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AMAG Pharmaceuticals, Inc. (NASDAQ:AMAG)

Q1 2014 Earnings Conference Call

April 24, 2014 08:00 ET

Executives

Scott Holmes - Vice President, Finance

Bill Heiden - President and Chief Executive Officer

Ed Jordan - Senior Vice President, Sales and Marketing

Frank Thomas - Chief Operating Officer

Analysts

Michael Ulz - JPMorgan

Joseph Schwartz - Leerink Partners

Chris Raymond - Robert Baird

Carol Werther - Summer Street

Eun Yang - Jefferies

Operator

Good morning. My name is Stephanie and I will be your conference operator today. At this time, I would like to welcome everyone to the AMAG Pharmaceuticals First Quarter Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. (Operator Instructions)

At this time, I would like to turn the call over to Scott Holmes, Vice President of Finance. You may begin your conference.

Scott Holmes - Vice President, Finance

Thank you, Stephanie. Good morning, and welcome to AMAG Pharmaceuticals conference call to discuss our first quarter 2014 financial results. We issued a press release announcing these results this morning. For those of you that don’t have a copy of the release, you can access it on the Investor section of our website at amagpharma.com. Additionally, the presentation for this morning’s call can be accessed via the 8-K filed with the SEC this morning.

Before proceeding with this call, please be reminded that any statements we make during the course of the conference call that are other than historical facts are forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. We want to emphasize that these forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those discussed in such forward-looking statements. Please refer to our recent SEC filings for a full review of the risks and uncertainties associated with our business.

Let me quickly run through the topics we will cover this morning. Bill Heiden, our President and CEO will review the highlights for the first quarter. Ed Jordan, our Senior Vice President of Sales and Marketing will discuss our commercial performance with Feraheme and MuGard. Bill will then review our expansion opportunities. Frank Thomas, our Chief Operating Officer will review our financial results and our guidance for 2014. After then finally, Bill will wrap up with a summary of our goals for 2014. After our prepared remarks, we will open the call for Q&A.

I will now turn the call over to Bill.

Bill Heiden - President and Chief Executive Officer

Thanks, Scott. At AMAG, we are building a profitable multi-product specialty pharmaceutical company. Now, how are we doing that? Well, it begins most importantly with a strong base, which for AMAG is our commercial team with key relationships in hospitals, with nephrologists, and with office-based hematology and oncology clinics. A strong balance sheet combined with an experienced and results oriented leadership team completes the solid base supporting Feraheme shown here in green and our four distinct commercial opportunities that we will discuss further this morning.

And we are looking on adding products through a very active business development effort. Our first accomplishment was last year’s in-licensing of MuGard, a unique cancer support care product. We are leveraging our relationships with oncologists who we already call on for Feraheme to drive MuGard growth. Our plan is to continue to add commercial products through our ongoing portfolio expansion efforts.

In summary, we have had a strong first quarter at AMAG as shown here on Slide 4. In terms of financial performance, total revenue grew 17%, the primary driver being U.S. Feraheme sales, which were 12% higher than the first quarter of 2013. This growth was driven by increases in both volume and net revenue per gram. And we continued to operate the business with financial discipline keeping expenses on track with our financial guidance.

Our in-market physician demand level performance was even more impressive in the first quarter of this year. AMAG’s commercial team drove Feraheme physician level demand grams up 17% versus the same quarter a year ago in an IV iron market that grew 7% overall. So, we grew 10% faster than the market, in other words, taking share from our competitors with an Evolution Index of 110. Ed Jordan will update you in just a moment on our MuGard initiatives in Q1 activities that drove continued growth for this exciting new product in our portfolio.

During the quarter, there was quite a bit of ongoing work to support the broad IDA label expansion, both in the U.S. and in the EU with our partner, Takeda. In addition to all those achievements, during the first quarter, we completed an upsized $200 million convertible debt financing with attractive terms. The proceeds of this offering strengthen our balance sheet and enhances our ability to acquire additional assets or companies. We ended the quarter with just under $400 million in cash and investments.

