AMAG PHARMACEUTICALS, INC. The following information should be read in conjunction with the unaudited financial information and the notes thereto included in this Quarterly Report on Form 10-Q and the audited financial information and the notes thereto included in our Annual Report on Form 10-K for the year endedDecember 31, 2019 , as amended (our "Annual Report"). Except for the historical information contained herein, the matters discussed in this Quarterly Report on Form 10-Q may be deemed to be forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. In this Quarterly Report on Form 10-Q terminology such as "may," "will," "could," "should," "would," "expect," "anticipate," "continue," "believe," "plan," "estimate," "intend" or other similar words and expressions (as well as other words or expressions referencing future events, conditions or circumstances) are intended to identify forward-looking statements.
Examples of forward-looking statements contained in this report include, without limitation, statements regarding the following:
•expectations regarding our recently announced merger transaction with Covis, including the timing for such transaction; •our plans regarding our business and our portfolio and the impact on our organization from the completion of the divestiture of our women's health business; •beliefs regarding the expenses, challenges and timing of our preclinical studies and clinical trials, including expectations regarding the clinical trial timing for and results of ciraparantag; •beliefs regarding our commercial strategies and efforts; •our estimates and beliefs regarding the market opportunities for each of our products and product candidates; •beliefs about and expectations for our commercialization, marketing and manufacturing of our products and product candidates, if approved, (which may be conducted by third parties); •expectations related to potential FDA regulatory actions for Makena following theOctober 2019 meeting of its Advisory Committee and beliefs and expectations regarding our interactions with the FDA, including our hearing request; •beliefs and expectations about our cash flows and liquidity and capital resources; •beliefs about health care provider behaviors and reactions; •plans to work with the FDA and beliefs that there may be a path forward for continued commercialization of Makena; •expectations and plans with respect to litigation matters and contract disputes, including the merits thereof; •the timing and amounts of milestone and royalty payments; •expectations and plans as to recent and upcoming regulatory and commercial developments and activities, including requirements, initiatives and timelines for clinical trials and post-approval commitments for our products and product candidates, and their impact on our business and competition; •expectations for our intellectual property rights covering our product candidates and technology and the impact of generics and other competition could have on each of our products and our business generally, including the timing and number of generic entrants; •developments relating to our competitors and our industry, including the impact of government regulation; •expectations regarding third-party reimbursement and the behaviors of payers, healthcare providers, patients and other industry participants, including with respect to product price increases and volume-based and other rebates and incentives; •expectations regarding the contribution of revenues from our products to the funding of our on-going operations and costs to be incurred in connection with revenue sources to fund our future operations; •expectations regarding customer returns and other revenue-related reserves and accruals; •beliefs about our internal controls and procedures and remediation efforts of our identified material weakness; •expectations as to the manufacture of drug substances and drug products and key materials for our products and product candidates; •expectations as to our effective tax rate and our ability to realize our net operating loss carryforwards and other tax attributes; •the impact of accounting pronouncements; •expectations regarding our financial performance and our ability to implement our strategic plans for our business; •estimates and beliefs related to our 2022 Convertible Notes and the manner in which we intend or are required to settle the 2022 Convertible Notes, including upon consummation of the transactions with Covis; •estimates, beliefs and judgments related to the valuation of certain intangible assets, goodwill, contingent consideration, debt and other assets and liabilities, including our impairment analysis and our methodology and assumptions regarding fair value measurements; •beliefs regarding the impact of ourMay 2020 andFebruary 2019 restructuring initiatives; and •the impact of the COVID-19 pandemic on the above. 31
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Any forward-looking statement should be considered in light of the factors discussed in Part II, Item 1A below under "Risk Factors" in this Quarterly Report on Form 10-Q and in Part I, Item 1A in our Annual Report. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of theU.S. Securities and Exchange Commission , to publicly update or revise any such statements to reflect any change in company expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements. AMAG Pharmaceuticals®, the logo and designs and Feraheme® are registered trademarks ofAMAG Pharmaceuticals, Inc. Makena® is a registered trademark ofAMAG Pharma USA, Inc. Intrarosa® is a registered trademark ofEndoceutics, Inc. Other trademarks referenced in this report are the property of their respective owners.
