ALBANY MOLECULAR RESEARCH INC - FORM 10-K

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EX-32.1 - ALBANY MOLECULAR RESEARCH INC	v177251_ex32-1.htm
EX-31.2 - ALBANY MOLECULAR RESEARCH INC	v177251_ex31-2.htm
EX-32.2 - ALBANY MOLECULAR RESEARCH INC	v177251_ex32-2.htm
EX-23.1 - ALBANY MOLECULAR RESEARCH INC	v177251_ex23-1.htm
EX-21.1 - ALBANY MOLECULAR RESEARCH INC	v177251_ex21-1.htm
EX-31.1 - ALBANY MOLECULAR RESEARCH INC	v177251_ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-25323

Albany Molecular Research, Inc.

(Exact name of registrant as specified in its charter)

Delaware		14-1742717
(State or Other Jurisdiction of		(IRS Employer
Incorporation or Organization)		Identification No.)
21 Corporate Circle, P.O. Box 15098,
Albany, New York		12212-5098
(Address of principal executive offices)		(zip code)

(518) 464-0279

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of exchange on which registered
Common Stock, par value $.01 per share		The NASDAQ Stock Market LLC
Preferred Stock Purchase Rights

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of Each Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in 12b-2 of the Exchange Act

o Large accelerated filer

x Accelerated filer

o Non-accelerated filer

o Smaller reporting company

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

The aggregate market value of the Registrant’s Common Stock held by non-affiliates of the Registrant on June 30, 2009 was approximately $180 million based upon the closing price per share of the Registrant’s Common Stock as reported on the Nasdaq National Market on June 30, 2009. Shares of Common Stock held by each officer and director and by each person who owns 10% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of February 28, 2010, there were 31,672,511 outstanding shares of the Registrant’s Common Stock, excluding treasury shares of 3,824,593.

DOCUMENTS INCORPORATED BY REFERENCE

The information required pursuant to Part III of this report is incorporated by reference from the Company’s definitive proxy statement, relating to the annual meeting of stockholders to be held on or around June 2, 2010, pursuant to Regulation 14A to be filed with the Securities and Exchange Commission.

ALBANY MOLECULAR RESEARCH, INC.

INDEX TO

ANNUAL REPORT ON FORM 10-K

		Page No.
	Cover page
	Part I.
Forward-Looking Statements		3
Item 1.	Business	4
Item 1A.	Risk Factors	16
Item 1B.	Unresolved Staff Comments	23
Item 2.	Properties	23
Item 3.	Legal Proceedings	24
Item 4.	Removed and Reserved	25

	Part II.
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	26
Item 6.	Selected Financial Data	27
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	42
Item 8.	Financial Statements and Supplementary Data	43
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	43
Item 9A.	Controls and Procedures	43
Item 9B.	Other Information	44

	Part III.
Item 10.	Directors, Executive Officers and Corporate Governance of the Registrant	45
Item 11.	Executive Compensation	45
Item 12.	Security Ownership of Certain Beneficial Owners and Management	45
Item 13.	Certain Relationships, Related Transactions and Director Independence	45
Item 14.	Principal Accountant Fees and Services	45

	Part IV.
Item 15.	Exhibits and Financial Statement Schedules	46

Forward-Looking Statements

References throughout this Form 10-K to the “Company”, “we,” “us,” and “our” refer to Albany Molecular Research, Inc. and its subsidiaries, taken as a whole. This Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements may be identified by forward-looking words such as “may,” “could,” “should,” “would,” “will,” “intend,” “expect,” “anticipate,” “believe,” and “continue” or similar words, and include, but are not limited to, statements concerning pension and postretirement benefit costs, the Company’s relationship with GE Healthcare, the Company’s collaboration with Bristol-Myers Squibb (“BMS”), future acquisitions, earnings, contract revenues, costs and margins, royalty revenues, patent protection and the ongoing Allegra® patent infringement litigation, Allegra® royalty revenue, government regulation, retention and recruitment of employees, customer spending and business trends, foreign operations (including Singapore, India, Hungary and the United Kingdom), including increasing options and solutions for customers, business growth and the expansion of the Company’s global market, clinical supply manufacturing, management’s strategic plans, drug discovery, product commercialization, license arrangements, research and development projects and expenses, selling, general and administrative expenses, goodwill impairment, competition and tax rates. The Company’s actual results may differ materially from such forward-looking statements as a result of numerous factors, some of which the Company may not be able to predict and may not be within the Company’s control. Factors that could cause such differences include, but are not limited to, the Company’s ability to recruit and retain experienced scientists and other highly-skilled employees, trends in pharmaceutical and biotechnology companies’ outsourcing chemical and discovery research and development, including softness in these markets, competition from domestic competitors and foreign companies operating under lower cost structures, the loss of a significant customer, sales of Allegra® (including any deviations in sales estimates provided by sanofi-aventis), the risk of an “at-risk” launch of generic Allegra-D® and the impact of that on the Company’s receipt of significant royalties under the Allegra® license agreement, the risk that Allegra® may be approved for over-the-counter use, the over-the-counter sale of Claritin and Zyrtec, the over-the-counter sale of generic alternatives for the treatment of allergies and the risk of new product introductions for the treatment of allergies, such as Xyzal, including generic forms of Allegra®, the Company’s and sanofi-aventis’s ability to successfully enforce their respective intellectual property, patent rights and technology rights, including with respect to the generic companies’ Abbreviated New Drug Application filings, the Company’s ability to successfully develop novel compounds and lead candidates in its research programs and collaborative arrangements, the Company’s performance under the collaboration with BMS, BMS’s continued pursuit of programs under which the Company provides services, delay or denial of marketing approvals from the Food and Drug Administration (“FDA”) resulting from, among other things, adverse FDA decisions or interpretations of data that differ from BMS’s interpretations and that may require additional clinical trials or potential changes in the cost, scope and duration of clinical trials, if approved, the inability to successfully launch, increase sales of or sustain the product or products in the market, the inability to successfully and efficiently scale-up manufacturing for commercialized compounds, the outcome of clinical work that will be required to commercialize compounds, the Company’s ability to take advantage of proprietary technology and expand the scientific tools available to it, uncertainty concerning charges associated with the Company’s restructuring of its AMRI India or AMRI Hungary business units, which may be higher than estimated at this time, the risk that the Company will not realize the anticipated cost savings from its restructuring plans during the time frame indicated, or even if the anticipated cost savings are achieved, that the AMRI India and the AMRI Hungary business units may remain unprofitable or operate with low gross margins, the ability of the Company’s strategic investments and acquisitions to perform as expected and the cost and any goodwill impairment related to such investments and acquisitions, the Company's timing and ability to successfully integrate Excelsyn and AMRI India’s operations (including implementation of the Company's systems and controls) and employees, the introduction of new services by competitors or the entry of new competitors into the markets for the Company's, Excelsyn’s and AMRI India’s services, the failure by the company to retain key employees of these locations, failure to further develop and successfully market AMRI India’s service offerings, the Company’s ability to successfully complete its ongoing expansion projects on schedule, the risks associated with international operations and managing our international operations, especially in India, Singapore, Hungary and the U.K., the Company’s ability to execute its business plan for compound and chemical screening libraries, failure to achieve anticipated revenues and earnings, the existence of deficiencies and/or material weaknesses in the Company’s internal controls over financial reporting, risks related to the ongoing implementation of its enterprise resource planning system, the Company’s ability to effectively manage its growth, liability for harm caused by drugs the Company develops and tests, liability for contamination or other harm caused by hazardous materials used by the Company, failure to meet strict regulatory requirements, health care reform reducing the price pharmaceutical and biotechnology companies can charge for drugs, thus reducing resources available to retain the services of our Company, the fluctuation of the market price of our common stock, changes in the foreign currency exchange rates and interest rates, and the possibility of a natural disaster, catastrophic event or terrorist attack. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Readers should review carefully the risks and uncertainties identified below under the caption “Risk Factors and Certain Factors Affecting Forward-Looking Statements” and elsewhere in this 10-K. All forward-looking statements are made as of the date of this report and we do not undertake any obligation to update our forward-looking statements, except as required by applicable law.

PART I

ITEM 1. BUSINESS.

Overview

Albany Molecular Research, Inc. (the “Company,” “AMRI”, “we,” “us,” and “our”), a Delaware corporation incorporated on June 20, 1991, provides scientific services, technologies and products focused on improving the quality of life. The Company’s core business consists of a fee-for-service contract services platform encompassing drug discovery, development and manufacturing services, and a separate, strategic technology division consisting of proprietary technology investments, internal drug discovery and niche generic active pharmaceutical ingredient product development. With locations in the U.S., Europe, and Asia, the Company provides customers with a wide range of services, technologies and cost models.

Business Strategy

AMRI is uniquely positioned in the marketplace to provide a competitive advantage to a diverse group of customers. Our reputation of providing the highest quality service and a variety of pricing options provides more companies with the security of sourcing discovery, development, small and large scale manufacturing projects throughout our global network of research and manufacturing facilities. What has been a historically fragmented market is currently undergoing consolidation, which provides us an opportunity to use our resources and our expanded global footprint to become a premier player in a much larger marketplace. A more detailed look at our strategy to accomplish this includes the following:

Globalizing our contract services platform - We provide contract services to many of the world’s leading pharmaceutical and biotechnology companies. We derive our contract revenue from research and development expenditures and commercial manufacturing demands of the pharmaceutical and biotechnology industry. We continue to execute our long-term strategy to develop and grow a fully integrated global platform from which we can provide these services. Over the past several years, through a combination of acquisitions and greenfield startups, we have expanded our global footprint to include large-scale manufacturing facilities in India, as well as research facilities in Hungary, Singapore and India. Additionally, in February 2010, we acquired a development and large scale manufacturing facility in the UK. We believe that our presence in these locations provides us with increased access to key global markets, and enables us to provide our customers with a flexible combination of high quality services and competitive cost structures to meet their individual outsourcing needs.

Broaden service offerings – In an effort to capture additional market penetration and increase the comprehensive nature of the services that we are able to provide to our customers, we seek to broaden the scope of our service offerings through a combination of organic growth and strategic acquisitions. We introduced formulation development and manufacturing to our service offerings in 2009 and we are also expanding our biology capabilities in response to customer demand for integration of these services into their chemistry programs. Furthermore, our current financial position of significant cash and cash equivalents with minimal debt enables us to pursue additional expansion and high-value strategic acquisitions in the current economic environment. This will enable us to be a stronger competitor as the market recovers. Additionally, as the industry rebounds, it is expected that there will be an increase in outsourcing of research and development by larger pharmaceutical companies and a return to growth by biotech and specialty pharmaceuticals. We continue to pursue making large pharmaceutical companies a larger part of our customer portfolio. We believe our ability to offer a hybrid services model, which allows customers to use a combination of our U.S. and international locations, will result in an increase in demand as these companies return to outsourcing R&D in order to replace fixed costs with variable costs.

Leveraging integrated contract services - Our research facilities provide discovery, chemical development, analytical, and small-scale current Good Manufacturing Practices (“cGMP”) manufacturing services. We seek comprehensive research and/or supply agreements with our customers, incorporating several of our service offerings and/or spanning across the entire pharmaceutical research and development process. Within our discovery services platform, in response to changing industry trends, we are developing responses to customer demand of integrated programs which offers a combination of chemistry and biology services in order to fully integrate all of their needs into one provider.

Compounds developed in our small scale research facilities can then be more easily transitioned to production at our large-scale manufacturing facilities for use in clinical trials and, ultimately, commercial sales if the product meets regulatory approval. We believe that the ability to partner with a single provider of pharmaceutical research and development services from discovery through commercial production is of significant benefit to our customers. Through our comprehensive service offerings, we are able to provide customers with a more efficient transition of experimental compounds through the research and development process, ultimately reducing the time and cost involved in bringing these compounds from concept to market.

Capitalizing on R&D skills and technologies - We conduct proprietary research and development to discover new therapeutically active lead compounds with commercial potential. We anticipate that we would then license these compounds and underlying technology to third parties in return for up-front and service fees and milestone payments, as well as recurring royalty payments if these compounds are developed into new commercial drugs.

Our proprietary research and development activities previously led to a licensing agreement with sanofi-aventis and another with Bristol-Myers Squibb Company (“BMS”). Under our license agreement with sanofi-aventis, we have had revenues of approximately $423 million through December 31, 2009 . Under our contract with BMS we have had revenues of approximately $30 million to date, with the potential in excess of $150 million in up-front license, contract service, and milestone revenues. The contract also provides for recurring royalties on commercial products developed from this technology.

We also continue to utilize our proprietary technologies to further advance other early to middle stage internal research programs in the fields of cancer, irritable bowel disease, obesity and central nervous system (“CNS”) diseases, with a view to seeking a licensing partner for these programs at an appropriate research or developmental stage.

In addition, research and development is performed for our large-scale manufacturing business related to the potential manufacture of new products, the development of processes for the manufacture of generic products with niche commercial potential, and the development of alternative manufacturing processes.

Return to expanding margins – Our global platform has increased our market penetration and was developed to help us to maintain and grow margins. Although the current economy has led to a decrease in margins from prior years, we were able to mitigate an even larger reduction by proactively managing our expenses through a variety of savings measures. The cost bases of our manufacturing and research facilities are largely fixed in nature, however, we continue to seek savings opportunities to minimize this base of fixed costs, including process efficiencies and improved sourcing. We also seek to drive incremental revenue from our facilities through improved execution at our facilities, lower cost markets and investments in our sales & marketing team.

Industry Overview

Pharmaceutical and biotechnology companies are under increasing pressure to deliver new drugs to market, lower the current high cost of new drug research and development and reduce the time required for drug development. This pressure has come about, in part, as a result of the significant number of current drug products on the market for which patent protection has or will soon expire, as well as a reported drop in productivity from pharmaceutical companies’ internal research pipelines. Further, large pharmaceutical companies are facing increased pressures to reduce their fixed costs base and turn to more flexible cost models.

In order to take advantage of these opportunities and to respond to these pressures, many pharmaceutical and biotechnology companies have augmented their internal research and development capacity through outsourcing. However, commencing in the fourth quarter of 2008 and continuing into 2009, many of these companies cut some of their internal R&D projects due to the current economic volatility. In response to this financial crisis, many companies have experienced decreases in cash due to tightening of credit policies by banks and other sources of capital. Furthermore, entities with additional sources of funding have chosen to become more selective in continuing programs in order to preserve cash.

Small Molecule Drug Discovery, Development and Manufacturing Process

Although many scientific disciplines are required for new drug discovery and development, chemistry and biology are core technologies. Chemists and biologists typically work together to develop laboratory models of disease, screen small molecule compounds to identify those that demonstrate desired activity and finally create a marketable drug.

The drug discovery and development process includes the following steps:

Drug Discovery

Lead Discovery. The first major hurdle in drug discovery is the identification of one or more lead compounds that interact with a biological target, such as an enzyme, receptor or other protein that may be associated with a disease. A biological test, or assay, based on the target is developed and used to test or “screen” chemical compounds. The objective of lead discovery is to identify a lead compound or screening ‘hit’. Validation of a screening hit is performed under the scrutiny of the discovery biologists and medicinal chemists in order to identify the ‘hits’ with the best chance to obtain a drug-like chemical series or lead compound. Early in vitro screening for potentially unwanted drug-drug interactions and cardiovascular liabilities are also conducted. The objective of lead discovery is to identify a lead compound that has desirable drug properties and a good prognosis for further optimization in order to produce a robust clinical development candidate.

Lead Optimization. Lead optimization typically involves improving the potency, selectivity, absorption/metabolism and pharmacokinetics of the lead compound, while maintaining, or generating, patentable intellectual property. Optimized lead compounds must demonstrate a scientifically proven benefit in controlled and well-defined biological tests in animal models, and must exhibit this benefit at doses much lower than those at which side effects would occur. During the lead optimization and preclinical testing phases, scientists continue the synthesis of additional analogs of the lead compound using medicinal chemistry. Often a second compound, referred to as a backup compound or second generation analog, is synthesized and enters the drug development cycle. In addition, continued synthesis is desirable in order to prepare compounds of significant diversity to broaden potential patent coverage. As a result, the advancement of a lead compound into preclinical testing is often a catalyst which increases, rather than decreases, the need for additional medicinal chemical synthesis and other chemical services. During lead optimization most compounds are prepared in milligram to gram quantities.

Drug Development

Preclinical Testing. Following the advancement of a lead compound to a development candidate, advanced preclinical testing is conducted in order to evaluate the efficacy and safety of the development candidate prior to initiating human clinical trials. During this phase, specialists in chemical development work to identify the best physical form of the compound, selecting appropriate salts and controlling polymorphic form and begin to improve the process for preparing the candidate in larger quantities, often hundreds of grams. Working with analytical chemists, the development chemists will prepare material of sufficient quality and quantity to be used in IND-enabling toxicity studies. In the United States, prior to continuing on to the human clinical trials stage, an Investigational New Drug application (“IND”) must be filed with the FDA. Once the application is filed, the applicant must wait 30 days for comments from the FDA. If none are received, human clinical trials may commence.

Clinical Trials. During clinical trials, several phases of studies are conducted to test the safety and efficacy of a drug candidate in humans. The human clinical trials phase is usually costly and time-consuming. As study populations increase and trial durations lengthen, larger quantities of the active ingredient are required. Clinical trials are normally done in three phases and generally take two to seven years, but may take longer, to complete. The active pharmaceutical ingredient (“API”) and the formulated drug product must be prepared under cGMP guidelines. Analytical chemistry services are critical to cGMP manufacturing. Additional preparations provide an opportunity to further refine the manufacturing process, with the ultimate goal of maximizing the cost effectiveness and safety of the synthesis prior to commercialization.

Product Commercialization. Before approving a drug, the FDA requires that manufacturing procedures and operations conform to cGMP guidelines, International Conference on Harmonization guidance and manufacturing guidelines and guidance published by the FDA. Manufacturing procedures and operations must be in compliance with all regulatory and quality regulations at all times during the manufacture of commercial products and APIs. Once a drug has received all necessary approvals, the manufacture, marketing and sale of commercial quantities of the approved drug may commence.

Trends in Contracting for Drug Discovery and Development

Beginning in 2005 and continuing through 2008, we experienced strong demand for our developmental and small-scale cGMP manufacturing services as a result of a trend toward drug development and discovery outsourcing. The following trends led to demand for contract services in drug discovery and development:

•

development of new technologies has continued to increase the number of targets and accelerate the identification of active compounds;

•

pressure to develop new lead compounds due to the near-term loss of patent protection for many drug products;

•

increased pressure to reduce the time spent in drug discovery and development in order to bring drugs to market sooner and maximize time on the market during the drug’s patent life;

•

increased focus on converting fixed costs to variable costs and streamlining operations by contracting for research and development services;

•

heightened regulatory environment and increased complexity that have made the internal management of complicated discovery, development and manufacturing projects more difficult and costly; and

•

emergence of biotechnology and start-up pharmaceutical companies in the drug discovery process who typically tend to outsource drug discovery and development expertise as part of their strategy.

We experienced increased demand in the areas of developmental and small-scale cGMP manufacturing services, reflecting a reduction in budgetary constraints of our emerging pharmaceutical and biotech customers and their increased efforts to bring identified compounds into clinical trials. During this timeframe, partly in recognition of increased competition and consolidation within the pharmaceutical industry, we established lower-cost international operations in Hungary, Singapore and India. Contract service providers that were not able to offer a cost competitive product were forced to exit or significantly reduce their presence in the marketplace during this time. In addition to providing customers with a range of technologies and cost options, expanding internationally has provided increased access to customers and potential customers in regions of the world which we have, until recently, not significantly pursued.

In 2009, we experienced a decrease in customer delivery patterns and demand caused by the economic downturn. As the industry emerges from this economic downturn, we are cautiously optimistic that demand for our discovery and development services should return. We continue to build on our strategy of leveraging our global resources to meet changing and expanding global outsourcing needs and additionally to expand our global service platform to meet the needs of our customers. In 2007, we completed the construction of a 50,000 square foot research center focusing primarily on custom synthesis and medicinal chemistry support services at the Shapoorji Pallonji Biotech Park in Hyderabad, India and have recently planned a 40,000 square foot expansion of this facility. In 2008, we completed a 10,000 square foot expansion of our Singapore Research Center. In addition to increasing existing discovery service capabilities, the expansion of our Singapore Research Center also included the introduction of in vitro biology services at the facility. We also completed the expansion of our research facilities in Budapest, Hungary and Bothell, Washington during 2009.

