NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. DESCRIPTION OF BUSINESS
AMAG Pharmaceuticals, Inc., a Delaware corporation, was founded in 1981. Throughout this Quarterly Report on Form 10-Q, AMAG Pharmaceuticals, Inc. and our consolidated subsidiaries are collectively referred to as “the Company,” “AMAG,” “we,” “us,” or “our.” 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. As of September 30, 2020, we marketed products that support the health of patients in the areas of hematology and maternal health, including Feraheme® (ferumoxytol injection) for intravenous use and Makena® (hydroxyprogesterone caproate injection) auto-injector. In addition to our approved products, our portfolio includes ciraparantag, a product candidate that is being studied as an anticoagulant reversal agent.
In December 2019, we completed a review of our product portfolio and strategy. This strategic review resulted in our intention to divest our women’s health assets, as announced in January 2020, and as previously disclosed, we completed the divestiture of Intrarosa® (prasterone) during the second quarter of 2020. We completed the divestiture of our remaining women’s health asset, Vyleesi® (bremelanotide injection), in July 2020, which we determined did not meet the criteria for presentation as a discontinued operation, as it did not represent a strategic shift to our business as described above. For additional details on our divestiture of Vyleesi, refer to Note O, “Acquisitions, Collaboration, License and other Strategic Agreements”.
In July 2020, we also decided to stop the AMAG-423 Phase 2b/3a study based, primarily, on the results of an interim analysis conducted by the study’s independent Data Safety Monitoring Board (“DSMB”). For additional details on our decision to stop the AMAG 423 study, refer to Note O, “Acquisitions, Collaboration, License and other Strategic Agreements”.
On October 1, 2020, we entered into an Agreement and Plan of Merger with Covis Group S.à r.l., a Luxembourg company (“Covis”), Covis Mergerco Inc., a Delaware corporation and an indirect wholly owned subsidiary of Covis (“Merger Sub”), and (in respect of specific matters) Covis Finco S.à r.l., a Luxembourg company (the “Merger Agreement”), pursuant to which Merger Sub launched a cash tender offer (the “Offer”) to acquire all of the issued and outstanding shares of common stock of AMAG at a price per share of $13.75, net to the seller in cash, without interest. The Offer commenced on October 15, 2020 and will remain open for a minimum of 20 business days. The completion of the Offer is subject to customary closing conditions. For additional information, see Note T, “Subsequent Events”.
On October 5, 2020, we received notice of the FDA’s Center for Drug Evaluation and Research proposal to withdraw marketing approval of Makena and notice of our opportunity to request a hearing. For additional information, refer to Note T, “Subsequent Events”.
COVID-19
The global spread of COVID-19 has created significant volatility, uncertainty and economic disruption on a global scale, including in the United States, where we market our products, where our operations and employees reside and where we conduct clinical trials. The COVID-19 pandemic did not significantly impact our financial results during the three months ended September 30, 2020. The extent to which the COVID-19 pandemic impacts our business, operations and financial results in the future will depend on numerous evolving factors that we may not be able to accurately predict. While there have been no material impairments to date, any prolonged material disruptions to our sales, supply, research and development efforts and/or operations could negatively impact the Company’s business, operations and/or financial results.
B. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These condensed consolidated financial statements are unaudited and, in the opinion of management, include all adjustments necessary for a fair statement of our financial position and results of operations for the interim periods presented. Such adjustments consisted only of normal recurring items. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”).
In accordance with GAAP for interim financial reports and the instructions for Form 10-Q and the rules of the Securities and Exchange Commission, certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted. Our accounting policies are described in the Notes to the Consolidated Financial Statements in our
Annual Report on Form 10-K for the year ended December 31, 2019, as amended (our “Annual Report”). Interim results are not necessarily indicative of the results of operations for the full year. These interim financial statements should be read in conjunction with our Annual Report.
Principles of Consolidation
The accompanying condensed consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates and Assumptions
The preparation of our condensed consolidated financial statements in conformity with GAAP requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity and the amount of revenues and expenses. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including product sales revenue; product sales allowances and accruals; allowance for expected credit losses; marketable securities; inventory; fair value estimates used to assess impairment of long-lived assets, including goodwill and other intangible assets; debt obligations; certain accrued liabilities, including clinical trial accruals; equity-based compensation expense; and income taxes, inclusive of valuation allowances, will depend on future developments that are highly uncertain, including new information that may emerge concerning COVID-19 and the actions taken to contain or treat its impact, as well as the economic impact on local, regional and national customers and markets. We have made estimates of the impact of COVID-19 within our financial statements and there may be changes to those estimates in future periods. Actual results could differ materially from these estimates.
Concentrations and Significant Customer Information
Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents, marketable securities, and accounts receivable. As of September 30, 2020, we held our excess cash primarily in institutional money market funds, corporate debt securities, commercial paper, U.S. treasury and government agency securities and certificates of deposit. As of September 30, 2020, we did not have a material concentration in any single investment.
Our operations are located entirely within the U.S. We focus primarily on developing, manufacturing, and commercializing our products and product candidates. The following table sets forth customers who represented 10% or more of our total revenues for the three and nine months ended September 30, 2020 and 2019:
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|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
McKesson Corporation
|
36
|
%
|
|
38
|
%
|
|
36
|
%
|
|
37
|
%
|
|
AmerisourceBergen Drug Corporation
|
32
|
%
|
|
28
|
%
|
|
33
|
%
|
|
27
|
%
|
|
Cardinal Health
|
12
|
%
|
|
11
|
%
|
|
11
|
%
|
|
12
|
%
|
Our net accounts receivable primarily represent amounts due for products sold directly to wholesalers, distributors and specialty pharmacies. Accounts receivable for our products are recorded net of reserves for estimated chargeback obligations, prompt payment discounts and any allowance for expected credit losses. At September 30, 2020, two customers accounted for 10% or more of our accounts receivable balances, representing approximately 76% in the aggregate of our total accounts receivable. At December 31, 2019, three customers accounted for 10% or more of our accounts receivable balances, representing approximately 85% in the aggregate of our total accounts receivable.
We are currently dependent on a single supplier for certain of our manufacturing processes, including for Feraheme drug substance (produced in two separate facilities) and for our Makena auto-injector product. We have been and may continue to be exposed to a significant loss of revenue from the sale of our products in the event that our suppliers and/or manufacturers are not able to fulfill demand for any reason.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“Topic 326”). We adopted Topic 326 effective January 1, 2020 using a modified retrospective approach. The adoption of Topic 326 did not have a material impact on our condensed consolidated financial statements and accordingly, no transition adjustment was recorded at the adoption date. Under Topic 326, we estimate expected credit losses for our trade receivables held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. We also evaluate any impaired marketable securities against the new impairment model within Topic 326 to determine whether any loss or allowance for credit loss should be recorded at the reporting date.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”) as part of its Simplification Initiative to reduce the cost and complexity in accounting for income taxes. ASU 2019-12 removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. The guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. We adopted ASU 2019-12 effective January 1, 2020. The adoption of ASU 2019-12 did not have a material impact on our condensed consolidated financial statements.