Overview
AMAG Pharmaceuticals, Inc. , aDelaware corporation, was founded in 1981. We are a pharmaceutical company focused on bringing innovative products to patients with unmet medical needs by leveraging our development and commercial expertise to invest in and grow our pharmaceutical products and product candidates across a range of therapeutic areas. Our currently marketed products support the health of patients in the areas of hematology and maternal and women's health, including Feraheme® (ferumoxytol injection) for intravenous use and Makena® (hydroxyprogesterone caproate injection) auto-injector. In addition to our approved products, our portfolio includes one product candidate, ciraparantag, which is being studied as an anticoagulant reversal agent. OnOctober 1, 2020 , we entered into an Agreement and Plan of Merger with Covis Group S.à r.l., a Luxembourg company ("Covis"),Covis Mergerco Inc. , aDelaware corporation and an indirect wholly owned subsidiary of Covis ("Merger Sub"), and (in respect of specific matters) Covis Finco S.à r.l., a Luxembourg company, pursuant to which Merger Sub will conduct a cash tender offer (the "Offer") to acquire all of the issued and outstanding shares of common stock of AMAG at a price per share of$13.75 , net to the seller in cash, without interest. The Offer commenced onOctober 15, 2020 and will remain open for a minimum of 20 business days. The completion of the Offer is subject to customary closing conditions, including the tender of at least a majority of the outstanding shares of AMAG's common stock, the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (which condition was satisfied onOctober 23, 2020 ), and other customary conditions. For additional information, refer to Note T, "Subsequent Events," to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. As previously disclosed, inJuly 2020 , we entered into a termination agreement with Palatin Technologies, Inc. ("Palatin"), pursuant to which we terminated the License Agreement with Palatin, datedJanuary 8, 2017 (the "Palatin License Agreement"), and our rights and obligations to develop and commercialize Vyleesi thereunder, were terminated. In addition, we transferred all rights in and to and full ownership of Vyleesi, including the regulatory approval of Vyleesi, to Palatin. Refer to Note O, "Acquisitions, Collaboration, License and Other Strategic Agreements," to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional detail. Additionally, as previously disclosed, we decided to stop the AMAG-423 Phase 2b/3a study inJuly 2020 based, primarily, on the results of an interim analysis conducted by the study's independent Data Safety Monitoring Board ("DSMB"). In connection therewith, we terminated our supply agreement (including considerable minimum purchase obligations) withProtherics UK Ltd , a subsidiary ofBTG plc ("BTG") inAugust 2020 , in exchange for a one-time payment by us of$12.5 million and our grant to BTG of a 9-month option (subject to extension under certain situations) to acquire the AMAG 423 program rights and assume our related obligations, including our obligations under the option agreement withVelo Bio, LLC , as further described in Note O, "Acquisitions, Collaboration, License and Other Strategic Agreements" ito our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Our primary sources of revenue are currently from sales of Feraheme and the Makena auto-injector.
AMAG's Portfolio of Products and Product Candidates
Feraheme
Feraheme received approval from theU.S. Food and Drug Administration (the "FDA") inJune 2009 for use as an IV iron replacement therapy for the treatment of iron deficiency anemia ("IDA") in adult patients with chronic kidney disease ("CKD"). InFebruary 2018 , the FDA approved the supplemental New Drug Application to expand the Feraheme label to include all eligible adult IDA patients who have intolerance to oral iron or have had unsatisfactory response to oral iron in addition to patients who have CKD. IDA is prevalent in many different patient populations, such as patients with CKD, gastrointestinal 32 -------------------------------------------------------------------------------- Table of Contents diseases or disorders, inflammatory diseases and chemotherapy-induced anemia. For many of these patients, treatment with oral iron is unsatisfactory or is not tolerated. It is estimated that approximately five million people in theU.S. have IDA and we estimate that a small fraction of the patients who are diagnosed with IDA regardless of the underlying cause are currently being treated with IV iron. The expanded Feraheme label was supported by two positive pivotal Phase 3 trials, which evaluated Feraheme versus iron sucrose or placebo in a broad population of patients with IDA and positive results from a third Phase 3 randomized, double-blind non-inferiority trial that evaluated the incidence of moderate-to-severe hypersensitivity reactions (including anaphylaxis) and moderate-to-severe hypotension with Feraheme compared to Injectafer® (ferric carboxymaltose injection) (the "Feraheme comparator trial"). The Feraheme comparator trial demonstrated comparability to Injectafer® based on the primary composite endpoint of the incidence of moderate-to-severe hypersensitivity reactions (including anaphylaxis) and moderate-to-severe hypotension (Feraheme incidence 0.6%; Injectafer® incidence 0.7%). Adverse event rates were similar across both treatment groups; however, the incidence of severe hypophosphatemia (defined by blood phosphorous of <0.2 mg/dl at week 2) was less in the patients receiving Feraheme (0.4% of patients) compared to those receiving Injectafer® (38.7% of patients).
Makena
Makena is indicated to reduce the risk of preterm birth in women pregnant with a
single baby who have a history of singleton spontaneous preterm birth. We
acquired the rights to Makena in connection with our acquisition of
Makena was approved by the FDA inFebruary 2011 as an intramuscular ("IM") injection (the "Makena IM product") packaged in a multi-dose vial and inFebruary 2016 as a single-dose preservative-free vial. InFebruary 2018 , the Makena auto-injector was approved by the FDA for administration via a pre-filled subcutaneous auto-injector, a drug-device combination product (the "Makena auto-injector"). InMarch 2019 , we announced topline results from the Progestin's Role in Optimizing Neonatal Gestation clinical trial ("PROLONG Trial"), a randomized, double-blinded, placebo-controlled clinical trial evaluating Makena in patients with a history of a prior spontaneous singleton preterm delivery. The PROLONG Trial was conducted under theFDA's "Subpart H" accelerated approval process and, inOctober 2019 , we announced that full results of the PROLONG Trial were published online in theAmerican Journal of Perinatology . The PROLONG Trial, in contrast to a previously conducted Phase 3 trial (the Meis trial) on which Makena's approval was primarily based, did not demonstrate a statistically significant difference between the treatment and placebo arms for the co-primary endpoints. The adverse event profile between the two arms was comparable. OnOctober 29, 2019 , theBone, Reproductive and Urologic Drugs Advisory Committee (the "Advisory Committee") met to discuss the results of the PROLONG Trial to inform theFDA's regulatory decision for Makena and voted, among other things, nine to seven that the FDA should pursue withdrawal of approval for Makena. In the first quarter of 2020 in response to our request to the FDA for a meeting to discuss the clinical benefit of the product, the FDA indicated that it was premature to meet at that time as it was still reviewing the matter, and, inJuly 2020 , the FDA indicated that they were still reviewing information pertinent to Makena. In anticipation of further discussion with the FDA, we proactively initiated the first part of a retrospective study. OnOctober 5, 2020 , we received a notice from theCenter for Drug Evaluation and Research of the FDA ("CDER") that the FDA is proposing to withdraw approval of Makena and that we have the opportunity to request a hearing on the withdrawal. OnOctober 14, 2020 , we filed a request for a hearing with the FDA on the proposal to withdraw approval of Makena, together with an extension request for providing the supplemental information in support of our request for a hearing. OnOctober 