboratory for custom synthesis of chemical scaffolds and building blocks and the preparation of reference standards; a 16,000 sq ft facility in Singapore for medicinal chemistry support, custom synthesis of scaffolds and building blocks, and non-GMP scale-up; and an acquired drug discovery services company, ComGenex, in Budapest, Hungary. AMRI has been searching for a number of years for a cost-effective means of building up its contract manufacturing capabilities, D'Ambra noted. "Just as we have expanded our lab-scale operations to include global facilities operating in a range of lower cost-structure environments, we have continued to believe that globalisation of our manufacturing operations was also critical to the survival and growth of this component,"​ he commented. The company had assessed a range of manufacturing options, from existing large-volume, high-revenue operations to several Greenfield sites, he added. While the deal with Runwal was small in comparison with some of the options considered, "it gives us an immediate presence and base we can capitalise and build on, something that a Greenfield location would have taken years to achieve,"​ D'Ambra observed. As production is eventually ramped up in India, "we expect these facilities to add significantly to our Large Scale Manufacturing contract revenue in future years,"​ said AMRI's chief financial officer, Mark Frost. "Ultimately, we expect to realise cost savings from re-engineering our supply chain operations." ​ There were encouraging signs in the first quarter of 2007 that the surgery being applied to the Rensselaer plant is starting to have an impact. AMRI announced a major restructuring at the facility last November, refocusing production on clinical trial APIs with strong 'pull-through' potential as they move into commercial production and cutting 15 per cent of the plant's 305-person workforce. Announcing its first-quarter results earlier this month, the company reported that the gross margin for the Large Scale Manufacturing segment had widened to 14 per cent from 4 per cent in the first quarter of 2006. Contract revenue from Large Scale Manufacturing improved by 9 per cent year on year in the latest quarter, to $21m.