On May 3, 2016 AMAG Pharmaceuticals, Inc. (NASDAQ: AMAG), a specialty pharmaceutical company with a diverse portfolio of products in the areas of maternal health, anemia management and cancer supportive care, reported unaudited consolidated financial results for the first quarter ended March 31, 2016 (Filing, Q1, AMAG Pharmaceuticals, 2016, MAY 3, 2016, View Source [SID:1234511834]).

Most notably, the first quarter of 2016 included the approval of a single-dose, preservative-free formulation of Makena (hydroxyprogesterone caproate injection). Prior to the commercial availability of this new Makena formulation, healthcare providers and patients who wanted a preservative-free formulation of hydroxyprogesterone caproate had to use non-FDA-approved, compounded versions. The company believes the commercial launch of the single-dose, preservative-free formulation of Makena will enable AMAG to capture significant additional share from the compounded segment of the market. The company estimates that compounding pharmacies currently hold approximately 37% of the Makena-eligible market. Additionally, AMAG entered into an agreement with a leading provider of home nursing services, which will exclusively administer Makena to all indicated patients who are eligible for their home health services.

"We are off to a strong start in 2016, achieving goals on our next-generation program for Makena, including the commercial launch of our new single-dose, preservative-free formulation, as well as solidifying an important new strategic relationship to further expand access to FDA-approved Makena," said William Heiden, AMAG’s chief executive officer. "First quarter 2016 sales of Makena increased 17% over the prior year, and early data from the recent launch of the new formulation of Makena, including April enrollment data at the Makena Care Connection that is up approximately 50% over March, suggests an acceleration in sales growth. We expect these trends to continue through the remainder of the year and are confirming our annual net product sales guidance for Makena."

"CBR, our newborn stem cell preservation offering, as well as our anemia management and cancer supportive care products, performed in-line with our expectations and remain on track with our 2016 sales guidance," added Mr. Heiden.

1 See summaries of non-GAAP adjustments for the three months ended March 31, 2016 and 2015 at the conclusion of this press release.

First Quarter 2016 and Recent Business Highlights:

· Increased net product sales of Makena to $65 million, compared with $55.5 million in the first quarter of 2015. This growth in sales was driven by a 16% increase in volume as more at-risk pregnant women were treated with Makena. Net revenue per injection was up 1% versus the first quarter of 2015.

· Received approval from the Food and Drug Administration (FDA) in February 2016 for a single-dose, preservative-free formulation of Makena and began commercial promotion in April 2016.

· Entered into a new agreement with a leading provider of home nursing services, which had previously utilized compounded hydroxyprogesterone caproate and now will exclusively provide at-home administration of Makena.

· Continued development of the next-generation program to deliver Makena subcutaneously via an auto-injector, with a range of activities underway, such as CMC work and pilot pharmacokinetic studies. The company currently anticipates filing the supplemental New Drug Application (sNDA) in the second quarter of 2017 and recently received confirmation from the FDA that the review time will be six months from submission.

· Generated a record $24.2 million of Feraheme (ferumoxytol) sales in the first quarter of 2016, or 13% growth over the same period in the prior year. Strong execution of the Feraheme business strategies by the commercial team enabled the company to realize a 7% increase in volume.

· Began enrolling patients in a head-to-head, Phase 3 clinical trial evaluating the safety of Feraheme compared to Injectafer (ferric carboxymaltose injection) in adults with iron deficiency anemia (IDA). This study is intended to support an sNDA filing to broaden the use of Feraheme beyond the current chronic kidney disease (CKD) indication to include all adult IDA patients who have failed or cannot tolerate oral iron treatment.

· Increased cash, cash equivalents and investments by $13.9 million to $480 million, net of $12 million utilized to purchase the company’s common stock and to repay debt.

· Strengthened the executive management team with the additions of Nik Grund as chief commercial officer and Ted Myles as chief financial officer.

