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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

(Mark One)

For the fiscal year ended December 31, 2001

or

For the transition period from                                      to                                     

Commission file number 0-25323

Albany Molecular Research, Inc.
(Exact name of registrant as specified in its charter)

(518) 464-0279
(Registrant's telephone number, including area code)

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

None.

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

Common Stock, par value $.01 per share

Title of Class

        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 ý    No o

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

        The aggregate market value of the Registrant's Common Stock held by non-affiliates of the Registrant on March 15, 2002 was approximately $763.8 million based upon the closing price per share of the Registrant's Common Stock as reported on the Nasdaq National Market on March 15, 2002. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

        As of March 15, 2002, there were 32,823,090 outstanding shares of the Registrant's Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the following document are incorporated by reference into Part III of this Report on Form 10-K:

(1)

The Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on May 24, 2002.

ALBANY MOLECULAR RESEARCH, INC.
INDEX TO
ANNUAL REPORT ON FORM 10-K

        This Form 10-K contains "forward-looking statements" within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Our actual results could differ materially from those projected in the forward-looking statements and therefore, prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors, including, without limitation, the factors set forth under "Risk Factors and Certain Factors Affecting Forward-Looking Statements," the discussion set forth below and the matters set forth in this Form 10-K generally.

PART I

ITEM 1. BUSINESS.

Overview

        We are a leading chemistry-based drug discovery and development company focused on applications for new small molecule prescription drugs. We conduct research and development projects and collaborate with many leading pharmaceutical, biotechnology and genomics companies, and are developing new chemistry technology for potential pharmaceutical products. We engage in chemistry research, from lead discovery, optimization and development to commercial manufacturing. We believe we are the only company providing contract chemistry services to customers across the entire product development cycle from lead discovery to commercial manufacturing. Most of the services we offer have been traditionally provided by chemistry divisions within pharmaceutical and biotechnology companies, including drug discovery, medicinal chemistry, chemical development, analytical chemistry services and small-scale and pilot-plant manufacturing. In December 1999, we expanded our service offerings to include commercial manufacturing through our strategic relationship with and investment in Organichem Corporation. We have designed our services to permit our customers to reduce overall drug development time and cost and to pursue simultaneously a greater number of drug discovery and development opportunities.

        In addition to our chemistry research services, we also conduct proprietary research and development to discover new lead compounds with commercial potential. We anticipate that we would then license these compounds to third parties in return for up-front service fees and milestone payments as well as recurring royalty payments if these compounds are developed into new drugs successfully reaching the market. In 1995, our proprietary research and development activities led to the development and patenting of a substantially pure form of, and a manufacturing process for, the active ingredient in the non-sedating antihistamine marketed by Aventis S.A. as Allegra in the Americas and as Telfast elsewhere. Pursuant to a licensing agreement with Aventis, we have earned a total of $115.7 million in milestones and royalties from the beginning of the contract in 1995 through December 31, 2001 and are entitled to receive ongoing royalties from Aventis based upon a percentage of sales of Allegra. In addition, many of our discovery technology contracts provide for us to receive licensing, milestone and royalty payments for discoveries that lead to products that reach the market.

        We are originally incorporated in 1991 under the laws of New York and reincorporated under the laws of Delaware in 1998.

Industry Overview

        The pace of drug discovery has accelerated significantly in recent years. Fueled by advances in disciplines such as molecular biology, high-throughput synthesis and screening and, in particular, human genomics research, opportunities to develop therapeutics for previously unmet or undermet medical needs are greater than ever before. We believe that human genomics research will lead to a dramatic increase in the number of newly identified biological targets over the next few years. In addition, pharmaceutical and biotechnology companies are under pressure to deliver new drugs to market and reduce the time required for drug development. This pressure has come about, in part, as a result of the significant number of current drug products on the market for which patent protection will soon expire.

        In order to take advantage of these opportunities and to respond to these pressures, many pharmaceutical and biotechnology companies have augmented their internal research and development capacity through contract services.

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Drug Discovery, Development and Manufacturing Process

        Although many scientific disciplines are required for new drug discovery and development, chemistry and biology are at the center of this process. Chemists and biologists typically work together to prepare and deliver new chemical substances, develop laboratory models of disease, test compounds to identify agents that demonstrate the desired activity and finally create a marketable drug. The drug discovery and development process includes the following steps:

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lead discovery—the identification of a compound that may be developed into a new drug,



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lead optimization—an iterative process of modifying the structure of a lead compound to optimize its therapeutic properties,



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preclinical testing—the testing of the compound in increasingly complex animal models,



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clinical trials—the multi-phase testing of the compound for safety and efficacy in humans, and



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product commercialization—the manufacture, marketing and sale of commercial quantities of the approved drug.

The Importance of Chemistry in the Drug Discovery and Development Process

        Lead Discovery.    The first major hurdle in drug discovery is the identification of one or more lead compounds that interact with a biological target, such as an enzyme, receptor or other protein, that may be associated with a disease. A biological test, or assay, based on the target is developed and used to test or "screen" chemical compounds. Medicinal chemistry is used to synthesize these compounds rapidly and study the interaction between the three-dimensional molecular structures of the compounds and biological targets. The objective of lead discovery is to identify a lead compound for further research and development.

        Lead Optimization.    Once a lead compound has been identified, medicinal chemistry is used to optimize that lead compound by modifying and synthesizing analogs of active lead candidates with improved potency, selectivity and/or pharmacokinetics (improved absorption, solubility, half-life and metabolism) in order to identify a more promising drug candidate. This iterative process involves the synthesis of compounds for biological testing, the analysis of the screening results and the further design and synthesis of additional compounds based upon the analysis of structure-activity relationships. During lead optimization, specialists in chemical development perform the scale-up synthesis of a lead compound as that compound is advanced through the drug discovery and development process. These scientists are experts in the preparation of chemicals on a larger scale and focus on the efficiency, economics, simplicity and safety of the preparation of such chemicals. Chemical development is also an iterative process which may require progressive improvements in chemical synthesis as subsequent repeat batches are prepared. In addition to providing repeat synthesis, significant process research may be required to refine existing or develop new synthesis processes. Also during the lead optimization stage, analytical chemistry services are required for identity and purity testing and method development.

        Preclinical Testing.    Following the development of a lead compound during the lead optimization stage, advanced preclinical testing is conducted in order to evaluate the efficacy and safety of the lead compound prior to initiating human clinical trials. The lead compound must demonstrate a scientifically proven benefit in controlled and well-defined biological tests in animal models, and must exhibit this benefit at doses much lower than those at which side effects would occur. During the lead optimization and preclinical testing phases, scientists continue the synthesis of additional analogs of the lead compound using medicinal chemistry. Often a second compound, referred to as a backup compound or second generation analog, is synthesized and enters the drug development cycle. In addition, continued synthesis is desirable in order to prepare compounds of significant diversity to broaden potential patent coverage. As a result, the advancement of a lead compound into preclinical testing is often a catalyst

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which increases, rather than decreases, the need for additional medicinal chemical synthesis. During this phase, specialists in chemical development continue to conduct significant process research to optimize the production of a compound.

        Clinical Trials.    During clinical trials, several phases of studies are conducted to test the safety and efficacy of a drug candidate. As study populations increase and trial durations lengthen, larger quantities of the active ingredient are required. The bulk active ingredient, and the formulated drug product, must be prepared under current good manufacturing practices, commonly referred to as cGMP, guidelines. Analytical chemistry services are critical to cGMP manufacturing. Additional preparations provide an opportunity to further refine the manufacturing process, with the ultimate goal of maximizing the cost effectiveness and safety of the synthesis prior to commercialization.

