AMRI announces fourth-quarter and full-year 2009 results

Feb 8 2010

AMRI (NASDAQ: AMRI) today reported financial and operating results for the fourth quarter and full year ending December 31, 2009.

“In the first quarter, we expect contract revenue to range from $34 million to $38 million. For the full year 2010, we expect contract revenue to range from $165 million to $175 million, an increase of up to 12% versus 2009.”

Financial and other highlights for the fourth quarter and year include:

• Quarter over quarter increase in contract revenue in our Discovery business segment
• Received $0.8 million milestone payment resulting from AMRI’s collaboration with Bristol-Myers Squibb for the nomination of a third compound for preclinical development
• Recurring royalties of $7.6 million, an increase of 13% from the fourth quarter of 2008
• Full year cash flow from operations of $39.1 million, a 48% increase from full year 2008 levels
• Full year free cash flow of $23.9 million, representing a $21.3 million increase over full year 2008 levels
• Recording of a non-cash goodwill impairment charge of $22.9 million in the Large Scale Manufacturing segment and a non-cash write-down of a deferred tax asset of $2.0 million

Fourth Quarter 2009 Results

Total revenue for the fourth quarter of 2009 was $43.4 million, a decrease of 23% compared to total revenue of $56.4 million reported in the fourth quarter of 2008.

Total contract revenue for the fourth quarter of 2009 was $35.0 million, a decrease of 29% compared to total contract revenue of $49.6 million reported in the fourth quarter of 2008. Total contract revenue encompasses revenue from AMRI’s Discovery Services, Development and Small Scale Manufacturing, and Large Scale Manufacturing business components.

• Discovery Services contract revenue for the fourth quarter was $12.7 million, a decrease of 3% from $13.1 million in 2008.
• Development/Small Scale Manufacturing contract revenue for the fourth quarter was $9.4 million, a decrease of 29% from $13.2 million in 2008.
• Large Scale Manufacturing contract revenue for the fourth quarter was $12.9 million, a decrease of 45% from $23.3 million in 2008.

Recurring royalties in the fourth quarter of 2009 were $7.6 million, an increase of 13% compared to recurring royalties of $6.8 million reported in 2008. AMRI earns royalties from worldwide sales of the non-sedating antihistamine Allegra^® (Telfast^® outside the United States), as well as certain generic forms of Allegra^®, for patents relating to the active ingredient in Allegra^®.

Net loss under U.S. GAAP of $19.2 million, or $0.62, in the fourth quarter of 2009 includes the impact of a $22.9 million non-cash goodwill impairment charge, or $0.48 per diluted share, a $2.0 million non-cash write-down of a deferred tax asset, or $0.07 per diluted share, and a $0.4 million restructuring charge, or $0.01 per share. Excluding these items, net loss on an adjusted basis in the fourth quarter of 2009 was $1.9 million, or $0.06 per diluted share.

The non-cash goodwill impairment charge was the result of our annual goodwill impairment testing which determined a decline in fair value to below our carrying value of the Large Scale Manufacturing segment. The non-cash write-down of a deferred tax asset relates to foreign net operating loss carryforwards and resulted from an analysis of the projected future taxable income of certain of our foreign operations.

The restructuring charge of $0.4 million related to the consolidation of India operations. The purpose of the consolidation was to decrease the cost of administrative operations by moving all administrative activities from Mumbai to the company’s Hyderabad Research Centre.

Full Year 2009 Results

Total revenue for the full year ended December 31, 2009 was $196.4 million, a decrease of $32.9 million or 14% compared to $229.3 million in 2008.

Total contract revenue for the full year was $156.8 million, a decrease of $38.7 million or 20% from 2008.

• Contract revenue for Discovery Services in the year ended December 31, 2009 was $47.7 million, a decrease of 17% from $57.7 million in 2008.
• Contract revenue for Development/Small Scale Manufacturing in the year ended December 31, 2009 was $38.1 million, a decrease of 32% from $56.2 million in 2008.
• Contract revenue for Large Scale Manufacturing was $71.0 million, a decrease of 13% compared to $81.5 million in the year ended December 31, 2008.

