ALBANY MOLECULAR RESEARCH INC, 424B4, 2000-10-06

ALBANY MOLECULAR RESEARCH INC
424B4, 2000-10-06
MEDICINAL CHEMICALS & BOTANICAL PRODUCTS

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Filed Pursuant to Rule 424(b)(4)
Registration No. 333-45286

[LOGO]

4,100,000 Shares

Common Stock

This is a public offering of common stock of Albany Molecular Research, Inc. We
are offering 4,100,000 shares of the common stock of which 1,100,000 are being
offered by the selling stockholders and 3,000,000 are being offered by us.

Our common stock is traded on the Nasdaq National Market under the symbol AMRI.
On October 5, 2000 the last reported sale price of our common stock was $42.25
per share.

Investing in our common stock involves risks. See "Risk Factors" beginning on
page 5.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<S> <C> <C> <C> <C>
Underwriting
Price to Discounts and Proceeds to Proceeds to
Public Commissions AMRI Selling Stockholders

Per Share $42.25 $2.43 $39.82 $39.82
Total $173,225,000 $9,963,000 $119,460,000 $43,802,000
</TABLE>

One of our stockholders has granted the underwriters the right to purchase up to
615,000 additional shares of common stock at the public offering price to cover
over-allotments.

Deutsche Banc Alex. Brown
Chase H&Q
CIBC World Markets
Prudential Vector Healthcare
a unit of Prudential Securities
FAC/Equities

The date of this prospectus is October 5, 2000.
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[INSIDE COVER OF PROSPECTUS]

[FOUR PHOTOGRAPHS OF THE COMPANY'S LABORATORY FACILITIES AND ONE
PHOTOGRAPH OF THE EXTERIOR OF THE COMPANY'S ALBANY FACILITY.]
<PAGE>
PROSPECTUS SUMMARY

THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD
CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD CAREFULLY READ THE
ENTIRE PROSPECTUS, INCLUDING THE RISK FACTORS SECTION STARTING ON PAGE 5 AND THE
FINANCIAL STATEMENTS, BEFORE MAKING AN INVESTMENT DECISION. THE INFORMATION IN
THIS PROSPECTUS GIVES EFFECT TO A TWO-FOR-ONE SPLIT OF OUR COMMON STOCK EFFECTED
ON AUGUST 24, 2000.

OUR BUSINESS

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. Most of the services that we provide have been traditionally
provided by the chemistry divisions within pharmaceutical and biotechnology
companies. Our services include:

- drug discovery, including biocatalysis, combinatorial library development,
and lead discovery and optimization,

- medicinal chemistry, including rational design, compound modification and
synthesis of compounds,

- chemical development, including process research, purification and method
development,

- analytical chemistry services, including method development, validation,
quality control, stability analysis and regulatory consulting, and

- small-scale and commercial manufacturing.

Since our inception, we have conducted over 850 projects for more than 135
customers. Our service contracts range from short, one-time projects to
multi-year assignments. Our customers include AstraZeneca, DuPont
Pharmaceuticals, Eli Lilly and Pfizer.

We also conduct proprietary research and development, which may lead to our
receiving non-recurring up-front service fees and milestone payments for
advancing new products as well as recurring royalty payments for new drugs
successfully reaching the market. As a result of our proprietary work related to
the antihistamine product marketed as Allegra in the United States and Telfast
elsewhere, we have earned a total of $58.2 million in milestones and royalties
from Aventis since our contract with them began in 1995 through June 30, 2000.

OUR INDUSTRY

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addition, pharmaceutical and biotechnology companies are under pressure to
deliver new drugs to market and reduce the time required for drug development.

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.
Pharmaceutical companies spent over $17 billion on research and development in
the United States in 1998. Of the $17 billion in spending for 1998,
approximately $5 billion was spent on chemistry-related functions.

OUR STRATEGY

Our objective is to be the leading chemistry research and drug discovery and
development company. The primary components of our strategy are to:

- expand our customer relationships,

- expand our global customer base,

- increase our capacity through expansion of our scientific staff and our
facilities,

- enhance our technological capabilities to include additional aspects of
drug discovery, development and manufacturing, and

- capitalize on our proprietary technologies.
------------------------

Our headquarters are located at 21 Corporate Circle, P.O. Box 15098, Albany,
New York 12212-5098 and our telephone number is (518) 464-0279. Our Web site can
be found at www.albmolecular.com. The information contained in our Web site does
not constitute a part of this prospectus.

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THE OFFERING

<TABLE>
<S> <C>
Common stock offered by Albany Molecular Research, Inc...... 3,000,000 shares

Common stock offered by the selling stockholders............ 1,100,000 shares

Common stock to be outstanding after this offering.......... 32,760,752 shares

Use of proceeds............................................. For working capital and other
general corporate purposes,
including possible acquisitions. See
"Use of Proceeds."

Nasdaq National Market symbol............................... AMRI
</TABLE>

The number of shares that will be outstanding after the offering is based on
shares outstanding as of September 1, 2000 and excludes 2,138,206 shares of
common stock issuable upon exercise of outstanding stock options under our stock
option plans at a weighted average exercise price of $8.78 per share.

UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES THE
UNDERWRITERS HAVE NOT EXERCISED THEIR OVER-ALLOTMENT OPTION TO PURCHASE
ADDITIONAL SHARES. FOR MORE INFORMATION, SEE THE "UNDERWRITING" SECTION OF THIS
PROSPECTUS.

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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- ---------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net contract revenue............................... $ 2,984 $ 5,499 $ 8,209 $13,649 $22,027 $ 9,732 $16,667
Non-recurring licensing fees, milestones and
royalties (1).................................... 200 1,000 2,500 8,069 -- -- --
Recurring royalties................................ -- -- 31 11,576 21,444 10,034 13,425
------- ------- ------- ------- ------- ------- -------
Total revenue.................................... 3,184 6,499 10,740 33,294 43,471 19,766 30,092

Cost of contract revenue........................... 1,373 3,052 4,430 7,734 12,491 5,529 9,324
Technology incentive award......................... 200 100 253 1,822 2,132 993 1,343
Research and development........................... 579 813 1,520 1,782 1,827 929 986
Selling, general and administrative................ 1,324 1,786 2,881 5,109 6,873 2,979 3,769
------- ------- ------- ------- ------- ------- -------
Total operating expenses......................... 3,475 5,751 9,084 16,447 23,323 10,430 15,422

Income (loss) from operations...................... (292) 748 1,656 16,847 20,148 9,336 14,670

Other income (expense):
Equity in income (loss) of unconsolidated
affiliates..................................... -- -- -- -- (98) -- 350
Interest income, net............................. 98 25 40 37 2,000 730 1,340
Other income (expense), net...................... 6 20 (28) (36) (81) -- 5
------- ------- ------- ------- ------- ------- -------
Total other income, net............................ 104 45 12 1 1,821 730 1,695

Income (loss) before income tax expense............ (188) 793 1,668 16,848 21,969 10,066 16,365

Income tax expense (benefit)....................... (239) 244 373 6,351 8,195 3,773 6,086
------- ------- ------- ------- ------- ------- -------

Net income......................................... $ 51 $ 549 $ 1,295 $10,497 $13,774 $ 6,293 $10,279
======= ======= ======= ======= ======= ======= =======

Basic earnings per share........................... $ 0.00 $ 0.02 $ 0.06 $ 0.46 $ 0.51 $ 0.24 $ 0.35

Diluted earnings per share......................... $ 0.00 $ 0.02 $ 0.05 $ 0.41 $ 0.46 $ 0.22 $ 0.33

Weighted average common shares outstanding,
basic............................................ 21,402 22,370 22,670 22,696 27,132 25,908 29,590

Weighted average common shares outstanding,
diluted.......................................... 23,051 24,278 24,819 25,547 29,634 28,747 31,045
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 2000
---------------------------
ACTUAL AS ADJUSTED (2)
--------- ---------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 12,292 $131,302
Investment securities, available-for-sale................... 16,911 16,911
Working capital............................................. 39,766 158,776
Total assets................................................ 102,376 221,386
Long-term debt, excluding current installments.............. -- --
Total stockholders' equity.................................. 96,135 215,145
</TABLE>

------------------------------

(1) For 1995, 1996 and 1997, consists of non-recurring milestone payments under
our licensing agreement with Aventis. For 1998, consists of $3,700 in
non-recurring milestone payments and $4,400 in royalties related to prior
periods which we received from Aventis under that agreement.

(2) Adjusted to reflect the sale of 3,000,000 shares of our common stock in this
offering, after deducting underwriting discounts and commissions and
estimated offering expenses payable by us.

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RISK FACTORS

INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND ALL OTHER INFORMATION
CONTAINED IN THIS PROSPECTUS BEFORE PURCHASING OUR COMMON STOCK. THE RISKS AND
UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES FACING US. ADDITIONAL RISKS
AND UNCERTAINTIES THAT WE ARE UNAWARE OF, OR THAT WE CURRENTLY DEEM IMMATERIAL,
ALSO MAY BECOME IMPORTANT FACTORS THAT AFFECT US.

IF ANY OF THE FOLLOWING RISKS OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR
RESULTS OF OPERATIONS COULD BE MATERIALLY AND ADVERSELY AFFECTED. IN THAT CASE,
THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE SOME OR
ALL OF YOUR INVESTMENT.

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, 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.

In the first six months of 2000, we earned approximately 46% of our contract
revenues providing services to three major customers. Our customers typically
may cancel their contracts with 30 to 90 days' notice for a variety of reasons,
many of which are out of 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 manufacturing
process for, the drug fexofenadine HCl, which is the active ingredient in a
non-sedating antihistamine marketed and sold by Aventis under a license from us.
The product is marketed in the Americas under the brand name Allegra and in the
rest of the world under the brand name Telfast. For the six months ended
June 30, 2000, our revenues from the license were $13.4 million, which
represented approximately 45% of our total revenues, and for the year ended
December 31, 1999, our revenues from the license were $21.4 million, which
represented approximately 49% of our total revenues. However, Allegra sales may
decrease for a variety of reasons, including the introduction into the
marketplace of a superior drug or generic versions of competing branded drugs,
or the discovery of unintended side effects from the use of Allegra. If Allegra
sales decrease due to these or any other factors, our revenues from the license
agreement will decrease. Because we have very few costs associated with the
Allegra license, any decrease in our revenues from the license agreement for
Allegra would have a disproportionately adverse effect on our results of
operations.

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WE MAY BE UNSUCCESSFUL IN PRODUCING PROPRIETARY TECHNOLOGY FROM OUR INTERNAL
RESEARCH AND DEVELOPMENT EFFORTS.

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. 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.

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 recently engaged in 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.

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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 and American Advanced Organics, Inc., a
contract manufacturer of novel compounds, pharmaceutical intermediates and test
drug substances, in February 2000. 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,

- 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 one 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.

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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. 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, they may
impose fines on us or, if the FDA determines that our non-compliance is severe,
they may close our facilities. Any adverse action by the FDA would have a
negative impact on our operations.

OUR OPERATIONS MAY BE INTERRUPTED BY THE OCCURRENCE OF A NATURAL DISASTER OR
OTHER CATASTROPHIC EVENT AT OUR PRIMARY FACILITIES.

We depend on our laboratories and equipment for the continued operation of
our business. Our research and development operations and all administrative
functions are primarily conducted at our facilities in Albany and Rensselaer,
New York. Although we have contingency plans in effect for natural disasters or
other catastrophic events, 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.

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

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meeting of stockholders, this provision may have the effect of keeping the
current members of our board of directors in control for a longer period
of time than stockholders may desire.

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

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

OUR OFFICERS AND DIRECTORS WILL HAVE SIGNIFICANT CONTROL OVER US AND THEIR
INTERESTS MAY DIFFER FROM YOURS.

After this offering, our directors and officers will beneficially own or
control approximately 38.3% of our common stock. Individually and in the
aggregate, these stockholders will be able to significantly influence our
management, affairs and all matters requiring shareholder 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. This
volatility has affected the market prices of securities issued by many companies
for reasons unrelated to their operating performance and may adversely affect
the price of our common stock.

SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD ADVERSELY AFFECT OUR
STOCK PRICE.

The market price of our common stock could decline as a result of sales of
shares by our existing stockholders after this offering, or the perception that
such sales will occur. These sales also might make it difficult for us to sell
equity securities in the future at a time and at a price that we deem
appropriate. After this offering, we will have approximately 32,760,752 shares
of common stock outstanding. Of these shares, approximately 20,373,535 shares
will be freely tradable without restriction under the Securities Act of 1933.
Also, 12,089,758 shares will be currently eligible for sale in the public market
subject to compliance with the volume and other limitations of Rule 144 under
the Securities Act, and 297,459 shares will become eligible for sale at various
times after the date of this prospectus under Rule 144.

Our executive officers, directors and the selling stockholders have agreed
not to sell a total of 13,504,748 shares of our common stock for a period of 90
days after the date of this prospectus without the consent of Deutsche Bank
Securities Inc. In addition, we have also agreed, subject to some exceptions,
not to sell shares for a period of 90 days after the date of this prospectus
without the consent of Deutsche Bank Securities Inc. In addition, we have
registered for resale the 5,532,946 shares of our common stock reserved for
issuance under our stock plans. As of September 1, 2000, options to purchase
2,138,206 shares of our common stock were outstanding and will be eligible for
sale in the public market from time to time subject to vesting and, in the case
of some stock options, the expiration of lock-up agreements. The possible sale
of a significant number of the shares may cause the price of our common stock to
fall.

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WE WILL HAVE BROAD DISCRETION AS TO THE USE OF THE PROCEEDS FROM THIS OFFERING
AND MAY USE THE PROCEEDS IN A MANNER WITH WHICH YOU DISAGREE.

Our board of directors and management will have broad discretion over the
use of the net proceeds of this offering. You may disagree with the judgment of
our board of directors and management regarding the application of the proceeds
of this offering.

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 after the offering or even maintain the
price at which you purchased your shares.

SPECIAL STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. You can identify these statements
by forward-looking words such as "may," "will," "expect," "anticipate,"
"believe," "estimate," and "continue" or similar words. You should read
statements that contain these words carefully because they discuss our future
expectations, contain projections of our future results of operations or of our
financial condition, or state other "forward-looking" information. We believe
that it is important to communicate our future expectations to our investors.
However, there may be events in the future that we are not able to accurately
predict or control and that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements. Investors
are cautioned that all forward-looking statements involve risks and
uncertainties, and actual results may differ materially from those discussed as
a result of various factors, including those factors described in the "Risk
Factors" section of this prospectus. Readers should not place undue reliance on
our forward-looking statements. Before you invest in our common stock, you
should be aware that the occurrence of the events described in the "Risk
Factors" section and elsewhere in this prospectus could harm our business,
prospects, operating results and financial condition.

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USE OF PROCEEDS

Our net proceeds from the sale of the 3,000,000 shares of our common stock
offered by us are estimated to be $119.0 million, after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by us. We will not receive any proceeds from the sale of shares of our common
stock by the selling stockholders. We expect to use the net proceeds from this
offering for working capital and other general corporate purposes. We may also
use a portion of the net proceeds from this offering for one or more
acquisitions; however, we do not currently have any commitments or agreements
with respect to any acquisitions. Pending use, the net proceeds will be invested
in short-term, investment-grade, interest-bearing obligations.

DIVIDEND POLICY

We have never declared any cash dividends on our common stock. We currently
intend to retain our earnings for future growth, and, therefore, we 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.

PRICE RANGE OF COMMON STOCK

Our common stock has been traded on the Nasdaq National Market since our
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
per share of our common stock as reported by Nasdaq National Market for the
periods indicated:

<TABLE>
<CAPTION>
PERIOD HIGH LOW
------ -------- --------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1999
First Quarter (from February 4 through March 31, 1999).... $12.50 $ 9.75
Second Quarter............................................ $15.50 $11.00
Third Quarter............................................. $18.25 $10.25
Fourth Quarter............................................ $15.88 $11.50
YEAR ENDING DECEMBER 31, 2000
First Quarter............................................. $38.63 $13.69
Second Quarter............................................ $39.13 $21.13
Third Quarter............................................. $56.50 $25.06
Fourth Quarter (through October 5, 2000).................. $49.23 $42.25
</TABLE>

On October 5, 2000, the last reported closing price of our common stock on
the Nasdaq National Market was $42.25 per share. The number of record holders of
our common stock as of October 2, 2000 was approximately 176. We believe that
the number of beneficial owners of our common stock at that date was
substantially greater.

11
<PAGE>
CAPITALIZATION

The following table sets forth our capitalization as of June 30, 2000
(unaudited) on an actual basis and as adjusted to reflect our use of the
estimated net proceeds from this offering as described under "Use of Proceeds."

<TABLE>
<CAPTION>
JUNE 30, 2000
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt.............................................. $ -- $ --
Stockholders' equity:
Preferred stock, par value $0.01 per share; 2,000,000
shares authorized, no shares issued and outstanding
actual and as adjusted.................................. -- --
Common stock, par value $0.01 per share; 50,000,000 shares
authorized; 29,726,148 shares issued and outstanding
actual; 32,726,148 shares issued and outstanding as
adjusted................................................ 297 327
Additional paid-in capital................................ 59,848 178,828
Retained earnings......................................... 35,995 35,995
Accumulated other comprehensive income (loss)............. (5) (5)
------- --------
Total stockholders' equity.............................. 96,135 215,145
------- --------
Total capitalization.................................. $96,135 $215,145
======= ========
</TABLE>

------------------------

The above table excludes 2,110,652 shares of common stock issuable upon exercise
of outstanding stock options, 2,880,530 additional shares of common stock
available for future grants under our 1998 Stock Option and Incentive Plan and
581,064 additional shares of common stock available for future sales under our
1998 Employee Stock Purchase Plan, in each case as of June 30, 2000.

12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following selected consolidated statement of operations data for each of
the years ended December 31, 1997, 1998 and 1999 and selected consolidated
balance sheet data at December 31, 1998 and 1999 are derived from our
consolidated financial statements which have been audited by KPMG LLP,
independent auditors, and are included elsewhere in this prospectus. The
selected consolidated statement of operations data for the years ended
December 31, 1995 and 1996 and the selected consolidated balance sheet data at
December 31, 1995, 1996 and 1997 are derived from audited financial statements
not included in this prospectus. The selected consolidated statement of
operations data for the six-month periods ended June 30, 1999 and 2000 and the
selected consolidated balance sheet data at June 30, 2000 are derived from
unaudited consolidated financial statements also included in this prospectus.
The unaudited consolidated financial statements for the six-month periods have
been prepared on a basis consistent with our audited consolidated financial
statements and, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of our consolidated financial position and consolidated results of
operations for these periods. The consolidated results of operations for the six
months ended June 30, 2000 are not necessarily indicative of results for the
year ending December 31, 2000 or any future period. The data set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and notes included in this prospectus.