22, 2020 , the FDA agreed to an extension and we plan to submit to the FDA byDecember 4, 2020 data, information, and analyses to demonstrate that there is a genuine and substantial issue of material fact that requires a hearing. If the FDA grants our request for a hearing, it would conduct such hearing and thereafter decide whether to withdraw approval of Makena. In the frequently asked questions referred to in CDER's statement published onOctober 5, 2020 , the FDA indicated this process can take months. During the pendency of this process, the Makena label remains unchanged and Makena and the approved generic formulations of Makena will remain on the market until the FDA makes a final decision about these products. This complex and unique situation has no clear precedent and it is therefore difficult to predict the outcome or timing of any hearing, if granted, by the FDA. We remain committed to working collaboratively with the FDA to seek a path forward to ensure eligible pregnant women continue to have access to Makena and the currently approved generics that rely on Makena as an innovator drug. 33 -------------------------------------------------------------------------------- Table of Contents Ciraparantag InJanuary 2019 , we acquired ciraparantag with our acquisition ofPerosphere Pharmaceuticals Inc. ("Perosphere"), a privately-held biopharmaceutical company pursuant to an Agreement and Plan of Merger (the "Perosphere Agreement"). Ciraparantag is a small molecule anticoagulant reversal agent in development as a single dose solution that is delivered intravenously to reverse the effects of certain direct oral anticoagulants ("DOACs") (Xarelto®(rivaroxaban), Eliquis®(apixaban), and Savaysa®(edoxaban) as well as Lovenox® (enoxaparin sodium injection), a low molecular weight heparin when reversal of the anticoagulant effect of these products is needed for emergency surgery, urgent procedures or due to life-threatening or uncontrolled bleeding. Ciraparantag has been granted Fast Track designation by the FDA. Ciraparantag has been evaluated in more than 250 healthy volunteers across seven clinical trials. A first in human Phase 1 study evaluated the safety, tolerability, pharmacokinetic, and pharmacodynamic effects of ciraparantag alone and following a single dose of Savaysa®, and another Phase 1 study evaluated the overall metabolism of the drug. Two Phase 2a studies evaluated the safety, tolerability, pharmacokinetic, and pharmacodynamic effects related to the reversal of unfractionated heparin and Lovenox® and three Phase 2b randomized, single-blind, placebo-controlled dose-ranging studies evaluated the reversal of Savaysa®, Eliquis®, and Xarelto® to assess the safety and efficacy of ciraparantag, each of which included 12 subjects dosed with ciraparantag. In these Phase 2b clinical trials, ciraparantag or placebo was administered to healthy volunteers in a blinded fashion after achieving steady blood concentrations of the respective anticoagulant. Pharmacodynamic assessments of whole blood clotting time ("WBCT"), an important laboratory measure of clotting capacity, were sampled frequently for the first hour post study drug dose, and then periodically thereafter out to 24 hours post administration of study drug. Key endpoints in the Phase 2 trials included mean change from baseline in WBCT and the proportion of subjects that returned to within 10% of their baseline WBCT. Subjects in these studies experienced a rapid and statistically significant (p<0.001) reduction in WBCT compared to placebo as early as 15 minutes after the administration of ciraparantag in each of the four studies and the effect was sustained for 24 hours. Moreover, in both the Eliquis® and Xarelto® studies, 100% of subjects in the highest dose cohorts (180 mg of ciraparantag) were responders, as defined by a return to within 10% of baseline WBCT within 30 minutes and sustained for at least six hours. Ciraparantag has been well tolerated in clinical trials, with the most common related adverse events to date being mild sensations of coolness, warmth or tingling, skin flushing, and alterations in taste. There have been no drug-related serious adverse events to date. We are planning to conduct Phase 2b clinical studies in healthy volunteers to confirm the proposed dose of ciraparantag to be used in the Phase 3 program, after reaching peak steady state blood concentrations of certain DOAC drugs. The Phase 2b studies will utilize an automated coagulometer developed byPerosphere Technologies, Inc. ("Perosphere Technologies"), an independent company, to measure WBCT and, based on feedback from the FDA, we will also measure WBCT manually. An investigational device exemption, which Perosphere Technologies submitted inOctober 2020 , is required for use of the coagulometer in clinical studies. Due to the impact of the COVID-19 pandemic and the additional requirement of manual WBCT testing, the Phase 2b study initiation has been delayed, may continue to be delayed and may take longer than anticipated. Furthermore, even once we can proceed with initiation of the trial and begin enrollment, COVID-19 might present further challenges if study candidates are hesitant to enroll and increase their inter-personal exposure because of concerns over the contagiousness of COVID-19 or if additional screening criteria is needed. We are therefore unable to estimate when the study might be completed. InJuly 2020 , we entered into a License and Commercialization Agreement withNorgine B.V . ("Norgine" and such agreement, the "Norgine Agreement"), pursuant to which we grantedNorgine an exclusive license to develop and commercialize ciraparantag in certain countries inEurope ,Australia and New Zealand . For additional details regarding the Norgine Agreement, see Note O, "Acquisitions, Collaboration, License and other Strategic Agreements," to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Impact of COVID-19 on our business
We continue to evaluate the impact of COVID-19 on patients, healthcare providers and our employees, as well as on our operations and the operations of our business partners and healthcare communities. Given the importance of supporting our patients, we are diligently working with our suppliers, healthcare providers and partners to provide patients with access to Feraheme and Makena while taking into account regulatory, institutional, and government guidance, policies and protocols. To date, COVID-19 protocols have restricted or discouraged patient access to hospitals, clinics, physicians' offices and other sites where Feraheme and Makena are typically administered and caused a re-prioritization of healthcare services. Although we saw an improvement in volume and corresponding increase in our net product sales and financial results during the three months endedSeptember 30, 2020 , the future impact of the COVID-19 pandemic on our net product sales is uncertain. If the COVID-19 situation worsens and disruptions continue, it may result in an adverse impact to our financial performance for 2020. We are currently working to initiate our planned ciraparantag Phase 2b trial that was delayed as a result of COVID-19, and we are working with our CROs to understand the duration and scope of disruptions at clinical trial sites and on anticipated 34
-------------------------------------------------------------------------------- Table of Contents enrollment for our planned ciraparantag Phase 2b trial. To date, we and our suppliers have been able to continue to supply our products and our product candidates, and currently do not anticipate any interruptions in supply. Given the uncertainties regarding the duration and scope of the COVID-19 pandemic, the full impacts on our sales, supply, research and development efforts and operations are currently unknown, but will likely continue to impact our performance in 2020 and could continue to represent a risk to our future performance. We are actively monitoring the situation and may take precautionary and preemptive actions that we determine are in the best interests of our business. We cannot predict the effects that such actions may have on our business or on our financial results, in particular with respect to demand for or access to our products. Please refer to our Risk Factors in Part II, Item IA of this Quarterly Report on Form 10-Q for further discussion of COVID-19 risks.
