AMRI Q1 profits hampered by lagging large scale unit

By Kirsty Barnes

- Last updated on GMT

Related tags Quarter Attention-deficit hyperactivity disorder Amri

AMRI witnessed strong growth in two of its contract business during
the first quarter of 2008 although profit was impacted by its
dominant large-scale division, which lagged during the period.

The contract manufacturing organisation (CMO) was its income from operations grow only slightly to $4.3m compared to the $4.0m generated in the first quarter of 2007, while pre-tax profit remained virtually flat at around $4.8m. In terms of growth, sales were more positive, with total revenue for the first quarter of 2008 climbing by 11 per cent on the comparable 2007 quarter at $53.6m. Within this, total contract revenue increased similarly, by 10 per cent, to $45.3m, with the company's Discovery and Development/Small Scale segments showing the strongest growth, witnessing revenue gains of 34 per cent to $13.3m and 29 per cent to $13.2m, respectively, for the quarter. "We delivered a very positive quarter with improved profitability in our core contract services business​," said AMRI chief financial office Mark Frost in a conference call. He said that in the Discovery and Development division, growth was driven by "demand in all of our facilities including the US, Europe and Singapore​". "In particular, we saw a return of large pharmas utilising our US medicinal chemistry service, as well as we realised further traction in selling the capabilities of our Singapore research center​". In terms of the Small Scale Manufacturing unit, "most of the growth came from continued organic demand from specialty pharma biotech customers in the US, as well as the growing acceptance of our new research center in Hyderabad, India, which is now beginning to book additional work from US and European customers​", said Frost. Commenting on the results, AMRI chairman, president and CEO Thomas D'Ambra said, "The strong growth trend we experienced in the second half of 2007 in our Discovery and Development/Small Scale business components continued in our first quarter of 2008​". "Consistent with the strategy outlined in previous quarters, our hybrid service offering is driving revenue growth in both our US and international locations​". Meanwhile, it was the company's dominant Large Scale Manufacturing division that let the team down, with revenue dropping during the first quarter by 11 per cent to $18.7m, with Frost describing it as a "a soft production quarter​" for the segment. "As we have stated in the past, customer delivery patterns cause greater volatility in revenue for this business segment​", he said, adding that "a few ítems​" contributed to the sales decrease during the quarter. Firstly, "as expected, our other legacy commercial products did not experience reorders​", which contributed $5m of quarter one 2007 revenues, he said. In addition, a quota issue that the company experienced last year with the Drug Enforcement Administration (DEA) in regard to the production of Shire's attention deficit hyperactivity disorder product Vyvanse (lisdexamfetamine dimesylate) remains ongoing and this was also an impacting factor. "While we received firm orders for last year and have orders and forecast from Shire for 2008, we were impacted in late 2007 and have not received necessary DEA controlled substance approvals for all of Shire's anticipated 2008 demand​", Frost explained last year during the company's fourth quarter results announcement. Under law, AMRI cannot start the manufacture until approval is received. "The impact of DEA's regulation on the production of the active pharmaceutical ingredient (API) for Vyvanse for product sales ramp up may cause some volatility for us during the year in terms of what we can manufacture, shift, and recognise revenue for​," said Frost. Despite the sales dip, AMRI said that revenues receive in the Large Scale unit were actually "ahead of previously announced guidance for the quarter​." "In our Large Scale business, although revenue declined compared to the prior year, we remain optimistic given we exceeded the high end of our revenue guidance​," said D'Ambra. "As we have previously experienced, customer delivery patterns and timing of project completions cause quarterly variability in revenue for this business, and does not correlate well on a year over year basis. We expect stronger performance in the second half of 2008 for this segment"​. Frost added that with 16 customer compounds in late stage clinical trials, including one undergoing validation production runs in 2008, and another heading for a possible commercial launch in late 2008, or early 2009, "we remain optimistic about the long-term potential for our manufacturing capabilities and capacity​". "As the market continues to look for high quality and consistent manufacturers with global capabilities, we remain confident we can secure further commercial supply agreements, as some of these products transition into commercial production​". Incidentally, the division also incurred a $0.2m charge related to the restructuring of operations in Rensselaer, which were initiated in the fourth quarter of 2006. Meanwhile, D'Ambra took the opportuinity during the conference call to point out two events of note that occured during the quarter. The company purchased FineKem Laboratories, a manufacturing facility located in Aurangabad, India, "significantly accelerating AMRI's ability to make custom pilot scale intermediates in India​". The firm also completed the construction of a new 1,500 sq. ft. non-GMP high potency development laboratory suite at its site in Albany, New York, "adding capacity to accommodate an increased demand in customer orders for this highly specialised capability​".

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