C. REVENUE RECOGNITION
Product Revenue and Allowances and Accruals
The following table provides information about disaggregated revenue by product for the three and nine months ended September 30, 2020 and 2019 (in thousands):
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|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Product sales, net
|
|
|
|
|
|
|
|
|
Feraheme
|
$
|
46,718
|
|
|
$
|
44,205
|
|
|
$
|
120,786
|
|
|
$
|
126,294
|
|
|
Makena
|
25,860
|
|
|
33,949
|
|
|
66,079
|
|
|
95,483
|
|
|
Intrarosa
|
37
|
|
|
5,607
|
|
|
4,423
|
|
|
14,898
|
|
|
Other
|
614
|
|
|
23
|
|
|
(586)
|
|
|
156
|
|
|
Total product sales, net
|
$
|
73,229
|
|
|
$
|
83,784
|
|
|
$
|
190,702
|
|
|
$
|
236,831
|
|
Total gross product sales were offset by product sales allowances and accruals for the three and nine months ended September 30, 2020 and 2019 as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Gross product sales
|
$
|
218,739
|
|
|
$
|
254,073
|
|
|
$
|
633,475
|
|
|
$
|
704,976
|
|
|
Provision for product sales allowances and accruals:
|
|
|
|
|
|
|
|
|
Contractual adjustments
|
129,966
|
|
|
144,108
|
|
|
383,003
|
|
|
381,633
|
|
|
Governmental rebates
|
15,544
|
|
|
26,181
|
|
|
59,770
|
|
|
86,512
|
|
|
Total
|
145,510
|
|
|
170,289
|
|
|
442,773
|
|
|
468,145
|
|
|
Product sales, net
|
$
|
73,229
|
|
|
$
|
83,784
|
|
|
$
|
190,702
|
|
|
$
|
236,831
|
|
The following table summarizes the product revenue allowance and accrual activity for the three and nine months ended September 30, 2020 (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
Governmental
|
|
|
|
|
Adjustments
|
|
Rebates
|
|
Total
|
|
Balance at December 31, 2019
|
$
|
95,221
|
|
|
$
|
47,623
|
|
|
$
|
142,844
|
|
|
Provisions related to current period sales
|
147,235
|
|
|
20,982
|
|
|
168,217
|
|
|
Adjustments related to prior period sales
|
(4,060)
|
|
|
976
|
|
|
(3,084)
|
|
|
Payments/returns relating to current period sales
|
(95,284)
|
|
|
—
|
|
|
(95,284)
|
|
|
Payments/returns relating to prior period sales
|
(37,969)
|
|
|
(29,646)
|
|
|
(67,615)
|
|
|
Balance at March 31, 2020
|
$
|
105,143
|
|
|
$
|
39,935
|
|
|
$
|
145,078
|
|
|
Provisions related to current period sales
|
111,508
|
|
|
21,904
|
|
|
133,412
|
|
|
Adjustments related to prior period sales
|
(634)
|
|
|
378
|
|
|
(256)
|
|
|
Payments/returns relating to current period sales
|
(112,821)
|
|
|
(13,913)
|
|
|
(126,734)
|
|
|
Payments/returns relating to prior period sales
|
(19,484)
|
|
|
(10,240)
|
|
|
(29,724)
|
|
|
Balance at June 30, 2020
|
$
|
83,712
|
|
|
$
|
38,064
|
|
|
$
|
121,776
|
|
|
Provisions related to current period sales
|
129,402
|
|
|
17,410
|
|
|
146,812
|
|
|
Adjustments related to prior period sales
|
565
|
|
|
(1,867)
|
|
|
(1,302)
|
|
|
Payments/returns relating to current period sales
|
(115,634)
|
|
|
(14,259)
|
|
|
(129,893)
|
|
|
Payments/returns relating to prior period sales
|
(5,803)
|
|
|
(830)
|
|
|
(6,633)
|
|
|
Balance at September 30, 2020
|
$
|
92,242
|
|
|
$
|
38,518
|
|
|
$
|
130,760
|
|
Collaboration Revenue
In July 2020, we entered into a License and Commercialization Agreement with Norgine B.V. (“Norgine”, and such agreement, the “Norgine Agreement”), pursuant to which we granted Norgine an exclusive license to develop and commercialize ciraparantag in certain countries in Europe, Australia and New Zealand (the “Norgine Territory”). We received a $30.0 million upfront payment upon signing. In addition, pursuant to the terms and conditions of the Norgine Agreement (a) Norgine will pay us one-third of the actual and reasonable out-of-pocket costs of the Phase 3 program, pursuant to a mutually agreed upon budget, (b) we are eligible to receive up to $70.0 million upon the achievement of certain regulatory milestones (of which we will pay $40.0 million to the former equity holders of Perosphere pursuant to the terms of the Perosphere Agreement (described below), (c) we are eligible to receive up to $190.0 million contingent upon meeting certain sales milestones, and (d) Norgine will pay us tiered double-digit royalties on net sales in the licensed territory. Norgine will be responsible for the regulatory filings and any clinical trials specifically required for approval of the Product in the Norgine Territory and will hold all marketing authorizations in the Norgine Territory. We will be responsible for manufacturing and supplying Norgine with its requirements of clinical and commercial product pursuant to supply agreement(s) to be entered into by the parties.
In accordance with ASC 808, we considered the nature and contractual terms of the arrangement and the nature of our business operations to determine the classification of payments under the Norgine Agreement and concluded that Norgine meets the definition of a customer. As a result, the Norgine Agreement was accounted for under ASC 606. We determined that the Norgine Agreement contains three distinct performance obligations: (i) delivery of a license granting rights to clinical data developed to date and rights to develop and commercialize ciraparantag in the Norgine Territory (the “License”), (ii) research and development services, and (iii) participation on the joint development and steering committees.
We allocated the upfront consideration to each performance obligation using the standalone selling prices based on our estimate of selling price for the License, research and development services and participation on the joint development and steering committees. To determine the standalone selling price for the License and for the participation on the joint development and joint steering committees, we used an adjusted market approach. For the License, the adjusted market approach included an assessment of the likelihood of achievement of certain regulatory milestones using third party evidence and the likelihood of regulatory approval of ciraparantag and the expected future cash flows assuming regulatory approval in the Norgine Territory, discounting these cash flows using a risk adjusted discount rate of approximately 27%. For the research and development services we determined the standalone selling pricing using a cost plus margin approach. For the joint development and joint steering committees, the adjusted market approach included an assessment of consulting rates prevalent in the marketplace.
Under Topic 606, we allocated the $30.0 million upfront payment as follows: $19.8 million to the License and $10.2 million to the research and development services. No consideration was allocated to the performance obligation related to participation on the joint development and steering committees, as its standalone selling price was not material. The amounts allocated to the licenses were recognized upon delivery of the licenses during the three months ended September 30, 2020. The amount allocated to the development services will be recognized over the course of the development work using an input method in the form of development effort relative to expected total development effort at the completion of the development services. This is based on the relative costs of the development activities incurred and expected to be incurred in the future to satisfy the performance obligation. The estimated period of performance to satisfy the performance obligation and project cost will be reviewed periodically and adjusted, as needed, to reflect our current expectations regarding the costs and timing of the deliverable. These estimates are subject to a number of assumptions and actual results could differ materially from our assumptions in future periods.
We determined that the future regulatory and sales-based milestone and sales-based royalty payments that we may be entitled to receive are variable consideration. We are using a most likely amount method for estimating the variable consideration to be received related to regulatory milestones under this arrangement. All future potential regulatory milestones were fully constrained at September 30, 2020. The sales-based milestones and royalties are subject to the sales-and-usage-based royalty exception related to a license of intellectual property and will be recorded in the period when the corresponding sale occurs.
As of September 30, 2020, deferred revenue related to the development services performance obligation amounted to $10.2 million, of which $2.5 million was included in current liabilities.
In addition, the Company incurred approximately $2.0 million of contract acquisition costs related to the Norgine Agreement. These costs are expensed as selling, general and administrative expense based on the transfer of control of the underlying performance obligations, as determined on a relative standalone selling price basis. As of September 30, 2020, the Company recorded approximately $1.3 million in selling, general and administrative expense and deferred $0.7 million as a component of other long-term assets.
