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Executives

William Heiden - President and CEO

Frank Thomas – EVP and COO

Analysts

Sara Slifka - Morgan Stanley

AMAG Pharmaceuticals, Inc. (AMAG) Morgan Stanley Global Healthcare Conference Call September 9, 2013 3:15 PM ET

Sara Slifka - Morgan Stanley

I think we will go ahead and get started. I’m Sara Slifka, one of the biotech analysts at Morgan Stanley. And I’m thrilled to be here with AMAG Pharmaceuticals. Most of you probably know by now, its open Q&A. So after we did a brief introduction, I will be looking around for questions. Disclosures and personal holdings are on the Morgan Stanley website.

So with that, I’m happy to introduce Bill Heiden, President and CEO; and Frank Thomas, COO. And maybe just to start, just to make sure everything – everyone is on the same page, if you can give a brief overview of what you guys do and what’s been going on recently?

William Heiden

Sure. So at AMAG, we’re busy building a multi-product specialty pharmaceutical company starting with Feraheme. Feraheme is our flagship product used for the treatment of iron deficiency anemia associated with chronic kidney disease. We’ve also applied for a broadening of the label for all patients with iron deficiency anemia and have been given a PDUFA decision date at the FDA on October 21.

Feraheme has been performing very, very well. Most recently, we’ve had two quarters of strong double-digit growth, nearly 30% growth in the second quarter versus the quarter year-ago. So strong performance on Feraheme, and as I said, a big date coming up for expansion of our label, which represents doubling of the market opportunity for the existing IV iron market, and we believe opens the door for some really interesting market expansion to grow the market even further and treat more patients with iron-deficiency anemia.

I will also mention that we’re pursuing an aggressive business development strategy, looking for additional products to license or acquire, and I’m happy to say that several weeks ago, we were successful bringing in our first -- second product, which is a product called MuGard for the treatment of oral mucositis, and we’ve been busy over the last few weeks working on all of the material, the training material, and setting up for the re-launch of that particular product in the U.S. It represents a nice opportunity for us, another best-in-class compound for the treatment of oral mucositis, where we continue to be hot on the trail for additional products to acquire or in-license one of the things you will hear when we talk about financials as the company is in very strong financial position on the cusp of profitability and have over $200 million in cash and no debt. And so, so far it’s been a terrific year as I said, strong growth with Feraheme on the cusp of a label expansion, have added a second product, and continue to be on the hunt for additional business development opportunities.

Sara Slifka - Morgan Stanley

Great. So, maybe to start, you’ve made a few adjustments to the company to kind of right size the business over the past year or so. Can you describe some of those changes that you’ve made and are there any left to make going forward?

William Heiden

I will ask Frank to comment on some of the changes we’ve made both a year-ago, but even prior to that, there were several changes to remake the organization and really remake the P&L from the bottom up.

Frank Thomas

Sure. So those of you that might know the company historically, when Feraheme was launched, the focus of the Company was on the dialysis market. And in 2011, the reimbursement in dialysis changed, and with that change, the company also changed its commercial strategy to begin to promote Feraheme in the non-dialysis IV iron market.

So having made that change on the fly, there was -- the organization was built for one strategy, and on the fly the company had changed to a new commercial strategy. So, over the course of late 2011 and even into 2012, we really took a hard look at the business and made a lot of changes to the infrastructure.

We also completed our IDA Phase 3 program, for which we’re now seeking the expanded label. So, on the sales side, we have really turned over a lot of our sales folks in 2011 and 2012 to focus on the non-dialysis segment. And with that, we think we’ve the right size sales force to take advantage of that. On the R&D side, because we’ve now completed the Phase 3 program for IDA, there were opportunities to right size our development organization with the Phase 3 program now completed.

And then lastly, in terms of cost of goods, we took a hard look at a manufacturing site that we were producing Feraheme with and made a decision to move to an outsourced manufacturing model, which provides us with much more predictable and efficient production of the product.

So as Bill mentioned, on the operating expense line, we have really made some dramatic changes, and if you haven’t looked at AMAG in the last couple of years, I think you’ll find that we made significant progress both now getting Feraheme back in the growth trajectory and managing the operating expense line very closely.

William Heiden

As we go forward, I think two areas that I would point to in terms of capabilities and maybe changes to what we see at AMAG; first is the GI opportunity. We’ve mentioned we think there is a market expansion opportunity in gastroenterology. Today, we don’t call on gastroenterology, and so there maybe some modest changes that we’d need to make going forward in order to exploit that opportunity.