Critical Accounting Policies
Our management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in theU.S. The preparation of these financial statements requires management to make certain estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses, and the related disclosure of contingent liabilities. Actual results could differ materially from those estimates. Management employs the following critical accounting policies affecting our most significant estimates and assumptions: revenue recognition and related sales allowances and accruals; valuation of marketable securities; valuation of inventory; business combinations and asset acquisitions, including acquisition-related contingent consideration; goodwill; intangible assets; equity-based compensation; and income taxes. There have been no significant changes to our critical accounting policies and estimates during the nine months endedSeptember 30, 2020 , compared to the critical accounting policies and estimates disclosed in Part II, Item 7, of our Annual Report. Results of Operations - Three Months EndedSeptember 30, 2020 and 2019 Revenues Total net product sales for the three months endedSeptember 30, 2020 and 2019 consisted of the following (in thousands except for percentages): Three Months Ended September 30, 2020 to 2019 2020 2019 $ Change % Change Product sales, net Feraheme$ 46,718 $ 44,205 $ 2,513 6 % Makena 25,860 33,949 (8,089) (24) % Intrarosa 37 5,607 (5,570) (99) % Other 614 23 591 >100 % Total product sales, net 73,229 83,784 (10,555) (13) % Other revenues 19,877 24 19,853 >100 % Total revenues$ 93,106 $ 83,808 $ 9,298 11 % Our total net product sales for the three months endedSeptember 30, 2020 decreased by$10.6 million as compared to the same period in 2019, due primarily to a decrease in Makena net sales. We believe that the decrease in Makena net sales during the quarter was primarily driven by concern amongst health care providers caused by the unfavorableFDA Advisory Committee recommendation for Makena during the fourth quarter of 2019. Intrarosa net sales also decreased during the three months endedSeptember 30, 2020 as compared to the same period in 2019 as a result of the disposition of the product inMay 2020 . In addition, inJuly 2020 , we entered into a License and Commercialization Agreement withNorgine B.V . ("Norgine", and such agreement, the "Norgine Agreement"), pursuant to which we grantedNorgine an exclusive license to develop and commercialize ciraparantag in certain countries inEurope ,Australia and New Zealand (the "Norgine territory"). We received a$30.0 million upfront payment upon signing. During the three months endedSeptember 30, 2020 , we recognized$19.8 million of collaboration revenue. Refer to Note C, "Revenue Recognition," to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for further detail. 35 -------------------------------------------------------------------------------- Table of Contents Product Sales Allowances and Accruals Total gross product sales were offset by product sales allowances and accruals for the three months endedSeptember 30, 2020 and 2019 as follows (in thousands, except for percentages): Three Months Ended September 30, 2020 to 2019 Percent of Percent of gross gross 2020 product sales 2019 product sales $ Change % Change Gross product sales$ 218,739 $ 254,073 $ (35,334) (14) % Provision for product sales allowances and accruals: Contractual adjustments 129,966 59 % 144,108 57 % (14,142) (10) % Governmental rebates 15,544 7 % 26,181 10 % (10,637) (41) % Total 145,510 67 % 170,289 67 % (24,779) (15) % Product sales, net$ 73,229 $ 83,784 $ (10,555) (13) % The increase in contractual adjustments as a percentage of gross product sales primarily related to a higher mix of business through commercial reimbursement channels and additional discounts offered to commercial entities. The decrease in governmental rebates as a percentage of gross product sales primarily related to changes in estimates related to prior periods during the three months endedSeptember 30, 2019 . We may refine our estimated revenue reserves as we continue to obtain additional experience or as our customer mix changes. If we determine in future periods that our actual experience is not indicative of our expectations, if our actual experience changes, or if other factors affect our estimates, we may be required to adjust our allowances and accruals estimates, which would affect our net product sales in the period of the adjustment and could be significant. Costs and Expenses Cost of Product Sales Cost of product sales for the three months endedSeptember 30, 2020 and 2019 were as follows (in thousands except for percentages): Three Months Ended September 30, 2020 to 2019 2020 2019 $ Change % Change Direct cost of product sales$ 11,367 $ 16,893 $ (5,526) (33) % Amortization of intangible assets 1,973 4,212 (2,239) (53) %$ 13,340 $ 21,105 $ (7,765) (37) % Direct cost of product sales as a percentage of net product sales 16 % 20 % Direct cost of product sales as a percentage of net product sales decreased during the three months endedSeptember 30, 2020 as compared to the three months endedSeptember 30, 2019 . The decrease was primarily driven by a shift in revenue mix from products with higher cost of product sales to products with lower cost of product sales. We expect direct cost of product sales as a percentage of net product sales to remain relatively consistent or increase slightly relative to the percentage at the end of the third quarter of 2020 for the remainder of 2020. 36
-------------------------------------------------------------------------------- Table of Contents Research and Development Expenses
Research and development expenses for the three months ended
Three Months Ended September 30, 2020 to 2019
2020 2019 $ Change % Change
External research and development expenses $ 3,681 $
9,398$ (5,717) (61) % Internal research and development expenses 3,434 5,932 (2,498) (42) %
Total research and development expenses $ 7,115
(54) %
The $8.2 million decrease in research and development expenses incurred in the
three months ended September 30, 2020 , as compared to the three months ended
September 30, 2019 , was primarily related to the cessation of the AMAG-423 Phase
2b/3a study and the divestiture of Vyleesi during the third quarter of 2020 as
well as lower internal costs as a result of the workforce reduction in May 2020 .
