Burlington demand and Cedarburg acquisition encouraging for AMRI
For the first quarter 2014, AMRI reported a 10% growth year-over-year in its contract revenues to $51m (€37m), though increased operating expenses helped produce a bottom line of $3.5m, down 46% on the same period 2013.
However, management offered encouraging guidance, raising its outlook for the year to 16-20% growth in contract revenues due to the growth of its core business, rallied on by unprecendented demand at the Burlington, Massachusetts facility which received a close-out letter last Novemeber after years of regulatory issues.
“Following the lifting of the warning letter last quarter, we have seen an increase in the bid flow and our order book is firming up nicely,” said CEO William Marth during a conference call yesterday.
“In fact demand for Burlington services is the highest we have seen and as we transition to new contracts over the year we anticipate sales and margins will continue to improve out of that facility.”
He also revealed a follow-up inspection from the US Food and Drug Administration (FDA) completed last week at the site resulted in no observations and no 483.
The facility forms part of AMRI’s large-scale manufacturing business and, along with demand from the firm’s Rennselaer, UK plant, reported a 19.5% increase to $31.5m y-o-y. However, a “slightly weaker mix of business” was blamed for a drop in contract margins to 19.7% from 21.3%.
API growth
Management was also spurred on by the $41m Cedarburg Pharmaceuticals acquisition, completed last month with the integration, according to Marth, well underway.
“The operational team is established, goals are being set and the execution timelines are being laid out,” he told investors. “With Chuck Boland staying on from Cedarburg the leadership transition is relatively seamless and Cedarburg should be an excellent tuck-in acquisition for us.”
However, AMRI is still on the lookout for further opportunities to grow inorganically, and while Marth said the firm would look at technology areas on the CMO side, he spoke more predominantly about the company’s API strategy.
“Within API and finished dose manufacturing, we are seeing increased capacity utilization at all our sites and the addition of Cedarburg further strengthens the business with added capabilities and enhanced margins,” he said.
“The M&A is focused around our strategy right of really building a preeminent API business that is focused around very tight areas which is controlled substances, steroids, protein peptide, cytotoxic and complex molecules.”
These substances are “more profitable than your plain white powder because the barriers to entry are higher” he explained, adding AMRI had been “digging through” a number of potential M&A prospects.
“Surprisingly there are a number of moderate size API companies that are owned by sponsors and there's lots and lots of material to dig through, we are really excited about it.”