And then the second area I would point to is business development. Dramatic business development transactions could alter the way we look at the organization whether that would be new therapeutic areas or significant products with significant promotion sensitivity; I think that could change the face of our internal capabilities and headcount. Barring those two, I think it’s pretty much status quo and we have gotten to really right size the organization and are happy with where we’re today.

Sara Slifka - Morgan Stanley

So looking at business development, you recently did those deals for MuGard. Can we expect deals near-term, I guess what’s the timeline for a future deals the way you see it now and should we expect deals of similar size to what you just said, if you can walk us through kind of what you’re looking for at this point?

William Heiden

Sure. So we’ve said that our targets are really in three different areas. The center of the bulls eye, if you will, of our business development effort are products that are used by the physicians that we call on today, hematologists, oncologists, and hospital outpatient. That’s really the bulls eye for additional products we could add those in tomorrow with no increases to our current commercial footprint.

The next ring, if you will, in the target, our products with strategic interest. We’ve mentioned gastroenterology. We could identify gastroenterology asset that is on the market selling and how the sales force that came along with it, that would be an interesting acquisition candidate for us as it would not only generate revenues, but it would give us commercial outage in an area that’s of strategic interest for us with Feraheme.

And the third ring in that target would be companies that perhaps are like sized, and if we combine the two companies, we could simply run a more efficient organization, those are harder to actually conclude, but are of some interest for us.

In terms of timeline for business development, that’s a very hard thing to predict. I can tell you that our business development effort is very, very active. We have a number of potential candidates that are in process, whether they be in due diligence or in negotiations. My guess is that follow-on transactions would be larger than the MuGard transaction. If it was baseball parlance, I think MuGard was a nice single, but I think you could expect to see some doubles, maybe a triple, and if we’re lucky a home run.

Sara Slifka - Morgan Stanley

Okay, great. Then moving – to move up to Feraheme, you guys have seen a nice share uptick in Heme/Onc in hospitals in the recent quarters. What do you think is really driving this growth at this point? Is it education; is it familiarity with Feraheme right now in these settings, and what you need to do to drive growth going forward?

Frank Thomas

Sure. So, as Bill mentioned at the outset, our second quarter results were outstanding. We grew 29% over the second quarter of last year that was driven by both strong volume increases as well as some price increases, and let me just touch on pricing for a second, because it was a really big accomplishment. Historically, the company had used a strong discounting strategy to take share from competitors, but we knew in the long-term, that had to change. And so beginning in 2012, we started to take small periodic price increases, and we’re now seeing the benefits of that both in terms of the revenue program that we realized, but also the reimbursement that our physicians are realizing.

So, we’re seeing nice price appreciation, but to the question about volume, I think it’s really been solid execution in the part of our commercial team. We took a hard look at the segments that we’re competing in, at the targets that we’re going after. Again, we got the right representatives in talking to those doctors, and we’ve really driven nice share growth and taken share from competitors.

The market continues to grow at low-single digits, currently the IV iron market that is, but yes we’ve seen significant appreciation in the amount of volume that we’ve been taking. So, ranging from segmenting, targeting, even the way that we’re contracting with our customers to make sure that Feraheme becomes the IV iron of choice and we’ve seen that translate into strong results so far.

I think going forward, if you want to touch a little bit on the expansion, let me turn it over to you?

William Heiden

Sure. So there are two steps to market expansion. The first is, on October 21, wind at our back, we’re hoping for an approval for the broader label, and the good news is that broader label will drive expanded use, doubling of the market opportunity within the current call audience that we call on today. And so, this should be a fairly straightforward initiative for us to go out to our existing customers to let them know that they can use Feraheme in the other half of their patient population, those patients with iron deficiency anemia not associated with CKD. So, this label expansion represents a significant expansion opportunity for us in the current IV iron market.

Beyond that, we look at not only the 500,000 patients rough and tough that are treated each year with IV iron, but the 4 million patients who are diagnosed with iron deficiency anemia are put on oral iron and many of those patients failed with the oral iron. They failed either due to intolerant side effects or not achieving the intended clinical benefit. So, we think there are many more patients that could receive the benefit of IV iron, and specifically Feraheme, and those patients are out sitting in various specialties, gastroenterologists, rheumatologists, OB/GYN, cardiology; and as we’ve mentioned publicly, we think the first place -- biggest opportunity would be in the gastroenterology space where the patient profile and the physicians themselves seem to really lend themselves to an expansion opportunity which would simply take some education letting physicians know a bit more about iron deficiency anemia, about the effects of iron deficiency anemia, and some of the new advances that have been made in IV iron, specifically Feraheme.