Trends in Contracting for Pharmaceutical Manufacturing Services

The trends noted above that have driven demand for drug discovery and development services in recent years have also led to an increase in demand for contract manufacturing services as healthcare companies transition their early stage compounds into clinical and ultimately commercial production. Further, many healthcare companies have elected to outsource their manufacturing capabilities in an effort to control costs by eliminating expenses associated with owning and operating manufacturing facilities. However, new changes in governmental regulatory issues could potentially affect the current out-sourcing market. In addition, the demand for the manufacturing of generic drugs has significantly increased as healthcare companies’ strategic objectives increasingly include the ability to introduce generic drug product into the market upon expiration of patented technologies.

We have integrated our drug discovery and development research facilities with our large-scale manufacturing facilities to allow for the easier transition throughout the entire pharmaceutical research and development process. Through our comprehensive service offerings, we are able to provide customers with a more efficient transition of compounds through the research and development process, ultimately reducing the time and cost involved in bringing these compounds from concept to market. We enhanced our large-scale manufacturing capabilities with our acquisitions of manufacturing facilities in India in 2007 and 2008. In 2009, we completed the modernization and expansion of our pilot plant facilities in India. Additionally, in February 2010, we acquired Excelsyn Ltd. which will provide us with additional development and large scale manufacturing services in Europe. With these acquisitions and expansion, we have globalized our manufacturing operations, which offers us the flexibility to produce raw materials and process intermediates to support our domestic large-scale manufacturing facility. In addition, we believe that these acquisitions improve our generic drug product manufacturing capabilities and provide the opportunity to increase our global manufacturing market penetration over time.

Our Capabilities

We perform services including drug discovery, pharmaceutical development, and manufacturing of active ingredients and pharmaceutical intermediates for many of the world’s leading healthcare companies. The problem-solving abilities of our scientists can provide added value throughout the drug discovery, development and manufacturing process. Additionally, we are making investments to include formulation to our on-going list of services. Our comprehensive suite of services allows our customers to contract with a single partner, eliminating the time and cost of transitioning projects among multiple vendors.

Service Offerings

Drug Discovery Services

The competitive drug discovery industry continues to face many challenges, including a weakening product pipeline, increasing costs, more complex disease targets and regulatory hurdles. These challenges have compelled many companies/research organizations to look outside their own research and development (“R&D”) function for contract partners to support research and development at the earliest stages of the drug discovery process. We provide a broad spectrum of lead discovery services backed by key employees with decades of experience. All services provided by our lead discovery group are tightly integrated with our chemistry business and can be accessed independently or as part of a program involving chemistry-driven lead optimization.

Our Drug Discovery Services include:

Assay Development and Design

We offer custom assay design and development services to clients in the pharmaceutical, biopharmaceutical and agrochemical industries who are starting from a unique target or who are supporting ongoing lead discovery programs. This service can be delivered independently to a client, or integrated with our full range of chemistry services.

Key features of our Assay Design and Development services include:

Gathering assay design requirements and objectives from the client

Transferring customer developed assays

Developing, optimizing and validating assays for screening

Screening

Our diverse offering of screening capabilities, coupled with access to our range of sample collections, give customers the essential tools to efficiently and safely identify active compounds during the lead discovery phases of drug discovery.

Key features of our screening programs and collections include:

Availability of high throughput, absolute potency and selectivity screening services

Support of large scale screens of client or AMRI’s sample collections

Extensive performance testing

Screening Libraries

We have created a series of unique, high purity, cost effective, small molecule synthetic compound libraries and a complementary collection of natural product extracts from marine, plant and microbial sources designed for screening and hit-to-lead programs. We are uniquely positioned to fully support active hits from any of these libraries with lead optimization services, analytical services, custom synthesis and/or small or large scale manufacturing.

Our libraries include:

Natural Products Libraries

Target focused Discovery Libraries

Commercial Sample Library (“CSL”)

Diverse AMRI Sample Library (“DASL”)

Diverse Fragment Based Library

Bioanalytical Services

We develop and execute rapid, sensitive, and robust bioanalytical methods for extraction and quantitation of drug and metabolites in biological fluids and tissues to support preclinical and clinical studies.

Natural Product Services

We have a longstanding, well established ability to deliver on Natural Products discovery programs. With a complete team of natural product experts with decades of experience in the field and access to a variety of complementary discovery technologies and disciplines, we have the unique ability to rapidly advance a natural product from hit to lead to qualified drug candidate.

Medicinal Chemistry

Lead optimization is the complex, iterative process of altering the chemical structure of a confirmed hit to identify an improved drug lead with the goal of progressing to a preclinical candidate. Well-trained, intuitive and knowledgeable, our medicinal chemists have years of experience working with drug-like compounds. Our Medicinal Chemistry capability is fully integrated with our other drug discovery services, allowing for a “one stop shop” approach towards outsourcing lead discovery and optimization efforts, if so desired.

Computer-Aided Drug Discovery (“CADD”)

Our CADD services use sophisticated computational software and techniques to help identify novel hits or leads against selected therapeutic targets, as well as to support medicinal chemistry lead optimization programs. CADD methods can increase the odds of identifying compounds with desirable characteristics, speed up the hit-to-lead process and improve the chances of getting a compound over the many hurdles of preclinical testing.

In vitro ADMET

We conduct in vitro ADMET assays to evaluate and improve metabolism, bioavailability, pharmacology and toxicology of compounds.

Early stage ADMET testing, integrated with Medicinal Chemistry programs, typically include:

Aqueous solubility under physiological conditions

Metabolic and chemical stability

Membrane permeability (PAMPA, Caco-2, etc.)

Inhibition and induction of major metabolic enzymes (CYP450s)

Chemical Development

Chemical development involves the scale-up synthesis of a lead compound and intermediates. Processes developed for small scale production of a compound may not be suitable for larger scale production because they may be too expensive, environmentally unacceptable or present safety concerns. With pharmaceutical development locations around the globe, we have become a top choice for an ever increasing number of pharmaceutical and biotechnology companies seeking a partner for the rapid advancement of their drug candidates. Customers throughout the world rely on our proven technical expertise, commitment to the highest quality and regulatory standards, flexibility, and strong customer focus to advance their lead compounds through the drug development process, from bench scale to commercial production.

Our Chemical Development services include:

Process Research and Development

Custom Synthesis

Process Safety Assessment

Scale-up Capabilities

High Potency and Controlled Substances

Analytical Services

Preformulation Services and Physical Characterization

Preparative Chromatography

IND support Services

Fermentation Development and Optimization

Building Blocks Collection and Database

cGMP Manufacturing

We provide chemical synthesis and manufacturing services for our customers in accordance with cGMP regulations. All facilities and manufacturing techniques used in the manufacture of products for clinical use or for sale in the United States must be operated in conformity with cGMP regulations as established by the FDA. Our Albany, New York location has production facilities and quarantine and restricted access storage necessary to manufacture quantities of drug substances under cGMP regulations sufficient for conducting clinical trials from Phase I through Phase II, and later stages for selected products, based on volume and other parameters. Our large scale manufacturing facility in Rensselaer, New York is equipped to provide a wide range of custom chemical development and manufacturing capabilities. We conduct commercial cGMP manufacturing of APIs and advanced intermediates. Our large-scale cGMP manufacturing facilities provide synergies with our small-scale development laboratories, offering our customers services at every scale, from bench to production. We have special capabilities in high value-added areas of pharmaceutical development and manufacturing, including High Potency Manufacturing. Cytotoxic and other highly potent compounds present a number of potential challenges in their production and handling. We have extensive experience in the cGMP production of these types of compounds, from grams to hundreds of kilograms per year. Our Rensselaer facility is licensed by the U.S. Drug Enforcement Administration to produce Schedule I, II, III, IV and V controlled substances. For over 50 years, the facility has produced controlled substances such as analgesics, amphetamines, barbiturates, and anabolic steroids. In the second quarter of 2008, our focus on quality was reinforced after a successful FDA inspection of our Rensselaer facility resulted in no issuances of Form FDA 483 Observations of Objectionable Conditions and Practices (“Form FDA 483”).

Our manufacturing facilities are strategically situated in various locations in the United States and Asia. These locations are globally positioned to provide tailored customer solutions and enable the efficient and cost-effective transfer of pre-clinical, clinical and commercial APIs from small-scale to large-scale production. Additionally, these locations easily integrate with our discovery and pharmaceutical development services.

Formulation

We have added some focused formulation capabilities to our portfolio. Working in close collaboration with our already established chemical synthesis, analytical development and preformulation groups, we are offering solid dosage formulation development services, cGMP early clinical phase capsule filling using Xcelodose technology, cGMP early clinical Powder in Bottle (“PIB”) for solution and suspension.

Formulation services include:

Neat API in-capsule filling


	·	PIB for solution and suspension


	·	Blending and sieving


	·	Milling


	·	Tableting


	·	Rheology


	·	Roller compaction


	·	Wet granulation


	·	Fluid bed processing, including Wurster coating


	·	All associated analytical testing for dosage formulation products

Analytical Chemistry Services

We provide broad analytical chemistry services for drug discovery, pharmaceutical development and manufacturing. With years of industry experience, state-of-the-art technologies and instrumentation, along with close collaboration with synthesis chemists, our analytical services are designed to ensure that the right tools are used to solve even the most difficult problem.

Analytical services that we provide include:

Impurity identification & structure elucidation

Method development, qualification and validation

Preformulation and physical characterization

Quality control

Stability services

Analytical and preparative Supercritical Fluid Chromatography (“SFC”)

Preparative chromatography

Good Laboratory Practices (“GLP”) bioanalytical services

Regulatory support/quality assurance

Proprietary Research and Development

Leveraging our wide array of drug discovery capabilities, we seek to discover and develop promising drug candidates and license these candidates in return for upfront fees, milestones and downstream royalty payments for commercialized drug products. We identify lead series by utilizing our high throughput screening capabilities, coupled with our computer assisted drug design capabilities, to assess our diverse range of synthetic, virtual and natural product screening libraries. Applying the expertise of our separate R&D medicinal chemistry group, supported by our own in vitro biology and in vitro metabolism capabilities and a select range of in vivo service providers, we optimize these lead series to development candidate status, in some cases pursuing these into early clinical studies. Current drug discovery and development projects are focused on treatments for cancer, irritable bowel disease, CNS diseases and obesity. Our R&D efforts benefit from access to a broad array of our scientific services including capabilities in microbial fermentation, molecular biology, cell culture, gene expression and cloning, scale up synthesis of human metabolites, preformulation, chemical development and cGMP synthesis. Additionally, a portion of our R&D efforts focuses on improving the manufacturing process for our generic API products. We spent $14.5 million, $13.1 million and $12.8 million on research and development activities in 2009, 2008 and 2007, respectively.

Licensing Agreements

In October 2005, we licensed the worldwide rights to develop and commercialize potential products from our amine neurotransmitter reuptake inhibitor technology and patents identified in one of our proprietary research programs to BMS. In conjunction with the licensing agreement, we received a non-refundable, non-creditable up-front payment of $8.0 million. In addition, the agreement provided for the establishment of a research program under which BMS would purchase approximately $10.0 million in research and development services over the initial three year term of the program. The agreement also set forth milestone events that, if achieved by these products, would entitle the Company to non-refundable, non-creditable milestone payments of up to $66.0 million for each of the first and second compounds to achieve these events, and up to $22.0 million for each subsequent product to achieve these events. These milestone events include candidate nomination, IND or equivalent regulatory filings, commencement of middle- and late-stage clinical trials, and regulatory approval of compounds for commercial sale. The agreement also provides for the Company to receive royalty payments on worldwide sales of any such product that is commercialized. From the entry into this agreement through December 31, 2009, we have recorded $11.8 million from achieving certain milestones with BMS.

Our proprietary research and development efforts to date have contributed to the discovery and development of one product that has reached the market. We discovered a new process to prepare a metabolite known as terfenadine carboxylic acid, or TAM, in a purer form. The purer form of TAM is the active ingredient in the non-sedating antihistamine known as fexofenadine HCl, which is sold by sanofi-aventis under the name Allegra® in the Americas and as Telfast elsewhere. We have been issued several United States and foreign patents relating to TAM and the process chemistry by which TAM is produced. Subject to payment of government annuities and maintenance fees, our issued patents relating to TAM expire between 2013 and 2015.

In March 1995, we entered into a license agreement with sanofi-aventis. Under the terms of the license agreement, we granted sanofi-aventis an exclusive, worldwide license to any patents issued to us related to our original TAM patent applications. From the beginning of the agreement through December 31, 2009, we have had revenues of $7.4 million in milestone payments and approximately $423 million in royalties under this license agreement. Sanofi-aventis is obligated under the license agreement to pay ongoing royalties to us based upon its sales of Allegra®/Telfast and generic fexofenadine. Additionally during the fourth quarter of 2008, we entered into an amendment to our licensing agreement with sanofi-aventis to allow sanofi-aventis to sublicense patents related to Allegra® and Allegra D-12® to Teva Pharmaceuticals and Barr Laboratories in the United States. Subsequently, Teva Pharmaceuticals acquired Barr Laboratories. As a result of this amendment, we received an upfront sublicense fee from sanofi-aventis of $10.0 million and additionally we will receive royalties from sanofi-aventis on the sale of products in the United States containing fexofenadine hydrochloride and products containing fexofenadine hydrochloride (generic Allegra®) and pseudoephedrine hydrochloride (generic Allegra D-12®) by Teva Pharmaceuticals through 2015, along with additional consideration. We are not entitled, however, to receive any additional milestone payments under the license agreement. Sales of Allegra®/Telfast and generic fexofenadine by sanofi-aventis worldwide were approximately $1.1 billion, $1.1 billion and $1.0 billion for the year ended December 31, 2009, 2008 and 2007, respectively. See “Item 3—Legal Proceedings” for discussion of current legal proceedings related to Allegra®/Telfast.

Business Segments

We have organized our activities into two distinct segments. We rely on an internal management accounting system to report results of these segments. The accounting system includes revenue and cost information by segment. We make financial decisions and allocate resources based on the information we receive from this internal system. Our large scale manufacturing activities, including pilot to commercial scale manufacturing of active pharmaceutical ingredients and intermediates and high potency and controlled substance manufacturing represent our LSM distinct business segment and our remaining activities, including drug lead discovery, optimization, drug development, and small scale commercial manufacturing represent our DDS business segment. See Item 7 and the notes to the consolidated financial statements for financial information on the Company’s business segments.

Customers

Our customers include pharmaceutical companies and biotechnology companies and, to a limited extent, agricultural companies, fine chemical companies, contract chemical manufacturers, government research entities and non-profit organizations. For the year ended December 31, 2009, contract revenue from our three largest customers represented 14%, 12% and 8%, respectively, of our contract revenue. For the year ended December 31, 2008, contract revenue from our three largest customers represented 17%, 8% and 7%, respectively, of our contract revenue. For the year ended December 31, 2007, contract revenue from our three largest customers represented 19%, 5% and 5%, respectively, of our contract revenue. Our largest customer, General Electric Company (“GE”), represented 14% of total contract revenue for the year ended December 31, 2009. In the first quarter of 2009, we extended the effective date of a supply agreement with GE through December 2013. See Note 16 to the consolidated financial statements for information on geographic and other customer concentrations.

Marketing

Our services are marketed primarily by our dedicated sales and business development personnel and senior management. Because our customer contacts are often highly skilled scientists, we believe our use of technical experts in marketing has allowed us to establish strong customer relationships. In addition to our internal marketing efforts, we also rely on the marketing efforts of consultants, both in the United States and abroad. We market our services directly to customers through targeted mailings, meetings with senior management of pharmaceutical and biotechnology companies, maintenance of an extensive Internet web site, participation in trade conferences and shows, and advertisements in scientific and trade journals. We also receive a significant amount of business from customer referrals and through expansion of existing contracts.

Employees

As of January 31, 2010, we had 1,266 employees. Of these employees, 454 are at our international facilities. Our U.S. large-scale manufacturing hourly work force has 84 employees who are subject to a collective bargaining agreement with the International Chemical Workers Union. A new 4-year collective bargaining agreement was signed in January 2007 with the union and expires in January 2011. Additionally, we have 37 union employees at our large-scale manufacturing facility at AMRI India that are covered by a collective bargaining agreement that expires in May 2010. None of our other employees are subject to any collective bargaining agreement. We consider our relations with our employees and the unions to be good.

Competition

While a small number of larger chemistry outsourcing service providers have emerged as leaders within the industry, the outsourcing market for pharmaceutical and biotechnology contract chemistry services is currently under consolidation from what has recently been highly fragmented. We face competition based on a number of factors, including size, relative expertise and sophistication, quality and costs of identifying and optimizing potential lead compounds and speed and costs of optimizing chemical processes. In many areas of our business we also face foreign competition from companies in regions with lower cost structures. We compete with the research departments of pharmaceutical companies, biotechnology companies, combinatorial chemistry companies, contract research companies, contract drug manufacturing companies and research and academic institutions.

We rely on many internal factors that allow us to stay competitive and differentiate us in the marketplace, including:

Our globalization of both research and manufacturing facilities allows us to increase our access to key global markets

Our ability to offer a flexible combination of high quality, cost-effective services

Our comprehensive service offerings allow us to provide our customers a more efficient transition of experimental compounds through the research and development process, ultimately reducing the time and cost involved in bringing these compounds from concept to market

Our current strong financial position gives our customers security of our continued presence in the marketplace even in the current economic environment

Patents and Proprietary Rights

Our success will depend, in part, on our ability to obtain and enforce patents, protect trade secrets, obtain licenses to technology owned by third parties when necessary, and conduct our business without infringing the proprietary rights of others. The patent positions of pharmaceutical, medical products and biotechnology firms can be uncertain and involve complex legal and factual questions. We cannot be assured that any AMRI patent applications will result in the issuance of patents or, if any patents are issued, whether they will provide significant proprietary protection or commercial advantage, or will not be circumvented by others. In the event a third party has also filed one or more patent applications for inventions which conflict with one of ours, we may have to participate in interference proceedings declared by the United States Patent and Trademark Office to determine priority of invention, which could result in the loss of any opportunity to secure patent protection for the inventions and the loss of any right to use the inventions. Even if the eventual outcome is favorable to us, these proceedings could result in substantial cost to us. The filing and prosecution of patent applications, litigation to establish the validity and scope of patents, assertion of patent infringement claims against others and the defense of patent infringement claims by others can be expensive and time consuming. We cannot be certain that in the event that any claims with respect to any of our patents, if issued, are challenged by one or more third parties, a court or patent authority ruling on such challenge will determine that such patent claims are valid and enforceable. An adverse outcome in such litigation could cause us to lose exclusivity afforded by the disputed rights. If a third party is found to have rights covering products or processes used by us, we could be forced to cease using the technologies covered by such rights, could be subject to significant liability to the third party, and could be required to license technologies from the third party. Furthermore, even if our patents are determined to be valid, enforceable, and broad in scope, we cannot be certain that competitors will not be able to design around such patents and compete with us and our licensees using the resulting alternative technology.

We have a policy of seeking patent protection for patentable aspects of our proprietary technology. We have been issued various United States and international patents covering fexofenadine HC1 and certain related manufacturing processes. Our United States patents begin to expire in 2013, and our international patents begin to expire in 2014. Additionally, our United States patents related to substituted biaryl purines as potent anticancer agents and a series of aryl and heteroaryl tetrahydroisoquinolines related to central nervous system indications begin to expire in 2020.

We seek patent protection with respect to products and processes developed in the course of our activities when we believe such protection is in our best interest and when the cost of seeking such protection is not inordinate. However, we cannot be certain that any patent application will be filed, that any filed applications will result in issued patents, or that any issued patents will provide us with a competitive advantage or will not be successfully challenged by third parties. The protections afforded by patents will depend upon their scope and validity, and others may be able to design around our patents.

Many of our current contracts with our customers provide that ownership of proprietary technology developed by us in the course of work performed under the contract is vested in the customer, and we retain little or no ownership interest.

