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AMAG Pharmaceuticals Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: August 7, 2012 01:23PM

AMAG Pharmaceuticals Inc. (AMAG) filed Quarterly Report for the period ended 2012-06-30. Amag Pharmaceuticals, Inc. has a market cap of $327 million; its shares were traded at around $15.39 with and P/S ratio of 5.3. Amag Pharmaceuticals, Inc. had an annual average earning growth of 34.6% over the past 5 years.



Highlight of Business Operations:

Our total net product sales increased by $1.3 million and $4.0 million during the three and six months ended June 30, 2012, respectively, as compared to the same periods in 2011, primarily as the result of an increase in Feraheme provider demand in the three and six months ended June 30, 2012 and to a lesser extent, the impact of our May 2012 Feraheme price increase. In addition, during the three and six months ended June 30, 2012, we reduced our reserve for product returns by approximately $0.6 million and $1.1 million, respectively, due to the lapse of the return period as compared to no reductions of our reserve for product returns during 2011. Our gross product sales increased by $2.9 million and $7.6 million during the three and six months ended June 30, 2012, respectively, as compared to the same periods in 2011. However, we offered higher average customer discounts, chargebacks and rebates to our end-users during the three and six months ended June 30, 2012 as compared to the same periods in 2011, which partially offset the increase in gross product sales for the respective periods. During the three and six months ended June 30, 2012, we reduced our gross product sales by recording allowances of $8.2 million and $15.3 million, respectively, as compared to allowances of $6.7 million and $11.7 million recorded during the three and six months ended June 30, 2011.

We generally offer our wholesalers, specialty distributors and other customers a limited right to return product purchased directly from us, principally based on the product’s expiration date which, once packaged, is currently four years. Reserves for product returns are recorded in the period the related revenue is recognized, resulting in a reduction to product sales. We evaluate our estimated product returns rate each period based on the historical return patterns and known or expected changes in the marketplace. Due to the extended period between the sale of Feraheme and when the limited right of return is allowable, which could be several years, we currently have limited actual returns data and therefore are not able to solely rely on our actual returns experience. During the first half of 2012, we reduced our reserve for product returns by approximately $1.1 million due to the lapse of the product return period on certain manufactured Feraheme lots that carried a two year expiration. As a result, the product returns reserve applied to gross product sales for the three and six months ended June 30, 2012 was ($0.3) million and ($0.6) million, respectively, as compared to $0.4 million and $0.7 million for the three and six months ended June 30, 2011. Actual returns to date have been limited, and if we determine in future periods that such experience is indicative of expected returns, we may be required to reduce our accumulated product returns reserve estimate, and that adjustment could be significant. This adjustment would be reflected as a reduction to our sales allowances and, accordingly, an increase to net product sales in that period. If actual future results vary from any of our estimates, we may need to adjust our previous estimates, which would also affect our earnings in the period of the adjustment.

Most of our license fee and other collaboration revenues for the three and six months ended June 30, 2012 and 2011 related to revenue recognized under the Amended Takeda Agreement. In June 2012, we recorded $15.0 million of revenue associated with the milestone payment earned upon the marketing authorization granted for ferumoxytol by the European Commission. In addition, during each of the three and six months ended June 30, 2012 and 2011, we recorded $1.5 million and $3.0 million of revenues, respectively, associated with the amortization of $61.0 million of deferred revenues recorded in connection with the original Takeda Agreement. The $61.0 million of deferred revenues was comprised of a $60.0 million upfront payment which we received from Takeda in April 2010, as well as approximately $1.0 million reimbursed to us during 2010 for certain expenses incurred prior to entering the agreement, which we considered an additional upfront payment. As of June 30, 2012, we had

Our cost of product sales are primarily comprised of manufacturing costs associated with Feraheme. Our cost of product sales increased by $1.1 million, or 55%, and $0.7 million, or 15%, respectively, during the three and six months ended June 30, 2012 as compared to the same periods in 2011. The $1.1 million and $0.7 million increases were primarily due to higher idle capacity charges during 2012 as compared to 2011, partially offset by a lower average production cost of certain vials sold in the first half of 2012 as compared to vials sold in the first half of 2011 due to the sale of certain inventory in the first half of 2012 that had lower associated carrying value because it was produced prior to regulatory approval. In addition, our cost of product sales for the three and six months ended June 30, 2012 includes $0.3 million in accelerated depreciation associated with our planned divestiture of our Cambridge, Massachusetts manufacturing facility. As of June 30, 2012, we determined that our manufacturing facility was not impaired and we classified the facility as held for use due to the fact that we were still manufacturing product. This charge, and additional charges expected to be incurred in the third quarter of 2012, reflect a change in the estimated useful life of the related assets in order to reduce the carrying value to what we believe is the best estimate of the net realizable value of the assets upon divestiture.

Total selling, general and administrative expenses incurred in the three and six months ended June 30, 2012 decreased by $1.7 million, or 10%, and $8.2 million, or 22%, respectively, as compared to the same periods in 2011. Compensation, payroll taxes and benefits decreased by $1.7 million and $3.3 million, respectively, during the three and six months ended June 30, 2012 as compared to the same periods in 2011 primarily as a result of reduced headcount resulting from our November 2011 corporate restructuring. In addition, sales and marketing consulting, professional fees, and other expenses decreased by $0.7 million and $2.8 million, respectively, during the three and six months ended June 30, 2012 as compared to the same periods in 2011 primarily due to reduced costs related to advertising and marketing materials, and certain other general marketing costs. Our general and administrative consulting, professional fees and other expenses increased by $1.5 million and $1.2 million, respectively, during the three and six months ended June 30, 2012 as compared to the same periods in 2011 primarily due to termination fee payments made to our GastroMARK licensees in connection with the termination of our commercial license agreements with them. The $0.8 million and $3.3 million decreases in equity-based compensation expenses for the three and six months ended June 30, 2012 were due primarily to a $0.8 million and $2.8 million, respectively, reduction of equity-based compensation expense associated with the 2011 departures of certain of our executive officers, including each of our former chief financial officer, chief executive officer and chief commercial officer, the 2012 departure of our former General Counsel, and the impact of our November 2011 and June 2012 corporate workforce reductions, partially offset by the expense associated with equity awards to new employees and additional equity awards to existing employees.

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