AMAG PHARMACEUTICALS, INC. The following information should be read in conjunction with the unaudited financial information and the notes thereto included in this Quarterly Report on Form 10-Q and the audited financial information and the notes thereto included in our Annual Report on Form 10-K for the year endedDecember 31, 2018 (our "Annual Report"). Except for the historical information contained herein, the matters discussed in this Quarterly Report on Form 10-Q may be deemed to be forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. In this Quarterly Report on Form 10-Q terminology such as "may," "will," "could," "should," "would," "expect," "anticipate," "continue," "believe," "plan," "estimate," "intend" or other similar words and expressions (as well as other words or expressions referencing future events, conditions or circumstances) are intended to identify forward-looking statements.
Examples of forward-looking statements contained in this report include, without limitation, statements regarding the following:
•our plans regarding our business and our portfolio, including plans to divest
the women's health business;
•beliefs regarding the expenses, challenges and timing of our preclinical
studies and clinical trials, including expectations regarding the clinical trial
timing for and results of ciraparantag and AMAG-423;
•beliefs regarding our commercial strategies and efforts, including the recent
commercial launch of Vyleesi and the impact of our efforts to promote
prescriptions of the Makena auto-injector;
•our estimates and beliefs regarding the market opportunities for each of our
products and product candidates;
•beliefs about and expectations for our commercialization, marketing and
manufacturing of our products and product candidates, if approved, (which may be
conducted by third parties);
•expectations related to potential FDA regulatory actions for Makena following
the recent meeting of its Advisory Committee;
•beliefs about health care provider behaviors and reactions;
•plans to work with the FDA and beliefs that there may be a path forward for
continued commercialization of Makena;
•expectations and plans with respect to litigation matters and contract
disputes, including the merits thereof;
•the timing and amounts of milestone and royalty payments;
•expectations related to development milestone payments from a development
partner in light of such partner's notice of intent to terminate the related
agreement;
•expectations and plans as to recent and upcoming regulatory and commercial
developments and activities, including requirements, initiatives and timelines
for clinical trials and post-approval commitments for our products and product
candidates, and their impact on our business and competition;
•expectations for our intellectual property rights covering our product
candidates and technology and the impact of generics and other competition could
have on each of our products and our business generally, including the timing
and number of generic entrants;
•developments relating to our competitors and our industry, including the impact
of government regulation;
•expectations regarding third-party reimbursement and the behaviors of payers,
healthcare providers, patients and other industry participants, including with
respect to product price increases and volume-based and other rebates and
incentives;
•expectations regarding the contribution of revenues from our products to the
funding of our on-going operations and costs to be incurred in connection with
revenue sources to fund our future operations;
•expectations regarding customer returns and other revenue-related reserves and
accruals;
•expectations as to the manufacture of drug substances, drug and biological
products and key materials for our products and product candidates;
•expectations as to our effective tax rate and our ability to realize our net
operating loss carryforwards and other tax attributes;
•the impact of accounting pronouncements;
•expectations regarding our financial performance and our ability to implement
our strategic plans for our business;
•estimates and beliefs related to our 2022 Convertible Notes and the manner in
which we intend or are required to settle the 2022 Convertible Notes;
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•estimates, beliefs and judgments related to the valuation of certain intangible
assets, goodwill, contingent consideration, debt and other assets and
liabilities, including our impairment analysis and our methodology and
assumptions regarding fair value measurements;
•beliefs regarding the impact of our February 2019 restructuring initiative,
including the impact of the combination of our women's and maternal health sales
forces and the related reduction in head count; and
•the impact of the COVID-19 pandemic on the above.
Any forward-looking statement should be considered in light of the factors
discussed in Part II, Item 1A below under "Risk Factors" in this Quarterly
Report on Form 10-Q and in Part I, Item 1A in our Annual Report. We caution
readers not to place undue reliance on any such forward-looking statements,
which speak only as of the date they are made. We disclaim any obligation,
except as specifically required by law and the rules of the U.S. Securities and
Exchange Commission , to publicly update or revise any such statements to reflect
any change in company expectations or in events, conditions or circumstances on
which any such statements may be based, or that may affect the likelihood that
actual results will differ from those set forth in the forward-looking
statements.