We also rely upon trade secrets and proprietary know-how for certain unpatented aspects of our technology. To protect such information, we require all employees, consultants and licensees to enter into confidentiality agreements limiting the disclosure and use of such information. We cannot provide assurance that these agreements provide meaningful protection or that they will not be breached, that we would have adequate remedies for any such breach, or that our trade secrets, proprietary know-how and technological advances will not otherwise become known to others. In addition, we cannot provide assurance that, despite precautions taken by us, others have not and will not obtain access to our proprietary technology. Further, we cannot be certain that third parties will not independently develop substantially equivalent or better technology.

Government Regulation

The manufacture, transportation and storage of our products are subject to certain international, Federal, state and local laws and regulations. Our future profitability is indirectly dependent on the sales of pharmaceuticals and other products developed by our customers. Regulation by governmental entities in the United States and other countries will be a significant factor in the production and marketing of any pharmaceutical products that may be developed by us or our customers. The nature and the extent to which such regulation may apply to us or our customers will vary depending on the nature of any such pharmaceutical products. Virtually all pharmaceutical products developed by us or our customers will require regulatory approval by governmental agencies prior to commercialization. Human pharmaceutical products are subject to rigorous preclinical and clinical testing and other approval procedures by the FDA and by foreign regulatory authorities. Various federal and, in some cases, state statutes and regulations also govern or influence the manufacturing, safety, labeling, storage, record keeping and marketing of such pharmaceutical products. The process of obtaining these approvals and the subsequent compliance with appropriate federal and foreign statutes and regulations are time consuming and require the expenditure of substantial resources.

Generally, in order to gain U.S. FDA approval, a company first must conduct preclinical studies in the laboratory and in animal models to gain preliminary information on a compound’s efficacy and to identify any safety problems. The results of these studies are submitted as a part of an IND, that the FDA must review before human clinical trials of an investigational drug can start. In order to commercialize any products, we or our customer will be required to sponsor and file an IND and will be responsible for designing, initiating and overseeing the clinical studies to demonstrate the safety and efficacy that are necessary to obtain FDA approval of any such products. Clinical trials are normally done in three phases and generally take two to seven years, but may take longer, to complete. After completion of clinical trials of a new product, FDA and foreign regulatory authority marketing approval must be obtained. If the product is classified as a new drug, we or our customer will be required to file a new drug application, or NDA, and receive approval before commercial marketing of the drug. The testing and approval processes require substantial time, effort and expense, and we cannot be certain that any approval will be granted on a timely basis, if at all. NDAs submitted to the FDA can take several years to obtain approval. Even if FDA regulatory clearances are obtained, a marketed product is subject to continual review. Later discovery of previously unknown problems or failure to comply with the applicable regulatory requirements may result in restrictions on the marketing of a product or withdrawal of the product from the market as well as possible civil or criminal sanctions. For marketing outside the United States, we will also be subject to foreign regulatory requirements governing human clinical trials and marketing approval for pharmaceutical products. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary widely from country to country.

All facilities and manufacturing techniques used in the manufacture of API for clinical use or for sale in the United States must be operated in conformity with cGMP guidelines as established by the FDA. Our facilities are subject to unscheduled periodic regulatory inspections to ensure compliance with cGMP regulations. Failure on our part to comply with applicable requirements could result in the termination of ongoing research or the disqualification of data for submission to regulatory authorities. A finding that we had materially violated cGMP requirements could result in additional regulatory sanctions and, in severe cases, could result in a mandated closing of our facilities or significant fines, which would materially and adversely affect our business, financial condition and results of operations. An FDA inspection of our Rensselaer manufacturing facility was completed in the second quarter of 2008, resulting in no issuance of a Form FDA 483. Also, an FDA inspection of our cGMP manufacturing facility, located at 21 Corporate Circle in Albany, was completed in the fourth quarter of 2008, resulting in no issuance of a Form FDA 483.

Our manufacturing and research and development processes involve the controlled use of hazardous or potentially hazardous materials and substances. We are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of such materials, including radioactive compounds and certain waste products. Additionally, we are subject to various laws and regulations relating to safe working conditions, laboratory and manufacturing practices and emissions and wastewater discharges. Although we believe that our activities currently comply with the standards prescribed by such laws and regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. In the event of such an accident, we could be held liable for any damages that result and any such liability could exceed our resources. In addition, we cannot predict the extent of regulations that might result from any future legislative or administrative actions, therefore we could be required to incur significant costs to comply with environmental laws and regulations and these actions could restrict our operations in the future.

Internet Website

We maintain an internet website at www.amriglobal.com. The information contained on our website is not included as a part of, or incorporated by reference into, this Annual Report on Form 10-K. We make available on our website, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC. Our reports filed with, or furnished to, the SEC are also available at the SEC’s website at www.sec.gov.

ITEM 1A. RISK FACTORS

The following factors should be considered carefully in addition to the other information in this Form 10-K. Except as mentioned under “Quantitative and Qualitative Disclosure About Market Risk” and except for the historical information contained herein, the discussion contained in this Form 10-K contains “forward-looking statements,” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, that involve risks and uncertainties. Our actual results could differ materially from those discussed in this Form 10-K. Important factors that could cause or contribute to such differences include those discussed below, as well as those discussed elsewhere herein.

The introduction of a generic Allegra®D could further erode our royalty revenue.

Royalties from sales of Allegra® currently constitute a significant portion of our revenue, operating income and operating cash flow. In 2005, the Company began to experience a decrease in our royalties from Allegra®, which is primarily attributable to the at-risk launch of generic fexofenadine announced by Barr Pharmaceuticals, Inc. and Teva Pharmaceuticals Industries Ltd. on September 6, 2005. The launch of the generic product was considered an “at-risk” launch due to on-going patent infringement litigations. On November 18, 2008, the Company reached a settlement regarding the patent infringement litigations relating to Teva Pharmaceuticals and Barr Laboratories. Subsequently, Teva Pharmaceutivals acquired Barr Labroatoties. As part of the settlement, the Company entered into an amendment to its licensing agreement with sanofi-aventis to allow sanofi-aventis to sublicense patents related to Allegra® and Allegra® D-12 to Teva Pharmaceuticals in the United States. Sanofi-aventis will pay royalties to the Company on the sale of products in the United States containing fexofenadine hydrochloride (the generic name for the active ingredient in Allegra®) and products containing fexofenadine hydrochloride and pseudoephedrine hydrochloride (generic Allegra® D-12) by Teva Pharmaceuticals through 2015, along with additional consideration. As provided in the settlement, Teva Pharmaceuticals launched a generic version of Allegra®D-12 in November 2009. The Company will receive quarterly royalties through July 2010 for the branded Allegra®D-12 equal to the royalties paid for the quarter ended June 30, 2009. Thereafter, the royalty rate will revert to the rate in effect prior to the signing of the sub-license amendment and the Company will also receive a royalty on Teva’s sales of the generic D-12. Once the royalty rate reverts back to the rate in effect prior to the amendment, royalty revenue could be negatively impacted. Continued generic Allegra® competition, including the at-risk launch of Allegra®D, may further adversely affect U.S. sales of Allegra®.

We have been issued several patents on a pure form of, and a manufacturing process for, fexofenadine HCl. The patent positions of pharmaceutical, medical and biotechnology firms can be uncertain and can involve complex legal and factual questions. Litigation, in particular patent litigation, can be complex and time-consuming and the outcome is inherently uncertain. We cannot assure our stockholders that we and/or sanofi-aventis will ultimately succeed in any current or future litigation against generic drug manufacturers involving patents with respect to Allegra®. In the event that one or more of the patents owned by us or sanofi-aventis are ultimately determined to be invalid or unenforceable, sanofi-aventis and we would lose exclusivity with respect to the claims covered by those patents. Any such loss of exclusivity or the introduction of generic forms of fexofenadine HCl may cause a reduction in Allegra® sales. In addition, under our current arrangements with sanofi-aventis, sanofi-aventis, with consultation from us, has the right to lead with respect to preparing and executing a strategy to defend and enforce certain of the patents relating to Allegra®, and is executing that role in the current litigation. As a result, we may not be able to control the conduct of such litigation and the strategic decisions that are made during the course of such litigation. See “Item 3—Legal Proceedings.”

The transition of Allegra® to an over-the-counter (“OTC”) product could materially impact royalty revenue.

In December 2009, sanofi-aventis announced the acquisition of Chattem, Inc., an entity that specializes in OTC transitions. In conjunction with that acquisition sanovi-aventis also announced their intention to transition Allegra® to an OTC product in the U.S. While we believe that this transition could be positive in the long term, due to our limited knowledge on the process of transition, U.S. Allegra® sales could be negatively impacted by this transition in the short term.

If the dollar amount of Allegra® sales subject to our license agreement decreases, due to these or any other factors, our revenues from our license agreement with sanofi-aventis will also decrease. Because we have very few costs associated with the Allegra® license, royalties carry a 90% margin. Therefore, a decrease in revenues from our license agreement for Allegra® would have a material adverse effect on our revenue, operating income and financial condition.

Pharmaceutical and biotechnology companies may discontinue or decrease their usage of our services.

We depend on pharmaceutical and biotechnology companies that use our services for a large portion of our revenues. Although there has been a trend among pharmaceutical and biotechnology companies to outsource drug research and development functions, this trend may not continue. We have experienced increasing pressure on the part of our customers to reduce expenses, including the use of our services as a result of negative economic trends generally and more specifically in the pharmaceutical industry. Our contract revenues decreased in 2009 and we may be adversely affected in future periods as a result of general economic and/or pharmaceutical industry downturns which has resulted in a diminished availability of liquidity in the marketplace. If pharmaceutical and biotechnology companies discontinue or decrease their usage of our services, including as a result of a slowdown in the overall global economy, our revenues and earnings could be lower than we currently expect and our revenues may continue to decrease or not grow at historical rates.

We may lose one or more of our major customers.

During the year-ended December 31, 2009, revenues from sales of raw material to GE Healthcare for use in one of its diagnostic imaging agents totaled $21.8 million and represented approximately 14% of our contract revenue, or 11% of our total revenue. In January 2009, we entered into an amendment to an existing agreement with GE Healthcare, which extends the expiration date of the agreement to 2013. Additionally, in order to maintain our sales to GE Healthcare, we have agreed to price concessions which have and will continue to impact our margins. GE Healthcare’s purchases had historically exceeded the contractual minimum purchases, however, due to their inventory reduction efforts in 2009, they did not meet these purchase requirements. If GE Healthcare continues to materially reduce its purchase levels or attempts to renegotiate prices, there may be a material decrease in our revenues and operating income. In addition, during the year-ended December 31, 2009 sales to another customer of ours totaled $18.6 million and represented approximately 12% of our contract revenue, or 9% of our total revenue. In addition, during the year ended December 31, 2009, we provided services to two other major customers representing approximately 14% of our contract revenues or 11% of our total revenue. These customers typically may cancel their contracts with 30 days’ to one-year’s prior notice depending on the size of the contract, for a variety of reasons, many of which are beyond our control. If any one of our major customers cancels its contract with us, our contract revenues may materially decrease.

We face increased competition.

We compete directly with the in-house research departments of pharmaceutical companies and biotechnology companies, as well as combinatorial chemistry companies, contract research companies, and research and academic institutions. We are also experiencing increased competition from foreign companies operating under lower cost structures. Many of our competitors have greater financial and other resources than we have. As new companies enter the market and as more advanced technologies become available, we currently expect to face increased competition. In the future, any one of our competitors may develop technological advances that render the services that we provide obsolete. While we plan to develop technologies, which will give us competitive advantages, our competitors plan to do the same. We may not be able to develop the technologies we need to successfully compete in the future, and our competitors may be able to develop such technologies before we do or provide those services at a lower cost. Consequently, we may not be able to successfully compete in the future.

We may be unsuccessful in producing and licensing proprietary technology developed from our internal research and development efforts or acquired from a third party.

We have expended and continue to expend significant time and money on internal research and development with the intention of producing proprietary technologies in order to patent and then license them to other companies. For example, in October 2005 we licensed our proprietary amine neurotransmitter reuptake inhibitor technology to BMS. However, we may not be successful in producing any additional valuable technology or successfully licensing it to a third party in the future, including our lead R&D oncology program that is currently in Phase I clinical trials. To the extent we are unable to produce technology that we can license, we may not receive any revenues related to our internal research and development efforts.

We may be unsuccessful in our collaboration with BMS.

Our objective is to patent our proprietary technologies and license such technologies to other companies for the purpose of advancing compounds associated with these technologies through human clinical trials and ultimately obtaining regulatory approval for the commercial sale of products containing these compounds. We seek to enter into licensing arrangements with selected partners that provide for a combination of up-front license fees, milestone payments upon the achievement of specified research and development objectives, and royalty payments based on sales of related commercial products.

In October 2005, we licensed the worldwide rights to develop and commercialize potential products from our amine neurotransmitter reuptake inhibitors to BMS. In conjunction with the licensing agreement, we received a non-refundable, non-creditable up-front fee of $8.0 million. In addition, BMS purchased approximately $10.0 million in research and development services over the initial three year term of our agreement. The license agreement also sets forth development related milestone events that, if achieved by our products, would entitle us to non-refundable, non-creditable milestone payments of up to $66.0 million for each of the first and second products to achieve these events, and up to $22.0 million for each subsequent product to achieve these events. The license agreement also provides for us to receive royalty payments on worldwide sales of any such product that is commercialized. To date, we recognized approximately $11.8 million of milestone revenue in conjunction with this agreement.

Our arrangement with BMS is a significant component of our proprietary research and development business. If there is a delay or failure in BMS’s performance, our proprietary research and development business may not produce the long-term revenues, earnings, or strategic benefits that we anticipate. We cannot control BMS’s performance or the resources it devotes to our collaborative program. BMS elected not to utilize our contract research services for this collaboration upon completing the initial term required under the agreement. In addition, we cannot guarantee BMS’s continued pursuit of programs covered by our agreement. Furthermore, with respect to any drug candidate resulting from our collaborative program, the FDA may delay or deny marketing approvals because of adverse FDA decisions or interpretations of data that differ from BMS’s interpretations and that may require additional clinical trials or potential changes in the cost, scope and duration of clinical trials. Even if we succeed in getting market approvals, BMS may not have the ability to successfully launch, increase sales of or sustain the product or products in the market, or efficiently scale-up manufacturing for commercialized compounds. Disputes may arise between us and BMS, which may not be resolved in our favor. Further, BMS could merge with or be acquired by another company or experience financial or other setbacks unrelated to our collaboration that could, nevertheless, adversely affect us. The occurrence of any of these could result in our proprietary research and development business not producing the long-term revenues, earnings, or strategic benefits that we anticipate which could have a material adverse effect on our business.

Our business may be adversely affected if we encounter complications in connection with our continued implementation and operation of information management software and infrastructure.

We have implemented a comprehensive enterprise resource planning (“ERP”) system to the majority of our locations to enhance operating efficiencies and provide more effective management of our business operations. Continuing an uninterrupted performance of our ERP system or other software or hardware is critical to the success of our business strategy. Any material failure of our ERP system or other software or hardware that interrupts or delays our operations could adversely impact our ability to do the following in a timely manner and have a material adverse effect on our operations:

report financial results;

accurately reflect inventory costs;

accept and process customer orders;

receive inventory and ship products;

invoice and collect receivables;

place purchase orders and pay invoices; and

accurately reflect all other business transactions related to the finance, order entry, purchasing, supply chain and human resource processes within the ERP system.

We may be required to record additional goodwill impairment charges.

We test goodwill for impairment annually and whenever events or circumstances make it more likely than not that the fair value of a reporting unit has fallen below its carrying amount. We perform our annual assessment of the carrying value of our goodwill for potential impairment using an independent third-party specialist. A determination of impairment is made based upon the fair value of the related reporting unit. If goodwill is determined to be impaired in the future we would be required to record a charge to our results of operations. Factors we consider important which could result in an impairment include the following:

significant underperformance relative to historical or projected future operating results;

significant negative industry or economic trends; and

our market capitalization relative to net book value.

As of December 31, 2009, we had $17.6 million of goodwill on our consolidated balance sheet. During 2009, we recorded a goodwill impairment charge of $22.9 million in our LSM segment as a result of our annual goodwill impairment testing, which determined a decline in fair value to below its carrying value. If any of the factors noted above occur or future annual goodwill impairment tests indicate a further decline in the fair value of our segments, we may be required to record additional goodwill impairment charges in future periods.

Agreements we have with our employees, customers, consultants and other third parties may not afford adequate protection for our valuable intellectual property, confidential information and other proprietary information.

Some of our most valuable assets include patents. In addition to patent protection, we also rely on trade secrets, know-how, continuing technological innovation and licensing opportunities. In an effort to maintain the confidentiality and ownership of our customer’s information, such as trade secrets, proprietary information and other customer confidential information, as well as our own, we require our employees, consultants and advisors to execute confidentiality and proprietary information agreements. However, these agreements may not provide us with adequate protection against improper use or disclosure of confidential information and there may not be adequate remedies in the event of unauthorized use or disclosure. Furthermore, we may from time to time hire scientific personnel formerly employed by other companies involved in one or more areas similar to the activities we conduct. In some situations, our confidentiality and proprietary information agreements may conflict with, or be subject to, the rights of third parties with whom our employees, consultants or advisors have prior employment or consulting relationships. Although we require our employees and consultants to maintain the confidentiality of all proprietary information of their previous employers, these individuals, or we, may be subject to allegations of trade secret misappropriation or other similar claims as a result of their prior affiliations. Finally, others may independently develop substantially equivalent proprietary information and techniques causing some technologies that we develop to be patented by other companies. Our failure to protect our proprietary information and techniques may inhibit our ability to compete effectively and our investment in those technologies may not yield the benefits we expected. In addition, we may be subject to claims that we are infringing on the intellectual property of others. We could incur significant costs defending such claims and if we are unsuccessful in defending these claims, we may be subject to liability for infringement. To the extent that we are unable to protect confidential customer information, we may encounter material harm to our reputation and to our business.

Our failure to manage our expansion may adversely affect us.

Our business has expanded rapidly in the past several years. Expansion places increased stress on our financial, managerial and human resources. As we expand, we will need to recruit and retain additional highly skilled professionals. Expansion of our facilities may lead to increased expenses and may divert management attention away from operations.

We may not be able to realize the benefits of recent acquisitions and strategic investments.

In recent years, we have engaged in a number of acquisitions and strategic investments. Most recently, in February 2010, we completed the acquisition of Excelsyn Ltd, a chemical development and large scale manufacturing business in the United Kingdom. These acquisitions may not be as beneficial to us as we currently expect or as expected at the time of acquisition. With regards to our strategic equity investments, we record an impairment charge when we believe an investment has experienced a decline in value that is other than temporary. Future adverse changes in market conditions, poor operating results of underlying investments or the investees’ inability to obtain additional financing could result in our inability to recover the carrying value of the investments, thereby requiring an impairment charge in the future.

Future acquisitions may disrupt our business and distract our management.

We have engaged in a number of acquisitions and strategic investments and we currently expect to continue to do so. However, we may not be able to identify additional suitable acquisition candidates, and if we do identify suitable candidates, we may not be able to make such acquisitions on commercially acceptable terms or at all. If we acquire another company, we may not be able to successfully integrate the acquired business into our existing business in a timely and non-disruptive manner or at all. We may have to devote a significant amount of time and resources to do so. Even with this investment of time and resources, an acquisition may not produce the revenues, earnings or business synergies that we anticipate. If we fail to integrate the acquired business effectively or if key employees of that business leave, the anticipated benefits of the acquisition would be jeopardized. The time, capital, management and other resources spent on an acquisition that fails to meet our expectations could cause our business and financial condition to be materially adversely affected. In addition, acquisitions can involve charges of significant amounts related to goodwill that could become impaired and adversely affect our results of operations.

We may not be able to effectively manage our international operations.