And so, let’s start with a bit more about our Q1 Feraheme and MuGard commercial performance. And for that, I am happy to introduce Ed Jordan, our Senior Vice President of Sales and Marketing. Ed has more than 20 years of experience successfully leading commercial teams and we are really pleased to have him on the team. He joined AMAG in February and has spent the last couple of months getting immersed in our business and leading execution of our commercial strategy. And with that I will turn it over to Ed.

Ed Jordan - Senior Vice President, Sales and Marketing

Thanks Bill. I am thrilled to have recently joined the AMAG team. And as you may know from following the company the commercial team has performed exceptionally well over the past several quarters reinvigorating the Feraheme brand and driving accelerated quarterly growth. We have a very talented commercial team at AMAG and I am excited to be here. So let’s jump right in and look at our in market physician level demand growth. We generated 17% gram growth in the first quarter of 2014 versus the first quarter of 2013. We grew 10% faster than the market meaning we continued to take share from competitors. As background we compare quarterly results versus same quarter last year due to the seasonality in the IV Iron market.

Generally speaking, Q1 and Q4 tend to be lighter in overall market volume compared to Q2 and Q3. Although you can use Evolution Index or EI to compare direct quarters since EI divides product growth by market growth. And when we compare first quarter of 2014 Feraheme performance to fourth quarter 2013 performance our EI continues to be greater than 100 meaning we took share from competitors this quarter versus last quarter.

Here on Slide 7, you see our business by segment in the first quarter of 2014 and 2013. Feraheme is an IV Iron approved in the U.S. to treat iron deficiency anemia in patients with chronic kidney disease. We compete for share of the U.S. non-dialysis IV Iron market in the primary sites of care for these patients are in hematology, oncology clinics, hospitals and nephrology clinics, which are also the target audiences for the AMAG sales team. Note the breakdown of these segments for the first quarter of 2014 versus the same quarter in ’13 and these are IMS grams or volume.

Historically, the biggest segment of our sales are in Hem/Onc, shown here in green where in the first quarter of 2014 we grew 19%, in line with market growth. This growth rate in this segment has accelerated due to two factors. First, the execution of our market growth strategy. And second promotional activities of a new competitor who was also highlighting the benefits of IV Iron. We have had a more intense focus in the hospital segment in blue over the last several quarters and we continue to see solid results growing 16% over the first quarter of 2013 and posting an EI of 114, meaning we grew 14% faster than the market and we currently have 10% share in the hospital segment. The smaller yellow segment contains other customers such as non-dialysis nephrology accounts where we also saw strong 15% growth. So overall Feraheme market share continues to grow and we now have a 15.5% share of the non-dialysis market.

The U.S. IV Iron market totaled approximately 850,000 grams in 2013. That compares to a total market opportunity of 750,000 grams when we launched Feraheme in 2009. We launched into a market that hadn’t seen much promotional activities for a number of years and we have been driving both market growth and market share ever since. Today, Venofer has the largest share of the market on a gram basis with a strong historical presence in hospitals and iron dextran also known by the brand name INFeD has strong presence in Hem/Onc offices due it’s broad label both CKD and non-CKD IDA.

The newest entrant, Injectafer was approved nine months ago and according first quarter IMS data has garnered less than 4% of the market, while Feraheme has continued to gain share through the same period. It appears that the small Injectafer share was achieved at the expense of other older IV irons confirming that our customers value both the clinical and patient values that Feraheme offers reaffirming our prediction that an additional competitor would only help accelerate IV Iron market growth.

We are currently approved treat IDA associated with CKD so we compete for about half of this IV Iron market which represents a $250 million revenue opportunity for Feraheme. This is the opportunity that we are focused on today. Our 15.5 share of the total market translates to just over 30% Feraheme share of the IDA CKD market. In other words, we don’t of two-thirds of our currently indicated market, so there is plenty of room to grow and that’s where our team is focused.

I will now discuss our second commercial product MuGard which we in-licensed in the middle of last year. MuGard is a unique prescription product used to manage oral mucositis, one of the most common and serious side effects of cancer chemotherapy and radiation treatment. The opportunity is large oral mucositis affects 4,000 U.S. cancer patients annually, so we estimate that the market opportunity is greater than $500 million. In other words, every market point that we gain translates into greater than $5 million in additional revenues for AMAG and we are just beginning.