AMAG Pharmaceuticals®, the logo and designs, Feraheme® and Vyleesi® are
registered trademarks of AMAG Pharmaceuticals, Inc. Makena® is a registered
trademark of AMAG Pharma USA, Inc. Intrarosa® is a registered trademark of
Endoceutics, Inc. Other trademarks referenced in this report are the property of
their respective owners.
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 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, and we expect
to provide further details on the divestiture by the end of the second quarter
of this year. In addition, as announced on and effective as of April 28, 2020 ,
Scott D. Myers was appointed President and Chief Executive Officer of AMAG.
We intend to continue to expand the impact of our current and future products
for patients by delivering on our business 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 are
currently from sales of Feraheme and the Makena auto-injector.
AMAG's Portfolio of Products and Product Candidates
Feraheme
Feraheme received approval from theU.S. Food and Drug Administration (the "FDA") inJune 2009 for use as an IV iron replacement therapy for the treatment of iron deficiency anemia ("IDA") in adult patients with chronic kidney disease ("CKD"). InFebruary 2018 , the FDA approved the supplemental New Drug Application to expand the Feraheme label to include all eligible adult IDA patients who have intolerance to oral iron or have had unsatisfactory response to oral iron in addition to patients who have CKD. IDA is prevalent in many different patient populations, such as patients with CKD, gastrointestinal diseases or disorders, inflammatory diseases and chemotherapy-induced anemia. For many of these patients, treatment with oral iron is unsatisfactory or is not tolerated. It is estimated that approximately five million people in theU.S. have IDA and we estimate that a small fraction of the patients who are diagnosed with IDA regardless of the underlying cause are currently being treated with IV iron. The expanded Feraheme label was supported by two positive pivotal Phase 3 trials, which evaluated Feraheme versus iron sucrose or placebo in a broad population of patients with IDA and positive results from a third Phase 3 randomized, double-blind non-inferiority trial that evaluated the incidence of moderate-to-severe hypersensitivity reactions (including anaphylaxis) and moderate-to-severe hypotension with Feraheme compared to Injectafer® (ferric carboxymaltose injection) (the "Feraheme comparator trial"). The Feraheme comparator trial demonstrated comparability to Injectafer® based on the primary composite endpoint of the incidence of moderate-to-severe hypersensitivity reactions (including anaphylaxis) and moderate-to-severe 26 -------------------------------------------------------------------------------- Table of Contents hypotension (Feraheme incidence 0.6%; Injectafer® incidence 0.7%). Adverse event rates were similar across both treatment groups; however, the incidence of severe hypophosphatemia (defined by blood phosphorous of <0.2 mg/dl at week 2) was less in the patients receiving Feraheme (0.4% of patients) compared to those receiving Injectafer® (38.7% of patients).