Trends Toward Contracting for Chemistry Services

        While contract services have traditionally been limited to the later stages of drug development, such as clinical trial management and manufacturing, many pharmaceutical and biotechnology companies are utilizing contract chemistry service providers to complement or, in some cases supplement, internal chemistry expertise. Currently, only a few companies provide chemistry services for drug discovery, development and manufacturing, and these companies have typically focused only on certain stages of the drug development process. We believe the following trends have led and will continue to lead to an increase in contract chemistry services in drug discovery, development and manufacturing:

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development of new technologies that have increased the number of targets and accelerated the identification of active compounds,



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



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increased pressure to reduce the time spent in drug discovery and development to bring drugs to market sooner and maximize patent life,



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



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



•

biotechnology and emerging pharmaceutical companies have available capital, but, in many cases, lack the required in-house discovery and development expertise.

        We believe that significant opportunities exist for a company that provides a comprehensive range of contract chemistry services throughout the drug discovery, development and manufacturing process.

Our Capabilities

        We have a broad range of high-quality drug discovery and development, chemistry research and manufacturing capabilities. The problem-solving abilities of our scientists provide added value throughout the drug discovery, development and manufacturing process. We offer proprietary discovery technologies as well as chemistry services on a contract basis that have traditionally required significant time and capital investment to create internally. Our comprehensive suite of services allows our customers to contract with a single vendor, eliminating the time and cost of transitioning projects among multiple vendors.

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Service Offerings

Drug Discovery Technologies

        We provide proprietary drug discovery technologies that employ biocatalysis technology and that assist in the creation of combinatorial chemistry libraries. Biocatalysis technology uses enzymes and microbial cell systems to synthesize new compounds. Additional discovery technologies that we provide include isolation, purification, structure elucidation and the supply of natural products libraries from microbial and botanical sources, computational chemistry, pharmaco-and toxicogenomics, microbiology, fermentation and asymmetric synthesis.

        Our drug discovery technologies complement our medicinal chemistry services as additional methods of developing and screening large numbers of compounds against drug targets to generate new drug leads. These drug discovery technologies give us the capability to:

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improve chemical compounds for currently marketed drugs,



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develop lead extensions from unsuccessful Phase II or Phase III clinical trials,



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improve solubility and/or bioavailability of drug compounds,



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create libraries of potential lead compounds,



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identify active metabolites,



•

widen patent coverage, and



•

perform process research, consisting of the improvement or modification of existing processes.

        As part of our acquisition of New Chemical Entities in January 2001, we acquired an extensive collection of over 100,000 diverse compounds and natural products libraries. We seek to sell or license these libraries, or subsets, to customers for high throughput screening and novel drug lead discovery.

        In addition, we recently have initiated a program to internally create a novel library of approximately 100,000 diverse compounds to sell or license to customers for the identification of new drug candidates.

Medicinal Chemistry

        The chemistry functions associated with the identification and optimization of a lead compound are handled by chemists specializing in medicinal chemistry. The role of the medicinal chemist is to synthesize small quantities of new and potentially patentable compounds for biological testing. Our medicinal chemistry group assists our customers in the pursuit of new drug leads as well as in lead development and optimization using modern structure-based drug design. Our medicinal chemistry group uses tools such as computational and combinatorial chemistry in conjunction with the traditional techniques of medicinal drug development. Medicinal chemistry services that we provide include:

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design and synthesis of potential lead compounds,



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design, modification and synthesis of lead compounds with improved potency, selectivity and pharmacokinetics,



•

development and synthesis of analogs of lead compounds to broaden patent protection, and



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resynthesis and expansion of customers' chemistry libraries by employing combinatorial and computational chemistry.

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Chemical Development

        Chemical development involves the scale-up synthesis of a lead compound. Processes developed for small scale production of a compound may not be suitable for larger scale production because they may be too expensive, environmentally unacceptable or present safety concerns. Our chemical development scientists design novel or improved methods and processes suitable for medium to large scale production. Our chemical development scientists possess expertise in a broad range of structural classes of molecules and are able to address a wide variety of chemical synthesis and production problems. Chemical development services that we provide include:

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process research, consisting of the improvement or modification of existing processes,



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discovery and development of new product methodologies to prepare products,



•

process development and production of single-isomer molecules, and



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development of practical purification techniques.

Analytical Chemistry Services

        Our analytical chemistry services include identity and purity testing, method development and validation, and stability testing. We also provide regulatory consulting services, including the preparation of regulatory filings, chemistry manufacturing and control documentation and testing, and scientific and technical writing. The cGMP guidelines mandated by the FDA necessitate employing analytical support for drugs under development, as well as for drugs already on the market. Our analytical services are designed to support our customers' compliance with these guidelines. We typically provide these services at several stages throughout the drug discovery, development and manufacturing process starting with lead optimization. Analytical services that we provide include:

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test method development and validation,



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quality control and release testing,



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high performance liquid and/or gas chromatography (including purity assessment), separation of enantiomers and identification of impurities,



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stability studies for bulk active ingredients and formulated drug products, and



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preparation of regulatory documentation, including chemistry manufacturing and control sections of investigational new drug applications, new drug applications and drug master files.

cGMP Manufacturing Services

        We provide chemical synthesis and manufacturing services for our customers under cGMP guidelines. All facilities and manufacturing techniques used in the manufacture of products for clinical use or for sale in the United States must be operated in conformity with cGMP guidelines as established by the FDA. Our Albany facility has production facilities and quarantine and restricted access storage necessary for conducting cGMP manufacturing in quantities sufficient for conducting Phase I clinical trials (up to approximately 10 kilograms). Through our strategic relationship with Organichem, our customers can also obtain product quantities sufficient to conduct Phase II and Phase III clinical trials (between 10 and 100 kilograms) as well as commercial product quantities (greater than 100 kilograms).

Large Scale Manufacturing

        Through our strategic relationship and investment in Organichem, we are able to provide large scale chemical synthesis and manufacturing to our customers. Organichem's production facilities adhere

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to cGMP manufacturing and provide the capability for larger scale chemical synthesis of active drug products and intermediates for use in human clinical trials as well as for products on the market. In December 1999, we participated in the formation of Organichem through an investment in the management-led buyout of its facility from Nycomed Amersham. Our investment in Organichem included the purchase of 37.5% of Organichem's common stock and the purchase by us of convertible debt from Organichem which can be converted at our option to an additional 37.5% of Organichem's common stock. During 2001, Organichem repurchased a portion of its common stock, which increased our ownership to 39.2%. Our investment also provides us with the ability to purchase the remaining common stock of Organichem within 90 days after December 31, 2002. The purchase price would be determined based on Organichem's earnings for the year 2002 and would range from a minimum of $15.0 million to a maximum of $30.0 million. If we elect not to purchase the remaining common stock of Organichem, Organichem can require us to purchase the remaining common stock within 60 days of December 31, 2003 for a purchase price to be determined based on Organichem's earnings for the year 2003. The purchase price would range from a minimum of $15.0 million to a maximum of $30.0 million.

Consulting Services

        We provide to our customers, in particular our biotechnology customers, consulting services across all chemistry phases of drug discovery, development and manufacturing.

