AMAG Pharmaceuticals Projecting Solid Revenue in Q4

| About: AMAG Pharmaceuticals, (AMAG)

AMAG Pharmaceuticals (NASDAQ:AMAG) recently discussed its preliminary fourth quarter results and provided guidance for 2011. AMAG also discussed its plans for expanding commercialization of Feraheme. Feraheme is an intravenous (IV) therapy for the treatment of iron deficiency anemia (NYSE:IDA) in patients with chronic kidney disease (CKD). The drug can be used by patients irrespective of dialysis.

2010 Preliminary Results

AMAG expects to report total revenue of $16.5 million to $17.5 million in the fourth quarter of 2010, including Feraheme revenue of $14.5 million to $15.5 million. The Zacks Consensus Estimate for the quarter was $16 million. Total Feraheme provider demand and launch incentive program utilization was approximately 27,500 grams, down sequentially, due to a decline in dialysis sales from bundling issues, which was partly offset by increases in the non-dialysis segment.

Effective from January 2011, there have been changes in dialysis reimbursement, which could negatively impact reimbursement for high priced drugs like Feraheme. Given expectations of lower utilization due to bundling, Feraheme utilization in the dialysis setting has been weak since the last two quarters. Sales declined sequentially in the third quarter as well due to lower dialysis sales, a seasonal 6% contraction in the overall IV iron market, safety concerns and no end-of-quarter rebates.

The firm is now focused on growing Feraheme utilization in non-dialysis dependent CKD patients with IDA in the US, specifically in hematology, oncology, hospital and nephrology office sites of care, where a large number of such patients are treated.

AMAG expects total operating expenses for the fourth quarter in the range of $36–$40 million. These will include restructuring costs from a plan to reduce workforce by 24%, as announced in October 2010.

AMAG estimates that it ended 2010 with cash, cash equivalents and investments of $292–$295 million.

2011 Guidance

AMAG provided 2011 Feraheme revenue guidance of $55 million to $60 million. The company anticipates a 50% increase in provider demand in the non-dialysis CKD segment. However, provider demand in the dialysis segment is expected to be insignificant in 2011. Cost of product sales is expected in a band of $12 million to $15 million. AMAG also expects 2011 research and development expenses in a range of $62 million to $68 million and selling, general and administrative expenses in a $72 million to $78 million range. The company further expects to end 2011 with approximately $215 million to $220 million in cash that does not include $33 million in potential milestones.

Feraheme Update

AMAG has filed regulatory applications for approval of Feraheme in Europe, Canada and Switzerland. A decision in Europe is expected in the second half of 2011 and in Canada in 2011.

AMAG is currently enrolling patients for its global registrational program for Feraheme for IDA treatment irrespective of the underlying cause. Approximately 1,400 patients are expected to be enrolled for the program. The program consists of two phase III studies, one comparing Feraheme with placebo, and the other comparing Feraheme with intravenous iron sucrose. The company intends to complete enrollment for the program by the end of 2011.

Our Recommendation

We currently have a Neutral recommendation on the stock. We prefer to remain on the sidelines until more visibility is obtained on Feraheme’s progress and its ability to capture market share despite the company escaping black box warning on the Feraheme label.