AMAG PHARMACEUTICALS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: (form 10-K)

Overview

AMAG Pharmaceuticals, Inc., a Delaware 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 ("IV") use, Makena®
(hydroxyprogesterone caproate injection) auto-injector, Intrarosa® (prasterone)
vaginal inserts and Vyleesi®(bremelanotide injection). In addition to our
approved products, our portfolio includes two product candidates, AMAG-423
(digoxin immune fab (ovine)), which is being studied for the treatment of severe
preeclampsia, and ciraparantag, which is being studied as an anticoagulant
reversal agent.

In January 2020, we announced that we had recently completed a review of our
product portfolio and strategy with the objective of driving near- and long-term
profitability and enhancing shareholder value. Based on this strategic review,
we are currently pursuing options to divest Intrarosa and Vyleesi. In addition,
we announced that William Heiden will be stepping down as our President and
Chief Executive Officer. We expect that Mr. Heiden will remain at the company
until the Board of Directors (the "Board") appoints a new Chief Executive
Officer.

We intend to continue to expand the impact of our current and future products
for patients by delivering on our growth strategy, which includes collaborating
on and acquiring promising therapies at various stages of development, and
advancing them through the clinical and regulatory process to deliver new
treatment options to patients. Our primary sources of revenue in 2019 were from
sales of Feraheme, Makena and Intrarosa. Except as otherwise stated below, the
following discussions of our results of operations reflect the results of our
continuing operations, excluding the results related to the Cord Blood Registry
(the "CBR business"), which we sold in August 2018. The CBR business has been
separated from continuing operations and reflected as a discontinued operation.
See Note C, "Discontinued Operations," to our consolidated financial statements
included in this Annual Report on Form 10-K.

AMAG's Portfolio of Products and Product Candidates

Feraheme

Feraheme received approval from the U.S. Food and Drug Administration (the
"FDA") in June 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"). In February 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
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 the U.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

We acquired the rights to Makena in connection with our acquisition of Lumara
Health Inc. ("Lumara Health") in November 2014. 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.


                                       65

--------------------------------------------------------------------------------

Table of Contents

Makena was approved by the FDA in February 2011 as an intramuscular ("IM")
injection (the "Makena IM product") packaged in a multi-dose vial and in
February 2016 as a single-dose preservative-free vial. In February 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"). In mid-2018, we launched our own authorized generic of both the
single- and multi-dose vials (the "Makena authorized generic") through Prasco,
LLC ("Prasco"). As previously disclosed, based on manufacturing challenges and
increased generic competition we no longer offer a branded IM product of Makena
and in August 2019 we and Prasco determined it was not commercially viable to
continue the relationship and mutually terminated our distribution and supply
agreement, such that we no longer offer the Makena authorized generic. Further,
as a result of the loss of substantial market share for the Makena IM product,
in the second quarter of 2019 we revised our long-term Makena IM products
forecast resulting in the recording of significant impairment charges related to
the Makena IM products, as discussed in Note I, "Goodwill and Intangible Assets,
Net" to the consolidated financial statements included in this annual report on
Form 10-K.

In March 2019, we announced topline results from the Progestin's Role in
Optimizing Neonatal Gestation clinical trial ("PROLONG" or "Trial 003"), 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 the FDA's "Subpart H"
accelerated approval process. The approval of Makena was based primarily on the
Meis trial ("Trial 002"), which was conducted by the Maternal-Fetal Medicine
Units Network, sponsored by the National Institute of Child Health and Human
Development. In contrast to the Meis trial, the PROLONG trial did not
demonstrate a statistically significant difference between the treatment and
placebo arms for the co-primary endpoints: the incidence of preterm delivery at
less than 35 weeks (Makena treated group 11.0% vs. placebo 11.5%) and the
percentage of patients who met criteria for the pre-specified neonatal morbidity
and mortality composite index (Makena treated group 5.6% vs. placebo 5.0%). The
adverse event profile between the two arms was comparable. Adverse events of
special interest, including miscarriage and stillbirth, were infrequent and
similar between the treatment and placebo groups. The PROLONG trial enrolled
1,708 pregnant women, over 75% of whom were enrolled outside the U.S.

On October 29, 2019, the FDA's Bone, Reproductive and Urologic Drugs Advisory
Committee (the "Advisory Committee") met to discuss the results of the PROLONG
trial to inform the FDA's regulatory decision for Makena. Following various
presentations by experts and discussions at the meeting, the Advisory Committee
voted as follows: (a) in response to the question "Do the findings from Trial
003 verify the clinical benefits of Makena on neonatal outcomes?", 16 members
voted "No" and no members voted "Yes"; (b) in response to the question "Based on
the findings from Trial 002 and Trial 003, is there substantial evidence of
effectiveness of Makena in reducing the risk of recurrent preterm birth?", 13
members voted "No" and three members voted "Yes"; and (c) in response to the
question, "Should the FDA (A) pursue withdrawal of approval for Makena, (B)
leave Makena on the market under accelerated approval and require a new
confirmatory trial, or (C) leave Makena on the market without requiring a new
confirmatory trial?", nine members voted for (A), seven members voted for (B)
and no members voted for (C). The FDA is not required to follow the
recommendations of its Advisory Committees but will take them into consideration
in deciding what regulatory steps to take with respect to Makena. During the
fourth quarter of 2019, we reassessed the fair value of assets related to the
Makena auto-injector following the Advisory Committee meeting and recorded
significant impairment charges, as discussed in Note I, "Goodwill and Intangible
Assets, Net" to the consolidated financial statements included in this annual
report on Form 10-K.

This complex and unique situation has no clear precedent and it is therefore
difficult to predict outcomes or timing of any FDA actions with respect to
Makena. 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 the innovator drug.

AMAG-423

In September 2018, we acquired the global rights to AMAG-423 for the treatment
of preeclampsia and eclampsia in antepartum and postpartum women pursuant to an
option agreement entered into in July 2015 (the "Velo Agreement") with Velo Bio,
LLC, a privately-held life sciences company ("Velo"). AMAG-423 is an antibody
fragment currently in development for the treatment of severe preeclampsia in
pregnant women and has been granted both orphan drug and Fast Track designations
by the FDA. AMAG-423 is intended to bind to endogenous digitalis-like factors
("EDLFs") and remove them from the circulation. EDLFs appear to be elevated in
preeclampsia and may play an important role in the pathogenesis of preeclampsia
though their inhibitory actions on Na+/K+-ATPase (the sodium pump). By
decreasing circulating EDLFs, AMAG-423 is believed to improve vascular
endothelial function and lead to better post-delivery outcomes in affected
mothers and their babies.

We are currently conducting a multi-center, randomized, double-blind, placebo-controlled, parallel-group Phase 2b/3a study in which we expect to enroll approximately 200 antepartum women with severe preeclampsia between 23 weeks and 0

                                       66

--------------------------------------------------------------------------------

Table of Contents

days and 31 weeks and six days gestation. The study is enrolling at sites both
within the U.S. and outside of the U.S. Participants in the study receive either
AMAG-423 or placebo intravenously four times a day over a maximum of four days.
The study's primary endpoint is to demonstrate a reduction in the percentage of
babies who develop severe intraventricular hemorrhage (bleeding in the brain),
necrotizing enterocolitis (severe inflammation of the infant bowels) or death by
36 weeks corrected gestational age between the AMAG-423 and placebo arms.
Secondary endpoints include the change from baseline in maternal creatinine
clearance, maternal incidence of pulmonary edema during treatment and the period
of time between treatment and delivery. In addition to these endpoints,
information on both maternal as well as neonatal outcomes and complications
related to preeclampsia and/or prematurity will be collected and analyzed.
Severe preeclampsia presents challenges to enrollment as it is an extremely
complex and dynamic condition; oftentimes, the patient needs be scheduled for
immediate delivery. While we continue to work to obtain the necessary country
approvals, opening new sites as well as implementing and optimizing strategies
to enhance enrollment, the serious nature of the condition under study and the
characteristics of the patient population make it difficult for us to predict
the timing of enrollment completion.