Milestone revenue resulting from the company's 2005 licensing agreement with BMS for the year ended December 31, 2009 was $4.8 million, compared to total milestone revenue of $5.5 million in 2008.

Recurring royalties from Allegra^® for the full year were $34.9 million, an increase of 23% compared to royalty revenue of $28.3 million in 2008.

Net loss under U.S. GAAP in the year ended December 31, 2009 was $16.7 million or $0.54 per basic and diluted share, compared to net income of $20.6 million or $0.66 per basic and $0.65 per diluted share in 2008. Net loss for the year ended December 31, 2009 includes a $0.8 million, or $0.03 per diluted share, adjustment to decrease income tax expense due to the reassessment of previously uncertain tax positions, a $22.9 million, or $0.48 per diluted share, goodwill impairment charge, a $2.0 million, or $0.07 per diluted share, write-down of a deferred tax asset, and a $0.4 million, or $0.01 per diluted share, restructuring charge. Excluding these items, net loss on an adjusted basis for the year ended December 31, 2009 was $0.3 million, or $0.01 per diluted share.

For a reconciliation of net income and earnings per diluted share as reported to adjusted net income and earnings per diluted share for the 2009 and 2008 reporting period, please see Table 1 at the end of this press release.

AMRI Chairman, President and CEO Thomas E. D’Ambra said, “In spite of a difficult business climate, AMRI improved its net cash position by almost $24 million from a year ago. Even as we tightened our belts regarding short term expenditures, AMRI continued to invest in its future, completing the build out and relocation into new facilities in Bothell, Washington and Budapest, Hungary and developing new technologies to enhance our contract services. In addition, we continued to strengthen our leadership team and the AMRI brand through strong project execution and improved procedures, while continuing to pursue strategic opportunities to broaden our global services.”

Dr. D’Ambra continued, “Although the broad economic collapse that began in late 2008 and accelerated into the first part of last year had its roots outside of the healthcare sector, virtually every industry and company was negatively affected, AMRI included. The goodwill impairment and deferred tax asset write-down, announced today, are additional non-cash consequences which reflect the decreased valuation multiples in our industry as well as the effect of the delays in FDA approvals of our customers new products and the impact on our forecast.”

Dr. D’Ambra concluded, “We realize that the economic and political disruptions of 2009, as well as evolving industry dynamics, are changing the outsourcing market. As we enter 2010, we are cautiously optimistic. In response to growing visibility, we have recently resumed hiring at all non-US operations. With our broad technology services platform and global footprint, AMRI is well positioned to capitalize on a growing outsourcing market, delivering Western standards of highest quality, productivity and added value in a globally competitive environment.”

Liquidity and Capital Resources

At December 31, 2009, AMRI had cash, cash equivalents and marketable securities of $111.1 million, compared to $87.5 million at December 31, 2008.

Total debt at December 31, 2009 was $13.5 million, down from $13.7 million at December 31, 2008. Cash, cash equivalents, and marketable securities, net of debt, were $97.6 million at December 31, 2009, compared to $73.8 million at December 31, 2008. The increase in cash and equivalents net of debt is due to cash provided by operations of $39.0 million in 2009, partially offset by capital expenditures of $15.2 million. Cash provided by operations in 2009 includes the receipt of a $10 million sub-license fee from sanofi-aventis. Total common shares outstanding, net of treasury shares, were 31,642,263 at December 31, 2009.

2010 Financial Guidance Update

AMRI Chief Financial Officer Mark T. Frost provided contract revenue and EPS guidance for the first quarter and full year 2010. “In the first quarter, we expect contract revenue to range from $34 million to $38 million. For the full year 2010, we expect contract revenue to range from $165 million to $175 million, an increase of up to 12% versus 2009.”

Mr. Frost continued, “With regard to our royalty revenues from worldwide sales of Allegra^® and certain generic forms of Allegra^®, we expect first quarter royalties of approximately $11 to $12 million and full year 2010 royalties of approximately $29 to $31 million. For the first quarter we expect EPS to range from $0.01 to $0.05. For the full year we expect EPS to range from $0.04 to $0.08.”