D. MARKETABLE SECURITIES
As of September 30, 2020 and December 31, 2019, our marketable securities consisted of securities classified as available-for-sale in accordance with accounting standards which provide guidance related to accounting and classification of certain investments in marketable securities.
The following is a summary of our marketable securities as of September 30, 2020 and December 31, 2019 (in thousands):
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
|
|
|
Gross
|
|
Gross
|
|
Estimated
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
Securities maturing within one year:
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
$
|
23,861
|
|
|
$
|
145
|
|
|
$
|
(1)
|
|
|
$
|
24,005
|
|
|
Certificates of deposit
|
14,300
|
|
|
—
|
|
|
—
|
|
|
14,300
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
9,488
|
|
|
—
|
|
|
—
|
|
|
9,488
|
|
|
|
|
|
|
|
|
|
|
|
Total securities maturing within one year
|
$
|
47,649
|
|
|
$
|
145
|
|
|
$
|
(1)
|
|
|
$
|
47,793
|
|
|
Securities maturing between one and three years:
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
$
|
16,809
|
|
|
$
|
319
|
|
|
$
|
(2)
|
|
|
$
|
17,126
|
|
|
U.S. treasury and government agency securities
|
4,998
|
|
|
—
|
|
|
—
|
|
|
4,998
|
|
|
Certificates of deposit
|
1,000
|
|
|
—
|
|
|
—
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
Total securities maturing between one and three years
|
$
|
22,807
|
|
|
$
|
319
|
|
|
$
|
(2)
|
|
|
$
|
23,124
|
|
|
Total marketable securities
|
$
|
70,456
|
|
|
$
|
464
|
|
|
$
|
(3)
|
|
|
$
|
70,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
Gross
|
|
Gross
|
|
Estimated
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
Securities maturing within one year:
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
$
|
46,186
|
|
|
$
|
140
|
|
|
$
|
(2)
|
|
|
$
|
46,324
|
|
|
U.S. treasury and government agency securities
|
2,750
|
|
|
—
|
|
|
—
|
|
|
2,750
|
|
|
Certificates of deposit
|
1,500
|
|
|
—
|
|
|
—
|
|
|
1,500
|
|
|
Total securities maturing within one year
|
$
|
50,436
|
|
|
$
|
140
|
|
|
$
|
(2)
|
|
|
$
|
50,574
|
|
|
Securities maturing between one and three years:
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
$
|
8,016
|
|
|
$
|
152
|
|
|
$
|
—
|
|
|
$
|
8,168
|
|
|
Total securities maturing between one and three years
|
8,016
|
|
|
152
|
|
|
—
|
|
|
8,168
|
|
|
Total marketable securities
|
$
|
58,452
|
|
|
$
|
292
|
|
|
$
|
(2)
|
|
|
$
|
58,742
|
|
E. FAIR VALUE MEASUREMENTS
The following tables present information about our assets and liabilities that we measure at fair value on a recurring basis and indicate the level within the fair value hierarchy of the valuation techniques utilized to determine such fair value as of September 30, 2020 and December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at September 30, 2020 Using:
|
|
|
|
|
Quoted Prices in
|
|
|
|
Significant
|
|
|
|
|
Active Markets for
|
|
Significant Other
|
|
Unobservable
|
|
|
|
|
Identical Assets
|
|
Observable Inputs
|
|
Inputs
|
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
2,750
|
|
|
$
|
2,750
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
41,131
|
|
|
—
|
|
|
41,131
|
|
|
—
|
|
|
U.S. treasury and government agency securities
|
4,998
|
|
|
|
|
4,998
|
|
|
—
|
|
|
Certificates of deposit
|
15,300
|
|
|
—
|
|
|
15,300
|
|
|
—
|
|
|
Commercial paper
|
9,488
|
|
|
|
|
9,488
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
73,667
|
|
|
$
|
2,750
|
|
|
$
|
70,917
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2019 Using:
|
|
|
|
|
Quoted Prices in
|
|
|
|
Significant
|
|
|
|
|
Active Markets for
|
|
Significant Other
|
|
Unobservable
|
|
|
|
|
Identical Assets
|
|
Observable Inputs
|
|
Inputs
|
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
13,732
|
|
|
$
|
13,732
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Corporate debt securities
|
54,492
|
|
|
—
|
|
|
54,492
|
|
|
—
|
|
|
U.S. treasury and government agency securities
|
2,750
|
|
|
—
|
|
|
2,750
|
|
|
—
|
|
|
Certificates of deposit
|
1,500
|
|
|
—
|
|
|
1,500
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
72,474
|
|
|
$
|
13,732
|
|
|
$
|
58,742
|
|
|
$
|
—
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Contingent consideration - MuGard
|
$
|
17
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17
|
|
|
Total liabilities
|
$
|
17
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17
|
|
Cash Equivalents
Our cash equivalents are classified as Level 1 assets under the fair value hierarchy as these assets have been valued using quoted market prices in active markets and do not have any restrictions on redemption. As of September 30, 2020 and December 31, 2019, cash equivalents were primarily comprised of funds in money market accounts.
Marketable Securities
Our marketable securities are classified as Level 2 assets under the fair value hierarchy as the values of these assets are primarily determined from independent pricing services, which normally derive security prices from recently reported trades for identical or similar securities, making adjustments based upon other significant observable market transactions. At the end of each reporting period, we perform a quantitative and qualitative analysis of prices received from third parties to determine whether prices are reasonable estimates of fair value. After completing our analysis, we did not adjust or override any fair value measurements provided by our pricing services as of September 30, 2020. In addition, there were no transfers or reclassifications of any securities between Level 1 and Level 2 during the nine months ended September 30, 2020.
Debt
We estimate the fair value of our debt obligations using quoted market prices obtained from third-party pricing services, which are classified as Level 2 inputs. As of September 30, 2020, the estimated fair value of our 2022 Convertible Notes (as defined in Note P, “Debt” below) was $289.7 million, which differed from its carrying value. See Note P, “Debt” for additional information on our debt obligations.
F. INVENTORIES
Our major classes of inventories were as follows as of September 30, 2020 and December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
Raw materials
|
$
|
3,424
|
|
|
$
|
5,211
|
|
|
Work in process
|
6,495
|
|
|
6,248
|
|
|
Finished goods
|
12,987
|
|
|
20,094
|
|
|
Total inventories
|
$
|
22,906
|
|
|
$
|
31,553
|
|
G. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following as of September 30, 2020 and December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
Computer equipment and software
|
$
|
1,568
|
|
|
$
|
1,568
|
|
|
Furniture and fixtures
|
1,714
|
|
|
1,714
|
|
|
Leasehold improvements
|
4,985
|
|
|
4,984
|
|
|
Laboratory and production equipment
|
6,281
|
|
|
6,570
|
|
|
Construction in progress
|
361
|
|
|
656
|
|
|
|
14,909
|
|
|
15,492
|
|
|
Less: accumulated depreciation
|
(12,494)
|
|
|
(11,376)
|
|
|
Property and equipment, net
|
$
|
2,415
|
|
|
$
|
4,116
|
|
H. GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill
As of September 30, 2020, we had no accumulated impairment losses related to goodwill.
