Dec 6
2012
First $1B beneficiary awash in red ink
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The biotech company the state plans to spend $50 million on to lure to the Buffalo Niagara Medical Campus has lost $112 million the past three years and hasn’t posted an annual profit since 2008.
And that’s just the beginning of the financial difficulties confronting Albany Molecular Research, according to a probe by Investigative Post.
The company has laid off at least 80 employees since 2010 and shuttered one of its foreign facilities, with plans to close a second operation near Seattle.
The Albany-based company’s stock price, meanwhile, sunk from $61.66 in 2001 to $2.26 in December 2011, although the stock has begun to climb in the past month to $5.22.
The company’s financial performance prompted one stock analyst to describe it as “gamble” for investors – and taxpayers.
“They don’t show a strong history of earnings, their sales have not been growing,” said George Conboy, president of Brighton Securities. “They are not a junk company, they are a real company, but they aren’t a company that is any more than a crapshoot in my book.”
Paul Nouri, managing director of Noble Equity Funds, is an analyst who owns shares of Albany Molecular Research. He offered a more tempered view about the company’s future but believed there’s still risk attached to it.
“I think for the stock to go any higher they are going to have to win some new contracts and post better profitability,” he said. “Now that it is at $5.25, they have to show that the business is firing on all cylinders. So I think that is going to need to play out over the next two quarters.”
Company officials did not return a half dozen telephone calls seeking comment.
Officials from Empire State Development, the state’s economic development agency, also failed to respond to multiple phone calls and e-mails requesting an interview. The agency did issue a statement describing Albany Molecular Research as “a substantial company with hundreds of millions of dollars in sales, and over 1,000 employees, and they are going to add great value to Buffalo and the (Buffalo Niagara Medical Campus), which is excited to have a drug discovery/research company locating there.”
Gov. Andrew Cuomo announced Tuesday in Buffalo the state’s intention to spend $50 million to renovate a lab space and buy equipment to help Albany Molecular Research expand to Buffalo. The state would technically own the facility and equipment, but in making the investment, it is saving the company from doing so. Albany Molecular Research would invest $200 million and hire 250 employees.
The public assistance works out to $200,000 per job, making it one of the most expensive subsidy packages ever offered to a company in Western New York, according to an Investigative Post analysis.
Albany Molecular Research was founded in 1991 and is engaged in the research, development and production of pharmaceutical drugs. The company has grown to 1,300 employees, nearly 700 of which work out of its headquarters and two other facilities in the Albany area.
The company operates in three locations elsewhere in the United States – Syracuse, Burlington, Ma., and Bothell, Wash. – and overseas in Wales, India and Singapore. The company had operated in Budapest, Hungry, but shut down operation in the spring of 2011. It has announced its intention to close the facility in Washington state, as well.
The firm last posted an annual profit in 2008 and a review of its financial statements show it lost $16.7 million in 2009, $62.9 million in 2010 and $32.3 million last year.
Albany Molecular’s financial performance appears to have improved somewhat this year, with the company reporting that revenue for the third quarter rose 1 percent from the same period a year earlier. Net losses dropped from $5.9 million the third quarter of 2011 to $2.1 million the same quarter this year.
“I am not investing in a company like this,” said Conboy, the stock analyst.
Indeed, an analysis by Standard & Poor ‘s concluded that an investment of $10,000 made five years ago in the company would be worth only $3,697 today.
“It doesn’t look to me like they’re going out of business,” Conboy said, “but they have got to do something to turn it around.”
It’s apparent, he said, that the state is stepping in where banks won’t.
“If you had a business plan that could clearly outline that (the Buffalo project) would lead to a return on investment, you will get that money from a bank,” Conboy said.
He termed New York “a lender of last resort” and added, “I don’t tend to think politicians necessarily make the best investment advisors.”
Nouri said the company hasn’t performed well the past few years because it made some poorly timed acquisitions and it experienced production problems at its Massachusetts plant in 2010 that caught the attention of the U.S. Food and Drug Administration. He also said a large portion of the company’s losses are tied to restructuring.
Another reason for the poor performance, he said, is that large pharmaceutical and biotech companies cut back their R&D spending. The company recently announced that it resigned a contract with General Electric, which Nouri said was critical because it accounts for 13 percent of its sales. Nouri said the closing of the Washington state plant and the other layoffs and cost-cuting measures were smart business moves because the company seemed to be operating a corporate infrastructure that supported a company twice its size.
Albany Molecular Research created the active ingredient in the allergy drug Alegra, and still gets royalty payments for it — a security blanket of sorts. Nouri said the company has been relying on those royalties for the past few years, but it needs to get its core business profitable.
“Otherwise nobody is going to be employed,” he said.
“They’re running down to about $13 million net cash now, so it is time to batten down the hatches and make sure the company is able to operate going forward,” he said. “I am not too concerned.
“They have gotten their margins back up and one of the things that gives me security, at least over the next few years, is that they still have royalties from Alegra through 2015. And there is probably more room to cut if they need to.
“I think the thing I always liked about the company is that they do have a good book of core business and if they ever needed to sell it then they could,” he said.
Albany Molecular Research proposes to operate a new drug discovery research and development center at the Buffalo Niagara Medical Campus. The state would purchase $35 million in equipment and make $15 million in renovations to existing lab space and then lease it to the company.
The firm is no stranger to government assistance, although the Buffalo deal would dwarf anything it has received to date. From 2004-09, it was granted a dozen property tax abatements in Albany and North Syracuse worth $1.37 million.
The company has been involved in a couple of legal scraps of note.
The move to close a facility in Hungary triggered a lawsuit alleging Albany Molecular Research failed to pay $6.5 million in lease payments when it closed its lab there in spring 2011. The suit also contends the company transferred its loan debt to its parent American company in order to put it beyond the reach of creditors in Europe.
Albany Molecular Research last month paid a $4,000 fine to the state Department of Environmental Conservation for using diesel generators in 2010 to power its Rensselaer plant during peak demand times in order to benefit from subsidy payments intended to promote energy conservation.