We established contract research facilities in Singapore and Hyderabad, India in 2005, and have continued to expand our facilities in India in 2006, 2007 and 2008. In February 2006, we completed the acquisition of ComGenex, a privately held drug discovery service company in Budapest, Hungary. In June 2007, we acquired AMRI India and in January 2008, we acquired FineKem, which is now a part of AMRI India. In February 2010, we acquired Excelsyn Ltd, a chemical development and large scale manufacturing business in the United Kingdom. There are significant risks associated with the establishment of foreign operations, including, but not limited to: geopolitical risks, foreign currency exchange rates and the impact of shifts in the U.S. and local economies on those rates, compliance with local laws and regulations, the protection of our intellectual property and that of our customers, the ability to integrate our corporate culture with local customs and cultures, and the ability to effectively and efficiently supply our international facilities with the required equipment and materials. If we are unable to effectively manage these risks, these locations may not produce the revenues, earnings, or strategic benefits that we anticipate which could have a material adverse affect on our business.

We may not be able to recruit and retain the highly skilled employees we need.

Our future growth and profitability depends upon the research and efforts of our highly skilled employees, such as our scientists, and their ability to keep pace with changes in drug discovery and development technologies. We compete vigorously with pharmaceutical firms, biotechnology firms, contract research firms, and academic and research institutions to recruit scientists. If we cannot recruit and retain scientists and other highly skilled employees, we will not be able to continue our existing services and will not be able to expand the services we offer to our customers.

We may lose one or more of our key employees.

Our business is highly dependent on our senior management and scientific staff, including:

Dr. Thomas E. D’Ambra, our Chairman, Chief Executive Officer and President;

Mark T. Frost, our Senior Vice President, Administration, Chief Financial Officer and Treasurer;

Dr. Steven R. Hagen, our Vice President, Pharmaceutical Development and Manufacturing;

William Steven Jennings, our Senior Vice President, Sales, Marketing and Business Development;

Brian D. Russell, our Vice President, Human Resources;

Dr. Bruce J. Sargent, our Vice President, Discovery Research and Development; and

Dr. Michael P. Trova, our Senior Vice President, Chemistry.

The loss of any of our key employees, including our scientists, may have a material adverse effect on our business.

We may be held liable for harm caused by drugs that we develop and test.

We develop, test and manufacture drugs that are used by humans. If any of the drugs that we develop, test or manufacture harm people, we may be required to pay damages to those persons. Although we carry liability insurance, we may be required to pay damages in excess of the amounts of our insurance coverage. Damages awarded in a product liability action could be substantial and could have a material adverse effect on our financial condition.

We may be liable for contamination or other harm caused by hazardous materials that we use.

Our manufacturing and research and development processes involve the use of hazardous or potentially hazardous materials and substances. We are subject to Federal, state and local laws and regulation governing the use, manufacture, handling, storage and disposal of such materials, including but not limited to radioactive compounds and certain waste products. Additionally, we are subject to various laws and regulations relating to safe working conditions, laboratory and manufacturing practices and emissions and wastewater discharges. Although we believe that our activities currently comply with the standards prescribed by such laws and regulations, we cannot completely eliminate the risk of contamination or injury resulting from these materials. We may incur liability as a result of any contamination or injury. In addition, we cannot predict the extent of regulations that might result from any future legislative or administrative actions, therefore we could be required to incur significant costs to comply with environmental laws and regulations and these actions could restrict our operations in the future. Such expenses, liabilities or restrictions could have a material adverse effect on our operations and financial condition.

We completed an environmental remediation assessment associated with groundwater contamination at our Rensselaer, New York location. This contamination is associated with past practices at the facility prior to 1990, and prior to our investment or ownership of the facility. Ongoing costs associated with the remediation include biannual monitoring and reporting to the State of New York’s Department of Environmental Conservation. Under the remediation plan, we are expected to pay for monitoring and reporting until 2014. Under a 1999 agreement with the facility’s previous owner, our maximum liability under the remediation is $5.5 million. If the State of New York Department of Environmental Conservation finds that we fail to comply with the appropriate regulatory standards, it may impose fines on us which could have a material adverse effect on our operations.

If we fail to meet strict regulatory requirements, we could be required to pay fines or even close our facilities.

All facilities and manufacturing techniques used to manufacture drugs in the United States must conform to standards that are established by the FDA. The FDA conducts unscheduled periodic inspections of our facilities to monitor our compliance with regulatory standards. If the FDA finds that we fail to comply with the appropriate regulatory standards, it may impose fines on us or, if the FDA determines that our non-compliance is severe, it may close our facilities. Any adverse action by the FDA could have a material adverse effect on our operations.

Our operations may be interrupted by the occurrence of a natural disaster or other catastrophic event at our primary facilities.

We depend on our laboratories and equipment for the continued operation of our business. Our research and development operations and all administrative functions are primarily conducted at our facilities in Albany and Rensselaer, New York. Although we have contingency plans in effect for natural disasters or other catastrophic events, these events could still disrupt our operations. Even though we carry business interruption insurance policies, we may suffer losses as a result of business interruptions that exceed the coverage available under our insurance policies. Any natural disaster or catastrophic event at any of our facilities could have a significant negative impact on our operations.

Terrorist attacks or acts of war may seriously harm our business.

Terrorist attacks or acts of war may cause damage or disruption to our company, our employees, our facilities and our customers, which could significantly impact our revenues, costs and expenses and financial condition. The potential for terrorist attacks, the national and international responses to terrorist attacks, and other acts of war or hostility have created many economic and political uncertainties, which could materially adversely affect our business, results of operations, and financial condition in ways that we currently cannot predict.

Domestic policy changes, including income tax and health care reform could reduce the prices pharmaceutical and biotechnology companies can charge for drugs they sell, including some of our potential products, which in turn, could reduce the amounts that they have available to retain our services.

We depend on contracts with pharmaceutical and biotechnology companies for a majority of our revenues. We therefore depend upon the ability of pharmaceutical and biotechnology companies to earn enough profit on the drugs they market to devote substantial resources to the research and development of new drugs. Additionally, we rely on our collaborative partners to obtain acceptable prices or an adequate level of reimbursement for our current and potential future products. Continued efforts of government and third-party payors to contain or reduce the cost of heath care through various means, could affect our levels of revenues and earnings. In certain foreign markets, pricing and/or profitability of pharmaceutical products are subject to governmental control. Domestically, there have been and may continue to be proposals to implement similar governmental control. Future legislation may limit the prices pharmaceutical and biotechnology companies can charge for the drugs they market and cost control initiatives could affect the amounts that third-party payors agree to reimburse for those drugs. We cannot assure that our collaborative partners will be able to obtain acceptable prices for our products which would allow us to sell these products on a competitive and profitable basis. As a result, such laws and initiatives may have the effect of reducing the resources that pharmaceutical and biotechnology companies can devote to the research and development of new drugs. If pharmaceutical and biotechnology companies decrease the resources they devote to the research and development of new drugs, the amount of services that we perform, and therefore our revenues, could be reduced.

The ability of our stockholders to control our policies and effect a change of control of our company is limited, which may not be in every shareholder’s best interests.

There are provisions in our certificate of incorporation and bylaws which may discourage a third party from making a proposal to acquire us, even if some of our stockholders might consider the proposal to be in their best interests. These provisions include the following:

Our certificate of incorporation provides for three classes of directors with the term of office of one class expiring each year, commonly referred to as a “staggered board.” By preventing stockholders from voting on the election of more than one class of directors at any annual meeting of stockholders, this provision may have the effect of keeping the current members of our board of directors in control for a longer period of time than stockholders may desire.

Our certificate of incorporation authorizes our board of directors to issue shares of preferred stock without stockholder approval and to establish the preferences and rights of any preferred stock issued, which would allow the board to issue one or more classes or series of preferred stock that could discourage or delay a tender offer or change in control.

Additionally, we are subject to Section 203 of the Delaware General Corporation Law, which, in general, imposes restrictions upon acquirers of 15% or more of our stock.

We have adopted a Shareholder Rights Plan, the purpose of which is, among other things, to enhance the Board’s ability to protect shareholder interests and to ensure that shareholders receive fair treatment in the event any coercive takeover attempt of us is made in the future. Under the terms of the Shareholder Rights Plan, the Board can in effect prevent a person or group from acquiring more than 15% of the outstanding shares of our Common Stock. Once a shareholder acquires more than 15% of our outstanding Common Stock without Board approval (the “acquiring person”), all other shareholders will have the right to purchase securities from us at a price less than their then fair market value. These subsequent purchases by other shareholders substantially reduce the value and influence of the shares of Common Stock owned by the acquiring person.

Our officers and directors have significant control over us and their interests as shareholders may differ from our other shareholders’.

At February 28, 2010, our directors and officers beneficially owned or controlled approximately 15.1% of our outstanding common stock. Individually and in the aggregate, these stockholders significantly influence our management, affairs and all matters requiring stockholder approval. In particular, this concentration of ownership may have the effect of delaying, deferring or preventing an acquisition of us and may adversely affect the market price of our common stock.

Our stock price is volatile and could experience substantial further declines.

The market price of our common stock has historically experienced and may continue to experience volatility. Our quarterly operating results, changes in general conditions in the economy or the financial markets and other developments affecting us or our competitors could cause the market price of our common stock to fluctuate substantially. In addition, in recent years, the stock market has experienced significant price and volume fluctuations. In addition, the global economic and potential uncertainty have created significant additional volatility in the United States capital markets. This volatility and the recent market decline has affected the market prices of securities issued by many companies, often for reasons unrelated to their operating performance or their business prospects, and has adversely affected and may further affect the price of our common stock.

Because we do not intend to pay dividends, our shareholders will benefit from an investment in our common stock only if it appreciates in value.

We have never declared or paid any cash dividends on our common stock. We currently intend to retain our future earnings, if any, to finance the expansion of our business and do not expect to pay any cash dividends in the foreseeable future. As a result, the success of our shareholders’ investment in our common stock will depend entirely upon any future appreciation. There is no guarantee that our common stock will appreciate in value or even maintain the price at which shareholders’ purchased their shares.

We may experience disruptions in or the inability to source raw materials to support our production processes or to deliver goods to our customers.

We rely on independent suppliers for key raw materials, consisting primarily of various chemicals. We generally use raw materials available from more than one source. We could experience inventory shortages if we were required to use an alternative manufacturer on short notice, which could lead to raw materials being purchased on less favorable terms than we have with our regular supplier. Additionally, we rely on various third-party delivery services to transport both goods from our vendors and finished products to our customers. A disruption in our ability to source or transport materials could delay or halt production and delivery of certain of our products thereby adversely impacting our ability to market and sell such products and our ability to compete.

We may experience significant increases in operational costs beyond our control.

Costs for certain items which are needed to run our business, such as energy and certain materials, have the potential to fluctuate. As these cost increases are often dependent on market conditions, and although we do our best to manage these price increases, we may experience increases in our costs due to the volatility of prices and market conditions. Increases in these costs could negatively impact our results of operations.

Delays in, or failure of, the approval of our customers’ regulatory submissions could impact our revenue and earnings.

The successful transition of clinical and preclinical candidates into long term commercial supply agreements is a key component of the LSM business strategy. If our customers do not receive approval of their regulatory submissions, this could have a significant negative impact on our revenue and earnings.

We may be subject to foreign currency risks.

Our global business operations give rise to market risk exposure related to changes in foreign exchange rates, interest rates, commodity prices and other market factors. If we fail to effectively manage such risks, it could have a negative impact on our consolidated financial statements. For a further discussion of our foreign currency risks, please see “Item 7A. Quantitative and Qualitative Disclosures About Market Risk”.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES.

Our principal manufacturing and research and development facilities are located in the United States. The aggregate square footage of our operating facilities is approximately 1,032,000 square feet, of which 662,000 square feet are owned and 370,000 square feet are leased. Set forth below is information on our principal facilities:

Location	Square Feet	Primary Purpose
Albany, New York	279,000	Manufacturing, Research & Development and Administration
Rensselaer, New York	276,000	Manufacturing & Research & Development
Aurangabad, India	208,000	Manufacturing
East Greenbush, New York	64,000	Manufacturing & Research & Development
Hyderabad, India	59,000	Research & Development
Bothell, Washington	44,000	Research & Development
Budapest, Hungary	42,000	Research & Development
Syracuse, New York	28,000	Manufacturing & Research & Development
Singapore	26,000	Research & Development
Navi Mumbai, India	6,000	Manufacturing

Our Rensselaer, NY facility and our Aurangabad and Navi Mumbai, India facilities are used in our Large-Scale Manufacturing (“LSM”) segment as reported in the consolidated financial statements. All other facilities are used in our Discovery/Development/Small Scale Manufacturing (“DDS”) segment, as reported in the consolidated financial statements.

Not included in the above chart are our manufacturing and R&D facilities in the U.K., which we recently obtained through our acquisition of Excelsyn Ltd. in February 2010.

We believe these facilities are generally in good condition and suitable for their purpose. We believe that the capacity associated with these facilities is adequate to meet our anticipated needs through 2010.

ITEM 3. LEGAL PROCEEDINGS.

The Company, from time to time, may be involved in various claims and legal proceedings arising in the ordinary course of business. Except as noted below in regard to litigation relating to Allegra, the Company is not currently a party to any such claims or proceedings which, if decided adversely to the Company, would either individually or in the aggregate have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

The Company, through its former subsidiary AMR Technology that has been merged into the Company, along with Aventis Pharmaceuticals Inc., the U.S. pharmaceutical business of sanofi-aventis S.A., has been involved in legal proceedings with several companies seeking to market or which are currently marketing generic versions of Allegra. Beginning in 2001, Barr Laboratories, Inc., Impax Laboratories, Inc., Mylan Pharmaceuticals, Inc., Teva Pharmaceuticals USA, Dr. Reddy’s Laboratories, Ltd./Dr. Reddy’s Laboratories, Inc., Ranbaxy Laboratories Ltd./Ranbaxy Pharmaceuticals Inc., Sandoz Inc., Sun Pharma Global, Inc., and Wockhardt filed Abbreviated New Drug Applications (“ANDAs”) with the FDA to produce and market generic versions of Allegra products.

In response to the filings described above, beginning in 2001, Aventis Pharmaceuticals filed patent infringement lawsuits against Barr Laboratories, Impax Laboratories, Mylan Pharmaceuticals, Teva Pharmaceuticals, Dr. Reddy’s Laboratories, Ranbaxy Laboratories Ltd./Ranbaxy Pharmaceuticals Inc., Sandoz, Wockhardt, and Sun Pharma Global, Inc. Each of the lawsuits was filed in the U.S. District Court in New Jersey and alleges infringement of one or more patents owned by Aventis Pharmaceuticals. In addition, beginning on November 14, 2006, Aventis filed two patent infringement suits against Teva Pharmaceuticals USA, Barr Laboratories, Inc. and Barr Pharmaceuticals, Inc. in the Eastern District of Texas based on patents owned by Aventis. Those lawsuits were transferred to the U.S. District Court in New Jersey.

Further, beginning on March 5, 2004, the Company, through its former subsidiary AMR Technology, along with Aventis Pharmaceuticals, filed suit in the U.S. District Court in New Jersey against Barr Laboratories, Impax Laboratories, Mylan Pharmaceuticals, Teva Pharmaceuticals, Dr. Reddy’s Laboratories, Amino Chemicals, Ltd., Ranbaxy Laboratories Ltd./Ranbaxy Pharmaceuticals Inc., DiPharma S.P.A., DiPharma Francis s.r.l., and Sandoz, asserting infringement of U.S. Patent Nos. 5,581,011 and 5,750,703 that are exclusively licensed to Aventis Pharmaceuticals relating to Allegra and Allegra-D products. On December 11, 2006, the Company through its former subsidiary AMR Technology and sanofi-aventis U.S. LLC, an affiliate of Aventis Pharmaceuticals, also filed a patent infringement lawsuit in the Republic of Italy against DiPharma Francis s.r.l. and DiPharma S.P.A. based on European Patent No. 703,902 which is owned by the Company and licensed to sanofi-aventis. In addition, on December 22, 2006, the Company through its former subsidiary AMR Technology, filed a patent infringement lawsuit in Canada against Novopharm Ltd., Teva Pharmaceutical Industries Ltd., Teva Pharmaceuticals USA, Inc., DiPharma S.P.A. and DiPharma s.r.l. based on Canadian Patent No. 2,181,089. On March 20, 2007, the Company through its former subsidiary AMR Technology filed a patent infringement lawsuit in Australia against Alphapharm Pty Ltd based on Australian Patent No. 699,799. On September 28, 2007, the Company, through its former subsidiary AMR Technology, filed a patent infringement lawsuit in Australia against Arrow Pharmaceuticals Pty Ltd, Chemists’ Own Pty Ltd, and Sigma Pharmaceuticals Limited based on Australian Patent No. 699,799. On September 9, 2009, the Company filed patent infringement lawsuits in the U.S. District Court in New Jersey against Dr. Reddy’s Laboratories, Ltd, Dr. Reddy’s Laboratories, Inc., and Sandoz, Inc. asserting infringement of U.S. Patent No. 7,390,906, seeking statutory damages.

Aventis Pharmaceuticals, the Company, and its former subsidiary AMR Technology have entered into covenants not to sue on U.S. Patent No. 5,578,610 with defendants other than Novopharm, DiPharma S.P.A., DiPharma Francis s.r.l., Alphapharm, Arrow Pharmaceuticals Pty Ltd, Chemists’ Own Pty Ltd, and Sigma Pharmaceuticals Limited. Aventis Pharmaceuticals exclusively licenses U.S. Patent No. 5,578,610 from the Company, but that patent has not been asserted in the litigations in the U.S. However, the Company and Aventis Pharmaceuticals have agreed that Aventis Pharmaceuticals will continue to pay royalties to the Company based on that patent under the Company’s original license agreement with Aventis Pharmaceuticals. Under the Company’s arrangements with Aventis Pharmaceuticals, the Company will receive royalties until expiration of the underlying patents (2013 for U.S. Patent No. 5,578,610 and 2015 for U.S. Patent No. 5,750,703) unless the patents are earlier determined to be invalid.

On November 18, 2008, the Company, its former subsidiary AMR Technology, Aventis Pharmaceuticals, sanofi-aventis, Teva Pharmaceuticals, and Barr Laboratories reached a settlement regarding the above-described patent infringement litigations relating to Teva Pharmaceuticals and Barr Laboratories. As part of the settlement, the Company entered into an amendment to its licensing agreement with sanofi-aventis to allow sanofi-aventis to sublicense patents related to ALLEGRA® and ALLEGRA®D-12 to Teva Pharmaceuticals and Barr Laboratories in the United States. Subsequently, Teva Pharmaceuticals acquired Barr Laboratories. The Company received an upfront sublicense fee from sanofi-aventis of $10 million, and sanofi-aventis will pay royalties to the Company on the sale of products in the United States containing fexofenadine hydrochloride (the generic name for the active ingredient in ALLEGRA®) and products containing fexofenadine hydrochloride and pseudoephedrine hydrochloride (generic ALLEGRA®D-12) by Teva Pharmaceuticals through 2015, along with additional consideration. As provided in the settlement, Teva Pharmaceuticals launched a generic version of Allegra D-12 in November 2009. The Company will receive quarterly royalties through July 2010 for the branded Allegra D-12 equal to the royalties paid for the quarter ended June 30, 2009. Thereafter, the royalty rate will revert to the rate in effect prior to the signing of the sub-license amendment and the Company will also receive a royalty on Teva Pharmaceutivals’s sales of the generic D-12. The Company and Aventis Pharmaceuticals have also dismissed their claims against Ranbaxy Laboratories Ltd./Ranbaxy Pharmaceuticals Inc. and Sandoz, Inc. without prejudice. The Company has also dismissed its claims against DiPharma S.P.A. and DiPharma s.r.l. in Canada without prejudice.

Under applicable federal law, marketing of an FDA-approved generic version of Allegra may not commence until the earlier of a decision favorable to the generic challenger in the patent litigation or 30 months after the date the patent infringement lawsuit was filed. In general, the first generic filer is entitled to a 180-day marketing exclusivity period upon FDA approval. The launch of a generic product is considered an “at-risk” launch if the launch occurs while there is still on-going litigation. Of the remaining defendants in the pending litigation, Dr. Reddy’s Laboratories and Mylan Pharmaceuticals have engaged in at-risk launches of generic fexofenadine single-entity products.

ITEM 4. REMOVED AND RESERVED

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES.

