**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-Q**

 
| **x**                                                   | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|---------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|
| ** **                                              |
| **For the Quarterly Period Ended March 31,  2008** |
| ** **                                              |
| **o**                                                   | ** ** | **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.**

(Exactname of registrant as specified in its charter)

 

| **DELAWARE**                     | ** ** | **14-1742717**       |
|----------------------------------|------------|----------------------|
| (State  or other jurisdiction of |       | (I.R.S.  Employer    |
| incorporation  or organization)  |       | Identification  No.) |

 

**21 Corporate Circle**

**PO Box 15098**

**Albany, New York  12212-5098**

(Address of principal executive offices)

 

**(518) 464-0279**

(Registrant’s telephone number, includingarea code)

 

**N/A**

(Former name, former address and formerfiscal year, if changed since last report)

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.

 
| Yes   x |   | No   o |
|------------------------|--------|-----------------------|

 

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

 

| Large  accelerated filer o                     |   | Accelerated  filer x         |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated  filer o                       |   | Smaller  reporting company o |
| (Do  not check if a smaller reporting company) |   |                              |

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).

 
| Yes   o |   | No   x |
|------------------------|--------|-----------------------|

 

Indicatethe number of shares outstanding of each of the issuer’s classes of commonstock, as of the latest practicable date.

 

| **Class**                     | ** ** | **Outstanding at April 30,  2008**   |
|-------------------------------|------------|-----------------------------------------------------|
| Common Stock,  $.01 par value |       | 31,725,599,  excluding treasury shares of 3,486,413 |

 

 

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ALBANY MOLECULAR RESEARCH, INC.

INDEX

 
| Part I.       |   | Financial Information | 3      |
|--------------------|--------|-----------------------|--------|
|               |   |                  |   |   |   |
|               |   | Item 1.               |   | Condensed Consolidated  Financial Statements (Unaudited) | 3 |
|               |   |                  |   |   |   |
|               |   |                  |   | Condensed Consolidated  Statements of Operations | 3 |
|               |   |                  |   | Condensed Consolidated  Balance Sheets | 4 |
|               |   |                  |   | Condensed Consolidated  Statements of Cash Flows | 5 |
|               |   |                  |   | Notes to Condensed  Consolidated Financial Statements | 6 |
|               |   |                  |   |   |   |
|               |   | Item 2.               |   | Management’s Discussion  and Analysis of Financial Condition and Results of Operations | 18 |
|               |   |                  |   |   |   |
|               |   | Item 3.               |   | Quantitative  and Qualitative Disclosures About Market Risk | 25 |
|               |   |                  |   |   |   |
|               |   | Item 4.               |   | Controls and  Procedures | 25 |
|               |   |                  |   |   |   |
| Part II.      |   | Other Information     | 26     |
|               |   |                  |   |   |   |
|               |   | Item 1.               |   | Legal Proceedings | 26 |
|               |   |                  |   |   |   |
|               |   | Item 1A.              |   | Risk Factors | 27 |
|               |   |                  |   |   |   |
|               |   | Item 2.               |   | Unregistered Sales  of Equity Securities and Use of Proceeds | 27 |
|               |   |                  |   |   |   |
|               |   | Item 6.               |   | Exhibits | 27 |
|               |   |                  |   |   |   |
| Signatures         | 28     |
|               |   |
| Exhibit Index |   |

** **

**2**

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** **

**PART I — FINANCIAL INFORMATION**

** **

**Item 1.**    CondensedConsolidated Financial Statements (Unaudited)

** **

**Albany Molecular Research, Inc.**

**CondensedConsolidated Statements of Operations**

**(unaudited)**

 
| ** **                                                                               | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| **(Dollars in thousands, except for per share data)** | ** ** | **March 31, 2008**     | ** ** | **March 31, 2007** | ** ** |
|                                                                                     |       |                             |       |   |   |
| Contract revenue                                                                         |       | $                                | 45,337     |   | $ | 41,231 |   |
| Recurring royalties                                                                      |       | 8,233                            |       | 7,146 |   |
| Total revenue                                                                            |       | 53,570                           |       | 48,377 |   |
|                                                                                     |       |                             |       |   |   |
| Cost of contract revenue                                                                 |       | 36,228                           |       | 32,687 |   |
| Technology incentive award                                                               |       | 819                              |       | 713 |   |
| Research and development                                                                 |       | 2,909                            |       | 2,381 |   |
| Selling, general and administrative                                                      |       | 9,297                            |       | 8,416 |   |
| Restructuring                                                                            |       | —                           |       | 243 |   |
| Total operating expenses                                                                 |       | 49,253                           |       | 44,440 |   |
|                                                                                     |       |                             |       |   |   |
| Income from operations                                                                   |       | 4,317                            |       | 3,937 |   |
|                                                                                     |       |                             |       |   |   |
| Interest income, net                                                                     |       | 522                              |       | 737 |   |
| Other (loss) income, net                                                                 |       | (59                              | )          | 30 |   |
|                                                                                     |       |                             |       |   |   |
| Income before income tax expense                                                         |       | 4,780                            |       | 4,704 |   |
|                                                                                     |       |                             |       |   |   |
| Income tax expense                                                                       |       | 41                               |       | 1,480 |   |
|                                                                                     |       |                             |       |   |   |
| Net income                                                                               |       | $                                | 4,739      |   | $ | 3,224 |   |
|                                                                                     |       |                             |       |   |   |
| Basic earnings per share                                                                 |       | $                                | 0.15       |   | $ | 0.10 |   |
|                                                                                     |       |                             |       |   |   |
| Diluted earnings per share                                                               |       | $                                | 0.15       |   | $ | 0.10 |   |

 

*See notes to unaudited condensed consolidatedfinancial statements.*

 

3

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**Albany Molecular Research, Inc.**

**CondensedConsolidated Balance Sheets**

**(unaudited)**

 
| **(Dollars and shares in thousands, except for per share data)**                                                          | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| **Assets**                                                                                                                                                             |       |                     |       |                        |       |
| Current assets:                                                                                                                                                        |       |                     |       |                        |       |
| Cash and cash equivalents                                                                                                                                              |       | $                        | 62,570     |                        | $          | 45,506 |   |
| Marketable securities, available-for-sale                                                                                                                              |       | 24,032                   |       | 62,193                      |       |
| Accounts receivable, net                                                                                                                                               |       | 34,846                   |       | 28,006                      |       |
| Royalty income receivable                                                                                                                                              |       | 8,290                    |       | 6,086                       |       |
| Inventory                                                                                                                                                              |       | 22,952                   |       | 22,581                      |       |
| Unbilled services                                                                                                                                                      |       | 275                      |       | 259                         |       |
| Prepaid expenses and other current assets                                                                                                                              |       | 7,762                    |       | 5,698                       |       |
| Deferred income taxes                                                                                                                                                  |       | 3,807                    |       | 4,931                       |       |
| Total current assets                                                                                                                                                   |       | 164,534                  |       | 175,260                     |       |
|                                                                                                                                                                   |       |                     |       |                        |       |
| Property and equipment, net                                                                                                                                            |       | 165,419                  |       | 158,028                     |       |
|                                                                                                                                                                   |       |                     |       |                        |       |
| Goodwill                                                                                                                                                               |       | 41,475                   |       | 46,575                      |       |
| Intangible assets and patents, net                                                                                                                                     |       | 2,157                    |       | 2,232                       |       |
| Equity investment in unconsolidated  affiliates                                                                                                                        |       | 956                      |       | 956                         |       |
| Pension and postretirement benefits                                                                                                                                    |       | 823                      |       | 624                         |       |
| Other assets                                                                                                                                                           |       | 3,437                    |       | 2,979                       |       |
| Total assets                                                                                                                                                           |       | $                        | 378,801    |                        | $          | 386,654 |   |
|                                                                                                                                                                   |       |                     |       |                        |       |
| **Liabilities and Stockholders’ Equity**                                                                                                                          |       |                     |       |                        |       |
| Current liabilities:                                                                                                                                                   |       |                     |       |                        |       |
| Accounts payable and accrued expenses                                                                                                                                  |       | $                        | 16,073     |                        | $          | 17,455 |   |
| Deferred revenue                                                                                                                                                       |       | 8,629                    |       | 6,922                       |       |
| Accrued pension benefits                                                                                                                                               |       | 303                      |       | 303                         |       |
| Income taxes payable                                                                                                                                                   |       | 1,685                    |       | 1,789                       |       |
| Current installments of long-term debt                                                                                                                                 |       | 9,917                    |       | 9,900                       |       |
| Total current liabilities                                                                                                                                              |       | 36,607                   |       | 36,369                      |       |
|                                                                                                                                                                   |       |                     |       |                        |       |
| Long-term liabilities:                                                                                                                                                 |       |                     |       |                        |       |
| Long-term debt, excluding current  installments                                                                                                                        |       | 4,080                    |       | 4,080                       |       |
| Deferred income taxes                                                                                                                                                  |       | 10,460                   |       | 11,446                      |       |
| Environmental liabilities                                                                                                                                              |       | 191                      |       | 191                         |       |
| Total liabilities                                                                                                                                                      |       | 51,338                   |       | 52,086                      |       |
|                                                                                                                                                                   |       |                     |       |                        |       |
| Commitments and contingencies                                                                                                                                          |       |                     |       |                        |       |
|                                                                                                                                                                   |       |                     |       |                        |       |
| Stockholders’ equity:                                                                                                                                             |       |                     |       |                        |       |
| Common stock, $0.01 par value,  100,000 shares authorized, 35,227 shares issued as of March 31,  2008, and 35,075 shares issued as of December 31, 2007 |       | 352                      |       | 351                         |       |
| Additional paid-in capital                                                                                                                                             |       | 196,579                  |       | 195,985                     |       |
| Retained earnings                                                                                                                                                      |       | 174,995                  |       | 170,256                     |       |
| Accumulated other comprehensive income, net                                                                                                                            |       | 5,732                    |       | 5,147                       |       |
|                                                                                                                                                                   |       | 377,658                  |       | 371,739                     |       |
| Less, treasury shares at cost, 3,262 shares  as of March 31, 2008 and 2,077 shares as of December 31, 2007                                              |       | (50,195                  | )          | (37,171                     | )          |
| Total stockholders’ equity                                                                                                                                        |       | 327,463                  |       | 334,568                     |       |
| Total liabilities and stockholders’ equity                                                                                                                        |       | $                        | 378,801    |                        | $          | 386,654 |   |

 

*See notes to unaudited condensed consolidatedfinancial statements.*

 

4

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**Albany Molecular Research, Inc.**

