ALTH Allos Therapeutics, Inc. (MM)

After a long time AMAG Pharmaceuticals Inc. (AMAG) got a chance to announce some good news. AMAG and partner Takeda stated that Health Canada has approved its sole marketed drug Feraheme as an intravenous (IV) iron replacement therapeutic for the treatment of iron deficiency anemia (IDA) in chronic kidney disease (CKD) patients. AMAG is entitled to receive a milestone payment of $3 million from Takeda upon first commercial sale in Canada.

Feraheme is already marketed in the US for the disease and is under review in the European Union (EU) where it is expected to be cleared in the first quarter of next year. The drug’s sales have been struggling as changes in dialysis reimbursement have negatively impacted reimbursement for high priced drugs like Feraheme.

Separately, AMAG recently presented preliminary data from a trial which evaluated the safety and efficacy of a single infusion of 1020 mg of Feraheme in patients with IDA at the American Society of Hematology meeting (ASH). The Feraheme label currently allows two sequential 510mg infusions 3 to 8 days apart. The data demonstrated the efficacy of the 1020 mg infusion and highlighted that a single infusion of Feraheme did not cause any serious adverse event. However, around 44% of the 36 patients experienced minor adverse events.

As a reminder, in late October 2011, AMAG announced the termination of its 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 necessary for closure. AMAG management thus decided to restructure its expenses, including a workforce reduction of 25% to bring it in line with expected sales from Feraheme.

AMAG is also conducting a large global registrational program to expand the label for Feraheme for IDA treatment irrespective of the underlying cause. If Feraheme gets approval for the broad label it would boost sales significantly. Moreover, AMAG hopes to generate $60 million in revenue from Feraheme in 2012, representing low double-digit growth.

AMAG thus hopes to turn profitable in 2013 from a combination of expense reduction policies, completion of the IDA program, potential Feraheme revenue in Canada and EU and moderating revenue growth in US.

We note that AMAG management is evaluating all strategic alternatives for the company, including a potential sale, merger, acquisition, or in-licensing opportunity and has hired Jefferies & Company, 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). 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 failed Allos deal.

 
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