After some tough times, the picture is improving for Albany Molecular (NASDAQ:AMRI). The company's royalty stream, although much depleted, may have stabilized, and its core contract business continues to pick up. The small provider of chemistry services isn't likely to deliver red-hot growth in the near future, but as things look better, Albany Molecular is worth a closer look.

At first blush, Albany Molecular's second-quarter results seem pretty rough. Compared to last year's second quarter, total revenue declined 12% to $45.6 million, while the firm turned in a loss of $353,000 versus earnings of $7.3 million.

However, the revenue slump stemmed a 55% year-over-year decline in royalty revenue from the firm's rights to Allegra, Sanofi-Aventis' (NYSE:SNY) allergy drug, which has been suffering from recently introduced generic competition. On the bright side, royalty revenue was steady compared to last quarter at $7.2 million. Further, in the company's core business, revenue increased 7% year over year to $38.4 million. As for earnings, they were hurt by a $2.2 million one-time charge related to an asset writedown. Without the charge, net income would have been $1.9 million.

Two out of three of the company's units showed healthy top-line growth. The discovery services segment saw a 48% jump in revenue to $9.4 million, thanks in part to a deal with Bristol-Myers Squibb (NYSE:BMY), while Small Scale Manufacturing recorded a 17% revenue increase to $8.2 million. Admittedly, the top line at Albany Molecular's largest unit, large scale manufacturing, declined 8% to $20.8 million, but the prospects in this area look good. The firm signed two new contracts in the quarter for drugs currently under review by the Food and Drug Administration for commercial approval.

Albany Molecular still has some work to do on its turnaround, and there is no near-term replacement for the company's declining royalty revenue. But the firm has made good progress back from its slump, and that progress seems likely to continue.

For more on Albany Molecular:

Join in on the discussion:

Fool contributor Brian Gorman does not own shares in any of the companies mentioned.