AMAG Up on Roughly $1B deal with Lumara to Widen Portfolio

Shares of AMAG Pharmaceuticals, Inc. (AMAG) soared 28.2% after it announced that it will be acquiring privately held Lumara Health Inc. for approximately $1 billion in order to diversify its portfolio. The transaction, approved by the boards of both the companies, is expected to be completed by year end.

The Deal in Details

AMAG paid an upfront $675 million for the transaction including $600 million in cash and the rest in stock. Moreover, Lumara is expected to receive up to $350 million depending on the achievement of certain sales related milestones.

The highlight of the acquisition is Makena, the only U.S. approved drug 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. The drug enjoys a 7-year orphan drug exclusivity which was granted in Feb 2011.

Makena sales for the 12 months ending Aug 31, 2014, increased 72% year over year to $130 million. As per AMAG, Makena sales growth was buoyed by positive market dynamics, including a favorable regulatory environment and the implementation of a new patient-centric business strategy. AMAG will make milestone payments on Makena sales achievement of $300 million, $400 million and $500 million in the consecutive 12-month periods. In addition to Makena, AMAG will also get hold of Lumara's maternal health business.

Financial Impact

The transaction is expected to be accretive to adjusted earnings per share immediately. AMAG expects combined product sales of around $350 million in 2015. AMAG also expects to generate $20 million of cost synergies every year. The company will provide a more detailed guidance for 2015 once the deal closes.

Our Take

We are highly encouraged by the deal as it will significantly diversify AMAG’s portfolio. The company currently has Feraheme, an injectable drug for intravenous use as iron replacement therapy for the treatment of iron deficiency anemia (IDA) in adults suffering from chronic kidney disease (CKD).

Most importantly, the addition of Makena and Lumara's maternal health business will reduce AMAG’s dependence on Feraheme for growth. Needless to say, the deal will also boost AMAG’s top as well as bottom line. AMAG, which incurred a loss of 7 cents per share in the second quarter of 2014, may soon swing to profitability on the back of its newly acquired products. We expect investor focus to remain on the Lumara deal.

Perrigo Buys Lumara’s Women's Healthcare Business

In a separate agreement, Perrigo Company (PRGO) will be acquiring Lumara’s Women's Healthcare Business for $82 million. The acquisition will add products like Clindesse (vaginal cream), Gynazole-1 (vaginal cream) and Evamist (estradiol transdermal spray) to Perrigo’s portfolio.

Both AMAG and Perrigo carry a Zacks Rank #3 (Hold). Some better-ranked stocks in the healthcare segment include Gilead Sciences (GILD) and Medivation (MDVN). Both stocks sport a Zacks Rank #1 (Strong Buy).

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