Ciraparantag

In January 2019, we acquired ciraparantag with our acquisition of Perosphere
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 novel oral anticoagulants ("NOACs") (Xarelto®(rivaroxaban),
Eliquis®(apixaban), and Savaysa®(edoxaban)) as well as Lovenox® (enoxaparin
sodium injection), a low molecular weight heparin ("LMWH") 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 a clinical study 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 NOAC drugs. This proposed
study will utilize an automated coagulometer developed by Perosphere
Technologies, Inc. ("Perosphere Technologies"), an independent company, to
measure WBCT. An investigational device exemption, which Perosphere Technologies
will submit once the design of the healthy volunteer study is finalized, is
required for use of the coagulometer in clinical studies. Over the past several
months, Perosphere Technologies has completed additional analytic studies and we
have continued to work with the FDA on the design of this next clinical study.
Following the completion of this study, we plan to schedule an End of Phase 2
meeting with the FDA to discuss the design of the Phase 3 program to evaluate
the safety and efficacy of ciraparantag in the target patient population. We
currently expect enrollment in the healthy volunteer study to be completed by
the end of 2020, assuming our proposed protocol is acceptable to the FDA and
that additional dose exploration is not needed.

In December 2019, we entered into a termination and settlement agreement with
Daiichi Sankyo, Inc. to terminate a clinical trial collaboration agreement we
acquired in connection with the Perosphere transaction. Under the terms of the
settlement agreement, we received $10.0 million in December 2019 as a
termination payment from Daiichi Sankyo, Inc. In 2019, we also recognized $6.4
million of deferred revenue that we acquired from Perosphere related to the
original agreement.


                                       67

--------------------------------------------------------------------------------

Table of Contents

Products to be Divested

In January 2020, following a review of our product portfolio and strategy, we
announced that we would be pursuing options to divest Intrarosa and Vyleesi from
our product portfolio.

Intrarosa

In February 2017, we entered into a license agreement (the "Endoceutics License
Agreement") with Endoceutics, Inc. ("Endoceutics") pursuant to which Endoceutics
granted us the U.S. rights to Intrarosa, an FDA-approved product for the
treatment of moderate to severe dyspareunia (pain during sexual intercourse), a
symptom of vulvar and vaginal atrophy ("VVA"), due to menopause. Intrarosa was
approved by the FDA in November 2016 and was launched commercially in July 2017.
Intrarosa is the only FDA-approved vaginal non-estrogen treatment indicated for
the treatment of moderate to severe dyspareunia, a symptom of VVA, due to
menopause. Intrarosa contains prasterone, a synthetic form of
dehydroepiandrosterone, which is an inactive endogenous (i.e. occurring in the
body) sex steroid. The mechanism of action of Intrarosa is not fully
established. Intrarosa is contraindicated in women with undiagnosed abnormal
genital bleeding and its label contains a precaution that it has not been
studied in women with a history of breast cancer.

Vyleesi

We acquired the exclusive rights to commercialize Vyleesi in certain territories
in January 2017 pursuant to a license agreement (the "Palatin License
Agreement") entered into with Palatin Technologies, Inc. ("Palatin"). On June
21, 2019, the FDA approved Vyleesi for the treatment of acquired, generalized
HSDD in premenopausal women, and Vyleesi became commercially available in the
U.S. in September 2019 through specialty pharmacies. Based on the June 2019
approval, we made a $60.0 million milestone payment to Palatin in July 2019,
which we recorded as an intangible asset.

Vyleesi, a melanocortin receptor agonist, is an "as needed" therapy used in
anticipation of sexual activity and self-administered by premenopausal women
with HSDD in the thigh or abdomen via a single-use subcutaneous auto-injector.
The most common adverse events are nausea, flushing, injection site reactions,
headache and vomiting. Vyleesi is contraindicated in women with uncontrolled
hypertension or known cardiovascular disease. In addition, the Vyleesi label
includes precautions that it may cause (i) small, transient increases in blood
pressure with a corresponding decrease in heart rate; (ii) focal
hyperpigmentation (darkening of the skin on certain parts of the body),
including the face, gums (gingiva) and breasts; and (iii) nausea.

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 the U.S.
("GAAP"). 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.

Revenue Recognition

Product revenues
On January 1, 2018, we adopted Accounting Standards Codification ("ASC") Topic
606, Revenue from Contracts with Customers ("ASC 606"), by applying the modified
retrospective transition method to all contracts that were not completed as of
January 1, 2018. Results for reporting periods beginning after January 1, 2018
are presented under ASC 606, while prior period amounts are not adjusted and
continue to be reported under the accounting standards in effect for prior
periods. There was no impact to our product revenue as a result of adoption.


                                       68

--------------------------------------------------------------------------------

Table of Contents

Under ASC 606, we recognize revenue when our customer obtains control of
promised goods or services in an amount that reflects the consideration which we
expect to receive in exchange for those goods or services. To determine revenue
recognition for arrangements that we determine are within the scope of ASC 606,
we perform the following five steps:

a.Identify the contract(s) with a customer;
b.Identify the performance obligations in the contract;
c.Determine the transaction price;
d.Allocate the transaction price to the performance obligations in the contract;
and
e.Recognize revenue when (or as) the performance obligations are satisfied.

We only apply the five step model to contracts when it is probable that we will
collect the consideration we are entitled to in exchange for the goods or
services we transfer to the customer. At contract inception, if the contract is
determined to be within the scope of ASC 606, we assess the goods or services
promised within each contract, determine those that are performance obligations,
and assess whether each promised good or service is distinct. We then recognize
as revenue the amount of the transaction price that is allocated to the
respective performance obligation when (or as) the performance obligation is
satisfied.

Our major sources of revenue during the reporting periods were product revenues
from Makena, Feraheme and Intrarosa. The adoption of ASC 606 in 2018 did not
have an impact on the pattern or timing of recognition of our product revenue,
as the majority of our product revenue continues to be recognized when the
customer takes control of our product.

We receive payments from customers based upon contractual billing schedules; accounts receivable are recorded when the right to consideration becomes unconditional.

Performance Obligations

At contract inception, we assess the goods promised in our contracts with
customers and identify a performance obligation for each promise to transfer to
the customer a good (or bundle of goods) that is distinct. To identify the
performance obligations, we consider all of the goods promised in the contract
regardless of whether they are explicitly stated or are implied by customary
business practices. We determined that the following distinct goods represent
separate performance obligations:

•Supply of Makena product
•Supply of Feraheme product
•Supply of Intrarosa product
•Supply of Vyleesi product

We principally sell our products to wholesalers, specialty distributors, specialty pharmacies and other customers (collectively, "Customers"), who purchase products directly from us. Our Customers subsequently resell the products to healthcare providers and patients. In addition to distribution agreements with Customers, we enter into arrangements with healthcare providers and payers that provide for government-mandated and/or privately-negotiated rebates, chargebacks and discounts with respect to the purchase of our products.

For the majority of our Customers, we transfer control at the point in time when
the goods are delivered. In instances when we perform shipping and handling
activities, these are considered fulfillment activities, and accordingly, the
costs are accrued when the related revenue is recognized. Taxes collected from
Customers and remitted to governmental authorities are excluded from revenues.