**CondensedConsolidated Statements of Cash Flows**

**(unaudited)**

 
| ** **                                                                                   | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| **(Dollars in thousands)**                                                         | ** ** | **March 31, 2008**     | ** ** | **March 31, 2007** | ** ** |
|                                                                                         |       |                             |       |   |   |
| **Operating activities**                                                                     |       |                             |       |   |   |
| Net income                                                                                   |       | $                                | 4,739      |   | $ | 3,224 |   |
| Adjustments to reconcile net income to net  cash (used in) provided by operating activities: |       |                             |       |   |   |
| Depreciation and amortization                                                                |       | 4,605                            |       | 4,134 |   |
| Deferred income tax expense                                                                  |       | 122                              |       | 1,063 |   |
| Gain on disposal of property, plant and  equipment                                           |       | (15                              | )          | (32 | ) |
| Stock-based compensation expense                                                             |       | 422                              |       | 314 |   |
| Provision for obsolete inventories                                                           |       | (570                             | )          | 607 |   |
| (Increase) decrease in:                                                                      |       |                             |       |   |   |
| Accounts receivable                                                                          |       | (6,798                           | )          | 2,375 |   |
| Royalty income receivable                                                                    |       | (2,204                           | )          | (1,056 | ) |
| Inventory, prepaid expenses and other  assets                                                |       | (2,200                           | )          | (2,449 | ) |
| (Decrease) increase in:                                                                      |       |                             |       |   |   |
| Accounts payable and accrued expenses                                                        |       | (1,517                           | )          | (4,439 | ) |
| Income tax payable                                                                           |       | (104                             | )          | 1,900 |   |
| Deferred revenue                                                                             |       | 1,707                            |       | (358 | ) |
| Pension and postretirement benefits                                                          |       | (197                             | )          | (401 | ) |
| Other long-term liabilities                                                                  |       | —                           |       | (45 | ) |
| Net cash (used in) provided by operating  activities                                         |       | (2,010                           | )          | 4,837 |   |
|                                                                                         |       |                             |       |   |   |
| **Investing activities**                                                                     |       |                             |       |   |   |
| Purchases of marketable securities                                                           |       | (9,678                           | )          | (21,747 | ) |
| Proceeds from sales of investment  securities                                                |       | 47,869                           |       | 19,623 |   |
| Purchase of businesses, net of cash  acquired                                                |       | (1,691                           | )          | — |   |
| Purchase of property, plant and equipment                                                    |       | (4,541                           | )          | (3,217 | ) |
| Proceeds from disposal of property, plant  and equipment                                     |       | 47                               |       | 1,515 |   |
| Payments for patent applications and other  costs                                            |       | (65                              | )          | (83 | ) |
| Net cash provided by (used in) investing  activities                                         |       | 31,941                           |       | (3,909 | ) |
|                                                                                         |       |                             |       |   |   |
| **Financing activities**                                                                     |       |                             |       |   |   |
| Purchase of treasury stock                                                                   |       | (13,024                          | )          | — |   |
| Principal payments on long-term debt                                                         |       | (9,643                           | )          | (1,074 | ) |
| Borrowings on line of credit                                                                 |       | 9,660                            |       |   |   |
| Proceeds from sale of common stock                                                           |       | 173                              |       | 188 |   |
| Net cash used in financing activities                                                        |       | (12,834                          | )          | (886 | ) |
|                                                                                         |       |                             |       |   |   |
| Effect of exchange rate changes on cash  flows                                               |       | (33                              | )          | 156 |   |
|                                                                                         |       |                             |       |   |   |
| Increase in cash and cash equivalents                                                        |       | 17,064                           |       | 198 |   |
|                                                                                         |       |                             |       |   |   |
| Cash and cash equivalents at beginning of  period                                            |       | 45,506                           |       | 26,124 |   |
|                                                                                         |       |                             |       |   |   |
| Cash and cash equivalents at end of period                                                   |       | $                                | 62,570     |   | $ | 26,322 |   |

 

*See notes to unaudited condensed consolidatedfinancial statements.*

 

5

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(Allamounts in thousands, except per share amounts, unless otherwise noted)

 

**Note 1 — Summary of Operations and Significant AccountingPolicies**

 

**Nature of Business and Operations**

 

AlbanyMolecular Research, Inc. (the “Company”) provides scientific services,technologies and products focused on improving the quality of life. The Company’score business consists of a fee-for-service contract services platformencompassing drug discovery, development and manufacturing and a separate,stand-alone research and development division consisting of proprietarytechnology investments, internal drug discovery and niche generic activepharmaceutical ingredient product development. With locations in the U.S., Europe and Asia, the Company providescustomers with a range of services and cost models.

 

**Basisof Presentation**

 

Theaccompanying unaudited condensed consolidated financial statements have beenprepared in accordance with U.S. generally accepted accounting principles forinterim financial information and with the instructions to Form 10-Q and Rule 10-01of Regulation S-X. In accordance with Rule 10-01, the unaudited condensedconsolidated financial statements do not include all of the information andfootnotes required by U.S. generally accepted accounting principles forcomplete consolidated financial statements. The year-end condensed consolidatedbalance sheet data was derived from audited financial statements but does notinclude all disclosures required by U.S. generally accepted accountingprinciples. In the opinion of management, all adjustments (consisting of normalrecurring accruals and adjustments) considered necessary for a fair statementof the results for the interim period have been included. Operating results forthe three months ended March 31, 2008 are not necessarily indicative ofthe results that may be expected for the year ending December 31, 2008.The accompanying unaudited condensed consolidated financial statements shouldbe read in conjunction with the audited consolidated financial statements andnotes thereto included in our Annual Report on Form 10-K for the yearended December 31, 2007.

 

Theaccompanying unaudited condensed consolidated financial statements include theaccounts of Albany Molecular Research, Inc. and its wholly-ownedsubsidiaries. All intercompany balances and transactions have been eliminatedduring consolidation. Assets and liabilities of non-U.S. operations aretranslated at period-end rates of exchange, and the statements of operationsare translated at the average rates of exchange for the period. Unrealizedgains or losses resulting from translating non-U.S. currency financialstatements are recorded in accumulated other comprehensive income in theaccompanying unaudited condensed consolidated balance sheets.

 

**Use ofManagement Estimates**

 

Thepreparation of financial statements in conformity with U.S. generally acceptedaccounting principles requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities, and disclosures ofcontingent assets and liabilities, at the date of the financial statements, andthe reported amounts of revenues and expenses during the reporting period.Actual results can vary from these estimates.

 

**ContractRevenue Recognition**

 

TheCompany’s contract revenue consists primarily of fees earned under contracts withthird-party customers and reimbursed expenses under such contracts. The Companyalso seeks to include provisions in certain contracts that contain acombination of up-front licensing fees, milestone and royalty payments shouldthe Company’s proprietary technology and expertise lead to the discovery of newproducts that become commercial. Reimbursed expenses consist of chemicals andother project specific costs. Generally, the Company’s contracts may beterminated by the customer upon 30 days’ to one year’s prior notice,depending on the size of the contract. The Company analyzes its agreements todetermine whether the elements can be separated and accounted for individuallyor as a single unit of accounting in accordance with Emerging Issues Task Force(“EITF”) No. 00-21, “RevenueArrangements with Multiple Deliverables,” and Staff Accounting Bulletin(“SAB”) 104, “Revenue Recognition”.Allocation of revenue to individual elements that qualify for separateaccounting is based on the estimated fair value of the respective elements.

 

The Company generates contract revenue on thefollowing basis:

 

*Full-timeEquivalent (“FTE”).*** An FTE agreement establishes the number ofCompany employees contracted for a project or a series of projects, theduration of the contract period, the price per FTE, plus an allowance forchemicals and other project specific costs, which may or may not beincorporated in the FTE rate. FTE contracts can run in one month 

 

6

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increments,but typically have terms of six months or longer. FTE contracts typicallyprovide for annual adjustments in billing rates for the scientists assigned tothe contract.

 

Thesecontracts involve the Company’s scientists providing services on a “bestefforts” basis on a project that may involve a research component with atimeframe or outcome that has some level of unpredictability. There are nofixed deliverables that must be met for payment as part of these services. Assuch, the Company recognizes revenue under FTE contracts on a monthly basis asservices are performed according to the terms of the contract.

 

*Timeand Materials.* Under a time and materials contract the Company charges customers anhourly rate plus reimbursement for chemicals and other project specific costs.The Company recognizes revenue for time and material contracts based on thenumber of hours devoted to the project multiplied by the customer’s billingrate plus other project specific costs incurred.

 

*Fixed-Fee*. Under a fixed-fee contract the Companycharges a fixed agreed upon amount for a deliverable. Fixed-fee contracts havefixed deliverables upon completion of the project. Typically, the Companyrecognizes revenue for fixed-fee contracts after projects are completed,delivery is made and title transfers to the customer, and collection isreasonably assured. In certain instances, the Company’s customers request thatthe Company retain materials produced upon completion of the project due to thefact that the customer does not have a qualified facility to store thosematerials. In these instances, the revenue recognition process is consideredcomplete when project documents (batch records, Certificates of Analysis, etc.)have been delivered to the customer and payment has been collected.

 

*Up-Front License Fees, Milestone,and Royalty Revenue***.**  The Company recognizes revenue from up-frontnon-refundable licensing fees on a straight-line basis over the period of theunderlying project. The Company will recognize revenue arising from a substantivemilestone payment upon the successful achievement of the event, and theresolution of any uncertainties or contingencies regarding potential collectionof the related payment, or, if appropriate, over the remaining term of theagreement.

 

*Recurring Royalty RevenueRecognition***.**  Recurring royalties consist of royaltiesunder a license agreement with Sanofi-Aventis based on the worldwide sales offexofenadine HCl, marketed as Allegra in the Americas and Telfast elsewhere, aswell as on sales of Sanofi-Aventis’ authorized generics. The Company recordsroyalty revenue in the period in which the sales of Allegra/Telfast occur,because we can reasonably estimate such royalties. Royalty payments fromSanofi-Aventis are due within 45 days after each calendar quarter and aredetermined based on sales of Allegra/Telfast in that quarter.

 

**Long-lived Assets**

 

In accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144,**“**Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”), the Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Factors the Company considers important which 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.

 

Ifthe Company determines that the carrying value of long-lived assets may not berecoverable, based upon the existence of one or more of the above indicators ofimpairment, the Company compares the carrying value of the asset group to theundiscounted cash flows expected to be generated by the asset group. If thecarrying value exceeds the undiscounted cash flows an impairment charge isrecorded. An impairment charge is recognized to the extent that the carryingamount of the asset group exceeds their fair value and will reduce only thecarrying amounts of the long-lived assets. The Company utilizes the assistanceof an independent valuation firm in determining the fair values.

 

**Goodwill**

 

In accordance with the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”), the 

 

7

 

Company performs an annual****assessment of the carrying value of goodwill for potential impairment (or on an interim basis if certain triggering events occur). A determination of impairment is made based upon the estimated discounted future cash flows of the operations associated with the related reporting unit. If goodwill is determined to be impaired in the future the Company would be required to record a charge to its results of operations. Factors the Company considers important which could result in an impairment include the following:

 

·              significant underperformance relative to historical or projected future operating results;

 

·              significant changes in the mannerof our use of the acquired assets or the strategy for overall business;

 

·              significant negative industry oreconomic trends; and

 

·              market capitalization relative tonet book value.

 

TheCompany has completed its annual goodwill assessment of its reporting units for2007.  If management’s expectations offuture operating results change, or if there are changes to other assumptions,the estimate of the fair value of the Company’s reporting units could changesignificantly. Such a change could result in goodwill impairment charges infuture periods, which could have a significant impact on the Company’sconsolidated financial statements. Total goodwill recorded on the Company’sunaudited condensed consolidated balance sheet at March 31, 2008 was$41,475 primarily comprised of $23,060 of goodwill associated with the Company’sacquisition of AMRI Rensselaer (formerly known as Organichem, Inc.),$12,029 of goodwill attributable to ComGenex Kutato-Fejleszto Rt (“AMRI Hungary”),$2,671 of goodwill associated with the Company’s acquisition of certain assetsof Ariane Orgachem Pvt. Ltd. in Aurangabad, India, and Ferico Laboratories Ltd.located in Navi Mumbai, India, collectively known as India Pvt. Limited (“AMRIIndia”), and $1,029 of goodwill associated with the Company’s acquisition ofFineKem Laboratories Pvt. Limited (“FineKem”).

 

**StockCompensation**

 

Effective January 1,2006, the Company adopted SFAS No. 123 (Revised 2004), “Share-BasedPayment” (“SFAS No. 123 (R)”), which amended SFAS No. 123 andsuperseded Accounting Principals Board (“APB”) No. 25**inestablishing standards for the accounting for transactions in which an entityexchanges its equity instruments for goods or services, as well as transactionsin which an entity incurs liabilities in exchange for goods or services thatare based on the fair value of the entity’s equity instruments or that may besettled by the issuance of those equity instruments. This Statement requiresthat the cost resulting from all share-based payment transactions be recognizedin the financial statements based on the fair value of the share-based payment.This Statement establishes fair value as the measurement objective inaccounting for share-based payment transactions with employees, except forequity instruments held by employee share ownership plans. As allowed underSFAS No. 123 (R), the Company elected the modified prospective method ofadoption, under which compensation cost is recognized in the financialstatements beginning with the effective date of SFAS No. 123 (R) forall share-based payments granted after that date, and for all unvested awardsgranted prior to the effective date of SFAS No. 123 (R). Accordingly,prior period amounts were not restated.

