UNITED
STATES


SECURITIES
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 1934For
      the Quarterly Period Ended March 31, 2009o
            
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934




For
the transition period from
              to




Commission
file number:  0-25323




ALBANY
MOLECULAR RESEARCH, INC.


(Exact
name of registrant as specified in its charter)




DELAWARE
              
              14-1742717(State
      or other jurisdiction of
              
              (I.R.S.
      Employerincorporation
      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, including area code)




N/A


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




Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.




Yes   x
            
            No   o




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).




Yes    ̈
            
            No    ̈




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




Large
      accelerated filer o
            
            Accelerated
      filer xNon-accelerated
      filer o
            
            Smaller
      reporting company o




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




Yes   o
            
            No   x




Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.




Class
                  
                  Outstanding at April
      30, 2009Common
      Stock, $.01 par value
                  
                  31,630,690,
      excluding treasury shares of
3,824,593


ALBANY
MOLECULAR RESEARCH, INC.


INDEX




Part
      I.
                        Financial
      Information
                        
                        3Item
      1.
                        Condensed
      Consolidated Financial Statements (Unaudited)
                        
                        3Condensed
      Consolidated Statements of Operations
                        
                        3Condensed
      Consolidated Balance Sheets
                        
                        4Condensed
      Consolidated Statements of Cash Flows
                        
                        5Notes
      to Condensed Consolidated Financial Statements
                        
                        6Item
      2.
                        Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                        
                        18Item
      3.
                        Quantitative
      and Qualitative Disclosures About Market Risk
                        
                        24Item
      4.
                        Controls
      and Procedures
                        
                        24Part
      II.
                        Other
      Information
                        
                        25Item
      1A.
                        Risk
      Factors
                        
                        25Item
      6.
                        Exhibits
                        
                        25Signatures
                        
                        26Exhibit
      Index




2


PART I
— FINANCIAL INFORMATION




Item
1.   Condensed Consolidated Financial Statements (Unaudited)




Albany
Molecular Research, Inc.


Condensed
Consolidated Statements of Operations


(unaudited)




Three Months Ended(Dollars in thousands, except for per share data)
                              
                              March
      31, 2009
                              
                              
                              March
      31, 2008Contract
      revenue
                              
                              $
                              43,244
                              
                              
                              $
                              45,337Recurring
      royalties
                              
                              
                              10,786
                              
                              
                              
                              8,233Total
      revenue
                              
                              
                              54,030
                              
                              
                              
                              53,570Cost
      of contract revenue
                              
                              
                              36,643
                              
                              
                              
                              36,228Technology
      incentive award
                              
                              
                              1,105
                              
                              
                              
                              819Research
      and development
                              
                              
                              3,385
                              
                              
                              
                              2,909Selling,
      general and administrative
                              
                              
                              10,302
                              
                              
                              
                              9,297Total
      operating expenses
                              
                              
                              51,435
                              
                              
                              
                              49,253Income
      from operations
                              
                              
                              2,595
                              
                              
                              
                              4,317Interest
      income, net
                              
                              
                              111
                              
                              
                              
                              522Other
      income (loss), net
                              
                              
                              328
                              
                              
                              
                              (59
                              )Income
      before income tax expense
                              
                              
                              3,034
                              
                              
                              
                              4,780Income
      tax expense
                              
                              
                              1,092
                              
                              
                              
                              41Net
      income
                              
                              $
                              1,942
                              
                              
                              $
                              4,739Basic
      earnings per share
                              
                              $
                              0.06
                              
                              
                              $
                              0.15Diluted
      earnings per share
                              
                              $
                              0.06
                              
                              
                              $
                              0.15




See
notes to unaudited condensed consolidated financial statements.




3


Albany
Molecular Research, Inc.


Condensed
Consolidated Balance Sheets


(unaudited)




(Dollars
      and
      shares in thousands, except for per share data)
                
                March
      31,
                  2009
                
                
                December 31,
                  2008AssetsCurrent
      assets:Cash
      and cash equivalents
                
                $
                75,588
                
                
                $
                60,400Investment
      securities, available-for-sale
                
                
                24,356
                
                
                
                27,070Accounts
      receivable, net
                
                
                30,332
                
                
                
                38,529Royalty
      income receivable
                
                
                10,383
                
                
                
                6,670Inventory
                
                
                27,125
                
                
                
                28,670Unbilled
      services
                
                
                458
                
                
                
                159Prepaid
      expenses and other current assets
                
                
                9,452
                
                
                
                8,944Deferred
      income taxes
                
                
                3,954
                
                
                
                4,073Total
      current assets
                
                
                181,648
                
                
                
                174,515Property
      and equipment, net
                
                
                169,973
                
                
                
                167,502Goodwill
                
                
                38,085
                
                
                
                40,272Intangible
      assets and patents, net
                
                
                2,052
                
                
                
                2,018Equity
      investment in unconsolidated affiliates
                
                
                956
                
                
                
                956Other
      assets
                
                
                5,140
                
                
                
                5,421Total
      assets
                
                $
                397,854
                
                
                $
                390,684Liabilities
      and Stockholders’ EquityCurrent
      liabilities:Accounts
      payable and accrued expenses
                
                $
                22,722
                
                
                $
                22,564Deferred
      revenue and licensing fees
                
                
                8,632
                
                
                
                7,300Accrued
      pension benefits
                
                
                500
                
                
                
                500Income
      taxes payable
                
                
                6,778
                
                
                
                3,198Current
      installments of long-term debt
                
                
                260
                
                
                
                260Total
      current liabilities
                
                
                38,892
                
                
                
                33,822Long-term
      liabilities:Long-term
      debt, excluding current installments
                
                
                13,482
                
                
                
                13,482Deferred
      licensing fees
                
                
                8,214
                
                
                
                —Deferred
      rent
                
                
                1,770
                
                
                
                1,156Deferred
      income taxes
                
                
                4,730
                
                
                
                9,142Pension
      and postretirement benefits
                
                
                6,198
                
                
                
                6,211Environmental
      liabilities
                
                
                191
                
                
                
                191Total
      liabilities
                
                
                73,477
                
                
                
                64,004Commitments
      and contingenciesStockholders’
      equity:Common
      stock, $0.01 par value, 100,000 shares authorized, 35,458 shares
      issued as of March 31, 2009, and 35,278 shares issued as of December 31,
      2008
                
                
                355
                
                
                
                353Additional
      paid-in capital
                
                
                199,735
                
                
                
                199,020Retained
      earnings
                
                
                192,758
                
                
                
                190,816Accumulated
      other comprehensive loss, net
                
                
                (11,583
                )
                
                
                (6,621
                )381,265
                
                
                
                383,568Less,
      treasury shares at cost, 3,825 shares as of March 31, 2009 and December
      31, 2008
                
                
                (56,888
                )
                
                
                (56,888
                )Total
      stockholders’ equity
                
                
                324,377
                
                
                
                326,680Total
      liabilities and stockholders’ equity
                
                $
                397,854
                
                
                $
                390,684




See
notes to unaudited condensed consolidated financial statements.




4


Albany
Molecular Research, Inc.