Makena
Makena is indicated to reduce the risk of preterm birth in women pregnant with a
single baby who have a history of singleton spontaneous preterm birth. We
acquired the rights to Makena in connection with our acquisition of
Makena was approved by the FDA inFebruary 2011 as an intramuscular ("IM") injection (the "Makena IM product") packaged in a multi-dose vial and inFebruary 2016 as a single-dose preservative-free vial. InFebruary 2018 , the Makena auto-injector was approved by the FDA for administration via a pre-filled subcutaneous auto-injector, a drug-device combination product (the "Makena auto-injector"). InMarch 2019 , we announced topline results from the Progestin's Role in Optimizing Neonatal Gestation clinical trial ("PROLONG Trial"), a randomized, double-blinded, placebo-controlled clinical trial evaluating Makena in patients with a history of a prior spontaneous singleton preterm delivery. The PROLONG Trial was conducted under theFDA's "Subpart H" accelerated approval process and, inOctober 2019 , we announced that full results of the PROLONG Trial were published online in theAmerican Journal of Perinatology . The PROLONG Trial, in contrast to a previously conducted Phase 3 trial (the Meis trial) on which Makena's approval was primarily based, did not demonstrate a statistically significant difference between the treatment and placebo arms for the co-primary endpoints. The adverse event profile between the two arms was comparable. OnOctober 29, 2019 , theBone, Reproductive and Urologic Drugs Advisory Committee (the "Advisory Committee") met to discuss the results of the PROLONG Trial to inform theFDA's regulatory decision for Makena and voted, among other things, nine to seven that the FDA should pursue withdrawal of approval for Makena. 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. 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. In response to our request to the FDA for a meeting to discuss the clinical benefit of the product, the FDA indicated that it was premature to meet at this time as it was still reviewing the matter. We remain committed to working collaboratively with the FDA to seek a path forward to ensure eligible pregnant women continue to have access to Makena and the currently approved generics that rely on Makena as an innovator drug. 27 -------------------------------------------------------------------------------- Table of Contents AMAG-423 InSeptember 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 we entered into inJuly 2015 (the "Velo Agreement") withVelo 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 days and 31 weeks and six days gestation. We initiated the trial at sites both within theU.S. and outside of theU.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, and, accordingly, enrollment of patients in the study has been slower than expected. Due to the spread of COVID-19, all sites have paused new patient enrollment and we have paused initiation of new sites. The impacts and uncertainties caused by COVID-19, as well as the serious nature of preeclampsia in pregnant women and the characteristics of the patient population, will affect the timing of completion of the study and may affect our ability to complete the study in a reasonable timeframe or at all.
Ciraparantag
InJanuary 2019 , we acquired ciraparantag with our acquisition ofPerosphere Pharmaceuticals Inc. ("Perosphere"), a privately-held biopharmaceutical company pursuant to an Agreement and Plan of Merger (the "Perosphere Agreement"). Ciraparantag is a small molecule anticoagulant reversal agent in development as a single dose solution that is delivered intravenously to reverse the effects of certain novel oral anticoagulants ("NOACs") (Xarelto®(rivaroxaban), Eliquis®(apixaban), and Savaysa®(edoxaban) as well as Lovenox® (enoxaparin sodium injection), a low molecular weight heparin when reversal of the anticoagulant effect of these products is needed for emergency surgery, urgent procedures or due to life-threatening or uncontrolled bleeding. Ciraparantag has been granted Fast Track designation by the FDA. Ciraparantag has been evaluated in more than 250 healthy volunteers across seven clinical trials. A first in human Phase 1 study evaluated the safety, tolerability, pharmacokinetic, and pharmacodynamic effects of ciraparantag alone and following a single dose of Savaysa®, and another Phase 1 study evaluated the overall metabolism of the drug. Two Phase 2a studies evaluated the safety, tolerability, pharmacokinetic, and pharmacodynamic effects related to the reversal of unfractionated heparin and Lovenox® and three Phase 2b randomized, single-blind, placebo-controlled dose-ranging studies evaluated the reversal of Savaysa®, Eliquis®, and Xarelto® to assess the safety and efficacy of ciraparantag, each of which included 12 subjects dosed with ciraparantag. In these Phase 2b clinical trials, ciraparantag or placebo was administered to healthy volunteers in a blinded fashion after achieving steady blood concentrations of the respective anticoagulant. Pharmacodynamic assessments of whole blood clotting time ("WBCT"), an important laboratory measure of clotting capacity, were sampled frequently for the first hour post study drug dose, and then periodically thereafter out to 24 hours post administration of study drug. Key endpoints in the Phase 2 trials included mean change from baseline in WBCT and the proportion of subjects that returned to within 10% of their baseline WBCT. Subjects in these studies experienced a rapid and statistically significant (p<0.001) reduction in WBCT compared to placebo as early as 15 minutes after the administration of ciraparantag in each of the four studies and the effect was sustained for 24 hours. Moreover, in both the Eliquis® and Xarelto® studies, 100% of subjects in the highest dose cohorts (180 mg of ciraparantag) were responders, as defined by a return to within 10% of baseline WBCT within 30 minutes and sustained for at least six hours. Ciraparantag has been well tolerated in clinical trials, with the most common related adverse events to date being mild sensations of coolness, warmth or tingling, skin flushing, and alterations in