Although the potential impacts of the COVID-19 pandemic are evolving daily and
cannot be predicted, we expect our external research and development expenses to
increase during the fourth quarter of 2020 as compared to the third quarter of
2020. This expectation is dependent on the duration and extent of the impacts of
COVID-19 on our ability to initiate our planned ciraparantag Phase 2b trial.
Regardless of the COVID-19 pandemic, we cannot determine with certainty the
duration and completion costs of our current or future clinical trials of our
products or product candidate as the duration, costs and timing of clinical
trials depends on a variety of factors including the uncertainties of future
clinical and preclinical studies, uncertainties in clinical trial enrollment
rates and significant and changing government regulation.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended
September 30, 2020 and 2019 consisted of the following (in thousands except for
percentages):
Three Months Ended September 30, 2020 to 2019
2020 2019 $ Change % Change
Compensation, payroll taxes and benefits
(34) %
Professional, consulting and other outside
services 16,661 35,639 (18,978) (53) %
Fair value of contingent consideration liability - 5 (5) (100) %
Equity-based compensation expense 1,854 4,058 (2,204) (54) %
Total selling, general and administrative
expenses $ 35,656 $ 65,720 $ (30,064) (46) %
Selling, general and administrative expenses decreased by $30.1 million in the
three months ended September 30, 2020 as compared to the same period in 2019,
primarily due to decreases in marketing spend related to our women's health
products and reduced compensation related costs as a result of our May 2020
restructuring.
We expect that total selling, general and administrative expenses for the fourth quarter of 2020 will be consistent with the third quarter of 2020.
Loss on Disposal of Assets
During the three months endedSeptember 30, 2020 , we recognized a loss on disposal of assets of$35.4 million primarily related to losses of$22.4 million and$12.5 million recognized in conjunction with the divestiture of Vyleesi and the cessation of the AMAG-423 Phase 2b/3a study, respectively. Other Income (Expense), Net Other income (expense), net for the three months endedSeptember 30, 2020 increased by$13.4 million primarily due to a Confidential Settlement Agreement and Release with a third-party manufacturer to resolve outstanding disputes. Pursuant to this agreement, we were paid a sum of$17.4 million , and the parties exchanged mutual releases to resolve all disputes between them. 37
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Income Tax (Benefit) Expense The following table summarizes our effective tax rate and income tax (benefit) expense for the three months endedSeptember 30, 2020 and 2019 (in thousands except for percentages): Three Months Ended September 30, 2020 2019 Effective tax rate (1) % (1) % Income tax (benefit) expense $ (53)$ 232 For the three months endedSeptember 30, 2020 , we recognized an immaterial income tax benefit, representing an effective tax rate of (1)%. The difference between the statutory federal tax rate of 21% and the (1)% effective tax rate for the three months endedSeptember 30, 2020 was primarily attributable to the valuation allowance established against our current period losses generated. We have established a valuation allowance on our deferred tax assets to the extent that our existing taxable temporary differences would not be available as a source of income to realize the benefits of those deferred tax assets. The income tax benefit for the three months endedSeptember 30, 2020 primarily related to state income taxes. For the three months endedSeptember 30, 2019 , we recognized an immaterial income tax expense, representing an effective tax rate of (1)%. The difference between the statutory federal tax rate of 21% and the (1)% effective tax rate for the three months endedSeptember 30, 2019 , was primarily attributable to the valuation allowance established against our current period losses generated and the non-deductible IPR&D expense related to thePerosphere acquisition. Results of Operations - Nine Months EndedSeptember 30, 2020 and 2019 Revenues Total net product sales for the nine months endedSeptember 30, 2020 and 2019 consisted of the following (in thousands except for percentages): Nine Months Ended September 30, 2020 to 2019 2020 2019 $ Change % Change Product sales, net Feraheme$ 120,786 $ 126,294 $ (5,508) (4) % Makena 66,079 95,483 (29,404) (31) % Intrarosa 4,423 14,898 (10,475) (70) % Other (586) 156 (742) <(100 %) Total product sales, net 190,702 236,831 (46,129) (19) % Other revenues 19,935 231 19,704 >100 % Total revenues$ 210,637 $ 237,062 $ (26,425) (11) % Our total net product sales for the nine months endedSeptember 30, 2020 decreased by$46.1 million as compared to the same period in 2019, due primarily to decreases in Makena, Feraheme and Intrarosa net sales. We believe that the decrease in Makena net sales during the period was primarily driven by concern amongst health care providers caused by the unfavorableFDA Advisory Committee recommendation for Makena during the fourth quarter of 2019. The decrease in Feraheme net sales was driven by the negative impacts of