Proprietary Research and Development

        We conduct proprietary research and development on promising drug candidates utilizing our medicinal chemistry tools as well as our discovery technologies, which consist of our biocatalysis technology, our technology for the synthesis of combinatorial libraries, our natural products related technolgies as well as our microbiology, fermentation and asymmetric synthesis technologies. We are currently pursuing opportunities for applying our discovery technologies to promising drug candidates about which information is publicly available. In the event that we discover promising drug targets, we anticipate that we would license them to third parties in return for licensing, milestone and royalty payments. We also seek to incorporate terms in our contract services agreements with customers which provide for us to receive up-front service fees and milestone payments for advancing new products as well as recurring royalty payments for new drugs successfully reaching the market.

Allegra/Telfast Licensing Agreement

        Our proprietary research and development efforts to date have contributed to the discovery and development of one product that has reached the market. We discovered a new process to prepare a metabolite known as terfenadine carboxylic acid, or TAM, in a purer form. The purer form of TAM is a non-sedating antihistamine known as fexofenadine HCl, which is sold by Aventis under the name Allegra in the Americas and as Telfast elsewhere. We have been issued several United States and foreign patents relating to TAM and the process chemistry by which TAM is produced. Subject to payment of government annuities and maintenance fees, our issued patents relating to TAM expire between 2013 and 2016.

        In March 1995, we entered into a license agreement with Aventis. Under the terms of the license agreement, we granted Aventis an exclusive, worldwide license to any patents issued to us related to our original TAM patent applications. Since the beginning of the agreement through December 31, 2001, we have earned $7.4 million in milestone payments and $108.2 million in royalties under this license agreement. Aventis is obligated under the license agreement to pay ongoing royalties to us based upon sales of Allegra/Telfast. We are not entitled, however, to receive any additional milestone payments under the license agreement. Sales of Allegra/Telfast worldwide were approximately

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$1.56 billion for the year ended December 31, 2001 and approximately $1.07 billion for the year ended December 31, 2000.

Customers

        Our customers include pharmaceutical companies and biotechnology companies and, to a limited extent, agricultural companies, fine chemical companies and contract chemical manufacturers. Contract revenue from Bristol-Myers Squibb, including contract revenue from Dupont Pharmaceuticals Company which was acquired by Bristol-Meyers Squibb in October 2001, accounted for 12% of our total revenue for the year ended December 31, 2001. Contract revenue from Dupont Pharmaceuticals accounted for 12% of our total revenue for the year ended December 31, 2000. No other customer accounted for more than 10% of our total revenue for the year ended December 31, 2001 or for the year ended December 31, 2000. For the year ended December 31, 2001, net contract revenue from our three largest customers represented 18%, 14% and 10% of our net contract revenue. For the year ended December 31, 2000, net contract revenue from our three largest customers respectively represented approximately 22%, 13% and 12% of our net contract revenue.

Marketing

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

Employees

        We believe that the successful recruitment and retention of qualified Ph.D., masters and bachelor level scientists is a key element in achieving our strategic goals. We believe that as competitive pressures in the pharmaceutical and biotechnology industries increase, the recruitment and retention of chemists will become increasingly competitive. In order to meet this challenge, we actively recruit scientists at colleges and universities, through third-party recruitment firms and through contacts of our employees. We believe the sophisticated chemistry performed in the course of our business will assist us in attracting and retaining qualified scientists. We offer competitive salaries and benefits to our scientists. As an incentive directed toward the recruitment and retention of highly skilled scientists, we have a program which provides that any scientist or scientists employed by us named as an inventor on a patent not obtained in connection with a customer contract will receive a percentage of any net licensing, milestone and royalty revenues received by us with respect to the patent. Under this program, Thomas E. D'Ambra, Ph.D., our Chairman and Chief Executive Officer, receives payments as the sole inventor on the patents for fexofenadine HCl. Dr. D'Ambra earned $4.2 million in 2001 and $2.9 million 2000 under this program.

        Since January 1, 2001, we have added a net of 191 employees, including 138 scientists. Of the 138 scientists, 65 were added from the acquisitions of New Chemical Entities in January 2001 and the Great Lakes Chemical Corporation Research facility in September 2001. As of February 28, 2002, we had 532 employees, including 370 scientists of whom 55% have Ph.D. degrees. None of our employees are covered by a collective bargaining agreement. We consider our relations with our employees to be good.

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Competition

        We face competition based on a number of factors, including size, relative expertise and sophistication, speed and costs of identifying and optimizing potential lead compounds and of developing and optimizing chemical processes. We compete with the research departments of pharmaceutical companies, biotechnology companies, combinatorial chemistry companies, contract research companies and research and academic institutions. Many of these competitors have greater financial and other resources and more experience in research and development than we do. Smaller companies may also prove to be significant competitors, particularly through arrangements with large corporate collaborators.

        Historically, pharmaceutical companies have maintained close control over their research and development activities, including the synthesis, screening and optimization of chemical compounds and the development of chemical processes. Many of these companies, which represent a significant potential market for our products and services, are developing or already possess in-house technologies and services offered by us. Academic institutions, governmental agencies and other research organizations are also conducting research in areas in which we provide services either on their own or through collaborative efforts.

        We anticipate that we will face increased competition in the future as new companies enter the market and advanced technologies become available. Our services and expertise may be rendered obsolete or uneconomical by technological advances or entirely different approaches developed by one or more of our competitors. The existing approaches of our competitors or new approaches or technologies developed by our competitors may be more effective than those developed by us. We cannot assure you that our competitors will not develop more effective or more affordable technologies or services, thus rendering our technologies and/or services obsolete, uncompetitive or uneconomical.

Patents and Proprietary Rights

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

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        We have a policy of seeking patent protection for patentable aspects of our proprietary technology. We have been issued eight United States patents, five New Zealand patents, five Australian patents, three Canadian patents, three Norwegian patents, two Japanese patents and one European patent collectively covering fexofenadine HCl and certain related manufacturing processes. Subject to payment of government annuities and maintenance fees, our United States patents expire between 2013 and 2015, our Canadian, European and Japanese patents expire in 2014 and our New Zealand, Australian and Norwegian patents expire between 2014 and 2016. Through our acquisition of EnzyMed, we obtained an exclusive license to one United States patent relating to a process of reacting enzymes in a non-aqueous solvent. Subject to payment of government annuities and maintenance fees, this patent expires in 2012.

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

        We may also enter into collaborations or other arrangements whereby we retain certain ownership rights or may be entitled to receive milestones and royalties with respect to proprietary technology developed by us. On March 15, 2002, we signed an agreement with Bristol-Meyers Squib Company, which includes the transfer of ownership to us of three patent applications related to Attention Deficit Hyperactivity Disorder and central nervous system indications. We intend to seek a third party licensee to develop this technology. Many of our other current contracts with our customers provide that ownership of proprietary technology developed by us in the course of work performed under the contract is vested in the customer, and we retain little or no ownership interest.

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

Government Regulation

        Although the sale of our services is not subject to significant government regulation, the manufacture, transportation and storage of our products are subject to certain laws and regulations. However, our future profitability is indirectly dependent on the sales of pharmaceuticals and other products developed by our customers. Regulation by governmental entities in the United States and other countries will be a significant factor in the production and marketing of any pharmaceutical products that may be developed by our customers. The nature and the extent to which such regulation may apply to our customers will vary depending on the nature of any such pharmaceutical products. Virtually all pharmaceutical products developed by our customers will require regulatory approval by governmental agencies prior to commercialization. Human pharmaceutical products are subject to rigorous preclinical and clinical testing and other approval procedures by the FDA and by foreign regulatory authorities. Various federal and, in some cases, state statutes and regulations also govern or influence the manufacturing, safety, labeling, storage, record keeping and marketing of such pharmaceutical products. The process of obtaining these approvals and the subsequent compliance with

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appropriate federal and foreign statutes and regulations are time consuming and require the expenditure of substantial resources.