Condensed
Consolidated Statements of Cash Flows


(unaudited)




Three
      Months Ended(Dollars in thousands)
                              
                              March
      31, 2009
                              
                              
                              March
      31, 2008Operating
      activitiesNet
      income
                              
                              $
                              1,942
                              
                              
                              $
                              4,739Adjustments
      to reconcile net income to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
                              
                              
                              4,331
                              
                              
                              
                              4,605Deferred
      income tax (benefit) expense
                              
                              
                              (4,309
                              )
                              
                              
                              122Loss
      (gain) on disposal of property, plant and equipment
                              
                              
                              66
                              
                              
                              
                              (15
                              )Stock-based
      compensation expense
                              
                              
                              525
                              
                              
                              
                              422Provision
      for obsolete inventories
                              
                              
                              331
                              
                              
                              
                              (570
                              )(Increase)
      decrease in:Accounts
      receivable
                              
                              
                              8,197
                              
                              
                              
                              (6,798
                              )Royalty
      income receivable
                              
                              
                              (3,713
                              )
                              
                              
                              (2,204
                              )Inventory,
      prepaid expenses and other assets
                              
                              
                              685
                              
                              
                              
                              (2,200
                              )(Decrease)
      increase in:Accounts
      payable and accrued expenses
                              
                              
                              158
                              
                              
                              
                              (1,517
                              )Income
      tax payable
                              
                              
                              3,580
                              
                              
                              
                              (104
                              )Deferred
      revenue and licensing fees
                              
                              
                              9,546
                              
                              
                              
                              1,707Pension
      and postretirement benefits
                              
                              
                              (7
                              )
                              
                              
                              (197
                              )Other
      long-term liabilities
                              
                              
                              614
                              
                              
                              
                              —Net
      cash provided by (used in) operating activities
                              
                              
                              21,946
                              
                              
                              
                              (2,010
                              )Investing
      activitiesPurchases
      of investment securities
                              
                              
                              (261
                              )
                              
                              
                              (9,678
                              )Proceeds
      from sales of investment securities
                              
                              
                              2,932
                              
                              
                              
                              47,869Purchase
      of businesses, net of cash acquired
                              
                              
                              (12
                              )
                              
                              
                              (1,691
                              )Purchase
      of property, plant and equipment
                              
                              
                              (8,654
                              )
                              
                              
                              (4,541
                              )Proceeds
      from disposal of property, plant and equipment
                              
                              
                              —
                              
                              
                              
                              47Payments
      for patent applications and other costs
                              
                              
                              (97
                              )
                              
                              
                              (65
                              )Net
      cash (used in) provided by investing activities
                              
                              
                              (6,092
                              )
                              
                              
                              31,941Financing
      activitiesPurchases
      of treasury stock
                              
                              
                              —
                              
                              
                              
                              (13,024
                              )Borrowings
      (principal payments) on long-term debt
                              
                              
                              —
                              
                              
                              
                              17Proceeds
      from sale of common stock
                              
                              
                              192
                              
                              
                              
                              173Net
      cash provided by (used in) financing activities
                              
                              
                              192
                              
                              
                              
                              (12,834
                              )Effect
      of exchange rate changes on cash flows
                              
                              
                              (858
                              )
                              
                              
                              (33
                              )Increase
      in cash and cash equivalents
                              
                              
                              15,188
                              
                              
                              
                              17,064Cash
      and cash equivalents at beginning of period
                              
                              
                              60,400
                              
                              
                              
                              45,506Cash
      and cash equivalents at end of period
                              
                              $
                              75,588
                              
                              
                              $
                              62,570




See
notes to unaudited condensed consolidated financial statements.




5


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




Note
1 — Summary of Operations and Significant Accounting Policies





Nature
of Business and Operations




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




Basis
of Presentation




The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with U.S. generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. In accordance with Rule 10-01, the unaudited condensed
consolidated financial statements do not include all of the information and
footnotes required by U.S. generally accepted accounting principles for complete
consolidated financial statements. The year-end condensed consolidated balance
sheet data was derived from audited financial statements but does not include
all disclosures required by U.S. generally accepted accounting principles. In
the opinion of management, all adjustments (consisting of normal recurring
accruals and adjustments) considered necessary for a fair statement of the
results for the interim period have been included. Operating results for the
three months ended March 31, 2009 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2009. The
accompanying unaudited condensed consolidated financial statements should be
read in conjunction with the audited consolidated financial statements and notes
thereto included in our Annual Report on Form 10-K for the year ended
December 31, 2008.




The
accompanying unaudited condensed consolidated financial statements include the
accounts of Albany Molecular Research, Inc. and its wholly-owned subsidiaries.
All intercompany balances and transactions have been eliminated during
consolidation. Assets and liabilities of non-U.S. operations are translated at
period-end rates of exchange, and the statements of operations are translated at
the average rates of exchange for the period. Unrealized gains or losses
resulting from translating non-U.S. currency financial statements are recorded
in accumulated other comprehensive (loss) income in the accompanying unaudited
condensed consolidated balance sheets.




Use
of Management Estimates




The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosures of
contingent assets and liabilities, at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results can vary from these estimates.




Contract
Revenue Recognition




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




The
Company generates contract revenue on the following basis:




Full-time Equivalent
(“FTE”). An FTE
agreement establishes the number of Company employees contracted for a project
or a series of projects, the duration of the contract period, the price per FTE,
plus an allowance for chemicals and other project specific costs, which may or
may not be incorporated in the FTE rate. FTE contracts can run in one month
increments, but typically have terms of six months or longer. FTE contracts
typically provide for annual adjustments in billing rates for the scientists
assigned to the contract.




6




These
contracts involve the Company’s scientists providing services on a “best
efforts” basis on a project that may involve a research component with a
timeframe or outcome that has some level of unpredictability. There are no fixed
deliverables that must be met for payment as part of these services. As such,
the Company recognizes revenue under FTE contracts on a monthly basis as
services are performed according to the terms of the contract.




Time and Materials. Under a
time and materials contract the Company charges customers an hourly rate plus
reimbursement for chemicals and other project specific costs. The Company
recognizes revenue for time and material contracts based on the number of hours
devoted to the project multiplied by the customer’s billing rate plus other
project specific costs incurred.




Fixed-Fee. Under a fixed-fee
contract the Company charges a fixed agreed upon amount for a deliverable.
Fixed-fee contracts have fixed deliverables upon completion of the project.
Typically, the Company recognizes revenue for fixed-fee contracts after projects
are completed, delivery is made and title transfers to the customer, and
collection is reasonably assured. In certain instances, the Company’s customers
request that the Company retain materials produced upon completion of the
project due to the fact that the customer does not have a qualified facility to
store those materials or for other reasons. In these instances, the revenue
recognition process is considered complete 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-front non-refundable licensing
fees on a straight-line basis over the period of the underlying project. The
Company will recognize revenue arising from a substantive milestone payment upon
the successful achievement of the event, and the resolution of any uncertainties
or contingencies regarding potential collection of the related payment, or, if
appropriate, over the remaining term of the agreement.




Recurring Royalty Revenue
Recognition.  Recurring
royalties consist of royalties under a license agreement with sanofi-aventis
based on the worldwide sales of fexofenadine HCl, marketed as Allegra in the
Americas and Telfast elsewhere, as well as on sales of sanofi-aventis’
authorized generics. The Company records royalty revenue in the period in which
the sales of Allegra/Telfast occur, because we can reasonably estimate such
royalties. Royalty payments from sanofi-aventis are due within 45 days
after each calendar quarter and are determined 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.