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net contract revenue................................. $ 2,984 $5,499 $8,209 $13,649 $22,027 $ 9,732 $16,667
Non-recurring licensing fees, milestones and
royalties (1)...................................... 200 1,000 2,500 8,069 -- -- --
Recurring royalties.................................. -- -- 31 11,576 21,444 10,034 13,425
------- ------ ------ ------- ------- ------- -------
Total revenue...................................... 3,184 6,499 10,740 33,294 43,471 19,766 30,092

Cost of contract revenue............................. 1,373 3,052 4,430 7,734 12,491 5,529 9,324
Technology incentive award........................... 200 100 253 1,822 2,132 993 1,343
Research and development............................. 579 813 1,520 1,782 1,827 929 986
Selling, general and administrative.................. 1,324 1,786 2,881 5,109 6,873 2,979 3,769
------- ------ ------ ------- ------- ------- -------
Total operating expenses........................... 3,475 5,751 9,084 16,447 23,323 10,430 15,422

Income (loss) from operations........................ (292) 748 1,656 16,847 20,148 9,336 14,670

Other income (expense):
Equity in income (loss) of unconsolidated
affiliates....................................... -- -- -- -- (98) -- 350
Interest income, net............................... 98 25 40 38 2,000 730 1,340
Other income (expense), net........................ 6 20 (28) (37) (81) -- 5
------- ------ ------ ------- ------- ------- -------
Total other income, net.............................. 104 45 12 1 1,821 730 1,695
Income (loss) before income tax expense.............. (188) 793 1,668 16,848 21,969 10,066 16,365
Income tax expense (benefit)......................... (239) 244 373 6,351 8,195 3,773 6,086
------- ------ ------ ------- ------- ------- -------
Net income........................................... $ 51 $ 549 $1,295 $10,497 $13,774 $ 6,293 $10,279
======= ====== ====== ======= ======= ======= =======

Basic earnings per share............................. $ 0.00 $ 0.02 $ 0.06 $ 0.46 $ 0.51 $ 0.24 $ 0.35

Diluted earnings per share........................... $ 0.00 $ 0.02 $ 0.05 $ 0.41 $ 0.46 $ 0.22 $ 0.33

Weighted average common shares outstanding, basic.... 21,402 22,370 22,670 22,696 27,132 25,908 29,590

Weighted average common shares outstanding,
diluted............................................ 23,051 24,278 24,819 25,547 29,634 28,747 31,045
</TABLE>

13
<PAGE>

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------- JUNE 30,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................ $1,079 $ 2,942 $ 2,582 $ 5,320 $ 2,673 $ 12,292
Investment securities, available-for-sale........ 1,913 1,735 1,950 2,027 21,172 16,911
Working capital.................................. 3,145 4,588 5,542 9,143 34,432 39,766
Total assets..................................... 6,838 11,326 13,548 32,630 88,242 102,376
Long-term debt, excluding current installments... 748 2,375 1,776 13,349 168 --
Total stockholders' equity....................... 4,897 7,456 9,799 12,824 82,920 96,135
</TABLE>

------------------------------

14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH OUR
CONSOLIDATED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION APPEARING
ELSEWHERE IN THIS PROSPECTUS.

OVERVIEW

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 to 90 days'
prior notice. 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

Many of our contracts for discovery technology services contain provisions
for licensing, milestone and royalty payments should our proprietary technology,
including enzymes, microbial manipulation and combinatorial chemistry, lead to
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.

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

15
<PAGE>
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. In 1998, we received from Aventis
$3.7 million in non-recurring milestone payments and $4.4 million in royalties
related to prior periods.

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 in that
quarter.

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 on 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.

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.

16
<PAGE>
RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, selected
consolidated statement of operations data for the periods indicated as a
percentage of total revenue:

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net contract revenue................................ 76.4% 41.0% 50.7% 49.2% 55.4%
Non-recurring licensing fees, milestones and
royalties......................................... 23.3 24.2 0.0 0.0 0.0
Recurring royalties................................. 0.3 34.8 49.3 50.8 44.6
----- ----- ----- ----- -----
Total revenue..................................... 100.0 100.0 100.0 100.0 100.0

Cost of contract revenue............................ 41.2 23.2 28.7 28.0 30.9
Technology incentive award.......................... 2.4 5.5 4.9 5.0 4.5
Research and development............................ 14.2 5.4 4.2 4.7 3.3
Selling, general and administrative................. 26.8 15.3 15.8 15.1 12.5
----- ----- ----- ----- -----
Total operating expenses.......................... 84.6 49.4 53.7 52.8 51.2

Income from operations.............................. 15.4 50.6 46.3 47.2 48.8

Other income (expense):
Equity in income (loss) of unconsolidated
affiliates...................................... 0.0 0.0 (0.2) 0.0 1.2
Interest income, net.............................. 0.4 0.1 4.6 3.7 4.5
Other non-operating income (expense), net......... (0.3) (0.1) (0.2) 0.0 0.0
----- ----- ----- ----- -----
Total other income, net............................. 0.1 0.0 4.2 3.7 5.6

Income before income tax expense.................... 15.5 50.6 50.5 50.9 54.4

Income tax expense.................................. 3.5 19.1 18.9 19.1 20.2
----- ----- ----- ----- -----

Net income.......................................... 12.1% 31.5% 31.7% 31.8% 34.2%
===== ===== ===== ===== =====
</TABLE>

SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999

NET CONTRACT REVENUE. Net contract revenue for the six months ended June
30, 2000 increased 71.3% to $16.7 million, compared to $9.7 million for the same
period in 1999. This increase was due principally to a greater number of
projects under contract, primarily for medicinal chemistry and chemical
development services, which was facilitated by an increase in the number of
scientific staff to 189 as of June 30, 2000, from 124 as of June 30, 1999.

RECURRING ROYALTIES. Recurring royalties for the six months ended June 30,
2000 increased 33.8% to $13.4 million, compared to $10.0 million for the same
period in 1999. The increase was attributable to increased sales of fexofenadine
HCl by Aventis.

TOTAL REVENUE. Total revenue for the first six months of 2000 increased
52.2% to $30.1 million, compared to $19.8 million for the same period in 1999.

COST OF CONTRACT REVENUE. Cost of contract revenue increased 68.6% to $9.3
million for the six months ended June 30, 2000, compared to $5.5 million for the
same period in 1999. Our net contract revenue margin increased to 44.1% for the
six months ended June 30, 2000, compared to 43.2% for the same period in 1999,
primarily from higher fees generated from our contract services.

17
<PAGE>
TECHNOLOGY INCENTIVE AWARD. The technology incentive award expense incurred
under our Technology Development Incentive Plan increased 35.3% to $1.3 million
for the six months ended June 30, 2000, compared to $993,000 for the same period
in 1999. The increase was directly attributable to the increase in recurring
royalties.

RESEARCH AND DEVELOPMENT. Research and development expense increased 6.1%
to $986,000 for the six months ended June 30, 2000, compared to $929,000 for the
same period in 1999. The increase was due primarily to an increase in internally
funded research efforts.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 26.5% to $3.8 million for the six months ended June 30, 2000,
compared to $3.0 million for the same period in 1999. The increase was primarily
attributable to an increase in administrative and marketing staffing to support
the expansion of our operations, an increase in expenses related to recruitment
of scientists and certain costs associated with becoming a publicly traded
company. Selling, general and administrative expenses represented 22.6% of net
contract revenue for the six months ended June 30, 2000, compared to 30.6% for
the same period in 1999.

TOTAL OTHER INCOME, NET. Total other income, net was $1.7 million for the
six months ended June 30, 2000, compared to $730,000 for the same period in
1999. Total other income, net for the six months ended June 30, 2000 was
comprised of $1.3 million in interest income, net of interest expense, and
$350,000 in income from our unconsolidated affiliate, Organichem. Total other
income, net for the same period in 1999 was comprised of $730,000 in interest
income, net of interest expense.

INCOME TAX EXPENSE. Income tax expense increased to $6.1 million for the
six months ended June 30, 2000 from $3.8 million for the same period of 1999.
The effective rate for our provision for income taxes was 38.0% for the six
months ended June 30, 2000 and 37.5% for the same period in 1999.

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

NET CONTRACT REVENUE. Net contract revenue increased 61.4% to
$22.0 million for the year ended December 31, 1999, compared to $13.6 million in
1998. 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 148
at December 31, 1999 from 101 at December 31, 1998.

NON-RECURRING LICENSING FEES, MILESTONES AND ROYALTIES. We did not receive
any non-recurring licensing fees, milestones or royalties for the year ended
December 31, 1999. As a result of the February 1998 United States Patent and
Trademark Office decision, we met all prerequisites of the licensing agreement
with Aventis and recognized and received in the first three months of 1998
milestone payments and royalties on all sales of fexofenadine HCl in the United
States from November 26, 1996, the date of patent issuance, through
December 31, 1997. Our milestones and royalties from fexofenadine HCl for 1998
include $3.7 million in non-recurring milestone payments and $4.4 million in
royalties related to prior periods and, as a result, such milestone payments and
royalties may not be indicative of future amounts earned under the license
agreement with Aventis. In particular, no further milestone payments are
required under the agreement.

18
<PAGE>
RECURRING ROYALTIES. Recurring royalties for the year ended December 31,
1999 increased 85.3% to $21.4 million, compared to $11.6 million for 1998. The
increase was attributable to increased sales of fexofenadine HCl by Aventis.

TOTAL REVENUE. Total revenue for the year ended December 31, 1999 increased
30.6% to $43.5 million, compared to $33.3 million for 1998.

COST OF CONTRACT REVENUE. Cost of contract revenue increased 61.5% to
$12.5 million for the year ended December 31, 1999, compared to $7.7 million for
1998. Net contract revenue margin remained relatively constant as a percentage
of net contract revenue.

TECHNOLOGY INCENTIVE AWARD. The technology incentive award expense incurred
under our Technology Development Incentive Plan increased 17.0% to $2.1 million
for the year ended December 31, 1999, compared to $1.8 million for 1998. The
increase was directly attributable to the increase in recurring royalties.

RESEARCH AND DEVELOPMENT. Research and development expense remained
constant at $1.8 million for the years ended December 31, 1999 and 1998.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 34.5% to $6.9 million for the year ended December 31, 1999,
compared to $5.1 million for 1998. 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 31.2% of net contract
revenue in 1999 as compared to 37.4% for 1998.

TOTAL OTHER INCOME, NET. Total other income, net was $1.8 million for the
year ended December 31, 1999, compared to $1,000 for 1998. This 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
expenses. Total other income, net for 1998 was comprised of interest income of
$38,000, net of non-operating expenses of $37,000.

INCOME TAX EXPENSE. Income tax expense increased to $8.2 million for the
year ended December 31, 1999, compared to $6.4 million for 1998. The effective
rate for our provision for income taxes was 37.5% in 1999 as compared to 37.7%
for 1998.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

NET CONTRACT REVENUE. Net contract revenue increased 66.3% to
$13.6 million for the year ended December 31, 1998, compared to $8.2 million for
1997. 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 101
at December 31, 1998 from 61 at December 31, 1997.

NON-RECURRING LICENSING FEES, MILESTONES AND ROYALTIES. Non-recurring
licensing fees, milestones and royalties increased 222.8% to $8.1 million for
the year ended December 31, 1998, compared to $2.5 million for 1997. As a result
of the February 1998 United States Patent and Trademark Office decision, we met
all prerequisites of the licensing agreement with Aventis and recognized and
received in the first three months of 1998 milestone payments and royalties on
all sales of fexofenadine HCl in the United States from November 26, 1996, the
date of patent issuance, through December 31, 1997. Our milestones and royalties
from fexofenadine HCl for 1998 include $3.7 million in non-recurring milestone
payments and $4.4 million in royalties related to prior periods and, as a
result, such milestone payments and royalties may not be indicative of future

19
<PAGE>
amounts earned under the license agreement with Aventis. In particular, no
further milestone payments are required under the agreement.

RECURRING ROYALTIES. Recurring royalties for the year ended December 31,
1998 were $11.6 million, compared to $31,000 of recurring royalties for 1997.

TOTAL REVENUE. Total revenue for the year ended December 31, 1998 increased
210.0% to $33.3 million, compared to $10.7 million for 1997.

COST OF CONTRACT REVENUE. Cost of contract revenue increased 74.6% to
$7.7 million in the year ended December 31, 1998, compared to $4.4 million for
1997. Net contract revenue margin as a percentage of net contract revenue
decreased to 43.3% for the year ended December 31, 1998 from 46.0% for 1997.

TECHNOLOGY INCENTIVE AWARD. The technology incentive award expense incurred
under our Technology Development Incentive Plan increased 620.2% to
$1.8 million in the year ended December 31, 1998, compared to $253,000 for 1997.
The increase was directly attributable to the increase in licensing fees,
milestones and royalties.

RESEARCH AND DEVELOPMENT. Research and development expense increased 17.2%
to $1.8 million for the year ended December 31, 1998, compared to $1.5 million
for 1997. The increase was due primarily to an increase in internally funded
research efforts.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 77.3% to $5.1 million for the year ended December 31, 1998,
compared to $2.9 million for 1997. The dollar 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 37.4% of
net contract revenue in 1998 as compared to 35.1% for 1997.

TOTAL OTHER INCOME, NET. Total other income, net was $1,000 for the year
ended December 31, 1998, compared to $12,000 for 1997. Total other income, net
for 1998 was comprised of interest income, net of $37,000, net of non-operating
expenses of $36,000. Total other income, net for 1997 was comprised of interest
income, net of $40,000, net of $28,000 of other non-operating expenses.

INCOME TAX EXPENSE. Income tax expense increased to $6.4 million for the
year ended December 31, 1998, compared to $373,000 for 1997. The effective rate
for our provision for income taxes was 37.7% in 1998, compared to 22.4% for
1997.

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth unaudited quarterly consolidated operating
results for each of our last six quarters. We have prepared this information on
a basis consistent with our audited consolidated financial statements and
included all adjustments, consisting only of normal recurring adjustments, that
we consider necessary for a fair presentation of the data. These quarterly
results are not necessarily indicative of future results of operations. This
information should be read in

20
<PAGE>
conjunction with our consolidated financial statements and notes included
elsewhere in this prospectus.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1999 1999 1999 1999 2000 2000
--------- -------- --------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net contract revenue.................... $4,587 $ 5,145 $ 5,641 $ 6,654 $ 7,833 $ 8,834
Non-recurring licensing fees, milestones
and royalties......................... -- -- -- -- -- --
Recurring royalties..................... 4,184 5,850 5,848 5,562 5,681 7,744
------ ------- ------- ------- ------- -------
Total revenue......................... 8,771 10,995 11,489 12,216 13,514 16,578

Cost of contract revenue................ 2,602 2,928 3,237 3,724 4,386 4,938
Technology incentive award.............. 415 578 585 554 568 774
Research and development................ 453 476 457 441 418 568
Selling, general and administrative..... 1,423 1,556 1,675 2,219 1,902 1,867
------ ------- ------- ------- ------- -------
Total operating expenses.............. 4,893 5,538 5,954 6,938 7,274 8,147

Income from operations.................. 3,878 5,457 5,535 5,278 6,240 8,431

Other income (expense):
Equity in income (loss) of
unconsolidated affiliates........... -- -- -- (98) 107 243
Interest income, net.................. 193 540 575 691 708 632
Other income, net..................... 56 (59) (13) (64) 5 --
------ ------- ------- ------- ------- -------
Total other income, net................. 249 481 562 529 820 875

Income before income tax expense........ 4,127 5,938 6,097 5,807 7,060 9,306

Income tax expense...................... 1,547 2,226 2,282 2,140 2,642 3,444
------ ------- ------- ------- ------- -------

Net income.............................. $2,580 $ 3,712 $ 3,815 $ 3,667 $ 4,418 $ 5,862
====== ======= ======= ======= ======= =======
Diluted earnings per share.............. $ 0.09 $ 0.12 $ 0.13 $ 0.12 $ 0.14 $ 0.19
</TABLE>

Our results of operations historically have fluctuated on a quarterly basis
and can be expected to continue to be subject to quarterly fluctuations. In
particular, quarterly fluctuations in our royalty revenue relating to worldwide
sales of Allegra/Telfast are subject to seasonal demand, and may produce
stronger quarterly fluctuations in our consolidated results of operations than
those which have occurred in prior periods. Our contract business has
historically not been subject to any significant seasonal fluctuations.

LIQUIDITY AND CAPITAL RESOURCES

We have historically funded our business through operating cash flows,
proceeds from borrowings and the issuance of equity securities. During the first
six months of 2000, we generated cash of $11.0 million from operating
activities, of which approximately $869,000 was used to fund a portion of the
purchase price for American Advanced Organics, $650,000 was used to acquire an
equity interest in Fluorous Technologies, Inc. and $5.0 million was used in
expansion-related projects. During the first six months of 2000, we used $49,000
for financing activities, consisting of $838,000 in payments on outstanding debt
offset by cash generated of $789,000 from the exercise of stock options for
common stock and the sale of common stock under the Employee Stock Purchase
Plan. Working capital was $39.8 million at June 30, 2000 compared to $34.4
million at

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December 31, 1999. We have available a $25 million credit facility to supplement
our liquidity needs. There were no borrowings under this credit facility at
June 30, 2000.

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

In October 1999, we completed a merger with EnzyMed, Inc., a provider of
combinatorial biocatalysis discovery services, in which the former stockholders
of EnzyMed received shares of our stock valued at $20.6 million. The merger was
accounted for as a pooling-of-interests. EnzyMed provided us with a
combinatorial biocatalysis platform for drug discovery technology. The acquired
technology uses enzymes and microbial systems to produce new synthetic
transformations of compounds. This technology also produces greater diversity of
novel compounds suitable for lead discovery and optimization.