 

**Note 2— Business Combination**

 

**Acquisitionof FineKem**

 

OnJanuary 17, 2008, the Company, through a wholly-owned subsidiary,completed the purchase of FineKem, a manufacturing facility located inAurangabad, India.  The aggregatepurchase price of $1,679 included cash payments totaling $1,665 and capitalizedcosts related to the acquisition, primarily professional fees, of $14.

 

8

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Thefollowing table summarizes the preliminary allocation of the purchase price tothe estimated fair value of the net assets acquired.  The allocation will be adjusted upon thefinal determination of the purchase price and the completion of the Company’svaluation of the acquired assets and liabilities of FineKem.

 
| ** **                                | ** ** | **January 17, 2008** | ** ** |
|-------------------------------------------|------------|--------------------------------|------------|
| **Assets  Acquired**                      |       |                           |       |
| Accounts receivable, net                  |       | $                              | 42         |   |
| Inventory                                 |       | 139                            |       |
| Prepaid expenses and other current assets |       | 26                             |       |
| Property and equipment, net               |       | 556                            |       |
| Goodwill                                  |       | 1,049                          |       |
| Total assets acquired                     |       | $                              | 1,812      |   |
|                                      |       |                           |       |
| **Liabilities  Assumed**                  |       |                           |       |
| Accounts payable and accrued expenses     |       | $                              | 133        |   |
| Total liabilities assumed                 |       | $                              | 133        |   |
|                                      |       |                           |       |
| Net assets acquired                       |       | $                              | 1,679      |   |

 

Proforma financial information for the three months ended March 31, 2008 and2007, as if the FineKem acquisition had been completed as of January 1,2007, has been excluded due to the immateriality of the operating results ofFineKem in relation to the Company’s consolidated operating results as a whole.

 

**Acquisitionof AMRI India**

 

OnJune 29, 2007, the Company, through a wholly-owned subsidiary, acquiredcertain assets of AMRI India.  Theaggregate purchase price of $11,910 included cash payments totaling $11,073 andcapitalized costs related to the acquisition, primarily professional fees, of$837.

 

Thefollowing table summarizes the preliminary allocation of the purchase price tothe estimated fair value of the net assets acquired.  The allocation was adjusted during the firstquarter of 2008 and will be further adjusted during the second quarter of 2008,upon the final determination of the purchase price and the completion of theCompany’s valuation of the acquired assets and liabilities of AMRI India.

 
| ** **                                | ** ** | **June 29, 2007** | ** ** |
|-------------------------------------------|------------|-----------------------------|------------|
| **Assets  Acquired**                      |       |                        |       |
| Accounts receivable, net                  |       | $                           | 13         |   |
| Inventory                                 |       | 723                         |       |
| Prepaid expenses and other current assets |       | 229                         |       |
| Property and equipment, net               |       | 8,558                       |       |
| Goodwill                                  |       | 2,634                       |       |
| Total assets acquired                     |       | $                           | 12,157     |   |
|                                      |       |                        |       |
| **Liabilities  Assumed**                  |       |                        |       |
| Accounts payable and accrued expenses     |       | $                           | 247        |   |
| Total liabilities assumed                 |       | $                           | 247        |   |
|                                      |       |                        |       |
| Net assets acquired                       |       | $                           | 11,910     |   |

 

9

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**Note 3 —Earnings Per Share**

 

The shares used in thecomputation of the Company’s basic and diluted earnings per share are asfollows:

 
| ** **                                 | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                 | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
| Weighted average common shares outstanding |       | 32,173                                           |       | 32,271 |   |
| Dilutive effect of stock options           |       | 11                                               |       | 106 |   |
| Dilutive effect of restricted stock        |       | 186                                              |       | 95 |   |
| Weighted average common shares outstanding |       | 32,370                                           |       | 32,472 |   |

 

The Company has excluded certain outstanding stockoptions from the calculation of diluted earnings per share for the three monthsended March 31, 2008 and 2007 because the exercise price was greater thanthe average market price of the Company’s common shares during that period, andas such, these options would be anti-dilutive. The weighted average number ofanti-dilutive options and restricted shares outstanding (before the effects ofthe treasury stock method) was 1,874 and 2,005 for the three months ended March 31,2008 and 2007, respectively.  Theseamounts are not included in the calculation of weighted average common sharesoutstanding.

 

**Note 4 —Inventory**

 

Inventory consisted ofthe following at March 31, 2008 and December 31, 2007:

 
| ** **                                 | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|--------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Raw materials                              |       | $                        | 7,222      |                        | $          | 6,865 |   |
| Work in process                            |       | 2,743                    |       | 2,064                       |       |
| Finished goods                             |       | 12,898                   |       | 13,535                      |       |
| Libraries, net of accumulated amortization |       | 89                       |       | 117                         |       |
| Total                                      |       | $                        | 22,952     |                        | $          | 22,581 |   |

 

**Note 5 —Restructuring**

** **

**Large Scale ManufacturingFacility**

 

On November 9, 2006,the Company announced plans to initiate a restructuring of the Company’s LargeScale Manufacturing (“LSM”) business segment. The Company recorded a restructuring charge of approximately $2,400 inthe fourth quarter of 2006, including a non-cash asset disposal charge ofapproximately $1,600, and other charges of approximately $800, consistingprimarily of termination benefits, and restructuring charges of $273 in 2007,consisting of termination benefits. There were no additional restructuring charges taken during the firstquarter of 2008.

 

The restructuring costsare included under the caption “Restructuring” in the consolidated statementsof operations during 2007, and the restructuring liabilities are included in “Accountspayable and accrued expenses” on the consolidated balance sheets at March 31,2008 and December 31, 2007.

 

Termination benefits relate to severance packages,outplacement services and career counseling for employees affected by therestructuring. Asset disposal costs relate primarily to the carrying value ofunderutilized assets that were identified for disposal in conjunction with therestructuring plan.

 

The large scale manufacturing restructuring activitywas recorded in the LSM operating segment. The net cash outflow related to thelarge scale manufacturing restructuring for the three months ended March 31,2008 and 2007 were $78 and $345, respectively. Anticipated cash outflows related to the large scale manufacturingrestructuring for the remainder of 2008 are $62, which primarily consists ofthe payment of termination benefits.

 

**Mt. Prospect Research Center**

 

During the fourth quarter of 2006, the Company secureda letter of intent related to the potential sale of the Mt. Prospect 

 

10

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facility.  TheCompany recorded impairment charges of approximately $3,500 during 2006 toreduce the carrying amount of these assets to reflect the sales price per theletter of intent less estimated selling costs. The Company completed the sale of the facility in March 2007 for$1,500.

 

**Note 6 — Goodwill and IntangibleAssets**

 

The carrying amounts ofgoodwill, by the Company’s Discovery/Development/Small Scale Manufacturing (“DDS”)and LSM operating segments, as of March 31, 2008 and December 31,2007 are as follows:

 
| ** **                 | ** ** | **DDS** | ** ** | **LSM** | ** ** | **Total** | ** ** |
|----------------------------|------------|---------|------------|---------|------------|-----------|------------|
|                       |       |    |       |    |       |      |       |
| **March 31, 2008**    |       | $       | 14,715     |    | $          | 26,760    |       | $ | 41,475 |   |
|                       |       |    |       |    |       |      |       |
| **December 31, 2007** |       | $       | 14,141     |    | $          | 32,434    |       | $ | 46,575 |   |

 

The decrease in goodwillwithin the LSM segment from December 31, 2007 to March 31, 2008 isrelated primarily to the valuation adjustments on AMRI India, as well as theimpact of foreign currency translation, partially offset by the goodwillassociated with the acquisition of FineKem. The increase in goodwill within the DDS segment from December 31,2007 to March 31, 2008 is related to the impact of foreign currencytranslation.

 

The components ofintangible assets are as follows:

 
| ** **                   | ** ** | **Cost** | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** | **Amortization  Period** | ** ** |
|------------------------------|------------|----------|------------|-------------------------------|------------|---------|------------|--------------------------|------------|
| **March 31, 2008**      |       |     |       |                          |       |    |       |                     |       |
| Patents and Licensing Rights |       | $        | 3,067      |                          | $          | (1,175  | )          | $                        | 1,892      |   | 2-16  years |   |
| Other                        |       | 1,021    |       | (756                          | )          | 265     |       | 18-24  months            |       |
| Total                        |       | $        | 4,088      |                          | $          | (1,931  | )          | $                        | 2,157      |   |   |   |
|                         |       |     |       |                          |       |    |       |                     |       |
| **December 31, 2007**   |       |     |       |                          |       |    |       |                     |       |
| Patents and Licensing Rights |       | $        | 2,976      |                          | $          | (1,075  | )          | $                        | 1,901      |   | 2-16  years |   |
| Other                        |       | 973      |       | (642                          | )          | 331     |       | 18-24  months            |       |
| Total                        |       | $        | 3,949      |                          | $          | (1,717  | )          | $                        | 2,232      |   |   |   |

 

Amortization expenserelated to intangible assets was $155 and $102 for the three months ended March 31,2008 and 2007, respectively.

 

The following chartrepresents estimated future annual amortization expense related to intangibleassets:

 
| **Year ending December 31,** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|
| 2008 (remaining)                            |       | $          | 397        |   |
| 2009                                        |       | 232        |       |
| 2010                                        |       | 160        |       |
| 2011                                        |       | 160        |       |
| 2012                                        |       | 160        |       |
| Thereafter                                  |       | 1,048      |       |
|                                             |            |            |            |  |

 

**Note 7 -****DefinedBenefit and Postretirement Welfare Plan**

 

AMRI Rensselaerpreviously provided retirement benefits under two non-contributory definedbenefit plans and a non-contributory, unfunded post-retirement welfare plan.Future benefits under the defined benefit plans and for salaried participantsin the post-retirement welfare plan have been frozen.

 

11

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***Componentsof Net Periodic Benefit Cost***

 
| ** **                                                                   | ** ** | **Pension  Benefits**                            | ** ** | **Postretirement  Benefits**                     | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                   | ** ** | **Three Months  Ended March 31,** | ** ** | **Three Months  Ended March 31,** | ** ** |
| ** **                                                                   | ** ** | **2008**                                         | ** ** | **2007**                                         | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                                         |       |                                             |       |                                             |       |   |   |   |   |
| Service cost                                                                 |       | $                                                | —     |                                             | $          | — |   | $ | 12 |   | $ | 19 |   |
| Interest cost                                                                |       | 305                                              |       | 301                                              |       | 10 |   | 9 |   |
| Expected return on plan assets                                               |       | (386                                             | )          | (366                                             | )          | — |   | — |   |
| Recognized net loss                                                          |       | —                                           |       | 9                                                |       | 2 |   | 2 |   |
| Net periodic benefit (income) cost                                           |       | $                                                | (81        | )                                                | $          | (56 | ) | $ | 24 |   | $ | 30 |   |
| **Recognized in Accumulated Other Comprehensive  Income (“AOCI”)** |       |                                             |       |                                             |       |   |   |   |   |
| Prior service cost                                                           |       | —                                           |       | —                                           |       | — |   | — |   |
| Net actuarial loss                                                           |       | —                                           |       | 9                                                |       | 2 |   | 2 |   |
| Total recognized in AOCI                                                     |       | $                                                | —     |                                             | $          | 9 |   | $ | 2 |   | $ | 2 |   |

 

***EmployerContributions***

 

The Company previouslydisclosed in its consolidated financial statements for the year ended December 31,2007 that it expected to contribute $303 to its pension plan in 2008.  Asof March 31, 2008, $140 in contributions have been made.