If the
Company determines that the carrying value of long-lived assets may not be
recoverable, based upon the existence of one or more of the above indicators of
impairment, the Company compares the carrying value of the asset group to the
undiscounted cash flows expected to be generated by the asset group. If the
carrying value exceeds the undiscounted cash flows an impairment charge is
recorded. An impairment charge is recognized to the extent that the carrying
amount of the asset group exceeds their fair value and will reduce only the
carrying amounts of the long-lived assets. The Company utilizes the assistance
of 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 Company performs an annualassessment 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 fair value of 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 that could
result in an impairment include the following:




7




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




·           significant
negative industry or economic trends; and




·           market
capitalization relative to net book value.




The
Company performs its annual goodwill assessment of its reporting units as of the
end of the third quarter.  If management’s expectations of future
operating results change, or if there are changes to other assumptions, the
estimate of the fair value of the Company’s reporting units could change
significantly. Such a change could result in goodwill impairment charges in
future periods, which could have a significant impact on the Company’s
consolidated financial statements. Total goodwill recorded on the Company’s
unaudited condensed consolidated balance sheet at March 31, 2009 was $38,085
comprised of $11,172 from the Company’s Discovery/Development/Small Scale
Manufacturing (“DDS”) operating segment and $26,913 from the Company’s
Large-Scale Manufacturing (“LSM”) segment.




Stock
Compensation




In
accordance with SFAS No. 123 (Revised 2004), “Share-Based Payment” (“SFAS No.
123 (R)”), the Company records the cost resulting from all share-based payment
transactions in the financial statements based on the fair value of the
share-based payment. The Company establishes fair value as the measurement
objective in accounting for share-based payment transactions with employees,
except for equity instruments held by employee share ownership
plans.




Note
2 — Business Combination




Acquisition
of FineKem




On
January 17, 2008, the Company, through a wholly-owned subsidiary, completed the
purchase of FineKem, a manufacturing facility located in Aurangabad,
India.  The aggregate purchase price of $1,713 included cash payments
totaling $1,665 and capitalized costs related to the acquisition, primarily
professional fees, of $48.




The
following table summarizes the final allocation of the purchase price to the
estimated fair value of the net assets acquired.




January 17, 2008Assets
      AcquiredAccounts
      receivable, net
                            
                            $
                            42Inventory
                            
                            
                            139Prepaid
      expenses and other current assets
                            
                            
                            26Property
      and equipment, net
                            
                            
                            556Goodwill
                            
                            
                            1,154Total
      assets acquired
                            
                            $
                            1,917Liabilities
      AssumedAccounts
      payable and accrued expenses
                            
                            $
                            204Total
      liabilities assumed
                            
                            $
                            204Net
      assets acquired
                            
                            $
                            1,713




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




Note
3 — Earnings Per Share




The
shares used in the computation of the Company’s basic and diluted earnings per
share are as follows:




8




Three Months Ended
                          March 31,2009
                        
                        
                        2008Weighted
      average common shares outstanding
                        
                        
                        31,016
                        
                        
                        
                        32,173Dilutive
      effect of stock options
                        
                        
                        —
                        
                        
                        
                        11Dilutive
      effect of restricted stock
                        
                        
                        97
                        
                        
                        
                        186Weighted
      average common shares outstanding
                        
                        
                        31,113
                        
                        
                        
                        32,370




The
Company has excluded certain outstanding stock options from the calculation of
diluted earnings per share for the three months ended March 31, 2009 and 2008
because the exercise price was greater than the average market price of the
Company’s common shares during that period, and as such, these options would be
anti-dilutive. The weighted average number of anti-dilutive options and
restricted shares outstanding (before the effects of the treasury stock method)
was 1,906 and 1,874 for the three months ended March 31, 2009 and 2008,
respectively.  These amounts are not included in the calculation of
weighted average common shares outstanding.




Effective
January 1, 2009, the Company adopted FASB Staff Position EITF 03-6-1,
"Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities" ("EITF 03-6-1"), which classifies unvested share-based
payment awards that contain nonforfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) as participating securities and requires
them to be included in the computation of earnings per share pursuant to the
two-class method described in SFAS No. 128, "Earnings per Share." This Staff
Position is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and interim periods within those years.  The
adoption of this Staff Position did not have a material impact on our
consolidated financial statements.




Note
4 — Inventory




Inventory
consisted of the following at March 31, 2009 and December 31,
2008:




March 31,
                      2009
                    
                    
                    December 31,
                      2008Raw
      materials
                    
                    $
                    8,709
                    
                    
                    $
                    8,996Work
      in process
                    
                    
                    2,114
                    
                    
                    
                    3,396Finished
      goods
                    
                    
                    16,302
                    
                    
                    
                    16,278Total
                    
                    $
                    27,125
                    
                    
                    $
                    28,670




Note
5 — Restructuring




AMRI
Hungary




In May
2008, the Company initiated a restructuring of its Hungary
location.  The goal of the restructuring was to realign the business
model for these operations to better support the Company’s long-term strategy
for providing Discovery Services in the European marketplace.  The
Company recorded a restructuring charge of approximately $1,833 in the second
quarter of 2008, including termination benefits and personnel realignment costs
of approximately $901, losses on grant contracts of approximately $389, lease
abandonment charges of approximately $463 and administrative costs associated
with the restructuring plan of $80.




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




9


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




Balance at
                                January 1,
                                2009
                              
                              
                              Charges
                              
                              
                              Incurred
                                Amounts
                              
                              
                              Foreign
                                Currency
                                Translation
                                Adjustments
                              
                              
                              Balance at
                                March 31, 2009Termination
      benefits and personnel realignment
                              
                              $
                              325
                              
                              
                              $
                              —
                              
                              
                              $
                              —
                              
                              
                              $
                              (63
                              )
                              
                              $
                              262Losses
      on grant contracts
                              
                              
                              266
                              
                              
                              
                              —
                              
                              
                              
                              (5
                              )
                              
                              
                              (51
                              )
                              
                              
                              210Lease
      abandonment charges
                              
                              
                              262
                              
                              
                              
                              —
                              
                              
                              
                              (24
                              )
                              
                              
                              (50
                              )
                              
                              
                              188Administrative
      costs associated with restructuring
                              
                              
                              40
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              (8
                              )
                              
                              
                              32Total
                              
                              $
                              893
                              
                              
                              $
                              —
                              
                              
                              $
                              (29
                              )
                              
                              $
                              (172
                              )
                              
                              $
                              692




Termination
benefits and personnel realignment costs relate to severance packages,
outplacement services, and career counseling for employees affected by this
restructuring.  Losses on grant contracts represent estimated
contractual losses that will be incurred in performing grant-based work under
Hungary’s legacy business model.  Lease abandonment charges relate to
costs associated with exiting the current facility.





Anticipated
cash outflows related to the Hungary restructuring for the remainder of 2009 is
approximately $608, which primarily consists of the payment of termination
benefits and personnel realignment and incurring losses on grant
contracts.





Note
6 — Goodwill and Intangible Assets




The
carrying amounts of goodwill, by the Company’s DDS and LSM operating segments,
as of March 31, 2009 and December 31, 2008 are as follows:




DDS
                  
                  
                  LSM
                  
                  
                  TotalMarch
      31, 2009
                  
                  $
                  11,172
                  
                  
                  $
                  26,913
                  
                  
                  $
                  38,085December 31,
      2008
                  
                  $
                  13,208
                  
                  
                  $
                  27,064
                  
                  
                  $
                  40,272




The
decrease in goodwill within both the DDS segment and LSM segment from December
31, 2008 to March 31, 2009 is related primarily to the impact of foreign
currency translation.