COVID-19 during the second quarter of 2020 as COVID-19 protocols had restricted or discouraged patient access to hospitals, clinics and other sites where Feraheme is typically administered. Intrarosa net sales decreased as a result of the disposition of the product inMay 2020 . In addition, inJuly 2020 , we entered into a License and Commercialization Agreement withNorgine B.V . ("Norgine", and such agreement, the "Norgine Agreement"), pursuant to which we grantedNorgine an exclusive license to develop and commercialize ciraparantag in certain countries inEurope ,Australia and New Zealand (the "Norgine territory"). We received a$30.0 million upfront payment upon signing. During the nine months endedSeptember 30, 2020 , we recognized$19.8 million of collaboration revenue. Refer to Note C, "Revenue Recognition," to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for further detail. Total gross product sales were offset by product sales allowances and accruals for the nine months endedSeptember 30, 2020 and 2019 as follows (in thousands, except for percentages): 38
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Nine Months Ended September 30, 2020 to 2019
Percent of Percent of
gross gross
2020 product sales 2019 product sales $ Change % Change
Gross product sales $ 633,475 $ 704,976 $ (71,501) (10) %
Provision for product sales allowances
and accruals:
Contractual adjustments 383,003 60 % 381,633 54 % 1,370 - %
Governmental rebates 59,770 9 % 86,512 12 % (26,742) (31) %
Total 442,773 70 % 468,145 66 % (25,372) (5) %
Product sales, net $ 190,702 $ 236,831 $ (46,129) (19) %
The increase in contractual adjustments as a percentage of gross product sales
primarily related to a higher mix of business through commercial reimbursement
channels and additional discounts offered to commercial entities. The decrease
in governmental rebates as a percentage of gross product sales primarily related
to changes in estimates related to prior periods during the nine months ended
September 30, 2019 .
Costs and Expenses
Cost of Product Sales
Cost of product sales for the nine months ended September 30, 2020 and 2019 were
as follows (in thousands except for percentages):
Nine Months Ended September 30, 2020 to 2019
2020 2019 $ Change % Change
Direct cost of product sales $ 34,655 $ 51,774 $ (17,119) (33) %
Amortization of intangible assets 20,771 12,097 8,674 72 %
$ 55,426 $ 63,871 $ (8,445) (13) %
Direct cost of product sales as a percentage of
net product sales 18 % 22 %
Direct cost of product sales as a percentage of net product sales decreased from
22% to 18% during the first three quarters of 2020. Direct cost of product sales
for the nine months ended September 30, 2019 included a $4.8 million one-time
inventory write-down related to the Makena IM product. In addition to this
one-time inventory write-down, direct cost of product sales as a percentage of
net product sales decreased as a result of a shift in revenue mix from products
with higher cost of product sales to products with lower cost of product sales
during the first three quarters of 2020 as compared to the same period in 2019.
Amortization of intangible assets increased by $8.7 million for the nine months
ended September 30, 2019 compared to the same period in September 30, 2020 due
to accelerated amortization resulting from our reassessment and prospective
adjustment of the useful lives of the Makena auto-injector developed technology,
Intrarosa developed technology and Vyleesi developed technology intangible
assets during the fourth quarter of 2019.
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Research and Development Expenses
Research and development expenses for the nine months ended
Nine Months Ended September 30, 2020 to 2019
2020 2019 $ Change % Change
External research and development expenses
(55) %
Internal research and development expenses 12,652 17,669 (5,017) (28) %
Total research and development expenses
(45) %
The $21.8 million decrease in research and development expenses incurred in the
nine months ended September 30, 2020 as compared to the same period in 2019 was
primarily related to lower costs for Vyleesi following FDA approval in 2019,
cessation of the AMAG-423 Phase 2b/3a study, and lower internal costs as a
result of the workforce reduction in May 2020 .
During the nine months ended
Selling, General and Administrative Expenses Selling, general and administrative expenses for the nine months endedSeptember 30, 2020 and 2019 consisted of the following (in thousands except for percentages): Nine Months Ended September 30, 2020 2020 to 2019 2020 2019 $ Change % Change
Compensation, payroll taxes and benefits
(18) %
Professional, consulting and other outside
services 51,935 123,554 (71,619) (58) %
Fair value of contingent consideration
liability - (16) 16 (100) %
Equity-based compensation expense 7,403 11,039 (3,636) (33) %
Total selling, general and administrative
expenses $ 127,922 $ 217,727 $ (89,805) (41) %
Total selling, general and administrative expenses decreased by $89.8 million in
the nine months ended September 30, 2020 as compared to the same period in 2019,
primarily driven by decreases in marketing spend related to our women's health
products and reduced compensation related costs as a result of the May 2020
restructuring.