Variable Consideration
Under ASC 606, we are required to make estimates of the net sales price,
including estimates of variable consideration (such as rebates, chargebacks,
discounts, copay assistance and other deductions), and recognize the estimated
amount as revenue, when we transfer control of the product to our customers.
Variable consideration must be determined using either an "expected value" or a
"most likely amount" method.

We record product revenues net of certain allowances and accruals in our
consolidated statements of operations. Product sales allowances and accruals are
primarily comprised of both direct and indirect fees, discounts and rebates and
provisions for estimated product returns. Direct fees, discounts and rebates are
contractual fees and price adjustments payable to Customers that purchase
products directly from us. Indirect fees, discounts and rebates are contractual
price adjustments payable to healthcare providers and organizations, such as
certain physicians, clinics, hospitals, group purchasing organizations ("GPOs"),

                                       69

--------------------------------------------------------------------------------

Table of Contents

and dialysis organizations that typically do not purchase products directly from
us but rather from wholesalers and specialty distributors. Consideration payable
to a Customer, or other parties that purchase goods from a Customer, are
considered to be a reduction of the transaction price, and therefore, of
revenue.

Product sales allowances and accruals are based on definitive contractual
agreements or legal requirements (such as laws and regulations to provide
mandatory discounts for sales to government entities) related to the purchase
and/or utilization of the product by these entities and are recorded in the same
period that the related revenue is recognized. We use the expected value method
for estimating variable consideration. We estimate product sales allowances and
accruals using either historical, actual and/or other data, including estimated
patient usage, applicable contractual rebate rates, contract performance by the
benefit providers, other current contractual and statutory requirements,
historical market data based upon experience of our products and other products
similar to them, specific known market events and trends such as competitive
pricing and new product introductions, current and forecasted Customer buying
patterns and inventory levels, and the shelf life of our products. As part of
this evaluation, we also review changes to federal and other legislation,
changes to rebate contracts, changes in the level of discounts, and changes in
product sales trends. Although allowances and accruals are recorded at the time
of product sale, rebates are typically paid out in arrears, one to three months
after the sale.

The estimate of variable consideration, which is included in the transaction
price, may be constrained and is included in the net sales price only to the
extent that it is probable that a significant reversal in the amount of the
cumulative revenue recognized will not occur when the uncertainty associated
with the variable consideration is subsequently resolved in a future period.
Estimating variable consideration and the related constraint requires the use of
significant management judgment and actual amounts of consideration ultimately
received may differ from our estimates. If actual results in the future vary
from our estimates, we will adjust these estimates, which would affect net
product revenue and earnings in the period such variances become known.

Discounts

We typically offer a 2% prompt payment discount to certain customers as an
incentive to remit payment in accordance with the stated terms of the invoice,
generally between 30 to 60 days. Because we anticipate that those customers who
are offered this discount will take advantage of the discount, 100% of the
prompt payment discount at the time of sale is accrued for eligible customers,
based on the gross amount of each invoice. We adjust the accrual quarterly to
reflect actual experience.

Chargebacks

Chargeback reserves represent the estimated obligations resulting from the
difference between the prices at which we sell our products to wholesalers and
the sales price ultimately paid to wholesalers under fixed price contracts by
third-party payers, including governmental agencies. The chargeback estimates
are determined based on actual product sales data and forecasted customer buying
patterns. Actual chargeback amounts are determined at the time of resale to the
qualified healthcare provider, and we generally issue credits for such amounts
within several weeks of receiving notification from the wholesaler. Estimated
chargeback amounts are recorded at the time of sale and adjusted quarterly to
reflect actual experience.

Distributor/Wholesaler and Group Purchasing Organization Fees

Fees under arrangements with distributors and wholesalers are usually based upon
units of product purchased during the prior month or quarter and are usually
paid by us within several weeks of the receipt of an invoice from the wholesaler
or distributor. Fees under arrangements with GPOs are usually based upon member
purchases during the prior quarter and are generally billed by the GPO within 30
days after period end. In accordance with ASC 606, since the consideration given
to the Customer is not for a distinct good or service, the consideration is a
reduction of the transaction price of the vendor's products or services. We have
included these fees in contractual adjustments in the table above. We generally
pay such amounts within several weeks of the receipt of an invoice from the
distributor, wholesaler or GPO. Accordingly, we accrue the estimated fee due at
the time of sale, based on the contracted price invoiced to the Customer. We
adjust the accrual quarterly to reflect actual experience.

Product Returns

Consistent with industry practice, we generally offer wholesalers, specialty
distributors and other customers a limited right to return our products based on
the product's expiration date. The current shelf-lives or time between
manufacture and expiration for products in our portfolio range from three to
five years. Product returns are estimated based on the historical return
patterns and known or expected changes in the marketplace. We track actual
returns by individual production lots. Returns on lots eligible for credits
under our returned goods policy are monitored and compared with historical
return trends

                                       70

--------------------------------------------------------------------------------

Table of Contents

and rates. We expect that wholesalers and healthcare providers will not stock
significant inventory due to the cost of the product, the expense to store our
products, and/or that our products are readily available for distribution. We
record an estimate of returns at the time of sale. If necessary, our estimated
rate of returns may be adjusted for actual return experience as it becomes
available and for known or expected changes in the marketplace. There were no
material adjustments to our reserve for product returns during the years ended
December 31, 2019, 2018 or 2017. To date, our product returns have been
relatively limited; however, returns experience may change over time. We may be
required to make future adjustments to our product returns estimate, which would
result in a corresponding change to our net product sales in the period of
adjustment and could be significant.

Sales Rebates

We contract with various private payer organizations, primarily pharmacy benefit
managers, for the payment of rebates with respect to utilization of our
products. We determine our estimates for rebates, if applicable, based on actual
product sales data and our historical product claims experience. Rebate amounts
generally are invoiced quarterly and are paid in arrears, and we expect to pay
such amounts within several weeks of notification by the provider. We regularly
assess our reserve balance and the rate at which we accrue for claims against
product sales. If we determine in future periods that our actual rebate
experience is not indicative of expected claims, if actual claims experience
changes, or if other factors affect estimated claims rates, we may be required
to adjust our current accumulated reserve estimate, which would affect net
product sales in the period of the adjustment and could be significant.

Governmental Rebates

Governmental rebates relate to our reimbursement arrangements with state
Medicaid programs. We determine our estimates for Medicaid rebates, if
applicable, based on actual product sales data and our historical product claims
experience. In estimating these reserves, we provide for a Medicaid rebate
associated with both those expected instances where Medicaid will act as the
primary insurer as well as in those instances where we expect Medicaid will act
as the secondary insurer. Rebate amounts generally are invoiced quarterly and
are paid in arrears, and we expect to pay such amounts within several weeks of
notification by the Medicaid or provider entity. We regularly assess our
Medicaid reserve balance and the rate at which we accrue for claims against
product sales. If we determine in future periods that our actual rebate
experience is not indicative of expected claims, if actual claims experience
changes, or if other factors affect estimated claims rates, we may be required
to adjust our current Medicaid accumulated reserve estimate, which would affect
net product sales in the period of the adjustment and could be significant.

Other Discounts
Other discounts which we offer include voluntary patient assistance programs,
such as copay assistance programs, which are intended to provide financial
assistance to qualified commercially insured patients with prescription drug
copayments required by payers. The calculation of the accrual for copay
assistance is based on an estimate of claims and the cost per claim that we
expect to receive associated with product that has been recognized as revenue.