Full Year Highlights

During 2009, AMRI made several noteworthy announcements including the following:

R&D Activities:

• The advancement of a third compound into preclinical development by Bristol-Myers Squibb Company (BMS) as part of the research collaboration between AMRI and BMS, resulting in a $0.8 million milestone payment to AMRI and marking the fifth milestone payment in this ongoing collaboration to develop improved treatments for diseases of the central nervous system (CNS).
• Bristol-Myers Squibb Company’s submission of a Clinical Trial Application (CTA) to the Medical Products Agency (MPA) in Sweden for approval to initiate Phase I studies on an AMRI compound exclusively licensed to BMS, and resulting in a $4 million milestone payment to AMRI.
• The selection of a compound from the company’s proprietary obesity treatment research program for advanced preclinical testing, with the goal of submitting an Investigational New Drug Application (IND) with the U.S. Food and Drug Administration (FDA) in 2010. Pending favorable results in toxicity and safety pharmacology testing, AMRI estimates submission for an IND in the first half of 2010.
• The filing of two new patent infringement lawsuits in U.S. District Court in New Jersey against Dr. Reddy’s Laboratories, Ltd., Dr. Reddy’s Laboratories, Inc. and Sandoz, Inc. (“the defendants”) for infringement of AMRI’s recently issued U.S. Patent Number 7,390,906 for the manufacturing process for the active ingredient in sanofi-aventis’s Allegra^® and Allegra^®D drug products.

• The commencement of a new collaboration agreement between AMRI and the CHDI Foundation, Inc., a non-profit organization pursuing drugs that delay or slow Huntington’s disease (HD), focused on the discovery of new therapeutic agents for the treatment of this disease.

Technology and Facility Activities:

• The addition of clinical formulations capabilities using Xcelodose^® technology, extending AMRI’s currently available API manufacturing and preformulation services to include the manufacture of GMP and non-GMP drug products at our US large scale manufacturing site.
• ChemStewards^® certification of the company’s U.S. manufacturing operation. The award specifically recognizes the site’s successful efforts to go above and beyond the minimum for federal EHS&S compliance. ChemStewards^® is the flagship environmental, health, safety and security (EHS&S) continuous performance improvement program of the Society of Chemical Manufacturers and Affiliates (SOCMA) designed specifically for the batch, custom and specialty chemical industry.
• The dedication and grand opening of a new AMRI research and development facility in Bothell, WA. AMRI leased 44,000 square feet of R&D space with an option to lease an additional 44,000 square feet to accommodate future anticipated expansion of the site. The company received over $400,000 in grant reimbursements from the State of Washington as well as local energy providers Puget Sound Energy and SnoPUD.
• The successful construction and relocation into 32,300 square feet (3,000 square meters) of state-of-the-art chemistry R&D laboratories and administrative space in Budapest, Hungary, as part of the company’s plan to transform its European hub into a higher value discovery services business through consolidation of locations, equipment and operating costs.
• Enhancements to the company’s India operations and leadership team, supporting the establishment of an integrated offering of chemical development and manufacturing services and as part of an effort to increase efficiencies and reduce costs related to AMRI’s global operations.

Management Appointments:

• The hire of Richard A. Saffee as general manager of large scale manufacturing to assume responsibility for all large scale manufacturing operations in Rensselaer, New York including oversight for engineering, manufacturing and materials management.
• The hire of Michael D. Ironside, Ph.D. as director of global project management overseeing all project management activities related to customer products moving through AMRI’s pharmaceutical services organization.
• The hire of Junan Guo, Ph.D. as senior director, analytical and quality services to oversee all domestic analytical chemistry, preformulation and formulation, quality assurance and regulatory affairs efforts.
• The promotion of Chief Financial Officer Mark T. Frost to senior vice president, administration and chief financial officer, to assume leadership for investor relations, sourcing, legal, communications, information technology, facility management and logistics, in addition to finance and accounting.