The
components of intangible assets are as follows:




Cost
                    
                    
                    Accumulated
                      Amortization
                    
                    
                    Net
                    
                    Amortization
                      PeriodMarch 31, 2009Patents
      and Licensing Rights
                    
                    $
                    3,185
                    
                    
                    $
                    (1,133
                    )
                    
                    $
                    2,052
                    
                    2-16
      yearsDecember 31, 2008Patents
      and Licensing Rights
                    
                    $
                    3,181
                    
                    
                    $
                    (1,163
                    )
                    
                    $
                    2,018
                    
                    2-16
      years




Amortization
expense related to intangible assets was $60 and $155 for the three months ended
March 31, 2009 and 2008, respectively.




The
following chart represents estimated future annual amortization expense related
to intangible assets:




Year  ending
      December 31,2009
      (remaining)
                
                $
                2202010
                
                
                1872011
                
                
                1832012
                
                
                1832013
                
                
                168Thereafter
                
                
                1,111




10




Note
7 - Defined Benefit and Postretirement Welfare Plan




AMRI
Rensselaer previously provided retirement benefits under two non-contributory
defined benefit plans and a non-contributory, unfunded post-retirement welfare
plan. Future benefits under the defined benefit plans and for salaried
participants in the post-retirement welfare plan have been frozen.




Components
of Net Periodic Benefit Cost




Pension
                    Benefits
                  
                  
                  Postretirement
                    BenefitsThree Months
                    Ended March 31,
                  
                  
                  Three Months
                    Ended March 31,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Service
      cost
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  20
                  
                  
                  $
                  12Interest
      cost
                  
                  
                  313
                  
                  
                  
                  305
                  
                  
                  
                  16
                  
                  
                  
                  10Expected
      return on plan assets
                  
                  
                  (362
                  )
                  
                  
                  (386
                  )
                  
                  
                  —
                  
                  
                  
                  —Recognized
      net loss
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  6
                  
                  
                  
                  2Net
      periodic benefit (income) cost
                  
                  $
                  (49
                  )
                  
                  $
                  (81
                  )
                  
                  $
                  42
                  
                  
                  $
                  24Recognized
      in Accumulated Other Comprehensive Income (“AOCI”),
pre-taxPrior
      service cost
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Net
      actuarial loss
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  6
                  
                  
                  
                  2Total
      recognized in AOCI, pre-tax
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  6
                  
                  
                  $
                  2




Employer
Contributions




The
Company previously disclosed in its consolidated financial statements for the
year ended December 31, 2008 that it expected to contribute $500 to its
pension plan in 2009.  As of March 31, 2009, no contributions have been
made.




Note
8 — Share-Based Compensation




During
the three months ended March 31, 2009 and 2008, the Company recognized total
share based compensation cost of $525 and $422, respectively.




The
Company grants share-based payments, including restricted shares, under its 2008
Stock Option and Incentive Plan, as well as its 1998 Employee Stock Purchase
Plan.




Restricted
Stock




A summary
of unvested restricted stock activity as of March 31, 2009 and changes during
the three months then ended is presented below:




Number of
                    Shares
                  
                  
                  Weighted
                    Average Grant Date
                    Fair Value Per
                    ShareOutstanding,
      December 31, 2008
                  
                  
                  509
                  
                  
                  $
                  10.61Granted
                  
                  
                  160
                  
                  
                  $
                  8.37Vested
                  
                  
                  (5
                  )
                  
                  $
                  13.20Forfeited
                  
                  
                  (2
                  )
                  
                  $
                  9.70Outstanding,
      March 31, 2009
                  
                  
                  662
                  
                  
                  $
                  10.05




The
weighted average fair value of restricted shares per share granted during the
three months ended March 31, 2009 and 2008 was $8.37 and $11.21,
respectively.  As of March 31, 2009, there was $4,660 of total
unrecognized compensation cost related to non-vested restricted shares. That
cost is expected to be recognized over a weighted-average period of 4.0
years.  During the three months ended March 31, 2009, 5 restricted
shares vested.




11


Stock
Options




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




For the Three Months EndedMarch 31, 2009
                  
                  
                  March 31, 2008Expected
      life in years
                  
                  
                  5
                  
                  
                  
                  5Risk
      free interest rate
                  
                  
                  1.76
                  %
                  
                  
                  2.74
                  %Volatility
                  
                  
                  48
                  %
                  
                  
                  41
                  %Dividend
      yield
                  
                  
                  —
                  
                  
                  
                  —




A summary
of stock option activity under the Company’s Stock Option and Incentive Plans as
of March 31, 2009 and changes during the three month period then ended is
presented below:




Number of
                  Shares
                
                
                Weighted
                  Exercise
                  Price Per Share
                
                
                Weighted Average
                  Remaining
                  Contractual Term
                  (Years)
                
                
                Aggregate
                  Intrinsic
                  ValueOutstanding,
      December 31, 2008
                
                
                1,868
                
                
                $
                20.34Granted
                
                
                69
                
                
                
                8.31Exercised
                
                
                (4
                )
                
                
                10.00Forfeited
                
                
                (11
                )
                
                
                22.20Expired
                
                
                (41
                )
                
                
                10.00Outstanding,
      March 31, 2009
                
                
                1,881
                
                
                $
                20.14
                
                
                
                4.4
                
                
                $
                149Options
      exercisable, March 31, 2009
                
                
                1,494
                
                
                $
                22.42
                
                
                
                3.3
                
                
                $
                —




The
weighted average fair value of stock options granted as of March 31, 2009 and
2008 was $3.61 and $4.47, respectively.   As of March 31, 2009,
there was $1,321 of total unrecognized compensation cost related to non-vested
stock options. That cost is expected to be recognized over a weighted-average
period of 3.0 years.




Employee
Stock Purchase Plan




During
the three months ended March 31, 2009 and 2008, 19 and 14 shares, respectively,
were issued under the Company’s 2008 Employee Stock Purchase
Plan.  During the three months ended March 31, 2009 and 2008, cash
received from stock option exercises and employee stock purchases was $191 and
$173, respectively.  The actual tax benefit realized for the tax
deductions from stock option exercises and plan purchases was $5 and $0 during
the three months ended March 31, 2009 and 2008, respectively.




Note
9 — Operating Segment Data




The
Company has organized its sales, marketing and production activities into the
DDS and LSM segments based on the criteria set forth in SFAS No. 131,
“Disclosures about Segments of an Enterprise and Related Information”. The
Company’s management relies on an internal management accounting system to
report results of the segments. The system includes revenue and cost information
by segment. The Company’s chief operating decision maker makes financial
decisions and allocates resources based on the information it receives from this
internal system.




DDS
includes activities such as drug lead discovery, optimization, drug development
and small scale commercial manufacturing. LSM includes pilot to commercial scale
manufacturing of active pharmaceutical ingredients, intermediates and other
compounds of commercial interest, and includes specialized high potency and
controlled substance manufacturing.  Many of the activities of the LSM
component are in compliance with the Food 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 the operating segments.