First Quarter Ended March 31, 2016 (unaudited)

Financial Results (GAAP Basis)

Total revenues for the first quarter of 2016 were $109.3 million, compared with $89.5 million in the first quarter of 2015. Net product sales of Makena were $65.0 million in the first quarter of 2016, compared with $55.5 million in the same period last year. Sales of Feraheme and MuGard totaled $24.5 million in the first quarter of 2016, compared with $21.9 million in the first quarter of 2015. Service revenue from Cord Blood Registry (CBR), which AMAG purchased in August 2015, totaled $19.5 million in the first quarter of 2016.

Costs of product sales and services totaled $23.8 million in the first quarter of 2016. In the first quarter of 2015, cost of product sales totaled $21.0 million and did not include CBR cost of services. Total operating expenses for the first quarter of 2016 were $78.0 million, compared with $39.7 million for the same period in 2015. The increase in operating expenses was primarily due to the acquisition of CBR in the third quarter of 2015, including the non-cash amortization of intangible assets, and higher research and development

costs. These R&D costs included the initiation of the company’s Phase 3 clinical trial to broaden the use of Feraheme to include all adult IDA patients, costs to support our Makena subcutaneous auto-injector and costs associated with preparing and filing with the FDA for a second source manufacturer of the single-dose, preservative-free formulation of Makena.

The company reported operating income of $7.4 million and a net loss of $7.5 million, or ($0.22) per basic and diluted share, for the first quarter of 2016, compared with operating income of $28.8 million and net income of $12.9 million, or $0.47 per basic share and $0.39 per diluted share, for the same period in 2015.

Financial Results (Non-GAAP Basis)1,2

Non-GAAP revenues totaled $117.9 million in the first quarter of 2016, up from $83.1 million in the first quarter of 2015. Non-GAAP CBR revenue totaled $28.1 million in the first quarter of 2016. The difference between GAAP and non-GAAP revenue for CBR represents purchase accounting adjustments related to deferred revenue. Non-GAAP revenue in 2015 excludes certain non-cash revenue related to the company’s ex-U.S. marketing agreement with its former partner, Takeda Pharmaceutical Company Limited.

Total costs and expenses on a non-GAAP basis totaled $70.4 million resulting in a gross margin of 92% and adjusted EBITDA margin of 40% for the first quarter of 2016. This compares to costs and expenses of $35.7 million in the same period of 2015, which resulted in a gross margin of 96% and adjusted EBITDA margin of 57%. The decline in gross margin resulted from the acquisition of CBR, which carries lower gross margins than the company’s pharmaceutical products. Investments in research and development to enhance the long-term revenue potential of Makena and Feraheme contributed to the lower adjusted EBITDA margin in the first quarter of 2016. Non-GAAP adjusted EBITDA for the first quarter of 2016 was $47.5 million, compared with $47.4 million for the same period in 2015.

After deducting cash interest expense, the company generated first quarter 2016 non-GAAP net income of $32.9 million, or $0.95 per non-GAAP basic share and $0.94 per non-GAAP diluted share. In the first quarter of 2015, non-GAAP net income totaled $40.0 million, or $1.47 per non-GAAP basic share and $1.17 per non-GAAP diluted share.

Balance Sheet Highlights

As of March 31, 2016, the company’s cash and investments totaled approximately $480 million and total debt (principal amount outstanding) was approximately $1.04 billion.

"We are reiterating our full year 2016 guidance for revenue, adjusted EBITDA and non-GAAP net income, including top-line revenue growth of approximately 40%, which underscores the strong recent trends for Makena and the overall underlying demand we are generating across our portfolio of products," said Frank Thomas, president and chief operating officer. "During the quarter and throughout 2016, we are investing in our products through R&D to potentially expand our label for Feraheme and provide more patient- and provider-friendly versions of Makena. We believe these investments will enhance the long-term revenue potential of these products."

2 See share count reconciliation at the conclusion of this press release.

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