AMAG Pharmaceuticals (AMAG) received a major setback recently with the termination of the deal to merge with Colorado based Allos Therapeutics, Inc (ALTH). AMAG had entered into an agreement to merge with Allos in July this year in an all stock deal that had a total equity value of $686 million. The deal failed to materialize due to insufficient shareholder votes. The boards of both the companies had however given their approval for the merger.
The management at AMAG has decided to restructure its expenses to bring it in line with expected sales from its sole marketed drug Feraheme. Feraheme is marketed as an intravenous (IV) iron replacement therapy for the treatment of iron deficiency anemia (IDA) in chronic kidney disease (CKD) patients. The details of the realigned expenses will be provided at the third quarter conference call to be held in November 2011. AMAG will pay Allos $2 million to make up for merger related costs.
The deal had aimed to bring together AMAG’s and Allos’ respective sole marketed products, Feraheme and Folotyn. The AMAG management believed both drugs had a common customer base. Folotyn is marketed for the treatment of patients with relapsed or refractory peripheral T-cell lymphoma (PTCL). AMAG continues to look for additional products to diversify beyond Feraheme.
As a reminder, in August 2011, AMAG had received an unsolicited all cash buyout offer from MSMB Capital Management for $18 per share as an alternative to the Allos merger.
Our Recommendation
We currently have a Neutral recommendation on AMAG. The stock carries a Zacks #3 Rank (short term “Hold” rating). We prefer to wait until more visibility is obtained on Feraheme’s progress despite the improving trend in provider demand in the non-dialysis category.