And maybe just to put some numbers around this, Feraheme today has about a 15% share of the IV iron market, that’s before label expansion. So, we think even though we’ve had significant growth over the past few quarters, there is still ample room for growth, particularly as we get the broader label.

Sara Slifka - Morgan Stanley

Okay, great. So a couple questions to follow up on that. You mentioned price as a lever that you’ve now stabilized and taken some price increases, how well are you seeing the price increases that you’ve taken stick? Have you gotten any push back from physicians and P&T Committees and what -- where -- how much room do you think you have on price going forward?

Frank Thomas

Let me take on?

William Heiden

Yes, please.

Frank Thomas

As I mentioned, we took our first price increase in May 2012, and . And really because reimbursement works the way it does in our markets, the [buy and bull] (ph) market, we really wanted to focus on taking small periodic price increases so that our customers could continue to use the product without being under water and that patients would continue to receive the benefits of the product like Feraheme. We’ve been successful in that strategy in terms of reversing the downward trend in pricing that Feraheme was experiencing in 2010, 2011, and even early 2012.

We expect that going forward, we likely will continue this strategy of taking small periodic price increases. And because reimbursement is also improving for Feraheme, we’ve been able to maintain a situation where customers continue to receive the benefits of the product, but also are able to generate some revenues and profit through the use of Feraheme.

The focus for the sales force clearly is on the clinical benefits of the product, the safety and efficacy profile, and we see no reason especially with the expanded label like Feraheme can become a market leader within IV iron.

Sara Slifka - Morgan Stanley

Okay, great. And then looking in the hospital, what have you seen recently regarding formulary trends? Are you seeing kind of a continuous flow of wind here or what’s that looking – looks like?

William Heiden

We have. In fact if you tease out our growth over the last two quarters, the most significant growth is in fact coming from the hospital segment where we continue to have nice formulary wins. We started this initiative to refocus some of our efforts in the hospitals, starting the middle of last year, and as you probably know hospital formulary wins and utilization tends to take longer, because these are complex organizations involving physicians, nurses, pharmacists, finance people, hospital formularies. And so, they take a little bit longer, but for us what we’ve seen is when a hospital embraces Feraheme for all the right reasons, that’s business that you can count on, then going forward you have got a pretty nice insulation from competitive threats as well we think about the business that we’re building today as the base that we’re going to build our IDA market expansion a little later this year, and so I think our field force has been working especially hard to build the base, so that when we receive approval in October hopefully for that broader label. that that’s the base that then will build the second half of our business on.

Sara Slifka - Morgan Stanley

Okay, great. So you recently had a competitor receive approval, Injectafer. Have you seen any impact thus far and if you haven’t because it’s early, just what is your expectation on to how this additional drug is going to affect the market?

William Heiden

So we haven't seen much thus far, it's been relatively quite. I think it's a slow start for our competitor. I think two takeaways that we certainly focus on is that, this boards very well for our approval in the broader patient population, the all-comer IDA patient population. So we were encouraged to see that Injectafer was approved for that broader label. And the second is we’ve been out there alone promoting IV iron. When Feraheme was first launched the market was growing double digits because there was noise in the market place.

Market growth has now come down a bit and is in the single digits and my hope is that with two competitors out there that the market will return to double digit growth and there’ll certainly be room for two competitors. We certainly analyze the profile of this new competitor and feel very, very comfortable that Feraheme stacks up very, very well. And so again, I think the byproduct for us of another competitor is that we will likely see more significant market growth and we will continue to see Feraheme gaining share.

Sara Slifka - Morgan Stanley

Is there anything that you’re doing with your marketing strategy now that there’s another drug on the market; are you changing your kind of methods in any way?

William Heiden

We’re not. We obviously had anticipated that Injectafer might come and we had studied the product fairly carefully and had actually done some work over the last several months to really sure up our business as much as possible, so we were certainly prepared for a competitor. Now that a competitor has been approved we’ve see the details of their package inside their clinical trials some of the safety issues, and so I think it's now -- it's much clear for us in terms of what we can focus on and the safety and efficacy profile of Feraheme to continue to grow share.