12


The
following table contains earnings data by operating segment, reconciled to
totals included in the unaudited condensed consolidated financial
statements:




Contract
                    Revenue
                  
                  
                  Milestone &
                    Recurring
                    Royalty
                    Revenue
                  
                  
                  Income
                    (Loss)
                    from
                    Operations
                  
                  
                  Depreciation
                    and
                    AmortizationFor the three months ended March 31, 2009DDS
                  
                  $
                  22,524
                  
                  
                  $
                  10,786
                  
                  
                  $
                  13,825
                  
                  
                  $
                  2,641LSM
                  
                  
                  20,720
                  
                  
                  
                  —
                  
                  
                  
                  2,457
                  
                  
                  
                  1,690Corporate
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (13,687
                  )
                  
                  
                  —Total
                  
                  $
                  43,244
                  
                  
                  $
                  10,786
                  
                  
                  $
                  2,595
                  
                  
                  $
                  4,331For the three months ended March 31, 2008DDS
                  
                  $
                  26,593
                  
                  
                  $
                  8,233
                  
                  
                  $
                  15,990
                  
                  
                  $
                  2,692LSM
                  
                  
                  18,744
                  
                  
                  
                  —
                  
                  
                  
                  533
                  
                  
                  
                  1,913Corporate
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (12,206
                  )
                  
                  
                  —Total
                  
                  $
                  45,337
                  
                  
                  $
                  8,233
                  
                  
                  $
                  4,317
                  
                  
                  $
                  4,605




The
following table summarizes other information by segment as of March 31,
2009:




As of March 31, 2009DDS
                        
                        
                        LSM
                        
                        
                        TotalTotal
      assets
                        
                        $
                        239,003
                        
                        
                        $
                        158,851
                        
                        
                        $
                        397,854Goodwill
      included in total assets
                        
                        
                        11,172
                        
                        
                        
                        26,913
                        
                        
                        
                        38,085




The
following table summarizes other information by segment as of December 31,
2008:




As of December 31, 2008DDS
                        
                        
                        LSM
                        
                        
                        TotalTotal
      assets
                        
                        $
                        235,043
                        
                        
                        $
                        155,641
                        
                        
                        $
                        390,684Goodwill
      included in total assets
                        
                        
                        13,208
                        
                        
                        
                        27,064
                        
                        
                        
                        40,272




Note
10 — Financial Information by Customer Concentration and Geographic
Area




Total
contract revenue from DDS’s three largest customers represented approximately
18%, 11% and 7% of DDS’s total contract revenue for the three months ended March
31, 2009, and 12%, 8% and 6% of DDS’s total contract revenue for the three
months ended March 31, 2008.  Total contract revenue from LSM’s
largest customer, GE Healthcare, represented 26% and 53% of LSM’s total contract
revenue for the three months ended March 31, 2009 and 2008,
respectively.  GE Healthcare accounted for approximately 12% and 22%
of the Company’s total contract revenue for the three months ended March 31,
2009 and 2008, respectively.  The decrease in GE Healthcare sales in
first quarter 2009 is due to timing of customer shipments as compared to the
same period in 2008.  Full year 2009 sales to GE Healthcare are
expected to be below amounts recognized in 2008 primarily due to lower demand
from GE Healthcare caused by their 2009 inventory reduction
efforts.




13




The
Company’s total contract revenue for the three months ended March 31, 2009 and
2008 was recognized from customers in the following geographic
regions:




Three Months Ended March 31,2009
                    
                    
                    2008United
      States
                    
                    
                    58
                    %
                    
                    
                    64
                    %Europe
                    
                    
                    19
                    
                    
                    
                    28Asia
                    
                    
                    22
                    
                    
                    
                    5Other
                    
                    
                    1
                    
                    
                    
                    3Total
                    
                    
                    100
                    %
                    
                    
                    100
                    %




Note
11 — Comprehensive (Loss) Income




The
following table presents the components of the Company’s comprehensive (loss)
income for the three months ended March 31, 2009 and 2008:




Three Months Ended March 31,2009
                  
                  
                  2008Net
      income
                  
                  $
                  1,942
                  
                  
                  $
                  4,739Other
      comprehensive (loss) income:Change
      in unrealized gain on marketable securities, net of taxes
                  
                  
                  15
                  
                  
                  
                  39Change
      in unrealized loss on interest rate swap, net of taxes
                  
                  
                  —
                  
                  
                  
                  (5
                  )Foreign
      currency translation (loss) gain
                  
                  
                  (4,983
                  )
                  
                  
                  549Net
      actuarial loss related to pension and postretirement
    benefits
                  
                  
                  6
                  
                  
                  
                  2Total
      comprehensive (loss) income
                  
                  $
                  (3,020
                  )
                  
                  $
                  5,324




Note
12 — Legal Proceedings




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




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




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




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




14




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




On
November 18, 2008, the Company, its former subsidiary AMR Technology, Aventis
Pharmaceuticals, sanofi-aventis, Teva Pharmaceuticals, and Barr Laboratories
reached a settlement regarding the above-described patent infringement
litigations relating to Teva Pharmaceuticals and Barr
Laboratories.  As part of the settlement, the Company entered into an
amendment to its licensing agreement with sanofi-aventis to allow sanofi-aventis
to sublicense patents related to ALLEGRA®and
ALLEGRA®D-12
to
Teva Pharmaceuticals and Barr Laboratories in the United States.  The
Company received an upfront sublicense fee from sanofi-aventis of $10 million,
and sanofi-aventis will pay royalties to the Company on the sale of products in
the United States containing fexofenadine hydrochloride (the generic name for
the active ingredient in ALLEGRA®) and
products containing fexofenadine hydrochloride and pseudoephedrine hydrochloride
(generic ALLEGRA®D-12) by
Teva Pharmaceuticals and Barr Laboratories through 2015, along with additional
consideration.  While the settlement affords the option for a launch
of a generic version of Allegra D-12 in November 2009, the Company will receive
quarterly royalties through July 2010 for the branded Allegra D-12 equal to the
royalties paid for the quarter ended June 30, 2009.  Thereafter, the
royalty rate will revert to the rate in effect prior to the signing of the
sub-license amendment.




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




Note
13 — Income Taxes




On January 1, 2007, the Company adopted
the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes, an Interpretation of FASB Statement No. 109”(“FIN 48”). FIN 48 provides recognition
criteria and a related measurement model for tax positions taken by companies.
In accordance with FIN 48, a tax position is a position in a previously filed
tax return or a position expected to be taken in a future tax filing that is
reflected in measuring current or deferred income tax assets and liabilities.
Tax positions are recognized only when it is more likely than not (likelihood of
greater than 50%), based on technical merits, that the position would be
sustained upon examination by taxing authorities. Tax positions that meet the
more likely than not threshold are measured using a probability-weighted
approach as the largest amount of tax benefit that is greater than 50% likely of
being realized upon settlement.   The adoption of FIN 48 did not
result in a change to the liability of unrecognized
benefits.





A
reconciliation of the beginning and ending amount of unrecognized tax benefits
is as follows:





Reserve
                  
                  
                  Tax-effected
                    Interest
                  
                  
                  Total ReserveBalance
      at January 1, 2009
                  
                  $
                  1,226
                  
                  
                  $
                  54
                  
                  
                  $
                  1,280Decreases
      related to prior year tax positions
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Increases
      related to current year tax position
                  
                  
                  69
                  
                  
                  
                  9
                  
                  
                  
                  78Settlements
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Lapse
      of statute
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Balance
      at March 31, 2009
                  
                  $
                  1,295
                  
                  
                  $
                  63
                  
                  
                  $
                  1,358





15




Additions
to, and the remainder of, the reserve for the quarter ended March 31, 2009
represent the amount of unrecognized tax benefits that, if recognized, would
favorably affect the effective tax rate for future periods.




