Stronger Partnerships. Deeper Collaboration
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STRONGER PARTNERSHIPS. DEEPER COLLABORATION. BETTER DECISIONS. ALBANY MOLECULAR RESEARCH, INC. 2015 ANNUAL REPORT TO SHAREHOLDERS A GLOBAL SERVICE & PRODUCT OFFERING Discovery and Development Services. API. Drug Product. Albany, NY / Discovery Services Grafton, WI / cGMP API Manufacturing Malta / API Manufacturing / Chemical Development / Process Development Valladolid, Spain / Sterile Capabilities / Analytical Development / Support Services / API Manufacturing / Small-Scale Manufacturing West Lafayette, IN / Analytical Services Leon, Spain / Drug Product Manufacturing Buffalo, NY / Discovery Services / API Manufacturing / Drug Product & Delivery San Cristobal, Spain / Large-Scale Fermentation Rensselaer, NY / Large-Scale cGMP / Biochemistry Services / API Manufacturing Singapore / Discovery Services / Problem-Solving Services Lebanon, NJ / Analytical & Testing Services Hyderabad, India / Chemical Development Albuquerque, NM / Large-Scale Aseptic / Small-Scale Manufacturing Burlington, MA / Aseptic Fill & Finish Drug Product Manufacturing Manufacturing / Potent Compounds Aurangabad, India / Large-Scale API / Lyophilization Manufacturing Glasgow, UK / Formulation Development / Stability Testing / Small-Scale Aseptic Drug Product Manufacturing LETTER TO OUR SHAREHOLDERS 2015: A Year of Strategic Transformation Dear Shareholder: This market-focused structure is what makes AMRI a very different business today than it was at the end AMRI is in the midst of a major transformation into of 2013, when we were dependent on royalties from a preeminent contract research, development and Allegra® (fexofenadine) which was facing patent expiry. manufacturing organization for complex science. This By contrast, today we have diverse revenue streams from transformation is both timely and strategic, as we seek a wide range of services and from a wide base of cus- to optimize all areas of our business to uniquely serve tomers across the industry. This comes as a direct result the growing market demand for pharmaceutical of the execution of our strategic vision, a plan that has outsourcing. We have found early success in this successfully returned our company to profitability. transformation, experiencing contract revenue compounded annual growth of 20 percent since 2010. For the full year of 2015, on an adjusted basis we With an expectation of further growth, we have set our achieved profits of $33.0 million or 96 cents per share. sights on achieving $1 billion in annual revenue by 2018. Total revenue for the year ended December 31, 2015 was $402.3 million, an increase of 45% compared to Outsourcing in the drug development industry is grow- total revenue of $276.6 million for the same period in ing quickly; global expansion of this industry is seen at 2014. Total contract revenue for the full year 2015 was roughly 10 percent per year through 2019, according to $384.7 million, an increase of 53% compared to contract market research. Large pharmaceutical companies have revenue of $250.7 million for 2014. Adjusted contract pared down to their core competencies, while venture- margins were 26% for the full year 2015, compared to backed drug development companies are operating via 20% in 2014.* virtual or near-virtual business models. In both cases, the result is an urgent need for nimble discovery and Let’s take a closer look at the three business units that are development partners such as AMRI to provide providing momentum for future growth. integrated solutions that are not available in-house. Discovery and Development Services: A Unique Leveraging our rich history and proficiency in complex Combination of Service Offerings Drives Value drug discovery, AMRI has positioned itself as the partner of choice for multiple core steps in the development Our DDS business experienced a dynamic year of expan- process—from compound screening to product manu- sion in 2015. Spearheading this next phase of growth facturing. We offer an integrated set of efficient and is Christopher Conway who was appointed senior vice innovative services to customers across three business president of Discovery and Development Services this segments: Discovery and Development Services (DDS), past year. Under Chris’ leadership, we officially launched Active Pharmaceutical Ingredients (API) Manufacturing our integrated drug discovery center in Buffalo, New and Drug Product Manufacturing (DPM). York. Leveraging the expertise and infrastructure of academic and industrial partners, this new site provides a centralized source for high-throughput Active Pharmaceutical Ingredients screening, in vitro pharmacology and medicinal chemis- (API) Manufacturing: A Strong Portfolio try. It is one of the only U.S.