Sara Slifka - Morgan Stanley

And what are those, some of those key differences between Feraheme and Injectafer that you think kind of puts Feraheme a step ahead?

William Heiden

Probably the first difference is dosing. The traditional dosing regimen for IV iron in the United States is 1 gm of iron. Feraheme has the benefit that one can give a half a gram of iron in a very rapid IV injection as fast as 17 seconds. The patient can come back three days later for the other half a gram and they’re done. This new product has pursued a very different dosing regimen where they needed 50% more drug to get the same clinical benefit or 1.5 gm is given over a slower IV infusion and you need to wait several more days in order to give the second half of the infusion and so while there are some similarities the product is given in two doses, there are many differences starting with giving 50% more drug in order to achieve the same clinical benefit. There are also some differentiations on safety. One of note would be the increased rate of hypophosphatemia seen with this new competitor whereas there has never been incidence of hypophosphatemia with any of the other competing iron’s including Feraheme. So, the product definitely has a different profile than Feraheme. Anything that you would say Frank.

Frank Thomas

I think those are the main things. I mean we’ve taken a look at both package inserts and we feel like we stack up very favorably with the competitor.

Sara Slifka - Morgan Stanley

Okay. Does anyone in the audience have questions? Okay, I’ll keep going then. So can you update us on what's going on in (indiscernible) and then maybe provide a little background for those that aren’t familiar?

William Heiden

Sure. So, we distribute, Feraheme is called Rienso in Europe through our marketing partner Takeda Pharmaceuticals and they began launches across Europe last year. In the case of Switzerland which I think as you know is not in the European Union and so that was a separate approval and for a variety of reasons the CMC is slightly different in Europe and so we sell one specific product or a batch of product in Switzerland. Early on in the launch when there were really only a handful of patients that had been treated, we saw some hypersensitivity reaction which is normal with all IV iron’s with a very, very small denominator, and this happens early on in a drug launch. There were some questions and I think in an abundance of caution we’re not going into a lot of boring details. In an abundance of caution the decision was made to pull that particular lot of product, do a quality investigation to see if there was any issue with the product.

That quality investigation is now been complete and there was no issue with the product and so we’re now in the process of working with Takeda Pharmaceuticals and this would help the Swiss Health Authorities to put Rienso back on to the market in Switzerland. So, a bit of a tempest in a teapot and then throughout Europe the product is being launched across Europe starting with some of the northern countries and then moving south and as you’re likely aware in Europe it's a bit of a slower process to receive pricing and then reimbursement and then there tends to be a tender offer -- tender offers in some countries and so the rollout is happening across Europe with Takeda and Rienso, and I should also note that we filed for the broader label in Europe and expect to receive news on that sometime in the first half of 2014. I think that will be great news for Takeda as they’ll have then the full broad label to compete effectively in Europe. Anything else I missed on Europe.

Sara Slifka - Morgan Stanley

Okay. So you mentioned that you have this difficult that’s for those broader idea (indiscernible) coming for the broader IDA indication next month. Where are you in terms of commercial planning? I think on your most recent call you kind of mentioned three possibilities or what are your current thoughts around those three possibilities?

William Heiden

Right. So in terms of the launch of the broader label on our existing physician audience we’ll launch with our current sales team. So no reason to change our current commercial footprint. And so that will take us through the end of 2013 into early 2014. As we head into 2014 we think about the market expansion opportunity and specific gastroenterology. We have talked about potentially using a partner that has an existing gastroenterology sales force.

We’ve talked about business development as a strategy for acquiring a product and a sales force in order to pursue gastroenterology. And we’ve also talked about potentially setting up our own small gastroenterology targeted sales force. At this point I would say we’re focusing on the last two, which our business development initiatives which might take us into the gastroenterology space as well as potentially setting up our own small sales team and we have not decided which of those we would pursue if for some reason a business development project is not concluded in the GI space then it seems likely that we would pursue some type of small expansion of our current commercial footprint into GI and that would likely be a 2014 initiative.

Sara Slifka - Morgan Stanley

And what's the best way to tailor the marketing message for GI specialists, and then do you expect mostly physicians to give IV iron in the clinic and if they have infusion capacity are they going to be mainly referring mow?