The
Company classifies interest expense and penalties related to unrecognized tax
benefits as a component of income tax expense.  This policy did not
change with adoption of FIN 48.  As of March 31, 2009, the Company has
not accrued any penalties related to its uncertain tax position as it believes
that it is more likely than not that there will not be any assessment of
penalties.  The total amount of accrued interest resulting from such
unrecognized tax benefits was $97 at March 31, 2009, of which $84 was recognized
in prior years.




The
Company files federal income tax returns, as well as multiple state and foreign
jurisdiction tax returns. The Company’s federal income tax returns have been
examined by the Internal Revenue Service through the year ended December 31,
2005.  All significant state and foreign matters have been concluded for
years through 2003.  Tax examinations are scheduled to begin during
2009.  Management of the Company believes that the reserves associated
with FIN48 tax positions are adequate to support any future tax
examinations.




The
Company intends to reinvest indefinitely any of its unrepatriated foreign
earnings. The Company has not provided for U.S. income taxes on these
undistributed earnings of its foreign subsidiaries because management considers
such earnings to be reinvested indefinitely outside of the U.S. If the
earnings were distributed, the Company may be subject to both foreign
withholding taxes and U.S. income taxes that may not be fully offset by
foreign tax credits.




Note
14 – Fair Value




In
September 2006, SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157), was
issued.  This statement defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles and expands
disclosures about fair value measurements.  This statement applies
under other accounting pronouncements that require or permit fair value
measurements.  FASB Staff Position (“FSP”) 157-2 amended SFAS No. 157
to delay the effective date of SFAS No. 157 for all nonfinancial assets and
nonfinancial liabilities to fiscal years beginning after November 15,
2008.





The
adoption of SFAS No. 157 did not have a material impact on the Company’s
consolidated financial position, results of operations or cash
flows.





SFAS No.
157 establishes a three-tiered fair value hierarchy, which prioritizes the
inputs used in measuring fair value.  These tiers
include:  Level 1 – defined as quoted prices in active markets for
identical instruments; Level 2 – defined as inputs other than quoted prices in
active markets that are either directly or indirectly observable; and Level 3 –
defined as unobservable inputs in which little or no market data exists,
therefore requiring an entity to develop its own assumptions.





The
following table presents the fair value of marketable securities by type and
their determined level based on the three-tiered fair value hierarchy as of
March 31, 2009:





Fair Value Measurements as of March 31, 2009Marketable Securities
                    
                    Total
                    
                    
                    Level 1
                    
                    
                    Level 2
                    
                    
                    Level 3Obligations of states
      and political subdivisions
                    
                    $
                    21,956
                    
                    
                    $
                    —
                    
                    
                    $
                    21,956
                    
                    
                    $
                    —Auction
      rate securities
                    
                    
                    2,400
                    
                    
                    
                    —
                    
                    
                    
                    2,400
                    
                    
                    
                    —Total
                    
                    $
                    24,356
                    
                    
                    $
                    —
                    
                    
                    $
                    24,356
                    
                    
                    $
                    —




The
Company’s marketable securities are fixed maturity securities and are valued
using pricing for similar securities, recently executed transactions, cash flow
models with yield curves, broker/dealer quotes and other pricing models
utilizing observable inputs. The valuation for the Company’s fixed maturity
securities is classified as Level 2.




Note
15 – Recently Issued Accounting Pronouncements




On April
9, 2009, the FASB issued three FASB Staff Positions (“FSP”) intended to provide
additional guidance and enhanced disclosures regarding fair value measurements
and other-than-temporary impairments of securities:




16




·
            FSP FAS 157-4,
      “Determining Fair Value When the Volume and Level of Activity for the
      Asset or Liability Have Significantly Decreased and Identifying
      Transactions That Are Not Orderly,”provides guidelines for making
      fair value measurements more consistent with the principles presented in
      FASB Statement No. 157,“Fair Value
      Measurements.”FSP
      FAS 157-4 must be applied prospectively and retrospective application is
      not permitted. FSP FAS 157-4 is effective for interim and annual periods
      ending after June 15, 2009, with early adoption permitted for periods
      ending after March 15, 2009. An entity early adopting FSP FAS 157-4 must
      also early adopt FSP FAS 115-2 and FAS
  124-2.




·
            FSP FAS 115-2 and FAS 124-2,“Recognition
      and Presentation of Other-Than-Temporary Impairments,”provides additional guidance
      designed to create greater clarity and consistency in accounting for and
      presenting impairment losses on debt securities. FSP FAS 115-2 and FAS
      124-2 is effective for interim and annual periods ending after June 15,
      2009, with early adoption permitted for periods ending after March 15,
      2009. An entity may early adopt this FSP only if it also elects to early
      adopt FSP FAS 157-4.




·
            FSP FAS 107-1 and APB 28-1,“Interim
      Disclosures about Fair Value of Financial Instruments,”enhances consistency in
      financial reporting by increasing the frequency of fair value disclosures.
      FSP 107-1 and APB 28-1 is effective for interim periods ending after
      June 15, 2009, with early adoption permitted for periods ending after
      March 15, 2009. However, an entity may early adopt these interim fair
      value disclosure requirements only if it also elects to early adopt FSP
      FAS 157-4 and FSP FAS 115-2 and
  FAS 124-2.




The
Company did not early adopt any of the above FASB staff positions and does not
believe that the adoption will have a material impact on the consolidated
financial statements.




17




Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations




Forward-Looking
Statements




The
following discussion of our results of operations and financial condition should
be read in conjunction with the accompanying Condensed Consolidated Financial
Statements and the Notes thereto included within this report. This quarterly
report on Form 10-Q contains “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended. These statements may be
identified by forward-looking words such as “may,” “could,” “should,” “would,”
“will,” “intend,” “expect,” “anticipate,” “believe,” and “continue” or similar
words and include, but are not limited to, statements concerning pension and
postretirement benefit costs, GE Healthcare, the Company’s collaboration with
Bristol-Myers Squibb (“BMS”), the expected results of the Company’s
restructuring of AMRI Hungary, the acquisition of FineKem Laboratories Pvt.
Limited (“FineKem”), future acquisitions, earnings, contract revenues, costs and
margins, royalty revenues, patent protection and the ongoing Allegra patent
infringement litigation, Allegra royalty revenue, government regulation,
retention and recruitment of employees, customer spending and business trends,
foreign operations (including Singapore, India and Hungary), the effect of the
purchase of assets from Ariane Orgachem Private Limited and Ferico Laboratories
Limited, collectively known as AMRI India Pvt. Ltd. (“AMRI India”), including
increasing options and solutions for customers, business growth and the
expansion of the Company’s global market, clinical supply manufacturing,
management’s strategic plans, drug discovery, product commercialization, license
arrangements, research and development projects and expenses, selling, general
and administrative expenses, goodwill impairment, competition and tax rates. The
Company’s actual results may differ materially from such forward-looking
statements as a result of numerous factors, some of which the Company may not be
able to predict and may not be within the Company’s control. Factors that could
cause such differences include, but are not limited to, those discussed in Part
I, Item 1A, “Risk Factors”, of the Company’s Annual Report on Form 10-K for the
year ended December 31, 2008, as filed with the Securities and Exchange
Commission on March 13, 2009, 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 the future, 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.




