ALTH Allos Therapeutics, Inc. (MM)

AMAG Pharmaceuticals Inc. (AMAG) recently announced preliminary fourth quarter 2011 results besides providing an update on its sole marketed product Feraheme and its overall business. Feraheme is an injectable drug for intravenous use as an iron replacement therapy for the treatment of iron deficiency anemia (IDA) in adult patients suffering from chronic kidney disease (CKD).

Fourth Quarter Preliminary Results

AMAG expects to generate total revenues of $14.3–$15.0 million in the final quarter, slightly below the Zacks consensus Estimate of $16 million. Feraheme is expected to generate revenue in a band of $12.4–$13.1 million. The expected fourth quarter total revenue as well as Feraheme sales are sequentially below the third quarter figures of $17.6 million and $15.8 million, respectively. The third quarter figures however included one-time reserves in Feraheme revenues. Total Feraheme provider demand was almost flat sequentially at approximately 24,250 grams.

AMAG expects to record total operating costs in the range of $38–$43 million in the fourth quarter, which includes restructuring charges as well as a termination fee of $2 million paid by AMAG to Allos Therapeutics, Inc (ALTH) following the failed merger between the two companies.

Feraheme Update

Feraheme, which is currently marketed in the US and approved in Canada, is under review in Switzerland and European Union (EU). It is expected to be launched in Canada this year. In EU, the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) is expected to give an opinion on approval in the first half of 2012.

AMAG is currently enrolling patients for its global registrational program for Feraheme for IDA treatment irrespective of the underlying cause. Enrollment in the program is expected to be completed this month and the company expects to file regulatory applications in the US in the second half of 2012. The company is banking on this label expansion to improve sales of Feraheme.

2012 Outlook

The AMAG management was compelled to restructure its expenses, in keeping with lackluster Feraheme sales, after the failed Allos merger, in November last year. AMAG hopes to achieve cash flow breakeven in 2012. The company had also issued guidance for 2012 which it has affirmed at the latest business update. AMAG hopes to generate low double-digit growth for Feraheme sales in 2012. Operating expenses (excluding cost of goods sold) are expected to range between $90 million and $100 million. Moreover, AMAG expects to end 2012 with $225 million to $230 million in cash, benefiting from $33 million of potential milestone payment from Takeda from the expected launch of Feraheme in Europe and Canada.

At the November 2011 restructuring, management also announced that it will cut its workforce by about 25%. Moreover, management also announced some changes at the executive level. Importantly, management is evaluating all strategic alternatives for the company, including a potential sale, merger, acquisition, or in-licensing opportunity and has hired Jefferies & Company, a subsidiary of Jefferies Group, Inc. (JEF), as a financial advisor to help it evaluate these strategic alternatives.

Our Recommendation

We currently have an Outperform recommendation on the stock. The stock carries a Zacks #2 Rank (short term “Buy” rating). While we are slightly disappointed by the weak fourth quarter preliminary estimates, we are optimistic about the company’s new restructuring plan and its efforts to explore strategic initiatives, which we believe will bring it on track after the Allos disappointment.

 
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