Loss Shrinks at AMAG, CEO Departs - Analyst Blog
08 November 2011 - 8:15PM
Zacks
AMAG Pharmaceuticals Inc. (AMAG) posted a loss
of 78 cents per share during the third quarter of 2011, narrower
than the Zacks Consensus Estimate of a loss of $1.00 per share as
well as the year-ago loss of 81 cents per share. The narrower loss
was due to lower-than-expected operating expenses. AMAG also
announced a broad restructuring plan to reduce operating expenses
and the departure of its CEO Dr. Pereira. Management is evaluating
all strategic alternatives for the company, including a potential
sale, merger, acquisition, or in-licensing opportunity.
The Quarter in Detail
Third quarter 2011 revenues of $17.6 million were up 4.2% year
over year and above the Zacks Consensus Estimate of $16 million due
to inclusion of one-time reserves in Feraheme revenues. Feraheme is
AMAG’s sole marketed product which 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).
Sales of Feraheme climbed a marginal 4.0% to $15.8 million from
$15.2 million in the prior-year quarter. However, Feraheme revenue
included a one-time $3 million change in estimated Medicaid
reserves, excluding which revenue would have been down year over
year. However, Feraheme witnessed an increase in market share in
the non-dialysis segment to 13% from 11% in the second quarter
despite a 15% contraction in the overall non-dialysis market. Total
Feraheme provider demand and launch incentive program utilization
was flat sequentially at approximately 25,000 grams with more than
half of it coming from the hematology/oncology segment. We believe
current investor focus is more on the strategic alternatives for
AMAG rather than the performance of Feraheme.
Total operating costs in the quarter were $34.8 million, barely
above $34.3 million in the prior-year quarter due to decreased
commercialization costs for Feraheme.
Restructuring Plan
In late October 2011, AMAG announced the termination of the deal
to merge with Colorado based Allos Therapeutics,
Inc. (ALTH). AMAG had entered into an agreement to merge
with Allos in July this year in an all stock deal that had a total
equity value of $686 million. The deal failed to receive sufficient
shareholder votes in order to materialize. AMAG management has thus
decided to restructure its expenses to bring it in line with
expected sales from Feraheme, which is not doing too well.
AMAG will cut its workforce by about 25%. Additionally the
company aims to reduce cost of goods sold (COGS) by $20 million to
$25 million in 2012 relative to 2011. Operating expenses are
expected to go down further by another $20 million in 2012 due to
the planned completion of the global registrational program for
Feraheme for IDA treatment irrespective of the underlying cause.
The trial is expected to complete enrollment in the fourth quarter
of this year. Operating expenses (excluding COGS) are thus expected
to range between $90 million and $100 million, with $50–$55 million
allocated for selling, general & administrative (SG&A)
expenses and $40–$45 million for research & development
(R&D). The restructuring action is expected to cost the company
$3.2 million, most of which will be recognized in the fourth
quarter of 2011.
AMAG is thus expecting to end 2011 with $215 million to $225
million in cash, benefiting from the above-mentioned expense
reductions and $33 million of potential milestone payment from
Takeda from the expected launch of Feraheme in Europe and Canada.
AMAG also hopes to generate $60 million in revenue from Feraheme in
2012, representing low double-digit growth. Moreover, AMAG hopes to
turn profitable in 2013 from a combination of expense reduction
policies, completion of the IDA program and moderating revenue
growth.
AMAG announced the resignation of its president and chief
executive officer (CEO) Brian J.G. Pereira, and the chief
commercial officer Gary Zieziula. Frank Thomas, the company's chief
financial officer was promoted as the chief operating officer and
was appointed as the interim president and CEO. AMAG is now looking
for a permanent CEO.
Our Recommendation
We currently have an Outperform recommendation on the stock. The
stock carries a Zacks #3 Rank (short term “Hold” rating). We are
optimistic about the company’s new restructuring plan, which we
believe will bring it on track after the failed Allos deal.
ALLOS THERAPEUT (ALTH): Free Stock Analysis Report
AMAG PHARMA INC (AMAG): Free Stock Analysis Report
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