Oral mucositis drives additional medical costs on average $18,000 per patient. A prescription of MuGard with our recent price increase is approximately $1500. By the way, on the left hand side of the slide you will see the cover of the journal Cancer, The May issue, which hit newsstands this week features a publication of a randomized double-blind placebo-controlled study of MuGard showing greater efficacy in reducing mouth and throat soreness associated with oral mucositis, which is a common and debilitating side effect of treatment. You can view this study from either AMAG’s website or directly from the journals.

As we pursue growth from MuGard business, there are two key levers to increasing revenues, listed here on Slide 12. First, increasing the number of prescriptions coming into the MuGard hub, this will be accomplished through solid physician targeting and strong product differentiation. We are targeting a subsection of the Feraheme prescribers primarily Hem/Onc clinics and select radiation oncologists. Product differentiation supported by the recently published study in the journal Cancer distinguishes MuGard as a unique treatment option for patients at risk of developing oral mucositis. The second lever for increasing MuGard revenues is expanding insurance coverage, thereby improving patient access. During the first quarter we launched a patient assistant program to support uninsured patients and a copayment offset program to assist those with high copayments. The combination of increased prescriptions, product differentiation and expanded payer coverage will drive MuGard sales growth.

It’s interesting to note that these are some of the very same strategies that AMAG successfully implemented for Feraheme in 2012 and 2013 resulting in the turnaround for that product. So stay tuned, there are nice synergies between Feraheme and MuGard and I am confident our commercial team will pursue MuGard sales growth with the same passion and drive that they applied to Feraheme.

I will now turn it back over to Bill to discuss AMAG’s expansion opportunities.

Bill Heiden - President and Chief Executive Officer

Thanks Ed. Our first expansion opportunity is the potential for the broader IDA non-CKD patient population in the U.S. We believe that regulatory approval for IDA would double the market opportunity from our currently addressable markets to a total of more than $500 million per year. The good news is that should we pursue and receive regulatory approval, this market is served by the very same physicians that we call on today who use Feraheme in their IDA CKD patients. And so there wouldn’t be a need for a big expansion of our commercial footprint, indeed we could leverage existing relations with key prescribers.

Now moving on to Slide 15, we believe that the current IV Iron market in blue is really just the tip of the iceberg and that there is also a significant opportunity for growth of this market because there are approximately 4 million patients in the U.S. already diagnosed with IDA, most of whom are first put on oral iron. It’s an appropriate initial step that many patients fail oral iron left untreated, these patients continue to live with the signs and symptoms of anemia which may include crippling fatigue and headaches. It’s interesting to note that these 4 million patients include IDA associated with the CKD which is shown here in orange for which Feraheme is indicated today and also non-CKD patients in yellow. So where are these patients diagnosed. Well, many of these not yet treated IV Iron patients with CKD are under of nephrologists and oncologist who we call on today with our existing sales force.

So let me know review the regulatory status of the application for broader IDA label both here in the U.S. and in the EU. First in the U.S., on January 21 we received a complete response letter from the FDA regarding our supplemental new drug application for Feraheme in that CRL the agency stated that we had not provided sufficient information to permit labeling of Feraheme for safe and effective use in the broad and proposed IDA population. We continue to believe that approval of the Feraheme SNDA would provide physicians with an important treatment option for patients with IDA who have failed or cannot tolerate oral iron and we intend to work with the FDA to determine the optimal path forward for Feraheme one that is responsive to the agency’s request and economically viable for AMAG. We expect to have of end of review meeting with the FDA this quarter and based on those discussions we will determine our path forward and start implementing.

With regards to our partner Takeda, they have launched Rienso for IDA patients with CKD in Canada and several countries in Europe and are making good strides with pricing and reimbursement. Takeda currently expects the opinion from the committee for medicinal products for human use or the CHMP sometime later this quarter. Should Takeda receive a positive CHMP decision and subsequently an EMA regulatory approval of the broad IDA indication in Europe we would receive a significant milestone payment. The formal EMA decision is currently expected in the third quarter of this year. In addition to milestone payments we will continue to receive double-digit royalties on Takeda sales in their territories.