Collaboration Revenues

When we enter into collaboration agreements, we assess whether the agreements
fall within the scope of ASC Topic 808, Collaborative Arrangements ("ASC 808")
based on whether the arrangements involve joint operating activities and whether
both parties have active participation in the arrangement and are exposed to
significant risks and rewards. To the extent that the arrangement falls within
the scope of ASC 808, we assess whether the payments between us and our
collaboration partner fall within the scope of other accounting literature. If
we conclude that payments from the collaboration partner to us represent
consideration from a customer, such as license fees and contract research and
development activities, we account for those payments within the scope of ASC
606. However, if we conclude that our collaboration partner is not a customer
for certain activities and associated payments, such as for certain
collaborative research, development, manufacturing and commercial activities, we
present such payments as a reduction of research and development expense or
general and administrative expense, based on where we present the related
underlying expense.

Marketable Securities

We account for and classify our marketable securities as either "available-for-sale," "held-to-maturity," or "trading debt securities," in accordance with the accounting guidance related to the accounting and classification of certain investments in marketable securities. The determination of the appropriate classification by us is based primarily on management's ability and

                                       71

--------------------------------------------------------------------------------

Table of Contents

intent to sell the debt security at the time of purchase. As of December 31, 2019 and 2018, all of our marketable securities were classified as available-for-sale.

Available-for-sale securities are those securities which we view as available
for use in current operations, if needed. We generally classify our
available-for-sale securities as short-term investments, even though the stated
maturity date may be one year or more beyond the current balance sheet date.
Available-for-sale marketable securities are stated at fair value with their
unrealized gains and losses included in accumulated other comprehensive income
(loss) within the consolidated statements of stockholders' equity, until such
gains and losses are realized in other income (expense) within the consolidated
statements of operations or until an unrealized loss is considered
other-than-temporary.

We recognize other-than-temporary impairments of our marketable securities when
there is a decline in fair value below the amortized cost basis and if (a) we
have the intent to sell the security or (b) it is more likely than not that we
will be required to sell the security prior to recovery of its amortized cost
basis. If either of these conditions is met, we recognize the difference between
the amortized cost basis of the security and its fair value at the impairment
measurement date in our consolidated statements of operations. If neither of
these conditions is met, we must perform additional analysis to evaluate whether
the unrealized loss is associated with the creditworthiness of the issuer of the
security rather than other factors, such as interest rates or market factors. If
we determine from this analysis that we do not expect to receive cash flows
sufficient to recover the entire amortized cost of the security, a credit loss
exists, the impairment is considered other-than-temporary and is recognized in
our consolidated statements of operations.

Inventory

Inventory is stated at the lower of cost or net realizable value, with
approximate cost being determined on a first-in, first-out basis. Prior to
initial approval from the FDA or other regulatory agencies, we expense costs
relating to the production of inventory in the period incurred, unless we
believe regulatory approval and subsequent commercialization of the product
candidate is probable and we expect the future economic benefit from sales of
the product to be realized, at which point we capitalize the costs as inventory.
We assess any costs capitalized prior to regulatory approval each quarter for
indicators of impairment, such as a reduced likelihood of approval. We expense
costs associated with clinical trial material as research and development
expense.

On a quarterly basis, we analyze our inventory levels to determine whether we
have any obsolete, expired, or excess inventory. If any inventory is expected to
expire prior to being sold, has a cost basis in excess of its net realizable
value, is in excess of expected sales requirements as determined by internal
sales forecasts, or fails to meet commercial sale specifications, the inventory
is written-down through a charge to cost of product sales. The determination of
whether inventory costs will be realizable requires estimates by management of
future expected inventory requirements, based on sales forecasts. Once packaged,
our products have a shelf-life ranging from three to five years. As a result of
comparison to internal sales forecasts, we expect to fully realize the carrying
value of our finished goods inventory. If actual market conditions are less
favorable than those projected by management or in the event of an adverse FDA
action, inventory write-downs may be required. Charges for inventory write-downs
are not reversed if it is later determined that the product is saleable.

Business Combinations and Asset Acquisitions

The purchase price allocation for business combinations requires extensive use
of accounting estimates and judgments to allocate the purchase price to the
identifiable tangible and intangible assets acquired and liabilities assumed
based on their respective fair values. Under Accounting Standards Update ("ASU")
No. 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a
Business ("2017-01"), we first determine whether substantially all of the fair
value of the gross assets acquired is concentrated in a single identifiable
asset or a group of similar identifiable assets. If this threshold is met, the
single asset or group of assets, as applicable, is not a business.

We account for business combinations using the acquisition method of accounting,
under which the total purchase price of an acquisition is allocated to the net
tangible and identifiable intangible assets acquired and liabilities assumed
based on their estimated fair values as of the acquisition date.
Acquisition-related costs are expensed as incurred. Any excess of the
consideration transferred over the estimated fair values of the identifiable net
assets acquired is recorded as goodwill.

The purchase price allocations for business combinations are initially prepared
on a preliminary basis and are subject to change as additional information
becomes available concerning the fair value and tax basis of the assets acquired
and liabilities assumed. Any adjustments to the purchase price allocations are
made as soon as practicable but no later than one year from the acquisition
date.


                                       72

--------------------------------------------------------------------------------

Table of Contents

Acquired inventory is recorded at its fair value, which may require a step-up
adjustment to recognize the inventory at its expected net realizable value. The
inventory step-up is recorded to cost of product sales in our consolidated
statements of operations when related inventory is sold, and we record step-up
costs associated with clinical trial material as research and development
expense.

Acquisition-Related Contingent Consideration

Contingent consideration arising from a business combination is included as part
of the purchase price and is recognized at its estimated fair value as of the
acquisition date. Subsequent to the acquisition date, we measure contingent
consideration arrangements at fair value for each period until the contingency
is resolved. These changes in fair value are recognized in selling, general and
administrative expenses in our consolidated statements of operations. Changes in
fair values reflect new information about the likelihood of the payment of the
contingent consideration and the passage of time. For asset acquisitions, we
record contingent consideration for obligations we consider to be probable and
estimable and these liabilities are not adjusted to fair value.

Goodwill

We test goodwill at the reporting unit level for impairment on an annual basis
and between annual tests if events and circumstances indicate it is more likely
than not that the fair value of a reporting unit is less than its carrying
value. Events that could indicate impairment and trigger an interim impairment
assessment include, but are not limited to, an adverse change in current
economic and market conditions, including a significant prolonged decline in
market capitalization, a significant adverse change in legal factors, unexpected
adverse business conditions, and an adverse action or assessment by a regulator.
Our annual impairment test date is October 31. We have determined that we
operate in a single operating segment and have a single reporting unit.
In performing our goodwill impairment tests, we utilize the approach prescribed
under ASC 350, as amended by ASU 2017-04, Intangibles - Goodwill and Other
(Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"), which
requires that an entity perform its annual, or interim, goodwill impairment test
by comparing the fair value of a reporting unit with its carrying amount. An
entity should recognize an impairment charge for the amount by which the
carrying amount exceeds the reporting unit's fair value.
When we perform any goodwill impairment test, the estimated fair value of our
reporting unit is determined using either an income approach (utilizing a
discounted cash flow ("DCF") model) or a market approach, when appropriate,
which assesses our market capitalization as adjusted for a control premium, or a
combination thereof. Under the market approach, when our carrying value exceeds
our market capitalization, we consider a control premium for purposes of
estimating the fair value of our reporting unit, as we believe that a market
participant buyer would be required to pay a control premium for our business.
As described in the accounting guidance for evaluating long-lived assets for
impairment, an entity's fair value may include a control premium in addition to
the quoted market price to determine the fair value of a single reporting unit
entity, as an acquiring entity is often willing to pay more for equity
securities that give it a controlling interest than an investor would pay for a
number of equity securities representing less than a controlling interest. This
accounting guidance also indicates that the quoted market price of an individual
security need not be the sole measurement basis of the fair value of a single
reporting unit. When our market capitalization exceeds our carrying value, we
utilize our market capitalization as the indicator of fair value in our
impairment test.
When utilizing an income approach, the DCF model is based upon expected future
after-tax operating cash flows of the reporting unit discounted to a present
value using a risk-adjusted discount rate. Estimates of future cash flows
require management to make significant assumptions concerning (i) future
operating performance, including future sales, long-term growth rates, operating
margins, variations in the amount and timing of cash flows and the probability
of achieving the estimated cash flows (ii) the probability of regulatory
approvals, and (iii) future economic conditions, all of which may differ from
actual future cash flows. These assumptions are based on significant inputs not
observable in the market and thus represent Level 3 measurements within the fair
value hierarchy. The discount rate, which is intended to reflect the risks
inherent in future cash flow projections, used in the DCF model, is based on
estimates of the weighted average cost of capital ("WACC") of market
participants relative to our reporting unit. Financial and credit market
volatility can directly impact certain inputs and assumptions used to develop
the WACC. Any changes in these assumptions may affect our fair value estimate
and the result of an impairment test. The discount rates and other inputs and
assumptions are consistent with those that a market participant would use. In
addition, in order to assess the reasonableness of the fair value of our
reporting unit as calculated under the DCF model, we also compare the reporting
unit's fair value to our market capitalization and calculate an implied control
premium. We evaluate the implied control premium by comparing it to control
premiums of recent comparable market transactions, as applicable. For additional
information, see Note I, "Goodwill and Intangible Assets, Net" to our