taste. There have been no drug-related serious adverse events to date. We are planning to conduct 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. The Phase 2b study will utilize an automated coagulometer developed byPerosphere Technologies, Inc. ("Perosphere Technologies"), an independent 28 -------------------------------------------------------------------------------- Table of Contents company, to measure WBCT and based on feedback from the FDA, we will also measure WBCT manually. An investigational device exemption, whichPerosphere Technologies will submit once it completes the additional required analytical study, is required for use of the coagulometer in clinical studies. Following the completion of the Phase 2b 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. Due to the COVID-19 pandemic, we are currently unable to initiate our planned clinical trial sites and, accordingly, are unable to enroll subjects. The impacts and uncertainties caused by COVID-19 and the additional requirement of manual WBCT testing, will delay the Phase 2b study initiation for an indeterminable period of time. We are therefore unable to estimate when the study might be completed. Even once we can proceed with initiation and enrollment, COVID-19 might present further challenges if study candidates are hesitant to enroll and increase their inter-personal exposure because of concerns over the contagiousness of COVID-19.
Products to be Divested
As announced in
Intrarosa
InFebruary 2017 , we entered into a license agreement (the "Endoceutics License Agreement") withEndoceutics, Inc. ("Endoceutics") pursuant to whichEndoceutics granted us theU.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 inNovember 2016 and was launched commercially inJuly 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 inJanuary 2017 pursuant to a license agreement (the "Palatin License Agreement") entered into with Palatin Technologies, Inc. ("Palatin"). OnJune 21, 2019 , the FDA approved Vyleesi for the treatment of acquired, generalized HSDD in premenopausal women, and which became commercially available inSeptember 2019 through two specialty pharmacies. 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.
Impact of COVID-19 on our business
We continue to evaluate the impact of COVID-19 on patients, healthcare providers and our employees, as well as on our operations and the operations of our business partners and healthcare communities. Given the importance of supporting our patients, we are diligently working with our suppliers, healthcare providers and partners to provide patients with access to Feraheme, Makena, Intrarosa and Vyleesi while taking into account regulatory, institutional, and government guidance, policies and protocols. The COVID-19 pandemic did not significantly impact net product sales or our financial results for the three months endedMarch 31, 2020 . However, COVID-19 protocols have restricted or discouraged patient access to hospitals, clinics, physicians' offices and other sites where Feraheme and Makena are typically administered and caused a re-prioritization of healthcare services. While the impact of the COVID-19 pandemic on our net product sales is uncertain, we have observed a decline in demand for Feraheme and Makena, and we expect this will result in an adverse impact to our financial performance for 2020. We have paused new patient enrollment and initiation of new sites for the AMAG-423 Phase 2b/3a clinical trial, and we are currently unable to initiate the planned ciraparantag Phase 2b trial. Further, we are working with our CROs to understand the duration and scope of disruptions at clinical trial sites and on enrollment for our ongoing AMAG-423 Phase 2b/3a clinical trial and our planned ciraparantag Phase 2b trial. To date, we and our suppliers have been able to continue to supply our products and our product candidates, and currently do not anticipate any interruptions in supply. Given the uncertainties regarding the duration and scope of the COVID-19 pandemic, the impacts on our sales, supply, research and development efforts and operations are currently unknown, but will likely impact our performance in 2020 and could continue to represent a risk to our future performance. We are actively monitoring the situation and may take precautionary and preemptive actions that we determine are in the best interests of our business. We cannot predict the effects that such actions 29
-------------------------------------------------------------------------------- Table of Contents may have on our business or on our financial results, in particular with respect to demand for or access to our products. Please refer to our Risk Factors in Part II, Item IA of this Quarterly Report on Form 10-Q for further discussion of COVID-19 risks. Critical Accounting Policies Our management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in theU.S. The preparation of these financial statements requires management to make certain estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses, and the related disclosure of contingent liabilities. Actual results could differ materially from those estimates. Management employs the following critical accounting policies affecting our most significant estimates and assumptions: revenue recognition and related sales allowances and accruals; valuation of marketable securities; valuation of inventory; business combinations and asset acquisitions, including acquisition-related contingent consideration; goodwill; intangible assets; equity-based compensation; and income taxes. Except as described in Note B, "Basis of Presentation and Summary of Significant Accounting Policies," to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, with respect to changes in our accounting policy related to our adoption of the requirements of Accounting Standards Codification ("ASC") Topic 326, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, there have been no significant changes to our critical accounting policies and estimates during the three months endedMarch 31, 2020 , compared to the critical accounting policies and estimates disclosed in Part II, Item 7, of our Annual Report.