-based CRO facilities that has the advantage of biology, pharmacology, high-through- Our API business unit is our largest business segment, put screening and chemistry all under one roof. This having generated more than $200 million in revenue allows for increased efficiencies and lower costs than in 2015, up from $146 million in 2014. This division has other models. undergone its own transformation during the past year as AMRI has expanded its API manufacturing capabili- In addition to having premier talent within our core ties and portfolio. As part of this, we recently appointed competencies of chemistry, biology and pharmacology, Dawn Von Rohr as senior vice president of API; she joins we have bolstered our capabilities with state-of-the-art us after having led Mallinckrodt Pharmaceutical’s global equipment. In June 2015, AMRI entered into an agree- API business. ment with PerkinElmer through which scientists at our integrated drug discovery center can leverage our In 2015, we completed the acquisition of Gadea chemistry and biology expertise alongside PerkinElmer’s Pharmaceutical Group, further advancing our position informatics technologies and high content screening, as a leader in custom and complex API and adding new cellular imaging and analytical instruments. Experts from customer relationships that extend our global reach. PerkinElmer work alongside our scientists, accelerat- Gadea significantly broadens our marketable API ing the knowledge and information our customers and portfolio and builds on our expertise in complex API partners need. This partnership clearly strengthens our development and manufacturing with its industry- end-to-end integrated discovery offerings. leading capabilities in steroids and hormones. Gadea has large-scale capabilities around steroids, specifically In addition, we’ve signed a number of collaboration around the backward fermentation of certain steroidal agreements in 2015 that broaden the technologies that and hormonal intermediates, a true competitive advan- we offer to our DDS customers. Among these is a key tage. Based in Spain, Gadea expands our footprint in partnership with Multispan, enhancing our offerings in Europe with 400 customers selling into 70 countries. G protein-coupled receptor (GPCR) drug discovery, and with Icagen, which gives us an advantage in ion channel We begin 2016 with an impressive API manufacturing and transporter technology. pipeline that includes 50 innovator compounds in Phase 1 and 2 development and 13 compounds in In 2015, we also completed a strategic acquisition of Phase 3 trials, with 32 drug master files (DMFs) available Whitehouse Laboratories. Whitehouse is a leading for customers to reference and 134 commercial provider of testing services that includes chemical and products. This strong portfolio of APIs will continue material analysis, method development and validation, to provide a healthy stream of revenue for the and quality control verification services to the foreseeable future. pharmaceutical, medical device and personal care industries. Whitehouse is also a recognized leader in Drug Product Manufacturing: container closure integrity and qualification testing. Its Acquisitions Boost Growth services complement our drug-substance analytical capabilities. Early in 2015, through the addition of SSCI Our Drug Product Manufacturing business continues to in West Lafayette, Indiana, we added expertise in high- expand rapidly as we further establish our position as demand solid-state chemistry and extensive analytical the preeminent supplier of custom and complex drug and drug product testing capabilities that address our development services and products. We now have four customers' expanding regulatory demands. We finished facilities, which allow us to accomplish everything in 2015 with $90 million in Discovery and Development sterile drug product development and manufacturing Services revenue, up 20 percent from $75 million in 2014. from pre-formulation, formulation, clinical batch manufacture and process engineering to full-scale commercial production. We closed 2015 with $90 million in Drug Product Manufacturing revenues, up significantly from $30 million in 2014. Enhancing operations and new acquisitions were key to our success for Drug Product in 2015. Our Burlington, Mass. facility, focused on the development and small scale production of sterile injectables, had its first prod- uct approved by FDA, helping the Drug Product business and became profitable for the first time in 2015. On the acquisition front, we acquired our Glasgow, UK operation, which focuses on sterile drug product de- velopment services, and the Gadea acquisition further supports expansion of our Drug Product Manufactur- ing business. Gadea augments our sterile offerings with Our diversified business allows us to maintain