Intangible Assets
As of September 30, 2020 and December 31, 2019, our intangible assets consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
|
|
|
Accumulated
|
|
Cumulative
|
|
|
|
|
|
Accumulated
|
|
Cumulative
|
|
|
|
|
Cost
|
|
Amortization
|
|
Impairments
|
|
Net
|
|
Cost
|
|
Amortization
|
|
Impairments
|
|
Net
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Makena auto-injector developed technology
|
$
|
79,100
|
|
|
$
|
21,701
|
|
|
$
|
55,426
|
|
|
$
|
1,973
|
|
|
$
|
79,100
|
|
|
$
|
15,782
|
|
|
$
|
55,426
|
|
|
$
|
7,892
|
|
|
Intrarosa developed technology
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
77,655
|
|
|
16,798
|
|
|
56,881
|
|
|
3,976
|
|
|
Vyleesi developed technology
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
60,000
|
|
|
9,264
|
|
|
38,984
|
|
|
11,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
$
|
79,100
|
|
|
$
|
21,701
|
|
|
$
|
55,426
|
|
|
$
|
1,973
|
|
|
$
|
216,755
|
|
|
$
|
41,844
|
|
|
$
|
151,291
|
|
|
$
|
23,620
|
|
In May 2020, we sold all of our rights to Intrarosa and accordingly, wrote off the related developed technology intangible asset. In July 2020, we completed the divestiture of Vyleesi and accordingly, wrote off the related developed technology intangible asset, which was fully amortized as of June 30, 2020.
As of September 30, 2020, the weighted average remaining amortization period for our finite-lived intangible assets was less than one year. Total amortization expense for the nine months ended September 30, 2020 and 2019 was $20.8 million and $12.1 million, respectively. Amortization expense is recorded in cost of product sales on our condensed consolidated statements of operations. We expect our finite-lived intangible assets to be fully amortized in 2020.
I. CURRENT LIABILITIES
Accrued expenses consisted of the following as of September 30, 2020 and December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
Commercial rebates, fees and returns
|
$
|
106,367
|
|
|
$
|
124,730
|
|
|
Manufacturing costs
|
8,778
|
|
|
21,364
|
|
|
Salaries, bonuses, and other compensation
|
13,121
|
|
|
18,693
|
|
|
Professional, license, and other fees and expenses
|
12,403
|
|
|
13,392
|
|
|
Research and development expense
|
865
|
|
|
3,539
|
|
|
Interest expense
|
3,467
|
|
|
867
|
|
|
Restructuring expense
|
1,596
|
|
|
797
|
|
|
Total accrued expenses
|
$
|
146,597
|
|
|
$
|
183,382
|
|
J. INCOME TAXES
The following table summarizes our effective tax rate and income tax (benefit) expense for the three and nine months ended September 30, 2020 and 2019 (in thousands except for percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Effective tax rate
|
(1)
|
%
|
|
(1)
|
%
|
|
—
|
%
|
|
—
|
%
|
|
Income tax (benefit) expense
|
$
|
(53)
|
|
|
$
|
232
|
|
|
$
|
(113)
|
|
|
$
|
(26)
|
|
For the three and nine months ended September 30, 2020, we recognized an immaterial income tax benefit, representing an effective tax rate of (1)% and 0%, respectively. The difference between the statutory federal tax rate of 21% and the effective tax rates for the three and nine months ended September 30, 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 benefit for the three and nine months ended September 30, 2020 primarily related to state income taxes.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law making several changes to the Internal Revenue Code. The changes include, but are not limited to, temporarily increasing the limitation on the amount of deductible interest expense, allowing taxpayers with alternative minimum tax credits to claim a refund for the entire amount of the credit instead of recovering the credit through refunds over a period of years, as required by the 2017 Tax Cuts and Jobs Act, allowing companies to carryback certain net operating losses, and temporarily increasing the amount of net operating loss carryforwards that corporations can use to offset taxable income. The tax law changes in the CARES Act did not have a material impact on our income tax provision.
For the three and nine months ended September 30, 2019, we recognized an immaterial income tax expense and an immaterial income tax benefit, representing an effective tax rate of (1)% and 0%, respectively. The income tax expense for the three months ended September 30, 2019 primarily related to state income taxes. The income tax benefit for the nine months ended September 30, 2019 primarily related to the offset of the recognition of the income tax expense recorded in other comprehensive loss associated with the increase in the fair value of the available-for-sale debt securities that we carried at fair market value during the period, partially offset by state income taxes. The difference between the statutory federal tax rate of 21% and the effective tax rate of (1)% and 0% for the three and nine months ended September 30, 2019, respectively, 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.
K. EARNINGS PER SHARE
The components of basic and diluted earnings per share for the three and nine months ended September 30, 2020 and 2019 were as follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Net income (loss) - basic and diluted
|
$
|
9,702
|
|
|
$
|
(23,940)
|
|
|
$
|
(31,466)
|
|
|
$
|
(267,509)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
34,484
|
|
|
33,906
|
|
|
34,314
|
|
|
34,058
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Stock options and RSUs
|
236
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in calculating dilutive net income (loss) per share
|
34,720
|
|
|
33,906
|
|
|
34,314
|
|
|
34,058
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.28
|
|
|
$
|
(0.71)
|
|
|
$
|
(0.92)
|
|
|
$
|
(7.85)
|
|
|
Diluted
|
$
|
0.28
|
|
|
$
|
(0.71)
|
|
|
$
|
(0.92)
|
|
|
$
|
(7.85)
|
|
The following table sets forth the potential common shares issuable upon the exercise of outstanding options, the vesting of restricted stock units (“RSUs”), and the conversion of the 2022 Convertible Notes, which were excluded from our computation of diluted net income (loss) per share because their inclusion would have been anti-dilutive (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2020
|
|
2019
|
|
Options to purchase shares of common stock
|
4,233
|
|
|
3,988
|
|
|
Shares of common stock issuable upon the vesting of RSUs
|
1,035
|
|
|
1,645
|
|
|
2022 Convertible Notes
|
11,695
|
|
|
11,695
|
|
|
Total
|
16,963
|
|
|
17,328
|
|
L. EQUITY-BASED COMPENSATION
We currently maintain three equity compensation plans; our 2019 Equity Incentive Plan (the “2019 Plan”), which was approved by our stockholders at our 2019 annual meeting and replaced our Fourth Amended and Restated 2007 Equity Incentive Plan (the “2007 Plan”), the Lumara Health Inc. Amended and Restated 2013 Incentive Compensation Plan (the “Lumara Health 2013 Plan”) and our 2015 Employee Stock Purchase Plan (“2015 ESPP”). All outstanding stock options granted under each of our equity compensation plans other than our 2015 ESPP have an exercise price equal to the closing price of a share of our common stock on the grant date.
During 2020, we also granted equity through inducement grants outside of our equity compensation plans to certain employees to induce them to accept employment with us (collectively, “Inducement Grants”). The options were granted at an exercise price equal to the fair market value of a share of our common stock on the respective grant dates and will become exercisable in four equal annual installments beginning on the first anniversary of the respective grant dates. The foregoing grants were made pursuant to inducement grants outside of our stockholder approved equity plans as permitted under the NASDAQ Stock Market listing rules. We assessed the terms of these awards and determined there was no possibility that we would have to settle these awards in cash and therefore, equity accounting was applied.