Next I would like to touch on our business development efforts and how we target those activities. We had an active B D effort to evaluate and acquire or in-license additional commercial assets and we have targeted a variety of different opportunities. We are focused on those opportunities that hits the bull’s eye those products that can leverage our current call audience and existing sales force. MuGard is a great example of the successful execution of that strategy, a product that’s prescribed by our currently called on oncology physicians and nurses and a product with significant upside promotional sensitivity and revenue potential.

We are also looking at strategic transactions and that’s the next tier, the green circle around the bull’s eye. And these are products our company opportunities that will be aligned with Feraheme’s growth strategy in the broader IDA market. So specialty products that would be used by a gastroenterologist, a rheumatologist for example, those will be a nice fit in that tier. And finally in the outer ring of the target our broader set of opportunities that fall into the category of being more financially driven transactions and these are opportunities that are driven more from a pure cost synergies perspective are financially attractive in terms of accelerating profitability or perhaps transactions that could optimize our after-tax cash flows and that’s giving us access to new pools of capital to drive future growth.

The first quarter was extremely busy for our business development activities. And during the quarter, we progressed several projects and are currently active on multiple potential deals. And it would only take one or two transactions to really transform AMAG as others have done before us. On slide 18 I would note that there are some companies here who have successfully executed a similar build strategy starting with one core product and utilizing business development to selectively broaden their portfolio and build a diversified multiproduct specialty company.

And with that let me turn it over to Frank who will review our first quarter financial performance.

Frank Thomas - Chief Operating Officer

Thanks Bill. Let’s start with Feraheme sales where we have continued to produce double-digit growth, including the first quarter where we reported 12% growth over the first quarter of last year. This slide shows ex-factory sales figures which differs from end user demand reported by IMS. Ex-factory sales of Feraheme represents sales by AMAG to its wholesalers which can be impacted by the amount of inventory that is held by the wholesalers at any point in time. At the end of Q1 wholesalers inventory levels were lower than previous periods largely explaining the difference between Feraheme demand growth of 17% and ex-factory volume sales growth of 7% is shown here on the slide. So the true underlying demand growth for the quarter was 17% as Ed referenced earlier on the call.

During the first quarter we benefited from continued improvement in our net revenue per gram with growth of 5% versus the first quarter 2013. For the past nine quarters we have taken small periodic price increases to help reverse an earlier deteriorating net revenue per gram of Feraheme. We were successful with this strategy throughout 2013 and now in early 2014 with increases in net revenue per gram contributing to our growth rate. Our plan is to continue to focus on optimizing our pricing and contracting strategy each quarter to maximize the revenue from Feraheme as the competitors landscape continues to evolve.

Now let’s dig deeper into our first quarter 2014 financial results. Total revenues for the first quarter were $20.8 million, an increase of 17%. The increase in total revenues was primarily due to higher U.S. Feraheme net product sales which totaled $17.4 million. Feraheme cost of goods sold for the first quarter represented 16% of global Feraheme product sales compared to 18% in the corresponding period last year resulting in an increase in gross margins for Feraheme of $14.8 million in the first quarter of this year. The increase in gross margin is partially a result of our decision to transition to an outsourced manufacturing supply chain.

Operating expenses for the quarter totaled $24 million consisting of the combination of both R&D and SG&A expense which you can see broken separately on the slide. The increase in operating expenses during the first quarter was largely due to expenses on the SG&A line associated with our investment and business development activities. The company conducted extensive diligence in market research on several potential business development transactions during the quarter which are captured in these operating expenses. In addition in 2014, we incurred costs associated with the commercialization of MuGard which was not in our portfolio in the first quarter of last year.

And last we ended the quarter with about $385 million in cash from investments. In addition to the strong balance sheet with which we ended last year we also took advantage of a strong financing environment to complete an upside $200 million convertible debt offering with favorable terms including a 2.5% coupon and a five year maturity. As part of the financing we entered into certain agreements and increases the effective conversion price of the notes to $34.12 per share, which will limit potential dilution to our shareholders.

