Albany Molecular Acquires American Advanced Organics

Albany Molecular Research Inc. (Albany, NY) has completed the acquisition of American Advanced Organics Inc. (AAO; Syracuse, NY) for approximately $2.3 million in cash and Albany Molecular common stock. In addition to the $2.3 million purchase price, AAO may also receive up to $800,000 in future payments based upon AAO's financial performance in 2000 and 2001. AAO's acquisition will be accounted for as a purchase of assets. AAO will operate as a division of Albany Molecular Research, while retaining its current name.

American Advanced Organics is a 14-person contract manufacturer of gram to multi-kilogram lots of specialty chemicals, pharmaceutical intermediates, and test drug substances. Founded in 1998 by Kenton Shultis and J. Gregory Reid, both former chemical development managers at Bristol-Myers Squibb's Syracuse facility, AAO sought to capitalize on the growing need for chemistry research and development outsourcing in the pharmaceutical and biotechnology industries. AAO quickly carved out a "fast service" market niche among pharmaceutical and life sciences companies by specializing in rapid response and setting aggressive timelines for production.

Albany Molecular's Albany, NY headquarters boast more than 90,000 square feet of laboratory and administrative space.

"AAO's specialized services will strongly complement the outstanding process research team at Albany Molecular," stated Albany Molecular chairman Thomas D'Ambra. "AAO's staff are excellent additions to our pool of scientific talent. They have developed an entrepreneurial culture, based on a strong work ethic and a focus on quality and customer service, quite similar to our own. This acquisition fills the last hole in our chemical development expansion plans and strongly positions Albany Molecular with the tools to emerge as a leader in the rapidly-growing chemical development outsourcing market."

Broader Range of Services
The AAO acquisition fills a critical gap in Albany Molecular's ability to provide pre-market chemical R&D. AAO's capabilities clearly bring Albany Molecular into the next-higher stratum of service provider. "Our goal is to provide pharmaceutical industry customers with all chemistry-related services," D'Ambra said, "from early stage research up to larger scale production for advanced testing and clinical trials. Early in the discovery and development stages we might get involved in the synthesis of lead-seeking libraries, lead optimization using traditional chemistry, and similar activities. Before acquiring AAO we could not synthesize larger batches. Instead, we had a relationship with Cambrex, which produced up to and including clinical trials batches." Cambrex, a holding company headquartered in East Rutherford, NJ, consists of fifteen specialty chemical and boutique pharmaceutical companies located throughout the United States and Europe.

By acquiring AAO, Albany Molecular now can provide customers with quantities of finished pharmaceutical products ranging from 100 grams to kilograms. "We already have an outstanding process research group in Albany," D'Ambra told Pharmaceutical Online. "AAO will become our ‘swat team' synthesis group," D'Ambra told Pharmaceutical Online. "AAO will enable us to take on projects that need to be done in a hurry. They're good enough to take a process which is not completely worked out, scale up that process, and deliver product. They fill a strategic role for us."

Too Much Emphasis on Discovery?
Today's pharmaceutical companies place a higher emphasis on discovery than any other R&D activity, with the objective of having as many pipeline-stage drugs as possible. This lopsided emphasis on the very earliest stages of drug development opens up opportunities for service providers, according to D'Ambra. "What you're seeing, across the board, is an explosion on the discovery side, leading to more product oportunities. Since most expansion is taking place on the discovery side, development is being shortchanged. We've taken steps to exploit that situation."

Albany chairman Thomas D'Ambra, who holds a PhD in chemistry from MIT, explains the finer structural points of a macrolide pharmaceutical to his staff.

More and more contract manufacturing and contract research organizations are seeing the benefit of offering a broader range of services. Clients who have to deal with one or two contractors are at an obvious advantage over those who must transfer knowledge to two or three contractors, one at each stage of product development. D'Ambra agrees. "The small-quantity work is important. But a client must also be able to go back to a contractor, later on, to ask for larger batches. It was critical for our growth to offer a continuum of services. Companies that don't won't be competitive."

Albany Molecular, which just announced 1999 financials, enjoyed revenues of $43.2 million in 1999, about half of which came from its contract chemistry business. The rest resulted from royalty revenues. Albany Molecular's net 1999 income was $13.7 million.

Albany Molecular has 205 employees at its Albany, NY facility. Its EnzyMed division, located in Iowa City, IA, specializes in the use of biocatalysis for process research and to achieve organic transformations relevant to pharmaceutical processing. OrganiChem, located in Rensselaer, NY, specializes in pilot-scale cGMP work. Albany Molecular has done work for DuPont, AstraZeneca, Purdue Pharma, Pfizer, and many other top companies.

For more information: Thomas E. D'Ambra, Chairman and CEO, Albany Molecular Research Inc., 21 Corporate Circle, Albany, NY 12203. Tel: 518-464-0279. Fax: 518-464-0289.

By Angelo DePalma