Results of Operations - Three Months Ended
Three Months Ended March 31, 2020 to 2019
2020 2019 $ Change % Change
Product sales, net
Feraheme $ 44,433 $ 40,015 $ 4,418 11 %
Makena 21,777 31,257 (9,480) (30) %
Intrarosa 3,169 4,414 (1,245) (28) %
Other (751) 43 (794) <(100 %)
Total product sales, net $ 68,628 $ 75,729 $ (7,101) (9) %
Our total net product sales for the three months ended March 31, 2020 decreased
by $7.1 million as compared to the same period in 2019, due primarily to a
decrease in Makena net sales. We believe that the decrease in Makena net sales
during the quarter was driven by confusion or concern amongst health care
providers caused by the unfavorable FDA Advisory Committee recommendation for
Makena during the fourth quarter of 2019. These decreases were partially offset
by an increase in Feraheme net sales.
The COVID-19 pandemic did not significantly impact net product sales for the
three months ended March 31, 2020 . However, COVID-19 protocols have restricted
or discouraged patient access to hospitals, clinics, physicians' offices and
other sites where Feraheme and Makena are typically administered and caused a
re-prioritization of healthcare services. While the impact of the COVID-19
pandemic on our net product sales is uncertain, we have observed a decline in
demand for Feraheme and Makena, and we expect this will result in an adverse
impact to our financial performance for 2020. The full impact to our business
cannot be estimated at this time because such an estimate is highly dependent on
the severity and duration of the COVID-19 pandemic.
Product Sales Allowances and Accruals
Total gross product sales were offset by product sales allowances and accruals
for the three months ended March 31, 2020 and 2019 as follows (in thousands,
except for percentages):
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Three Months Ended March 31, 2020 to 2019
Percent of Percent of
gross gross
2020 product sales 2019 product sales $ Change % Change
Gross product sales $ 232,741 $ 211,718 $ 21,023 10 %
Provision for product sales
allowances and accruals:
Contractual adjustments 143,175 62 % 108,884 51 % 34,291 31 %
Governmental rebates 20,938 9 % 27,105 13 % (6,167) (23) %
Total 164,113 71 % 135,989 64 % 28,124 21 %
Product sales, net $ 68,628 $ 75,729 $ (7,101) (9) %
The increase in contractual adjustments as a percentage of gross product sales
primarily related to a higher mix of business through commercial reimbursement
channels and additional discounts offered to commercial entities. The decrease
in governmental rebates as a percentage of gross product sales primarily related
to a shift in overall product mix for our total net product sales.
We may refine our estimated revenue reserves as we continue to obtain additional
experience or as our customer mix changes. If we determine in future periods
that our actual experience is not indicative of our expectations, if our actual
experience changes, or if other factors affect our estimates, we may be required
to adjust our allowances and accruals estimates, which would affect our net
product sales in the period of the adjustment and could be significant.