Stock Options
The following table summarizes stock option activity for the nine months ended September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2007
|
|
Lumara Health
|
|
Inducement
|
|
|
|
|
Plan
|
|
Plan
|
|
2013 Plan
|
|
Grants
|
|
Total
|
|
Outstanding at January 1, 2020
|
472,412
|
|
|
2,585,466
|
|
|
131,775
|
|
|
696,164
|
|
|
3,885,817
|
|
|
Granted
|
420,912
|
|
|
—
|
|
|
—
|
|
|
1,000,000
|
|
|
1,420,912
|
|
|
Exercised
|
(18,487)
|
|
|
—
|
|
|
(1,450)
|
|
|
—
|
|
|
(19,937)
|
|
|
Expired or terminated
|
(149,863)
|
|
|
(672,295)
|
|
|
(43,250)
|
|
|
(188,098)
|
|
|
(1,053,506)
|
|
|
Outstanding at September 30, 2020
|
724,974
|
|
|
1,913,171
|
|
|
87,075
|
|
|
1,508,066
|
|
|
4,233,286
|
|
Restricted Stock Units
The following table summarizes RSU activity for the nine months ended September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2007
|
|
Lumara Health
|
|
Inducement
|
|
|
|
|
Plan
|
|
Plan
|
|
2013 Plan
|
|
Grants
|
|
Total
|
|
Outstanding at January 1, 2020
|
128,742
|
|
|
1,407,305
|
|
|
2,167
|
|
|
41,223
|
|
|
1,579,437
|
|
|
Granted
|
825,131
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
825,131
|
|
|
Vested
|
(78,689)
|
|
|
(460,185)
|
|
|
(899)
|
|
|
(10,862)
|
|
|
(550,635)
|
|
|
Expired or terminated
|
(209,697)
|
|
|
(591,972)
|
|
|
(534)
|
|
|
(17,169)
|
|
|
(819,372)
|
|
|
Outstanding at September 30, 2020
|
665,487
|
|
|
355,148
|
|
|
734
|
|
|
13,192
|
|
|
1,034,561
|
|
Equity-Based Compensation Expense
Equity-based compensation expense for the three and nine months ended September 30, 2020 and 2019 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Cost of product sales
|
$
|
131
|
|
|
$
|
225
|
|
|
$
|
438
|
|
|
$
|
626
|
|
|
Research and development
|
237
|
|
|
691
|
|
|
260
|
|
|
2,051
|
|
|
Selling, general and administrative
|
1,854
|
|
|
4,058
|
|
|
7,403
|
|
|
11,039
|
|
|
Total equity-based compensation expense
|
2,222
|
|
|
4,974
|
|
|
8,101
|
|
|
13,716
|
|
|
Income tax effect
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
After-tax effect of equity-based compensation expense
|
$
|
2,222
|
|
|
$
|
4,974
|
|
|
$
|
8,101
|
|
|
$
|
13,716
|
|
In addition to the equity-based compensation expense presented in the table above, we incurred $0.7 million of equity-based compensation expense related to restructuring activities during the first quarter of 2019 (as discussed further in Note Q, below), which is classified within restructuring expense on our condensed consolidated statements of operations for the nine months ended September 30, 2019.
M. STOCKHOLDERS’ EQUITY
As of January 1, 2020, we had $26.8 million available under the share repurchase program initially approved by our Board of Directors in January 2016, which was updated in March 2019 to permit the repurchase of up to an aggregate of $80.0 million in shares of our common stock. During the nine months ended September 30, 2020, we did not repurchase shares of common stock under this program. As of September 30, 2020, $26.8 million remains available for future repurchases under this program.
N. COMMITMENTS AND CONTINGENCIES
Commitments
Our long-term contractual obligations include commitments and estimated purchase obligations entered into in the normal course of business. These include commitments related to our facility and vehicle leases, purchases of inventory, debt obligations, and other purchase obligations.
Operating Lease Obligations
As of September 30, 2020, we had operating lease liabilities of $21.9 million and related right-of-use assets of $21.1 million related to operating leases for real estate, including our corporate headquarters, vehicles and office equipment. As of September 30, 2020, our leases have remaining terms of one to eight years. The weighted average remaining lease term and discount rate for our operating leases was 7.4 years and 5.1% at September 30, 2020, respectively.
Lease costs for our operating leases were $1.2 million and $3.8 million for the three and nine months ended September 30, 2020, respectively and $1.4 million and $3.9 million for the three and nine months ended September 30, 2019, respectively. Operating cash outflows for operating leases were $3.6 million and $4.2 million for the nine months ended September 30, 2020 and 2019, respectively.
Future minimum payments under our non-cancelable operating leases as of September 30, 2020 are as follows (in thousands):
|
|
|
|
|
|
|
|
Period
|
Future Minimum Lease Payments
|
|
Remainder of Year Ending December 31, 2020
|
$
|
947
|
|
|
Year Ending December 31, 2021
|
3,248
|
|
|
Year Ending December 31, 2022
|
3,887
|
|
|
Year Ending December 31, 2023
|
3,291
|
|
|
Year Ending December 31, 2024
|
3,246
|
|
|
Thereafter
|
12,192
|
|
|
Total
|
$
|
26,811
|
|
|
Less: Interest
|
(4,924)
|
|
|
Operating lease liability
|
$
|
21,887
|
|
Purchase Obligations
Purchase obligations primarily represent minimum purchase commitments for inventory. As of September 30, 2020, our minimum purchase commitments totaled $25.9 million.
Contingent Regulatory and Commercial Milestone Payments
We are required to make payments contingent on the achievement of certain regulatory and/or commercial milestones under the terms of our collaboration, license and other strategic agreements. Please refer to Note O, “Acquisitions, Collaboration, License and Other Strategic Agreements” for additional details regarding these contingent payments.
Contingencies
Legal Proceedings
We accrue a liability for legal contingencies when we believe that it is both probable that a liability has been incurred and that we can reasonably estimate the amount of the loss. We review these accruals and adjust them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel and other relevant information. To the extent new information is obtained and our views on the probable outcomes of claims, suits, assessments, investigations or legal proceedings change, changes in our accrued liabilities would be recorded in the period in which such determination is made. For certain matters referenced below, the liability is not probable or the amount cannot be reasonably estimated and, therefore, accruals have not been made. In addition, in accordance with the relevant authoritative guidance, for any matters in which the likelihood of material loss is at least reasonably possible, we will provide disclosure of the possible loss or range of loss. If a reasonable estimate cannot be made, however, we will provide disclosure to that effect. We expense legal costs as they are incurred.
On June 5, 2020, Carrie Winchester and Matt Winchester filed a complaint against a list of defendants for claimed exposures to asbestos. AMAG Pharma USA, Inc. d/b/a Lumara Health Inc. was named as a defendant because Nesher Pharmaceuticals, Inc., a subsidiary of K-V Pharmaceutical Company (“KV”) (Lumara Health’s predecessor company), sold Nystatin powder that Ms. Winchester claims she may have used during her employment as a medical professional. We acquired Lumara Health in November 2014, a year after KV emerged from bankruptcy protection, at which time it, along with its then existing subsidiaries, became our wholly-owned subsidiary. The plaintiffs allege that Ms. Winchester developed injuries as a direct and proximate result of inhalation of asbestos dust particles and fibers from defendants’ products. On August 19, 2020, the plaintiffs dismissed the defendants, AMAG Pharma USA, Inc. d/b/a Lumara Health Inc. and Nesher Pharmaceuticals, Inc. without prejudice from this claim.
On November 6, 2019, we were served with a summons in a case filed in the U.S. District Court, Northern District of Ohio, captioned Civil Case in Saginaw Chippewa Indian Tribe v. Purdue Pharma et al (Case No. 1-19-op-45841). The complaint names KV, certain of its successor entities, subsidiaries and affiliate entities as defendants, along with over forty other pharmaceutical companies. The plaintiff in this action alleges that KV’s subsidiary, Ethex Corporation (as well as the other pharmaceutical companies named in the complaint), manufactured, promoted, sold, and distributed opioids, including a generic version of morphine. Defendants KV and Ethex Corporation were dismissed without prejudice from this Chippewa case pursuant to an order dated March 26, 2020. KV and Ethex were also named but not served in several other similar cases and were dismissed without prejudice from these other cases by orders dated March 26, 2020.