Strategy
and Overview




We
provide contract services to the world’s leading pharmaceutical and
biotechnology companies. We derive our contract revenue from research and
development expenditures and commercial manufacturing demands of the
pharmaceutical and biotechnology industry.  We continue to execute our
long-term strategy to develop and grow an integrated global platform from which
we can provide these services.  We have research and/or manufacturing
facilities in the United States, Hungary, Singapore and India.  We
purchased an additional large-scale manufacturing site in India in January 2008
and completed a 10,000 square foot expansion of our Singapore Research Center in
2008.




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




Our
global platform has increased our market share and was developed in order to
allow us to maintain and grow margins.  In addition to our
globalization, we continue to implement process efficiencies, including our
implementation of a process improvement and cost savings campaign
(“Lean-to-Excellence”), along with efforts to strengthen our
sourcing.  We believe these factors will lead to improved margins in
the long-term, as well as helping the Company to remain competitive during the
current challenging economic environment.




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




18




Our total
revenue for the quarter ended March 31, 2009 was $54.0 million, as compared to
$53.6 million for the quarter ended March 31, 2008.




Contract
services revenue for the first quarter of 2009 was $43.2 million, compared to
$45.3 million in the first quarter of 2008.  Recurring royalty
revenues, which are based on the worldwide sales of fexofenadine HCl, marketed
as Allegra in the Americas and Telfast elsewhere, as well as on sales of
sanofi-aventis’ authorized generics and estimates of sales of Teva’s authorized
generics, were higher in the first quarter of 2009 than in the quarter ended
March 31, 2008.  Consolidated gross margin was 15.3% for the quarter
ended March 31, 2009, compared to 20.1% for the quarter ended March 31,
2008.




During
the three months ended March 31, 2009, cash provided by operations was $21.9
million.  The increase of $24.0 million in cash flow from operations
from the three months ended March 31, 2008 resulted primarily from an increase
in deferred revenue due to the receipt of the $10.0 million sub-licensing fee in
2009 from sanofi-aventis in conjunction with the amended licensing agreement
entered into in the fourth quarter of 2008, an increase in accounts payable due
to the timing of payments and a decrease in accounts receivable due to the
timing of cash collections.  We spent $8.7 million in capital
expenditures, primarily related to expansion in Bothell, Washington and
Budapest, Hungary.  As of March 31, 2009, we had $99.9 million in
cash, cash equivalents and investments and $13.7 million in bank and other
related debt.




Results
of Operations – Three Months ended March 31, 2009 Compared to Three Months Ended
March 31, 2008




Revenues




Total
contract revenue




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




Three Months Ended March
      31,(in thousands)
                      
                      2009
                      
                      
                      2008DDS
                      
                      $
                      22,524
                      
                      
                      $
                      26,593LSM
                      
                      
                      20,720
                      
                      
                      
                      18,744Total
                      
                      $
                      43,244
                      
                      
                      $
                      45,337




DDS contract revenues for
the quarter ended March 31, 2009, decreased $4.1 million to $22.5 million as
compared to $26.6 million for the same quarter in the prior year.  The
decrease is due primarily to a decrease in contract revenue from development and
small-scale manufacturing services of $2.3 million due to lower demand from
specialty pharma/biotech customers and more competitive pricing in the overall
current economic downturn.  In addition, discovery services contract
revenue decreased $2.3 million due primarily to the completion in October 2008
of the funded research component of our on-going collaboration with
BMS.We
currently expect discovery services and development and small-scale
manufacturing services revenue for the full year 2009 to decrease from amounts
recognized in 2008. The decrease will be due to completing the
recognition of access fees related to the preliminary screening phase of an
on-going natural products collaboration, as well as the completion of the funded
research component of our on-going collaboration with BMS. Additionally, further
decreases will be due to lower demand from specialty pharma/biotech
customers and more competitive pricing as a result of the overall current
economic downturn.





LSM
revenue for the quarter ended March 31, 2009 increased by $2.0 million, due
primarily to an increase in commercial sales of $6.2 million due to an increase
in demand for existing commercial products as well as shipments of an additional
commercial product under supply agreements entered into in the third quarter of
2008.  Additionally, there was an increase in sales from the
production of clinical supply materials for use in advanced stage human trials
of commercial products of $1.1 million.  These increased revenues were
offset in part by a decrease in revenue from sales to GE Healthcare of $4.6
million primarily due to the timing of customer requirements.  We
expect LSM contract revenue for the full year of 2009 to decrease slightly from
amounts recognized in 2008 primarily due to lower demand from GE Healthcare due
to 2009 inventory reduction efforts and as a result of regulatory delays to
certain customer projects, as well as customer discontinuation of a late-stage
clinical trial, with a resulting conclusion to API production
activities.




19




Recurring
royalty revenue




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




Three Months Ended March
      31,2009
                            
                            
                            2008(in
      thousands)$
                            10,786
                            
                            
                            $
                            8,233




Recurring
royalties, which are based on the worldwide sales of fexofenadine HCl, marketed
as Allegra in the Americas and Telfast elsewhere, as well as on sales of
sanofi-aventis and Teva Pharmaceuticals Industries Ltd’s (“Teva”) authorized
generics, increased for the quarter ended March 31, 2009 from the quarter ended
March 31, 2008, primarily due to an increase in international sales of Allegra
by sanofi-aventis as well as the addition of royalties on the sale of authorized
generics by Barr and Teva and the recognition of sublicensing fees received
under the amended agreement with sanofi-aventis.




The
recurring royalties we receive on the sales of Allegra/Telfast have historically
provided a material portion of our revenues, earnings, and operating cash
flows.  We currently expect royalty revenues for 2009 to increase from
amounts recognized in 2008, which will be driven by the new royalty stream we
will be earning on Teva’s sales of fexofenadine as well as the amortization of
the sub-license fee we received from sanofi-aventis. While the settlement
affords the option for a launch of a generic version of Allegra D-12 in November
2009, the Company will receive quarterly royalties for Allegra D-12 through July
2010 equal to the royalties paid for the quarter ended June 30,
2009.





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




Costs
and Expenses




Cost
of contract revenue




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




Three Months Ended March 31,Segment
                  
                  2009
                  
                  
                  2008(in thousands)DDS
                  
                  $
                  18,380
                  
                  
                  $
                  18,019LSM
                  
                  
                  18,263
                  
                  
                  
                  18,209Total
                  
                  $
                  36,643
                  
                  
                  $
                  36,228DDS
      Gross Margin
                  
                  
                  18.4
                  %
                  
                  
                  32.2
                  %LSM
      Gross Margin
                  
                  
                  11.9
                  %
                  
                  
                  2.9
                  %Total
      Gross Margin
                  
                  
                  15.3
                  %
                  
                  
                  20.1
                  %




DDS had a
contract revenue gross margin of 18.4% for the three months ended March 31, 2009
compared to contract revenue gross margin of 32.2% for the same period in
2008.  The decrease in gross margin primarily resulted from lower
demand for these services in relation to our fixed costs, as well as the
completion of the funded research component of our on-going collaboration with
BMS.  We currently expect DDS contract margins for the remainder of
2009 to slightly increase from the percentage realized in the first
quarter.




LSM’s
contract revenue gross margin increased to 11.9% for the three months ended
March 31, 2009 compared to 2.9% for the same period in
2008.   This increase in gross margin is primarily due to
increases in commercial sales, which historically have generated higher
margins.  We expect gross margins in the LSM segment for full year
2009 to remain flat with those recognized for the full year of 2008 of
approximately 14%.