Costs and Expenses
Cost of Product Sales
Cost of product sales for the three months ended March 31, 2020 and 2019 were as
follows (in thousands except for percentages):
Three Months Ended March 31, 2020 to 2019
2020 2019 $ Change % Change
Direct cost of product sales $ 14,522 $ 14,535 $ (13) - %
Amortization of intangible assets 9,837 3,942 5,895 >100 %
$ 24,359 $ 18,477 $ 5,882 32 %
Direct cost of product sales as a percentage of
net product sales 21 % 19 %
Direct cost of product sales as a percentage of net product sales was relatively
consistent during the three months ended March 31, 2020 and March 31, 2019 . We
expect this percentage to remain consistent for the remainder of 2020.
Amortization of intangible assets increased by $5.9 million from March 31, 2019
to March 31, 2020 due to accelerated amortization resulting from our
reassessment and prospective adjustment of the useful lives of the Makena AI
developed technology, Intrarosa developed technology and Vyleesi developed
technology intangible assets during the fourth quarter of 2019.
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Research and Development Expenses
Research and development expenses for the three months ended
Three Months Ended March 31, 2020 to 2019
2020 2019 $ Change % Change
External research and development expenses $ 6,052 $ 12,499 $ (6,447) (52) %
Internal research and development expenses 5,128 5,567 (439) (8) %
Total research and development expenses $ 11,180 $ 18,066 $ (6,886) (38) %
The $6.9 million decrease in research and development expenses incurred in the
three months ended March 31, 2020 , as compared to the three months ended March
31, 2019 , was primarily related to lower costs for Vyleesi following FDA
approval in 2019.
We have a number of ongoing research and development programs that we are
conducting independently or in collaboration with third parties. We have
experienced delays in our ongoing AMAG-423 Phase 2b/3a clinical trial and our
planned ciraparantag Phase 2b trial due to factors including the COVID-19
pandemic. Although the potential impacts of the COVID-19 pandemic are evolving
daily and cannot be predicted, we expect these delays to continue to impact
trial site initiation and patient enrollment for these trials. Therefore, we
expect our external research and development expenses to be lower on a quarterly
basis for the remaining three quarters of 2020 as compared to the first quarter
of 2020. This expectation is dependent on the duration and extent of the impacts
of COVID-19 on our ability to execute our clinical trials. Please refer to our
Risk Factors in Part II, Item IA of this Quarterly Report on Form 10-Q for
further discussion of COVID-19 risks. Regardless of the COVID-19 pandemic, we
cannot determine with certainty the duration and completion costs of our current
or future clinical trials of our products or product 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.
During the three months ended
Selling, General and Administrative Expenses Selling, general and administrative expenses for the three months endedMarch 31, 2020 and 2019 consisted of the following (in thousands except for percentages): Three Months Ended March 31, 2020 to 2019 2020 2019 $ Change % Change Compensation, payroll taxes and benefits$ 29,227 $ 30,350 $ (1,123) (4) % Professional, consulting and other outside services 19,958 41,013 (21,055) (51) % Fair value of contingent consideration liability - (6) 6 (100) % Equity-based compensation expense 3,512 3,325 187 6 %
Total selling, general and administrative expenses
(29) %
Selling, general and administrative expenses decreased by $22.0 million in the
three months ended March 31, 2020 as compared to the same period in 2019, the
majority of which related to decreases in marketing spend related to our women's
health products.
We expect that total selling, general and administrative expenses for future
quarters of 2020 will decline compared to the first quarter of 2020 due to our
planned women's health divestiture and related corporate restructuring.
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Restructuring Expenses
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. These restructuring charges were
substantially paid in cash as of the end of the first quarter of 2020 and will
be fully paid in cash by the end of the first quarter of 2021. For additional
information on restructuring expenses, see Note R, "Restructuring Expenses" to
our condensed consolidated financial statements included in this Quarterly
Report on Form 10-Q.