                                       73

--------------------------------------------------------------------------------

Table of Contents

consolidated financial statements included in this Annual Report on Form 10-K.

Intangible Assets

We amortize our intangible assets that have finite lives based on either the
straight-line method, or if reliably determinable, based on the pattern in which
the economic benefit of the asset is expected to be utilized.

If we acquire an asset or a group of assets that do not meet the definition of a
business, the acquired IPR&D is expensed on its acquisition date. Future costs
to develop these assets are recorded to research and development expense as they
are incurred.

Impairment of Long-Lived Assets

We review our long-lived assets, which includes property and equipment and
identifiable intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset or asset group may
not be recoverable. To evaluate recoverability, management compares the
projected undiscounted future cash flows associated with the asset or asset
group, including proceeds from its eventual disposition over its estimated
useful life against its carrying amount. If the undiscounted cash flows are not
sufficient to recover the carrying value of the asset or asset group, the asset
or asset group is considered impaired. The impairment loss, if any, is measured
as the excess of the carrying amount of the asset or asset group over its
estimated fair value, which is typically calculated utilizing a DCF model
following the same methodology as described in the preceding section.

Equity-Based Compensation

Equity-based compensation cost is generally measured at the estimated grant date
fair value and recorded to expense over the requisite service period, which is
generally the vesting period. Because equity-based compensation expense is based
on awards ultimately expected to vest, we must make certain judgments about
whether employees, officers, directors, consultants and advisers will complete
the requisite service period, and reduce the compensation expense being
recognized for estimated forfeitures. Forfeitures are estimated at the time of
grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates. Forfeitures are estimated based upon historical
experience and adjusted for unusual events such as corporate restructurings,
which can result in higher than expected turnover and forfeitures. If factors
change and we employ different assumptions in future periods, the compensation
expense that we record in the future may differ significantly from what we have
recorded in the current period.

We estimate the fair value of equity-based compensation involving stock options
based on the Black-Scholes option pricing model. This model requires the input
of several factors such as the expected option term, the expected risk-free
interest rate over the expected option term, the expected volatility of our
stock price over the expected option term and the expected dividend yield over
the expected option term and are subject to various assumptions. The fair value
of awards calculated using the Black-Scholes option pricing model is generally
amortized on a straight-line basis over the requisite service period, and is
recognized based on the proportionate amount of the requisite service period
that has been rendered during each reporting period.

We estimate the fair value of our restricted stock units ("RSUs") whose vesting
is contingent upon market conditions, such as total shareholder return, using
the Monte-Carlo simulation model. The fair value of RSUs where vesting is
contingent upon market conditions is amortized based upon the estimated derived
service period. The fair value of RSUs granted to our employees and directors
whose vesting is dependent on future service is determined based upon the quoted
closing market price per share on the date of grant, adjusted for estimated
forfeitures.

We believe our valuation methodologies are appropriate for estimating the fair
value of the equity awards we grant to our employees and directors. Our equity
award valuations are estimates and may not be reflective of actual future
results or amounts ultimately realized by recipients of these grants. These
amounts are subject to future quarterly adjustments based upon a variety of
factors, which include, but are not limited to, changes in estimated forfeiture
rates and the issuance of new equity-based awards.

Income Taxes

We use the asset and liability method of accounting for deferred income taxes.
Under this method, deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. A deferred tax asset is established for the expected
future benefit of net operating loss ("NOL") and credit carryforwards. Deferred
tax assets and liabilities are measured

                                       74

--------------------------------------------------------------------------------

Table of Contents

using enacted rates in effect for the year in which those temporary differences
are expected to be recovered or settled. A valuation allowance against net
deferred tax assets is required if, based on available evidence, it is more
likely than not that some or all of the deferred tax assets will not be
realized. Significant judgments, estimates and assumptions regarding future
events, such as the amount, timing and character of income, deductions and tax
credits, are required in the determination of our provision for income taxes and
whether valuation allowances are required against deferred tax assets. In
evaluating our ability to recover our deferred tax assets, we consider all
available evidence, both positive and negative, including the existence of
taxable temporary differences, our past operating results, the existence of
cumulative income in the most recent fiscal years, changes in the business in
which we operate and our forecast of future taxable income. In determining
future taxable income, we are responsible for assumptions utilized including the
amount of state and federal operating income, the reversal of temporary
differences and the implementation of feasible and prudent tax planning
strategies. These assumptions require significant judgment about the forecasts
of future taxable income. As of December 31, 2019, we have established a
valuation allowance on our net deferred tax assets other than refundable
alternative minimum tax ("AMT") credits 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.

We account for uncertain tax positions using a "more-likely-than-not" threshold
for recognizing and resolving uncertain tax positions. The evaluation of
uncertain tax positions is based on factors that include, but are not limited
to, changes in tax law, the measurement of tax positions taken or expected to be
taken in tax returns, the effective settlement of matters subject to audit, new
audit activity, and changes in facts or circumstances related to a tax position.
We evaluate uncertain tax positions on a quarterly basis and adjust the level of
the liability to reflect any subsequent changes in the relevant facts
surrounding the uncertain positions. Any changes to these estimates, based on
the actual results obtained and/or a change in assumptions, could impact our
income tax provision in future periods. Interest and penalty charges, if any,
related to unrecognized tax benefits would be classified as a provision for
income tax in our consolidated statement of operations.