 

**Note 8 —Stockholders’ Equity**

 

During the three months ended March 31, 2008 and2007, the Company recognized total share based compensation cost, net of tax,of $295 and $235, respectively.

 

The Company grants share-based payments, includingrestricted shares, under its 1998 Stock Option and Incentive Plan, as well asits 1998 Employee Stock Purchase Plan.

 

***1998 Stock Option and IncentivePlan***

 

**Restricted Stock**

 

A summary of unvestedrestricted stock activity as of March 31, 2008 and changes during thethree months then ended is presented below:

 
| ** **                          | ** ** | **Number of  Shares** | ** ** | **Weighted  Average Grant Date  Fair Value Per  Share** | ** ** |
|-------------------------------------|------------|----------------------------|------------|-----------------------------------------------------------------------------|------------|
| Outstanding, December 31, 2007 |       | 518                        |       | $                                                                           | 9.79       |   |
| Granted                             |       | 142                        |       | $                                                                           | 11.21      |   |
| Vested                              |       | (103                       | )          | $                                                                           | 8.45       |   |
| Forfeited                           |       | (5                         | )          | $                                                                           | 9.36       |   |
| Outstanding, March 31, 2008    |       | 552                        |       | $                                                                           | 10.41      |   |

 

The weighted average fair value of restricted sharesper share granted during the three months ended March 31, 2008 and 2007was $11.21 and $9.42, respectively.  Asof March 31, 2008, there was $4,714 of total unrecognized compensationcost related to non-vested restricted shares. That cost is expected to berecognized over a weighted-average period of 3.46 years.  During the three months ended March 31,2008, 103 restricted shares vested.

 

**Stock Options**

 

The fair value of each stock option award is estimatedat the date of grant using the Black-Scholes valuation model based on thefollowing assumptions:

 
| ** **             | ** ** | **For the Three Months Ended** | ** ** |
|------------------------|------------|----------------------------------------------------|------------|
| ** **             | ** ** | **March 31, 2008**                       | ** ** | **March 31, 2007** | ** ** |
| Expected life in years |       | 5                                                  |       | 5 |   |
| Interest rate          |       | 2.74                                               | %          | 4.65 | % |
| Volatility             |       | 41                                                 | %          | 38 | % |
| Dividend yield         |       | —                                             |       | — |   |

 

12

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A summary of stock option activity under the Company’s1998 Stock Option and Incentive Plan as of March 31, 2008 andchanges during the three month periodthen ended is presented below:

 
| ** **                                | ** ** | **Number of  Shares** | ** ** | **Weighted  Exercise  Price Per Share** | ** ** | **Weighted Average  Remaining  Contractual Term  (Years)** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|-------------------------------------------|------------|----------------------------|------------|---------------------------------------------------|------------|----------------------------------------------------------------------|------------|---------------------------------|------------|
| Outstanding, January 1, 2008         |       | 1,963                      |       | $                                                 | 20.95      |                                                                 |       |                            |       |   |
| Granted                                   |       | 56                         |       | 11.21                                             |       |                                                                 |       |                            |       |
| Exercised                                 |       | —                     |       | —                                            |       |                                                                 |       |                            |       |
| Forfeited                                 |       | (59                        | )          | 25.85                                             |       |                                                                 |       |                            |       |
| Expired                                   |       | —                     |       | —                                            |       |                                                                 |       |                            |       |
| Outstanding,  March 31, 2008         |       | 1,960                      |       | 20.53                                             |       | 4.9                                                                  |       | $                               | 616        |   |
| Options exercisable,  March 31, 2008 |       | 1,631                      |       | $                                                 | 22.17      |                                                                 | 4.0        |                            | $          | 284 |   |

 

The weighted average fair value of stock optionsgranted as of March 31, 2008 and 2007 was $4.47 and $3.77,respectively.   As of March 31, 2008there was $1,385 of total unrecognized compensation cost related to non-vestedstock options. That cost is expected to be recognized over a weighted-averageperiod of 2.6 years.

 

***Employee Stock Purchase Plan***

 

During the three months ended March 31, 2008 and2007, 14 and 19 shares, respectively, were issued under the Company’s 1998Employee Stock Purchase Plan.  During thethree months ended March 31, 2008 and 2007, cash received from stockoption exercises and employee stock purchases was $173 and $188,respectively.  The actual tax benefitrealized for the tax deductions from stock option exercises and plan purchaseswas $0during thethree months ended March 31, 2008 and 2007.

 

***Share Repurchase Program***

 

On February 7, 2008,the Company’s Board of Directors approved a stock repurchase program, whichauthorized the Company to purchase up to $20,000 of the issued and outstandingshares of the Company’s Common Stock in the open market or in privatetransactions for the twelve months following the approval of the program.  Shares may be repurchased from time to timeand in such amounts as market conditions warrant, subject to price ranges setby management and regulatory conditions.

 

**Note 9 — Operating Segment Data**

 

The Company has organizedits sales, marketing and production activities into the DDS and LSM segmentsbased on the criteria set forth in SFAS No. 131, “Disclosures aboutSegments of an Enterprise and Related Information”. The Company’s managementrelies on an internal management accounting system to report results of thesegments. The system includes revenue and cost information by segment. TheCompany’s management makes financial decisions and allocates resources based onthe information it receives from this internal system.

 

DDS includes activitiessuch as drug lead discovery, optimization, drug development and small scalecommercial manufacturing. LSM includes pilot to commercial scale manufacturingof active pharmaceutical ingredients and intermediates and high potency andcontrolled substance manufacturing, all of which are in compliance with theFood and Drug Administration’s (“FDA”) current Good Manufacturing Practices.Corporate activities include business development and administrative functions,as well as research and development costs that have not been allocated to theoperating segments.

 

The following tablecontains earnings data by operating segment, reconciled to totals included inthe unaudited condensed consolidated financial statements:

 

13

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| ** **                                         | ** ** | **Contract  Revenue** | ** ** | **Milestone &  Recurring  Royalty  Revenue** | ** ** | **Income  (Loss)  from  Operations** | ** ** | **Depreciation  and  Amortization** | ** ** |
|----------------------------------------------------|------------|-----------------------|------------|-------------------------------------------------------|------------|--------------------------------------|------------|-------------------------------------|------------|
| **For the three months ended March 31, 2008** |       |                  |       |                                                  |       |                                 |       |                                |       |
| DDS                                                |       | $                     | 26,593     |                                                  | $          | 8,233                                |       | $                                   | 15,990     |   | $ | 2,692 |   |
| LSM                                                |       | 18,744                |       | —                                                |       | 533                                  |       | 1,913                               |       |
| Corporate                                          |       | —                |       | —                                                |       | (12,206                              | )          | —                              |       |
| Total                                              |       | $                     | 45,337     |                                                  | $          | 8,233                                |       | $                                   | 4,317      |   | $ | 4,605 |   |
|                                               |       |                  |       |                                                  |       |                                 |       |                                |       |
| **For the three months ended March 31, 2007** |       |                  |       |                                                  |       |                                 |       |                                |       |
| DDS                                                |       | $                     | 20,210     |                                                  | $          | 7,146                                |       | $                                   | 11,946     |   | $ | 2,516 |   |
| LSM                                                |       | 21,021                |       | —                                                |       | 2,782                                |       | 1,618                               |       |
| Corporate                                          |       | —                |       | —                                                |       | (10,791                              | )          | —                              |       |
| Total                                              |       | $                     | 41,231     |                                                  | $          | 7,146                                |       | $                                   | 3,937      |   | $ | 4,134 |   |

 

The following tablesummarizes other information by segment as of March 31, 2008:

 
| ** **                         | ** ** | **As of March 31, 2008** | ** ** |
|------------------------------------|------------|----------------------------------------------|------------|
| ** **                         | ** ** | **DDS**                                      | ** ** | **LSM** | ** ** | **Total** | ** ** |
|                               |       |                                         |       |   |   |   |   |
| Total assets                       |       | $                                            | 224,241    |   | $ | 154,560 |   | $ | 378,801 |   |
| Goodwill included in total  assets |       | 14,715                                       |       | 26,760 |   | 41,475 |   |
|                                    |            |                                              |            |  |  |  |  |  |  |  |

 

The following tablesummarizes other information by segment as of December 31, 2007:

 
| ** **                        | ** ** | **As of December 31, 2007** | ** ** |
|-----------------------------------|------------|-------------------------------------------------|------------|
| ** **                        | ** ** | **DDS**                                         | ** ** | **LSM** | ** ** | **Total** | ** ** |
|                              |       |                                            |       |   |   |   |   |
| Total assets                      |       | $                                               | 235,603    |   | $ | 151,051 |   | $ | 386,654 |   |
| Goodwill included in total assets |       | 14,141                                          |       | 32,434 |   | 46,575 |   |
|                                   |            |                                                 |            |  |  |  |  |  |  |  |

 

**Note10 — Financial Information by Customer Concentration and Geographic Area**

 

Total contract revenuefrom DDS’s three largest customers represented approximately 12%, 8% and 6% ofDDS’s total contract revenue for the three months ended March 31, 2008,and 8%, 5% and 5% of DDS’s total contract revenue for the three months ended March 31,2007.  Total contract revenue from LSM’slargest customer, GE Healthcare, represented 53% and 37% of LSM’s totalcontract revenue for the three months ended March 31, 2008 and 2007,respectively.  GE Healthcare accountedfor approximately 22% and 19% of the Company’s total contract revenue for thethree months ended March 31, 2008 and 2007, respectively.

 

The Company’s totalcontract revenue for the three months ended March 31, 2008 and 2007 wasrecognized from customers in the following geographic regions:

 
| ** **    | ** ** | **Three Months Ended March 31,** | ** ** |
|---------------|------------|------------------------------------------------------|------------|
| ** **    | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
|          |       |                                                 |       |   |   |
| United States |       | 64                                                   | %          | 68 | % |
| Europe        |       | 28                                                   |       | 27 |   |
| Other         |       | 8                                                    |       | 5 |   |
|          |       |                                                 |       |   |   |
| Total         |       | 100                                                  | %          | 100 | % |

 

14

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**Note 11 — Comprehensive Income**

 

The following tablepresents the components of the Company’s comprehensive income for the threemonths ended March 31, 2008 and 2007:

 
| ** **                                                        | ** ** | **Three Months Ended March 31,** | ** ** |
|-------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                        | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| Net income                                                        |       | $                                                    | 4,739      |   | $ | 3,224 |   |
|                                                              |       |                                                 |       |   |   |
| Other comprehensive income (loss):                                |       |                                                 |       |   |   |
| Change in unrealized gain on marketable securities, net of taxes  |       | 39                                                   |       | 23 |   |
| Change in unrealized loss on interest rate swap, net of taxes     |       | (5                                                   | )          | (26 | ) |
| Foreign currency translation gain                                 |       | 549                                                  |       | 156 |   |
| Net actuarial loss related to pension and postretirement benefits |       | 2                                                    |       | 11 |   |
| Total comprehensive income                                        |       | $                                                    | 5,324      |   | $ | 3,388 |   |

 

**Note 12— Legal Proceedings**

 

The Company, from time to time, may be involved invarious claims and legal proceedings arising in the ordinary course ofbusiness. Except as noted below in regards 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 theaggregate have a material adverse effect on the Company’s business, financialcondition, results of operations or cash flows.

 

AMR Technology, a subsidiary of the Company, alongwith Aventis Pharmaceuticals Inc., the U.S. pharmaceutical business ofSanofi-Aventis S.A., are involved in legal proceedings with several companiesseeking 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’sLaboratories, Ltd./Dr. Reddy’s Laboratories, Inc., RanbaxyLaboratories Ltd./Ranbaxy Pharmaceuticals Inc., and Sandoz Inc. filedAbbreviated New Drug Applications (“ANDAs”) with the FDA to produce and marketgeneric versions of Allegra products.