In May 2020 , we announced a restructuring to reduce the size of our organization
in conjunction with the divestiture of Intrarosa and Vyleesi and expected
declines in our revenue due to the COVID-19 pandemic. Approximately 30 percent
of the workforce is being displaced through this workforce reduction. We expect
to record a one-time restructuring charge of approximately $8.0 million million
primarily related to severance and related benefits in the second quarter of
2020 and expect the workforce reduction to be substantially completed by the end
of the second quarter of 2020. For additional information on this event, see
Note U, "Subsequent Events" to our condensed consolidated financial statements
included in this Quarterly Report on Form 10-Q.
Other Expense, Net
Other expense, net for the three months ended March 31, 2020 increased by $0.3
million compared to the same period in 2019, primarily due to an increase in
interest expense.
Income Tax Expense (Benefit)
The following table summarizes our effective tax rate and income tax expense
(benefit) for the three months ended March 31, 2020 and 2019 (in thousands
except for percentages):
Three Months Ended March 31,
2020 2019
Effective tax rate - % - %
Income tax expense (benefit) $ 100 $ (137)
For the three months ended March 31, 2020 , we recognized an immaterial income
tax expense, representing an effective tax rate of 0%. The difference between
the statutory federal tax rate of 21% and the 0% effective tax rate for the
three months ended March 31, 2020 was primarily attributable to the valuation
allowance established against our current period losses generated. We have
established a valuation allowance on our deferred tax assets to the extent that
our existing taxable temporary differences would not be available as a source of
income to realize the benefits of those deferred tax assets. The income tax
expense for the three months ended March 31, 2020 primarily related to state
income taxes.
For the three months ended March 31, 2019 , we recognized an immaterial income
tax benefit, representing an effective tax rate of 0%. The difference between
the statutory federal tax rate of 21% and the 0% effective tax rate for the
three months ended March 31, 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.
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
March 31, 2020 and December 31, 2019 consisted of the following (in thousands
except for percentages):
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March 31, 2020 December 31, 2019 $ Change % Change
Cash and cash equivalents $ 54,455 $ 113,009 $ (58,554) (52) %
Marketable securities 70,288 58,742 11,546 20 %
Total $ 124,743 $ 171,751 $ (47,008) (27) %
Outstanding principal on 2022 Convertible
Notes $ 320,000 $ 320,000 $ - - %
Total $ 320,000 $ 320,000 $ - - %
Cash Flows
The following table presents a summary of the primary sources and uses of cash
for the three months ended March 31, 2020 and 2019 (in thousands):
March 31, 2020 March 31, 2019 $ Change
Net cash used in operating activities $ (46,609) $ (89,908) $ 43,299
Net cash (used in) provided by investing
activities (10,718) 11,336 (22,054)
Net cash used in financing activities (1,227) (36,767) 35,540
Net decrease in cash, cash equivalents, and
restricted cash $ (58,554) $ (115,339) $ 56,785
Operating Activities
Cash flows from operating activities represented the cash receipts and
disbursements related to all of our activities other than investing and
financing activities. We have historically financed our operating and capital
expenditures primarily through cash flows earned through our operations. We
expect cash provided by operating activities, in addition to our cash, cash
equivalents and marketable securities, will continue to be a primary source of
funds to finance operating needs and capital expenditures.
Operating cash flow is derived by adjusting our net income (loss) for:
•Non-cash operating items, such as depreciation and amortization and
equity-based compensation; and
•Changes in operating assets and liabilities, which reflect timing differences
between the receipt and payment of cash associated with transactions and when
they are recognized in results of operations.
For the period ended March 31, 2020 compared to March 31, 2019 , net cash flows
used in operating activities decreased by $43.3 million , driven primarily by a
decrease in net loss as adjusted for non-cash charges of $84.8 million ,
partially offset by a $41.5 million increase due to changes in operating assets
and liabilities. Included within net loss for the period ended March 31, 2019
was $74.9 million of acquired IPR&D expense related to the Perosphere asset
acquisition, of which $60.8 million was paid in cash during the first quarter of
2019.