Impairment of Intangible Assets in 2019
During the nine months ended
Loss on Disposal of Assets
During the nine months endedSeptember 30, 2020 , we recognized a loss on disposal of assets of$21.0 million , primarily related to losses of$22.4 million and$12.5 million recognized in conjunction with the divestiture of Vyleesi and the cessation of the AMAG-423 Phase 2b/3a study, respectively. These losses were offset by the gain of$14.4 million recognized on the sale of Intrarosa during the second quarter of 2020. 40 -------------------------------------------------------------------------------- Table of Contents Restructuring Expense InMay 2020 , we completed a restructuring to reduce the size of our organization in conjunction with the divestiture of Intrarosa and Vyleesi and expected declines in our revenue due to the COVID-19 pandemic. Approximately 110 employees were displaced through this workforce reduction. We recorded a restructuring charge of$8.2 million primarily related to severance and related benefits in the second quarter of 2020 and expect the restructuring charges incurred to date under this program to be substantially paid in cash by the end of the second quarter of 2021. We estimate total savings from the restructuring in 2020 will be approximately$13.1 million . InFebruary 2019 , we completed a restructuring to combine our women's health and maternal health sales forces into one integrated sales team, which promoted Intrarosa, the Makena auto-injector and following approval, Vyleesi. Approximately 110 employees were displaced through this workforce reduction. We recorded a restructuring charge of$7.4 million primarily related to severance and related benefits in the first quarter of 2019. These restructuring charges were substantially paid in cash as of the end of the first quarter of 2020 and will be fully paid in cash by the end of the first quarter of 2021. For additional information on restructuring expenses, see Note Q, "Restructuring Expenses," to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. Other Income (Expense), Net Other income (expense), net for the nine months endedSeptember 30, 2020 increased by$11.8 million primarily due to a Confidential Settlement Agreement and Release with a third-party manufacturer to resolve outstanding disputes. Pursuant to this agreement, we were paid a sum of$17.4 million , and the parties exchanged mutual releases to resolve all disputes between them. Income Tax Benefit The following table summarizes our effective tax rate and income tax benefit for the nine months endedSeptember 30, 2020 and 2019 (in thousands except for percentages): Nine Months Ended September 30, 2020 2019 Effective tax rate - % - % Income tax benefit $ (113)$ (26) For the nine months endedSeptember 30, 2020 , we recognized an immaterial income tax benefit representing an effective tax rate of 0%. The difference between the statutory federal tax rate of 21% and the 0% effective tax rate for the nine months endedSeptember 30, 2020 was primarily attributable to the valuation allowance established against our current period losses generated. We have established a valuation allowance on our deferred tax assets to the extent that our existing taxable temporary differences would not be available as a source of income to realize the benefits of those deferred tax assets. The income tax benefit for the nine months endedSeptember 30, 2020 primarily related to state income taxes. For the nine months endedSeptember 30, 2019 , we recognized an immaterial income tax benefit, representing an effective tax rate of 0%. The difference between the statutory federal tax rate of 21% and the 0% effective tax rate for the nine months endedSeptember 30, 2019 , was primarily attributable to the valuation allowance established against our current period losses generated and the non-deductible IPR&D expense related to thePerosphere acquisition. Liquidity and Capital Resources General We currently finance our operations primarily from cash generated from our operating activities, including sales of our commercialized products. Cash, cash equivalents, marketable securities and certain financial obligations as ofSeptember 30, 2020 andDecember 31, 2019 consisted of the following (in thousands except for percentages): 41
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September 30, December 31,
2020 2019 $ Change % Change
Cash and cash equivalents $ 97,984 $ 113,009 $ (15,025) (13) %
Marketable securities 70,917 58,742 12,175 21 %
Total $ 168,901 $ 171,751 $ (2,850) (2) %
Outstanding principal on 2022 Convertible
Notes $ 320,000 $ 320,000 $ - - %
Total $ 320,000 $ 320,000 $ - - %
Cash Flows
The following table presents a summary of the primary sources and uses of cash
for the nine months ended September 30, 2020 and 2019 (in thousands):
September 30,
2020 2019 $ Change
Net cash used in operating activities $ (6,763) $ (105,731) $ 98,968
Net cash (used in) provided by investing activities (7,643) 8,408 (16,051)
Net cash used in financing activities (619) (36,133) 35,514
Net decrease in cash, cash equivalents, and
restricted cash $ (15,025) $ (133,456) $ 118,431
Operating Activities
Cash flows from operating activities represented the cash receipts and
disbursements related to all of our activities other than investing and
financing activities. We have historically financed our operating and capital
expenditures primarily through cash flows earned through our operations. We
expect cash provided by operating activities, in addition to our cash, cash
equivalents and marketable securities, will continue to be a primary source of
funds to finance operating needs and capital expenditures.
Operating cash flow is derived by adjusting our net income (loss) for:
•Non-cash operating items, such as depreciation and amortization and
equity-based compensation; and
•Changes in operating assets and liabilities, which reflect timing differences
between the receipt and payment of cash associated with transactions and when
they are recognized in results of operations.
For the nine-months ended September 30, 2020 compared to the nine-months ended
September 30, 2019 , net cash flows used in operating activities decreased
by $99.0 million , driven primarily by a decrease in net loss as adjusted for
non-cash charges of $150.4 million , partially offset by a $51.5 million increase
due to changes in operating assets and liabilities. Included within net loss for
the period ended September 30, 2019 was $74.9 million of acquired IPR&D expense
related to the Perosphere asset acquisition, of which $60.8 million was paid in
cash during the first quarter of 2019.
Investing Activities
Cash flows used in investing activities was $7.6 million for the nine months
ended September 30, 2020 due primarily to net purchases of marketable securities
of $12.1 million offset by net proceeds of $4.9 million from the sale of assets.
Cash provided by investing activities for the nine months ended September 30,
2019 was $8.4 million due to net proceeds from sales of marketable securities
of $70.5 million offset by a milestone payment for the Vyleesi developed
technology of $60.0 million and capital expenditures of $2.1 million .