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

        All facilities and manufacturing techniques used in the manufacture of products for clinical use or for sale in the United States must be operated in conformity with current good manufacturing procedures (cGMP) guidelines as established by the FDA. Our facilities are subject to scheduled periodic regulatory inspections to ensure compliance with cGMP requirements. Failure on our part to comply with applicable requirements could result in the termination of ongoing research or the disqualification of data for submission to regulatory authorities. A finding that we had materially violated cGMP requirements could result in additional regulatory sanctions and, in severe cases, could result in a mandated closing of our facilities, which would materially and adversely affect our business, financial condition and results of operations.

        Our research and development processes involve the controlled use of hazardous materials. We are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of such materials and certain waste products. Although we believe that our activities currently comply with the standards prescribed by such laws and regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. In the event of such an accident, we could be held liable for any damages that result and any such liability could exceed our resources. In addition, we cannot assure you that we will not be required to incur significant costs to comply with environmental laws and regulations in the future.

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ITEM 2. PROPERTIES.

        We lease a two-story 90,500 square foot facility in Albany, New York. The lease for this facility expires on November 30, 2007, although we have an option to renew this lease for an additional ten years. The lease also provides us with an option to purchase the building on November 30, 2002 for $3.5 million, towards which we have made a $1.0 million non-refundable deposit. Our Albany facility has nine medicinal chemistry laboratories, five chemical development laboratories, two analytical laboratories, three analytical instrumentation rooms, five dedicated cGMP manufacturing suites and two areas for stability chambers. We are currently constructing two additional cGMP suites at our Albany facility, which is expected to be completed in July 2002.

        We lease approximately 41,500 square feet of laboratory and office space in a building adjacent to our Albany facility and are currently renovating additional space in the building. Phase one of the renovation at this facility provided 29 scientific workstations. The second phase of the renovation, when completed during 2002, will add another 39 scientific workstations. The lease for this facility expires on December 31, 2011, although we may renew the lease for four additional ten-year periods at our option. We also recently acquired additional properties adjacent to our Albany, New York facility, which may be used for additional expansion.

        We also lease approximately 40,000 square feet of laboratory space in Rensselaer, New York at our East Campus. The lease for these laboratories expires November 30, 2009, although we may renew the lease for eight additional five-year periods at our option. This facility has nine medicinal chemistry, two combinatorial chemistry and three chemical development laboratories. During 2000, we constructed a 23,600 square foot state-of-the-art biotechnology development center with 33 scientific workstations at our East Campus. We have entered into a ten-year lease for this facility. We may renew the lease for eight additional five-year periods at our option.

        We also lease a 15,000 square foot facility in Iowa City, Iowa. We recently announced plans to relocate our operations in Iowa City, Iowa to our recently acquired facility in Mount Prospect, Illinois. We expect the relocation to be completed by May 2002.

        We recently purchased and completed renovations of a 28,000 square foot facility near Syracuse, New York, which includes forty scientific workstations. The construction was financed through an industrial revenue bond.

        We lease approximately 23,700 square feet of primarily research and development space in Bothell, Washington under a lease that expires in October 2007, although we may renew the lease for four additional four year-periods at our option.

        In September 2001, we acquired an 88,000 square foot facility as part of our $10.0 million purchase of a Great Lakes Chemical Corporation research and development facility in Mt. Prospect, Illinois. This facility includes 55 fully equipped scientific workstations as well as a two-bay, non-GMP chemical pilot plant, research fermentation labs and supporting office space.

        For the year-ended December 31, 2001, we had total operating lease costs of $1.6 million.

ITEM 3. LEGAL PROCEEDINGS.

        We, from time to time, may be involved in various claims and legal proceedings arising in the ordinary course of our business. We are not currently a party to any such claims or proceedings which, if decided adversely to us, would either individually or in the aggregate have a material adverse effect on our business, financial condition or results of operations.

        Aventis Pharmaceuticals, the U.S. pharmaceutical business of Aventis S.A., is currently involved in legal proceedings with Barr Laboratories, Inc. regarding an Abbreviated New Drug Application filed by Barr Laboratories with the U.S. Food and Drug Administration seeking authorization to produce and

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market a generic version of Allegra. Aventis Pharmaceuticals has filed three patent infringement suits against Barr in the U.S. District Court in New Jersey alleging infringement of certain U.S. patents related to fexofenadine HCl 60 mg capsules as well as 30, 60, and 180 mg tablets. The third lawsuit was filed on January 28, 2002, after Barr filed an Abbreviated New Drug Application related to Allegra-D, extended-release tablets for oral administration, on December 21, 2001. Under our arrangements with Aventis, we will receive royalties until expiration of our underlying patents or until they are earlier determined to be invalid and/or unenforceable. Under applicable federal law, marketing of an FDA-approved generic capsule or tablet at minimum may not commence unless and until a decision favorable to Barr Laboratories is rendered in any patent litigation or until 30 months have elapsed, whichever comes first. Aventis is taking the lead in preparing and executing a strategy to defend and enforce the intellectual property rights that exist with respect to Allegra.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

        There were no matters submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders through solicitation of proxies or otherwise.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

        (a)    Market Information. The Common Stock of the Company has been traded on the Nasdaq National Market ("Nasdaq") since the Company's initial public offering on February 4, 1999 and currently trades under the symbol "AMRI." The following table sets forth the high and low closing prices for the Company's Common Stock as reported by the Nasdaq National Market for the periods indicated:

        (b)    Holders. The number of record holders of the Company's Common Stock as of March 15, 2002 was approximately 188. We believe that the number of beneficial owners of our Common Stock at that date was substantially greater.

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

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        (d)    Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities.

        None.

ITEM 6. SELECTED FINANCIAL DATA.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

        The following discussion of the results of our operations and financial condition should be read in conjunction with the accompanying Consolidated Financial Statements and the Notes thereto included within this report.

Overview

        We are a leading chemistry-based drug discovery and development company, focused on applications for new small molecule prescription drugs. We engage in comprehensive chemistry research from lead discovery, optimization and development to commercial manufacturing. We perform chemistry research for many of the leading pharmaceutical and biotechnology companies and for our own internal research and development.

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 accounting principles generally accepted in the United States. The preparation of these 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, unbilled revenue, income taxes 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 believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. We recognize revenue and profit on less than ten percent of our contract revenue as work progresses using the percentage-of-completion method, which relies on estimates of total expected contract revenue and costs. We follow this method because we can make reasonably dependable estimates of the revenue and costs applicable to various stages of a contract. Recognized revenues and profit are subject to revisions as the contract progresses to completion. Revisions in profit estimates are charged to income in the period in which the facts that give rise to the revision become known. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. We have estimated the fair value of our libraries of natural product compounds obtained as part of our acquisition of New Chemical Entities in January 2001 and have included their value in our inventory. We also develop novel compounds internally and include their value at cost in our inventory. We write down our inventories for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required in the future. We hold a minority interest in Organichem Corporation and have acquired several companies that have operations in areas within our strategic focus. We record an impairment charge when we believe an investment or an acquisition has experienced a decline in value that is other than temporary. Future adverse changes in market conditions or poor operating results of underlying investments or company acquisitions could result in losses or an inability to recover the carrying value of the investments or acquisitions that may not be reflected in their current carrying value, thereby possibly requiring an impairment charge in the future.