In December 1999, we made an investment in Organichem Corporation.
Organichem was formed through a management buyout of the Nycomed Amersham, plc
chemical manufacturing facility located in Rensselaer, New York. We acquired
shares of common stock of Organichem, representing a 37.5% equity ownership
interest in Organichem, for an aggregate purchase price of $15.0 million. We
also loaned $15.0 million to Organichem in the form of a convertible
subordinated debenture. The debenture is convertible at our option in 2003 into
a number of shares of Organichem sufficient to give us 75% ownership of
Organichem. We can, at that time, acquire the remaining 25% of Organichem for a
price to be determinable based upon Organichem's financial performance, which
price can be between $15.0 million and $30.0 million and is payable in cash or a
combination of cash and stock at our option. In addition, the other holders of
ownership interests in Organichem have the right to require us to purchase their
ownership interests in Organichem in 2004 at a price calculated using the same
formula.

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. We may also be required to pay in the aggregate up to an additional
$800,000 in cash to former American Advanced Organics stockholders in 2000 and
2001 based on the financial performance of this division.

In May 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

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Technologies issues additional common stock to fund its operations and
development. As a result of our investment, a proportionate share of Fluorous
Technologies' earnings or losses will be included in our consolidated financial
results.

Our board of directors recently approved a two-for-one split of our common
stock. The stock split entitled each stockholder of record at the close of
business on August 8, 2000, to receive a stock dividend of one additional share
for every share of our common stock held on that date. The additional shares
resulting from the stock split were distributed on August 24, 2000. As a result
of the split, the number of outstanding shares of our common stock increased to
29,756,202 shares as of September 1, 2000.

We generated cash flow from operations of $13.1 million in 1999,
$10.2 million in 1998 and $381,000 in 1997. The increases in our cash flows for
each period were principally due to an increase in net licensing fees,
milestones and royalties.

Total capital expenditures for the first six months of 2000 were $5.0
million, for 1999 were $2.7 million, for 1998 were $11.6 million and for 1997
were $910,000. Capital expenditures were incurred in 2000 predominantly in
connection with the expansion of our facilities in Rensselaer, New York and Iowa
City, Iowa. In 1999, capital expenditures were related to the addition of new
laboratories and equipment. Capital expenditures in 1998 were principally in
connection with the expansion at our location in Albany, New York, which added
60,000 square feet to our existing 30,500 square feet of laboratory and
administrative space, at a cost of approximately $11.0 million. In 1997, capital
expenditures were incurred in connection with the purchase of equipment to
expand our service offerings, including computational chemistry and analytical
services.

We continue to expand our operations at our Rensselaer, New York site. This
expansion will accommodate additional medicinal chemistry and chemical
development laboratories. The total construction and equipment cost of this
expansion is estimated to be $7.0 million to $9.0 million, payable over
approximately 18 to 24 months. We expect to acquire an additional property in
Syracuse, New York for approximately $1.0 million and we expect to incur
additional capital expenditures in connection with the renovation of that
building. We also expect to incur additional capital expenditures to expand our
facility in Iowa City, Iowa. We have received initial approval of over $2.0
million in state grants to assist in funding the expansion at our Rensselaer
facility. We expect to fund the remaining cost of these expansions through cash
on hand, funds from operations, and, if necessary, our credit facility or
through the issuance of debt securities.

For the year ended December 31, 1999, we generated $38.5 million from
financing activities, consisting of $51.4 million from our February 1999 initial
public offering of 5,630,000 shares of common stock, net of $12.9 million of the
proceeds used to repay outstanding long-term debt. We also raised $500,000 and
$7.0 million in borrowings during the years ended December 31, 1999 and 1998,
respectively. During the year ended December 31, 1999, we also used
$40.5 million to purchase additional investment securities. In order to raise
cash for our purchase of an equity interest and convertible subordinated
debenture in Organichem, we sold $21.2 million of investment securities during
1999. The 37.5% equity investment in Organichem on December 21, 1999 used
approximately $15.1 million in cash, while the purchase of the subordinated
debenture in Organichem used approximately $15.0 million in cash. In addition,
we used $2.2 million from operating cash flow to pay outstanding debt.

Our working capital was $34.4 million at December 31, 1999, compared to
$9.1 million at December 31, 1998, and $5.5 million at December 31, 1997. The
increase in our working capital for the years ended December 31, 1999 and 1998
was primarily attributable to the milestones and royalties earned from our
license agreement with Aventis, less the associated technology incentive
compensation expense. Of the $19.6 million in milestones and royalties we earned
under the license agreement during the year ended December 31, 1998,
$3.7 million constituted non-recurring

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milestone payments and $4.4 million constituted royalties relating to prior
periods. While we will continue to receive quarterly royalty payments under the
Aventis license agreement, no additional milestone payments are due under the
agreement. In addition, future royalties under the agreement are dependent upon
future sales of fexofenadine HCl. We do not participate in the manufacture,
marketing or sale of fexofenadine HCl by Aventis and rely entirely on the
efforts of Aventis to manufacture, market and sell this product. There can be no
assurance that Aventis will continue to be successful in marketing and selling
fexofenadine HCl, that fexofenadine HCl will continue to receive market
acceptance or that we will continue to receive royalties from Aventis in
accordance with the terms of the license agreement. The occurrence of any one of
these events in the future could have a material adverse impact on our working
capital, liquidity and capital resources.

Our bank credit facility consists of a $25 million, three-year, revolving
line of credit, which converts thereafter into a five-year term loan. The bank
credit facility expires in June 2006. Amounts outstanding under the bank credit
facility bear interest at variable rates which are based upon, at our option,
the lender's prime rate or LIBOR plus an applicable margin. As of December 31,
1999, we had no outstanding indebtedness under our credit facility. The bank
credit facility restricts or prohibits us from incurring indebtedness, incurring
liens and disposing of assets and requires us to maintain certain financial
ratios on an ongoing basis. The bank credit facility is secured by a lien on
substantially all of our assets, other than our patents, and the assignment of
the right to receive royalty payments from Aventis under the license agreement.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" (as
amended by SFAS No. 138), which establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. SFAS No. 133 has subsequently been
amended by SFAS No. 137, issued in June 1999, which delays the effective date
for implementation of SFAS No. 133 until fiscal quarters of fiscal years
beginning after June 15, 2000. Management does not anticipate that the adoption
of SFAS No. 133 will have a material effect on our consolidated financial
statements because we do not presently utilize derivative investments or engage
in hedging activities.

In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements." SAB 101 summarizes certain of the SEC's
views in applying generally accepted accounting principles to revenue
recognition in financial statements. We are required to adopt SAB 101 in the
fourth quarter of 2000. Management does not expect the adoption of SAB 101 to
have a material effect on our financial condition or results of operations.

In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation--an Interpretation of APB Opinion No. 25." FIN 44 clarifies the
application of APB Opinion No. 25 and, among other issues clarifies the
following: the definition of an employee for purposes of applying APB Opinion
No. 25; the criteria for determining whether a plan qualifies as a non
compensatory plan; the accounting consequence of various modifications to the
terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. We do not
expect the application of FIN 44 to have a material impact on our financial
position or results of operations.

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BUSINESS

OVERVIEW

We are a leading chemistry research and drug discovery and development
company focused on applications for the pharmaceutical, biotechnology and life
sciences industries. We engage in 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. 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. Recently, 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 as Allegra in the Americas and as
Telfast elsewhere. Pursuant to a licensing agreement with Aventis, we have
earned a total of $58.2 million in milestones and royalties from the beginning
of the contract in 1995 through June 30, 2000 and are entitled to receive
ongoing royalties from Aventis based upon a percentage of sales of the product.
In addition, many of our discovery technology contracts provide for us to
receive licensing, milestone and royalty payments for discoveries which lead to
products that reach the market.

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.

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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:

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

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

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

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

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

[CHART]

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

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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 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:

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

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

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

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

- heightened regulatory environment and increased complexity that 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.

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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.

CASE STUDIES

- A customer engaged our medicinal chemistry group to pursue a novel
therapeutic compound for cardiovascular disease. Our scientists designed
and synthesized over 400 compounds, which were subsequently screened by
the customer. After a lead compound was identified, the customer engaged
our chemical development group to perform scale up and process development
for the lead compound. We then synthesized a batch of the compound for use
in clinical trials. During the course of this project, our chemistry staff
performed method development, validation and release testing, while
providing regulatory support for the synthesis of the cGMP batch.

- A customer engaged our chemical development group for a project in which
our scientists reduced the time and improved the safety and overall yield
of the customer's manufacturing process. The original process involved 15
steps and several dangerous high-temperature, high-pressure reactions,
noxious reagents and difficult crystallizations. Our scientists shortened
the process to 10 steps, eliminated the undesirable reactions, reagents
and crystallizations and doubled the overall yield. We prepared a total of
11 kilograms of final product, including three kilograms produced under
cGMP guidelines for use in clinical trials.

BUSINESS STRATEGY

Our objective is to be the leading chemistry research and drug discovery and
development company. Key elements of our business strategy are to:

- EXPAND OUR CUSTOMER RELATIONSHIPS. We seek to expand the number of service
offerings used by each of our customers by providing chemistry-related
services across the entire spectrum of the drug discovery, development and
manufacturing process. Large pharmaceutical customers often are comprised
of multiple divisions, each of which independently may utilize contract
services. A key element of this strategy is to expand our relationship
with these customers by successfully completing a project for one of our
customer's divisions and using that successful project as a means of
soliciting new projects from other divisions. Ten of our fifteen largest
customers have utilized more than one of our service offerings. We believe
that our existing customer base also provides an excellent source of
referrals.

- EXPAND OUR GLOBAL CUSTOMER BASE. We seek to expand our global customer
base. We believe there are significant opportunities for growth in
geographic areas in which we have not conducted significant marketing
efforts to date. Accordingly, since our initial public offering in
February 1999, we have created a dedicated business development staff,
increased our efforts to obtain successful biotechnology companies as
customers, increased advertising in trade publications and generally
expanded our United States and international marketing efforts.

- INCREASE OUR CAPACITY. Given the strong demand for our services, we will
seek to support our future growth by increasing capacity both in terms of
the number of our scientists and the

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size of our facilities. As of August 31, 2000, we had added a net of 118
scientists since January 1, 1999, bringing our total to 201. Of these
scientists approximately 63% have Ph.D. degrees. We continually seek to
recruit and retain additional experienced scientists. In 1999, we
completed an expansion of our Albany facility that more than tripled our
laboratory space. We intend to expand our facilities to increase capacity
and accommodate additional scientists as necessary.

- ENHANCE OUR TECHNOLOGICAL CAPABILITIES. Since our inception, we have
expanded our technological capabilities across all of the phases of drug
discovery, development and manufacturing to keep pace with the needs of
our customers. We originally provided only medicinal chemistry and
chemical development services and over time added analytical chemistry and
small scale manufacturing to our technological capabilities. Through our
acquisitions, we expanded our technology for the synthesis of novel
compound libraries and augmented our ability to provide rapid scale-up
manufacturing services. We also recently established a strategic
relationship with, and made a significant minority investment in,
Organichem Corporation, which will allow us to provide additional scale-up
and commercial manufacturing to our customers. We intend to continue to
enhance our capabilities through both additional internal initiatives and
selected strategic acquisitions of companies or technologies that
complement our capabilities.

- CAPITALIZE ON OUR PROPRIETARY TECHNOLOGIES. Our chemistry technologies,
including enzymes, microbial and combinatorial chemistry technologies, lie
at the core of the proprietary aspects of drug development. In connection
with our contract drug discovery, development and manufacturing services,
we seek opportunities to obtain contractual terms which may entitle us to
milestone payments and/or recurring royalty revenue streams with respect
to compounds or processes developed in conjunction with our customers.
Independent of our contract services, we seek to identify and develop
possible proprietary compounds or processes which we may license to third
parties. We are currently investigating a number of compounds for their
development potential. For example, our EnzyMed division recently
initiated proprietary research in the therapeutic areas of oncology,
immunosuppression and antibiotics designed to create novel derivatives of
structurally complex natural products.

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SERVICE OFFERINGS

The following chart sets forth the types of chemistry services typically
employed in the different phases of drug discovery, development and
manufacturing.

[CHART WITH FIVE PHASES OF DRUG DISCOVERY, DEVELOPMENT AND MANUFACTURING ON THE
HORIZONTAL AXIS AND THE TYPES OF CHEMISTRY SERVICES TYPICALLY EMPLOYED IN THE
DIFFERENT PHASES OF DRUG DISCOVERY, DEVELOPMENT AND MANUFACTURING ON THE
VERTICAL AXIS, WITH BARS INDICATING (I) THE CURRENT SERVICES OFFERED BY US AND
(II) SERVICES PROVIDED BY US THROUGH OUR INVESTMENT IN ORGANICHEM.]

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. 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:

- improve chemical compounds for currently marketed drugs,

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

- improve solubility and/or bioavailability of drug compounds,

- create libraries of potential lead compounds,

- identify active metabolites,

- widen patent coverage, and

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

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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 provided by us include:

- design and synthesis of potential lead compounds,

- 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

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

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 provided by us include:

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

- discovery and development of new product methodologies to prepare
products,

- process development and production of single-isomer molecules, and

- 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 provided by us
include:

- test method development and validation,

- quality control and release testing,

- 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

- 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).

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 and our technology for the
synthesis of combinatorial libraries. 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 which 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 June 30, 2000, we
have earned $7.2 million in milestone payments and $51.0 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

32
<PAGE>
approximately $780 million for the year ended December 31, 1999 and
approximately $499 million for the six months ended June 30, 2000.

CUSTOMERS

Since our inception, we have conducted over 850 projects for more than 135
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 DuPont
Pharmaceuticals accounted for 12% of our total revenue for the six months ended
June 30, 2000 and 11% for the year ended December 31, 1999. No other customer
accounted for more than 10% of our total revenue for the six months ended
June 30, 2000 or for the year ended December 31, 1999. For the six months ended
June 30, 2000, net contract revenue from our three largest customers represented
23%, 14% and 9% of our net contract revenue. For the year ended December 31,
1999, net contract revenue from our three largest customers respectively
represented approximately 22%, 10% and 10% 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 received $2.1 million in payments for 1999 and has
earned $1.3 million for the six months ended June 30, 2000 under this program.

Since January 1, 1999, we have added a net of 165 employees, including 118
scientists. As of August 31, 2000, we had 301 employees, including 201
scientists of whom 63% 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.

33
<PAGE>
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 us. 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

34
<PAGE>
around such patents and compete with us and our licensees using the resulting
alternative technology.

We have a policy of seeking patent protection for patentable aspects of our
proprietary technology. At the time of our initial public offering, we had been
issued five United States patents (Patent Nos. 5578610, 5581011, 5589487,
5663412 and 5750703), three New Zealand patents (Patent Nos. 268513, 286116 and
286641) and one Australian patent (Patent No. 670004), collectively covering
fexofenadine HCl and certain related manufacturing processes. Since that time,
we have been issued two Canadian patents, one United States patent, one New
Zealand patent, one Australian patent, one European patent and one Japanese
patent relating to the same. Subject to payment of government annuities and
maintenance fees, our United States patents expire between 2013 and 2015, our
Australian, Canadian, European and Japanese patents expire in 2014 and our New
Zealand patents expire between 2014 and 2016. Through our acquisition of
EnzyMed, we obtained a 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 with our
customers whereby we retain certain ownership rights or may be entitled to
receive milestones and royalties with respect to proprietary technology
developed by us during the contract period. However, many of our 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 one of 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,

35
<PAGE>
state statutes and regulations also govern or influence the manufacturing,
safety, labeling, storage, record keeping and marketing of such pharmaceutical
products. The process of obtaining these approvals and the subsequent compliance
with appropriate federal and foreign statutes and regulations are time consuming
and require the expenditure of substantial resources.

Generally, in order to gain 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, and 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 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.

PROPERTIES

The Company leases 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 eight medicinal chemistry laboratories, five chemical
development

36
<PAGE>
laboratories, two analytical laboratories, three analytical instrumentation
rooms, four dedicated cGMP manufacturing suites, four segregated cGMP dryer
rooms and two areas for stability chambers. We also lease approximately 40,000
square feet of laboratory space in Rensselaer, New York. The lease for these
laboratories expires November 30, 2009, although we may renew the lease for
eight additional five-year periods at our option. Our Rensselaer facility has
nine medicinal chemistry, two combinatorial chemistry and three chemical
development laboratories.

We have signed a letter of intent with respect to a ten-year lease for an
additional 10,800 square foot facility adjacent to our Rensselaer, New York
facility. This facility is currently under renovation and is planned to be
occupied during the first quarter of 2001. We may renew the lease for eight
additional five-year periods at our option.

We also lease 15,000 square feet of facilities in Iowa City, Iowa and 6,000
square feet of facilities in Syracuse, New York. We expect to purchase a 20,000
square foot facility in Syracuse, New York for approximately $1.0 million, and
we expect to incur additional costs in connection with the renovation of that
building.

In 1999, we had total operating lease costs of $768,000.

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.

37
<PAGE>
MANAGEMENT

Our executive officers and directors and their ages as of September 5, 2000
are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- -------- --------
<S> <C> <C>
Thomas E. D'Ambra, Ph.D................... 44 Chairman of the Board of Directors and
Chief Executive Officer
Donald E. Kuhla, Ph.D..................... 58 President, Chief Operating Officer,
Secretary and Director
David P. Waldek........................... 36 Chief Financial Officer and Treasurer
Lawrence D. Jones, Ph.D................... 49 Senior Vice President, Business
Development
Michael P. Trova, Ph.D.................... 39 Senior Vice President, Medicinal Chemistry
James J. Grates........................... 39 Vice President, Human Resources
Harold Meckler, Ph.D...................... 43 Vice President, Science and Technology
Chester J. Opalka(1)...................... 52 Vice President, Laboratory Operations and
Director
Frank W. Haydu III(2)(3).................. 52 Director
Kevin O'Connor(2)(3)...................... 45 Director
Anthony P. Tartaglia, M.D.(2)(3).......... 67 Director
</TABLE>

------------------------

(1) Mr. Opalka retired as an officer effective September 30, 2000. Mr. Opalka
will remain a director following his retirement.

(2) Member of the Audit Committee.

(3) Member of the Compensation Committee.

THOMAS E. D'AMBRA, PH.D. co-founded Albany Molecular Research in 1991 and
currently serves as our Chairman of the Board and Chief Executive Officer. Prior
to co-founding Albany Molecular Research, Dr. D'Ambra served as the Vice
President, Chemistry and co-founder of Coromed, Inc., a traditional development
contract research organization, from 1989 to 1991 and Group Leader and Senior
Research Chemist with Sterling Winthrop, Inc., a pharmaceutical company, from
1982 to 1989. Dr. D'Ambra holds a B.A. degree in chemistry from the College of
the Holy Cross and a Ph.D. in organic chemistry from the Massachusetts Institute
of Technology.