This past February, we issued our financial guidance for 2014. Today, the only changes we are making to our financial guidance relate the accounting for the recent convertible debt offer. We are also introducing a non-GAAP measure referred to here as the adjusted EBITDA which we believe is a meaningful way to look at the potential cash generation of our business. Based on the first quarter results we believe we are on track to meet or beat this guidance.

Let me quickly review the outlook shown here on Slide 22 – I am sorry 21. For total revenues we expect between $88 million and $100 million for 2014 including between $75 million and $85 million of U.S. net Feraheme sales. The midpoint for this Feraheme sales range represents 12% growth over 2013. And as you can see from our first quarter results just discussed we did achieve the 12% ex-factory growth. But importantly we are encouraged about how the business is shaping up this year after coming off a quarter with 17% increase in physician demand and lower levels of wholesale inventory going into the second quarter. Other revenue consists of sales of MuGard, Feraheme ex-U.S. product sales and royalties as well as milestone revenue from ex-U.S. partnerships, all of which are expected to grow over the corresponding periods in 2013.

Moving on to expenses, we anticipate continued improvement in Feraheme cost of goods in 2014 and have set the range of 14% to 16% of sales as the volumes of Feraheme and Rienso continue to grow globally. In Q1 our cost percentage was 16% so we are tracking in line with this guidance. Operating expenses are expected to be relatively flat versus 2013 at $80 million to $85 million. Our guidance earlier this year was for the business to be breakeven on a GAAP basis, however, with the recent financing we have updated our net loss guidance here to include interest expense and debt amortization costs resulting in a new projected debt GAAP net loss of $10 million to $12 million. Most of the change here is non-cash and reported below the operating income line.

As I mentioned a few minutes ago we also feel it’s important to begin to look at our financial progress using a non-GAAP measure which we referred to in the release and here as adjusted EBITDA. We believe doing so provides a better snapshot of the underlying operating results of the business. Adjusted EBITDA represents earnings before interest income and expense before taxes and several non-cash charges which are listed on the slide. We are guiding to a positive adjusted EBITDA of between $10 million and $13 million for 2014 on a full year basis as we expect to turn the corner to positive adjusted EBITDA in the second half of this year.

Given that expenses are roughly flat and revenues are forecasted to continue to rise, we are guiding to end the year including proceeds from the first quarter convertible debt offering with between $392 million and $397 million in cash and investments. Please keep in mind that our outlook does not include the potential milestone payments from Takeda for the broad IDA approval in Europe, which would favorably impact the total revenue, net loss, adjusted EBITDA and ending cash pretty significantly. Further the company’s guidance for 2014 does not include impact of any business development transactions or potential expenses associated with the further clinical development of Feraheme for the broad IDA indication in the U.S.

Slide 23 shows the graphic representation of where we come and where we are going in 2014. We continue to drive strong revenue growth particularly the dark blue on the left hand side of the slide representing U.S. Feraheme sales. And expenses shown on the right which have been managed extremely well since 2012 to the point where we are now guiding to positive adjusted EBITDA in 2014.

I will now turn the call back over to Bill who will discuss our 2014 goals and to make some closing remarks.

Bill Heiden - President and Chief Executive Officer

Thank you very much Frank. I am proud of our achievements in the first quarter and I believe that we are well positioned to continue to build across a list of ambitious business goals listed here. First, Feraheme continue as we did in Q1 to drive market and market share growth within our current IDA CKD indication continue to optimize Feraheme net revenue per gram, a key area of continuing focus especially in light of the new competitor, potential label expansion is on the horizon in EU with Takeda expecting a decision on the broader label by the EMA in Q3 2014 and in the U.S. we will define the details on our path forward for the broader label.

And finally for Feraheme there is a significant opportunity to expand the IV Iron market in CKD patients by increasing treatment of many, many patients already diagnosed with IDA specifically today within nephrology and oncology where we have a strong commercial presence. Focusing on the key levers to drive MuGard growth and realizing the full potential that this product represents, business development remains the high priority activity at AMAG and our strong cash position gives us increased resources to acquire quality products and/or companies. And finally we will continue to operate the business with financial discipline, maintaining a close eye on our operating instances with the goal of meeting or exceeding our financial guidance for the year.

