Wider-than-Expected Q1 Loss at AMAG - Analyst Blog

AMAG Pharmaceuticals Inc.'s AMAG first quarter 2014 loss of 33 cents per share was wider than the Zacks Consensus Estimate of a loss of 6 cents and the year-ago loss of 19 cents per share. The wider loss was attributable to higher expenses.

Revenues during the reported quarter increased 16.5% to $20.8 million. The increase in revenues was primarily due to higher product sales. Revenues were however short of the Zacks Consensus Estimate of $23 million.

Quarterly Highlights

AMAG records revenues mainly from Feraheme, an injectable drug for intravenous use as iron replacement therapy for the treatment of iron deficiency anemia IDA in adults suffering from chronic kidney disease (CKD).

In the first quarter of 2014, U.S. net sales of Feraheme amounted to $17.4 million, up 11.5% year over year. The increase was attributable to both price and volume growth. We note that AMAG has an agreement with Takeda Pharmaceuticals (TKPYY) for Feraheme, in the EU and Canada. Rienso (EU trade name of Feraheme) was launched in the EU and Canada during the fourth quarter of 2012 for the same indication.

Total operating expenses in the quarter increased 20% year over year to $26.8 million. Research and development (R&D) expenses increased 20.2%, whereas selling, general and administrative (SG&A) expenses increased 24.9% in the reported quarter.

Feraheme Label Expansion Update

Earlier in the year, AMAG received a huge blow in its effort to expand Feraheme's label for a broader indication. The FDA declined to approve the company's supplemental new drug application (sNDA) for Feraheme in the present form and issued a complete response letter CRL. The U.S. regulatory body has asked AMAG to conduct additional clinical trials for the broader indication.

AMAG is looking to get Feraheme's label expanded as an intravenous (IV) use for the treatment of IDA in all adults suffering from CKD with a history of unsuccessful oral iron therapy. AMAG is currently preparing for an end-of-review meeting with the FDA regarding its sNDA for Feraheme. Based on the takeaways from the meeting AMAG intends to decide on Feraheme's future for the broader indication.

The FDA advised the company to evaluate alternative dosing and/or administration of Feraheme. AMAG believes that the successful label expansion of Feraheme may double its market opportunity to over $500 million annually.

Takeda also filed a similar label expansion application in the EU for Rienso. The company expects an opinion from the Committee for Medicinal Products for Human Use (CHMP) on the approval of AMAG's broader label soon. A final decision on the approval of Rienso's broader indication in the EU is expected in the third quarter of 2014. Rienso's successful label expansion in the EU will trigger milestone payments and tiered, double-digit royalties on sales of the drug to AMAG.

2014 Outlook Maintained

AMAG still expects to generate total revenues in the range of $88–$100 million excluding a potential milestone payment from Takeda. The Zacks Consensus Estimate for 2014 revenues of $112 million is above the company's guidance range.

Feraheme U.S. sales guidance for the year has also been maintained in the range of $75–$85 million. AMAG expects to generate around $13−$15 million of revenues from other sources. Moreover, the company's operating expense guidance is maintained in the range of $80–$85 million (R&D expenses: $20−$22 million; SG&A expenses: $60−$63 million).

Our Take

Though pleased with Feraheme's performance in the first quarter of 2014, we are concerned about the fate of Feraheme's broader indication. The successful label expansion of the drug is crucial for the company. Moreover, the additional trials as mandated by the FDA will lead to a surge in the company's operating expenses. We expect investor focus to stay on updates regarding the company's efforts to expand Feraheme's label.

AMAG currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks include Regeneron Pharmaceuticals, Inc. REGN and Vertex Pharmaceuticals Inc. VRTX. Both the stocks hold a Zacks Rank #1 (Strong Buy).