DONALD E. KUHLA, PH.D. has served as our President and Chief Operating
Officer since July 1998 and as a Director since October 1995. Prior to joining
us as an employee, Dr. Kuhla served as the Vice President and Chief Technical
Officer of Plexus Ventures, Inc., a biotechnology investment and consulting
company, from February 1994 to June 1998, the Chief Operating Officer of
Hybridon, Inc., a pharmaceutical company, and Enzymatics, Inc., a medical
diagnostics company, from November 1990 to February 1994, in various positions
with Rorer Group, Inc., a pharmaceutical company, from 1981 to 1990 and in
various positions with Pfizer Inc., a pharmaceutical company, from 1968 to 1981.
Dr. Kuhla has a B.A. degree in chemistry from New York University and a Ph.D. in
organic chemistry from Ohio State University.

DAVID P. WALDEK has served as our Chief Financial Officer and Treasurer
since March 1999. Prior to joining us, Mr. Waldek was Vice President, Finance of
NAMIC U.S.A. Corporation, a medical device company, from November 1990 to
March 1999. NAMIC U.S.A. Corporation was affiliated with Pfizer, Inc., a
pharmaceutical company, from March 1995 to September 1998 and was acquired by
Boston Scientific Corporation, a medical device company, in September 1998.
Mr. Waldek also served as Senior Accountant for Ernst & Young, an independent
public accounting firm, from September 1987 to November 1990. Mr. Waldek holds a
B.S. degree in economics from the University of Rochester and an M.B.A. in
finance from the William E. Simon Graduate School of Business Administration.

38
<PAGE>
LAWRENCE D. JONES, PH.D. currently serves as our Senior Vice President,
Business Development. Prior to joining us, Dr. Jones served as the Executive
Vice President and co-founder of Inhalon Pharmaceuticals, Inc., a manufacturer
and distributor of generic inhalation anesthetics, from August 1991 to
February 1998, the Director of Marketing and Development for Kaneka America
Corporation, a manufacturer and distributor of chemical intermediates, from 1988
to 1991, and a Sales and Marketing Manager with Johnson Matthey, Inc., a
pharmaceutical manufacturer, from 1980 to 1998. Dr. Jones holds a B.A. degree in
chemistry from Cornell University and a Ph.D. in organic chemistry from Duke
University.

MICHAEL P. TROVA, PH.D. currently serves as our Senior Vice President,
Medicinal Chemistry. Dr. Trova served as our Vice President, Medicinal Chemistry
from March 1998 to August 2000, as our Director of Medicinal Chemistry from
August 1996 to March 1998 and as our Assistant Director of Medicinal Chemistry
from August 1995 to August 1996. Prior to joining us, Dr. Trova was a staff
scientist with American Cyanamid, Lederle Laboratories, a pharmaceutical
company, from 1989 to August 1995 and a post-doctoral researcher at the
Massachusetts Institute of Technology from 1987 to 1989. Dr. Trova holds a B.S.
degree in chemistry from Rensselaer Polytechnic Institute and a Ph.D. in organic
chemistry from Ohio State University.

JAMES J. GRATES currently serves as our Vice President, Human Resources.
Prior to joining us, Mr. Grates was Executive Vice President, Corporate Services
with Corporate Health Dimensions, a health care service provider company, from
April 1995 to December 1996 and Manager of Human Resources with Norton
Performance Plastics, Inc., a plastic manufacturer, from 1990 to
September 1995. Mr. Grates holds a B.S. degree in business administration from
Syracuse University.

HAROLD MECKLER, PH.D. currently serves as our Vice President, Science and
Technology. Dr. Meckler served as our Vice President, Chemical Development from
May 1997 to August 2000 and served as our Director of Chemical Development from
August 1995 to May 1997. Prior to joining us, Dr. Meckler served as Manager,
Organic Chemistry of Telor Ophthalmic Pharmaceuticals, Inc., a biopharmaceutical
company, from March 1994 to August 1995, in various capacities with Ciba-Geigy
Corporation, a pharmaceutical company, from 1984 to March 1994, and Senior
Research Chemist, Chemical Development with Sterling Winthrop, Inc. from 1982 to
1984. Dr. Meckler holds a B.S. degree in chemistry from the University of
Maryland, College Park and a Ph.D. in organic chemistry from the State
University of New York, Buffalo.

CHESTER J. OPALKA co-founded Albany Molecular Research in 1991, served most
recently as our Vice President, Laboratory Operations until his retirement
effective September 30, 2000 and has served as one of our Directors since our
inception. Mr. Opalka will remain a director following his retirement. Prior to
co-founding Albany Molecular Research, Mr. Opalka served as a Senior Research
Chemist with Coromed, Inc. from January 1991 to September 1991 and in various
positions with Sterling Winthrop, Inc. from 1970 to 1991. Mr. Opalka holds a
B.S. degree in chemistry from Niagara University.

FRANK W. HAYDU III has served as one of our Directors since October 1998.
Mr. Haydu has served as the Chairman of Haydu & Lind, LLC, a senior living
development company, since co-founding it in June 1996. Mr. Haydu also recently
served as the interim Commissioner of Education of Massachusetts from
February 1998 to July 1998. Prior to co-founding Haydu & Lind, LLC, Mr. Haydu
served as the interim President and Chief Executive Officer of the New England
Medical Center Hospitals, Inc. from October 1995 to May 1996, a Senior Advisor
to Smith Barney, Inc., an investment bank, from August 1994 to August 1995, and
as a Managing Director of Kidder, Peabody & Company, Inc., an investment bank,
from 1990 to August 1994. Mr. Haydu also serves as a director of several private
companies. Mr. Haydu holds a B.A. degree in economics from Muhlenberg College.

39
<PAGE>
KEVIN O'CONNOR has served as one of our Directors since March 2000.
Mr. O'Connor has served as Chief Executive Officer of Tech Valley
Communications, a telecommunications company, since July 2000. Mr. O'Connor
previously served as the President of the Albany Center for Economic
Growth, Inc., a business-sponsored economic development organization, from
February 1992 through July 2000. Mr. O'Connor also served as a Deputy
Commissioner for the New York State Department of Economic Development from
September 1987 to February 1992, as a Program Associate for the New York State
Governor's Office from July 1984 to September 1987 and held various positions in
the New York State Division of the Budget and the New York State Department of
Health from January 1980 to July 1984. Mr. O'Connor also serves as a director of
several private companies and non-profit organizations. Mr. O'Connor holds a
B.A. degree in History and a Masters degree in Public Administration from the
State University of New York College in Brockport.

ANTHONY P. TARTAGLIA, M.D. has served as one of our Directors since
October 1995. Dr. Tartaglia served as a physician with Albany Medical Center
from 1984 until his retirement in June 1998 and also served as Dean of Albany
Medical College from 1990 to June 1995. Dr. Tartaglia previously served as
Executive Director of the Albany Medical Center Hospital from 1987 to 1990,
Senior Vice President for Patient Care of the Albany Medical Center from 1984 to
1987 and as Chief of Medicine at St. Peter's Hospital in Albany from 1975 to
1984. Dr. Tartaglia holds a B.S. degree in biology from Union College and a M.D.
from the University of Rochester Medical School.

BOARD OF DIRECTORS

Our board of directors currently consists of six members and is divided into
three classes, with two directors in Class I, two directors in Class II and two
directors in Class III. Directors serve for three-year terms with one class of
directors being elected by our stockholders at each annual meeting of
stockholders. Currently, Messrs. Haydu and Opalka serve as Class I directors
with terms expiring in 2002, Dr. Kuhla and Mr. O'Connor serve as Class II
directors with terms expiring in 2003 and Drs. D'Ambra and Tartaglia serve as
Class III directors with terms expiring in 2001.

40
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth information regarding the beneficial
ownership of our common stock as of September 1, 2000 and on an as adjusted
basis to reflect the sale of the common stock offered hereby by:

- all persons known by us to own beneficially 5% or more of the common
stock,

- each of our directors,

- each of our five most highly compensated executive officers,

- each stockholder selling shares in this offering, and

- all of our directors and executive officers as a group.

Unless otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the shares of common stock beneficially owned
by the stockholder. The address of Aventis is c/o Aventis Pharmaceuticals Inc.,
Route 202-206, P.O. Box 6800, Bridgewater, New Jersey 08807-0800. The address of
all other listed stockholders is c/o Albany Molecular Research, Inc., 21
Corporate Circle, P.O. Box 15098, Albany, New York 12212-5098.

The number of shares beneficially owned by each stockholder is determined
under rules issued by the Securities and Exchange Commission and includes voting
or investment power with respect to securities. Under these rules, beneficial
ownership includes any shares as to which the individual or entity has sole or
shared voting power or investment power and includes any shares as to which the
individual or entity has the right to acquire beneficial ownership within
60 days after September 1, 2000 through the exercise of any warrant, stock
option or other right. The inclusion in this prospectus of such shares, however,
does not constitute an admission that the named stockholder is a direct or
indirect beneficial owner of such shares.

<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THE OFFERING NUMBER OF THE OFFERING
--------------------- SHARES BEING ---------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
------------------------ ---------- -------- -------------- ---------- --------
<S> <C> <C> <C> <C> <C>
Thomas E. D'Ambra, Ph.D.(1)....... 8,537,690 28.7% -- 8,537,690 26.1%
Chester J. Opalka(2).............. 3,844,162 12.9 400,000 3,444,162 10.5
Aventis(3)........................ 2,115,000 7.1 700,000 1,415,000 4.3
Harold Meckler, Ph.D.(4).......... 149,522 * -- 149,522 *
Michael P. Trova, Ph.D.(5)........ 50,824 * -- 50,824 *
Lawrence D. Jones, Ph.D.(6)....... 22,890 * -- 22,890 *
Anthony P. Tartaglia, M.D.(7)..... 89,320 * -- 89,320 *
Donald E. Kuhla, Ph.D.(8)......... 213,240 * -- 213,240 *
Frank W. Haydu III(9)............. 12,130 * -- 12,130 *
James J. Grates(10)............... 19,344 * -- 19,344 *
David P. Waldek(11)............... -- * -- -- *
Kevin O'Connor(12)................ 2,380 * -- 2,380 *
All executive officers and
directors as a group (11
persons)(13).................... 12,941,502 43.5 400,000 12,541,502 38.3
</TABLE>

------------------------

* Represents less than 1% of the outstanding shares of common stock.

41
<PAGE>
(1) Includes 3,152,058 shares held by the Thomas E. D'Ambra GRAT I trust of
which Dr. D'Ambra serves as the trustee. By virtue of his position as
trustee, Dr. D'Ambra may be deemed to be the beneficial owner of all shares
held by such trust. Excludes 61,984 shares subject to options not
exercisable within 60 days. Dr. D'Ambra has granted an option to the
underwriters to purchase 615,000 shares of common stock solely to cover
over-allotments. If the underwriters exercise their option in full,
Dr. D'Ambra would beneficially own 7,922,690 shares of common stock,
representing 24.2% of our outstanding common stock after the offering.

(2) Includes 764,352 shares held by the Chester J. Opalka 1997 Retained Annuity
Trust of which Mr. Opalka serves as a co-trustee and 30,000 shares held by
The Kiwi Foundation of which Mr. Opalka also serves as a co-trustee. By
virtue of his positions as co-trustee, Mr. Opalka may be deemed to be the
beneficial owner of all shares held by the trust and the foundation.
Excludes 22,902 shares subject to options not exercisable within 60 days.

(3) Aventis is a publicly held French company. Aventis Pharmaceuticals Inc., a
wholly-owned subsidiary of Aventis, is the record holder of these shares.

(4) Includes 127,372 shares subject to options exercisable within 60 days.
Excludes 61,972 shares subject to options not exercisable within 60 days.

(5) Includes 14,824 shares subject to options exercisable within 60 days.
Excludes 65,994 shares subject to options not exercisable within 60 days.

(6) Excludes 94,500 shares subject to options not exercisable within 60 days.

(7) Includes 76,668 shares subject to options exercisable within 60 days.
Excludes 12,082 shares subject to options not exercisable within 60 days.

(8) Includes 188,978 shares subject to options exercisable within 60 days.
Excludes 87,000 shares subject to options not exercisable within 60 days.

(9) Includes 9,168 shares subject to options exercisable within 60 days.
Excludes 12,082 shares subject to options not exercisable within 60 days.

(10) Includes 5,000 shares subject to options exercisable within 60 days.
Excludes 40,670 shares subject to options not exercisable within 60 days.

(11) Excludes 124,000 shares subject to options not exercisable within 60 days.

(12) Excludes 5,000 shares subject to options not exercisable within 60 days.

(13) Includes 451,744 shares subject to options exercisable within 60 days.
Excludes 583,186 shares subject to options not exercisable within 60 days.

42
<PAGE>
UNDERWRITING

Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives Deutsche Bank
Securities Inc., Chase Securities Inc., CIBC World Markets Corp., Prudential
Securities Incorporated and FAC/Equities, a division of First Albany
Corporation, have severally agreed to purchase from us and the selling
stockholders the following respective number of shares of common stock at the
public offering price less the underwriting discounts and commissions set forth
on the cover page of this prospectus:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Deutsche Bank Securities Inc................................ 1,550,000
Chase Securities Inc........................................ 968,750
CIBC World Markets Corp..................................... 581,250
Prudential Securities Incorporated.......................... 581,250
FAC/Equities, a division of First Albany Corporation........ 193,750
Credit Suisse First Boston Corporation...................... 75,000
C.L. King & Associates, Inc................................. 50,000
PMG Capital................................................. 50,000
Vanguard Capital............................................ 50,000
---------
Total................................................... 4,100,000
=========
</TABLE>

The underwriting agreement provides that the obligations of the underwriters
are subject to conditions precedent and that the underwriters will purchase all
shares of the common stock offered hereby, other than those covered by the
over-allotment option described below, if any of these shares are purchased.

The underwriters propose to offer the shares of our common stock to the
public at the public offering price set forth on the cover of this prospectus
and to dealers at a price that represents a concession not in excess of $1.46
per share. The underwriters may allow to some other dealers, and those other
dealers may reallow, a concession not in excess of $0.10 per share to other
dealers. After the initial offering, representatives of the underwriters may
change the offering price and other selling terms.

Thomas E. D'Ambra, Ph.D. has granted to the underwriters an option,
exercisable not later than 30 days after the date of this prospectus, to
purchase up to an aggregate of 615,000 additional shares of common stock at the
public offering price less the underwriting discounts and commissions set forth
on the cover page of this prospectus. The underwriters may exercise this option
only to cover over-allotments made in connection with the sale of the common
stock offered hereby. To the extent that the underwriters exercise this option,
each of the underwriters will have a firm commitment, subject to conditions, to
purchase approximately the same percentage of additional shares of common stock
as the number of shares of common stock to be purchased by it in the above table
bears to 4,100,000. Dr. D'Ambra will be obligated, pursuant to the option, to
sell these additional shares of common stock to the underwriters to the extent
the option is exercised. If any additional shares of common stock are purchased,
the underwriters will offer the additional shares on the same terms as those on
which the 4,100,000 shares are being offered.

The underwriting fee is equal to the public offering price per share of
common stock less the amount paid by the underwriters per share of common stock.
The underwriting fee is 5.75% of the public offering price. We and the selling
stockholders have agreed to pay the underwriters the

43
<PAGE>
following fees, assuming either no exercise or full exercise by the underwriters
of the underwriters' over-allotment option:

<TABLE>
<CAPTION>
TOTAL FEES
-------------------------------------------
WITHOUT EXERCISE OF WITH FULL EXERCISE OF
FEE PER OVER-ALLOTMENT OVER-ALLOTMENT
SHARE OPTION OPTION
-------- ------------------- ---------------------
<S> <C> <C> <C>
Fees paid by AMRI................................ $2.43 $7,290,000 $7,290,000
Fees paid by selling stockholders................ $2.43 $2,673,000 $4,167,450
</TABLE>

In addition, we estimate that our expenses for this offering, excluding
underwriting discounts and commissions and including certain expenses to be
incurred on behalf of the selling stockholders, will be approximately $450,000.

We and the selling stockholders have agreed to indemnify the underwriters
against some specified types of liabilities, including liabilities under the
Securities Act and to contribute to payments the underwriters may be required to
make in respect of any of these liabilities.

We, each of our executive officers and directors and the selling
stockholders have each agreed not to directly or indirectly offer, sell, pledge,
contract to sell (including any short sale), grant any option to purchase or
otherwise dispose of any shares of our common stock (including shares of common
stock which may be deemed to be beneficially owned in accordance with the rules
and regulations of the Securities and Exchange Commission and shares of common
stock which may be issued upon exercise of a stock option or warrant) or enter
into any hedging transaction relating to the common stock for a period of
90 days after the effective date of the registration statement of which this
prospectus is a part, without the prior written consent of Deutsche Bank
Securities Inc. This consent may be given at any time without public notice.

In order to facilitate the offering of our common stock, the underwriters
may engage in transactions that stabilize, maintain, or otherwise affect the
market price of our common stock. Specifically, the underwriters may overallot
shares of our common stock in connection with this offering, thus creating a
short sales position in our common stock for their own account. A short sales
position results when an underwriter sells more shares of common stock than that
underwriter is committed to purchase. A short sales position may involve either
"covered" short sales or "naked" short sales. Covered short sales are sales made
for an amount not greater than the underwriters' over-allotment option to
purchase additional shares in the offering described above. The underwriters may
close out any covered short position by either exercising their over-allotment
option or purchasing shares in the open market. In determining the source of
shares to close out the covered short position, the underwriters will consider,
among other things, the price of shares available for purchase in the open
market as compared to the price at which they may purchase shares through the
over-allotment option. Naked short sales are sales in excess of the over-
allotment option. The underwriters will have to close out any naked short
position by purchasing shares in the open market. A naked short position is more
likely to be created if the underwriters are concerned that there may be
downward pressure on the price of the shares in the open market after pricing
that could adversely affect investors who purchase in the offering.