 

In response to the filings described above, beginningin 2001, Aventis Pharmaceuticals filed patent infringement lawsuits againstBarr Laboratories, Impax Laboratories, Mylan Pharmaceuticals, TevaPharmaceuticals, Dr. Reddy’s Laboratories, Ranbaxy LaboratoriesLtd./Ranbaxy Pharmaceuticals Inc., and Sandoz. Each of the lawsuits was filedin the U.S. District Court in New Jersey and alleges infringement of one ormore patents owned by Aventis Pharmaceuticals. In addition, beginning on November 14,2006, Aventis filed two patent infringement suits against Teva PharmaceuticalsUSA, Barr Laboratories, Inc. and Barr Pharmaceuticals, Inc. in theEastern District of Texas based on patents owned by Aventis.  Those lawsuits have now been transferred tothe U.S. District Court in New Jersey.

 

Further, beginning on March 5, 2004, AMRTechnology, along with Aventis Pharmaceuticals, filed suit in the U.S. DistrictCourt in New Jersey against Barr Laboratories, Impax Laboratories, MylanPharmaceuticals, Teva Pharmaceuticals, Dr. Reddy’s Laboratories, AminoChemicals, Ltd., Ranbaxy Laboratories Ltd./Ranbaxy Pharmaceuticals Inc.,DiPharma S.P.A., DiPharma Francis s.r.l., and Sandoz, asserting infringement oftwo of our U.S. patents that are exclusively licensed to AventisPharmaceuticals relating to Allegra and Allegra-D products.  On December 11, 2006, AMR Technology andSanofi-Aventis U.S. LLC, an affiliate of Aventis Pharmaceuticals, also filed apatent infringement lawsuit in the Republic of Italy against DiPharma Franciss.r.l. and DiPharma S.P.A. based on European Patent No. 703,902 which isowned by AMR Technology and licensed to Sanofi-Aventis U.S. LLC.  In addition, on December 22, 2006, AMRTechnology filed a patent infringement lawsuit in Canada against NovopharmLtd., 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, AMR Technology filed a patent infringement lawsuit inAustralia against Alphapharm Pty Ltd based on Australian Patent No. 699,799.  On September 28, 2007, AMR Technologyfiled a patent infringement lawsuit in Australia against Arrow PharmaceuticalsPty Ltd, Chemists’ Own Pty Ltd, and Sigma Pharmaceuticals Limited based onAustralian Patent No. 699,799.

 

Aventis Pharmaceuticals and AMR Technology haveentered into covenants not to sue on U.S. Patent No. 5,578,610 withdefendants other than Novopharm, DiPharma S.P.A., DiPharma Francis s.r.l.,Alphapharm, Arrow Pharmaceuticals Pty Ltd, Chemists’ Own Pty Ltd, and SigmaPharmaceuticals Limited.  AventisPharmaceuticals exclusively licenses U.S. Patent No. 5,578,610 from us,but that patent has not been asserted in the litigations in the U.S.  However, the Company and AventisPharmaceuticals have agreed that Aventis Pharmaceuticals will continue to payroyalties to the Company based on that patent under the Company’s originallicense agreement with Aventis Pharmaceuticals. Under our arrangements withAventis Pharmaceuticals, we will receive royalties until expiration of theunderlying 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 beinvalid.

 

15

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Under applicable federal law, marketing of anFDA-approved generic version of Allegra may not commence until the earlier of adecision favorable to the generic challenger in the patent litigation or 30months after the date the patent infringement lawsuit was filed. In general,the first generic filer is entitled to a 180-day marketing exclusivity periodupon FDA approval.

 

On September 6, 2005, Barr Pharmaceuticals, Inc.and Teva Pharmaceuticals Industries Ltd. announced that they have entered intoan agreement for the launch of Fexofenadine Hydrochloride 30 mg, 60 mg and 180mg tablets, the generic version of Allegra tablets in the United States. Thelaunch of the generic product is considered an “at-risk” launch due to theon-going litigation. This generic launch has had a material adverse impact onU.S. sales of Allegra by Sanofi-Aventis since the fourth quarter of 2005 and inturn, the royalties earned by the Company on those sales. The launch has nothad a material impact on non-U.S. sales of Allegra to date.

 

On September 20, 2005, AMR Technology, along withAventis Pharmaceuticals, filed a Motion for Preliminary Injunction in the U.S.District Court in New Jersey seeking to enjoin Barr Pharmaceuticals, Inc.,Teva Pharmaceuticals Ltd., Ranbaxy Laboratories, Ltd. and Amino Chemicals, Ltd.from the sale of generic versions of Allegra in the United States. On January 30,2006, the U.S. District Court denied the request by AMR Technology and AventisPharmaceuticals for a preliminary injunction. An appeal of that decision wastaken to the U.S. Court of Appeals for the Federal Circuit and, on November 8,2006, the appellate court affirmed the District Court’s denial of a preliminaryinjunction. The preliminary injunction application is no longer pending. TheFederal Circuit’s decisions on the preliminary injunction application is notdispositive of the merits of the claims being asserted as described above.

 

Subsequent to the preliminary injunction proceeding inthe District Court, Dr. Reddy’s Laboratories and Mylan Pharmaceuticalshave engaged in at-risk launches of generic fexofenadine products.

 

Should the Company be unsuccessful in defending thesepatents, the Company would continue to experience a material decrease inoperating cash flows and a material adverse effect on our results of operationsand financial condition.

 

**Note 13— Income Taxes**

 

Effective January 1,2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48“Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 providesguidance on the accounting for uncertainty in income tax reporting, andprescribes a methodology for recognizing, reversing, and measuring the tax benefitsof a tax position taken, or expected to be taken, in a tax return. The adoptionof this standard did not have a material impact on the Company’s financialstatements.

 

The total amount ofunrecognized tax benefits that, if recognized, would affect the effective taxrate (net of the federal benefit on state issues) was $608 and $3,000 as of March 31,2008 and December 31, 2007, respectively.  The Company classifiesinterest expense and penalties related to unrecognized tax benefits as acomponent of income tax expense. This policy did not change with adoption ofFIN 48. As of March 31, 2008 and December 31, 2007, the Companyhas not accrued any penalties related to its uncertain tax position as itbelieves that it is more likely than not that there will not be any assessmentof penalties. The total amount of accrued interest resulting from suchunrecognized tax benefits was $56 and $1,000 at March 31, 2008 and December 31,2007, respectively.    These unrecognized tax benefits areclassified as income taxes payable in the condensed consolidated balance sheetat March 31, 2008 and December 31, 2007, respectively.

 

During the quarter ended March 31,2008, the Company reached a settlement in the examination of certain state taxreturns.  As a result of this settlement, the Company’s unrecognized taxbenefits decreased by $3,500 through payments of $1,400 and the recognition of$2,100 of previously unrecognized tax benefits related to these matters. In addition, the Company recognized an additional $307 in previouslyunrecognized tax benefits during the quarter ended March 31, 2008 as aresult of a lapse of an applicable statute of limitations.  Therecognition of previously unrecognized tax benefits reduced the effective taxrate (net of the federal benefit on state issues) by $1,600 during the quarterended March 31, 2008.  As of March 31, 2008, the Company accruedan additional $46 of reserves based on current year tax positions and anadditional $11 of interest related to its uncertain tax positions.

 

The Company files Federalincome tax returns, as well as multiple state and foreign jurisdiction taxreturns. The Company’s Federal income tax returns have been examined by theInternal Revenue Service through the year ended December 31, 2004. All significant state and foreign matters have been concluded for years through2005.  There are tax examinations that are currently underway.  Thecompletion of certain of these tax examinations is anticipated within the nextyear.  Based on the current status of these examinations, management ofthe Company believes that the reserves associated with tax positions underexamination are adequate.  However, the Company does not believe it isreasonably possible to estimate the potential change in its unrecognized taxbenefit that will result from the completion of these examinations.

 

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**Note 14 –Fair Value**

 

In September 2006,SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157), wasissued.  This statement defines fair value,establishes a framework for measuring fair value in generally acceptedaccounting principles and expands disclosures about fair valuemeasurements.  This statement applies under other accountingpronouncements that require or permit fair value measurements.  FASBStaff Position (“FSP”) 157-2 amended SFAS No. 157 to delay the effectivedate of SFAS No. 157 for all nonfinancial assets and nonfinancialliabilities to fiscal years beginning after November 15, 2008.

 

The adoption of SFAS No. 157for financial assets and financial liabilities, effective January 1, 2008,did not have a material impact on the Company’s consolidated financialposition, results of operations or cash flows.  The Company isevaluating the effect the adoption of SFAS No. 157 for nonfinancial assetsand nonfinancial liabilities will have on its consolidated financial position,results of operations and cash flows.

 

SFAS No. 157establishes a three-tiered fair value hierarchy, which prioritizes the inputsused in measuring fair value.  These tiers include:  Level1 – defined as quoted prices in active markets for identical instruments; Level2 – defined as inputs other than quoted prices in active markets that areeither directly or indirectly observable; and Level 3 – defined as unobservableinputs in which little or no market data exists, therefore requiring an entityto develop its own assumptions.

 

The following tablepresents the fair value of marketable securities by type and their determinedlevel based on the three-tiered fair value hierarchy as of March 31, 2008:

 
| ** **                                       | ** ** | **Fair Value Measurements as of March 31, 2008** | ** ** |
|--------------------------------------------------|------------|-------------------------------------------------------------------------------------|------------|
| **Marketable Securities**                   | ** ** | **Total**                                                                           | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
| Obligations of states and political subdivisions |       | $                                                                                   | 17,032     |   | $ | — |   | $ | 17,032 |   | $ | — |   |
| Auction rate securities                          |       | 7,000                                                                               |       | $ | — |   | 7,000 |   | — |   |
| Total                                            |       | $                                                                                   | 24,032     |   | $ | — |   | $ | 24,032 |   | $ | — |   |

 

The Company’s marketablesecurities are fixed maturity securities and are valued using pricing forsimilar securities, recently executed transactions, cash flow models with yieldcurves, broker/dealer quotes and other pricing models utilizing observableinputs. The valuation for the Company’s fixed maturity securities is classifiedas Level 2.

 

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Item2.  Management’s Discussion and Analysisof Financial Condition and Results of Operations

 

**Forward-LookingStatements**

 

The following discussionof our results of operations and financial condition should be read inconjunction with the accompanying Condensed Consolidated Financial Statementsand the Notes thereto included within this report. This quarterly report on Form 10-Qcontains “forward-looking statements” within the meaning of Section 27A ofthe Securities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended. These statements may be identified byforward-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 postretirementbenefit costs, GE Healthcare, the Company’s collaboration with Bristol-MyersSquibb (“BMS”), the acquisition of FineKem Laboratories Pvt. Limited (“FineKem”),future acquisitions, earnings, contract revenues, costs and margins, royaltyrevenues, patent protection and the ongoing Allegra patent infringementlitigation, Allegra royalty revenue, government regulation, retention andrecruitment of employees, customer spending and business trends, foreignoperations (including Singapore, India and Hungary), the effect of the purchaseof assets from Ariane Orgachem Private Limited and Ferico Laboratories Limited,collectively known as AMRI India Pvt. Ltd. (“AMRI India”), including increasingoptions and solutions for customers, business growth and the expansion of theCompany’s global market, clinical supply manufacturing, management’s strategicplans, the goal of submitting an Investigational New Drug Application (“IND”)to the U.S. Food and Drug Administration (“FDA”) in 2008, drug discovery,product commercialization, license arrangements, research and developmentprojects and expenses, selling, general and administrative expenses, goodwillimpairment, competition and tax rates. The Company’s actual results may differmaterially from such forward-looking statements as a result of numerousfactors, some of which the Company may not be able to predict and may not bewithin the Company’s control. Factors that could cause such differencesinclude, but are not limited to, those discussed in Part I, Item 1A, “RiskFactors”, of the Company’s Annual Report on Form 10-K for the year ended December 31,2007 as filed with the Securities and Exchange Commission on March 17,2008 and in Part II Item 1A,“Risk Factors,” in this Form 10-Q. All forward-looking statements are made as of the date of this report,and we do not undertake to update any such forward-looking statements in thefuture, except as required by law. References to the “Company”, “we,” “us,” and“our,” refer to Albany Molecular Research, Inc. and its subsidiaries,taken as a whole.