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Net Contract Revenue

        Our net contract revenue consists primarily of fees earned under contracts with third-party customers, net of our reimbursed expenses. Reimbursed expenses consist of laboratory supplies, chemicals and other costs reimbursed by our customers and, in accordance with industry practice, are netted against gross contract revenue. Reimbursed expenses vary from contract to contract. Accordingly, we view net contract revenue as our primary measure of revenue growth rather than licensing fees and royalties, which are dependent upon our licensee's sales.

        In general, we provide services to our customers on the following basis:

•

a full-time equivalent basis that establishes the number of full-time equivalents contracted for a project or a series of projects, the duration of the contract period, the fixed price per full-time equivalent, plus an allowance for out-of-pocket expenses, which may or may not be incorporated in the full-time equivalent rate,



•

a time and materials basis under which we charge our customers based on an hourly rate plus out-of-pocket expenses, or



•

to a lesser extent, a fixed-price basis.

        Typically, our full-time equivalent contracts have terms of six months or longer and our time and materials contracts have terms of one to twelve months. Fixed-price contracts are entered into for much shorter periods of time, generally two to six months. Because our fixed-price contracts relate to projects that are generally limited in scope and are of short duration, we have not historically experienced any material cost overruns under these contracts. Full-time equivalent and time and materials contracts provide for annual adjustments in billing rates for the scientists assigned to the contract. Generally, our contracts may be terminated by the customer upon 30 days' to one-year prior notice, depending on the size of the contract. We recognize contract revenue on a percentage-of-completion or per diem basis. Cost of revenue consists primarily of compensation and associated fringe benefits for employees and other direct project-related costs.

Licensing Fees, Milestones and Royalties

        We seek to include provisions in our contracts for our discovery services which contain licensing, milestone and royalty payments should our proprietary technology and expertise, lead to the discovery of new products that reach the market. To date, we have received substantially all of our milestone and royalty payments under these arrangements from Aventis with respect to Allegra. Generally, the provisions for licensing, milestone and royalty payments included in our contracts are related to the occurrence of specific identifiable events. Upon the occurrence of one of these events, such as the successful completion of a clinical trial phase, and the resolution of any uncertainties or contingencies regarding potential revenue, we plan to record the payment as revenue in the quarter in which we receive the payment.

        Non-recurring Licensing Fees, Milestones and Royalties.    Although we entered into a license agreement with Aventis in 1995, we began to recognize royalty revenue related to sales in the United States under that agreement in February 1998. This delay was due to the significant time expended for issuance of our patents and the resolution of related patent interference claims by Aventis.

        Recurring Royalties.    Recurring royalties consist of royalties from Aventis under a license agreement based on sales of fexofenadine HCl, marketed as Allegra in the Americas and Telfast elsewhere. Royalty payments are due within 45 days after each calendar quarter and are determined based on sales of Allegra/Telfast in that quarter.

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Costs and Expenses

        Cost of Contract Revenue.    Our cost of contract revenue, from which we derive gross profit from net contract revenue, consists primarily of compensation and associated fringe benefits for employees and other direct project-related costs.

        Technology Incentive Award.    We maintain a Technology Development Incentive Plan designed to stimulate and encourage novel technology development 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. Under our Technology Development Incentive Plan, Thomas E. D'Ambra, our Chairman and Chief Executive Officer, receives payments as the sole inventor of the patents for fexofenadine HCl equal to 10% of the total payments received by us with respect to those patents.

        Research and Development.    Research and development expense consists of payments in connection with collaborations with academic institutions, compensation and benefits for scientific personnel for work performed on proprietary research projects and costs of supplies and related chemicals. We are funding several internal research and development programs to discover new compounds with commercial potential. We would then seek to license these compounds to a third party in return for up-front license service fees and milestone payments as well as recurring royalty payments if these compounds are successfully developed into new drugs and reach the market. Included in our internal research and development projects is a Cooperative Research and Development Agreement with the National Cancer Institute to develop anti-cancer compounds, as well as other projects in the oncology, immunosuppression and anti-infective therapeutic areas.

        Selling, General and Administrative.    Selling, general and administrative expense consists of compensation and related fringe benefits for marketing and administrative employees, professional services, marketing costs and all costs related to facilities and information services.

        Other Income (Expense).    Other income (expense) consists of interest income, interest expense, our equity in our unconsolidated affiliates, Organichem and Fluorous Technologies, realized gains or losses on sales of investment securities and other non-operating expenses.

Results of Operations

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

        Net Contract Revenue.    Net contract revenue increased 52% to $56.8 million for the year ended December 31, 2001, compared to $37.4 million for 2000. This increase was due principally to a greater number of projects under contract primarily for medicinal and chemical development services. This increase was facilitated by an increase in the number of scientific staff to 360 at December 31, 2001 from 222 at December 31, 2000. Included in the 138 additional scientific staff are 65 scientists added from the acquisitions of New Chemical Entities and the Great Lakes Chemical Corporation laboratory facility.

        Recurring Royalties.    Recurring royalties for the year ended December 31, 2001 increased 43% to $41.7 million, compared to $29.2 million for 2000. The increase was attributable to increased sales of fexofenadine HCl by Aventis.

        Total Revenue.    Total revenue for the year ended December 31, 2001 increased 48% to $98.5 million, compared to $66.6 million for 2000.

        Cost of Contract Revenue.    Cost of contract revenue increased 51% to $31.4 million for the year ended December 31, 2001, compared to $20.9 million for 2000. Net contract revenue margin increased

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to 45% in 2001 from 44% in 2000, primarily due to increased rates on customer contracts and leveraging the expansion of our facilities.

        Technology Incentive Award.    The technology incentive award expense incurred under our Technology Development Incentive Plan increased 43% to $4.2 million for the year ended December 31, 2001, compared to $2.9 million for 2000. The increase was directly attributable to the increase in recurring royalties.

        Research and Development.    Research and development expense increased 76% to $4.3 million for the year ended December 31, 2001 compared to $2.4 million for 2000. The increase was due primarily to an increase in internally funded research efforts utilizing drug discovery technologies acquired through the Company's recent acquisitions. Research and development expenditures were 4% of total revenue for the year ended December 31, 2001 compared to 4% for 2000.

        Selling, General and Administrative.    Selling, general and administrative expenses increased 53% to $12.2 million for the year ended December 31, 2001, compared to $8.0 million for 2000. The increase was primarily attributable to an increase in administrative and marketing staff to support the expansion of our operations, an increase in expenses related to recruitment of scientists and additional expenses related to the operations of our research centers in Mount Prospect, Illinois and Bothell, Washington, both of which were acquired in 2001. Selling, general and administrative expenses represented 21% of net contract revenue in 2001 and 2000.

        Total Other Income, Net.    Total other income, net increased 46% to $7.7 million for the year ended December 31, 2001, compared to $5.3 million for 2000. Total other income, net for 2001, was comprised of $6.4 million in interest income, net of interest expense, $1.1 million in income from our unconsolidated affiliates, Organichem and Fluorous Technologies, Inc., and approximately $127,000 of other non-operating income. Total other income, net for 2000 was comprised of $4.5 million in interest income, net of interest expense, $551,600 in income from our unconsolidated affiliate, Organichem, and $186,800 of other non-operating income. The increase in interest income is the result of increased investments resulting from the Company's follow on offering in October 2000.