And with that Stephanie we will open up the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Geoff Meacham of JPMorgan. Your line is now open.

Michael Ulz - JPMorgan

It’s actually Mike in for Geoff. Thanks for taking the question. Just on Feraheme in 1Q can you comment on what the price per gram was and then how that trended quarter-over-quarter. And then secondly in terms of the price program as well across the different segments like hematology, oncology, hospital and nephrology what – are you seeing different trends in those segments and is it a wide range? Thanks.

Frank Thomas

Thanks mike. This is Frank. So the net revenue per gram for Q1 was about $540 per gram which is up about 5% over the first quarter of last year, it’s down slightly versus 4Q on a sequential quarter basis. But when we think about pricing there is definitely variability across the segments where we operate and also differences in the way physicians can be reimbursed in this segment so our contracting strategy is intended to optimize those different segments. In particular the Hem/Onc segment tends to be a bit more price sensitive than the hospital segment, so that’s where we often have to be more aggressive maybe on price but also to make sure that it’s very much performance driven. So I think that takes about your question?

Michael Ulz - JPMorgan

Yes and then maybe if I could have a follow-up just the dip you have seen in 1Q is that some seasonality thing happening or is that sort of competitive pressures?

Bill Heiden

Seasonality Mike, this is Bill. You do see seasonality in the market with Q1 and Q4 being a little lower than Q2 which is the largest or the heaviest for the IV Iron market. And so that’s why we like to look at the quarter performance versus the quarter a year ago that removes any seasonality. And you can see we got pretty significant growth. The other way to do that is to look at Evolution Index which takes your growth and divides it by the market growth and therefore sometimes when you have seasonality and the market declines but as long as you are growing faster then the market that shows that you are taking share from the competitor and that’s why we are really pleased with the Q1 performance which shows nice growth over Q1 last year positive Evolution Index versus Q1 of last year also shows positive Evolution Index versus Q4. So we clearly continued to take share from the competitors. And then lastly if you look at the market in Q1 of this year versus the market a year ago the market has grown nicely and so that market expansion initiative that I talked about the silver lining of having a second competitor is really being borne out in the market we are seeing nice strong market growth and all boat rise in that rising tide.

Michael Ulz - JPMorgan

Got it. Thank you.

Bill Heiden

Thank you, Mike.

Operator

And your next question comes from the line of Joseph Schwartz of Leerink Partners. Your line is now open.

Joseph Schwartz - Leerink Partners

Thank you. Congratulations on a good quarter. I was wondering if you could talk a little bit about what you are seeing from Injectafer in terms of the overall competitive dynamics in the various segments. And how do you expect the impact of them being on the market now to balance out in terms of growing the market versus forcing you to fight for market share or where they could contract more broadly than you and things like that?

Bill Heiden

So Joe this is Bill maybe I will start and have the others add in. Nine months in less than 4% share I think that speaks volume. When you start peeling that back and looking at what is happening in the market what we are seeing is more a robust market growth than we have seen historically and again that was what we anticipated that’s a good thing for both companies. They seem to be gaining their share from the older IV Iron most likely InFeD in the oncology/hematology segment. Again as we predicted since InFeD is used in the non-CKD patient population and since we continued to grow share that speaks well to how we are competing in the marketplace and the profile of Feraheme standing up to competitive pressure. And so my forecast as we go forward is that and we are continuing to work very hard on maintaining and growing share and that with two competitors out there and 4 million patients who are diagnosed but untreated I think we are going to continue to see nice market growth. I don’t if Ed or Frank have anything to add.

Frank Thomas

I mean just to put some numbers around what Bill is just referencing. The Hem/Onc segment which is where I think we have seen them the most. There has almost been no presence in the hospital but in the Hem/Onc segment that segment grew 19%. The market in Hem/Onc grew 19% year-over-year. So you can see very clearly that the additional promotion in that segment and the benefits of IV Iron are starting to come through and more patients being treated. And our belief is that that will continue going forward that we will see above average market growth from the additional promotional noise.

Joseph Schwartz - Leerink Partners

Great, that sounds good. Can I just ask one on MuGard as well then how much of the 50% price increase do you expect to “stick”?