 

**Strategyand Overview**

 

***We provide contract services to the world’s leadingpharmaceutical and biotechnology companies.***Wederive our contract revenue from research and development expenditures andcommercial manufacturing demands of the pharmaceutical and biotechnologyindustry.  We continue to execute ourlong-term strategy to develop and grow an integrated global platform from whichwe can provide these services.  We haveresearch and manufacturing facilities in the United States, Hungary, Singaporeand India.  We purchased additionallarge-scale manufacturing sites in India in January 2008 and commenced a10,000 square foot expansion of our Singapore Research Center in early 2008.

 

We continue to integrateour research and manufacturing facilities worldwide, increasing our access tokey global markets and enabling us to provide our customers with a flexiblecombination of high quality services and competitive cost structures to meettheir individual outsourcing needs.  We seek comprehensive research and/orsupply agreements with our customers, incorporating several of our serviceofferings and spanning across the entire pharmaceutical research anddevelopment process.  Our research facilities provide discovery, chemicaldevelopment, analytical, and small-scale current Good Manufacturing Practices (“cGMP”)manufacturing services.  Compounds discovered and developed in ourresearch facilities can then be more easily transitioned to production at ourlarge-scale manufacturing facilities for use in clinical trials and,ultimately, commercial sales if the product meets regulatory approval.  Webelieve that the ability to partner with a single provider of pharmaceuticalresearch and development services from discovery through commercial productionis of significant benefit to our customers.  Through our comprehensiveservice offerings, we are able to provide customers with a more efficienttransition of experimental compounds through the research and development process,ultimately reducing the time and cost involved in bringing these compounds fromconcept to market.

 

Our global platform increases our market share andallows us to maintain and grow margins. In addition to our globalization, we continue to implement processefficiencies, including our implementation of a process improvement and costsavings (“Lean-to-Excellence”) campaign, along with efforts to strengthen oursourcing.  We believe these factors willlead to higher margins.

 

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We conduct proprietary research and development todiscover new therapeutically active lead compounds with commercial potential.We anticipate that we would then license these compounds to third parties inreturn for up-front and service fees and milestone payments, as well asrecurring royalty payments if these compounds are developed into new commercialdrugs. In addition, research and development is performed atour large-scale manufacturing facility related to the potential manufacture ofnew products, the development of processes for the manufacture of genericproducts with commercial potential, and the development of alternativemanufacturing processes.

 

Our total revenue for thequarter ended March 31, 2008 was $53.6 million, as compared to $48.4million for the quarter ended March 31, 2007.

 

Contract services revenuefor the first quarter of 2008 was $45.3 million, compared to $41.2 million inthe first quarter of 2007.  Discovery,development, and small scale manufacturing (“DDS”) revenues increased $6.4million from the quarter ended March 31, 2007 due to increased demand forthese services.  Large ScaleManufacturing (“LSM”) revenue decreased by $2.3 million due primarily to adecrease in commercial sales of $4.3 million and a decrease in sales from theproduction of clinical supply materials for use in advanced stage human trialsof $1.5 million, offset in part by an increase in sales of commercial productsto GE Healthcare of $2.0 million due to timing of customer requirements.Additionally, there was incremental revenue from the AMRI India acquisition in June 2007.  We currently expect the overall trend ofslightly increased demand for clinical supply materials to continue for theremainder of 2008.

 

Recurring royalty revenues,which are based on the worldwide sales of fexofenadine HCl, marketed as Allegrain the Americas and Telfast elsewhere, as well as on sales of Sanofi-Aventis’authorized generics, were higher than in the quarter ended March 31, 2007.

 

Consolidated gross marginwas 20.1% for the quarter ended March 31, 2008, compared to 20.7% for thequarter ended March 31, 2007.  Grossmargin at the DDS operating segment increased to 32.2% in the first quarter of2008 from 27.3% for the same period in 2007, primarily resulting from animprovement in gross margin due to an increase in contract revenues in relationto the fixed cost components of the DDS segment.  Gross margin at the LSM operating segment was2.9% in the first quarter of 2008, compared with a gross margin of 14.4% in thefirst quarter of 2007. The decrease in gross margin from the first quarter of2007 is due primarily to a decrease in commercial sales, which generally yielda higher margin, along with start up costs associated with our acquisition ofAMRI India and price concessions given during 2008.

 

During the three monthsended March 31, 2008, cash used from operations was $2.0 million.  The decrease of $6.8 million in cash flowfrom operations from the three months ended March 31, 2007 resultedprimarily from an increase in accounts receivable and royalty receivables dueto timing of cash collections and an increase in depreciation and amortization,offset in part by an increase in accounts payable due to timing of payments.  We spent $1.7 million on our acquisition ofFineKem and $4.5 million in capital expenditures, primarily on theconstruction of a new research center in Singapore and on upgrading andmaintaining our facilities and equipment in our large-scale manufacturingsuites and for additions to our new research center in India.  In addition, we spent $13.0 million inpurchases of treasury stock in conjunction with our treasury share purchaseplan approved by the Board of Directors in February 2008.  As of March 31, 2008, we had $86.6million in cash, cash equivalents and investments and $14.0 million inbank and other related debt.

 

**Resultsof Operations – Three Months ended March 31, 2008 Compared to Three MonthsEnded March 31, 2007**

 

***Revenues***

 

*Totalcontract revenue*

 

Contract revenue consistsprimarily of fees earned under contracts with our third party customers.  Our contract revenues for each of our DDS andLSM segments were as follows:

 
| ** **              | ** ** | **Three Months Ended March 31,** | ** ** |
|-------------------------|------------|------------------------------------------------------|------------|
| **(in thousands)** | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
|                    |       |                                                 |       |   |   |
| DDS                     |       |                                                 | $          | 26,593 |   | $ | 20,210 |   |
| LSM                     |       |                                                 | 18,744     |   | 21,021 |   |
| Total                   |       |                                                 | $          | 45,337 |   | $ | 41,231 |   |

 

DDS contract revenues forthe quarter ended March 31, 2008, increased $6.4 million to $26.6 millionas compared to $20.2 million for the same quarter in the prior year.  The increase is due primarily to an increasein contract revenue from discovery services of $3.4 million due to increaseddemand for these services, as our ability to offer various combinations ofservices 

 

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and cost structures atour U.S. and international locations continues to gain acceptance in theworldwide marketplace.  In addition,development and small-scale manufacturing services increased $3.0 million ascustomers continue to focus on development-stage projects.  We currently expect the overall growth trendsin both discovery services and development and small-scale manufacturingservices to continue throughout 2008.

 

LSM revenue for the quarter ended March 31, 2008decreased by $2.3 million, due primarily to a decrease in commercial sales of$4.3 million and a decrease in sales from the production of clinical supplymaterials for use in advance stage human trials of commercial products of $1.5million, offset in part by an increase in revenue from sales to GE Healthcareof $2.0 million due to timing of customer requirements.  The decrease was additionally offset byincremental revenue from our AMRI India acquisition in June 2007.  We expectLSM contract revenue in 2008 to increase slightly from amounts recognized in2007 due to a full year of revenue from our AMRI India acquisition.

 

*Recurringroyalty revenue*

 

We earn royalties underour licensing agreement with Sanofi-Aventis S.A. for the active ingredient inAllegra.  Royalties were as follows:

 
| **Three Months Ended March 31,** | ** ** |
|------------------------------------------------------|------------|
| **2008**                                             | ** ** | **2007** | ** ** |
| **(in thousands)**                              | ** ** |
| $                                                    | 8,233      |   | $ | 7,146 |   |
|                                                      |            |  |  |  |  |

 

Recurring royalties,which are based on the worldwide sales of fexofenadine HCl, marketed as Allegrain the Americas and Telfast elsewhere, as well as on sales of Sanofi-Aventis’authorized generics, increased for the quarter ended March 31, 2008 fromthe quarter ended March 31, 2007.

 

The recurring royaltieswe receive on the sales of Allegra/Telfast have historically provided amaterial portion of our revenues, earnings, and operating cash flows.  During 2006 and 2007, we experienced adecrease in revenues, earnings, and operating cash flows from historical levelsdue to the impact of the “at-risk” launch of generic fexofenadine by BarrPharmaceuticals, Inc. and Teva Pharmaceuticals Industries Ltd. on U.S. salesof Allegra by Sanofi-Aventis.   Wecurrently expect royalty revenues for 2008 to remain flat or decrease slightlyfrom amounts recognized in 2007.  Wecontinue to develop our business in an effort to supplement the revenues,earnings and operating cash flows that have historically been provided byAllegra/Telfast royalties.  We continueto forcefully and vigorously defend our intellectual property related toAllegra, and we continue to pursue our intellectual property rights as patentinfringement litigation progresses. However, should we or Aventis be unsuccessful in defending these patentswe would continue to experience a material decrease from historic royaltyrevenues and operating cash flows. Furthermore, an at-risk launch of a generic version of Allegra-D by ageneric competitor could result in further material decreases in royaltyrevenues.

 

***Costsand Expenses***

 

*Cost ofcontract revenue*

 

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

 
| **Segment**             | ** ** | **Three Months Ended March 31,** | ** **   |
|-------------------------|------------|------------------------------------------------------|--------------|
| **(in thousands)** | ** ** | **2008**                                             | ** **   | **2007** | ** ** |
|                    |       |                                                 |         |   |   |
| DDS                     |       | $                                                    | 18,019       |   | $ | 14,697 |   |
| LSM                     |       | 18,209                                               |         | 17,990 |   |
| Total                   |       | $                                                    |  36,228 |   | $ |  32,687 |   |
|                    |       |                                                 |         |   |   |
| DDS Gross Margin        |       | 32.2                                                 | %            | 27.3 | % |
| LSM Gross Margin        |       | 2.9                                                  | %            | 14.4 | % |
| Total Gross Margin      |       | 20.1                                                 | %            | 20.7 | % |
|                         |            |                                                      |              |  |  |  |  |  |  |

 

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DDS had a contractrevenue gross margin of 32.2% for the three months ended March 31, 2008comparedto contractrevenue gross margin of 27.3% for the same period in 2007.  The increase in gross margin resulted from anincrease in contract revenues in relation to the fixed cost components of theDDS segment during the three months ended March 31, 2008.  We currently expect DDS contract margins forthe remainder of 2008 to slightly increase from the percentage realized in thefirst quarter.

 

LSM’s contract revenue gross margin decreased to 2.9%for the three months ended March 31, 2008 compared to 14.4% for the sameperiod in 2007.   This decrease in grossmargin is primarily due to decreases in commercial sales, which historicallyhave generated higher margins. Additionally, this decrease is due in part to start up costs associatedwith our acquisition of AMRI India, along with price concessions on sales toour largest customer, GE Healthcare, in 2008. Although these price concessions are expected to decrease our grossmargin, we believe this strengthens our ability to retain this customer forfuture business.  We expect gross marginsin the LSM segment to remain flat in 2008 from the percentage realized in 2007from our continued implementation of cost savings and process efficiencies inour Rensselaer facilities and from fully integrating AMRI India into our LSMsegment.  This improvement will beoffset, in part, by a decrease in margins in relation to the above mentionedprice concessions to GE Healthcare.