Impact of Recently Issued and Proposed Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial
Accounting Standards Board or other standard setting bodies that are adopted by
us as of the specified effective date. Unless otherwise discussed, we believe
that the impact of recently issued standards that are not yet effective will not
have a material impact on our financial position or results of operations upon
adoption. For further discussion on recent accounting pronouncements, please see
Note V, "Recently Issued and Proposed Accounting Pronouncements," to our
consolidated financial statements included in this Annual Report on Form 10-K
for additional information.
Results of Operations - 2019 as compared to 2018

Revenues

Total revenues for 2019 and 2018 consisted of the following (in thousands except
for percentages):
                      Years Ended December 31,             2019 to 2018
                         2019             2018        $ Change      % Change
Product sales, net
Feraheme           $     167,947       $ 135,001    $   32,946           24  %
Makena                   122,064         322,265      (200,201 )        (62 )%
Intrarosa                 21,417          16,218         5,199           32  %
Other                       (238 )           368          (606 )   <(100 %)
Total                    311,190         473,852      (162,662 )        (34 )%
Other revenues            16,561             150        16,411       >100 %
Total revenues     $     327,751       $ 474,002    $ (146,251 )        (31 )%



Our total revenues for 2019 decreased by $146.3 million as compared to 2018, due
primarily to a $260.0 million decrease in Makena IM net sales driven by supply
disruptions, generic competition, changes in estimates to prior period
liabilities and our withdrawal from the IM market during 2019, partially offset
by an increase in Makena auto-injector net sales. Also offsetting the decrease
in Makena revenues was a $32.9 million increase in Feraheme net sales in 2019,
as compared to 2018.
In addition, during the fourth quarter of 2019, we entered into a termination
and settlement agreement (the "Termination Agreement") with Daiichi Sankyo, Inc.
to terminate a clinical trial collaboration agreement we acquired in connection
with the Perosphere transaction. Under the terms of the settlement agreement we
received $10.0 million in December 2019. As more

                                       75

--------------------------------------------------------------------------------

Table of Contents

fully described in Note D "Revenue Recognition" to the consolidated financial
statements included in this Annual Report on Form 10-K, the $10.0 million
termination payment and $6.4 million of deferred revenue that we acquired from
Perosphere were recognized as collaboration revenue in our consolidated
statements of operations for the year ended December 31, 2019.

We expect that total net product sales for 2020 will decrease compared to 2019 due to an expected decline in Makena net product sales and our intention to divest Intrarosa and Vyleesi during the first half of 2020. We expect these declines to be partially offset by increases in Feraheme net sales.

The following table sets forth customers who represented 10% or more of our total revenues for 2019 and 2018:

                                     Years Ended December 31,
                                     2019             2018
McKesson Corporation                  36 %                 26 %
AmerisourceBergen Drug Corporation    28 %                 27 %
Cardinal Health                       13 %              < 10%

Product Sales Allowances and Accruals

Total gross product sales were offset by product sales allowances and accruals for 2019 and 2018 as follows (in thousands except for percentages):

                                               Years Ended December 31,                             2019 to 2018
                                             Percent of                      Percent of
                                                gross                           gross
                                2019        product sales       2018        product sales      $ Change       % Change
Gross product sales          $ 955,693                       $ 974,330                       $  (18,637 )        (2 )%
Provision for product sales
allowances and accruals:
Contractual adjustments        530,645            56 %         387,540            40 %          143,105          37  %
Governmental rebates           113,858            12 %         112,938            12 %              920           2  %
Total                          644,503            68 %         500,478            52 %          144,025          29  %
Product sales, net           $ 311,190                       $ 473,852                       $ (162,662 )       (34 )%



The increase in contractual adjustments as a percentage of gross product sales
primarily related to an increase in rebates offered to commercial purchasers and
payers.

We record product revenue net of certain allowances and accruals on our consolidated statements of operations. Our contractual adjustments include provisions for returns, pricing and prompt payment discounts, as well as wholesaler distribution fees, rebates to hospitals that qualify for 340B pricing, and volume-based and other commercial rebates and other discounts. Governmental rebates relate to our reimbursement arrangements with state Medicaid programs.

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.


                                       76

--------------------------------------------------------------------------------

Table of Contents

An analysis of the amount of our product reserves for 2019 and 2018, is as follows (in thousands):

                                                        Contractual        

Governmental

                                                        Adjustments           Rebates           Total
Balance at January 1, 2018                           $      62,164       $      50,598       $  112,762
Current provisions relating to sales in current year       389,861             105,034          494,895
Adjustments relating to sales in prior years                (2,330 )             7,903            5,573

Payments/returns relating to sales in current year (333,694 )

    (75,920 )       (409,614 )
Payments/returns relating to sales in prior years          (58,802 )           (58,501 )       (117,303 )
Balance at December 31, 2018                         $      57,199       $      29,114       $   86,313
Current provisions relating to sales in current year       521,916              99,721          621,637
Adjustments relating to sales in prior years                 8,774              14,137           22,911

Payments/returns relating to sales in current year (431,014 )

    (60,218 )       (491,232 )
Payments/returns relating to sales in prior years          (61,654 )           (41,435 )       (103,089 )
Balance at December 31, 2019                         $      95,221       $  

41,319 $ 136,540

Costs and Expenses
Cost of Product Sales
Cost of product sales for 2019 and 2018 were as follows (in thousands except for
percentages):
                                        Years Ended December 31,               2019 to 2018
                                          2019              2018         $ Change        % Change
Direct cost of product sales         $     82,393       $   57,492     $   24,901            43  %

Amortization of intangible assets $ 24,800 $ 158,400 $ (133,600 ) (84 )%

$    107,193       $  215,892     $ (108,699 )         (50 )%
Direct cost of product sales as a
percentage of net product sales                26 %             12 %


Our cost of product sales are primarily comprised of manufacturing costs, costs
of managing our contract manufacturers, costs for quality assurance and quality
control associated with our product sales, royalty obligations and the
amortization of product-related intangible assets. Direct cost of product sales
as a percentage of net product sales increased from 12% during the year ended
December 31, 2018 to 26% during the year ended December 31, 2019, driven by a
shift in revenue mix from products with a lower cost of product sales, such as
the Makena IM product, to products with a higher cost of product sales, such as
the Makena auto-injector and inventory write downs recorded in conjunction with
the impairments of the Makena base technology and Makena auto-injector asset
groups. We expect direct cost of product sales as a percentage of net product
sales to decline in 2020 based on our expectation that a higher proportion of
our revenue will be from Feraheme.

Amortization of intangible assets decreased by $133.6 million from December 31,
2018 to December 31, 2019, primarily due to a decrease in amortization of the
Makena base technology intangible asset, which related to our Makena IM products
and was fully impaired during the second quarter of 2019.

Research and Development Expenses

Research and development expenses include both external and internal expenses.
External expenses primarily include costs of clinical trials and fees paid to
contract research organizations ("CROs"), clinical supply and manufacturing
expenses, regulatory filing fees, consulting and professional fees as well as
other general costs related to the execution of research and development
activities. Internal expenses primarily include compensation of employees
engaged in research and development activities. Research and development
expenses are expensed as incurred. Where possible, we track our external costs
by major project. To the extent that external costs are not attributable to a
specific project or activity, they are included in other external costs. Prior
to the initial regulatory approval of our products or development of new
manufacturing processes, costs associated with manufacturing process development
and the manufacture of drug product are recorded as research and development
expenses, unless we believe regulatory approval and subsequent commercialization
of the product candidate is probable and we expect the future economic benefit
from sales of the product to be realized, at which point we capitalize the costs
as inventory.


                                       77

--------------------------------------------------------------------------------

Table of Contents

Research and development expenses for 2019 and 2018 consisted of the following (in thousands except for percentages):

                                        Years Ended December 31,            

2019 to 2018

                                          2019             2018         $ Change        % Change
External research and development
expenses                             $      41,654         27,898          13,756            49 %
Internal research and development
expenses                                    23,199         16,948           6,251            37 %
Total research and development
expenses                             $      64,853     $   44,846     $    20,007            45 %



Total research and development expenses incurred in 2019 increased by $20.0
million, or 45%, as compared to 2018 primarily related to our development
program for AMAG-423 and increases in internal costs related headcount to
support our development programs.
We have a number of ongoing research and development programs that we are
conducting independently or in collaboration with third parties. We expect our
research and development expenses to remain consistent in 2020 as compared to
2019 as we continue to invest in AMAG-423 and ciraparantag. We cannot determine
with certainty the duration and completion costs of our current or future
clinical trials of our products or product candidates 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.

Acquired In-Process Research and Development

During 2019, we recorded $74.9 million for acquired in-process research and development ("IPR&D") related to the acquisition of ciraparantag from Perosphere.