Accordingly, to cover these short sales positions or to stabilize the market
price of our common stock, the underwriters may bid for, and purchase, shares of
our common stock in the open market. These transactions may be effected on the
Nasdaq National Market or otherwise. Additionally, the representatives, on
behalf of the underwriters, may also reclaim selling concessions allowed to an
underwriter or dealer if the underwriting syndicate repurchases shares
distributed by that underwriter or dealer. Similar to other purchase
transactions, the underwriters' purchases to cover the syndicate short sales or
to stabilize the market price of our common stock may have the effect of raising
or maintaining the market price of our common stock or preventing or mitigating
a

44
<PAGE>
decline in the market price of our common stock. As a result, the price of the
shares of our common stock may be higher than the price that might otherwise
exist in the open market. The underwriters are not required to engage in these
activities and, if commenced, may end any of these activities at any time.

In connection with this offering, certain underwriters and other selling
group members or their affiliates may engage in passive market making
transactions in the common stock on the Nasdaq National Market in accordance
with Rule 103 of Regulation M under the Securities Exchange Act of 1934, as
amended. Rule 103 permits passive market making during the period when
Regulation M would otherwise prohibit market making activity by the participants
in this offering. Passive market making consists of displaying bids on the
Nasdaq National Market limited by the bid prices of independent market makers
and making purchases limited by such prices and effected in response to order
flow. Rule 103 limits the net purchases by a passive market maker on each day to
a specified percentage of the passive market maker's average daily trading
volume in the common stock during a specified period. The passive market maker
must stop its passive market making transactions for the rest of that day when
such limit is reached. Passive market making may stabilize the market price of
our common stock at a level above that which might otherwise prevail and, if
commenced, may be discontinued at any time.

One or more of the underwriters may make this prospectus available online,
either directly or through one of their affiliates. In those cases, prospective
investors may view the offering terms and the prospectus online and, depending
upon the particular underwriter, place orders online or through their financial
advisors.

Certain of the underwriters or their predecessors have, from time to time,
provided investment banking and other financial advisory services to us,
including acting as representative or underwriter for our initial public
offering, for which they have received customary fees.

45
<PAGE>
ABOUT THIS PROSPECTUS AND WHERE YOU MAY FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-3 under the Securities Act of 1933, as amended, with respect
to the shares of common stock offered under this prospectus. This prospectus is
part of the registration statement. This prospectus does not contain all of the
information contained in the registration statement because we have omitted
parts of the registration statement in accordance with the rules and regulations
of the Securities and Exchange Commission. For further information, we refer you
to the registration statement, which you may read and copy at the public
reference facilities maintained by the Securities and Exchange Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
at the Securities and Exchange Commission's Regional Offices at 7 World Trade
Center, 13th Floor, New York, New York 10048, and Citicorp Center, 500 W.
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You may also obtain
copies at the prescribed rates from the Public Reference Section of the
Securities and Exchange Commission at its principal office in Washington, D.C.
You may call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information about the public reference rooms. The Securities and
Exchange Commission maintains a web site that contains reports, proxy and
information statements and other information regarding registrants, including
Albany Molecular Research, Inc., that file electronically with the Securities
and Exchange Commission. You may access the Securities and Exchange Commission's
web site at http://www.sec.gov.

We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and we are required to file reports, proxy statements
and other information with the Securities and Exchange Commission. Such reports,
proxy statements and other information can be inspected and copied at the
locations described above. Our Securities and Exchange Commission file number is
000-25323. Copies of these materials can be obtained by mail from the Public
Reference Section of the Securities and Exchange Commission at Judiciary Plaza,
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates.
Our common stock is listed on the Nasdaq National Market under the symbol
"AMRI."

The Securities and Exchange Commission allows us to incorporate by reference
the information that we file with them. Incorporation by reference means that we
can disclose important information to you by referring you to other documents
that are legally considered to be part of this prospectus, and later information
that we file with the Securities and Exchange Commission will automatically
update and supersede the information in this prospectus and the documents listed
below. We incorporate by reference the specific documents listed below and any
future filings we make with the Securities and Exchange Commission under
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until
all of the shares of common stock offered under this prospectus are sold:

- our Annual Report on Form 10-K for the year ended December 31, 1999,

- our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2000
and June 30, 2000,

- our Current Report on Form 8-K filed on April 10, 2000, and

- the description of our common stock contained in our Registration
Statement on Form 8-A filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, and all amendments and
reports updating the description.

46
<PAGE>
YOU MAY REQUEST A COPY OF THESE FILINGS, AND ANY EXHIBITS WE HAVE
SPECIFICALLY INCORPORATED BY REFERENCE AS AN EXHIBIT IN THIS PROSPECTUS, AT NO
COST, BY WRITING OR TELEPHONING US AT THE FOLLOWING ADDRESS: DAVID P. WALDEK,
ALBANY MOLECULAR RESEARCH, INC., 21 CORPORATE CIRCLE, P.O. BOX 15098, ALBANY,
NEW YORK 12212-5098. TELEPHONE REQUESTS MAY BE DIRECTED TO MR. WALDEK AT
(518) 464-0279.

LEGAL MATTERS

Particular legal matters, including the validity of the shares of common
stock offered by this prospectus, will be passed upon for us by Goodwin,
Procter & Hoar LLP, Boston, Massachusetts. Various legal matters related to the
sale of the common stock offered hereby will be passed upon for the underwriters
by Willkie Farr & Gallagher, New York, New York.

EXPERTS

The consolidated financial statements of Albany Molecular Research, Inc. and
subsidiary as of December 31, 1999 and 1998, and for each of the years in the
three-year period ended December 31, 1999, have been included in this prospectus
and in the registration statement in reliance upon the report of KPMG LLP,
independent certified public accountants, appearing elsewhere in this
prospectus, and upon the authority of said firm as experts in accounting and
auditing.

The statements in this prospectus specifically relating to the existence and
scope of the Allegra/Telfast patents in the United States (Patent Nos. 5578610,
5581011, 5589487, 5663412 and 5750703), New Zealand (Patent Nos. 268513, 286116
and 286641) and Australia (Patent No. 670004) under the captions "Risk
Factors--The royalties we earn on Allegra may decrease," "Risk Factors--We may
lose valuable intellectual property if we are unable to protect it," "Business--
Allegra/Telfast licensing agreement" and "Business--Patents and proprietary
rights" have been reviewed and approved by Ostrolenk, Faber, Gerb & Soffen, LLP,
our patent counsel, as experts on such matters, and are included herein in
reliance upon that review and approval.

OTHER INFORMATION

Effective as of April 4, 2000, as described in our Current Report on Form
8-K dated April 10, 2000, we engaged PricewaterhouseCoopers LLP, to act as our
new independent public accountants, replacing KPMG LLP.

47
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ALBANY MOLECULAR RESEARCH, INC.

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent Auditors' Report................................ F-2

Consolidated Balance Sheets at December 31, 1998 and 1999
and at June 30, 2000 (unaudited).......................... F-3

Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1998 and 1999 and the Six Months Ended
June 30, 1999 and 2000 (unaudited)........................ F-4

Consolidated Statements of Stockholders' Equity and
Comprehensive Income for the Years Ended December 31,
1997, 1998 and 1999 and the Six Months Ended June 30, 2000
(unaudited)............................................... F-5

Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999 and the Six Months Ended
June 30, 1999 and 2000 (unaudited)........................ F-6

Notes to Consolidated Financial Statements.................. F-7
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying consolidated balance sheets of Albany
Molecular Research, Inc. and subsidiary as of December 31, 1999 and 1998, and
the related consolidated statements of operations, stockholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Albany
Molecular Research, Inc. and subsidiary as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles.

/s/ KPMG LLP

Albany, New York
February 4, 2000

F-2
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1999 AND JUNE 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1998 1999 2000
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,320 $ 2,673 $ 12,292
Short-term investment..................................... -- 1,000 --
Accounts receivable (net of allowance for doubtful
accounts of $0 at December 31, 1998 and $110,000 at
December 31, 1999 and June 30, 2000).................... 2,876 4,222 6,207
Current installment of notes receivable--related party.... 20 20 20
Royalty income receivable................................. 3,256 5,382 7,805
Investment securities, available-for-sale................. 2,027 21,172 16,911
Inventory................................................. 576 1,116 1,118
Unbilled services......................................... 105 76 107
Income tax prepayments.................................... 518 3,080 --
Prepaid expenses and other current assets................. 902 845 1,547
-------- ------- --------
Total current assets.................................. 15,600 39,586 46,007
-------- ------- --------
Property and equipment, net................................. 14,866 15,879 20,709
-------- ------- --------
Other assets:
Intangible assets and patents, net........................ 326 332 2,385
Notes receivable, excluding current installment--related
party................................................... 60 40 40
Deferred income taxes..................................... 1,639 1,329 1,215
Equity investment in unconsolidated affiliates............ -- 15,033 15,975
Convertible subordinated debenture from unconsolidated
affiliate............................................... -- 15,000 15,000
Other assets.............................................. 139 1,043 1,045
-------- ------- --------
Total other assets.................................... 2,164 32,777 35,660
-------- ------- --------
Total assets.......................................... $ 32,630 $88,242 $102,376
======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,501 $ 804 $ 973
Unearned income........................................... 1,748 1,480 830
Customer deposits......................................... 182 278 182
Accrued compensation...................................... 987 1,948 2,078
Accrued expenses.......................................... 452 557 1,423
Income taxes payable...................................... -- -- 755
Current installments of long-term debt.................... 1,587 87 --
-------- ------- --------
Total current liabilities............................. 6,457 5,154 6,241
Long-term liabilities:
Long-term debt, excluding current installments............ 13,349 168 --
-------- ------- --------
Total liabilities........................................... 19,806 5,322 6,241
-------- ------- --------
Commitments and contingencies (Notes 3, 9, 10, 11 and 12)
Stockholders' equity:
Preferred stock, $0.01 par value, authorized 2,000,000
shares, issued and outstanding 100,000 shares in 1998
and no shares in 1999 and 2000.......................... 1 -- --
Common stock, $0.01 par value, authorized 50,000,000
shares; issued 23,543,168 shares in 1998; 29,187,118 in
1999 and 29,726,148 in 2000; outstanding 21,279,362 in
1998; 29,187,118 in 1999 and 29,726,148 in 2000......... 236 292 297
Additional paid-in capital.................................. 10,640 56,927 59,848
Retained earnings........................................... 11,942 25,716 35,995
Accumulated other comprehensive income (loss)............... 66 (15) (5)
-------- ------- --------
22,885 82,920 96,135
Treasury stock, at cost................................... (10,061) -- --
-------- ------- --------
Total stockholders' equity............................ 12,824 82,920 96,135
-------- ------- --------
Total liabilities and stockholders' equity.................. $ 32,630 $88,242 $102,376
======== ======= ========
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.

F-3
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 AND
SIX MONTHS ENDED JUNE 30, 1999 AND 2000 (UNAUDITED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ ---------------------
1997 1998 1999 1999 2000
-------- -------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net contract revenue..................... $ 8,209 $13,649 $22,027 $ 9,732 $16,667
Non-recurring licensing fees, milestones
and royalties.......................... 2,500 8,069 -- -- --
Recurring royalties...................... 31 11,576 21,444 10,034 13,425
------- ------- ------- ------- -------
Total revenue........................ 10,740 33,294 43,471 19,766 30,092
Cost of contract revenue................. 4,430 7,734 12,491 5,529 9,324
Technology incentive award............... 253 1,822 2,132 993 1,343
Research and development................. 1,520 1,782 1,827 929 986
Selling, general and administrative...... 2,881 5,109 6,873 2,979 3,769
------- ------- ------- ------- -------
Total operating expenses............. 9,084 16,447 23,323 10,430 15,422

Income from operations................... 1,656 16,847 20,148 9,336 14,670

Other income (expense):
Equity in income (loss) of unconsolidated
affiliates............................. -- -- (98) -- 350
Interest expense......................... (176) (381) (158) (137) (27)
Interest income.......................... 216 419 2,158 867 1,367
Realized loss on sale of investment
securities............................. -- -- (66) -- --
Other income (expense), net.............. (28) (37) (15) -- 5
------- ------- ------- ------- -------
Total other income (expense), net.... 12 1 1,821 730 1,695
------- ------- ------- ------- -------

Income before income tax expense......... 1,668 16,848 21,969 10,066 16,365

Income tax expense....................... 373 6,351 8,195 3,773 6,086
------- ------- ------- ------- -------

Net income............................... $ 1,295 $10,497 $13,774 $ 6,293 $10,279
======= ======= ======= ======= =======

Basic earnings per share................. $ 0.06 $ 0.46 $ 0.51 $ 0.24 $ 0.35

Diluted earnings per share............... $ 0.05 $ 0.41 $ 0.46 $ 0.22 $ 0.33
</TABLE>

F-4
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 AND SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)

(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON
STOCK
------------------- ACCUMULATED
NUMBER $0.01 ADDITIONAL OTHER
PREFERRED OF PAR PAID-IN RETAINED COMPREHENSIVE TREASURY
STOCK SHARES VALUE CAPITAL EARNINGS INCOME (LOSS) STOCK
--------- -------- -------- ---------- --------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996, as
previously reported.............. $ 1 21,511 $215 $ 2,477 $ 1,695 $ 23 $ --
EnzyMed pooling of interests..... -- 1,147 11 4,579 (1,545) -- --
--- ------ ---- ------- ------- ---- --------
Balances at December 31, 1996, as
restated......................... 1 22,658 226 7,056 150 23 --
Comprehensive income:
Net income....................... -- -- -- -- 1,295 -- --
Unrealized gain on investment
securities, available-for-sale,
net of tax of $21.............. -- -- -- -- -- 31 --
Total comprehensive income.....
Issuance of common stock in
connection with stock option
plan........................... -- 31 1 24 -- -- --
Sale of common stock, net of
issuance expenses of $7........ -- 81 1 991 -- -- --
--- ------ ---- ------- ------- ---- --------
Balances at December 31, 1997...... 1 22,770 228 8,071 1,445 54 --
Comprehensive income:
Net income....................... -- -- -- -- 10,497 -- --
Unrealized gain on investment
securities, available-for-sale,
net of tax of $8............... -- -- -- -- -- 12 --
Total comprehensive income.....
Purchase of 2,264 shares for
treasury stock................. -- -- -- -- -- -- (10,061)
Issuance of common stock in
connection with stock option
plan........................... -- 596 6 185 -- -- --
Tax benefit from exercise of
stock options.................. -- -- -- 742 -- -- --
Sale of common stock, net of
issuance expenses of $6........ -- 177 2 1,642 -- -- --
--- ------ ---- ------- ------- ---- --------
Balances at December 31, 1998...... 1 23,543 236 10,640 11,942 66 (10,061)
Comprehensive income:
Net income....................... -- -- -- -- 13,774 -- --
Unrealized loss on investment
securities, available-for-sale,
net of tax benefit of $54...... -- -- -- -- -- (81) --
Total comprehensive income.....
Conversion of 100 shares of
preferred stock................ (1) 90 -- 1 -- -- --
Issuance of common stock in
connection with stock option
plan........................... -- 2,188 22 1,790 -- -- --
Tax benefit from exercise of
stock options.................. -- -- -- 3,204 -- -- --
Sale of 3,366 shares of common
stock and reissuance of 2,264
shares of treasury stock, net
of issuance expenses of $971... -- 3,366 34 41,292 -- -- 10,061
--- ------ ---- ------- ------- ---- --------
Balances at December 31, 1999...... -- 29,187 292 56,927 25,716 (15) --
Comprehensive income:
Net income (unaudited)........... -- -- -- -- 10,279 -- --
Unrealized gain on investment
securities, available-for-sale,
net of taxes (unaudited)....... -- -- -- -- -- 10 --
Total comprehensive income
(unaudited)...................
Tax benefit from exercise of
stock options (unaudited)...... -- -- -- 797 -- -- --
Issuance of common stock in
connection with business
combination (unaudited)........ -- 50 1 1,338 -- -- --
Issuance of common stock in
connection with stock option
plan (unaudited)............... -- 489 4 786 -- -- --
--- ------ ---- ------- ------- ---- --------
Balances at June 30, 2000
(unaudited)...................... $-- 29,726 $297 $59,848 $35,995 $ (5) $ --
=== ====== ==== ======= ======= ==== ========

COMPREHENSIVE
INCOME
TOTAL (LOSS)
-------- ---------------
<S> <C> <C>
Balances at December 31, 1996, as
previously reported.............. $ 4,411
EnzyMed pooling of interests..... 3,045
--------
Balances at December 31, 1996, as
restated......................... 7,456
Comprehensive income:
Net income....................... 1,295 $ 1,295
Unrealized gain on investment
securities, available-for-sale,
net of tax of $21.............. 31 31
-------
Total comprehensive income..... $ 1,326
=======
Issuance of common stock in
connection with stock option
plan........................... 25
Sale of common stock, net of
issuance expenses of $7........ 992
--------
Balances at December 31, 1997...... 9,799
Comprehensive income:
Net income....................... 10,497 $10,497
Unrealized gain on investment
securities, available-for-sale,
net of tax of $8............... 12 12
-------
Total comprehensive income..... $10,509
=======
Purchase of 2,264 shares for
treasury stock................. (10,061)
Issuance of common stock in
connection with stock option
plan........................... 191
Tax benefit from exercise of
stock options.................. 742
Sale of common stock, net of
issuance expenses of $6........ 1,644
--------
Balances at December 31, 1998...... 12,824
Comprehensive income:
Net income....................... 13,774 $13,774
Unrealized loss on investment
securities, available-for-sale,
net of tax benefit of $54...... (81) (81)
-------
Total comprehensive income..... $13,693
=======
Conversion of 100 shares of
preferred stock................ --
Issuance of common stock in
connection with stock option
plan........................... 1,812
Tax benefit from exercise of
stock options.................. 3,204
Sale of 3,366 shares of common
stock and reissuance of 2,264
shares of treasury stock, net
of issuance expenses of $971... 51,387
--------
Balances at December 31, 1999...... 82,920
Comprehensive income:
Net income (unaudited)........... 10,279 $10,279
Unrealized gain on investment
securities, available-for-sale,
net of taxes (unaudited)....... 10 10
-------
Total comprehensive income
(unaudited)................... $10,289
=======
Tax benefit from exercise of
stock options (unaudited)...... 797
Issuance of common stock in
connection with business
combination (unaudited)........ 1,339
Issuance of common stock in
connection with stock option
plan (unaudited)............... 790
--------
Balances at June 30, 2000
(unaudited)...................... $ 96,135
========
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.

