WALTHAM, Mass.—AMAG Pharmaceuticals Inc. has entered into a definitive agreement to acquire Lumara Health Inc., a privately held pharmaceutical company specializing in women’s health, for $675 million ($600 million in cash and $75 million in stock) and additional contingent consideration of up to $350 million based on achievement of certain sales milestones. Lumara Health also announced recently that the company signed a separate agreement to divest certain other assets to a third party.
Lumara Health markets the fast-growing product Makena (hydroxyprogesterone caproate injection), which was granted seven-year Orphan Drug exclusivity in February 2011 and is the only U.S. Food and Drug Administration (FDA)-approved product indicated to reduce the risk of preterm birth in women who are pregnant with one baby and who have delivered one preterm baby spontaneously in the past. Preterm birth is defined as the delivery of a baby at less than 37 weeks of pregnancy. Approximately one in every nine babies is born preterm, or 11.7 percent of births in the United States. Premature birth in the nation costs $26.2 billion annually, and average first-year medical costs are approximately 10 times greater for preterm infants than for full-term infants.
“This is a truly transformative transaction that will propel AMAG into a profitable, high-growth multiproduct specialty pharmaceutical company positioned for what we expect to be continued revenue and bottom-line growth, further business diversification and shareholder value creation,” says William Heiden, president and CEO of AMAG. Invoking what is often cliché, he refers to the deal as a “win-win,” but in this case there may be good reason for the characterization. Heiden and Lumara’s CEO Greg Divis have a 10-year-old relationship dating back to their days at Shering-Plough. Divis notes that AMAG “shares our commitment,” and that Makena and AMAG’S Feraheme (ferumoxytol) are a good fit.
“We believe the Lumara Health transaction will facilitate future product acquisitions in an attractive new therapeutic area and is an excellent strategic fit with our Feraheme market expansion plans,” Heiden adds. The acquisition of Lumara Health provides AMAG with a strategic commercial entry into the women’s health segment. Women’s health includes one of the largest pools of patients with iron deficiency anemia (IDA). Accordingly, if AMAG is successful at gaining FDA approval to expand the label of Feraheme beyond the current chronic kidney disease indication, the 75-person strong Lumara commercial sales force could become a meaningful contributor to the growth of Feraheme in the future.
Of the 1.5 million patients with IDA, AMAG estimates that fewer than 10 percent are now treated with IV iron such as Feraheme. Thus, an expanded label for the product could produce a significant uptick in sales.
Net sales of Makena over the 12 months ending August 31, 2014, were greater than $130 million, a 72-percent increase compared to the prior-year period. In addition, based on the three months ended August 31, 2014, Makena and Lumara Health’s maternal health business would be on pace to exceed annualized net sales of $180 million and EBITDA of $110 million. AMAG believes that positive market dynamics, including a favorable regulatory environment, and implementation of a new patient-centric business strategy contributed to the significant recent growth of Makena.
Heiden continued, “Makena is a unique product with clear clinical benefits that serves an important medical need for at-risk pregnant mothers and their unborn children. The consequences of preterm birth are a significant public health issue, and we believe that Makena will be a tremendous addition to our portfolio and will be complementary to AMAG’s in-office injectables commercial expertise. We’re also looking forward to welcoming to AMAG the talented Makena commercial team, which has put Makena on a remarkably strong sales growth trajectory. We believe that our combined larger-scale, combined portfolio diversification, new resources and broader commercial expertise will allow AMAG to create new long-term growth opportunities and allow us to better serve patients.”
Another arrow in the new company’s quiver is the Drug Quality and Security Act that placed new restrictions on compounding pharmacies. Heiden notes that 46 percent of the competition for Makena comes from compounders, and he expects AMAG to whittle away at this business. In addition, he points out that the physicians who specialize in women’s care frequently prescribe off-label drugs out of a perceived lack of a better alternative.
“I strongly believe AMAG is the right partner to support the continued growth of Makena and our maternal health business,” said Lumara’s Divis. “This transaction is a great reflection of the outstanding work our team has done to build the maternal health franchise to what it is today, and I am pleased that this same team will continue to grow the brand within AMAG. It has been clear from the start of our discussions that AMAG shares our commitment to at-risk pregnant mothers, their babies and their healthcare providers.”
The transaction is expected to result in projected combined 2015 product sales of $350 million and is expected to be immediately accretive to adjusted earnings per share, with cost synergies of at least $20 million per year. Following the closing of the transaction, AMAG expects to have approximately $100 million in cash and 25.2 million basic shares outstanding. AMAG intends to provide additional financial guidance for 2015 as promptly as practicable following completion of the transaction.
Upon closing, Lumara Health’s commercial operations will function as a separate business unit within AMAG, reporting directly to Heiden. AMAG intends to name current Lumara Health executives who will be joining AMAG’s leadership team at or prior to closing.
The transaction has been unanimously approved by both companies’ boards of directors. The transaction has also been approved by the stockholders of Lumara Health. It is expected to be completed in the fourth quarter of 2014, following termination or expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and completion of financing.
AMAG intends to finance the transaction with a combination of cash on hand, approximately $75 million of newly issued common stock and $340 million in committed term B financing from Jefferies Finance LLC. The commitment from Jefferies Finance LLC to provide financing is subject to the satisfaction of customary conditions.
In addition to the $675 million at closing, the terms of the agreement provide for contingent consideration of up to $350 million based on the achievement of various sales milestones for Makena, including sales achievement of $300 million, $400 million and $500 million in consecutive 12-month periods.
Through the transaction, AMAG will also acquire approximately $250 million in tax net operating loss (NOL) carry-forwards from Lumara Health, which are subject to annual limitations. These NOLs will be combined with AMAG’s NOLs which totaled more than $258 million as of December 31, 2013. AMAG’s NOLs are not currently subject to limitation as to their use.
AMAG believes that its tax attributes following the closing of the transaction represent an important corporate asset that can provide long-term shareholder benefits. Concurrent with this transaction, AMAG’s board has approved an amendment to its shareholder rights plan designed to preserve these tax assets (a Section 382 Amendment), which could be substantially limited if AMAG were to experience an ownership change.