Bill Heiden

So a significant portion of that we expect to be maintained I think as we have mentioned access is one of the strategic comparatives for MuGard expanding access. But there likely will be some administrative fees or discounting going forward but because it was a fairly substantial price increase I think we will be able to see most of that coming through.

Joseph Schwartz - Leerink Partners

Okay, great. Well, thanks again.

Bill Heiden

Thank you, Joe.

Frank Thomas

Thanks Joe.

Operator

Your next question comes from the line of Chris Raymond from Robert Baird. Your line is now open.

Chris Raymond - Robert Baird

Hey, thanks. And I am sorry if you guys talked about this in some of your comments, I am just having a hard time with a lot of number that are out there, but – so can you quantify what that inventory correction was if you haven’t already in Q1?

Bill Heiden

So inventory levels started come down pretty low levels at the end of Q1 so they came down about 1800 grams versus the end of the year.

Chris Raymond - Robert Baird

So that’s roughly – okay so 1800 grams and what was the reason for that?

Bill Heiden

I don’t know if there is any specific reason that we have pointed to, it’s just some times it’s just timing of shipments to wholesalers, the way the quarter ends, but for whatever reason at the end of Q1 ’14 we saw inventory levels come pretty substantially, even down versus a year ago. So if I look at Q1 of last year I had inventory levels still about 1000 grams higher than where they ended the first quarter of this year.

Chris Raymond - Robert Baird

Okay, I mean so and I know it’s early in the quarter and maybe you don’t want to comment but do you anticipate that things will normalize back to where they were or is this kind of the steady state that we should expect?

Frank Thomas

It’s hard to predict I mean I think these are lower than they have been historically but not significantly lower. So plus or minus I would say 1000 grams I don’t expect it to be dramatically different from where we are now. But the important thing is I think going into the second quarter they are at historically low levels.

Chris Raymond - Robert Baird

Okay. And then so I understand you guys like to talk about year-on-year comparisons but could you maybe just explicitly – so what was the provider demand in Q4 in grams and also what was you mentioned this Evolution Index that you are talking about on a year-on-year basis do you have that number for a quarter-on-quarter basis?

Scott Holmes

Yes, Chris, the provider demand in Q4 was roughly 32.5.

Chris Raymond - Robert Baird

Okay and then the Evolution Index I mean did the market go down quarter-on-quarter?

Scott Holmes

The Evolution Index between Q1 and Q4 is 103.

Bill Heiden

103 and it did that the market the quarterly volume did decline this is expected. So that’s why sometimes people look at that and say it’s the market declining, no it’s really the seasonality that we see kind of every year and that why these quarterly comparisons are hard. Now the last four quarters we have been growing so fast that some of that seasonality was masked or we are still trying to refer people to quarter-on-quarter a year ago comparisons because we still think that’s the most relevant. And then as you pointed out the in-market demand really does show the underlying demand in the market due to these quarterly fluctuations depending upon inventory. And it’s even as complex as we close a quarter here for financial reasons – for accounting reasons and maybe IMS stays open a week longer or a few days longer and so those numbers had a little bit disconnected. So we are really try and point people to the underlying demand in terms of how we are performing in the market and our forward-looking vehicle.

Chris Raymond - Robert Baird

Got it. Okay. And then if one more question, if you don’t mind. So, I know this is we are still early days in small numbers, but can you tell us what the MuGard revenue number was in Q1 versus Q4?

Bill Heiden

We don’t break them out. We don’t break out MuGard yet. And it’s just because it hasn’t become significant enough. So we are not going to break that out. It did grow, but again the numbers are small enough. Maybe I will ask Ed to just qualitatively mention, he has been in the field and has seen live some of the response we are getting. So maybe I could ask Ed to just comment on the qualitative piece?

Ed Jordan

Sure. Qualitatively, it’s very unique product. The demand is extraordinarily high. Physicians, caregivers, and patients have a strong affinity for the product. And it’s one that is truly remarkable to see how much they crave this product. So, we expect great things for the product.

Chris Raymond - Robert Baird

Fair enough. Thanks.

Bill Heiden

Thanks, Chris.