F-5
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 AND
SIX MONTHS ENDED JUNE 30, 1999 AND 2000 (UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income.................................................. $ 1,295 $ 10,497 $ 13,774 $ 6,293 $ 10,279
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 781 1,171 1,825 866 1,121
Tax benefit of stock option exercises..................... -- 743 3,204 -- 797
Net realized loss on sale of investment securities........ -- -- 66 -- --
Net loss on sale of assets................................ 9 44 -- -- --
Provision for doubtful accounts........................... 114 (30) 165 65 --
Equity in (income) loss of unconsolidated affiliate....... -- -- 98 -- (350)
Provision for deferred taxes.............................. (614) (395) 365 142 139
Forgiven principal on notes receivable-related party...... -- 20 20 -- --
Change in operating assets and liabilities, net of business
combination:
Increase in accounts receivable........................... (1,234) (895) (1,511) (716) (1,886)
Increase in royalty income receivable..................... -- (3,256) (2,126) (2,591) (2,423)
Increase in inventory..................................... (51) (258) (541) (261) (2)
Decrease in unbilled services............................. 9 88 29 (54) (31)
Decrease (increase) in income taxes....................... (651) (482) (2,562) 352 3,796
Decrease (increase) in prepaid expenses and other current
assets.................................................. (103) (360) 57 653 (802)
Increase (decrease) in accounts payable................... 577 561 (697) (1,056) 169
Increase (decrease) in accrued compensation and accrued
expenses................................................ 3 1,413 1,067 7 925
Increase (decrease) in customer deposits.................. 37 (20) 96 -- (96)
Increase (decrease) in unearned income.................... 209 1,391 (268) 241 (650)
------- -------- -------- -------- --------
Net cash provided by operating activities................... 381 10,232 13,061 3,941 10,986
------- -------- -------- -------- --------
Investing activities:
Purchases of investment securities........................ (163) (57) (40,531) (25,397) (12,214)
Proceeds from sales of investment securities.............. -- -- 21,183 -- 16,475
Purchase of equity investment in unconsolidated
affiliate............................................... -- -- (15,131) -- (674)
Purchase of convertible subordinated debenture from
unconsolidated affiliate................................ -- -- (15,000) -- --
Purchases of property and equipment....................... (910) (11,615) (2,721) (1,501) (5,031)
Purchase of business, net of cash acquired................ -- (869)
Proceeds from sale of equipment........................... 4 13 -- -- --
Purchase of customer list................................. -- (18) -- -- --
Payments for patent application and other related costs... (81) (201) (27) (9) (5)
Payment for lease deposit................................. -- -- (1,000) (1,000) --
Net increase in short-term investment..................... -- -- (1,000) -- (1,000)
------- -------- -------- -------- --------
Net cash used in investing activities..................... (1,150) (11,878) (54,227) (27,907) (1,318)
------- -------- -------- -------- --------
Financing activities:
Principal payments on long-term debt...................... (605) (2,224) (15,181) (14,943) (838)
Principal payments under capital lease obligations........ (3) (1) -- -- --
Proceeds from borrowings under long-term debt............. -- 7,000 500 300 --
Payment to acquire treasury shares........................ -- (2,126) -- -- --
Proceeds from sale of common stock........................ 1,017 1,735 53,200 51,491 789
------- -------- -------- -------- --------
Net cash provided by (used in) financing activities......... 409 4,384 38,519 36,848 (49)
------- -------- -------- -------- --------
Increase (decrease) in cash and cash equivalents............ (360) 2,738 (2,647) 12,882 9,619
Cash and cash equivalents at beginning of period............ 2,942 2,582 5,320 5,320 2,673
------- -------- -------- -------- --------
Cash and cash equivalents at end of period.................. $ 2,582 $ 5,320 $ 2,673 $ 18,202 $ 12,292
======= ======== ======== ======== ========
Supplemental disclosure of non-cash investing and financing
activities:
Purchase of treasury stock through issuance of long-term
debt.................................................... $ -- $ 7,936 $ -- $ -- $ --
Common stock issued for purchase of customer list......... $ -- $ 100 $ -- $ -- $ --
Common stock issued for relocation incentive.............. $ -- $ 200 $ -- $ -- $ --
Increase (decrease) in net unrealized gain/loss on
securities available-for-sale, net of tax............... $ 31 $ 12 $ (82) $ (1) $ 10
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest................................................ $ 176 $ 382 $ 158 $ 137 $ 27
Income taxes............................................ $ 1,638 $ 6,209 $ 7,188 $ 2,754 $ 2,518
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.

F-6
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1997, 1998 AND 1999 AND JUNE 30, 1999 AND 2000 (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS:

Albany Molecular Research, Inc. (the "Company") is a leading chemistry
research and drug discovery and development company focused on applications for
the pharmaceutical, biotechnology, and life sciences industries. The Company
offers services 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 manufacture and active ingredient bulk manufacturing. The
Company also conducts proprietary research and development which may lead to the
Company receiving up-front service fees and milestone payments for advancing new
products as well as royalties for new drugs successfully reaching the market.

On October 19, 1999, the Company completed a merger with EnzyMed, Inc.
("EnzyMed"), an Iowa-based provider of combinatorial biocatalysis discovery
services. Utilizing its proprietary combinatorial biocatalysis technology,
EnzyMed specializes in the discovery, optimization, and derivatization of
pharmaceutical and agrochemical lead compounds. EnzyMed's proprietary technology
employs enzymatic and microbial transformations of core structures to create
novel derivatives, which otherwise might not be accessible via traditional
chemical syntheses, for screening and development in an iterative fashion. This
technology has its most immediate application in the pharmaceutical, animal
health, and agrochemical industries. See note 2 for discussion of the Company's
acquisition of EnzyMed.

On December 21, 1999, the Company completed a $30,000 strategic investment
in Organichem Corporation (formerly the Rensselaer, New York-based chemical
manufacturing facilities of Nycomed Amersham). Organichem Corporation operates a
chemical manufacturing facility in Rensselaer, New York, and performs
large-scale manufacturing of pharmaceutical intermediates and active
ingredients. See note 3 for discussion of the Company's equity and other
investments in Organichem Corporation.

BASIS OF PRESENTATION:

The consolidated financial statements include the accounts of Albany
Molecular Research, Inc. and its wholly-owned subsidiary, Albany Molecular
Research Export, Inc. All intercompany balances and transactions have been
eliminated during consolidation. The Company's 37.5% investment in Organichem
Corporation (see note 3) is accounted for using the equity method of accounting.

The Company's merger with EnzyMed on October 19, 1999 has been accounted for
as a pooling of interests as further discussed in note 2. Accordingly, all prior
period consolidated financial statements have been restated to include the
results of operations, financial position and cash flows of EnzyMed. Information
presenting common stock, employee stock plans and per share data has been
restated on an equivalent share basis.

It is the Company's policy to reclassify prior year consolidated financial
statements to conform to the current year presentation.

F-7
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1998 AND 1999 AND JUNE 30, 1999 AND 2000 (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTERIM FINANCIAL INFORMATION

The financial information as of June 30, 2000, and for the six months ended
June 30, 1999 and 2000, is unaudited and includes all adjustments, consisting
only of normal recurring adjustments, that the Company's management considers
necessary for a fair presentation of the Company's operating results and cash
flows for such periods. Results for the six month period ended June 30, 2000 are
not necessarily indicative of results to be expected for the full fiscal year of
2000 or any future period.

REVENUE RECOGNITION:

The Company recognizes net revenue from its full-time equivalent and time
and materials contracts on a per diem basis as work is performed and fixed fee
type contracts on a percentage-of-completion basis. In general, contract
provisions include predetermined payment schedules, or the submission of
appropriate billing detail establishing prerequisites for billings. Unbilled
services arise when services have been rendered under these contracts but
customers have not been billed. Similarly, unearned income represents prebilling
for services that have not yet been performed. Any losses on contracts are
recorded when they are determinable and estimable.

The Company recognizes revenue from licensing fees, milestones and royalties
when the earnings process has been deemed completed and any uncertainties
regarding potential revenue have been resolved.

CASH EQUIVALENTS AND SHORT-TERM INVESTMENT:

Cash equivalents of $4,356, $2,668 and $12,278 at December 31, 1998 and 1999
and June 30, 2000 consisted of money market accounts and overnight deposits. For
purposes of the consolidated statements of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less when purchased
to be cash equivalents.

The Company's short-term investment at December 31, 1999 consisted of a
certificate of deposit which matured on June 26, 2000.

INVENTORIES:

Inventories are stated at the lower of cost or market using the first-in,
first-out (FIFO) method and consist primarily of organic chemicals used as raw
materials in the research and production process.

INVESTMENT SECURITIES:

The Company accounts for its investment securities in accordance with
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Investment securities
consist of state and political subdivision obligations, corporate debt
obligations, and bond mutual funds, with the Company holding all of these
securities as available-for-sale.

F-8
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1998 AND 1999 AND JUNE 30, 1999 AND 2000 (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Unrealized holding gains and losses, net of related tax effect, on
available-for-sale securities are excluded from earnings and are reported as a
separate component of stockholders' equity until realized. Interest income is
recognized when earned. Realized gains and losses for securities classified as
available-for-sale are included in earnings and are determined using the
specific identification method.

PROPERTY AND EQUIPMENT:

Property and equipment are recorded at cost. Expenditures for maintenance
and repairs are expensed as costs are incurred.

Depreciation is determined using the straight-line method over the estimated
useful lives of the individual assets. Accelerated methods of depreciation have
been used for income tax purposes.

The Company provides for depreciation of property and equipment over the
following estimated useful lives:

<TABLE>
<S> <C>
Laboratory equipment and fixtures........................... 7-18 years
Office equipment............................................ 3-7 years
Leasehold improvements...................................... 18 years
</TABLE>

PATENTS AND PATENT APPLICATION COSTS:

The costs of patents issued and acquired are being amortized on the
straight-line method over the estimated remaining lives of the issued patents,
generally 17 years. Patent application and processing costs are capitalized and
will be amortized over the estimated life once a patent is acquired or expensed
in the period the patent application is denied.

Accumulated amortization at December 31, 1998 and 1999 and June 30, 2000 was
$0, $18 and $18, respectively.

LICENSING RIGHTS:

Licensing costs are accumulated and amortized once the license agreement is
executed. The costs of licensing rights are being amortized on the straight-line
method over the term of the license agreement, but not in excess of fifteen
years. Licensing costs are written off in the period the licensing rights are
canceled or are determined not to provide future benefits.

Accumulated amortization at December 31, 1998 and 1999 and June 30, 2000 was
$9, $12 and $12, respectively.

RESEARCH AND DEVELOPMENT:

Research and development costs are charged to operations when incurred and
are included in operating expenses.

F-9
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1998 AND 1999 AND JUNE 30, 1999 AND 2000 (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES:

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the income tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

COMPREHENSIVE INCOME:

On January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 established standards for reporting and
presentation of comprehensive income and its components in a full set of
financial statements. Comprehensive income consists of net income and net
unrealized gains (losses) on investment securities, available-for-sale, and is
presented in the Consolidated Statements of Stockholders' Equity and
Comprehensive Income. SFAS No. 130 requires only additional disclosures in the
consolidated financial statements; it does not affect the Company's financial
position or results of operations. Prior year financial statements have been
reclassified to conform to the requirements of SFAS No. 130.

STOCK-BASED COMPENSATION:

The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations, in accounting for
its fixed plan stock options. As such, compensation expense would be recorded on
the date of grant only if the current market price of the underlying stock
exceeded the exercise price.

EARNINGS PER SHARE:

Basic earnings per share excludes dilution and is computed by dividing
income available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the Company (such
as stock options).

F-10
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1998 AND 1999 AND JUNE 30, 1999 AND 2000 (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following tables provide calculations of basic and diluted earnings per
share calculations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 YEAR ENDED DECEMBER 31, 1998
------------------------------------ ------------------------------------
WEIGHTED WEIGHTED
AVERAGE PER SHARE AVERAGE PER SHARE
NET INCOME SHARES AMOUNT NET INCOME SHARES AMOUNT
----------- --------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per
share.............. $1,295 22,670 $0.06 $10,497 22,696 $0.46
===== =====
Dilutive effect of
stock options...... -- 2,059 -- 2,761
Dilutive effect of
assumed preferred
stock conversion... -- 90 -- 90
====== ====== ======= ======
Diluted earnings per
share.............. $1,295 24,819 $0.05 $10,497 25,547 $0.41
====== ====== ===== ======= ====== =====

<CAPTION>
YEAR ENDED DECEMBER 31, 1999
------------------------------------
WEIGHTED
AVERAGE PER SHARE
NET INCOME SHARES AMOUNT
----------- --------- ----------
<S> <C> <C> <C>
Basic earnings per
share.............. $13,774 27,132 $0.51
=====
Dilutive effect of
stock options...... -- 2,502
Dilutive effect of
assumed preferred
stock conversion...
======= ======
Diluted earnings per
share.............. $13,774 29,634 $0.46
======= ====== =====
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------------------------------------------------
1999 2000
--------------------------------- ----------------------------------
AVERAGE PER AVERAGE PER
NET SHARES SHARE NET SHARES SHARE
INCOME OUTSTANDING AMOUNT INCOME OUTSTANDING AMOUNTS
-------- ----------- -------- --------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share.............. $6,293 25,908 $0.24 $10,279 29,590 $0.35
===== =====
Dilutive effect of stock options and
grants.............................. -- 2,840 -- 1,455
====== ====== ======= ======
Diluted earnings per share............ $6,293 28,747 $0.22 $10,279 31,045 $0.33
====== ====== ===== ======= ====== =====
</TABLE>

USE OF MANAGEMENT ESTIMATES:

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

RECENT ACCOUNTING PRONOUNCEMENTS:

In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
(as amended by SFAS No. 138) which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 has
subsequently been amended by SFAS No. 137, issued in June 1999, which delays the
effective date for implementation of SFAS No. 133 until fiscal quarters of
fiscal years beginning after June 15, 2000. Management does not anticipate that
the adoption of SFAS No. 133 will have a material effect

F-11
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1998 AND 1999 AND JUNE 30, 1999 AND 2000 (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
on the Company's consolidated financial statements because the Company does not
presently utilize derivative investments or engage in hedging activities.

In December 1999, the SEC issued Staff Accounting Bulletin No. 101 "SAB
101," "Revenue Recognition in Financial Statements." SAB 101 summarizes certain
of the SEC's views in applying generally accepted accounting principles to
revenue recognition in financial statements. The Company is required to adopt
SAB 101 in the fourth quarter of 2000. Management does not expect the adoption
of SAB 101 to have a material effect on the Company's financial condition or
results of operations.

In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving
Stock Compensation--an Interpretation of APB Opinion No. 25." FIN 44 clarifies
the application of APB Opinion No. 25 and, among other issues clarifies the
following: the definition of an employee for purposes of applying APB Opinion
No. 25; the criteria for determining whether a plan qualifies as a
non-compensatory plan; the accounting consequence of various modifications to
the terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The Company
does not expect the application of FIN 44 to have a material impact on the
Company's financial position or results of operations.

2. BUSINESS COMBINATION

On October 19, 1999, the Company completed a merger with EnzyMed by
exchanging 1,452 shares of its common stock for all of the common stock of
EnzyMed. Each share of EnzyMed was exchanged for 0.081192 shares of the
Company's common stock. In addition, outstanding EnzyMed stock options were
converted, at the same exchange ratio, into options to purchase 159 shares of
the Company's common stock pursuant to the terms of EnzyMed's stock option plan.

The merger has been accounted for as a pooling-of-interests and,
accordingly, all prior period consolidated financial statements have been
restated to include the combined results of operations, financial position and
cash flows of EnzyMed. The following information presents certain data
pertaining to the statements of operations of the separate companies for the
periods preceding the

F-12
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1998 AND 1999 AND JUNE 30, 1999 AND 2000 (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

2. BUSINESS COMBINATION (CONTINUED)
merger and for the year ended December 31, 1999 as if the companies had operated
separately for the entire year:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net contract revenue:
As previously reported.................................... $8,104 $13,398 $21,184
EnzyMed................................................... 105 251 843
------ ------- -------
Combined................................................ $8,209 $13,649 $22,027
====== ======= =======
Net income (loss):
As previously reported.................................... $2,189 $11,444 $14,974
EnzyMed................................................... (894) (947) (1,200)
------ ------- -------
Combined................................................ $1,295 $10,497 $13,774
====== ======= =======
</TABLE>

There were no material transactions between the Company and EnzyMed prior to
the merger. The effects of conforming EnzyMed's accounting policies to those of
the Company were not material.

3. INVESTMENT IN ORGANICHEM

(a) Stock Purchase Agreement

On December 21, 1999, the Company completed an equity method investment in
Organichem Corporation ("Organichem"), pursuant to a Stock Purchase Agreement
and purchased convertible subordinated debentures of Organichem pursuant to a
Debenture Purchase Agreement. Under the terms of the Stock Purchase Agreement,
the Company acquired shares of common stock of Organichem representing 37.5% of
Organichem's outstanding common stock, for an aggregate purchase price of
$15,131, which included direct costs of $131 attributable to the Organichem
equity investment.

The Company has recorded its investment using the equity method of
accounting and, accordingly, has reduced its investment by recording the
Company's proportionate share of Organichem's loss, as adjusted for intercompany
interest, for the period since the initial investment through December 31, 1999,
and by amortizing the excess cost of its investment in the common stock over the
underlying equity in the net assets of Organichem.

The acquisition cost exceeded the Company's share of the underlying equity
in net assets of Organichem by $9,375, which is being amortized over a period of
25 years. Accumulated amortization at December 31, 1999 and June 30, 2000 was
$10 and $202, respectively. During the year ended December 31, 1999, the Company
recorded $98 as its share of Organichem's loss. For the six months ended June
30, 2000 the Company recorded $350 as its share of Organichem's income
(unaudited). As Organichem is privately held, the market value of this
investment is not readily determinable.

F-13
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1998 AND 1999 AND JUNE 30, 1999 AND 2000 (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

3. INVESTMENT IN ORGANICHEM (CONTINUED)
The Stock Purchase Agreement also incorporates a Put/Call Agreement among
the Company, Organichem and its stockholders that permits the Company to
purchase, at the Company's option, all of the outstanding shares of common stock
of Organichem within 90 days subsequent to the year ending December 31, 2002.
The purchase price is to be determined based on Organichem's earnings before
interest, taxes, depreciation and amortization ("EBITDA"), as defined in the
Put/Call Agreement, for the year ending December 31, 2002, with a minimum and
maximum specified purchase price of $15,000 and $30,000, respectively. In the
event that the Company does not exercise its call option, Organichem
stockholders may require the Company to purchase all of the outstanding shares
of common stock of Organichem within 60 days subsequent to the year ending
December 31, 2003. The purchase price under the put option is to be determined
consistent with that specified under the above call option, with the exception
that the EBITDA, as defined, shall be based on Organichem's results for the year
ending December 31, 2003.