On November 1, 2019, we were named as a defendant in a class action lawsuit filed in the United States District Court for the Western District of Missouri, captioned Barnes v. AMAG Pharmaceuticals, Inc., Case No. 3:19-cv-05088-RK (W.D. Mo.). Subsequently, other plaintiffs represented by the same law firm filed similar class action lawsuits in other jurisdictions, and the lawsuits have been consolidated in the United States District Court for the District of New Jersey, Zamfirova et al. v. AMAG Pharmaceuticals, Inc., Case No. 20-00152-JMV-SCM (April 2, 2020). The plaintiffs in this action, on behalf of themselves and purported state-wide classes of similarly situated consumers in California, Kansas, Missouri, New Jersey, New York, and Wisconsin, assert claims for violation of state consumer protection laws and unjust enrichment based on allegations that we and/or our predecessor companies made misrepresentations and omissions regarding the effectiveness of Makena in connection with the sale and marketing of that product from 2011 through the present. On June 8, 2020, we filed a motion to dismiss the consolidated complaint. Plaintiffs responded with a brief in opposition to the motion on July 6, 2020. Our reply brief was filed on July 20, 2020. We are currently unable to predict the outcome or reasonably estimate the range of potential loss associated with this matter, if any.
On August 29, 2019, Lunar Representative, LLC (“Plaintiff”), on behalf of the former equity holders of Lumara Health Inc. (“Lumara”), filed a complaint against us in the Delaware Court of Chancery, captioned Lunar Representative, LLC v. AMAG Pharmaceuticals, Inc. (No. 2019-0688-JTL). On September 25, 2019, we filed a motion to dismiss the complaint. On January 9, 2020, Plaintiff filed an amended complaint. Plaintiff alleges that we did not exercise commercially reasonable efforts to market and sell the drug product Makena, and failed to achieve sales milestones for Makena, in breach of certain provisions of the September 28, 2014 Agreement and Plan of Merger between, among other parties, us and Lumara. On January 24, 2020, we filed a motion to dismiss the amended complaint and filed our opening brief in support of such motion to dismiss the amended complaint on April 14, 2020. Plaintiff filed an answer in opposition to the motion to dismiss on June 25, 2020. On August 21, 2020, the court denied our motion to dismiss. On September 18, 2020, we filed an answer to the amended complaint. Plaintiff is seeking damages of $50.0 million, together with pre- and post-judgment interest, as well as attorneys’ fees and costs. At this time, based on available information, we are unable to reasonably assess the ultimate outcome of this case or determine an estimate, or a range of estimates, of potential losses. We believe this lawsuit is without merit and intend to vigorously defend against the allegations.
On or about April 6, 2016, we received Notice of a Lawsuit and Request to Waive Service of a Summons in a case entitled Plumbers’ Local Union No. 690 Health Plan v. Actavis Group et. al. (“Plumbers’ Union”), which was filed in the Court of Common Pleas of Philadelphia County, First Judicial District of Pennsylvania and, after removal to federal court, is now pending in the United States District Court for the Eastern District of Pennsylvania (Civ. Action No. 16-65-AB). Thereafter, we were also made aware of a related complaint entitled Delaware Valley Health Care Coalition v. Actavis Group et. al. (“Delaware Valley”), which was filed with the Court of Common Pleas of Philadelphia County, First Judicial District of Pennsylvania District Court of Pennsylvania (Case ID: 160200806). Both the Plumbers’ Union and the Delaware Valley complaints name K-V Pharmaceutical Company (“KV”) (Lumara Health’s predecessor company), certain of its successor entities, subsidiaries and affiliate entities (the “Subsidiaries”), along with a number of other pharmaceutical companies. We acquired Lumara Health in November 2014, a year after KV emerged from bankruptcy protection, at which time it, along with its then existing subsidiaries, became our wholly-owned subsidiary. We have not been served with process or waived service of summons in either case. The actions are being brought alleging unfair and deceptive trade practices with regard to certain pricing practices that allegedly resulted in certain payers overpaying for certain of KV’s generic products. On July 21, 2016, the
Plaintiff in the Plumbers’ Union case dismissed KV with prejudice to refiling and on October 6, 2016, all claims against the Subsidiaries were dismissed without prejudice. We are in discussions with Plaintiff’s counsel to similarly dismiss all claims in the Delaware Valley case. Because we have not been served with process in the Delaware Valley case, we are currently unable to predict the outcome or reasonably estimate the range of potential loss associated with this matter, if any.
On July 20, 2015, the Federal Trade Commission (the “FTC”) notified us that it is conducting an investigation into whether Lumara Health or its predecessor engaged in unfair methods of competition with respect to Makena or any hydroxyprogesterone caproate product. As previously disclosed, we provided the FTC with a response in August 2015. We believe we have fully cooperated with the FTC and we have had no further interactions with the FTC on this matter since we provided our response to the FTC in August 2015. For further information on this matter, see Note N, “Commitments and Contingencies” to our Annual Report.
We may periodically become subject to other legal proceedings and claims arising in connection with ongoing business activities, including claims or disputes related to patents that have been issued or that are pending in the field of research on which we are focused. Other than the above actions, we are not aware of any material claims against us as of September 30, 2020.
O. ACQUISITIONS, COLLABORATION, LICENSE AND OTHER STRATEGIC AGREEMENTS
During the nine months ended September 30, 2020, we were a party to the following collaboration, license or other strategic agreements:
Norgine
In July 2020, we entered into a License and Commercialization Agreement with Norgine B.V. (“Norgine”, and such agreement, the “Norgine Agreement”), pursuant to which we granted Norgine an exclusive license to develop and commercialize ciraparantag in certain countries in Europe, Australia and New Zealand. We received a $30.0 million upfront, non-refundable payment upon signing. In addition, pursuant to the terms and conditions of the Norgine Agreement (a) Norgine will pay us one-third of the actual and reasonable out-of-pocket costs of the Phase 3 program, pursuant to a mutually agreed upon budget, (b) we are eligible to receive up to $70.0 million upon the achievement of certain regulatory milestones (of which we will pay $40.0 million to the former equity holders of Perosphere pursuant to the terms of the Perosphere Agreement (described below), (c) we are eligible to receive up to $190.0 million contingent upon meeting certain sales milestones, and (d) Norgine will pay us tiered double-digit royalties on net sales in the licensed territory. We will be responsible for manufacturing and supplying Norgine with its requirements of clinical and commercial product pursuant to supply agreement(s) to be entered into by the parties.
Perosphere
On January 16, 2019, we acquired Perosphere pursuant to the Agreement and Plan of Merger (the “Perosphere Agreement”), dated as of December 12, 2018 between AMAG and Perosphere. We accounted for this transaction as an asset acquisition under ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”).
Under and subject to the terms and conditions set forth in the Perosphere Agreement, we are obligated to pay future contingent consideration of up to an aggregate of $365.0 million (the “Milestone Payments”), including (a) up to an aggregate of $140.0 million that becomes payable upon the achievement of specified regulatory milestones for ciraparantag (the “Regulatory Milestone Payments”), including a $40.0 million milestone payment upon approval of ciraparantag by the European Medicines Agency and (b) up to an aggregate of $225.0 million that becomes payable conditioned upon the achievement of specified sales milestones (the “Sales Milestone Payments”). If the final label approved for ciraparantag in the U.S. includes a boxed warning, the Regulatory Milestone Payments shall no longer be payable, and any previously paid Regulatory Milestone Payments shall be credited against 50% of any future Milestone Payments that otherwise becomes payable. The first sales milestone payment of $20.0 million will be payable upon annual net sales of ciraparantag of at least $100.0 million.