(a) Market Information. The Common Stock of the Company is traded on the NASDAQ National Market (“NASDAQ”) under the symbol “AMRI.” The following table sets forth the high and low closing prices for our Common Stock as reported by NASDAQ for the periods indicated:

Period	High		Low
Year ending December 31, 2009
First Quarter	$	10.90	$	7.45
Second Quarter	$	10.23	$	8.23
Third Quarter	$	10.07	$	7.69
Fourth Quarter	$	9.40	$	8.11

Year ending December 31, 2008
First Quarter	$	14.40	$	9.41
Second Quarter	$	14.50	$	11.23
Third Quarter	$	18.99	$	12.54
Fourth Quarter	$	16.24	$	8.68

Stock Performance Graph

The following graph provides a comparison, from December 31, 2004 through December 31, 2009, of the cumulative total stockholder return (assuming reinvestment of any dividends) among the Company, the NASDAQ Stock Market (U.S. Companies) Index (the “NASDAQ Index”) and the NASDAQ Pharmaceuticals Index (the “Pharmaceuticals Index”). The historical information set forth below is not necessarily indicative of future performance. Data for the NASDAQ Index and the Pharmaceuticals Index were provided by NASDAQ.

	Albany Molecular Research, Inc		NASDAQ Stock Market (U.S. Companies) Index		NASDAQ Pharmaceuticals Index
December 31, 2004		100.000		100.000		100.000
December 31, 2005		109.066		102.135		110.123
December 31, 2006		94.794		112.187		107.793
December 31, 2007		129.084		121.681		113.364
December 31, 2008		87.433		58.639		105.476
December 31, 2009		81.508		84.282		118.522

(b) Holders.

The number of record holders of our Common Stock as of February 28, 2010 was approximately 208. We believe that the number of beneficial owners of our Common Stock at that date was substantially greater than 208.

We have not declared any cash dividends on our Common Stock since our inception in 1991. We currently intend to retain our earnings for future growth and, therefore, do not anticipate paying cash dividends in the foreseeable future. Under Delaware law, we are permitted to pay dividends only out of our surplus, or, if there is no surplus, out of our net profits. Although our current bank credit facility permits us to pay cash dividends, subject to certain limitations, the payment of cash dividends may be prohibited under agreements governing debt which we may incur in the future.

(d) Equity Compensation Plan Information—The following table provides information about the securities authorized for issuance under our equity compensation plans as of December 31, 2009:

Plan Category	(a) Number of securities to be issued upon exercise of outstanding options, warrants and rights		(b) Weighted-average exercise price of outstanding options, warrants and rights		(c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders(1)		1,863,666	$	19.65		2,318,077	(2)
Equity compensation plans not approved by security holders		—		—		—
Total		1,863,666	$	19.65		2,318,077

(1)

Consists of the Company’s 1998 Stock Option Plan, the Company’s 2008 Stock Option Plan and the Company’s Employee Stock Purchase Plan (“ESPP”). Does not include purchase rights accruing under the ESPP because the purchase price (and therefore the number of shares to be purchased) will not be determined until the end of the purchase period.

(2)	Includes 2,074,946 shares available under the Stock Option Plans and 243,131 shares available under the ESPP.

ITEM 6. SELECTED FINANCIAL DATA.

The selected financial data shown below for the fiscal years ended December 31, 2009, 2008 and 2007, and as of December 31, 2009 and 2008, have been derived from our audited consolidated financial statements included in this Form 10-K. The selected financial data set forth below for the fiscal years ended December 31, 2006 and 2005 and as of December 31, 2007, 2006 and 2005 have been derived from our audited consolidated financial statements for those years, which are not included in this Form 10-K. The information should be read in conjunction with the Company’s audited consolidated financial statements and related notes and other financial information included herein, including Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

	As of and for the Year Ending December 31,
	2009			2008		2007			2006			2005
	(in thousands, except per share data)
Consolidated Statement of Operations Data:
Contract revenue	$	156,800		$	195,455	$	163,375		$	152,783		$	136,988
Recurring royalties		34,867			28,305		27,056			27,024			46,918
Milestone revenue		4,750			5,500		2,080			—			—
Total revenue		196,417			229,260		192,511			179,807			183,906
Cost of contract revenue		138,739			146,075		132,032			128,610			112,642
Write-down of library inventories		—			—		—			—			2,063
Total cost of contract revenue		138,739			146,075		132,032			128,610			114,705
Technology incentive award		3,594			2,901		2,784			2,783			4,695
Research and development		14,547			13,129		12,821			11,428			14,468
Selling, general and administrative		38,191			39,361		33,250			31,899			26,494
Property and equipment impairment		—			—		—			3,554			—
Goodwill impairment		22,900			—		—			—			—
Restructuring charge		329			1,833		273			2,431			—
Total costs and expenses		218,300			203,299		181,160			180,705			160,362
(Loss) income from operations		(21,883	)		25,961		11,351			(898	)		23,544
Interest income, net		376			1,170		3,192			2,990			1,787
Other (loss) income, net		(545	)		759		(158	)		150			(185	)
(Loss) income before income tax expense		(22,052	)		27,890		14,385			2,242			25,146
Income tax (benefit) expense		(5,357	)		7,330		5,449			59			8,825
Net (loss) income	$	(16,695	)	$	20,560	$	8,936		$	2,183		$	16,321
Basic (loss) earnings per share	$	(0.54	)	$	0.66	$	0.28		$	0.07		$	0.51
Diluted (loss) earnings per share	$	(0.54	)	$	0.65	$	0.27		$	0.07		$	0.50
Weighted average common shares outstanding, basic		31,062			31,389		32,351			32,174			32,044
Weighted average common shares outstanding, diluted		31,062			31,612		32,626			32,427			32,334
Consolidated Balance Sheet Data:
Cash, cash equivalents and investment securities	$	111,058		$	87,470	$	107,699		$	107,164		$	127,910
Property and equipment, net		166,746			167,502		158,028			153,202			151,078
Working capital		149,730			140,890		138,889			149,932			162,805
Total assets		373,692			390,684		386,654			375,493			383,150
Long-term debt, excluding current installments		13,212			13,482		4,080			13,993			18,521
Total stockholders’ equity		314,613			326,680		334,566			318,455			313,061
Other Consolidated Data:
Capital expenditures	$	15,172		$	23,938	$	17,747		$	16,453		$	19,166

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Overview

We provide scientific services, products and technologies focused on improving the quality of life while delivering excellence, value and maximum return to our shareholders. Our core business consists of contract drug discovery, development and manufacturing services. In addition to our contract services, we also have a separate, strategic technology division consisting of proprietary technology investments, internal drug discovery and niche generic active pharmaceutical ingredient product development. We conduct proprietary research and development to discover new therapeutically active lead compounds with commercial potential. We anticipate that we would then license these compounds to third parties in return for up-front and service fees, and milestone payments as well as recurring royalty payments if these compounds are developed into new commercial drugs. Our proprietary research and development activities previously led us to license the worldwide rights to develop and commercialize potential products from the amine neurotransmitter reuptake inhibitor patents and technology identified in one of our proprietary research programs to Bristol-Myers Squibb Company (“BMS”), in October 2005. In addition, these activities also led to the development, patenting and 1995 licensing of a substantially pure form of, and a manufacturing process for, the active ingredient in the non-sedating antihistamine fexofenadine HCl marketed by Sanofi-aventis S.A. as Allegra® in the Americas and as Telfast elsewhere.

Our total revenue for 2009 was $196.4 million, including $156.8 million from our contract service business, $4.8 million from milestones and $34.9 million from royalties on sales of Allegra®/Telfast. We generated $39.1 million in cash from operations and used $15.2 million in capital expenditures on our facilities and equipment, primarily related to the expansion and relocation of our facilities in Bothell, Washington and Budapest, Hungary. We recorded a net loss of $16.7 million in 2009, primarily as a result of a $22.9 million goodwill impairment charge recorded in the fourth quarter. As of December 31, 2009, we had $111.1 million in cash, cash equivalents and investments and $13.5 million in bank and other related debt.

Strategy

We provide contract services to the world’s leading pharmaceutical and biotechnology companies. We derive our contract revenue from research and development expenditures and commercial manufacturing demands of the pharmaceutical and biotechnology industry. We continue to execute our long-term strategy to develop and grow an integrated global platform from which we can provide these services. We have research and manufacturing facilities in the United States, Hungary, Singapore and India. In 2008, we purchased an additional large-scale manufacturing site in India and completed a 10,000 square foot expansion of our Singapore Research Center. In 2009, we completed the expansion of our Bothell, Washington and Budapest, Hungary facilities. Most recently, in February 2010, we acquired Excelsyn Ltd, a well recognized leader in providing chemical development and manufacturing services to the pharmaceutical industry in Europe.

We continue to integrate our research and manufacturing facilities worldwide, increasing our access to key global markets and enabling us to provide our customers with a flexible combination of high quality services and competitive cost structures to meet their individual outsourcing needs. We seek comprehensive research and/or supply agreements with our customers, incorporating several of our service offerings and spanning across the entire pharmaceutical research and development process. Our research facilities provide discovery, chemical development, analytical, and small-scale current Good Manufacturing Practices (“cGMP”) manufacturing services. Compounds discovered and/or developed in our research facilities can then be more easily transitioned to production at our large-scale manufacturing facilities for use in clinical trials and, ultimately, commercial sales if the product meets regulatory approval. We believe that the ability to partner with a single provider of pharmaceutical research and development services from discovery through commercial production is of significant benefit to our customers. Through our comprehensive service offerings, we are able to provide customers with a more efficient transition of experimental compounds through the research and development process, ultimately reducing the time and cost involved in bringing these compounds from concept to market.

Our global platform has increased our market penetration and was developed in order to allow us to maintain and grow margins. In addition to our globalization, we continue to implement process efficiencies, including our continued efforts of process improvement and cost savings measures, along with efforts to strengthen our sourcing. We believe these factors will lead to improved margins.

We conduct proprietary research and development to discover new therapeutically active lead compounds with commercial potential. We anticipate that we would then license these compounds and underlying technology to third parties in return for up-front and service fees and milestone payments, as well as recurring royalty payments if these compounds are developed into new commercial drugs.

Research and development is performed at our large-scale manufacturing facility related to the potential manufacture of new products, the development of processes for the manufacture of generic products with commercial potential, and the development of alternative manufacturing processes.

Beginning in 2005 and continuing through 2008, we experienced increased demand in the areas of developmental and small-scale cGMP manufacturing services, reflecting a reduction in budgetary constraints of our emerging pharmaceutical and biotech customers and their increased efforts to bring identified compounds into clinical trials. During this timeframe, partly in recognition of increased competition and consolidation within the pharmaceutical industry, we established lower-cost international operations in Hungary, Singapore and India. Contract service providers that were not able to offer a cost competitive product were forced to exit or significantly reduce their presence in the marketplace during this time. In addition to providing customers with a range of technologies and cost options, expanding internationally has provided increased access to customers and potential customers in regions of the world which we had not significantly pursued. In addition to this growth in development and small scale cGMP manufacturing services, we had also seen an increased trend in demand for our discovery service as we increased our ability to provide high-quality services under a variety of business models and cost structures by incorporating our international facilities.

In 2009, we experienced a decrease in customer delivery patterns and demand caused by the economic downturn. As the industry emerges from this economic downturn, we are cautiously optimistic that demand for our discovery and development services should return. We continue to build on our strategy of leveraging our global resources to meet changing and expanding global outsourcing needs and additionally to expand our global service platform to meet the needs of our customers. In 2007, we completed the construction of a 50,000 square foot research center focusing primarily on custom synthesis and medicinal chemistry support services at the Shapoorji Pallonji Biotech Park in Hyderabad, India. Additionally, we have recently planned a 40,000 square foot expansion of this facility. Our 2008 expansion of our Singapore Research Center not only increased existing discovery service capabilities, but also included the introduction of in vitro biology services at the facility. We also completed the expansion of our research facilities in Budapest, Hungary and Bothell, Washington during 2009.

We have integrated our drug discovery and development research facilities with our large-scale manufacturing facilities to allow for the easier transition throughout the entire pharmaceutical research and development process. Through our comprehensive service offerings, we are able to provide customers with a more efficient transition of compounds through the research and development process, ultimately reducing the time and cost involved in bringing these compounds from concept to market. We enhanced our large-scale manufacturing capabilities with our acquisitions of manufacturing facilities in India in 2007 and 2008. In 2009, we completed the modernization and expansion of our pilot plant facilities in India. Additionally, in February 2010, we acquired Excelsyn Ltd., which will provide us with additional development and large scale manufacturing services in Europe. With these acquisitions and expansion, we have globalized our manufacturing operations, which offers us the flexibility to produce raw materials and process intermediates to support our domestic large-scale manufacturing facility. In addition, we believe that these acquisitions improve our generic drug product manufacturing capabilities and provide the opportunity to increase our global manufacturing market penetration over time.

Results of Operations

Operating Segment Data

We have organized our sales, marketing and production activities into the Discovery/Development/Small Scale Manufacturing (“DDS”) and Large Scale Manufacturing (“LSM”) segments based on the criteria set forth in ASC 280, ‘‘Disclosures about Segments of an Enterprise and Related Information.’’ We rely on an internal management accounting system to report results of these segments. The accounting system includes revenue and cost information by segment. We make financial decisions and allocate resources based on the information we receive from this internal system. The DDS segment includes activities such as drug lead discovery, optimization, drug development and small scale commercial manufacturing. The LSM segment includes pilot to commercial scale manufacturing of active pharmaceutical ingredients and intermediates and high potency and controlled substance manufacturing. API manufacturing is performed at our Rensselaer facility and is in compliance with cGMP.

Contract Revenue

Contract revenue consists primarily of fees earned under contracts with third-party customers. Our contract revenues for our DDS and LSM segments were as follows:

	Year Ended December 31,
	2009		2008		2007
	(in thousands)
DDS	$	85,793	$	113,955	$	87,063
LSM		71,007		81,500		76,312
Total	$	156,800	$	195,455	$	163,375

DDS contract revenue for the year ended December 31, 2009 decreased 24.7% to $85.8 million as compared to the same period in 2008. This result is primarily due to a decrease in contract revenue from development and small-scale manufacturing services of $18.2 million caused by lower demand from specialty pharma/biotech customers and more competitive pricing in the overall current economic downturn. In addition, discovery services contract revenue decreased $10.0 million due primarily to the completion of revenue recognition in October 2008 related to the licensing and funded research component of our on-going collaboration with BMS and the completion of recognition of access fees related to the preliminary screening phase of an on-going natural products collaboration. The decrease was also due to lower customer demand for services performed at our international locations, offset in part by an increase in US medicinal chemistry demand.

We currently expect DDS contract revenue for full year 2010 to increase over amounts recognized in 2009 primarily due to increases in demand for our international based services, particularly in the area of integrated drug programs, as well as our global hybrid offering.

LSM revenue for the year ended December 31, 2009 decreased 12.9% to $71.0 million from the same period in 2008 primarily due to decreases in demand from GE Healthcare and timing of customer requirements of $9.8 million, a decrease of $6.7 million related to reduced demand for clinical supply materials, as well as production interruptions at our international facility. These decreases were offset in part by an increase in commercial sales of $8.1 million, resulting from an increase in demand for existing commercial products, along with shipments of an additional commercial product in 2009.

We currently expect LSM contract revenue for full year 2010 to increase over amounts recognized in 2009 primarily due to returning demand by our largest customer to pre-2009 levels, as well as increased demand for our pilot plant facility in India.

DDS contract revenue for the year ended December 31, 2008 increased $26.9 million or 30.9% compared to contract revenue for the same period in 2007. This was primarily due to an increase in discovery services revenue of $16.1 million due to increased demand for these services, as our ability to offer various combinations of services and cost structures at our U.S. and international locations continued to gain acceptance in the worldwide marketplace. An additional $3.4 million increase was due to the completion of the preliminary screening phase of an on-going natural products collaboration project at our Bothell Research facility. The year over year increase was also due to increased contract revenue from development and small-scale manufacturing services of $10.8 million, as customers continued to focus on development-stage projects.

LSM contract revenue increased by $5.2 million, or 6.8%, for the year ended December 31, 2008 as compared to the same period in 2007. The increase in contract revenue was primarily attributable to an increase in incremental revenues from our June 2007 AMRI India acquisition. Additionally, sales to GE Healthcare increased $1.9 million due to the timing of customer requirements and related deliveries, along with an increase in revenue from the production of clinical supply materials for use in advanced stage human trials of commercial product of $1.0 million.

Recurring Royalties

We earn royalties under our licensing agreement with sanofi-aventis S.A. for the active ingredient in Allegra®. Royalties were as follows:

	Year Ended December 31,
	2009	2008		2007
	(in thousands)
$	34,867	$	28,305	$	27,056

Recurring royalties, which are based on the worldwide sales of Allegra®/Telfast, as well as on sales of sanofi-aventis’ authorized generics, increased $6.6 million for the year ended December 31, 2009 from the same period in 2008 primarily due to an increase in international sales of Allegra® by sanofi-aventis as well as the addition of royalties on the sale of authorized generics by Teva, an increased royalty rate on one Allegra® product and the recognition of sublicensing fees received under the amended agreement with sanofi-aventis.

Recurring royalties increased $1.2 million for the year ended December 31, 2008 from the same period in 2007.

The recurring royalties we receive on the sales of Allegra®/Telfast have historically provided a material portion of our revenues, earnings and operating cash flows. As provided in the settlement, Teva Pharmaceuticals launched a generic version of Allegra D-12® in November 2009. We will receive quarterly royalties through July 2010 for the branded Allegra D-12® equal to the royalties paid for the quarter ended June 30, 2009. Thereafter, the royalty rate will revert to the rate in effect prior to the signing of the sub-license amendment and we will also receive a royalty on Teva Pharmaceuticals’ sales of generic Allegra D-12®.

We currently expect royalty revenues for 2010 to decrease from amounts recognized in 2009. The decrease is driven by the generic launch of Allegra D-12, which will begin to impact royalties in the second half of 2010, along with the potential transition from generics to the OTC market within the US market by Sanofi-Aventis through their acquisition of Chattem, Inc. Although this switch could be positive in the longer term, it could potentially have a negative impact on our royalties in the short term.

We continue to develop our business in an effort to supplement the revenues, earnings and operating cash flows that have historically been provided by Allegra®/Telfast royalties. We forcefully and vigorously defend our intellectual property related to Allegra®, and we continue to pursue our intellectual property rights as patent infringement litigation progresses.

Milestone revenue

Milestone revenue is earned for achieving certain milestones included in licensing and research agreements with certain customers. Milestone revenues were as follows:

	Year Ended December 31,
	2009	2008		2007
	(in thousands)
$	4,750	$	5,500	$	2,080

During the year ended December 31, 2009, milestone revenue of $4.8 million was recognized in conjunction with the Company’s license and research agreement with BMS. $4.0 million was recognized as a result of the submission of a Clinical Trial Application and an additional $0.8 million was recognized for advancing a third compound into preclinical development.

During the year ended December 31, 2008, the Company recognized $5.5 million of milestone revenue in conjunction with the Company’s license and research agreement with BMS. A $4.0 million milestone payment was triggered by BMS’s submission of an application to the Health Products and Food Branch (“HPFB”), Health Canada to initiate Phase 1 clinical studies on a compound. An additional $1.5 million was recognized for advancing a second compound into preclinical development under the same agreement with BMS.

Milestone revenue received during the year ended December 31, 2007 was primarily due to a milestone payment of $1.5 million in conjunction with the Company’s license and research agreement with BMS. This milestone payment was triggered by a compound being developed under the agreement proceeding into preclinical development. An additional $0.5 million of milestone revenue was recognized during the fourth quarter of 2007 from a collaborative research agreement.

Cost of Contract Revenue

Cost of contract revenue consists primarily of compensation and associated fringe benefits for employees, as well as chemicals, depreciation and other indirect project related costs. Cost of contract revenue for our DDS and LSM segments were as follows:

	Year Ended December 31,
	2009			2008			2007
	(in thousands)
DDS	$	72,867		$	75,981		$	63,091
LSM		65,872			70,094			68,941
Total	$	138,739		$	146,075		$	132,032
DDS Gross Margin		15.1	%		33.3	%		27.5	%
LSM Gross Margin		7.2	%		14.0	%		9.7	%
Total Gross Margin		11.5	%		25.3	%		19.2	%

DDS had contract revenue gross margin of 15.1% for the year ended December 31, 2009 as compared to 33.3% for the same period in 2008. This decrease resulted from lower demand for these services in relation to our fixed costs, as well as the completion of the recognition of revenue and access fees associated with the preliminary screening phase of an on-going natural products collaboration project at our Bothell Research facility and the completion of the recognition of revenue from the licensing and funded research components of our on-going collaboration with BMS. Additionally, this decrease was further caused by soft customer demand at our European and Asian locations. We currently expect DDS contract margins for 2010 to moderately improve from amounts recognized in 2009.