        Income Tax Expense.    Income tax expense increased to $19.7 million for the year ended December 31, 2001, compared to $14.1 million for 2000. The effective rate for our provision for income taxes was 36% in 2001 as compared to 37% for 2000. The reduction in the effective tax rate resulted primarily from corporate tax planning during 2001.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

        Net Contract Revenue.    Net contract revenue increased 70% to $37.4 million for the year ended December 31, 2000, compared to $22.0 million for 1999. This increase was due principally to a greater number of projects under contract primarily for medicinal and chemical development services. This increase was facilitated by an increase in the number of scientific staff to 222 at December 31, 2000 from 148 at December 31, 1999.

        Recurring Royalties.    Recurring royalties for the year ended December 31, 2000 increased 36% to $29.2 million, compared to $21.4 million for 1999. The increase was attributable to increased sales of fexofenadine HCl by Aventis.

        Total Revenue.    Total revenue for the year ended December 31, 2000 increased 53% to $66.6 million, compared to $43.5 million for 1999.

        Cost of Contract Revenue.    Cost of contract revenue increased 67% to $20.9 million for the year ended December 31, 2000, compared to $12.5 million for 1999. Net contract revenue margin increased

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to 44% in 2000 from 43% in 1999, primarily due to increased rates on customer contracts and leveraging the expansion of our facilities.

        Technology Incentive Award.    The technology incentive award expense incurred under our Technology Development Incentive Plan increased 37% to $2.9 million for the year ended December 31, 2000, compared to $2.1 million for 1999. The increase was directly attributable to the increase in recurring royalties.

        Research and Development.    Research and development expense increased 33% to $2.4 million for the year ended December 31, 2000 compared to $1.8 million for 1999. The increase was due primarily to an increase in internally-funded research efforts.

        Selling, General and Administrative.    Selling, general and administrative expenses increased 16% to $8.0 million for the year ended December 31, 2000, compared to $6.9 million for 1999. The increase was primarily attributable to an increase in administrative and marketing staff to support the expansion of our operations, and an increase in expenses related to recruitment of scientists. Selling, general and administrative expenses represented 21% of net contract revenue in 2000 as compared to 31% for 1999.

        Total Other Income, Net.    Total other income, net was $5.3 million for the year ended December 31, 2000, compared to $1.8 million for 1999. This was comprised of $4.5 million in interest income, net of interest expense, $551,600 in income from our unconsolidated affiliate, Organichem, and $186,800 of other non-operating income. Total other income, net for 1999 was comprised of $2.0 million in interest income, net of interest expense, a $98,000 loss from our unconsolidated affiliate, Organichem, and $81,000 of other non-operating expense.

        Income Tax Expense.    Income tax expense increased to $14.1 million for the year ended December 31, 2000, compared to $8.2 million for 1999. The effective rate for our provision for income taxes was 37% in 2000 and 1999

Liquidity and Capital Resources

        We have historically funded our business through operating cash flows, proceeds from borrowings and the issuance of equity securities. For the year ended December 31, 2001, we generated cash of $32.9 million from operating activities.

        Total capital expenditures for the year ended December 31, 2001 were $21.2 million. Capital expenditures in 2001 were predominantly in connection with the expansion of our facilities in Albany and Syracuse, New York. Additionally, in September 2001, we acquired the Mount Prospect, Illinois facility and operations from Great Lakes Chemical Corporation for approximately $10.0 million. We used approximately $23.0 million to purchase New Chemical Entities, Inc. in January 2001.

        During 2001, we generated $6.0 million from financing activities, consisting of cash generated of $1.1 million from the exercise of stock options and sale of stock under our employee stock purchase program, $5.7 million from low rate industrial development bond financing, offset by $329,000 in payments on capital lease obligations and $451,000 used to purchase treasury stock.

        Working capital was $155.3 million at December 31, 2001 compared to $161.3 million at December 31, 2000. We have available a $25 million credit facility to supplement our liquidity needs. There were no borrowings under this credit facility at December 31, 2001.

        We are pursuing 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, 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

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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.

        In February 2000, we purchased American Advanced Organics, a provider of rapid scale-up manufacturing services, for approximately $2.3 million in cash and stock. Based on the financial performance of this division in 2000 we paid the former AAO stockholders an additional $500,000 in cash subsequent to December 31, 2000. Based on the financial performance of this division in 2001, we paid the former AAO stockholders an additional $300,000 in cash subsequent to December 31, 2001, representing the final payment under the purchase agreement with the AAO stockholders.

        In June 2000, we made an investment in Fluorous Technologies, Inc., a newly formed company based in Pittsburgh, Pennsylvania. Fluorous Technologies has licensed from the University of Pittsburgh several patents and pending patent applications for the use of "fluorous organic chemistry" technology for chemical synthesis, isolation and purification. Fluorous Technologies was formed to capitalize on the potential of this technology for pharmaceutical drug discovery, agrochemical product development, and more environmentally friendly chemical manufacturing. We invested $650,000 in Fluorous Technologies representing an initial 69.9% ownership interest. Our ownership interest in Fluorous Technologies is expected to be diluted to less than 50% as Fluorous Technologies issues additional common stock to fund its operations and development. As a result of our investment, a proportionate share of Fluorous Technologies' losses has been included in our consolidated financial results from date of formation.

        In January 2001, we acquired New Chemical Entities, Inc. of Bothell, Washington for $22.4 million in cash and the assumption of $0.6 million in outstanding debt. NCE possesses an extensive collection of over 100,000 diverse compounds and natural products extracts, which are integrated into NCE's drug discovery efforts. These samples are complemented by a chemofocus library composed of pure single compound samples of both natural products and natural product-based compounds augmented by combinatorial chemistry and computational drug design. NCE sells or licenses these libraries, or subsets, to customers for high throughput screening and novel drug lead discovery.

        In September 2001, we purchased Great Lakes Chemical Corporation's 88,000 square foot laboratory facility in Mt. Prospect, Illinois for approximately $10.0 million in cash. The facility, located on 5.5 acres includes chemistry synthesis labs, which contain 55 fully equipped scientific workstations; a two-bay, non-GMP chemical pilot plant; research fermentation facilities; associated analytical support; scale-up fermentation capacity; and supporting office space. The purchase provides the Company with a modern facility, fully equipped with a scientific staff of approximately 50 people with the opportunity for considerable expansion.

        During 2001, we repurchased 20,000 shares of our own stock. From time to time we may repurchase additional shares under the stock repurchase program approved by our board of directors on September 18, 2001. The program allows us to repurchase up to 1.0 million of our shares over a twelve month period. Through March 15, 2002 we repurchased 425,890 additional shares of our stock under our stock repurchase program.

        The following table sets forth the Company's obligations and commitments to make future payments under contracts.

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Payments Due by Period (in thousands)

Related Party Transactions

Technology Development Incentive Plan

        In 1993, we adopted a Technology Development Incentive Plan to provide a method to stimulate and encourage novel innovative technology development. To be eligible to participate, the individual must be an employee and must be the inventor or co-inventor of novel technology that results in new revenues received by us. Eligible participants will share in awards based on a percentage of the licensing, royalty or milestone revenue received by us, as defined by the Plan.

        In 1999, 2000 and 2001, we awarded Technology Incentive Compensation to the inventor of the terfenadine carboxylic acid metabolite technology. The inventor is a director, officer and shareholder. The amounts awarded and included in the consolidated statements of income for the years ended December 31, 1999, 2000 and 2001 are $2.1 million, $2.9 million, and $4.2 million, respectively. Included in accrued compensation in the accompanying consolidated balance sheets at December 31, 2000 and 2001 are unpaid Technology Development Incentive Compensation awards of $787,000 and $1.2 million, respectively.