Velo
In September 2018, we exercised our option to acquire the global rights to the AMAG-423 program, pursuant to an option agreement entered into in July 2015 (the “Velo Option Agreement”) with Velo Bio, LLC (“Velo”), the terms of which were amended at the time of exercise. We accounted for this transaction as an asset acquisition under ASU No. 2017-01. Under the terms of the agreement, we are obligated to pay Velo a $30.0 million milestone payment upon FDA approval of AMAG-423. In
addition, we are obligated to pay sales milestone payments to Velo of up to $240.0 million in the aggregate, triggered at various annual net sales thresholds between $300.0 million and $900.0 million and low-single digit royalties based on net sales. Further, we have assumed additional obligations under a previous agreement entered into by Velo with a third-party, including a $5.0 million milestone payment upon regulatory approval and $10.0 million following the first commercial sale of AMAG-423, payable in quarterly installments as a percentage of quarterly gross commercial sales until the obligation is met. We are also obligated to pay the third-party low-single digit royalties based on net sales.
In July 2020, we decided to stop the AMAG-423 Phase 2b/3a study. This decision was based primarily on DSMB unanimous recommendation to stop the study following an interim analysis of the data collected to date in the study. There were no safety concerns raised during this study and safety was not a contributing factor to our decision to terminate the study. We are currently focused on ensuring an appropriate closeout of the study in partnership with investigators and other relevant stakeholders.
In connection with the cessation of the AMAG-423 Phase 2b/3a study, on August 6, 2020, we terminated our supply agreement (including termination of significant minimum purchase obligations) with our third party supplier, Protherics UK Ltd, a subsidiary of BTG plc (“BTG”), in exchange for a one-time payment by us of $12.5 million and our grant to BTG of a 9-month option (subject to extension under certain situations) to acquire the AMAG-423 program rights and assume our related obligations, including our obligations under the Velo Option Agreement.
Antares
We are party to a development and license agreement (the “Antares License Agreement”) with Antares Pharma, Inc. (“Antares”), which grants us an exclusive, worldwide, royalty-bearing license, with the right to sublicense, to certain intellectual property rights, including know-how, patents and trademarks, to develop, use, sell, offer for sale and import and export the Makena auto-injector. Under the terms of the Antares License Agreement, as amended in March 2018, we are responsible for the clinical development and preparation, submission and maintenance of all regulatory applications in each country where we desire to market and sell the Makena auto-injector, including the U.S. We are required to pay royalties to Antares on net sales of the Makena auto-injector until the Antares License Agreement is terminated (the “Antares Royalty Term”). The royalty rates range from high single digit to low double digits and are tiered based on levels of net sales of the Makena auto-injector and decrease after the expiration of licensed patents or where there are generic equivalents to the Makena auto-injector being sold in a particular country. In addition, we are required to pay Antares sales milestone payments upon the achievement of certain annual net sales. The Antares License Agreement terminates at the end of the Antares Royalty Term, but is subject to early termination by us for convenience and by either party upon an uncured breach by or bankruptcy of the other party. In March 2018, the Antares License Agreement was amended to, among other things, transfer the agreement to AMAG from our subsidiary, amend certain confidentiality provisions, and to provide for co-termination with the Antares Manufacturing Agreement (described below).
We are also party to a Manufacturing Agreement with Antares (the “Antares Manufacturing Agreement”) that sets forth the terms and conditions pursuant to which Antares agreed to sell to us on an exclusive basis, and we agreed to purchase, the fully packaged Makena auto-injector for commercial distribution. Antares remains responsible for the manufacture and supply of the device components and assembly of the Makena auto-injector. We are responsible for the supply of the drug to be used in the assembly of the finished auto-injector product. The Antares Manufacturing Agreement terminates at the expiration or earlier termination of the Antares License Agreement, but is subject to early termination by us for certain supply failure situations, and by either party upon an uncured breach by or bankruptcy of the other party or our permanent cessation of commercialization of the Makena auto-injector for efficacy or safety reasons.
Endoceutics
In February 2017, we entered into the Endoceutics License Agreement with Endoceutics, Inc. (“Endoceutics”) to obtain an exclusive right to commercialize Intrarosa for the treatment of vulvar and vaginal atrophy (“VVA”) and female sexual dysfunction (“FSD”) in the United States. The transactions contemplated by the Endoceutics License Agreement closed on April 3, 2017. We accounted for the Endoceutics License Agreement as an asset acquisition under ASU 2017-01.
In April 2017, we entered into an exclusive commercial supply agreement with Endoceutics pursuant to which Endoceutics, itself or through affiliates or contract manufacturers, agreed to manufacture and supply Intrarosa to us (the “Endoceutics Supply Agreement”) and was our exclusive supplier of Intrarosa in the U.S., subject to certain rights for us to manufacture and supply Intrarosa in the event of a cessation notice or supply failure (as such terms are defined in the Endoceutics Supply Agreement).
On May 21, 2020, we sold our rights to commercialize and have manufactured Intrarosa in the United States to Millicent Pharma Limited (“Millicent”) pursuant to an Asset Purchase Agreement between the Company and Millicent, dated May 21, 2020. Under the terms of the Asset Purchase Agreement, we received an upfront payment of $20.9 million in cash, subject to customary purchase price adjustments, including in connection with the transfer of certain inventory. We are eligible to receive up to $105.0 million in aggregate milestone payments upon the achievement of certain sales milestones, namely: (a) $25.0 million the first time net sales during any consecutive twelve month period exceeds $65.0 million, (b) $35.0 million the first time net sales during any consecutive twelve month period exceeds $115.0 million and (c) $45.0 million the first time net sales during any consecutive twelve month period exceeds $175.0 million. We recognized a gain of $14.4 million within Loss on Disposal of Assets, Net on our condensed consolidated statements of operations for the three and nine months ended September 30, 2020 related to this transaction. The gain recognized is net of transaction fees of $2.5 million and the carrying value of the Intrarosa assets and other costs of $4.0 million.
As part of the transaction with Millicent, we assigned both the Endoceutics License Agreement and the Endoceutics Supply Agreement to Millicent, and we agreed to provide certain transitional services to Millicent for a period of time following the closing pursuant to a transition services agreement.
Palatin
In January 2017, we entered into a license agreement with Palatin Technologies, Inc. (“Palatin”) under which we acquired (a) an exclusive license in all countries of North America (the “AMAG Territory”), with the right to grant sub-licenses, to research, develop and commercialize the Vyleesi Products, (b) a worldwide non-exclusive license, with the right to grant sub-licenses, to manufacture the Vyleesi Products, and (c) a non-exclusive license in all countries outside the AMAG Territory, with the right to grant sub-licenses, to research and develop (but not commercialize) the Vyleesi Products (the “Palatin License Agreement”). The transaction closed in February 2017 and was accounted for as an asset acquisition under ASU 2017-01.
In July 2020, we entered into a termination agreement with Palatin detailing the terms and conditions for the termination of the Company’s rights and obligations to develop and commercialize Vyleesi under the Palatin License Agreement and for the transfer of full ownership of Vyleesi to Palatin (the “Termination Agreement”). In accordance with the terms of the Termination Agreement, we transferred and assigned to Palatin the regulatory approval for Vyleesi, inventory, certain third party contracts, intellectual property rights and regulatory files and commercial materials of AMAG related to Vyleesi in the AMAG Territory. In consideration for the early termination of the License Agreement, the assumption of certain liabilities by Palatin (including significant minimum purchase obligations), and in lieu of any future milestone payments, royalties and other payments by AMAG to Palatin contemplated by the Palatin License Agreement, we paid Palatin $12.0 million following the termination, and we will pay an additional $4.3 million on March 31, 2021. We recognized a loss of $22.4 million in Loss on Disposal of Assets, net on our condensed consolidated statements of operations for the three and nine months ended September 30, 2020 related to this transaction. The loss recognized includes the carrying value of the Vyleesi assets and other costs, totaling $6.1 million in the aggregate. In addition, we agreed to provide certain transitional services to Palatin for a period of time following the closing pursuant to a transition services agreement.