20


Technology
incentive award




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




Three Months Ended March 31,2009
                        
                        
                        2008(in
      thousands)$
                        1,105
                        
                        
                        $
                        819




The
increase in technology incentive award expense for the quarter ended March 31,
2009 from the quarter ended March 31, 2008 is due to the increase in Allegra
royalty revenue.  We expect technology incentive award expense to
generally fluctuate directionally and proportionately with fluctuations in
Allegra royalties in future periods.




Research
and development




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




Three Months Ended March 31,2009
                              
                              
                              2008(in
      thousands)$
                              3,385
                              
                              
                              $
                              2,909




The
increase in R&D expense of $0.5 million for the quarter ended March 31, 2009
from $2.9 million in the quarter ended March 31, 2008 is due primarily to the
transition of research staff upon completion of the funded component of the
collaboration with BMS.  In addition, the increase is due to the
continued establishment of R&D activities at our Singapore facility,
including the establishment of in-vitro biology research
capabilities.  We currently expect research and development expenses
to increase slightly in 2009 from amounts recognized in 2008, as we continue to
advance our oncology compound through Phase I clinical
trials.  Additionally, we expect increased costs associated with the
selection and advancement of two pre-clinical candidates from our existing
programs.




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




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




21




Selling,
general and administrative




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




Three Months Ended March 31,2009
                        
                        
                        2008(in
      thousands)$
                        10,302
                        
                        
                        $
                        9,297




The
increase in selling, general and administrative expenses for the three months
ended March 31, 2009 from the three months ended March 31, 2008 is primarily
attributable to increases in salaries and benefits, including relocation
expenses.  Selling, general and administrative expenses for the full
year 2009 are expected to remain flat from amounts recognized in 2008 primarily
due to the incremental costs associated with investments in business development
and information technology personnel and resources that were made throughout
2008, offset in part by cost savings measures.




Interest
income, net




Three Months Ended March 31,(in thousands)
                    
                    2009
                    
                    
                    2008Interest
      expense
                    
                    $
                    (91
                    )
                    
                    $
                    (126
                    )Interest
      income
                    
                    
                    202
                    
                    
                    
                    648Interest
      income, net
                    
                    $
                    111
                    
                    
                    $
                    522




Net
interest income decreased to $0.1 million for the quarter ended March 31, 2009
from $0.5 million for the same period in 2008 due to overall decreased interest
rates on the Company’s interest bearing assets and liabilities.




Income
tax expense




Three Months Ended March 31,2009
                        
                        
                        2008(in
      thousands)$
                        1,092
                        
                        
                        $
                        41




Income
tax expense increased for the quarter ended March 31, 2009, due primarily to the
reversal of reserves for an uncertain tax position upon resolution of this
matter in 2008, offset in part by a decrease in taxable income.




22


Liquidity
and Capital Resources




We have
historically funded our business through operating cash flows, proceeds from
borrowings and the issuance of equity securities. During the first three months
of 2009, we generated cash of $21.9 million from operating activities. The
primary sources of operating cash flows resulted primarily from the receipt of
the $10.0 million sub-licensing fee from sanofi-aventis in conjunction with the
amended licensing agreement entered into in the fourth quarter of 2008 and
decreases in accounts receivable due to timing of cash collections.




During
the first three months of 2009, we used $6.1 million in investing activities,
resulting primarily from the use of $8.7 million for the acquisition of property
and equipment.




Working
capital was $142.8 million at March 31, 2009 as compared to $140.7 million as of
December 31, 2008.  There have been no significant changes in
future maturities on our long-term debt since December 31,
2008.




We
currently have a revolving line of credit in the amount of $45.0 million which
has a maturity date in June 2013.  The line of credit bears interest
at a variable rate based on the Company’s leverage ratio. As of March 31, 2009,
the balance outstanding on the line of credit was $9.7 million, bearing interest
at a rate of 3.38%.  The credit facility contains certain financial
covenants, including a maximum leverage ratio, a minimum required operating cash
flow coverage ratio, a minimum earnings before interest and taxes to interest
ratio and a minimum current ratio. Other covenants include limits on asset
disposals and the payment of dividends.  As of March 31, 2009 and
2008, we were in compliance with all of the covenants under the credit
facility.




The
disclosure of payments we have committed to make under our contractual
obligations is set forth under the heading “Management’s Discussion and Analysis
of Financial Condition and Results of Operations—Liquidity and Capital
Resources” under Item 7 of our Annual Report on Form 10-K for the fiscal
year ended December 31, 2008.  There have been no material changes to
our contractual obligations since December 31, 2008.  As of March
31, 2009, we had no off-balance sheet arrangements as defined in Item 303(a)(4)
of the Securities and Exchange Commission’s Regulation S-K.




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




Critical
Accounting Policies and Estimates




Our
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with U.S. generally accepted accounting principles. The preparation
of these consolidated financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, we evaluate our estimates, including those related to bad debts,
inventories, intangible assets, equity investments, unbilled revenue, income
taxes, pension and postretirement benefit plans, and contingencies. We base our
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.




We refer
to the policies and estimates set forth in the section “Management’s Discussion
and Analysis of Financial Condition and Results of Operations — Critical
Accounting Estimates” of our Annual Report on Form 10-K for the fiscal year
ended December 31, 2008.  Other than the adoption of EITF 03-6-1,
there have been no material changes or modifications to the policies since
December 31, 2008.




23




Item 3.
Quantitative and Qualitative Disclosures about Market Risk




There
have been no material changes with respect to the information on Quantitative
and Qualitative Disclosures about Market Risk appearing in Part II,
Item 7A to the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2008.




Item 4.
Controls and Procedures




Disclosure
Controls and Procedures




As
required by rule 13a-15(b) under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), as of the end of the Company’s last fiscal quarter our
management conducted an evaluation with the participation of our Chief Executive
Officer and Chief Financial Officer regarding the effectiveness of our
disclosure controls and procedures. In designing and evaluating our disclosure
controls and procedures, we recognize that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and our management necessarily was
required to apply its judgment in evaluating and implementing possible controls
and procedures. Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that, as of the end of the Company’s last
fiscal quarter, our disclosure controls and procedures were effective in that
they provide reasonable assurance that information required to be disclosed by
us in the reports we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms, including ensuring that
such information is accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer as appropriate to allow
timely decisions regarding required disclosure. We intend to review and document
our disclosure controls and procedures, including our internal controls and
procedures for financial reporting, on an ongoing basis, and may from time to
time make changes aimed at enhancing their effectiveness and to ensure that our
systems evolve with our business.




Internal
Control Over Financial Reporting




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




24


PART II
- OTHER INFORMATION




Item 1A.
Risk Factors




In
addition to the other information set forth in this report, you should carefully
consider the factors discussed in Part I, Item 1A. Risk Factors in our Annual
Report on Form 10-K for the year ended December 31, 2008, which could materially
affect our business, financial condition or future results. The risks described
in our Annual Report on Form 10-K are not the only risks facing our
Company.  Additional risks and uncertainties not currently known to us
or that we currently deem to be immaterial also may materially adversely affect
our business, financial condition and/or operating results.





Item
6. Exhibits




(a)
            Exhibits.




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




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




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




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




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SIGNATURES




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




ALBANY
      MOLECULAR RESEARCH, INC.Date:
      May 7, 2009
            By:
            /s/
      Mark T. FrostMark
      T. FrostSenior
      Vice President, Administration, Chief Financial Officer and
      Treasurer
              (Authorized
      Officer and Principal Financial
Officer)




26