William Heiden

Right, so in gastroenterology we're agnostic as to where IV iron is given. If a physician wants to refer, we’re happy to have them continue to refer. They should just be referring more of their patients for IV iron. If a physician wants to begin initiating IV iron therapy we’re going to make sure that they and their staff are well trained and able to do that appropriately. If one looks at their gastroenterology and market place about 30% of gastroenterologists seem to do IV infusions in their offices. And so about a third of the market does IV infusions and so I imagine many of those physicians may want to begin using IV iron in their own offices. The other two thirds of them actually will likely continue to refer and hopefully refer to those sites of care that are using Feraheme.

Frank Thomas

Yeah, just to add to that. I think it's important to note that this is a referral network that already exists. There are GI patients with IDA that are already being referred. I think what we’ve noted from our market research is how little awareness there is of a product like Feraheme, and we think that the attributes of Feraheme, the convenience, the safety profile, the efficacy that you see that there is a potential for more patients to move to IV iron.

So really there is an educational need within the GI community that we’ll be bringing with Feraheme and we think it could really resonate with the patients that already exist in the process today that just aren’t being treated. If you think about most of these patients, they have IDA because of a GI issue. The most common side effect of oral iron which is first line therapy is that it creates additional GI issues. So we think it makes a lot of sense for this to be the first target that we go after as we think about broadening our commercial footprint and we think there are, well our market research supports that there is over 400,000 patients currently within the GI community that have IDA that are not receiving IV iron. So we think it's a big potential opportunity for us. We think it's one that’s worthy of resources, and it's one that we’re going to invest in as we move forward.

William Heiden

It's interesting just to dovetail on that. There are 10,000 gastroenterologists in the U.S. roughly. But when we look at the target audience and we view some other products, you can look at certainly oral iron utilization, there are out of that 10,000 comes down to about a target of about 1200 physicians and so you start getting a very, very manageable target audience that one could attack with a reasonably sized sales force but again we might acquire through business development or construct one on our own.

Sara Slifka - Morgan Stanley

Okay, great. Since we only have a few minutes left here, why don’t you talk a little about MuGard. How the products for a little while now. Is your initial experience with the drug what was expected, has there been any surprises and are you seeing kind of any initial qualitative or quantitative up tick in trends at this time?

William Heiden

So at this point it's qualitative, it's still early going. The reason we in-licensed MuGard was because as far as we could tell this really is a best in class compound for the management of oral mucositis, and so that’s what got us initially interested. What we saw on the market place was a broad lack of awareness of the products availability or its features and benefits, but qualitatively what we’ve also seen is that there are several physicians and nurses who are using this product and the anecdotal story is that they’ve been telling us about their experience, their patients experience with the use of this product, tells us that what's lacking is a commercial team with a large enough footprint to get the message out to physicians and their nurses and these are the same call points that we’re calling on today with Feraheme to let them know about the benefits of MuGard and this product should do very, very well. So we continue to be very optimistic about the potential of MuGard.

Sara Slifka - Morgan Stanley

Okay. And then given the size of the target market and maybe you can walk us through the actual target market. What kind of sales level broadly do you expect this could get to?

William Heiden

So MuGard is used for the prevention or treatment of oral mucositis. Oral mucositis is the side effect of both radiation therapy; things like radiation for head and neck cancer, but also for several very commonly used oncology chemotherapeutics. And so the target audience is oncologists and hematologists, the very same physicians that we’re calling on today, and radiation oncologists which is a relatively new group of physicians. Those are relatively small number of them.

They tend to be hospital based and since we are in the hospitals it's not a stretch for us to call in those physicians. So, the core of the target audience are the same physician’s that we are calling on today oncologists and hematologists and the only additional audience that we might want to visit are the radiation oncologists. In terms of product potential there are estimated to be around 400,000 patients each year who’re at risk of development oral mucositis, so it's a fairly significant market and using numbers like a 5% chair of that market opportunity would bring in revenues of excess of $20 million. So this could very quickly become an increasing part of the AMAG portfolio. It's still early going, still some qualitative feedback, but the feedback has been very positive.

Sara Slifka - Morgan Stanley

Okay, wonderful. Well we’re just about out of time here. So, I think we’ll leave it there and thanks everyone for coming and thanks so much Bill for the updates.

William Heiden

Thank you very much, Sara. Thank you all.

Question-and-Answer Session

[No formal Q&A for this event]

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