During 2018, we recorded $32.5 million for acquired IPR&D related to a $20.0
million milestone obligation to Palatin associated with the FDA acceptance of
the Vyleesi New Drug Application ("NDA") and $12.5 million as an upfront option
exercise fee in connection with our acquisition of AMAG-423.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses include costs related to our
commercial personnel, including our specialty sales forces, medical education
professionals, pharmacovigilance, safety monitoring and commercial support
personnel, costs related to our administrative personnel, including our legal,
finance, business development and executive personnel, external and facilities
costs required to support the marketing and sale of our products, and other
costs associated with our corporate activities.

Selling, general and administrative expenses for 2019 and 2018 consisted of the following (in thousands except for percentages):

                                        Years Ended December 31,            

2019 to 2018

                                          2019              2018         $ Change        % Change
Compensation, payroll taxes and
benefits                             $    107,362       $  126,754     $  (19,392 )         (15 )%
Professional, consulting and other
outside services                          164,690          134,049         30,641            23  %
Fair value of contingent
consideration liability                      (270 )        (49,607 )       49,337           (99 )%
Equity-based compensation expense          14,818           16,614         (1,796 )         (11 )%
Total selling, general and
administrative expenses              $    286,600       $  227,810     $   58,790            26  %



Total selling, general and administrative expenses in 2018 included a $49.6
million decrease to the fair value of contingent consideration liability expense
based on actual Makena net sales and our expectations for future performance.
Excluding this decrease, selling, general and administrative expenses increased
by $9.2 million as compared to 2018. This increase was driven primarily by
higher external costs to support the September 2019 launch of Vyleesi, partially
offset by a decrease in costs as a result of our February 2019 restructuring to
combine our women's health and maternal health sales forces.

We expect that total selling, general and administrative expenses will decrease substantially in 2020 as compared to 2019 with the planned divestiture of Intrarosa and Vyleesi.

                                       78


--------------------------------------------------------------------------------

Impairment of Assets

As more fully described in Note I, "Goodwill and Intangible Assets, Net" to the
consolidated financial statements included in this Annual Report on Form 10-K,
we recorded $232.3 million of impairment charges during 2019 related to the
asset groups containing the Makena base technology, the Makena auto-injector
developed technology, the Intrarosa developed technology and Vyleesi developed
technology.

There were no asset impairments during the year ended December 31, 2018.

Restructuring Expense

In February 2019, we completed a restructuring to combine our women's health and
maternal health sales forces into one integrated sales team. Approximately 110
employees were displaced through this workforce reduction. We recorded a
one-time restructuring charge of $7.4 million primarily related to severance and
related benefits in the first quarter of 2019 and expect these charges to be
substantially paid in cash by the end of the first quarter of 2020. Estimated
total savings from the restructuring in 2019 were approximately $15.2 million of
selling, general and administrative expense, specifically related to
compensation, payroll taxes and benefits. Estimated savings were partially
offset by planned increases in selling, general and administrative expenses
related to professional, consulting and other outside services associated with
the launch of Vyleesi and continued investment in the growth of our commercial
products. For additional information on restructuring expenses, see Note S,
"Restructuring Expenses" to our consolidated financial statements included in
this Annual Report on Form 10-K.

Other Expense, Net
Other expense, net for 2019 and 2018 consisted of the following (in thousands
except for percentages):
                                Years Ended December 31,            2019 to 2018
                                  2019             2018        $ Change     % Change
Interest expense             $    (25,709 )     $ (51,971 )   $ 26,262          (51 )%
Loss on debt extinguishment             -         (35,922 )     35,922         (100 )%
Interest and dividend income        4,285           5,328       (1,043 )        (20 )%
Other expense                         428             (74 )        502     >(100 %)
Total other expense, net     $    (20,996 )     $ (82,639 )   $ 61,643          (75 )%



Other expense, net for 2019 decreased by $61.6 million compared to 2018,
primarily due to (i) a $35.9 million loss on extinguishment of debt (including
a $28.1 million redemption premium), incurred during 2018 as a result of the
early redemption of the 2023 Senior Notes, and (ii) a $26.3 million reduction in
interest expense in 2019 as a result of this redemption and the repayment of the
2019 Convertible Notes in February 2019.

We expect our other expense, net to remain consistent in 2020 as compared to
2019.
Income Tax (Benefit) Expense
The following table summarizes our effective tax rate and income tax (benefit)
expense for 2019 and 2018 (in thousands except for percentages):
                                Years Ended December 31,
                                2019              2018
Effective tax rate                  - %               (31 )%

Income tax expense (benefit) $ (47 ) $ 39,654

For 2019, we recognized an immaterial income tax benefit, representing an
effective tax rate of 0%. The difference between the expected statutory federal
tax rate of 21% and the 0% effective tax rate for 2019 was primarily
attributable to the valuation allowance established against our current period
losses generated and the non-deductible IPR&D expense related to the Perosphere
acquisition. We have established a valuation allowance on our deferred tax
assets other than refundable AMT credits 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 year
ended December 31, 2019 primarily related to the offset of the recognition of
the income tax expense recorded in other comprehensive loss associated with the
increase in the

                                       79

--------------------------------------------------------------------------------

Table of Contents

value of available-for-sale securities that we carried at fair market value during the period, partially offset by state income taxes.

For 2018, we recognized income tax expense of $39.7 million, representing an
effective tax rate of (31)%. The difference between the expected statutory
federal tax rate of 21% and the (31)% effective tax rate for 2018 was primarily
attributable to the establishment of a valuation allowance on net deferred tax
assets other than refundable AMT credits, the impact of non-deductible stock
compensation and other non-deductible expenses, partially offset by a benefit
from contingent consideration associated with Lumara Health, state income taxes
and orphan drug tax credits. Our valuation allowance on our deferred tax assets,
other than refundable AMT credits, increased during the year ended December 31,
2018 primarily because the deferred tax liabilities associated with the CBR
business, which was reclassified to discontinued operations and sold during
2018, are no longer available as a source of income to realize the benefits of
the net deferred tax assets.

Net Income from Discontinued Operations

Net income from discontinued operations was $103.6 million in 2018. Of the
$103.6 million net income from discontinued operations, $87.1 million
represented a gain on the sale of the CBR business, which closed on August 6,
2018. For additional information, see Note C, "Discontinued Operations," to our
consolidated financial statements included in this Annual Report on Form 10-K.

Results of Operations - 2018 as compared to 2017

Management's discussion and analysis of our results of operations for the year
ended December 31, 2018 compared to the year ended December 31, 2017 may be
found in the "Management's Discussion and Analysis of Financial Condition and
Results of Operations - 2018 as compared to 2017 section of our Annual Report on
Form 10-K for the year ended December 31, 2018, filed with the SEC on March 1,
2019, which discussion is incorporated herein by reference.