 

*Technologyincentive award*

 

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

 
| **Three Months Ended March 31,** | ** ** |
|------------------------------------------------------|------------|
| **2008**                                             | ** ** | **2007** | ** ** |
| **(in thousands)**                                   | ** ** |
| $                                                    | 819        |   | $ | 713 |   |
|                                                      |            |  |  |  |  |

 

The increase in technology incentive award expense forthe quarter ended March 31, 2008 from the quarter ended March 31,2007 is due to the increase in Allegra royalty revenue.  We expect technology incentive award expenseto generally fluctuate directionally and proportionately with fluctuations inAllegra royalties in future periods.

 

*Research and development*

 

Research and development (“R&D”)expense consists of compensation and benefits for scientific personnel for workperformed on proprietary technology R&D projects, costs of chemicals andother out of pocket costs, and overhead costs. We utilize our expertise insmall molecule chemistry, biocatalysis and natural product technologies toperform our internal research and development projects. The goal of theseprograms is to discover new compounds with commercial potential. We would thenseek to license these compounds to a third party in return for a combination ofup-front license fees, milestone payments and recurring royalty payments ifthese compounds are successfully developed into new drugs and reach the market.In addition, research and development is performed at our large-scalemanufacturing facility related to the potential manufacture of new products,the development of processes for the manufacture of generic products withcommercial potential, and the development of alternative manufacturingprocesses.  Research and development expenses wereas follows:

 
| **Three Months Ended March 31,** | ** ** |
|------------------------------------------------------|------------|
| **2008**                                             | ** ** | **2007** | ** ** |
| **(in thousands)**                              | ** ** |
| ** **                                           | ** ** |
| $                                                    | 2,909      |   | $ | 2,381 |   |
|                                                      |            |  |  |  |  |

 

The increase in R&D expense of $0.5 million forthe quarter ended March 31, 2008 from $2.4 million in the quarter ended March 31,2007 is due primarily to expenses related to the progression of one of ourcompounds from our proprietary oncology research program to the advancedpreclinical testing phase.  On October 30,2006, we announced the selection of a compound from our proprietary oncologyresearch program for advanced preclinical testing, with the goal of submittingan IND with the FDA.  Our current goal isto submit this IND during 2008.  Inaddition, R&D expense increased due to incremental costs related to thedevelopment of active pharmaceutical ingredients to be used in themanufacturing of specialty

 

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generic drugs. We currently expect research and development expenses to increase in2008 from amounts recognized in 2007, as we continue to advance our oncologycompound towards an IND submission with the FDA.  Additionally, we expect increased costsassociated with the continued development of specialty generics, as well asresearching and developing processes to manufacture intermediates at our AMRIIndia facility.  These intermediates havehistorically been purchased from third parties to be used at our domesticlocations.

 

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

 

We budget and monitor our R&D costs by type orcategory, rather than by project on a comprehensive or fully allocated basis.In addition, our R&D expenses are not tracked by project as they benefitmultiple projects or our overall technology platform. Consequently, fullyloaded R&D cost summaries by project are not available.

 

*Selling,general and administrative*

 

Selling, generaland administrative expenses consist of compensation and related fringe benefitsfor marketing, operational and administrative employees, professional servicefees, marketing costs and costs related to facilities and information services.Selling, general and administrative expenses were as follows:

 
| **Three Months Ended March 31,** | ** ** |
|------------------------------------------------------|------------|
| **2008**                                             | ** ** | **2007** | ** ** |
| **(in thousands)**                              | ** ** |
| $                                                    | 9,297      |   | $ | 8,416 |   |
|                                                      |            |  |  |  |  |

 

The increase in selling,general and administrative expenses for the three months ended March 31,2008 is primarily attributable to $0.5 million of expenses in incrementaladministrative costs at our AMRI India location, which was acquired in June 2007,along with increases in salaries and benefits primarily related to the increasein business development personnel.  Selling,general and administrative expenses are expected to increase in 2008 primarilydue to increased business development personnel costs and a full year ofexpenses related to AMRI India.

 

*Impairmentand restructuring charges*

 

Large Scale ManufacturingFacility

 

On November 9, 2006,we announced plans to initiate a restructuring of our LSM businesssegment.  Consistent with our continuedstrategy of realigning the LSM segment toward a greater focus on manufacturingclinical trial materials with strong commercial potential, the goals of therestructuring plan were to strengthen our competitiveness in this area andreduce operating costs by eliminating overlap in business processes,organization and project process flow, as well as leveraging existing resourcesand assets.  The restructuring planincluded a reduction of workforce, as well as reductions of non-essentialoperating expenses, raw material costs and future capital expenditureactivities.  We estimated that totallarge scale costs will be reduced by $5.0 million annually as a result of thisrestructuring.  We recorded arestructuring charge of approximately $2.4 million in the fourth quarter of2006, including a non-cash asset disposal charge of approximately $1.6 million,and other charges of approximately $0.8 million consisting primarily oftermination benefits.  We recordedadditional restructuring charges of $0.2 million during the first quarter of2007, consisting of additional termination benefits associated with therestructuring.  There were no additionalrestructuring charges taken during the first quarter of 2008.

 

Mt. Prospect ResearchCenter

 

During the fourth quarter of 2006, we secured a letterof intent related to the potential sale of the Mt. Prospect facility andrelated assets.  We recorded impairmentcharges of approximately $3.5 million during 2006 to reduce the carrying amountof these assets to reflect the sales price per the letter of intent lessestimated selling costs.  We completed thesale of the facility in March 2007 for $1.5 million.

 

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*Interestincome, net*

 
| ** **              | ** ** | **Three Months Ended March 31,** | ** ** |
|-------------------------|------------|------------------------------------------------------|------------|
| **(in thousands)** | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
|                    |       |                                                 |       |   |   |
| Interest expense        |       | $                                                    | (126       | ) | $ | (218 | ) |
| Interest income         |       | 648                                                  |       | 955 |   |
| Interest income, net    |       | $                                                    | 522        |   | $ | 737 |   |

 

Interest expense decreased to $0.1 million for thequarter ended March 31, 2008 from $0.2 million for the same period in2007.  The decrease was primarily due tothe reduction of outstanding interest-bearing debt balances throughout 2007.

 

Interest income decreased to $0.6 million for thequarter ended March 31, 2008 from $1.0 million for the same period in 2007due to decreases in average balances of interest-bearing cash and investmentsheld by the Company and decreases in the interest rates earned on thesebalances.

 

*Income tax expense*

 
| **Three Months Ended March 31,** | ** ** |
|------------------------------------------------------|------------|
| **2008**                                             | ** ** | **2007** | ** ** |
| **(in thousands)**                              | ** ** |
| $                                                    | 41         |   | $ | 1,480 |   |
|                                                      |            |  |  |  |  |

 

Income tax expense decreased for the quarter ended March 31,2008, due primarily to the reversal of reserves for an uncertain tax positionupon resolution of this matter in 2008, partially offset by an increase in therate incurred on pre-tax income in 2008. The increase in the rate incurred was caused by changes in thecomposition of taxable income in relation to the applicable tax rates at ourvarious international locations.

 

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**Liquidity and Capital Resources**

 

Wehave historically funded our business through operating cash flows, proceedsfrom borrowings and the issuance of equity securities. During the first threemonths of 2008, we used cash of $2.0 million for operating activities. Theprimary uses of operating cash flows resulted primarily from increases inaccounts receivable and royalty receivable due to timing of cash collectionsand an increase in depreciation and amortization, offset in part by an increasein accounts payable due to timing of payments.

 

Duringthe first three months of 2008, we generated $31.9 million in investingactivities, resulting from the net proceeds from sale of investment securitiesof $38.2 million, offset by $4.5 million for the acquisition of property andequipment and $1.7 million related to the acquisition of FineKem.  During the first three months of 2008, weused $12.8 million for financing activities, consisting primarily of $13.0million for the purchase of treasury stock, offset in part by cash provided bythe proceeds from the sale of common stock.

 

Workingcapital was $127.9 million at March 31, 2008 as compared to $138.9 millionas of December 31, 2007.  Theprimary source of this decrease is the decrease in operating cash flow, therepurchase of treasury shares and the purchase of FineKem during the firstquarter of 2008.  There have been nosignificant changes in future maturities on our long-term debt since December 31,2007.

 

We entered into a credit facility consisting of a$30.0 million term loan and a $35.0 million line of credit to fund theacquisition of AMRI Rensselaer, Inc. (“AMRI Rensselaer”) (formerly knownas Organichem) during 2003. The term loan matured in February, 2008 and theremaining balance was satisfied with an advance from our existing revolvingline of credit.  We are currentlynegotiating a refinancing of this revolving line of credit to extend the termthrough 2013.  This negotiation iscurrently expected to be completed during the second quarter of 2008.  As of March 31, 2008, the interest rateon the $9.7 million balance of the outstanding revolving line of credit was3.82%.  The credit facility containscertain financial covenants, including a maximum leverage ratio, a minimumrequired operating cash flow coverage ratio, a minimum earnings before interestand taxes to interest ratio and a minimum current ratio. Other covenantsinclude limits on asset disposals and the payment of dividends. As of March 31,2008 and 2007, we were in compliance with all covenants under the creditfacility.

 

Thedisclosure of payments we have committed to make under our contractualobligations is set forth under the heading “Management’s Discussion andAnalysis of Financial Condition and Results of Operations—Liquidity and CapitalResources” under Item 7 of our 2007 Form 10-K.  There have been no material changes to ourcontractual obligations since December 31, 2007.  As ofMarch 31, 2008, we had no off-balance sheet arrangements as defined inItem 303(a)(4) of the Securities and Exchange Commission’s Regulation S-K.

 

We continue to pursue the expansion of our operationsthrough internal growth and strategic acquisitions. We expect that suchactivities will be funded from existing cash and cash equivalents, cash flowfrom operations, the issuance of debt or equity securities and borrowings.Future acquisitions, if any, could be funded with cash on hand, cash fromoperations, borrowings under our credit facility and/or the issuance of equityor debt securities. There can be no assurance that attractive acquisitionopportunities will be available to us or will be available at prices and uponsuch other terms that are attractive to us. We regularly evaluate potentialacquisitions of other businesses, products and product lines and may holddiscussions regarding such potential acquisitions. As a general rule, we willpublicly announce such acquisitions only after a definitive agreement has beensigned. In addition, in order to meet our long-term liquidity needs orconsummate future acquisitions, we may incur additional indebtedness or issueadditional equity or debt securities, subject to market and other conditions.There can be no assurance that such additional financing will be available onterms acceptable to us or at all. The failure to raise the funds necessary tofinance our future cash requirements or consummate future acquisitions couldadversely affect our ability to pursue our strategy and could negatively affectour operations in future periods. Furthermore, a continued decrease inroyalties from Allegra would negatively affect our cash flow from operationsand financial condition in future periods.

 

The recurring royalties we receive on the sales ofAllegra/Telfast have historically provided a material portion of our operatingcash flows. As discussed in Part II, Item 1 of this Form 10-Q,several generic manufacturers have filed ANDA applications with the FDA seekingauthorization to produce and market a generic version of Allegra. We andAventis Pharmaceuticals have filed several patent infringement suits againstthese generic companies alleging infringement of certain U.S. patents. However,should we or Aventis be unsuccessful in defending these patents we wouldcontinue to experience a 

 

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material decrease in royalty revenues and operatingcash flows.  Furthermore, an at-risklaunch of a generic version of Allegra-D by a generic competitor could resultin further material decreases in royalty revenues and operating cash flows.