Investing Activities
Cash flows used in investing activities was $10.7 million for the three months
ended March 31, 2020 due primarily to net purchases of marketable securities of
$12.1 million , partially offset by proceeds of $1.4 million from the sale of
assets. Cash provided by investing activities for the three months ended March
31, 2019 was $11.3 million due net proceeds from sales of marketable securities
of $13.1 million offset by capital expenditures of $1.8 million .
Financing Activities
Cash used in financing activities was $1.2 million for the three months ended
March 31, 2020 due to payments of employee tax withholdings related to equity
based compensation. Cash used in financing activities for the three months ended
March 31, 2019 was $36.8 million primarily due to the repayment of the $21.4
million balance of our 2019 convertible notes, $13.7 million for common stock
repurchases and $1.6 million for payments of employee tax withholdings related
to equity based compensation.
34
-------------------------------------------------------------------------------- Table of Contents Future Liquidity Considerations We believe that our cash, cash equivalents and marketable securities as ofMarch 31, 2020 , and the cash we expect to receive from sales of our products, will be sufficient to fund our current operating plans and capital expenditure requirements for at least twelve months from the date of issuance of these financial statements. We generated negative cash flows from operations during the three months endedMarch 31, 2020 and during the year endedDecember 31, 2019 . Our expected cash flows from operations between now andJune 1, 2022 , the maturity date of our 2022 Convertible Notes will be insufficient to settle these Convertible Notes. We therefore expect that we will need to issue new securities, in the form of debt, equity or equity-linked, or some combination thereof, and it may be challenging for us to do so on favorable terms in light of the impact of COVID-19 on the global economy and financial markets. We may also utilize proceeds from a potential strategic collaboration or other transaction to manage our existing obligations.
Notwithstanding the above, given the uncertainties around the severity and duration of COVID-19, our forecasted cash flows for the remainder of 2020 could be adversely impacted if actual events differ from our estimates.
For a detailed discussion regarding the risks and uncertainties related to our liquidity and capital resources and to the potential impact of the COVID-19 pandemic, please refer to our Risk Factors in Part I, Item 1A of our Annual Report and in Part II, Item IA of this Quarterly Report on Form 10-Q.
Borrowings and Other Liabilities
In the second quarter of 2017, we issued$320.0 million aggregate principal amount of convertible senior notes due 2022 (the "2022 Convertible Notes"), as discussed in more detail in Note Q, "Debt," to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. The 2022 Convertible Notes are senior unsecured obligations and bear interest at a rate of 3.25% per year, payable semi-annually in arrears onJune 1 andDecember 1 of each year, beginning onDecember 1, 2017 . The 2022 Convertible Notes will mature onJune 1, 2022 , unless earlier repurchased or converted. Upon conversion of the 2022 Convertible Notes, such 2022 Convertible Notes will be convertible into, at our election, cash, shares of our common stock, or a combination thereof, at a conversion rate of 36.5464 shares of common stock per$1,000 principal amount of the 2022 Convertible Notes, which corresponds to an initial conversion price of approximately$27.36 per share of our common stock. The conversion rate is subject to adjustment from time to time. The 2022 Convertible Notes were not convertible as ofMarch 31, 2020 .
Share Repurchase Program
As ofJanuary 1, 2020 , we had$26.8 million available under the share repurchase program initially approved by our Board of Directors inJanuary 2016 , which was updated inMarch 2019 to permit the repurchase of up to an aggregate of$80.0 million in shares of our common stock. During the three months endedMarch 31, 2020 , we did not repurchase shares of common stock under this program. As ofMarch 31, 2020 ,$26.8 million remained available for future repurchases under this program.
Off-Balance Sheet Arrangements
As of
Impact of Recently Issued and Proposed Accounting Pronouncements See Note S, "Recently Issued and Proposed Accounting Pronouncements," and Note T, "Recently Adopted Accounting Pronouncements," to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for information regarding new accounting pronouncements.
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