Summarized financial information of Organichem as of December 21, 1999,
prior to any investment by the Company, and as of June 30, 2000 is as follows:

<TABLE>
<CAPTION>
DECEMBER 21, JUNE 30,
1999 2000
------------ --------
(UNAUDITED)
<S> <C> <C>
Current assets...................................... $29,921 $26,596
Property, plant and equipment, net.................. 52,122 38,284
------- -------
Total assets........................................ $82,043 $64,880
======= =======
Current liabilities................................. $ 4,930 $16,391
Other liabilities................................... 2,553 33,360
Total equity........................................ 74,560 15,129
------- -------
Total liabilities and equity...................... $82,043 $64,880
======= =======
</TABLE>

During the period from December 21, 1999 (date of initial investment)
through December 31, 1999, Organichem had no net sales or gross profit since
this period corresponded with the company's annual plant-wide shut-down.
Organichem incurred certain operating expenses during this period and its loss
from continuing operations and net loss for the period ended December 31, 1999
was approximately $431 and $259, respectively. For the six months ended
June 30, 2000 Organichem reported net income of $1,021 (unaudited).

(b) Debenture Purchase Agreement

Under the terms of the Debenture Purchase Agreement, the Company purchased
convertible subordinated debentures ("Debentures") for an aggregate purchase
price of $15,000. The Debentures mature on December 21, 2005 and may be
converted into 37.5% of the outstanding common stock of Organichem, on a fully
diluted basis.

The Debentures bear interest, payable semi-annually, on the unpaid principal
amount at margins over specified fixed or variable London Interbank Offer Rate
("LIBOR") as provided for within the Company's credit agreement with Organichem
(9.375% at December 31, 1999 and

F-14
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1998 AND 1999 AND JUNE 30, 1999 AND 2000 (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

3. INVESTMENT IN ORGANICHEM (CONTINUED)
June 30, 2000). The interest payable under the Debentures through December 21,
2000 shall be added to the principal of the Debenture, with semi-annual cash
interest payments to begin subsequent to December 21, 2000, provided that
Organichem is in compliance with the financial covenants of its credit
agreement. In addition, pursuant to the terms of the Debenture Purchase
Agreement, the Company and Organichem have agreed that in the event that either
the aforementioned put or call options are exercised, 62.5% of the accrued
interest not paid by Organichem as of the date of the put or call exercise shall
be applied to reduce the purchase price as determined under the Put/Call
Agreement. Accrued interest receivable from Organichem at June 30, 2000 totaled
$745.

The Debentures are convertible, at the Company's option, at any time after
the earliest of (i) December 21, 2002; (ii) notification by Organichem to the
Company that Organichem intends to repay the Debenture prior to its maturity; or
(iii) the occurrence of an event of default as defined in the Debenture Purchase
Agreement.

4. INVESTMENT SECURITIES, AVAILABLE-FOR-SALE

The amortized cost, gross unrealized gains, gross unrealized losses and fair
value for available-for-sale investment securities by major security type were
as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------------------------------
GROSS UNREALIZED GROSS UNREALIZED
AMORTIZED COST HOLDING GAINS HOLDING LOSSES FAIR VALUE
-------------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
Obligations of states and political
subdivisions...................... $ 1,672 $109 $ -- $ 1,781
Corporate debt obligations.......... 158 2 -- 160
Bond mutual funds................... 86 -- -- 86
------- ---- ---- -------
$ 1,916 $111 $ -- $ 2,027
======= ==== ==== =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------------------------------------
GROSS UNREALIZED GROSS UNREALIZED
AMORTIZED COST HOLDING GAINS HOLDING LOSSES FAIR VALUE
-------------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
Obligations of states and political
subdivisions...................... $ 1,674 $31 $ (4) $ 1,701
Corporate debt obligations.......... 19,441 1 (60) 19,382
Bond mutual funds................... 89 -- -- 89
------- --- ---- -------
$21,204 $32 $(64) $21,172
======= === ==== =======
</TABLE>

Proceeds from the sales of available-for-sale investment securities were
$21,183 for 1999, resulting in realized losses of $66. There were no sales of
available-for-sale investment securities during 1997 or 1998.

F-15
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1998 AND 1999 AND JUNE 30, 1999 AND 2000 (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

4. INVESTMENT SECURITIES, AVAILABLE-FOR-SALE (CONTINUED)

Maturities of corporate debt obligations and obligations of states and
political subdivisions classified as available-for-sale at December 31, 1999
were as follows:

<TABLE>
<CAPTION>
AMORTIZED COST FAIR VALUE
-------------- -----------
<S> <C> <C>
Due less than one year..................... $12,562 $12,537
Due after one year through five years...... 7,632 7,609
Due after five years through ten years..... 720 731
Due after ten years........................ 201 206
------- -------
$21,115 $21,083
======= =======
</TABLE>

5. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1998 1999 2000
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Laboratory equipment and fixtures........ $10,667 $12,636 $14,593
Office equipment......................... 2,069 2,474 2,930
Leasehold improvements................... 4,019 4,615 4,873
Construction-in-progress................. 616 367 3,515
------- ------- -------
17,371 20,092 25,911
Less accumulated depreciation............ (2,505) (4,213) (5,202)
------- ------- -------
$14,866 $15,879 $20,709
======= ======= =======
</TABLE>

Depreciation expense of property and equipment was $777, $1,128 and $1,708
for the years ended December 31, 1997, 1998 and 1999, respectively. Depreciation
expense was $813 and $989 for the six months ended June 30, 1999 and 2000,
respectively.

6. LONG-TERM DEBT

On June 30, 1998, the Company entered into a revolving line of credit
agreement ("Credit Agreement") with a bank enabling the Company to borrow up to
$15,000 on a revolving basis. On February 8, 1999, the Credit Agreement was
amended to increase the amount available under the line of credit to $25,000.
The initial proceeds of the revolving line of credit were used to refinance an
existing debt facility with another bank and for general corporate purposes.

The Credit Agreement provides for an initial draw period in the form of a
revolving line of credit from the date of the note through June 30, 2001. At
that date, the outstanding principal balance, if any, will be converted to a
term loan. The term loan will be repayable in sixty equal monthly installments
plus any accrued interest through June 30, 2006. The interest rates on the
outstanding borrowings are paid monthly and are at either the bank's prime rate
less 2% or LIBOR plus 0.5%, at the Company's option. Any outstanding borrowings
under the Credit Agreement are secured by a general lien on all assets except
certain patents as defined in the Credit Agreement.

F-16
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1998 AND 1999 AND JUNE 30, 1999 AND 2000 (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

6. LONG-TERM DEBT (CONTINUED)
The Credit Agreement provides for various covenants, including requirements
for the Company to maintain defined financial ratios and the prohibition against
any additional debt, other than in the normal course of business, exceeding $500
in the aggregate, at any time.

The Company had outstanding indebtedness of $7,000 and borrowing
availability of $8,000 under the Credit Agreement as of December 31, 1998. At
December 31, 1999 and June 30, 2000, the Company had no outstanding indebtedness
and borrowing availability of $25,000 under the Credit Agreement.

Long-term debt is comprised as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1998 1999 2000
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Revolving line of credit facility (the interest rate on the
line of credit was 5.55% at December 31, 1998)............ $ 7,000 $ -- $--
Note payable to former chief financial officer, due in
annual installments of $1,587 through October 2003, plus
interest due quarterly at the prime rate (7.75% at
December 31, 1998) (see note 8)........................... 7,936 -- --
Note payable to equipment financing company in monthly
installments of $5 through May 2002, plus interest at
14.3%..................................................... -- 132 --
Note payable to equipment financing company in monthly
installments of $5 through July 2002, plus interest at
15.1%..................................................... -- 123 --
------- ---- ---
14,936 255 --
Less current portion........................................ 1,587 87 --
------- ---- ---
$13,349 $168 $--
======= ==== ===
</TABLE>

The aggregate maturities of long-term debt subsequent to December 31, 1999
are as follows:

All long-term debt was repaid during the six months ended June 30, 2000.

F-17
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1998 AND 1999 AND JUNE 30, 1999 AND 2000 (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

7. INCOME TAXES

Income tax expense (benefit) consists of the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal................................................... $916 $6,363 $6,880
State..................................................... 71 383 950
---- ------ ------
987 6,746 7,830
---- ------ ------
Deferred:
Federal................................................... (440) (530) 155
State..................................................... (174) 135 210
---- ------ ------
(614) (395) 365
---- ------ ------
$373 $6,351 $8,195
==== ====== ======
</TABLE>

The differences between income tax expense and income taxes computed using a
federal statutory rate of 34% for the year ended December 31, 1997, and 35% for
the years ended December 31, 1998 and 1999, were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Pre-tax income at statutory rate............................ $567 $5,897 $7,689
Increase (reduction) in taxes resulting from:
Tax-free interest income.................................. (30) (31) (102)
State taxes, net of federal benefit....................... (68) 336 754
Research and experimentation credit....................... (64) (70) --
Other, net................................................ (32) 219 (146)
---- ------ ------
$373 $6,351 $8,195
==== ====== ======
</TABLE>

F-18
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1998 AND 1999 AND JUNE 30, 1999 AND 2000 (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

7. INCOME TAXES (CONTINUED)
The tax effects of temporary differences giving rise to significant portions
of the deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Non-deductible accruals................................... $ 32 $ 76
Non-deductible amortization............................... 9 41
Non-deductible lease costs................................ 73 67
Inventory................................................. -- 12
State tax credits......................................... 61 --
Research and experimentation credit carryforwards......... 174 174
Net operating loss carryforwards.......................... 1,964 2,488
------ -------
Total gross deferred tax assets....................... 2,313 2,858
Less valuation allowance.............................. -- --
------ -------
Deferred tax assets................................... 2,313 2,858
Deferred tax liabilities:
Property and equipment depreciation differences
(accelerated depreciation for tax purposes)............. (630) (1,539)
------ -------
Net deferred tax asset................................ $1,683 $ 1,319
====== =======
</TABLE>

The preceding table does not include the deferred tax liability of $44 at
December 31, 1998 and deferred tax asset of $10 at December 31, 1999, associated
with the Company's unrealized gain (loss) on investment securities,
available-for-sale, discussed in note 4.

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income and the taxable income in
the two previous tax years to which tax loss carryback can be applied.
Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, taxable income in the carryback period and tax
planning strategies in making this assessment. Based upon the level of projected
future taxable income over the periods in which the deferred tax assets are
deductible, management believes it is more likely than not that the Company will
realize the benefits of those deductible differences. The amount of the deferred
tax asset considered realizable could be reduced if estimates of future taxable
income during the carryforward period are reduced.

8. STOCKHOLDERS' EQUITY

On November 30, 1998, the Board of Directors approved a 3-for-2 split of the
Company's common stock to shareholders of record effective on that date. On
July 20, 2000 the Board of Directors approved a 2-for-1 split of the Company's
common stock to stockholders of record as of

F-19
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1998 AND 1999 AND JUNE 30, 1999 AND 2000 (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

8. STOCKHOLDERS' EQUITY (CONTINUED)
August 8, 2000. All shares and per share information included in the
accompanying consolidated financial statements has been restated to reflect the
stock splits.

On January 29, 1999, in connection with the filing of the registration
statement with the Securities and Exchange Commission for the Company's initial
public offering of common stock, the Company effected a reincorporation by
merger. Through the reincorporation, each share of outstanding common stock of
Albany Molecular Research, Inc. (incorporated in New York) was exchanged for
0.75 shares of common stock of a new company, Albany Molecular Research, Inc.
(incorporated in Delaware). All share and per share information included in the
accompanying consolidated financial statements has been restated to reflect the
reincorporation by merger.

On October 28, 1998, the Company entered into a severance agreement with its
former chief financial officer ("Former CFO"). The Former CFO agreed to exchange
all of his outstanding shares and the shares that were represented by all of his
outstanding stock options for a purchase price of approximately $10,000. In
total, the Company repurchased 2,264 shares of common stock. These treasury
shares, along with 3,366 of shares not previously issued, were sold during the
Company's February 1999 initial public offering.

On February 4, 1999, in connection with the Company's initial public
offering of common stock, the Company converted 100 shares of its outstanding
preferred stock in a ratio of twenty (20) preferred shares to nine (9) common
shares. For purposes of diluted earnings per share for the years ended
December 31, 1998 and 1997, all preferred shares were assumed converted to their
common stock equivalents.

On February 4, 1999, the Company completed the initial public offering of
its common stock by issuing 5,630 shares, 630 of which were issued pursuant to
an underwriters' over-allotment provision, at a price of $10.00 per share. Prior
to the offering, there was no public market for the Company's common stock. The
net proceeds of the offering, after deducting applicable direct offering costs
of $971, were $51,388. The net proceeds were used by the Company to repay
outstanding indebtedness under the revolving line of credit agreement, certain
promissory notes issued in connection with the Company's repurchase of 2,264
shares of common stock from the Former CFO and the equity investment in and
purchase of the convertible subordinated debentures from Organichem.

The Company's 1998 Employee Stock Purchase Plan (the "Plan") was adopted
during August 1998. Up to 600 shares of common stock may be issued under the
Plan, which is administered by the Compensation Committee of the Board of
Directors. It established two stock offering periods per calendar year, the
first beginning on January 1 and ending on June 30, and the second beginning on
July 1 and ending December 31. All employees who work more than 20 hours per
week are eligible for participation in the Plan. Employees who are deemed to own
greater than 5% of the combined voting power of all classes of stock of the
Company are not eligible for participation in the Plan.

During each offering, an employee may purchase shares under the Plan by
authorizing payroll deductions up to 10% of their cash compensation during the
offering period. The maximum number

F-20
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1998 AND 1999 AND JUNE 30, 1999 AND 2000 (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

8. STOCKHOLDERS' EQUITY (CONTINUED)
of shares to be issued to any single employee during an offering period is
limited to one thousand. At the end of the offering period, the accumulated
payroll deductions will be used to purchase common stock on the last business
day of the offering period at a price equal to 85% of the fair market value of
the common stock on the first or last day of the offering period, whichever is
lower. During the offering period ended December 31, 1999, which was the only
offering period undertaken during 1999, the Company issued 8,390 shares of
common stock at an average price of $12.81 to participants in the Plan. During
the offering period ended June 30, 2000 the Company issued 11 shares of Common
Stock at an average price of $12.99 to participants in the Plan.

The Company has a Stock Option Plan, through which the Company may issue
incentive stock options or non-qualified stock options. Incentive stock options
granted to employees may not be granted at prices less than 100 percent of the
fair market value of the Company's common stock at the date of option grant.
Non-qualified stock options may be granted to employees, directors, advisors,
consultants and other key persons of the Company at prices established at the
date of grant, and may be less than the fair market value at the date of grant.
All incentive stock options may be exercised at any time, after vesting, over a
ten-year period subsequent to the date of grant. Incentive stock options
generally vest over five years, with a 60% vesting occurring at the end of the
third anniversary of the grant date. Non-qualified stock option vesting terms
are established at the date of grant, but shall have a duration of not more than
ten years.

Following is a summary of the status of stock option programs during 1997,
1998 and 1999 and the six months ended June 30, 2000:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------ SIX MONTHS ENDED
1997 1998 1999 JUNE 30, 2000
-------------------- -------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- -------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning of
year............... 3,424 $0.67 4,256 $0.88 4,032 $ 1.31 2,183 $ 3.09
Granted............ 913 1.70 494 3.84 331 10.00 452 25.08
Exercised.......... (34) 0.21 (592) 0.31 (2,170) 0.83 (480) 1.18
Forfeited.......... (47) 1.51 (126) 1.37 (10) 6.51 (44) 8.50
----- ----- ----- ----- ------ ------ ----- ------
Outstanding, end of
year............... 4,256 $0.88 4,032 $1.31 2,183 $ 3.09 2,111 $ 8.12
===== ===== ===== ===== ====== ====== ===== ======
Options exercisable,
end of year........ 3,264 2,816 838 582
===== ===== ====== =====
Weighted-average fair
value of options
granted during the
year............... $0.43 $0.94 $ 4.25 $25.07
===== ===== ====== ======
</TABLE>

F-21
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1998 AND 1999 AND JUNE 30, 1999 AND 2000 (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

8. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding
as of December 31, 1999:

<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
---------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF OPTION NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------------------------------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.06-0.07............................ 89 3.8 years $ 0.07 89 $ 0.07
$0.28................................. 108 3.9 years 0.28 108 0.28
$0.56................................. 180 5.5 years 0.56 180 0.56
$0.92-1.24............................ 233 5.9 years 1.02 211 1.03
$1.49-1.80............................ 775 7.5 years 1.65 53 1.54
$2.46-2.90............................ 176 8.1 years 2.73 109 2.90
$4.44................................. 319 8.6 years 4.44 82 4.44
$10.00-14.63.......................... 291 9.0 years 10.35 6 10.25
$15.02-15.57.......................... 12 5.3 years 15.09 -- --
----- ---
2,183 838
===== ===
</TABLE>

The following summarizes information about stock options outstanding as of
June 30, 2000 (unaudited):

<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
----------------------------------- EXERCISABLE OPTIONS
WEIGHTED-AVERAGE ------------------------------
RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$0.28-0.28........... 62 3.4 years $ 0.28 62 $ 0.28
$0.56-0.56........... 86 5.1 years 0.56 86 0.56
$0.92-1.24........... 171 5.5 years 0.99 160 0.99
$1.49-1.80........... 660 7.0 years 1.66 170 1.55
$2.46-2.90........... 76 7.8 years 2.50 9 2.90
$4.44-4.44........... 319 8.1 years 4.44 86 4.44
$10.00-14.63......... 283 8.5 years 10.36 6 10.25
$15.02-15.56......... 12 4.8 years 15.09 3 15.02
$23.75-30.75......... 441 9.7 years 25.07 -- --
$36.88-36.88......... 1 9.7 years 36.88 -- --
----- ---
$0.28-36.88 2,111 582
===== ===
</TABLE>

F-22
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1998 AND 1999 AND JUNE 30, 1999 AND 2000 (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

8. STOCKHOLDERS' EQUITY (CONTINUED)
The following are the shares of common stock reserved for issuance and the
related exercise prices:

<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 2000
------------------------ ------------------------
EXERCISE EXERCISE
NUMBER OF PRICE PER NUMBER OF PRICE PER
SHARES SHARE SHARES SHARE
--------- ------------ --------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Employee Stock Option Plans................ 2,183 $0.06-$15.57 2,111 $0.28-$36.88
Employee Stock Purchase Plan............... 8 $12.81 11 $12.99
----- -----
Shares reserved for issuance........... 2,191 2,122
===== =====
</TABLE>

The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," in accounting for its stock option plan and, since the exercise
price of stock options granted under the Company's stock option plans is not
less than the market price of the underlying stock on the date of grant, no
compensation cost has been recognized for such grants. Under SFAS No. 123,
"Accounting for Stock Based Compensation," compensation cost for stock option
grants would be based on the fair value at the grant date, and the resulting
compensation expense would be shown as an expense on the consolidated statements
of operations. Had compensation cost for these plans been determined consistent
with SFAS No. 123, the Company's net income and earnings per share would have
been reduced to the following pro-forma amounts:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net income:
As reported............................................... $1,295 $10,497 $13,774
Pro forma................................................. $1,226 $10,384 $13,469
Earnings per share:
Basic as reported......................................... $ 0.06 $ 0.46 $ 0.51
Basic pro forma........................................... $ 0.06 $ 0.46 $ 0.50
Diluted as reported....................................... $ 0.05 $ 0.41 $ 0.46
Diluted pro forma......................................... $ 0.05 $ 0.41 $ 0.45
</TABLE>

The per share weighted-average fair value of stock options granted is
determined using the Black-Scholes option-pricing model with the following
weighted-average assumptions for grants in 1997, 1998 and 1999: (i) no dividend
yield for all years; (ii) zero expected volatility for 1997 and 1998, and 48%
volatility for 1999; (iii) risk-free interest rates of 5.69%, 4.45%, and 5.04%
for 1997, 1998 and 1999, respectively; and (iv) expected lives of five years for
the incentive options and four years for the non-qualified options for 1997 and
1998, and expected lives of four years for all options in 1999.