Lease Agreement

        We currently have two long-term operating lease for our Albany, New York office and laboratory facilities with one of our shareholders who owns less than 1% of our common stock. We paid approximately $373,000, $275,000 and $275,000 to this related party during the years ended December 31, 1999, 2000 and 2001, respectively.

Notes Receivable

        From time to time we make loans to employees and officers of the Company in the form of notes receivable. The notes receivable and accrued interest will not be repaid to the Company provided the employee remains in the employ of the Company throughout the term of the loan. If employment is terminated prior to the end of the loan term, a pro-rata portion of the principal and interest shall be repaid to the Company.

Telecommunication Services

        A member of our board of directors is the Chief Executive Officer of one of the providers of telephone and internet services to us. This telecommunications company was paid $88,947 for services rendered to us in 2001.

Recent Accounting Pronouncements

        In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, Business Combinations and No. 142, Goodwill and Other Intangible Assets.

        SFAS No. 141 requires that all business combinations be accounted for using the purchase method of accounting; use of the pooling-of-interests method is prohibited. Goodwill will initially be recognized

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as an asset and measured as the excess of the cost of the acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed. Intangible assets other than goodwill will be recognized as an asset apart from goodwill if that asset arises from contractual or other legal rights. The Statement will apply to all business combinations initiated or completed after June 30, 2001. The adoption of SFAS No. 141 on January 1, 2002 did not have a material impact on our financial position or results of operations.

        SFAS No. 142 requires that goodwill (including goodwill reported on the separate GAAP financial statements of a subsidiary) will not be amortized but will be tested for impairment at least annually at the reporting unit level. Goodwill will be tested for impairment by comparing the fair value of the reporting unit to its carrying amount, including goodwill with an impairment loss recorded for excess goodwill, if any. Intangible assets will be amortized over their estimated useful lives and will be tested at least annually for impairment in accordance with SFAS No. 121. Intangible assets with an indefinite useful life will not be amortized until its life is determined to be no longer indefinite. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. We expect the adoption of SFAS No. 142 to reduce our annual amortization costs by approximately $1.50 million.

        In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires the fair value of a liability for an asset retirement obligation to be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. We believe the adoption of SFAS No. 143 Statement will not have a material impact on our financial position or results of operations.

        In August 2001, the FASB also issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions of APB No. 30. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and is effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years. The adoption of SFAS No. 144 on January 1, 2002 did not have a material impact on our financial position or results of operations.

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RISK FACTORS AND CERTAIN FACTORS AFFECTING FORWARD-LOOKING STATEMENTS

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

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

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

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

        We depend on pharmaceutical and biotechnology companies that use our services for a large portion of our revenues. Although there is a trend among pharmaceutical and biotechnology companies to outsource drug research and development functions, this trend may not continue. If pharmaceutical and biotechnology companies discontinue or decrease their usage of our services, including as a result of the slowdown in the overall United States economy, our revenues and earnings could be lower than we expect and our revenues may decrease or not grow at historical rates.

We may lose one or more of our major customers.

        During the year ended December 31, 2001, we earned approximately 42% of our contract revenues providing services to three major customers. Our customers typically may cancel their contracts with 30 days' to one-year's prior notice depending on the size of the contract, for a variety of reasons, many of which are beyond our control. If any one of our major customers cancels its contract with us, our contract revenues may decrease.

The royalties we earn on Allegra may decrease.

        We have been issued several patents on a pure form of, and a manufacturing process for, fexofenadine HCl. The patent positions of pharmaceutical, medical and biotechnology firms can be uncertain and can involve complex legal and factual questions. Litigation, in particular patent litigation, can be complex and time-consuming and the outcome is inherently uncertain. We cannot assure investors that Aventis will ultimately succeed in its current litigation against Barr Laboratories or that Aventis or we will succeed in any future similar litigation against generic drug manufacturers involving patents with respect to Allegra, including the litigation recently filed by Aventis against IMPAX Laboratories, Inc. in response to IMPAX' recent ANDA filing for a generic version of Allegra-D. In the event that one or more of the patents owned by us or Aventis are ultimately determined to be invalid or unenforceable, Aventis and we would lose exclusivity with respect to the claims covered by those patents. Any such loss of exclusivity and the contemporaneous introduction of generic forms of fexofenadine HCl may cause a reduction in Allegra sales. In addition, under our current arrangements with Aventis, Aventis, with consultation from us, will take the lead with respect to preparing and executing a strategy to defend and enforce certain of their respective patents relating to Allegra. As a

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result, we may not be able to control the conduct of such litigation and the strategic decisions that are made during the course of such litigation.

        On May 11, 2001, an FDA advisory panel recommended that the prescription allergy drugs Claritin, Allegra and Zyrtec are safe enough to be made available over-the-counter. The panel had been assembled as a result of a 1998 petition by Blue Cross of California (now Wellpoint Health Networks) requesting that the three top-selling prescription antihistamines be changed to OTC status. The FDA panel's only consideration was whether Claritin, Allegra and Zyrtec have the safety profile for over-the-counter use without a learned intermediary. The panel's recommendation is under consideration by the full FDA. The FDA's reaction to its advisory panel's recommendation with regard to the safety of Allegra is uncertain. If the FDA determines that Allegra may be sold in an over-the-counter form, there may be an adverse effect on its reimbursement status by third-party payers and on the price at which it can be sold. Any such price reduction may not be adequately offset by increased volume of sales.

        Royalties from sales of Allegra currently constitute a significant portion of our total revenues and operating income. During the year ended December, 31 2001, our royalties from Allegra were $41.7 million, which represented approximately 42% of our total revenues. For the year ended December 31, 2000, our royalties from Allegra were $29.2 million, which represented approximately 44% of our total revenues. While a final determination with respect to the Barr Laboratories and IMPAX Laboratories ANDAs filing and the stated patent litigation and the FDA Advisory Panel's safety recommendation may not occur for a significant amount of time, perhaps a number of years, each of these matters may ultimately have a significant adverse impact on sales of Allegra. If the dollar amount of Allegra sales subject to our license agreement decreases, due to these or any other factors, our revenues from our license agreement with Aventis may decrease. Because we have very few costs associated with the Allegra license, a decrease in revenues from our license agreement for Allegra would have a disproportionately adverse effect on our results of operation.

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

        We have expended and continue to expend time and money on internal research and development with the intention of producing proprietary technologies in order to patent and then license them to other companies. However, we may not be successful in producing any valuable technology or successful in licensing it to a third party. To the extent we are unable to produce technology that we can license, we may not receive any revenues related to our internal research and development efforts.

We may lose valuable intellectual property if we are unable to protect it.

        Some of our most valuable assets include patents and trade secrets. Part of our business is developing technologies that we patent and then license to other companies. However, some technologies that we develop may already be patented by other companies. For this and other reasons, we may not be able to obtain patents for each new technology that we develop. Even if we are able to obtain patents, the patents may not sufficiently protect our interest in the technology. Similarly, we may not be able to protect our trade secrets by keeping them confidential. Additionally, protecting our patents and trade secrets may be costly and time consuming. To the extent we are unable to protect intellectual property, our investment in those technologies may not yield the benefits we expected. In addition, we may be subject to claims that we are infringing on the intellectual property of others. We could incur significant costs defending such claims. If we are unsuccessful in defending these claims, we may be subject to liability for infringement.

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We may not be able to license technologies that we need to conduct our business.

