Notable Calls

I don't normally comment on specific news but Amag Pharma (NASDAQ:AMAG) got my attention this morning after the co issued a PR saying Feraheme label will not include a 'Black Box' warning.

Here's the link

Majority of the Street were expecting a Black Box warning to be slapped in AMAG's main growth driver, the Feraheme drug. Here are some recent comments:

- Jefferies (Oct 29) Downgrading to Underperform from Hold (target lowered to $12 from $18) on likely further declining Feraheme sales and upcoming label update for increasing safety concerns. AMAG expects the label change finalization for Feraheme this quarter from the current discussions with the FDA. We highlighted this as a possibility in our 9/24 note entitled "Lowering Estimates on Increasing Safety Concerns for Feraheme" after conversations with our consultants. Also it appears that there is a ~50% probability for a black box warning. Even without a black box, we view a stricter label of any kind would likely decrease its market penetration.

- Canaccord (Oct 29) We are downgrading AMAG to HOLD due to a combination of disappointing Q3/10 sales of Feraheme, AMAG’s IV iron, and uncertainty over safety and label changes. A lot hinges on the outcome of the ongoing label change discussions with the FDA. We do not yet know how these label changes will impact future sales and new indications. While the valuation might look cheap here, we are adopting a cautious stance.

AMAG is currently in discussions with the FDA regarding labelling changes. We think a black box warning could hurt Feraheme’s potential for sales growth and label expansion.

- Needham (Nov 1) We are reiterating our Buy rating, $26 target: we believe that the worst-case scenario has already been priced into the stock. We believe revenues were affected by seasonality (decreased use in summer, which will resolve) and unfavorable Feraheme economics in the dialysis setting (higher Feraheme costs, which will not resolve). We believe the stock has priced in decreasing Feraheme sales, yet the Company stated that the October 2010 sales are encouraging. Importantly, we believe that safety concerns represent a major stock overhang, and the stock has priced in a black box warning, which we agree would negatively impact the market adoption of Feraheme as other IV irons are available. Yet new data presented on the conference call on safety show an expected benefit/risk profile: we think a modest label change is the most likely outcome of the upcoming Feraheme review, with inclusion of cardiovascular side effects not previously on this one-year old label.

- Leerink (Oct 21) We believe AMAG's meeting with the FDA may remove a large overhang.. The market seems to be anticipating withdrawal of Feraheme or a black box warning..fair value estimate of $40 per AMAG share in 12 months. Our DCF analysis values Feraheme at $27/share and the remaining $13/share is cash

- J.P. Morgan (Oct 29) The more critical issue, however, is what comes out of ongoing discussions with FDA on Feraheme labeling given the agency's concerns on safety and the addition of Feraheme to the FDA DARRTS list for cardiac safety. Given that the per patient serious adverse events (SAEs) in the post marketing setting was lower (0.1%) than that stated in the Feraheme label (0.2%) and on a very high background of co-morbidities, we think that a black box warning is ultimately unlikely for Feraheme. Yet, AMAG shares (down 15% to ~$16.50 aftermarket) already imply a black box warning and limited value for Feraheme, an approved drug. Indeed, AMAG has ~$15 in cash/share currently and worst case should have ~$13/share at the end of 2011. Hence, we think that the risk / reward profile is attractive at current levels and while we acknowledge the FDA uncertainty, we believe that Feraheme won’t be pulled from the market and it can still grow to a >$200M product at peak even with a black box, in our view. We are maintaining our Overweight rating.

Notablecalls: The stock is down 26 pts in 4 months, from $40 to $14, partly on Feraheme Black Box concerns. Docs have been reluctant to prescribe the drug in face of uncertainty regarding AERS.

Today's news should alleviate at least some of the concerns & help the stock recover some lost ground.

Note that:

- AMAG has $14/share in cash

- Short interest has been declining but stands at 13%.

- Majority of Jeffco's bear thesis (UP, $12 tgt) was based on the Black Box warning. It may take some time for the Jeffco analyst to fess up but we may get an upgrade here.

- JPM's already lowered target on AMAG is $34 (down from $42). Just to show the potential upside.

- AMAG has been seen as a takeover candidate by many. Resolving the regulatory issues may open a door to discussions.

- Expectations are low. Check out how low the Feraheme estimates have been slashed vs. where they were before.

All in all, AMAG is probably still far from out of the woods but today's news is certainly a new start for the co.

I would not be surprised the stock to retrace some of the recent slide. I'm watching $17 as a 1st target level in the n-t.