Financing Activities
Cash used in financing activities was $0.6 million for the nine months ended
September 30, 2020 due primarily to $1.4 million for payments of employee tax
withholdings related to equity based compensation offset by $0.6 million of
proceeds from the issuance of common stock under the ESPP. Cash used in
financing activities for the nine months ended September 30, 2019 was $36.1
million primarily due to the repayment of the $21.4 million balance of our 2019
convertible notes, $13.7
42
-------------------------------------------------------------------------------- Table of Contents million for common stock repurchases and$1.8 million for payments of employee tax withholdings related to equity based compensation. Future Liquidity Considerations We believe that our cash, cash equivalents and marketable securities as ofSeptember 30, 2020 , and the cash we expect to receive from sales of our products, will be sufficient to fund our current operating plans and capital expenditure requirements for at least twelve months from the date of issuance of these financial statements. We generated negative cash flows from operations during the nine months endedSeptember 30, 2020 and during the year endedDecember 31, 2019 . Our expected cash flows from operations between now andJune 1, 2022 , the maturity date of our 2022 Convertible Notes, will be insufficient to settle these Convertible Notes. Therefore, in the event that the Merger with Covis described in Note T, Subsequent Events, is not completed, we expect that we will need to issue new securities, in the form of debt, equity or equity-linked, or some combination thereof, and it may be challenging for us to do so on favorable terms in light of the impact of COVID-19 on the global economy and financial markets.
Notwithstanding the above, given the uncertainties around the severity and duration of COVID-19, our forecasted cash flows for the remainder of 2020 could be adversely impacted if actual events differ from our estimates.
For a detailed discussion regarding the risks and uncertainties related to our liquidity and capital resources and to the potential impact of the COVID-19 pandemic, please refer to our Risk Factors in Part I, Item 1A of our Annual Report and in Part II, Item IA of this Quarterly Report on Form 10-Q.
Borrowings and Other Liabilities
In the second quarter of 2017, we issued$320.0 million aggregate principal amount of convertible senior notes due 2022 (the "2022 Convertible Notes"), as discussed in more detail in Note P, "Debt," to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. The 2022 Convertible Notes are senior unsecured obligations and bear interest at a rate of 3.25% per year, payable semi-annually in arrears onJune 1 andDecember 1 of each year, beginning onDecember 1, 2017 . The 2022 Convertible Notes will mature onJune 1, 2022 , unless earlier repurchased or converted. Upon conversion of the 2022 Convertible Notes, such 2022 Convertible Notes will be convertible into, at our election, cash, shares of our common stock, or a combination thereof, at a conversion rate of 36.5464 shares of common stock per$1,000 principal amount of the 2022 Convertible Notes, which corresponds to an initial conversion price of approximately$27.36 per share of our common stock. The conversion rate is subject to adjustment from time to time. The 2022 Convertible Notes were not convertible as ofSeptember 30, 2020 . In the event our Merger with Covis described in Note T, "Subsequent Events," to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, is completed, following the closing of the transaction, Covis has agreed to cause AMAG to take certain actions required by the indenture governing the 2022 Convertible Notes (as supplemented, the "Indenture"). Specifically, if the Merger is consummated, then, in accordance with the terms of the Indenture, Covis will cause AMAG to provide written notice (a "Fundamental Change Company Notice") to all holders of the 2022 Convertible Notes notifying such holders of their right to require AMAG to repurchase for cash such holder's 2022 Convertible Notes (the "Repurchase Right") at a repurchase price equal to 100% of principal amount thereof, plus accrued and unpaid interest thereon to, but excluding, the date specified by AMAG in the Fundamental Change Company Notice. Additionally, AMAG will, in accordance with the terms of the Indenture, enter into a supplemental indenture providing that the right to convert each$1,000 principal amount of 2022 Convertible Notes shall be changed into a right to convert such principal amount of 2022 Convertible Notes into the amount of cash that a holder of shares equal to the conversion rate immediately prior to the Merger would have been entitled to receive in the Merger, or$502.513 , which represents the conversion rate of 36.5464 shares per$1,000 principal amount, multiplied by the cash paid per share in the Merger of$13.75 (with no further right to convert into shares of AMAG or any other entity). If the Offer is closed, holders will have a right, which right must be exercised during the period from the date of the Merger until the close of business on the business day immediately preceding the Fundamental Change Repurchase Date (as defined in the Indenture), to convert such holder's 2022 Convertible Notes (the "Conversion Right") into cash as described above. Since the purchase price per share in the Merger is less than$19.90 , the conversion rate will not be increased in connection with the transactions. If the Merger is consummated, holders of the 2022 Convertible Notes will have the right to either (i) exercise their Repurchase Right, (ii) exercise their Conversion Right or (iii) decline to exercise either of those rights, in which case their 2022 Convertible Notes will remain outstanding subject to their then existing terms. 43
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Share Repurchase Program
As ofJanuary 1, 2020 , we had$26.8 million available under the share repurchase program initially approved by our Board of Directors inJanuary 2016 , which was updated inMarch 2019 to permit the repurchase of up to an aggregate of$80.0 million in shares of our common stock. During the nine months endedSeptember 30, 2020 , we did not repurchase shares of common stock under this program. As ofSeptember 30, 2020 ,$26.8 million remained available for future repurchases under this program. Off-Balance Sheet Arrangements As ofSeptember 30, 2020 , we did not have any off-balance sheet arrangements as defined in Regulation S-K, Item 303(a)(4)(ii). Impact of Recently Issued and Proposed Accounting Pronouncements See Note S, "Recently Issued and Proposed Accounting Pronouncements," to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for information regarding new accounting pronouncements.
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