 

**Critical Accounting Policies and Estimates**

 

Our discussion and analysis of our financial conditionand results of operations are based upon our consolidated financial statements,which have been prepared in accordance with U.S. generally accepted accountingprinciples. The preparation of these consolidated financial statements requiresus to make estimates and judgments that affect the reported amounts of assets,liabilities, revenues and expenses, and related disclosure of contingent assetsand liabilities. On an on-going basis, we evaluate our estimates, includingthose related to bad debts, inventories, intangible assets, equity investments,unbilled revenue, income taxes, pension and postretirement benefit plans, andcontingencies. We base our estimates on historical experience and on variousother assumptions that are believed to be reasonable under the circumstances,the results of which form the basis for making judgments about the carryingvalues of assets and liabilities that are not readily apparent from othersources. Actual results may differ from these estimates under differentassumptions or conditions.

 

Werefer to the policies and estimates set forth in the section “Management’sDiscussion and Analysis of Financial Condition and Results of Operations —Critical Accounting Estimates” of our Annual Report on Form 10-K for thefiscal year ended December 31, 2007. There have been no material changesor modifications to the policies since December 31, 2007.

 

Item 3. Quantitative and Qualitative Disclosuresabout Market Risk

 

Therehave been no material changes with respect to the information on Quantitativeand Qualitative Disclosures about Market Risk appearing in Part II,Item 7A to the Company’s Annual Report on Form 10-K for the yearended December 31, 2007.

 

Item4. Controls and Procedures

 

*Disclosure Controls andProcedures*

 

As required by rule 13a-15(b) underthe Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of theend of the Company’s last fiscal quarter our management conducted an evaluationwith the participation of our Chief Executive Officer and Chief FinancialOfficer regarding the effectiveness of our disclosure controls and procedures.In designing and evaluating our disclosure controls and procedures, werecognize that any controls and procedures, no matter how well designed andoperated, can provide only reasonable assurance of achieving the desiredcontrol objectives, and our management necessarily was required to apply itsjudgment in evaluating and implementing possible controls and procedures. Basedupon that evaluation, our Chief Executive Officer and Chief Financial Officerhave concluded that, as of the end of the Company’s last fiscal quarter, ourdisclosure controls and procedures were effective in that they providereasonable assurance that information required to be disclosed by us in thereports we file or submit under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in the Securities andExchange Commission’s rules and forms, including ensuring that suchinformation is accumulated and communicated to our management, including ourChief Executive Officer and Chief Financial Officer as appropriate to allowtimely decisions regarding required disclosure. We intend to review anddocument our disclosure controls and procedures, including our internalcontrols and procedures for financial reporting, on an ongoing basis, and mayfrom time to time make changes aimed at enhancing their effectiveness and toensure that our systems evolve with our business.

 

*Internal Control Over FinancialReporting*

 

There were no changes in theCompany’s internal control over financial reporting identified in connectionwith the evaluation of such internal control that occurred during the Company’slast fiscal quarter that have materially affected, or are reasonably likely tomaterially affect, the Company’s internal control over financial reporting.

 

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PART II- OTHER INFORMATION

 

Item 1.    LegalProceedings

 

The Company, from time to time, may be involved invarious claims and legal proceedings arising in the ordinary course ofbusiness. Except as noted below in regards 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 theaggregate have a material adverse effect on the Company’s business, financialcondition, results of operations or cash flows.

 

AMR Technology, a subsidiary of the Company, alongwith Aventis Pharmaceuticals Inc., the U.S. pharmaceutical business ofSanofi-Aventis S.A., are involved in legal proceedings with several companiesseeking 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, Inc., Dr. Reddy’sLaboratories, Ltd./Dr. Reddy’s Laboratories, Inc., RanbaxyLaboratories Ltd./Ranbaxy Pharmaceuticals Inc., and Sandoz Inc. filedAbbreviated New Drug Applications (“ANDAs”) with the FDA, to produce and marketgeneric versions of Allegra products.

 

In response to the filings described above, beginningin 2001, Aventis Pharmaceuticals filed patent infringement lawsuits againstBarr Laboratories, Impax Laboratories, Mylan Pharmaceuticals, TevaPharmaceuticals, Dr. Reddy’s Laboratories, Ranbaxy Laboratories Ltd./RanbaxyPharmaceuticals Inc., and Sandoz. Each of the lawsuits was filed in the U.S.District Court in New Jersey and alleges infringement of one or more patentsowned by Aventis Pharmaceuticals. In addition, beginning on November 14,2006, Aventis filed two patent infringement suits against Teva PharmaceuticalsUSA, Barr Laboratories, Inc. and Barr Pharmaceuticals, Inc. in theEastern District of Texas based on patents owned by Aventis.  Those lawsuits have now been transferred tothe U.S. District Court in New Jersey.

 

Further, beginning on March 5, 2004, AMRTechnology, along with Aventis Pharmaceuticals, filed suit in the U.S. DistrictCourt in New Jersey against Barr Laboratories, Impax Laboratories, MylanPharmaceuticals, Teva Pharmaceuticals, Dr. Reddy’s Laboratories, AminoChemicals, Ltd., Ranbaxy Laboratories Ltd./Ranbaxy Pharmaceuticals Inc.,DiPharma S.P.A., DiPharma Francis s.r.l., and Sandoz, asserting infringement oftwo of our U.S. patents that are exclusively licensed to Aventis Pharmaceuticalsrelating to Allegra and Allegra-D products. On December 11, 2006, AMR Technology and Sanofi-Aventis U.S. LLC,an affiliate of Aventis Pharmaceuticals, also filed a patent infringementlawsuit in the Republic of Italy against DiPharma Francis s.r.l. and DiPharmaS.P.A. based on European Patent No. 703,902 which is owned by AMRTechnology and licensed to Sanofi-Aventis U.S. LLC.  In addition, on December 22, 2006, AMRTechnology filed a patent infringement lawsuit in Canada against NovopharmLtd., 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, AMR Technology filed a patent infringement lawsuit inAustralia against Alphapharm Pty Ltd based on Australian Patent No. 699,799.  On September 28, 2007, AMR Technologyfiled a patent infringement lawsuit in Australia against Arrow PharmaceuticalsPty Ltd, Chemists’ Own Pty Ltd, and Sigma Pharmaceuticals Limited based onAustralian Patent No. 699,799.

 

Aventis Pharmaceuticals and AMR Technology haveentered into covenants not to sue on U.S. Patent No. 5,578,610 withdefendants other than Novopharm, DiPharma S.P.A., DiPharma Francis s.r.l.,Alphapharm, Arrow Pharmaceuticals Pty Ltd, Chemists’ Own Pty Ltd, and SigmaPharmaceuticals Limited.  AventisPharmaceuticals exclusively licenses U.S. Patent No. 5,578,610 from us,but that patent has not been asserted in the litigations in the U.S.  However, we and Aventis Pharmaceuticals haveagreed that Aventis Pharmaceuticals will continue to pay royalties to us basedon that patent under our original license agreement with AventisPharmaceuticals. Under our arrangements with Aventis Pharmaceuticals, we willreceive 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) unlessthe patents are earlier determined to be invalid.

 

Under applicable federal law, marketing of anFDA-approved generic version of Allegra may not commence until the earlier of adecision favorable to the generic challenger in the patent litigation or 30months after the date the patent infringement lawsuit was filed. In general,the first generic filer is entitled to a 180-day marketing exclusivity periodupon FDA approval.

 

On September 6, 2005, Barr Pharmaceuticals, Inc.and Teva Pharmaceuticals Industries Ltd. announced that they have entered intoan agreement for the launch of Fexofenadine Hydrochloride 30 mg, 60 mg and 180mg tablets, the generic version of Allegra tablets in the United States. Thelaunch of the generic product is considered an “at-risk” launch due to theon-going litigation. This generic launch has had a material adverse impact onU.S. sales of Allegra by Sanofi-Aventis since the fourth quarter of 2005 and,in turn, the royalties earned by the Company on those sales. The launch has nothad a material impact on non-U.S. sales of Allegra to date.

 

On September 20, 2005, AMR Technology, along withAventis Pharmaceuticals, filed a Motion for Preliminary Injunction in the U.S.District Court in New Jersey seeking to enjoin Barr Pharmaceuticals, Inc.,Teva Pharmaceuticals Ltd., Ranbaxy Laboratories, Ltd. and Amino Chemicals, Ltd.from the sale of generic versions of Allegra in the United States. On January 

 

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30, 2006, the U.S. District Court denied the requestby AMR Technology and Aventis Pharmaceuticals for a preliminary injunction. Anappeal of that decision was taken to the U.S. Court of Appeals for the FederalCircuit and, on November 8, 2006, the appellate court affirmed theDistrict Court’s denial of a preliminary injunction. The preliminary injunctionapplication is no longer pending. The Federal Circuit’s decisions on thepreliminary injunction application is not dispositive of the merits of theclaims being asserted as described above.

 

Subsequent to the preliminary injunction proceeding inthe District Court, Dr. Reddy’s Laboratories and Mylan Pharmaceuticalshave engaged in at-risk launches of generic fexofenadine products.

 

Should the Company be unsuccessful in defending thesepatents, the Company would continue to experience a material decrease inoperating cash flows and a material adverse effect on our results of operationsand financial condition.

 

Item1A. Risk Factors

 

Inaddition to the other information set forth in this report, you shouldcarefully consider the factors discussed in Part I, Item 1A. Risk Factorsin our Annual Report on Form 10-K for the year ended December 31,2007, which could materially affect our business, financial condition or futureresults. The risks described in our Annual Report on Form 10-K are not theonly risks facing our Company. Additional risks and uncertainties not currently known to us or that wecurrently deem to be immaterial also may materially adversely affect ourbusiness, financial condition and/or operating results.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

OnFebruary 7, 2008, the Company’s Board of Directors approved a stockrepurchase program, which authorized the Company to purchase up to $20.0million of the issued and outstanding shares of the Company’s Common Stock inthe open market or in private transactions for the twelve months following theapproval of the program.  Shares may berepurchased from time to time and in such amounts as market conditions warrant,subject to price ranges set by management and regulatory conditions.  The following table represents sharerepurchases during the three months ended March 31, 2008:

 
| **Period**                                          | ** ** | **(a)  Total Number  of Shares  Purchased (1)** | ** ** | **(b)  Average Price  Paid Per  Share** | ** ** | **(c)  Total Number of  Shares  Purchased as  Part of Publicly  Announced  Plans or  Programs** | ** ** | **(d)  Maximum Dollar  Value of Shares  that May Yet Be  Purchased Under  the Program** | ** ** |
|-----------------------------------------------------|------------|----------------------------------------------------------------|------------|---------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------|------------|
| January 1, 2008 - January 31, 2008        |       | —                                                         |       | $                                                 | —     |                                                                                                                          | —     |                                                                                                                            | $          | 20,000,000 |   |
| February 1, 2008 – February 29, 2008 |       | 455,630                                                        |       | $                                                 | 10.86      |                                                                                                                          | 455,630    |                                                                                                                            | $          | 15,051,077 |   |
| March 1, 2008 – March 31, 2008       |       | 729,469                                                        |       | $                                                 | 11.09      |                                                                                                                          | 729,469    |                                                                                                                            | $          | 6,962,518 |   |
| Total                                               |       | 1,185,099                                                      |       | $                                                 | 11.00      |                                                                                                                          | 1,185,099  |                                                                                                                            |       |   |

 

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(1)           No shares were purchased inthe first quarter of 2008 other than through our publicly announced stockbuyback program.

 

Item6.    Exhibits

 

(a)       Exhibits.

 

31.1        Certificationof the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) ofthe Securities Exchange Act of 1934.

 

31.2        Certificationof the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) ofthe Securities Exchange Act of 1934.

 

32.1        Certificationof the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

32.2        Certificationof the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

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SIGNATURES

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

 
|                        | ALBANY MOLECULAR RESEARCH, INC. |
|------------------------|---------------------------------|
|                   |                            |   |
|                   |                            |   |
| Date: May 9, 2008 | By:                             | /s/ Mark T. Frost |
|                   |                            | Mark T. Frost |
|                   |                            | Chief Financial Officer and Treasurer  (Authorized Officer and Principal Financial Officer) |

 

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