LSM’s contract revenue gross margin decreased to 7.2% for the year ended December 31, 2009 as compared to 14.0% for the same period in 2008. This decrease is primarily due to decreased plant utilization as a result of order reductions by our largest customer in 2009, as well as delays in NDA submissions and approvals for customer materials that were queued up for production. Additionally, the decrease was further related to non-cash inventory write-downs primarily related to slower moving quantities of a legacy generic product of $1.9 million. We currently expect LSM contract margins for 2010 to moderately improve from amounts recognized in 2009.

DDS contract revenue gross margin was 33.3% for the year ended December 31, 2008, compared to 27.5% in 2007. The increase in gross margin resulted from increased contract revenues in relation to the fixed cost components of DDS contract business.

LSM contract revenue gross margin increased to 14.0% for the year ended December 31, 2008 compared to 9.7% in 2007. The increase was primarily due to process efficiencies, as well as an increase in sales volume from our largest customer, GE Healthcare. These increases were partially offset, by a decrease in margin resulting from start up costs associated with our acquisitions of AMRI India and FineKem, along with price concessions on sales to GE Healthcare in 2008. Although these price concessions decreased our gross margin, we believed this would strengthen our ability to retain this customer beyond the contract period ending in 2010. This result was achieved in January 2009 when GE Healthcare extended its supply agreement with us through 2013.

Technology Incentive Award

We maintain a Technology Development Incentive Plan, the purpose of which is to stimulate and encourage novel innovative technology developments by our employees. This plan allows eligible participants to share in a percentage of the net revenue earned by us relating to patented technology with respect to which the eligible participant is named as an inventor or made a significant intellectual contribution. To date, the royalties from Allegra® are the main driver of the awards. Accordingly, as the creator of the technology, the award is currently payable primarily to Dr. Thomas D’Ambra, our Chief Executive Officer and President of the Company. The incentive awards were as follows:

	Year Ended December 31,
	2009	2008		2007
	(in thousands)
$	3,594	$	2,901	$	2,784

We expect technology incentive award expense to generally fluctuate directionally and proportionately with fluctuations in Allegra® royalties in future periods.

The increase in technology incentive award expense for the year ended December 31, 2008 as compared to 2007 was due to the increase in Allegra® royalty revenue and an increase in awards granted in relation to milestone payments.

Research and Development

Research and development (“R&D”) expense consists of compensation and benefits for scientific personnel for work performed on proprietary technology R&D projects, costs of chemicals and other out of pocket costs, and overhead costs. We utilize our expertise in small molecule chemistry, biocatalysis and natural product technologies to perform our internal R&D projects. The goal of these programs is to discover new compounds with commercial potential. We would then seek to license these compounds to a third party in return for a combination of up-front license fees, milestone payments and recurring royalty payments if these compounds are successfully developed into new drugs and reach the market. In addition, R&D is performed at our large-scale manufacturing facility related to the potential manufacture of new products, the development of processes for the manufacture of generic products with commercial potential, and the development of alternative manufacturing processes. R&D expenses were as follows:

	Year Ended December 31,
	2009	2008		2007
	(in thousands)
$	14,547	$	13,129	$	12,821

Research and development expenses increased 10.8% to $14.5 million for the year ended December 31, 2009 from the same period in 2008. The increase in R&D expense during the year ended December 31, 2009 was due primarily to improving the manufacturing process for our generic API products and by the continued establishment of R&D activities at our Singapore facility, including in-vitro biology research capabilities. The increase was further due to the advancement of our oncology compound through Phase I clinical trials and the transition of research staff to our MCH-1 obesity research program upon completion of the funded component of the collaboration with BMS.

We currently expect R&D expense to remain flat in 2010 from amounts recognized in 2009, as we manage overall R&D expenditures to move our most advanced programs forward.

Projecting completion dates and anticipated revenue from our internal research programs is not practical at this time due to the early stages of the projects and the inherent risks related to the development of new drugs. Our proprietary amine neurotransmitter reuptake inhibitor program, which was our most advanced project at that time, was licensed to BMS in October 2005 in exchange for up-front license fees, contracted research services, and the rights to future milestone and royalty payments. We also continue to utilize our proprietary technologies to further advance other early to middle-stage internal research programs in the fields of oncology, irritable bowel syndrome, obesity, and CNS, with a view to seeking a licensing partner for these programs at an appropriate research or developmental stage.

We budget and monitor our R&D expenses by type or category, rather than by project on a comprehensive or fully allocated basis. In addition, our R&D expenses are not tracked by project as they often benefit multiple projects in our technology platform. Consequently, fully loaded R&D expense summaries by project are not available.

Research and development expenses increased 2.4% to $13.1 million for the year ended December 31, 2008 from $12.8 million for the same period in 2007. This increase was due primarily to the increase in third party costs associated with our oncology research program and to the establishment of R&D activities at our Singapore facility, offset in part by a decrease in salaries and benefits caused by the increased utilization of staff on external customer projects.

Selling, General and Administrative

Selling, general and administrative (“SG&A”) expenses consist of compensation and related fringe benefits for marketing, operational and administrative employees, professional service fees, marketing costs and costs related to facilities and information services. SG&A expenses were as follows:

	Year Ended December 31,
	2009	2008		2007
	(in thousands)
$	38,191	$	39,361	$	33,250

Selling, general and administrative expenses decreased 3.0% to $38.1 million for the year ended December 31, 2009 as compared to the same period in 2008. These decreases are primarily attributable to overall cost savings measures in 2009, including incremental cost savings from our restructuring of our Hungary operations and additionally from a reorganization of our large-scale India operations.

SG&A expenses are expected to remain flat or slightly increase in 2010 from amounts recognized in 2009.

The increase in selling, general and administrative expenses for the year ended December 31, 2008 as compared with the year ended December 31, 2007 was primarily attributable to incremental administrative costs at our AMRI India location, which was acquired in June 2007, along with an increase in bad debt expense and increases in salaries and benefits and relocation expenses related to an increase in business development, administrative and information technology personnel.

Restructuring Charges

AMRI India

In December 2009, we initiated a restructuring of our AMRI India location which consisted of closing and consolidating its Mumbai administrative office into its Hyderabad location as part of our goal to streamline operations and eliminate duplicate administrative functions. We recorded a restructuring charge of approximately $0.4 million in the fourth quarter of 2009, including lease termination charges of $0.2 million, leasehold improvement abandonment charges of $0.1 million and administrative costs of less than $0.1 million.

The restructuring costs are included under the caption “Restructuring charge” in the consolidated financial statement of operations during 2009 and the restructuring liabilities are included in “Accounts payable and accrued expenses” on the consolidated balance sheet at December 31, 2009.

The AMRI India restructuring activity was recorded in our Large Scale Manufacturing (“LSM”) operating segment. The following table displays AMRI India’s restructuring activity and liability balances within our LSM operating segment:

	Balance at January 1, 2009		Charges		Paid Amounts			Foreign Currency Translation Adjustments		Balance at December 31, 2009
Lease termination charges	$	—	$	215	$	—		$	—	$	215
Leasehold improvement abandonment charges		—		107		(107	)		—		—
Administrative costs associated with restructuring		—		42		(31	)		—		11
Total	$	—	$	364	$	(138	)	$	—	$	226

Lease termination charges and leasehold improvement abandonment charges relate to costs associated with exiting the current facility.

The net cash outflow related to the AMRI India restructuring for the year ended December 31, 2009 was less than $0.1 million. Anticipated cash outflows related to the AMRI India restructuring for 2010 is approximately $0.2 million, which primarily consists of lease termination charges.

AMRI Hungary

In May 2008, we initiated a restructuring of our Hungary location. The goal of the restructuring was to realign the business model for these operations to better support our long-term strategy for providing Discovery Services in the European marketplace. We recorded a restructuring charge of approximately $1.8 in the second quarter of 2008, including termination benefits and personnel realignment costs of approximately $0.9 million, losses on grant contracts of approximately $0.4 million, lease termination charges of approximately $0.5 million and administrative costs associated with the restructuring plan of $0.1 million.

During August 2009, we closed and consolidated our Balaton, Hungary facility into the new facility in Budapest, Hungary as part of our goal to streamline operations and to consolidate locations, equipment and operating costs. As a result of this restructuring, we recorded a restructuring charge of approximately $0.3 million in the second quarter of 2009, including termination benefits and personnel realignment costs of approximately $0.1 million, lease termination charges of $0.2 million and administrative costs associated with the restructuring plan of less than $0.1 million.

The restructuring costs are included under the caption “Restructuring charge” in the consolidated financial statement of operations during the years ended December 31, 2009 and 2008 and the restructuring liabilities are included in “Accounts payable and accrued expenses” on the consolidated balance sheets at December 31, 2009 and 2008. The Hungary restructuring activity was recorded in the DDS operating segment.

The following table displays AMRI Hungary’s restructuring activity and liability balances within our DDS operating segment:

	Balance at January 1, 2009		Charges		Paid Amounts			Reversals			Foreign Currency Translation Adjustments			Balance at December 31, 2009
Termination benefits and personnel realignment	$	325	$	134	$	(89	)		(305	)	$	(10	)	$	55
Losses on grant contracts		266		—		(19	)		—			(1	)		246
Lease termination charges		262		182		(150	)		(20	)		1			275
Administrative costs associated with restructuring		40		11		—			(37	)		(2	)		12
Total	$	893	$	327	$	(258	)		(362	)	$	(12	)	$	588

Termination benefits and personnel realignment costs relate to severance packages, outplacement services, and career counseling for employees affected by this restructuring. Losses on grant contracts represent estimated contractual losses that will be incurred in performing grant-based work under Hungary’s legacy business model. Lease termination charges relate to costs associated with exiting the current facility. The reversals in 2009 were primarily due to actual termination benefit and personnel realignment costs being lower than initially anticipated at the time of the restructuring.

The net cash outflow related to the Hungary restructuring for the year ended December 31, 2009 was $0.3 million. Anticipated cash outflow related to the Hungary restructuring for 2010 is approximately $0.6 million, which primarily consists of lease termination charges and incurring losses on grant contracts.

Goodwill Impairment

	Year Ended December 31,
	2009	2008		2007
	(in thousands)
$	22,900	$	—	$	—

We recorded a goodwill impairment charge of $22.9 million in our LSM operating segment due to a change in the implied fair value of the segment’s goodwill to below its carrying value during the fourth quarter of 2009. The change in the fair value of the segment was primarily attributable to the fact that in the fourth quarter of 2009 several issues occurred in the LSM segment that significantly impacted our expected future performance. Two phase III products that were expected to receive FDA approval were delayed, one by the FDA requiring more information and one by the customer in an effort to proactively collect more data before submitting to the FDA. It was expected throughout 2009 that commercial manufacturing would commence on both these products at the Rensselaer LSM facility beginning in 2010. This has now been delayed to 2011 and beyond. In addition, the company was notified of additional unexpected reductions in demand for product under the commercial supply agreement with its largest customer, GE Healthcare. These additional unplanned demand reductions in Q4 add an element of risk related to the Company’s ability to achieve the significant revenues expected from this contract that are reflected in the future projections for the segment.

Interest income, net

	Year Ended December 31,
(in thousands)	2009			2008			2007
Interest expense	$	(270	)	$	(493	)	$	(853	)
Interest income		646			1,663			4,045
Interest income, net	$	376		$	1,170		$	3,192

Interest expense decreased to $0.3 million for the year ended December 31, 2009 as compared with the same period in 2008 due to the decrease of interest rates on our outstanding debt.

Interest expense decreased to $0.5 million for the year ended December 31, 2008 from $0.9 million for 2007. The decrease was primarily due to the decrease in interest rates in 2008.

Interest income decreased to $0.6 million for the year ended December 31, 2009 as compared with the same period in 2008. This decrease was primarily due to the decrease in interest rates earned on interest bearing investments during 2009, along with decreases in the average balances of interest bearing cash and investments held during the year.

Interest income decreased to $1.7 million for the year ended December 31, 2008 as compared to $4.0 million for the year ended December 31, 2007. This decrease was primarily due to decreases in the average balances of interest-bearing cash and investments held by the Company as well as decreases in the interest rates earned on these balances in 2008.

Other (expense) income, net

	Year Ended December 31,
	2009		2008		2007
	(in thousands)
$	(545	)	$	759	$	(158	)

Other expense for the year ended December 31, 2009 was $0.5 million as compares to other income of $0.8 million for the same period in 2008. This difference is primarily due to a net loss in 2009 associated with our foreign currency transactions as compared to a net gain in 2008. Additionally, in 2009, we recorded greater losses on disposal of fixed assets as compared with 2008.

Income tax (benefit) expense

	Year Ended December 31,
	2009		2008		2007
	(in thousands)
$	(5,357	)	$	7,330	$	5,449

Income tax benefit for the year ended December 31, 2009 was $5.4 million as compared to income tax expense of $7.3 million for the same period in 2008. The Company’s effective tax rate of 24.3% of pre-tax loss for the year ended December 31, 2009 differs from the statutory rate of 35% primarily due to the establishment of valuation reserves on certain net operating loss carry forwards. The Company’s effective tax rate of 26.3% of pre-tax income for the year ended December 31, 2008 differs from the statutory rate of 35% primarily due to the recapture of tax credits derived from certain of the Company’s R&D expenses and the reversal of reserves for uncertain tax positions, which were resolved in 2008.

We currently expect our effective tax rate for 2010 to be 30 - 35% of pre-tax income.

Income tax expense increased to $7.3 million for the year ended December 31, 2008 from $5.4 million for the same period in 2007. The Company’s effective tax rate decreased to 26.3% of pre-tax income for the year ended December 31, 2008 from 37.9% of pre-tax income for the year ended December 31, 2007. The increase in income tax expense was due primarily to an increase in pre-tax income of $13.5 million and changes in the composition of taxable income in relation to the applicable tax rates at our various international locations in 2008. These increases were partially offset by the recapture of tax credits derived from certain of the Company’s R&D expenses and the reversal of reserves for an uncertain tax position, which were resolved in 2008.

Liquidity and Capital Resources

We have historically funded our business through operating cash flows and proceeds from borrowings. During 2009, we generated cash of $39.1 million from operating activities. The sources of operating cash flows were primarily from the receipt of a $10.0 million in 2009 for a sub-licensing fee from sanofi-aventis in conjunction with the amended licensing agreement entered into in the fourth quarter of 2008, a decrease in accounts receivable due to the timing of cash collections and Allegra royalties.

The recurring royalties we receive on the sales of Allegra®/Telfast have historically provided a material portion of our revenues and operating cash flows. As discussed in Item 3 of this Form 10-K, several generic manufacturers had filed ANDA applications with the FDA seeking authorization to produce and market a generic version of Allegra®. We and Aventis Pharmaceuticals have filed several patent infringement suits against these generic companies alleging infringement of certain U.S. patents. On November 18, 2008, the Company, its former subsidiary AMR Technology, Aventis Pharmaceuticals, sanofi-aventis, Teva Pharmaceuticals, and Barr Laboratories reached a settlement regarding the above-described patent infringement litigations relating to Teva Pharmaceuticals and Barr Laboratories. As part of the settlement, the Company entered into an amendment to its licensing agreement with sanofi-aventis to allow sanofi-aventis to sublicense patents related to ALLEGRA® and ALLEGRA®D-12 to Teva Pharmaceuticals and Barr Laboratories in the United States. Subsequently, Teva Pharmaceutical acquired Barr Laboratories. The Company received an upfront sublicense fee from sanofi-aventis of $10 million, and sanofi-aventis will pay royalties to the Company on the sale of products in the United States containing fexofenadine hydrochloride (the generic name for the active ingredient in ALLEGRA® ) and products containing fexofenadine hydrochloride and pseudoephedrine hydrochloride (generic ALLEGRA®D-12) by Teva Pharmaceuticals through 2015, along with additional consideration. Although the launch of a generic version of Allegra D-12 occurred in November 2009, we will receive quarterly royalties through July 2010 equal to the royalties paid for the quarter ended June 30, 2009. Thereafter, the royalty rate will revert to the rate in effect prior to the signing of the sub-license amendment.

During 2009, we used $19.1 million in cash for investing activities, primarily consisting of $15.2 million for the acquisition of property and equipment and $3.4 million for net purchases of investment securities. During 2009, we generated $0.3 million for financing activities, consisting primarily of $0.5 million provided by proceeds from the sale of common stock, stock option exercises and stock purchase plan withholdings offset, in part, by $0.2 million for payments of long-term debt.

Working capital, defined as current assets less current liabilities, was $149.7 million as of December 31, 2009, compared to $140.7 million at December 31, 2008. This increase is primarily due to the receipt of the $10 million upfront sublicense fee received in 2009.

Total capital expenditures for the year ended December 31, 2009 were $15.2 million as compared to $23.9 million for the year ended December 31, 2008. Capital expenditures in 2009 were primarily related to the expansion of our facilities in Bothell, Washington and in Budapest, Hungary. For 2010, we expect to incur $15.0 to $20.0 million in capital expenditures as we expand our international lab and manufacturing footprint.

We currently have a revolving line of credit in the amount of $45.0 million which has a maturity date in June 2013. The line of credit bears interest at a variable rate based on our Company’s leverage ratio. As of December 31, 2009, the balance outstanding on the line of credit was $9.7 million, bearing interest at a rate of 1.31%. The credit facility contains certain financial covenants, including a maximum leverage ratio, a minimum required operating cash flow coverage ratio, a minimum earnings before interest and taxes to interest ratio and a minimum current ratio. Other covenants include limits on asset disposals and the payment of dividends. As of December 31, 2009 and 2008, we were in compliance with all of the covenants under the credit facility.

Working capital was $140.7 million as of December 31, 2008, compared to $138.9 million at December 31, 2007. The primary reasons for the increase were increases in contract and milestone revenue and the refinancing of current debt into a long-term line of credit. These increases were partially offset by the use of cash and investments to fund treasury share repurchases, capital expenditures and the acquisition of FineKem. We believe we have mitigated a potentially significant risk associated with auction rate securities, which are included in investment securities, available-for-sale, on our consolidated balance sheet, by reducing our balance of these types of securities from $28.0 million at December 31, 2007 to $2.4 million at December 31, 2008.

Total capital expenditures for the year ended December 31, 2008 were $23.9 million as compared to $17.7 million for the year ended December 31, 2007. Capital expenditures in 2008 were primarily related to the expansion of our research facilities in Singapore, the expansion and modernization of our large-scale facilities in India and modernization of our large-scale manufacturing facilities in the U.S.

During 2008, we generated $9.0 million in cash for investing activities, primarily consisting of $23.9 million for the acquisition of property and equipment and $1.7 million related to the acquisition of FineKem, partially offset by proceeds from sales and maturities of investment securities, net of purchases of these securities, of $35.0 million. During 2008, we used $18.6 million for financing activities, consisting primarily of $19.7 million for the purchase of treasury stock, offset, in part, by $1.4 million provided by proceeds from the sale of common stock, stock option exercises and stock purchase plan withholdings. During 2008, we repurchased a total of 1.7 million shares of common stock of our company at a total cost of $19.7 million.