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 of
December 31, 2019 and 2018 consisted of the following (in thousands except for
percentages):
                                            December 31,
                                         2019           2018         $ Change       % Change
Cash and cash equivalents            $  113,009     $  253,256     $ (140,247 )         (55 )%
Marketable Securities                    58,742        140,915        (82,173 )         (58 )%
Total                                $  171,751     $  394,171     $ (222,420 )         (56 )%

Outstanding principal on 2022
Convertible Notes                    $  320,000     $  320,000     $        -             -  %
Outstanding principal on 2019
Convertible Notes                             -         21,417        (21,417 )        (100 )%
Total                                $  320,000     $  341,417     $  (21,417 )          (6 )%




                                       80

--------------------------------------------------------------------------------

Table of Contents

Cash Flows
The following table presents a summary of the primary sources and uses of cash
for the years ended December 31, 2019, 2018 and 2017 (in thousands):
                                       For the Years Ended December 31
(In thousands, except                                                          2019 compared    2018 compared
percentages)                          2019            2018          2017          to 2018          to 2017
Net cash (used in) provided by
operating activities             $   (125,696 )   $   60,800     $ 106,596     $   (186,496 )   $   (45,796 )
Net cash provided by investing
activities                             20,962        502,155       102,920         (481,193 )       399,235
Net cash used in financing
activities                            (35,513 )     (501,974 )    (293,644 )        466,461        (208,330 )
Net (decrease) increase in cash,
cash equivalents and restricted
cash                             $   (140,247 )   $   60,981     $ (84,128 )   $   (201,228 )   $   145,109



Operating Activities

Cash flows from operating activities represent 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,
       impairment of long-lived assets 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 2019 compared to 2018, net cash flows provided by operating activities
decreased by $186.5 million, driven primarily by a decrease in net income as
adjusted for non-cash charges of $206.2 million and a $19.7 million increase due
to changes in operating assets and liabilities. Included within net loss for
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. The cash flows from operating activities for 2018 include cash flows from
the operating activities of the CBR business, which are included in discontinued
operations. Subsequent to the closing of the CBR transaction on August 6, 2018,
we no longer generated cash flows from that business. See Note C, "Discontinued
Operations," to our consolidated financial statements included in this Annual
Report on Form 10-K for further detail regarding our discontinued operations.

For 2018 compared to 2017, net cash flows provided by operations decreased by
$45.8 million, driven primarily by a decrease in net income as adjusted for
non-cash charges of $29.7 million and a $16.1 million decrease due to changes in
operating assets and liabilities.

Investing Activities

Cash flows provided by investing activities was $21.0 million in 2019 due primarily to net proceeds from the sale of marketable securities of $83.5 million, partially offset by a $60.0 million milestone payment triggered by the FDA approval of Vyleesi and capital expenditures of $2.5 million.

Cash flows provided by investing activities in 2018 was $502.2 million due to
$519.3 million in proceeds from the sale of CBR, partially offset by net
purchases of marketable securities of $4.6 million and capital expenditures of
$2.5 million.

Cash flows provided by investing activities in 2017 was $102.9 million due to
net proceeds from the sale of marketable securities of $167.7 million, partially
offset by $55.8 million of cash used to purchase the Intrarosa asset and capital
expenditures of $9.0 million.


                                       81

--------------------------------------------------------------------------------

Table of Contents

Financing Activities

Cash used in financing activities was $35.5 million in 2019 due to the $21.4
million repayment of our 2019 Convertible Notes, $13.7 million for the
repurchase of common stock and $1.8 million for payments of employee tax
withholdings related to equity-based compensation offset by $1.5 million of
proceeds from the issuance of common stock under the Employee Stock Purchase
Plan.

Cash used in financing activities was $502.0 million in 2018 due to the repayment of the $475.0 million balance of our 2023 Senior Notes and a related redemption premium of $28.1 million.

Cash used in financing activities in 2017 was $293.6 million driven by $353.1
million of principal payments made during 2017, including the full repayment of
the remaining balance of a 2015 term loan facility, $191.7 million used for the
repurchase of a portion of our 2019 Convertible Notes, $39.8 million of
contingent consideration payments and the repurchase of common stock of $19.5
million, partially offset by $320.0 million net proceeds related to the issuance
of our 2022 Convertible Notes.

Future Liquidity Considerations
We believe that our cash, cash equivalents and marketable securities as of
December 31, 2019, 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 year ended December
31, 2019 and while we expect to generate positive cash flows from continuing
operations during 2020, these cash flows and our cash on hand as of December 31,
2019 in the aggregate will be insufficient to settle our 2022 Convertible Notes.
We therefore expect that we will need to issue new securities, in the form of
debt, equity or equity-linked, or some combination thereof. We may also utilize
proceeds from a potential strategic collaboration or other transaction to manage
our existing obligations.

For a detailed discussion regarding the risks and uncertainties related to our
liquidity and capital resources, please refer to our Risk Factors in Part I,
Item 1A of this Annual Report on Form 10-K.

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"). We
received net proceeds of $310.4 million from the sale of the 2022 Convertible
Notes, after deducting fees and expenses of $9.6 million. The 2022 Convertible
Notes are senior unsecured obligations and bear interest at a rate of 3.25% per
year, payable semi-annually in arrears on June 1 and December 1 of each year,
beginning on December 1, 2017. The 2022 Convertible Notes will mature on June 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 by the note holders as of December 31, 2019.

Share Repurchase Program

As of January 1, 2019, we had $20.5 million available under our previously
approved share repurchase program to repurchase up to $60.0 million in shares of
our common stock. In March 2019, our Board authorized additional repurchases of
shares in an amount up to $20.0 million under this program. During the first
quarter of 2019, we repurchased and retired 1,074,800 shares of common stock for
$13.7 million. As of December 31, 2019, $26.8 million remained available for
future repurchases under this program.


                                       82

--------------------------------------------------------------------------------

Table of Contents

Contractual Obligations

Our long-term contractual obligations include commitments and estimated purchase
obligations entered into in the normal course of business. These include
commitments related to our operating leases, purchases of inventory and debt
obligations (including interest payments). Future contractual obligations, as of
December 31, 2019, are as follows (in thousands):
                                                            Payment due by period
                                                Less than 1                                     More than 5
                                    Total           year         1-3 years       3-5 years         years
Lease obligations                $  29,686     $      4,077     $    6,941     $     6,476     $     12,192
Purchase commitments               105,903           31,373         39,009          29,829            5,692
2022 Convertible Notes             346,000           10,400        335,600               -                -
Total                            $ 481,589     $     45,850     $  381,550     $    36,305     $     17,884



Lease Obligations
We are a party to operating leases for real estate, including our lease for use
as our principal executive offices, vehicles and office equipment. Refer to Note
P, "Commitments and Contingencies" to our consolidated financial statements
included in this Annual Report on Form 10-K for more information on our lease
obligations.
Purchase Obligations
Purchase obligations primarily represent minimum purchase commitments for
inventory. As of December 31, 2019, our minimum purchase commitments totaled
$105.9 million.

Contingent Regulatory and Commercial Milestone Payments

We are required to make payments contingent on the achievement of certain
regulatory and/or commercial milestones under the terms of our collaboration,
license and other strategic agreements. Please refer to Note Q, "Collaboration,
License and Other Strategic Agreements" to our consolidated financial statements
included in this Annual Report on Form 10-K for more information regarding these
contingent payments.
Employment Arrangements

We have entered into employment agreements or other arrangements with most of
our executive officers and certain other employees, which provide for the
continuation of salary and certain benefits and, in certain instances, the
acceleration of the vesting of certain equity awards to such individuals in the
event that the individual is terminated other than for cause, as defined in the
applicable employment agreements or arrangements.

Indemnification Obligations

In the course of operating our business, we have entered into a number of
indemnification arrangements under which we may be required to make payments to
or on behalf of certain third parties including our directors, officers, and
certain employees as well as certain other third parties with whom we enter into
agreements. For further discussion of how this may affect our business, see Note
P, "Commitments and Contingencies," to our consolidated financial statements
included in this Annual Report on Form 10-K.

Legal Proceedings

For detailed information on our legal proceedings, see Note P, "Commitments and
Contingencies," to our consolidated financial statements included in this Annual
Report on Form 10-K.

Off-Balance Sheet Arrangements
As of December 31, 2019, we did not have any off-balance sheet arrangements as
defined in Regulation S-K, Item 303(a)(4)(ii).

                                       83

--------------------------------------------------------------------------------

Table of Contents

© Edgar Online, source Glimpses