Operator

(Operator Instructions) Your next question comes from the line of Carol Werther from Summer Street. Your line is now open.

Carol Werther - Summer Street

Well, thanks for taking my questions. I just wanted to follow up on MuGard, at what point – at what sales level will you be breaking it out?

Bill Heiden

Carol, it’s Bill. It’s a good question. And of course, I will take that over to Frank and Scott. I don’t know that we have set a line in the sand, but any sense on that, Frank?

Frank Thomas

I mean, I think it becomes a meaningful part of both either top line or bottom line meaning 5% of revenue, to me is always a threshold that if you are getting above that, that’s the number that you probably want to start to report separately. So I think once we get there, we would likely start to talk about it. But right now, we are not there and it’s early days. So, I think the sales force is how really pushing that hard and the recent publication I think has really got some great data and it’s going to arm them with even better information going forward.

Carol Werther - Summer Street

And is it contributing to the bottom line now or when do you think that might be?

Bill Heiden

I don’t think – we are not prepared right now to talk about the separate P&L, but certainly, as it becomes more meaningful part of the business, we will start to provide that type of visibility.

Carol Werther - Summer Street

Okay. And my other question is just about the label expansion in the U.S., if you can just expand on that a little bit, so I can understand what the timing is?

Bill Heiden

Right. There is not a lot of additional detail to provide at this time, but just in terms of timing, our expectation is we will have our annual review meeting this quarter in Q2.

Carol Werther - Summer Street

Okay.

Bill Heiden

And that meeting we will discuss with the FDA, our plans going forward and our response to their complete response letter and once we have that plan mapped out, then we will be able to start moving forward with whatever that path forward is to achieve the approval of IDA. We will be able to start implementing that in the second half and so this upcoming meeting will really be important, because it will be a nice dialog between the agency and ourselves in terms of their – we have their response and then we will be able to respond and give our perspective and see if we can have a meeting of the minds on a path forward.

Carol Werther - Summer Street

And has Takeda given you any indication of how the label expansion is going in the EU?

Bill Heiden

First of all, Takeda is responsible. So their running point on the file in Europe. We have been involved with Takeda in terms of any questions they have received in helping them with their responses etcetera. So we do have pretty good visibility on progress in Europe, but since it’s Takeda’s responsibility and it’s really their product in Europe, we haven’t made any other kind of commentary on where things stand other than we are on track for a decision by the CHMP, the final decision by the EMA in Q3 of this year.

Carol Werther - Summer Street

Okay, thank you very much.

Bill Heiden

Okay, thank you Carol.

Operator

Your next question comes from the line of Eun Yang from Jefferies. Your line is open.

Eun Yang - Jefferies

Thanks for taking my question. So correct me if I am wrong, but it looks like Feraheme net revenue per gram declined from $555 per gram in fourth quarter ‘13 to $540 per gram in first quarter with a 3% price increase in first quarter and then quarter-over-quarter in provider demand. Can you guys provide the gross to net discount for first quarter for Feraheme?

Frank Thomas

Gross to net, we really don’t look at gross to net very closely. Obviously, we have taken price increases, some of that price increase we pass along to certain customer segments, some we rebated back through performance incentives. So, I think your numbers are accurate. And I think we went into the year recognizing that with the new competitor we have to be, continue to be creative and thoughtful about how we contract with our customers. And year-over-year we are up about 5% on price, but sequentially there was a slight dip.

Eun Yang - Jefferies

Okay, thank you.

Frank Thomas

Thank you.

Operator

And there are no further questions at this time. I will turn the call back over to the presenters.

Bill Heiden - President and Chief Executive Officer

Great, thank you very much Stephanie. So as you have seen today, we have had a strong start to 2014. I am really proud of our progress in the first quarter. I want to sincerely thank my colleagues at AMAG, whose hard work everyday drives the results that we have reported here today. We still have much work to do in front of us, many goals to be achieved over the next three quarters, and we look forward to updating you on our progress. Thank you very much for joining us here today. And that concludes our call.

Operator

Ladies and gentlemen, this concludes today’s conference call. You may now disconnect.

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Source: AMAG Pharmaceuticals' CEO Discusses Q1 2014 Results - Earnings Call Transcript

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