We continue to pursue the expansion of our operations through internal growth and strategic acquisitions. In February 2010, the Company acquired Excelsyn Ltd. a chemical development and large scale manufacturing services company in North Wales, UK. Under the terms of the agreement, AMRI has purchased all of the outstanding shares of Excelsyn for approximately $19 million in cash, which was funded from existing cash and cash equivalents. We expect that additional expansion activities will be funded from existing cash and cash equivalents, cash flow from operations and/or the issuance of debt or equity securities and borrowings. Future acquisitions, if any, could be funded with cash on hand, cash from operations, borrowings under our credit facility and/or the issuance of equity or debt securities. There can be no assurance that attractive acquisition opportunities will be available to us or will be available at prices and upon such other terms that are attractive to us. We regularly evaluate potential acquisitions of other businesses, products and product lines and may hold discussions regarding such potential acquisitions. As a general rule, we will publicly announce such acquisitions only after a definitive agreement has been signed. In addition, in order to meet our long-term liquidity needs or consummate future acquisitions, we may incur additional indebtedness or issue additional equity or debt securities, subject to market and other conditions. There can be no assurance that such additional financing will be available on terms acceptable to us or at all. The failure to raise the funds necessary to finance our future cash requirements or consummate future acquisitions could adversely affect our ability to pursue our strategy and could negatively affect our operations in future periods.

Off Balance Sheet Arrangements

We do not use special purpose entities or other off-balance sheet financing techniques that we believe have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital resources.

Contractual Obligations

The following table sets forth our long-term contractual obligations and commitments as of December 31, 2009.

Payments Due by Period (in thousands)

	Total		Under 1 Year		1-3 Years		4-5 Years		After 5 Years
Long-Term Debt (principal)	$	13,482	$	270	$	560	$	10,262	$	2,390
Operating Leases		29,897		4,027		7,898		6,726		11,246
Purchase Commitments		4,087		4,087		—		—		—
Pension Plan Contributions		290		218		72		—		—

Related Party Transactions

Technology Development Incentive Plan

We have a Technology Development Incentive Plan to provide a method to stimulate and encourage novel innovative technology development. To be eligible to participate, the individual must be an employee and must be the inventor of, co-inventor of, or have made a significant intellectual contribution to novel technology that results in new revenues received by us. Eligible participants will share in awards based on a percentage of the licensing, royalty or milestone revenue received by us, as defined by the Plan.

In 2009, 2008 and 2007 we awarded Technology Incentive Compensation primarily to Thomas D’Ambra, our Chairman, President and Chief Executive Officer and the inventor of the terfenadine carboxylic acid metabolite technology, which is covered by the Company’s patents relating to the active ingredient in Allegra. In 2007, 2008 and 2009, awards were granted in relation to the milestone payment from BMS made pursuant to the licensing and research agreement between the Company and BMS. The amounts awarded and included in the consolidated statements of income for the years ended December 31, 2009, 2008 and 2007 are $3.6 million, $2.9 million and $2.8 million, respectively. Included in accrued compensation in the accompanying consolidated balance sheets at both December 31, 2009 and 2008 are unpaid Technology Development Incentive Compensation awards of approximately $0.8 million and $0.7 million, respectively.

Telecommunication Services

A member of the Company’s board of directors is the Chief Executive Officer of one of the providers of telephone and internet services to the Company. This telecommunications company was paid approximately $0.2 million each year for services rendered to the Company in 2009, 2008 and 2007.

Critical Accounting Estimates

Accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they inherently involve significant judgments and uncertainties. All of these estimates reflect our best judgment and are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Under different assumptions or conditions, it is reasonably possible that the judgments and estimates described below could change, which may result in future impairments of inventories, goodwill, and long-lived assets, as well as increased pension liabilities, the establishment of valuation allowances on deferred tax assets and increased tax liabilities, among other effects. Also see Note 1, Summary of Significant Accounting Policies, in Part II, Item 8. “Financial Statements and Supplementary Data” of this report, which discusses the significant accounting policies that we have selected from acceptable alternatives.

Inventory

Inventory consists primarily of commercially available fine chemicals used as raw materials, work-in-process and finished goods in our large-scale manufacturing plant. Large-scale manufacturing inventories are valued on a first-in, first-out (“FIFO”) basis. Inventories are valued at the lower of cost or market. We regularly review inventories on hand and record a charge for slow-moving and obsolete inventory, inventory not meeting quality standards and inventory subject to expiration. The charge for slow-moving and obsolete inventory is based on current estimates of future product demand, market conditions and related management judgment. Any significant unanticipated changes in future product demand or market conditions that vary from current expectations could have an impact on the value of inventories. Total inventories,recorded on our consolidated balance sheet at December 31, 2009 and 2008 were $25.1 million and $28.7 million, respectively. We recorded charges to reduce obsolete inventory balances of $4.6 million, $4.0 million and $2.9 million for the years ended December 31, 2009, 2008 and 2007, respectively.

Goodwill

Significant underperformance relative to historical or projected future operating results;

Significant negative industry or economic trends; and

Market capitalization relative to net book value, as well as to the aggregate of reporting unit fair values.

Determining whether an impairment has occurred requires valuation of the respective reporting unit, which is estimated based on a variety of techniques. In applying this methodology, we rely on a number of factors and assumptions, including actual operating results, future business plans, economic projections, market data, and discount rates.

If this analysis indicates goodwill is impaired, measuring the impairment requires a fair value estimate of each identified and previously unidentified tangible and intangible asset. In this case, we supplement the cash flow approach discussed above, including the use of independent appraisals, if deemed necessary. Total goodwill recorded on our consolidated balance sheet at December 31, 2009 was $17.6 million. A goodwill impairment charge of $22.9 million was recorded in our LSM segment in the fourth quarter of 2009 as a result of our annual goodwill impairment testing, which determined a decline in fair value to below its carrying value.

Long-Lived Assets

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Factors we consider important that could trigger an impairment review include, among others, the following:

A significant change in the extent or manner in which a long-lived asset is being used;

A significant change in the business climate that could affect the value of a long-lived asset; and

A significant decrease in the market value of assets.

Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which undiscounted cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount, and the asset’s residual value, if any. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best information available. We derive the required undiscounted cash flow estimates from our historical experience, internal business plans and our understanding of current marketplace valuation estimates. To determine fair value, we use our internal cash flow estimates discounted at an appropriate interest rate, quoted market prices when available and independent appraisals, as appropriate.

Pension and Postretirement Benefit Plans

We utilize actuarial models to measure pension and postretirement benefit obligations and related effects on operations. Three assumptions – discount rate, expected return on assets, and trends in healthcare costs– are important elements of plan expense and asset/liability measurement. We evaluate these critical assumptions at least annually. We periodically evaluate other assumptions involving demographic factors, such as retirement age, mortality and turnover, and update them to reflect our experience and expectations for the future. Actual results in any given year will often differ from actuarial assumptions because of economic and other factors.

Accumulated and projected benefit obligations are expressed as the present value of future cash payments. We discount those cash payments using the weighted average of market-observed yields for high quality fixed income securities with maturities that correspond to the payment of benefits. Lower discount rates increase present values; higher discount rates decrease present values.

Our discount rates for our pension plan at December 31, 2009, 2008 and 2007 were 5.65%, 6.25% and 6.25%, respectively, reflecting market interest rates.

To determine the expected long-term rate of return on pension plan assets, we consider current and expected asset allocations, as well as historical and expected returns on various categories of plan assets. In developing future return expectations for our pension plan’s assets, we evaluate general market trends as well as key elements of asset class returns such as expected earnings growth, yields and spreads across a number of potential scenarios. In 2009, assets in our pension plan earned 23.1% and posted cumulative returns of (3.66%), 1.7%, and 3.68% for the three-, five- and eight-year periods ended December 31, 2009, respectively. Assets in our pension plan declined 31.4% in 2008, and posted cumulative returns of (6.0%), (0.1%) and 1.5% for the three-, five- and nine-year periods ended December 31, 2008, respectively. Based on our analysis of future expectations of asset performance, past return results, and our current and expected asset allocations, we have assumed an 8.0% long-term expected return on those assets.

Healthcare cost trend rates have a significant effect on the amounts reported for our postretirement welfare plan. Due to the fact that no retirees are currently covered by the Postretirement Welfare Plan, survey data is reviewed for industry averages. Per our review, a trend of a 10% annual cost increase grading to an ultimate rate of 5% is within industry norms.

Income Taxes

Our annual tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining our tax expense and in evaluating our tax positions, including evaluating uncertainties and the need for valuation allowances. We review our tax positions quarterly and adjust the balances as new information becomes available. Our income tax rate is significantly affected by the tax rates on our international operations, each of which are subject to local country tax laws and regulations.

Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carry-forwards. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income inherently rely heavily on estimates. To the extent we do not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established. We use our historical experience and our short and long-range business forecasts to provide insight. Further, our global business structure gives us the opportunity to employ various prudent and feasible tax planning strategies to facilitate the recoverability of future deductions. Amounts recorded for deferred tax assets, net of valuation allowances, were $21.2 million and $9.7 million at December 31, 2009 and 2008, respectively. Such 2009 year-end amounts are expected to be fully recoverable within the applicable statutory expiration periods.

Loss Contingencies

Other loss contingencies are recorded as liabilities when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. Disclosure is required when there is a reasonable possibility that the ultimate loss will materially exceed the recorded provision. Contingent liabilities are often resolved over long time periods. Estimating probable losses requires analysis of multiple forecasts that often depend on judgments about potential actions by third parties such as regulators.

Recent Accounting Pronouncements

In December 2009, the FASB issued ASC 860-10 “Accounting for Transfers of Financial Assets” intends to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets.. Effective as of the beginning of the first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter, Earlier application is prohibited. This ASC must be applied to transfers occurring on or after the effective date. The Company is currently evaluating the impact of this statement on its financial statements.

In October 2009, the FASB issued ASU 2009-13, “Multiple-Deliverable Revenue Arrangements”, which addresses how revenues should be allocated among all products and services included in our sales arrangements. It establishes a selling price hierarchy for determining the selling price of each product or service, with vendor-specific objective evidence (“VSOE”) at the highest level, third-party evidence of VSOE at the intermediate level, and a best estimate at the lowest level. It replaces “fair value” with “selling price” in revenue allocation guidance. It also significantly expands the disclosure requirements for such arrangements. ASU 2009-13 will be effective prospectively for sales entered into or materially modified in fiscal years beginning on or after June 15, 2010. The FASB permits early adoption of ASU 2009-13, applied retrospectively, to the beginning of the year of adoption. The Company is currently evaluating the impact on its financial statements.

In June 2009, the FASB issued ASC 810, “Amendments to FASB Interpretation No. 46R.” This revises FIN 46R by eliminating the exemption for qualifying special purpose entities, by establishing a new approach for determining who should consolidate a variable-interest entity and by changing when it is necessary to reassess who should consolidate a variable-interest entity. This statement is effective for annual reporting periods beginning after November 15, 2009. The Company is currently evaluating the impact of this statement on its financial statements.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have market risk with respect to foreign currency exchange rates and interest rates. The market risk is the potential loss arising from adverse changes in these rates as discussed below.

The Company has facilities in Singapore, India and Hungary and therefore is subject to foreign currency risk. This risk is composed of both potential losses from the translation of foreign currency financial statements and the remeasurement of foreign currency transactions. The total net assets of non-U.S. operations denominated in non-functional currencies subject to potential loss amount to approximately $57.5 million. The potential loss in fair value resulting from a hypothetical 10% adverse change in quoted foreign currency exchange rates amounts to approximately $5.8 million. Furthermore, related to foreign currency transactions, the Company has exposure to non-functional currency balances totaling approximately $7.6 million. This amount includes, on an absolute basis, exposures to foreign currency assets and liabilities. On a net basis, the Company had approximately $3.3 million of foreign currency assets as of December 31, 2009. As currency rates change, these non-functional currency balances are revalued, and the corresponding adjustment is recorded in the consolidated statement of operations. A hypothetical change of 10% in currency rates could result in an adjustment to the consolidated statement of operations of approximately $0.3 million.

With respect to interest rates, the risk is composed of changes in future cash flows due to changes in interest rates on our variable rate $9.7 million line of credit and $3.8 million industrial development authority bonds. The potential loss in 2010 cash flows from a 10% adverse change in quoted interest rates would approximate fourteen thousand dollars.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Financial statements and notes thereto appear on pages F-1 to F-41 of this Annual Report on Form 10-K.

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As required by rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Annual Report on Form 10-K, the Company’s management conducted an evaluation under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer regarding the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation the Company’s management has concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2009.

Management’s Annual Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles, and includes those policies and procedures that:

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles and, that receipts and expenditures of the Company are being made only in accordance with authorization of management and directors of the Company; and

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management, including the Chief Executive Officer and Chief Financial Officer, assessed as of December 31, 2009 the effectiveness of the Company’s internal control over financial reporting. In making this assessment, management used the criteria set forth in the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the results of this evaluation, management has concluded that the Company’s internal control over financial reporting as of December 31, 2009 was effective.

Attestation Report of the Registered Public Accounting Firm

The Company’s independent registered public accounting firm that audited the consolidated financial statements included in this Annual Report has issued an attestation report on the Company’s internal control over financial reporting. The attestation report is included on page F-3 of this Annual Report on Form 10-K and incorporated herein by reference.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) or Rule 15d-15 under the Exchange Act that occurred during the Company’s fiscal quarter ended December 31, 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE .

The information appearing under the captions “Directors and Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Code of Ethics” in the Company’s definitive proxy statement relating to the Annual Meeting of Stockholders to be held on or around June 2, 2010 is incorporated herein by reference.

ITEM 11.

EXECUTIVE COMPENSATION.

The information appearing under the captions “Executive Compensation—Summary Compensation,—Compensation Committee Interlocks and Insider Participation, and—Agreements with Named Executive Officers,” and “Information Regarding Directors—The Board of Directors and its Committees” in the Company’s definitive proxy statement relating to the Annual Meeting of Stockholders to be held on or around June 2, 2010 is incorporated herein by reference.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The information appearing under the caption “Principal and Management Stockholders” in the Company’s definitive proxy statement relating to the Annual Meeting of Stockholders to be held on or around June 2, 2010 is incorporated herein by reference.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.

The information appearing under the caption “Certain Transactions” in the Company’s definitive proxy statement relating to the Annual Meeting of Stockholders to be held on or around June 2, 2010 is incorporated herein by reference.

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information appearing under the caption “Audit Fees” in the Company’s definitive proxy statement relating to the Annual Meeting of Stockholders to be held on or around June 2, 2010 is incorporated herein by reference.

PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) (1) Financial Statements.

The consolidated financial statements required by this item are submitted in a separate section beginning on page F-1 of this report.

		Page Number
Reports of Independent Registered Public Accounting Firm		F-2
Consolidated Statements of Operations for the Years Ended December 31, 2009, 2008 and 2007		F-4
Consolidated Balance Sheets at December 31, 2009 and 2008		F-5
Consolidated Statements of Stockholders’ Equity and Comprehensive (Loss) Income for the Years Ended December 31, 2009, 2008 and 2007		F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and 2007		F-7
Notes to Consolidated Financial Statements		F-9

(a) (2) Financial Statement Schedules

The following financial schedule of Albany Molecular Research, Inc. is included in this annual report on Form 10-K.

Schedule II—Valuation and Qualifying Accounts

F-40

Schedules other than that which is listed above have been omitted since they are either not required, are not applicable, or the required information is shown in the consolidated financial statements or related notes.

(a) (3) Exhibits

EXHIBIT INDEX

Exhibit No.		Description
2.1		Business Transfer Agreement, dated May 16, 2007 between Albany Molecular Research, Inc. and Ariane Orgachem Private Limited (incorporated by reference to Exhibit 2.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2007, File No. 000-25323).
2.2		Business Transfer Agreement, dated May 16, 2007 between Albany Molecular Research, Inc. and Ferico Laboratories Limited (incorporated by reference to Exhibit 2.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2007, File No. 000-25323).
2.3		Stock Purchase Agreement, dated January 27, 2006, between Albany Molecular Research, Inc. and ComGenex Kutato-Fejleszto Rt. (incorporated herein by reference to Exhibit 2.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2006, File No. 000-25323).
3.1		Restated Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1998, File No. 000-25323).
3.2		Amended and Restated By-Laws of the Company (incorporated herein by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1998, File No. 000-25323).
4.1		Specimen certificate for shares of Common Stock, $0.01 par value, of the Company (incorporated herein by reference to Exhibit 4.1 to Amendment No. 3 to the Company’s Registration Statement on Form S-1, File No. 333-58795).
4.2		Certificate of Designations, Preferences and Rights of a Series of Preferred Stock of Albany Molecular Research, Inc. classifying and designating the Series A Junior Participating Cumulative Preferred Stock. (incorporated herein by reference to Exhibit 3.1 to the Company’s Registration Statement on Form 8-A filed with the Securities and Exchange Commission on September 19, 2002, File No. 000-25323).
4.3		Shareholder Rights Agreement, dated as of September 18, 2002, between the Company and Mellon Investor Services LLC, as Rights Agent (incorporated herein by reference to Exhibit 3.2 to the Company’s Registration Statement on Form 8-A filed with the Securities and Exchange Commission on September 19, 2002, File No. 000-25323).

Exhibit No.		Description
10.1		Lease dated as of October 9, 1992, as amended, by and between the Company and Hoffman Enterprises (incorporated herein by reference to Exhibit 10.1 to Amendment No. 3 to the Company’s Registration Statement on Form S-1, File No. 333-58795).
10.2*		1998 Stock Option and Incentive Plan of the Company (incorporated herein by reference to Exhibit 10.2 to Amendment No. 3 to the Company’s Registration Statement on Form S-1, File No. 333-58795).
10.3*		Amended and Restated 1992 Stock Option Plan of the Company (incorporated herein by reference to Exhibit 10.3 to Amendment No. 2 to the Company’s Registration Statement on Form S-1, File No. 333-58795).
10.4*		1998 Employee Stock Purchase Plan of the Company (incorporated herein by reference to Exhibit 10.4 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-58795)).
10.5		Form of Indemnification Agreement between the Company and each of its directors (incorporated herein by reference to Exhibit 10.5 to Amendment No. 2 to the Company’s Registration Statement on Form S-1, File No. 333-58795).
10.6		License Agreement dated March 15, 1995 by and between the Company and Marion Merrell Dow Inc. (now sanofi-aventis, S.A.) (excluding certain portions which have been omitted as indicated based upon an order for confidential treatment, but which have been filed separately with the Commission) (incorporated herein by reference to Exhibit 10.7 to Amendment No. 3 to the Company’s Registration Statement on Form S-1, File No. 333-58795).
10.7*		Amendment to 1998 Stock Option and Incentive Plan of the Company (incorporated herein by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004, File No. 000-25323).
10.8*		Technology Development Incentive Plan (incorporated herein by reference to Exhibit 10.10 to Amendment No. 2 to the Company’s Registration Statement on Form S-1, File No. 333-58795).
10.9*		Form of Employee Innovation, Proprietary Information and Post-Employment Activity Agreement between the Company and each of its executive officers (incorporated herein by reference to Exhibit 10.14 to Amendment No. 3 to the Company’s Registration Statement on Form S-1, File No. 333-58795).
10.10		Credit Agreement, dated as of February 12, 2003, by and between the Company and Fleet National Bank, Fleet Securities, Inc., JP Morgan Chase Bank, and Citizens Bank of Massachusetts (incorporated herein by reference to Exhibit 10.19 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004, File No. 000-25323).
10.11		Second Amendment, dated as of June 30, 2005, to Credit Agreement between Albany Molecular Research, Inc. and Bank of America, N.A., JP Morgan Chase Bank, N.A. and Citizens Bank of Massachusetts (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 filed with the Securities and Exchange Commission on August 9, 2005, File No. 000-25323).
10.12		Restated and Revised Lease Agreement, dated as of December 1, 1999, between the University at Albany Foundation and the Company (incorporated herein by reference to Exhibit 10.21 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999, File No. 000-25323).
10.13*		Form of Restricted Stock Award Agreement under 1998 Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 17, 2005, File No. 000-25323).
10.14*		Albany Molecular Research, Inc. Incentive Bonus Plan (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 3, 2005, File No. 000-25323).
10.15*		Form of Incentive Stock Option Agreement under 1998 Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 filed with the Securities and Exchange Commission on May 10, 2005, File No. 000-25323).
10.16*		Form of Non-Qualified Stock Option Agreement under 1998 Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 filed with the Securities and Exchange Commission on May 10, 2005, File No. 000-25323).