F-23
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1998 AND 1999 AND JUNE 30, 1999 AND 2000 (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

9. EMPLOYEE BENEFIT PLAN

The Company maintains a savings and profit sharing plan under
section 401(k) of the Internal Revenue Code covering all eligible employees.
Employees must complete six months of service and be over 20.5 years of age as
of the plan's entry dates. Participants may contribute up to 15% of their
compensation, limited to $10 per annum in 1998 and 1999. The Company currently
makes matching contributions equal to 50% of the participant's contributions (up
to a limit of 6% of the participant's compensation). In addition, the Company
has reserved the right to make discretionary profit sharing contributions to
employee accounts. The Company has made no discretionary profit sharing
contributions. Employer matching contributions vest at a rate of 20% per year
beginning after two years of participation in the plan. Employer matching
contributions were $21, $60 and $151 for the years ended December 31, 1997, 1998
and 1999, respectively, and $53 and $133 for the six months ended June 30, 1999
and 2000.

10. LEASE COMMITMENTS

The Company leases both facilities and equipment used in its operations and
classifies those leases as operating leases following the provisions of SFAS
No. 13, "Accounting for Leases."

The Company has a long-term operating lease for its Albany, New York office
and laboratory facilities with a shareholder of the Company. The present lease
commenced in December 1997 and expires in November 2007, with average monthly
rental payments of $30. The lease contains a ten-year renewal option at the
option of the Company, with six months' prior notice. The Company currently
holds an option to purchase the property for $3,500 in November 2002. During the
year ended December 31, 1999, the Company reserved the purchase option on the
facility with a $1,000 deposit, which is included in other assets in the
accompanying consolidated balance sheet. The Company is responsible for paying
the cost of utilities, operating costs, and increases in property taxes.

The Company leases three additional laboratory facilities under separate
agreements with non-related parties. The lease agreements expire in July 2000,
November 2009, and December 2010, with monthly rental rates of $5, $26 and $7,
respectively. The Company also leases various office equipment items with terms
ranging from three to five years.

Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1999
are as follows:

<TABLE>
<CAPTION>
RELATED
PARTY OTHER TOTAL
Year ending December 31 -------- -------- --------
<S> <C> <C> <C>
2000.................................................... $ 359 $ 532 $ 891
2001.................................................... 359 589 948
2002.................................................... 359 627 986
2003.................................................... 275 587 862
2004.................................................... 275 504 779
Thereafter.............................................. 803 2,683 3,486
------ ------ ------
Total minimum future lease payments......................... $2,430 $5,522 $7,952
====== ====== ======
</TABLE>

F-24
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1998 AND 1999 AND JUNE 30, 1999 AND 2000 (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

10. LEASE COMMITMENTS (CONTINUED)
Rental expense amounted to approximately $268, $593, and $768 during the
years ended December 31, 1997, 1998 and 1999, respectively. Included within rent
expense was approximately $189, $413 and $373 that was paid to the
aforementioned related party of the Company during the years ended December 31,
1997, 1998, and 1999, respectively. Rental expense was approximately $277 and
$386 for the six months ended June 30, 1999 and 2000, including $138 paid to the
related party in both periods.

11. RELATED PARTY TRANSACTIONS

a. Technology Development Incentive Plan

In 1993, the Company 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
of the Company and must be the inventor or co-inventor of novel technology that
results in new revenues generated for, or by, the Company. As of June 30, 2000,
eligible participants will share in awards based on ten percent (10%) of the
"Net Technology Revenue," as defined by the Plan.

In 1997, 1998 and 1999, the Company awarded Technology Incentive
Compensation to the inventor of the terfenadine carboxylic acid metabolite
technology. The inventor is a director, officer and shareholder of the Company.
The amounts awarded and included in the consolidated statements of operations
for the years ended December 31, 1997, 1998 and 1999 are $253, $1,822, and
$2,132, respectively and $993 and $1,343 for the six months ended June 30, 1999
and 2000. Included in accrued compensation in the accompanying consolidated
balance sheets at December 31, 1998 and 1999 and June 30, 2000 are unpaid
Technology Development Incentive Compensation awards of $386, $538 and $781,
respectively.

b. Lease Agreement

As described in note 10, the Company currently has a long-term operating
lease for its Albany, New York office and laboratory facilities with a
shareholder of the Company. In the opinion of management, the transactions with
the shareholder were entered into at the fair market value of the property being
leased.

c. Notes Receivable

During January 1998, the Company issued notes receivable to two senior
officers of the Company totaling $100. The notes receivable and accrued interest
will not be repaid to the Company provided the officers remain in the employ of
the Company. If employment is terminated within the five-year period ending
December 31, 2002, a pro-rata portion of the principal and interest shall be
repaid to the Company.

F-25
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1998 AND 1999 AND JUNE 30, 1999 AND 2000 (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

11. RELATED PARTY TRANSACTIONS (CONTINUED)

d. Note Payable

In connection with the departure of the Company's former chief financial
officer in 1998, the Company repurchased 2,264 shares of common stock for an
aggregate purchase price of $9,936 of which $2,000 was paid in cash. The
remaining $7,936 of the purchase price was in the form of a note payable (see
note 6). This note was repaid in February 1999 utilizing proceeds from the
Company's initial public offering.

12. ROYALTY & LICENSING ARRANGEMENT

On March 15, 1995, the Company entered into a License Agreement and a Stock
Purchase Agreement with Marion Merrell Dow Inc., now part of Aventis,
S.A.("Aventis"). Under the terms of the Stock Purchase Agreement, the Company
sold 3,254 shares of the Company's common stock to Aventis for $2,000. Under the
terms of the License Agreement, the Company granted Aventis an exclusive,
worldwide license, with the right to grant sublicenses, upon the prior written
consent of the Company, to any patents issued to the Company related to its
original terfenadine carboxylic acid metabolite patent application. Terfenadine
carboxylic acid metabolite is the active ingredient in the non-sedating
antihistamine fexofenadine HCl, marketed as a prescription medicine by Aventis,
under the brand names "Allegra" in the Americas and "Telfast" in the rest of the
world. In return for the license, Aventis agreed to pay the Company up to $6,500
based upon the achievement of five patenting milestones and future royalties
based on sales of fexofenadine HCl. The five patenting milestones consist of:

- Issuance of a U.S. "Intermediate Process Claim";

- Issuance of a U.S. "Process Manufacturing Claim";

- Issuance of an ex-U.S. "Process Manufacturing Claim";

- Issuance of a U.S. "Substantially Pure Claim"; and

- Issuance of an ex-U.S. "Substantially Pure Claim".

In October 1996, the Company was awarded a patent in Australia that
satisfied the ex-U.S. "Process Manufacturing Claim" milestone. In accordance
with the terms of the Agreement, the Company received a milestone payment and
will receive a royalty on all sales of fexofenadine HCl in that country. Aventis
began selling a product using fexofenadine HCl in January 1997 in Australia.

F-26
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1998 AND 1999 AND JUNE 30, 1999 AND 2000 (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

12. ROYALTY & LICENSING ARRANGEMENT (CONTINUED)
In November 1996, the Company was awarded a U.S. patent that satisfied the
U.S. "Substantially Pure Claim." However, under the terms of the Agreement,
Aventis had the right to institute action to provoke an interference claim and,
upon successfully doing so, was not obligated to pay any milestones or royalties
until, and if, the interference was resolved in favor of the Company. In
February 1998, the United States Patent and Trademark Office ("PTO") Board of
Patent Appeals and Interferences rendered a decision that the Company was first
to make the invention and confirming that the Company was properly awarded the
aforementioned patent. Accordingly, in the first six months of 1998, the Company
received and recognized the associated milestone payment and royalties on all
sales of fexofenadine HCl (Allegra) in the United States from November 26, 1996
through December 31, 1997, as stipulated in the Agreement. The total payment was
$6,300. Because of the decision that the Company was first to make the
invention, the Company is entitled to receive royalties on all subsequent sales
of fexofenadine HCl (Allegra) in the United States through the respective patent
expiration in 2013.

On December 1996, the PTO informed the Company that the Company's patent
application containing a U.S. "Process Manufacturing Claim" was in interference
with a patent application of Aventis. In May 1997, the PTO Board of Patent
Appeals and Interferences rendered a decision that the Company was first to make
the invention. Under the terms of the Agreement, no milestones or royalties are
due to the Company until a patent is issued. Under the procedures of the PTO, a
patent is not issued until the PTO publishes it. The patent was published in
May 1998. Upon the patent publication, the Company was entitled to and did
receive the milestone payment for a U.S. "Process Manufacturing Claim."
Additionally, the Company is entitled to receive a royalty on worldwide sales of
fexofenadine HCl (Allegra and Telfast) from the date of patent issuance until
expiration of the patent in 2015.

In January 1997, the Company was awarded a patent that satisfied the U.S.
"Intermediate Process Claim" milestone. In accordance with the terms of the
Agreement, the Company received a milestone payment. There are no royalties
associated with this patent.

In July 1997, the Company was awarded a New Zealand patent that satisfied
the ex-U.S. "Substantially Pure Claim" milestone. In accordance with the terms
of the Agreement, the Company received a milestone payment and will receive
royalties on all sales of fexofenadine HCl (Telfast) in that country.

Substantially all of the Company's license, milestone and royalty revenue is
derived from milestones and royalties related to its patented fexofenadine HCl
technology.

13. CONCENTRATION OF BUSINESS

For the years ended December 31, 1997, 1998 and 1999, net contract revenue
from the Company's three largest customers represented approximately 29%, 11%
and 9% for 1997, 15%, 14% and 12% for 1998, and 22%, 10% and 10% for 1999, of
total net contract revenue for such years, respectively. Net contract revenue
from the Company's three largest customers represented approximately 23%, 14%
and 9% of total consolidated net contract revenue for the six months ended
June 30, 2000, and 20%, 12% and 11% of total consolidated net contract revenue
for the six

F-27
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1998 AND 1999 AND JUNE 30, 1999 AND 2000 (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

13. CONCENTRATION OF BUSINESS (CONTINUED)
months ended June 30, 1999. In the majority of circumstances, there are
agreements in force with these entities that guarantee the Company's continued
involvement in present research projects. However, there regularly exists the
possibility that the Company will have no further association with these
entities once these projects conclude.

Net contract revenue by country, based on the location of the customer, and
expressed as a percentage of total net contract revenue follows:

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
United States.......................... 71% 86% 89% 90% 90%
Sweden................................. 29 14 10 10 9
Other countries........................ -- -- 1 -- 1
---- ---- ---- ---- ----
Total.................................. 100% 100% 100% 100% 100%
==== ==== ==== ==== ====
</TABLE>

All significant long-lived assets of the Company are located within the
United States.

14. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments." Although the estimated
fair value amounts have been determined by the Company using available market
information and appropriate valuation methodologies, the estimates presented are
not necessarily indicative of the amounts that the Company could realize in
current market exchanges.

The Company is estimating its fair value disclosures for financial
instruments using the following methods and assumptions:

Cash, cash equivalents and short-term investments, receivables, and accounts
payable: the carrying amounts reported in the consolidated balance sheets
approximate their fair value because of the short maturities of these
instruments.

Investment securities, available-for-sale: As disclosed in note 4,
investment securities, available-for-sale are estimated based on quoted market
prices at the balance sheet date.

Equity investment in unconsolidated affiliate and subordinated debenture
bond from unconsolidated affiliate: The fair value of the Organichem investment
is not readily determinable as the company is privately held. At December 31,
1999, management estimates that the fair value of the convertible subordinated
debenture from Organichem approximates the carrying value of $15,000.

Long-term Debt: The carrying value of long-term debt was approximately
$14,936 and $254 at December 31, 1998 and 1999, respectively. Management
estimates that the fair value of long-term debt was approximately $14,936 and
$263 at December 31, 1998 and 1999, respectively, based

F-28
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1998 AND 1999 AND JUNE 30, 1999 AND 2000 (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

14. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
upon interest rates available to the Company for issuance of similar debt with
similar terms and remaining maturities.

15. SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)

The following tables present unaudited consolidated financial data, as
restated to reflect the EnzyMed merger discussed in note 2, for each quarter of
1998 and 1999 and the first two quarters of 2000:

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1998
Net contract revenue...................................... $2,956 $3,154 $3,723 $3,817
Gross profit.............................................. 1,369 1,368 1,607 1,572
Milestones and royalties, net............................. 7,289 3,959 2,964 3,611
Income from operations.................................... 7,009 3,739 2,883 3,217
Net income................................................ 4,341 2,525 1,744 1,888
Net income per share:
Basic................................................... $ 0.19 $ 0.11 $ 0.08 $ 0.09
Diluted................................................. $ 0.17 $ 0.10 $ 0.07 $ 0.07

1999
Net contract revenue...................................... $4,587 $5,145 $5,641 $6,654
Gross profit.............................................. 1,985 2,217 2,404 2,930
Milestones and royalties, net............................. 3,769 5,273 5,263 5,008
Income from operations.................................... 3,878 5,457 5,535 5,278
Net income................................................ 2,580 3,712 3,815 3,667
Net income per share:
Basic................................................... $ 0.10 $ 0.14 $ 0.14 $ 0.13
Diluted................................................. $ 0.09 $ 0.12 $ 0.13 $ 0.12

2000
Net contract revenue...................................... $7,833 $8,834
Gross profit.............................................. 3,447 3,896
Milestones and royalties, net............................. 5,113 6,970
Income from operations.................................... 6,240 8,431
Net income................................................ 4,418 5,862
Net income per share:
Basic................................................... $ 0.15 $ 0.20
Diluted................................................. $ 0.14 $ 0.19
</TABLE>

F-29
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997, 1998 AND 1999 AND JUNE 30, 1999 AND 2000 (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

16. SUBSEQUENT EVENTS

ACQUISITION OF AMERICAN ADVANCED ORGANICS, INC.

On February 4, 2000, the Company consummated its acquisition of American
Advanced Organics, Inc. (AAO) of Syracuse, New York, for approximately $1,000 in
cash and $1,300 in common stock of the Company. The Company also assumed
approximately $740 in liabilities. In addition to the $2,300 purchase price, the
former AAO stockholders may also receive up to $800 in future payments based
upon AAO's financial performance, operating as a division of the Company, in
2000 and 2001. The transaction was accounted for as a purchase business
combination. The operating results of AAO have been included in the Company's
results of operations from the date of acquisition. The excess purchase price
over the net assets acquired, which approximated $2,100 is being amortized over
fifteen years. Amortization expense for the six months ended June 30, 2000 was
approximately $97. Pro forma information has not been provided because the
acquisition is immaterial.

INVESTMENT IN FLUOROUS TECHNOLOGIES, INC. (UNAUDITED)

In May 2000, the Company 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 exploit the potential of this revolutionary technology in pharmaceutical drug
discovery, agrochemical product development, and more environmentally friendly
chemical manufacturing. The Company has invested $650 in Fluorous Technologies
representing an initial 69.9% equity ownership. The Company's ownership interest
in Fluorous Technologies is expected to be diluted to less than 50% upon the
issuance of additional common stock by Fluorous Technologies. As a result of the
Company's investment, a proportionate share of Fluorous Technologies earnings
will be included in the Company's financial statements.

STOCK SPLIT (UNAUDITED)

On August 7, 2000 the Company announced that its Board of Directors approved
a two-for-one stock split of the Company's outstanding shares of common stock.
The stock split entitles each stockholder of record at the close of business on
August 8, 2000, to receive a stock dividend of one additional share for every
share of Albany Molecular Research, Inc. Common Stock held on that date. The
additional shares resulting from the stock split will be distributed by the
Company's transfer agent on August 24, 2000. All per share data in the
accompanying financial statements has been retroactively restated to reflect the
two-for-one stock split.

F-30
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN
THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF
COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE
OF OUR COMMON STOCK.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.................... 1

Risk Factors.......................... 5

Special Statement Regarding Forward-
Looking Statements.................. 10

Use of Proceeds....................... 11

Dividend Policy....................... 11

Price Range of Common Stock........... 11

Capitalization........................ 12

Selected Consolidated Financial
Data................................ 13

Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 15

Business.............................. 25

Management............................ 38

Principal and Selling Stockholders.... 41

Underwriting.......................... 43

About this Prospectus and Where You
May Find More Information........... 46

Legal Matters......................... 47

Experts............................... 47

Other Information..................... 47

Index to Consolidated Financial
Statements.......................... F-1
</TABLE>

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PROSPECTUS
OCTOBER 5, 2000