        In addition to the technologies that we develop, we also rely on technologies that we license from other companies. We may not be able to license technologies that we need in the future or we may be unable to license such technologies on a commercially reasonable basis. Our inability to license the technologies we need could result in increased costs and, therefore, reduced profits, or the inability to engage in certain activities that require those technologies.

Our failure to manage our expansion may adversely affect us.

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

Future acquisitions may disrupt our business and distract our management.

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

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

        We acquired EnzyMed, Inc., a provider of combinatorial biocatalysis discovery services, in October 1999; American Advanced Organics, Inc., a contract manufacturer of novel compounds, pharmaceutical intermediates and test drug substances, in February 2000; New Chemical Entities, a chemistry-based drug discovery company, in January 2001; and Great Lakes Chemical Company's research and development facility outside of Chicago, Illinois in September 2001. These transactions may not be as beneficial to us as we expect. In addition to these acquisitions, we made a $30 million strategic investment in Organichem Corporation in December 1999 to facilitate a management buyout of a chemical manufacturing facility from Nycomed Amersham, plc. If Organichem fails to perform as we expect, our investment may not yield adequate returns or we may lose our investment. In addition, the other equity holders of Organichem have the right to require us to purchase their interests in Organichem based on a predetermined formula. We may be required to purchase their entire interests in 2004 at a price that is higher than the fair market value of these interests at the time of purchase, which would negatively impact our financial condition. We also made a $650,000 investment in Fluorous Technologies, Inc. in May 2000. Fluorous Technologies is a development stage company and may not be able to successfully develop technology and products.

We may lose one or more of our key employees.

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

•

Dr. Thomas E. D'Ambra, our Chairman and Chief Executive Officer,

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•

Dr. Donald E. Kuhla, our President and Chief Operating Officer, and



•

David P. Waldek, our Chief Financial Officer and Treasurer.

        Although we have employment agreements with the individuals listed above, we do not have employment agreements with all of our key employees. Additionally, the loss of any of our other key employees, including our scientists, may have an adverse effect on our business.

The royalties we earn on Allegra will likely be affected by the seasonal nature of allergies.

        Allergic reactions to plants, pollens and other airborne allergens generally occur during the spring and summer seasons. Therefore, we expect the demand for Allegra to be lower during other times of the year. Because Allegra sales change seasonally based on the demand for allergy medicines, our quarter-to-quarter revenues will likely experience fluctuations.

We face increased competition.

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

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

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

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

        Our research and development processes involve the use of hazardous materials. We are subject to federal, state and local regulation governing the use, manufacture, handling, storage and disposal of hazardous materials. We cannot completely eliminate the risk of contamination or injury resulting from hazardous materials and we may incur liability as a result of any contamination or injury. We may also incur expenses relating to compliance with environmental laws. Such expenses or liability could have a significant negative impact on our financial condition.

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

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

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

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

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

        Terrorist attacks or acts of war may cause damage or disruption to our company, our employees, our facilities and our customers, which could significantly impact our revenues, costs and expenses and financial condition. The terrorist attacks that took place in the United States on September 11, 2001 were unprecedented events that have created many economic and political uncertainties, some of which may materially adversely affect our business, results of operations and financial condition. The long-term effects on our company of the September 11, 2001 attacks are unknown. The potential for future terrorist attacks, the national and international responses to terrorist attacks, and other acts of war or hostility have created many economic and political uncertainties, which could materially adversely affect our business, results of operations, and financial condition in ways that we currently cannot predict.

Health care reform could reduce the prices pharmaceutical and biotechnology companies can charge for drugs they sell which, in turn, could reduce the amounts that they have available to retain our services.

        We depend on contracts with pharmaceutical and biotechnology companies for a majority of our revenues. We therefore depend upon the ability of pharmaceutical and biotechnology companies to earn enough profit on the drugs they market to devote substantial resources to the research and development of new drugs. Future legislation may limit the prices pharmaceutical and biotechnology companies can charge for the drugs they market. Such laws may have the effect of reducing the resources that pharmaceutical and biotechnology companies can devote to the research and development of new drugs. If pharmaceutical and biotechnology companies decrease the resources they devote to the research and development of new drugs, the amount of services that we perform, and therefore our revenues, could be reduced.

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

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

•

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



•

our certificate of incorporation authorizes our board of directors to issue shares of preferred stock without stockholder approval and to establish the preferences and rights of any preferred

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stock issued, which would allow the board to issue one or more classes or series of preferred stock that could discourage or delay a tender offer or change in control.

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

Our officers and directors will have significant control over us and their interests may differ from yours.

        At March 15, 2002, our directors and officers beneficially owned or controlled approximately 25.8% of our common stock. Individually and in the aggregate, these stockholders significantly influence our management, affairs and all matters requiring stockholder approval. In particular, this concentration of ownership may have the effect of delaying, deferring or preventing an acquisition of us and may adversely affect the market price of our common stock.

Because our stock price may be volatile, our stock price could experience substantial declines.

        The market price of our common stock has historically experienced and may continue to experience volatility. Our quarterly operating results, changes in general conditions in the economy or the financial markets and other developments affecting us or our competitors could cause the market price of our common stock to fluctuate substantially. In addition, in recent years, the stock market has experienced significant price and volume fluctuations. In addition, during the past twelve months, the stock market, and in particular technology companies, have experienced significant decreases in market value. This volatility and the recent market decline has affected the market prices of securities issued by many companies, often for reasons unrelated to their operating performance, and may adversely affect the price of our common stock.

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

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        We invest our excess cash in interest-bearing investment-grade securities that we hold for the duration of the term of the respective instrument. We do not utilize derivative financial instruments, derivative commodity instruments or other market risk sensitive instruments, positions or transactions in any material fashion. Accordingly, we believe that, while the investment-grade securities we hold are subject to changes in the financial standing of the issuer of such securities, we are not subject to any material risks arising from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices or other market changes that affect market risk sensitive instruments.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ALBANY MOLECULAR RESEARCH, INC.

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Report of Independent Accountants

         To the Stockholders and Board of Directors of
Albany Molecular Research, Inc.

        In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) present fairly, in all material respects, the financial position of Albany Molecular Research, Inc. and its subsidiaries at December 31, 2001 and 2000 and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under 14(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Albany, New York
February 15, 2002

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Independent Auditors' Report

         The Board of Directors and Shareholders
Albany Molecular Research, Inc.:

        We have audited the consolidated statements of income, stockholders' equity and comprehensive income, and cash flows of Albany Molecular Research, Inc. and subsidiary for the year ended December 31, 1999. In connection with our audit of these consolidated financial statements, we also have audited the financial statement schedule for the year ended December 31, 1999. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audit.

        We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Albany Molecular Research, Inc. and subsidiary for the year ended December 31, 1999, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ KPMG LLP

Albany, New York
February 4, 2000

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ALBANY MOLECULAR RESEARCH, INC.

CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31, 1999, 2000 and 2001

(Dollars in thousands, except per share amounts)

See Accompanying Notes to Consolidated Financial Statements.

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ALBANY MOLECULAR RESEARCH, INC.

CONSOLIDATED BALANCE SHEETS

December 31, 2000 and 2001

(Dollars in thousands, except per share amounts)

See Accompanying Notes to Consolidated Financial Statements.

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ALBANY MOLECULAR RESEARCH, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME

Years Ended December 31, 1999, 2000 and 2001
(In thousands)

See Accompanying Notes to Consolidated Financial Statements.

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ALBANY MOLECULAR RESEARCH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 1999, 2000 and 2001

(In thousands)