Exhibit No.		Description
10.17		Supply Agreement, dated as of August 31, 2005, between Organichem Corporation and Amersham Health AS, a wholly-owned subsidiary of GE Healthcare, Inc. (filed with certain information omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission) (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 filed with the Securities and Exchange Commission on November 4, 2005, File No. 000-25323).
10.18		License and Research Agreement, dated as of October 20, 2005, between Albany Molecular Research, Inc., AMR Technology, Inc. and Bristol-Myers Squibb Company (incorporated herein by reference to Exhibit 10.19 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005, File No. 000-25323).
10.19*		Form of Notice of Acceleration of Certain Stock Options and Acknowledgement of Lock-Up dated January 25, 2006 (incorporated herein by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005, File No. 000-25323).
10.20*		Amended and Revised Technology Department Incentive Plan, dated October 13, 2003 (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2006, File No. 0-25323).
10.21*		Amended and Restated Employment Agreement, dated August 5, 2008, between Albany Molecular Research, Inc. and Thomas E. D’Ambra, Ph.D. (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2008, filed with the Securities and Exchange Commission on August 7, 2008, File No. 000-25323).
10.22*		Amended and Restated Employment Agreement, dated August 5, 2008, between Albany Molecular Research, Inc. and Mark T. Frost (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2008, filed with the Securities and Exchange Commission on August 7, 2008, File No. 000-25323).
10.23*		Amended and Restated Employment Agreement, dated August 5, 2008, between Albany Molecular Research, Inc. and W. Steven Jennings (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2008, filed with the Securities and Exchange Commission on August 7, 2008, File No. 000-25323).
10.24*		2008 Stock Option and Incentive Plan, approved on June 4, 2008 (incorporated herein by reference to Exhibit 1 to Schedule 14A filed with the Securities and Exchange Commission on April 29, 2008, File No. 000-25323).
10.25		Amendment to License Agreement Regarding Sublicensing , dated November 19, 2008, by and between Albany Molecular Research, Inc., AMR Technology, Inc. (formerly a subsidiary of AMRI, which has subsequently been merged into AMRI) and sanofi-aventis U.S. LLC (filed with certain information omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission) (incorporated herein by reference to Exhibit 10.25 to the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, File No. 000-25323).
10.26		Second Amendment to the August 31, 2005 Supply Agreement, dated January 9, 2009, by and between AMRI Rensselaer, Inc. (formerly Organichem Corporation) and GE Healthcare AS (formerly Amersham Healthcare AS) (filed with certain information omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission) (incorporated herein by reference to Exhibit 10.26 to the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, File No. 000-25323).
10.27*		Employment Agreement, dated August 5, 2008, between Albany Molecular Research, Inc. and Steven R. Hagen, Ph.D. (incorporated herein by reference to Exhibit 10.27 to the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, File No. 000-25323).
10.28		Fifth Amendment to Credit Agreement, dated as of June 26, 2008, by and among Albany Molecular Research, Inc., Bank of America, N.A. and RBS Citizens, National Association (successor by merger to Citizens Bank of Massachusetts) (incorporated herein by reference to Exhibit 10.28 to the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, File No. 000-25323).
21.1		Subsidiaries of the Company (filed herein).
23.1		Consent of KPMG LLP (filed herein).
31.1		Rule 13a-14(a)/15d-14(a) certification (filed herein).
31.2		Rule 13a-14(a)/15d-14(a) certification (filed herein).
32.1		Section 1350 certification (filed herein).
32.2		Section 1350 certification (filed herein).

*	Denotes management contract of compensation plan or arrangement

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: March 12, 2010	Albany Molecular Research, Inc.

	By:	/s/ Thomas E. D’Ambra
		Thomas E. D’Ambra, Ph.D.
		President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ Thomas E. D’Ambra	Chairman of the Board, President, Chief Executive	March 12, 2010
Thomas E. D’Ambra, Ph.D.	Officer and Director (Principal Executive Officer)

/s/ Mark T. Frost	Senior Vice President, Administration, Chief Financial Officer and Treasurer	March 12, 2010
Mark T. Frost	(Principal Financial and Accounting Officer)

/s/ Paul S. Anderson	Director	March 12, 2010
Paul S. Anderson, Ph.D.

/s/ Veronica G.H. Jordan	Director	March 12, 2010
Veronica G.H. Jordan, Ph.D.

/s/ Kevin O’Connor	Director	March 12, 2010
Kevin O’Connor

/s/ Arthur J. Roth	Director	March 12, 2010
Arthur J. Roth

/s/ Una S. Ryan	Director	March 12, 2010
Una S. Ryan, Ph.D., O.B.E.

/s/ Anthony P. Tartaglia	Director	March 12, 2010
Anthony P. Tartaglia, M.D.

		Page
Reports of Independent Registered Public Accounting Firm		F-2
Consolidated Statements of Operations for the Years Ended December 31, 2009, 2008 and 2007		F-4
Consolidated Balance Sheets at December 31, 2009 and 2008		F-5
Consolidated Statements of Stockholders’ Equity and Comprehensive (Loss) Income for the Years Ended December 31, 2009, 2008 and 2007		F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and 2007		F-7
Notes to Consolidated Financial Statements		F-9

	December 31,
	2009			2008
Assets
Current assets:
Cash and cash equivalents	$	80,953		$	60,400
Investment securities		30,105			27,070
Accounts receivable (net of allowance for doubtful accounts of $425 at December 31, 2009 and $621 at December 31, 2008)		23,616			38,529
Royalty income receivable		7,101			6,670
Inventory		25,143			28,670
Unbilled services		58			159
Prepaid expenses and other current assets		8,780			8,944
Deferred income taxes		4,708			4,073
Total current assets		180,464			174,515
Property and equipment, net		166,746			167,502
Goodwill		17,551			40,272
Intangible assets and patents, net		2,461			2,018
Equity investment in unconsolidated affiliates		956			956
Deferred income taxes		1,166			—
Other assets		4,348			5,421
Total assets	$	373,692		$	390,684

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses	$	15,277		$	16,480
Deferred revenue and licensing fees		10,777			7,300
Accrued compensation		3,091			6,084
Accrued pension benefits		218			500
Income taxes payable		1,101			3,198
Current installments of long-term debt		270			260
Total current liabilities		30,734			33,822
Long-term liabilities:
Long-term debt, excluding current installments		13,212			13,482
Deferred rent		1,354			1,156
Deferred licensing fees		7,143			—
Deferred income taxes		—			9,142
Pension and postretirement benefits		6,445			6,211
Environmental liabilities		191			191
Total liabilities		59,079			64,004
Commitments and contingencies (notes 12 and 14)
Stockholders’ equity:
Preferred stock, $0.01 par value, authorized 2,000 shares, none issued or outstanding		—			—
Common stock, $0.01 par value, authorized 50,000 shares, 35,467 shares issued in 2009 and 35,278 shares issued in 2008		355			353
Additional paid-in capital		201,667			199,020
Retained earnings		174,121			190,816
Accumulated other comprehensive loss, net		(4,642	)		(6,621	)
		371,501			383,568
Less, treasury shares at cost, 3,825 shares in 2009 and 2008		(56,888	)		(56,888	)
Total stockholders’ equity		314,613			326,680
Total liabilities and stockholders’ equity	$	373,692		$	390,684

															Accumulated
			Common Stock						Additional						Other			Treasury Stock
	Preferred		Number of			Par			Paid-in			Retained			Comprehensive			Number of									Comprehensive
	Stock		Shares			Value			Capital			Earnings			(Loss ) Income			Shares			Amount			Total			(Loss) Income
Balances at January 1, 2007	$	—		34,749		$	347		$	193,127		$	161,320		$	832			(2,077	)	$	(37,171	)	$	318,455
Comprehensive Income:
Net income													8,936												8,936		$	8,936
Unrealized gain on investment securities, available-for-sale, net of taxes																83									83			83
Unrealized loss on interest rate swap contract, net of taxes																(92	)								(92	)		(92	)
Pension and other postretirement benefits:
Amortization of actuarial loss, net of taxes																4									4			4
Current year actuarial gain, net of taxes																413									413			413
Foreign currency translation gain																3,907									3,907			3,907
Total other comprehensive income																4,315
Total comprehensive income																											$	13,251
Tax benefit from exercise of stock options										121															121
Share-based payment expense										584															584
Issuance of restricted stock				197			2			(2	)														—
Amortization of unearned compensation - restricted stock										720															720
Forfeiture of unearned compensation - restricted stock				(98	)		(1	)		1															—
Issuance of common stock in connection with stock option plan and ESPP				227			3			1,434															1,437
Balances at December 31, 2007	$	—		35,075		$	351		$	195,985		$	170,256		$	5,147			(2,077	)	$	(37,171	)	$	334,568
Comprehensive Income:
Net income													20,560												20,560		$	20,560
Unrealized gain on investment securities, available-for-sale, net of taxes																67									67			67
Unrealized loss on interest rate swap contract, net of taxes																(5	)								(5	)		(5	)
Pension and other postretirement benefits:
Amortization of actuarial loss, net of taxes																8									8			8
Current year actuarial loss, net of taxes																(4,510	)								(4,510	)		(4,510	)
Foreign currency translation loss																(7,328	)								(7,328	)		(7,328	)
Total other comprehensive loss																(11,768	)
Total comprehensive income																											$	8,792
Treasury stock purchases																			(1,748	)		(19,717	)		(19,717	)
Tax benefit from exercise of stock options										56															56
Share-based payment expense										665															665
Issuance of restricted stock				175			2			(2	)														—
Amortization of unearned compensation - restricted stock										1,031															1,031
Forfeiture of unearned compensation - restricted stock				(68	)		(1	)		1															—
Issuance of common stock in connection with stock option plan and ESPP				96			1			1,284															1,285
Balances at December 31, 2008	$	—		35,278		$	353		$	199,020		$	190,816		$	(6,621	)		(3,825	)	$	(56,888	)	$	326,680
Net loss													(16,695	)											(16,695	)	$	(16,695	)
Unrealized loss on investment securities, available-for-sale, net of taxes																(10	)								(10	)		(10	)
Pension and other postretirement benefits:
Amortization of actuarial loss, net of taxes																29									29			29
Current year actuarial gain, net of taxes																16									16			16
Foreign currency translation gain																1,944									1,944			1,944
Total other comprehensive income																1,979
Total comprehensive loss																											$	(14,716	)
Tax benefit from exercise of stock options										5															5
Share-based payment expense										765															765
Issuance of restricted stock				165			2			(2	)														—
Amortization of unearned compensation - restricted stock										1,369															1,369
Forfeiture of unearned compensation - restricted stock				(41	)		(1	)		1															—
Issuance of common stock in connection with stock option plan and ESPP				65			1			509															510
Balances at December 31, 2009	$	—		35,467			355			201,667			174,121			(4,642	)		(3,825	)	$	(56,888	)		314,613

Fair value of assets acquired	$	1,917
Cash paid for net assets		(204	)
Liabilities assumed	$	1,713

Fair value of assets acquired	$	12,346
Cash paid for net assets		(420	)
Liabilities assumed	$	11,926

Laboratory equipment and fixtures	7-18 years
Office equipment	3-7 years
Computer equipment	3-5 years
Buildings	39 years

	Year Ended December 31, 2009								Year Ended December 31, 2008							Year Ended December 31, 2007
	Net Income			Weighted Average Shares		Per Share Amount			Net Income		Weighted Average Shares		Per Share Amount			Net Income		Weighted Average Shares		Per Share Amount
Basic (loss) earnings per share	$	(16,695	)		31,062	$	(0.54	)	$	20,560		31,389	$	0.66		$	8,936		32,351	$	0.28
Dilutive effect of stock options		—			—		—			—		40		—			—		85		—
Dilutive effect of restricted stock		—			—		—			—		183		(0.01	)		—		190		(0.01	)
Diluted (loss) earnings per share	$	(16,695	)		31,062	$	(0.54	)	$	20,560		31,612	$	0.65		$	8,936		32,626	$	0.27

	January 17, 2008
Assets Acquired
Accounts receivable	$	42
Inventory		139
Prepaid expenses and other current assets		26
Property and equipment		556
Goodwill		1,154
Total assets acquired	$	1,917

Liabilities Assumed
Accounts payable and accrued expenses	$	204
Total liabilities assumed	$	204

Net assets acquired	$	1,713

	Balance at January 1, 2009		Charges		Paid Amounts			Reversals			Foreign Currency Translation Adjustments			Balance at December 31, 2009
Termination benefits and personnel realignment	$	325	$	134	$	(89	)		(305	)	$	(10	)	$	55
Losses on grant contracts		266		—		(19	)		—			(1	)		246
Lease termination charges		262		182		(150	)		(20	)		1			275
Administrative costs associated with restructuring		40		11		—			(37	)		(2	)		12
Total	$	893	$	327	$	(258	)		(362	)	$	(12	)	$	588

	December 31, 2009
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Obligations of states and political subdivisions	$	26,077	$	118	$	(9	)	$	26,186
U.S. Governmental and Agency Obligations		1,613		6					1,619
Auction rate securities		2,300		—		—			2,300
	$	29,990	$	124	$	(9	)	$	30,105

	Less than 12 Months					12 Months or Longer				Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Obligations of states and political subdivisions	$	2,392	$	(9	)	$	—	$	—	$	2,392	$	(9	)
	$	2,392	$	(9	)	$	—	$	—	$	2,392	$	(9	)

	December 31, 2009			December 31, 2008
Revolving line of credit	$	9,662		$	9,662
Industrial development authority bonds		3,820			4,080
		13,482			13,742
Less current portion		(270	)		(260	)
Total long-term debt	$	13,212		$	13,482

2010	$	270
2011		275
2012		285
2013		9,957
2014		305
Thereafter		2,390
Total	$	13,482

	December 31, 2009		December 31, 2008
Federal	$	945	$	945
State credits		6,263		6,181
Foreign		4,499		1,559
Total valuation allowance	$	11,707	$	8,685

	2009
Balance at January 1, 2009	$	1,280
Decreases related to prior year tax positions		(428	)
Lapse of statute		(323	)
Balance at December 31, 2009	$	529

						Weighted Average
				Weighted		Remaining		Aggregate
	Number of			Exercise		Contractual Term		Intrinsic
	Shares			Price		(Years)		Value

Outstanding, January 1, 2007		2,171			20.12
Granted		188			13.40
Exercised		(200	)		6.26
Forfeited		(195	)		19.75
Expired		(1	)		1.53
Outstanding, December 31, 2007		1,963			20.12
Granted		144			11.54
Exercised		(58	)		13.91
Forfeited		(181	)		22.08
Outstanding, December 31, 2008		1,868			20.34
Granted		129			8.54
Exercised		(4	)		10.00
Forfeited		(89	)		22.35
Expired		(40	)		11.48
Outstanding, December 31, 2009		1,864		$	19.66		3.9	$	69
Options exercisable, December 31, 2009		1,488		$	21.86		2.8	$	—

	Number of Shares
Employee Stock Option Plans		3,939
Employee Stock Purchase Plan		243
Shares reserved for issuance		4,182

	Number of Shares			Weighted Average Grant Date Fair Value
Outstanding, January 1, 2007		419		$	9.40
Granted		197			10.33
Vested		—			—
Forfeited		(98	)		9.23
Outstanding, December 31, 2007		518		$	9.79
Granted		175			11.66
Vested		(115	)		8.83
Forfeited		(69	)		10.10
Outstanding, December 31, 2008		509		$	10.61
Granted		165			8.42
Vested		(117	)		9.97
Forfeited		(41	)		10.27
Outstanding, December 31, 2009		516		$	10.08

	Pension Benefits						Postretirement Benefits
	2009			2008			2009			2008
Change in benefit obligation:
Benefit obligation at January 1	$	20,706		$	20,746		$	1,173		$	745
Service cost		—			—			76			55
Interest cost		1,287			1,256			62			51
Actuarial loss (gain)		1,982			128			(244	)		322
Benefits paid		(1,487	)		(1,424	)		—			—
Benefit obligation at December 31		22,488			20,706			1,067			1,173
Change in plan assets:
Fair value of plan assets at January 1		15,168			21,812			—			—
Actual return on plan assets		3,211			(5,511	)		—			—
Employer contributions		—			291			—			—
Benefits paid		(1,487	)		(1,424	)		—			—
Fair value of plan assets at December 31		16,892			15,168			—			—
Funded status	$	(5,596	)	$	(5,538	)	$	(1,067	)	$	(1,173	)

	1-Percentage- Point Increase		1-Percentage- Point Decrease
Effect on total of service and interest cost	$	39	$	(30	)
Effect on accumulated postretirement benefit obligation for the year ended December 31, 2009	$	269	$	(207	)

ALBANY MOLECULAR RESEARCH INC - FORM 10-K - March 12, 2010

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	2009					2008
	Market Value		%			Market Value		%
Equity securities	$	9,922		59	%	$	9,010		59	%
Debt securities		5,778		34			5,088		34
Real Estate		829		5			766		5
Other		363		2			304		2
Total	$	16,892		100	%	$	15,168		100	%

	Pension Benefits		Postretirement Benefits
2010	$	1,565	$	—
2011		1,578		—
2012		1,600		—
2013		1,595		—
2014		1,620		34
2015 - 2019		8,258		163

Year ending December 31,
2010	$	4,027
2011		3,940
2012		3,958
2013		3,480
2014		3,246
Thereafter		11,246

	Year Ended December 31,
	2009			2008			2007
United States		60	%		69	%		69	%
Europe		23	%		20	%		26	%
Asia		14	%		8	%		3	%
Other countries		3	%		3	%		2	%
Total		100	%		100	%		100	%

	DDS		LSM		Total
Total assets	$	236,314	$	137,378	$	373,692
Goodwill included in total assets		13,199		4,352		17,551
Investments in unconsolidated affiliates		956		—		956
Capital expenditures		11,392		3,780		15,172

	DDS		LSM		Total
Total assets	$	235,043	$	155,641	$	390,684
Goodwill included in total assets		13,208		27,064		40,272
Investments in unconsolidated affiliates		956		—		956
Capital expenditures		17,439		6,499		23,938

	Fair Value Measurements as of December 31, 2009
Marketable Securities	Total		Level 1		Level 2		Level 3
Obligations of states and political subdivisions	$	26,186	$	—	$	26,186	$	—
U.S. Government and Agency Obligations		1,619		—		1,619		—
Auction rate securities		2,300		—		2,300		—
Total	$	30,105	$	—	$	30,105	$	—

	Cost		Accumulated Amortization			Net		Amortization Period
December 31, 2009
Patents and Licensing Rights	$	3,897	$	(1,436	)	$	2,461	2-16 years
Total	$	3,897	$	(1,436	)	$	2,461

December 31, 2008
Patents and Licensing Rights	$	3,181	$	(1,163	)	$	2,018	2-16 years
Total	$	3,181	$	(1,163	)	$	2,018

	First Quarter		Second Quarter		Third Quarter			Fourth Quarter
2009
Contract revenue	$	43,244	$	38,782	$	39,737		$	35,037
Recurring royalties and milestones		10,786		12,524		7,929			8,378
Total revenue		54,030		51,306		47,666			43,415
Income (loss) from operations		2,595		385		(106	)		(24,757	)
Net income (loss)		1,942		179		365			(19,181	)
Net income (loss) per share:
Basic	$	0.06	$	0.01	$	0.01		$	(0.62	)
Diluted	$	0.06	$	0.01	$	0.01		$	(0.62.	)
2008
Contract revenue	$	45,337	$	46,362	$	54,142		$	49,614
Recurring royalties and milestones		8,233		11,573		7,223			6,776
Total revenue		53,570		57,935		61,365			56,390
Income from operations		4,317		8,987		8,747			3,910
Net income		4,739		5,677		7,003			3,141
Net income per share:
Basic	$	0.15	$	0.18	$	0.22		$	0.11
Diluted	$	0.15	$	0.18	$	0.22		$	0.10

Description	Balance at Beginning of Period		(Reversal of)/ Charge to Cost and Expenses			Deductions Charged to Reserves			Balance at End of Period
Allowance for doubtful accounts receivable
2009	$	621,468	$	(93,076	)	$	(103,689	)	$	424,703
2008	$	252,232	$	480,000		$	(110,764	)	$	621,468
2007	$	293,224	$	26,851		$	(67,843	)	$	252,232
Deferred tax asset valuation allowance
2009	$	8,685,138	$	3,021,828			—		$	11,706,966
2008	$	6,028,231	$	2,656,907			—		$	8,685,138
2007	$	3,189,895	$	2,838,336			—		$	6,028,231