AMAG Narrows Loss, Cuts Jobs - Analyst Blog

AMAG Pharmaceuticals, Inc. (AMAG) posted a loss of 81 cents per share during the third quarter of fiscal 2010, lower than the Zacks Consensus Estimate of a loss of $1.09 and the year-ago loss of $1.29.

Increased Feraheme sales helped narrow the loss incurred by the company.

Revenues

Third quarter 2010 revenues of $16.9 million missed the Zacks Consensus Estimate of $20 million, but was way above the year-ago figure of $3.0 million. Robust Feraheme sales accounted for the huge year-over-year increase. Feraheme was launched in the US in July 2009.

Sales of Feraheme, an injectable drug for intravenous use as an iron replacement therapy for the treatment of iron deficiency anemia in adult patients with chronic kidney disease, increased to $15.1 million from $2.9 million in the year-ago period.

Feraheme revenues included $2 million of deferred launch incentive program revenue. AMAG received $1.7 million in collaboration revenues related to the amortization of an upfront payment received from Takeda Pharmaceutical Co. Ltd., AMAG's partner for Feraheme.

Operating Expenses

Quarterly operating expenses increased about 34% to $34.3 million. The increase was a result of a rise in research and development (R&D) expenses associated with ongoing clinical trials.

R&D expenses came in at $14.0 million, while selling, general and administrative (SG&A) expenses amounted to $17.9 million during the third quarter.

Restructuring Program

On the third quarter conference call, AMAG announced a major restructuring plan including a workforce reduction of 24%. These job cuts are expected to be completed in the fourth quarter of 2010 or in the first half of 2011. This restructuring plan is expected to reduce the company's annual cash expenses by about $12 million. AMAG expects to book $2.7 million in restructuring charges during the fourth quarter of 2010.

Under the restructuring program, the company also plans to manage its costs effectively. The expense management should result in lower total operating costs (excluding stock compensation and restructuring charges) for the fourth quarter of 2010, as compared with the sequentially preceding quarter.

Our View

We currently have a Neutral long-term recommendation on AMAG, which is supported by a Zacks #3 Rank (short-term Hold rating). Given that AMAG is conducting several trials for expanding Feraheme's label, we believe the drug can receive approval for one or more of these indications, thereby helping to drive growth.

However, AMAG is currently in discussions with the US Food and Drug Administration (FDA) regarding label changes for Feraheme. The regulatory body may ask the company to insert a black box warning (the most severe warning that can be provided by the FDA) on the label of the drug to highlight the cardiovascular risks reported in the post-marketing observation of Feraheme. The drug is currently under review in Europe and the FDA's labeling decision could impact the European approval status of Feraheme.