P. DEBT
Our outstanding debt obligations as of September 30, 2020 and December 31, 2019 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
|
|
|
|
|
2022 Convertible Notes
|
$
|
289,334
|
|
|
$
|
277,034
|
|
|
Total long-term debt
|
289,334
|
|
|
277,034
|
|
|
Less: current maturities
|
—
|
|
|
—
|
|
|
Long-term debt, net of current maturities
|
$
|
289,334
|
|
|
$
|
277,034
|
|
Convertible Notes
The outstanding balance of our 2022 Convertible Notes as of September 30, 2020 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 Convertible Notes
|
|
|
|
|
|
Liability component:
|
|
|
|
|
|
|
|
Principal
|
|
$
|
320,000
|
|
|
|
|
|
|
Less: debt discount and issuance costs, net
|
|
30,666
|
|
|
|
|
|
|
Net carrying amount
|
|
$
|
289,334
|
|
|
|
|
|
|
Gross equity component
|
|
$
|
72,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with accounting guidance for debt with conversion and other options, we separately account for the liability and equity components of our 2022 Convertible Notes by allocating the proceeds between the liability component and the embedded conversion option (the “Equity Component”) due to our ability to settle the 2022 Convertible Notes in cash, common stock or a combination of cash and common stock, at our option. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The allocation was performed in a manner that reflected our non-convertible debt borrowing rate for similar debt. The Equity Component of the 2022 Convertible Notes was recognized as a debt discount and represents the difference between the proceeds from the issuance of the 2022 Convertible Notes and the fair value of the liability of the 2022 Convertible Notes on the date of issuance. The excess of the principal amount of the liability component over its carrying amount is amortized to interest expense using the effective interest method over five years. The Equity Component is not remeasured as long as it continues to meet the conditions for equity classification.
2022 Convertible Notes
In the second quarter of 2017, we issued $320.0 million aggregate principal amount of convertible senior notes due in 2022 (the “2022 Convertible Notes”) and received net proceeds of $310.4 million from the sale of the 2022 Convertible Notes, after deducting fees and expenses of $9.6 million. The approximate $9.6 million of debt issuance costs primarily consisted of underwriting, legal and other professional fees, and we allocated these costs to the liability and equity components based on the allocation of the proceeds. Of the total $9.6 million of debt issuance costs, $2.2 million was allocated to the Equity Component and recorded as a reduction to additional paid-in capital and $7.4 million was allocated to the liability component and is now recorded as a reduction of the 2022 Convertible Notes on our condensed consolidated balance sheets. The portion allocated to the liability component is amortized to interest expense using the effective interest method over five years.
The 2022 Convertible Notes are governed by the terms of an indenture between us, as issuer, and Wilmington Trust, National Association, as the trustee. The 2022 Convertible Notes are senior unsecured obligations and bear interest at a rate of 3.25% per year, payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2017. The 2022 Convertible Notes will mature on June 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 upon the occurrence of certain events, including, but not limited to, the issuance of stock dividends and payment of cash dividends. At any time prior to the close of business on the business day immediately preceding March 1, 2022, holders may convert their 2022 Convertible Notes at their option only under the following circumstances:
1)during any calendar quarter (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
2)during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of the 2022 Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; or
3)upon the occurrence of specified corporate events.
On or after March 1, 2022, until the close of business on the business day immediately preceding the maturity date, holders may convert all or any portion of their 2022 Convertible Notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances. The 2022 Convertible Notes were not convertible as of September 30, 2020.
We determined the expected life of the debt was equal to the five-year term on the 2022 Convertible Notes. The effective interest rate on the liability component was 9.49% for the period from the date of issuance through September 30, 2020. As of September 30, 2020, the “if-converted value” did not exceed the remaining principal amount of the 2022 Convertible Notes.
2019 Convertible Notes
In February 2014, we issued $200.0 million aggregate principal amount of the 2019 Convertible Notes. During 2017, we entered into privately negotiated transactions with certain investors to repurchase approximately $178.5 million aggregate principal amount of the 2019 Convertible Notes for an aggregate repurchase price of approximately $192.7 million, including accrued interest. The remaining $21.4 million of 2019 Convertible Notes matured on February 15, 2019 and were settled with cash.
Convertible Notes Interest Expense
The following table sets forth total interest expense recognized related to the Convertible Notes during the three and nine months ended September 30, 2020 and 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Contractual interest expense
|
$
|
2,600
|
|
|
$
|
2,600
|
|
|
$
|
7,800
|
|
|
$
|
7,867
|
|
|
Amortization of debt issuance costs
|
388
|
|
|
353
|
|
|
1,137
|
|
|
1,051
|
|
|
Amortization of debt discount
|
3,810
|
|
|
3,466
|
|
|
11,164
|
|
|
10,281
|
|
|
Total interest expense
|
$
|
6,798
|
|
|
$
|
6,419
|
|
|
$
|
20,101
|
|
|
$
|
19,199
|
|
Future Payments
Future annual principal payments on our long-term debt as of September 30, 2020 include $320.0 million due during the year ending December 31, 2022.
Q. RESTRUCTURING EXPENSES
In May 2020, we completed a restructuring to reduce the size of our organization in conjunction with the planned divestiture of Intrarosa and Vyleesi and expected declines in our revenue due to the COVID-19 pandemic. Approximately 110 employees were displaced through this workforce reduction. We recorded a one-time restructuring charge of $8.2 million primarily related to severance and related benefits on our condensed consolidated statement of operations during the second quarter of 2020 and expect the restructuring charges incurred to date under this program to be substantially paid in cash by the end of the second quarter of 2021.
In February 2019, we completed a restructuring to combine our women’s health and maternal health sales forces into one integrated sales team, which promotes Intrarosa, the Makena auto-injector and Vyleesi. Approximately 110 employees were displaced through this workforce reduction. We recorded one-time restructuring charges of $7.4 million primarily related to severance and related benefits on our condensed consolidated statement of operations during the first quarter of 2019. The remaining accrued restructuring charges incurred under this program will be paid in cash by the end of the first quarter of 2021.
The following table displays charges taken related to the restructuring during the nine months ended September 30, 2020 (in thousands):
|
|
|
|
|
|
|
|
2020 Restructuring charges:
|
|
|
Workforce reduction
|
$
|
8,090
|
|
|
Other
|
107
|
|
|
Total 2020 restructuring charges
|
$
|
8,197
|
|
The following table displays a rollforward of the changes to the accrued balances as of September 30, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 Restructuring
|
|
2020 Restructuring
|
|
Total
|
|
Balance accrued at December 31, 2019
|
$
|
797
|
|
|
$
|
—
|
|
|
$
|
797
|
|
|
2020 Restructuring Charges
|
—
|
|
|
8,197
|
|
|
8,197
|
|
|
Workforce Reduction Payments
|
(626)
|
|
|
(6,665)
|
|
|
(7,291)
|
|
|
Other Payments
|
—
|
|
|
(107)
|
|
|
(107)
|
|
|
Balance accrued at September 30, 2020
|
$
|
171
|
|
|
$
|
1,425
|
|
|
$
|
1,596
|
|
R. REVISION OF PRIOR PERIOD FINANCIAL STATEMENTS
Prior period amounts, specifically net product sales and accrued expenses have been revised to correct prior period errors related to gross-to-net (“GTN”) adjustments for governmental rebates and the related accrual for certain state programs.
During the third quarter of 2020, in conjunction with our remediation efforts related to the errors identified during the second quarter of 2020 described below, we identified certain individually immaterial errors aggregating to $5.2 million related to governmental rebate accruals associated with Makena sales during the first and second quarters of 2020. We understated our GTN adjustments for governmental rebates and the related accrual for certain state programs by $2.8 million for the quarter ended March 31, 2020 and $2.8 million for the quarter ended June 30, 2020. This understatement also resulted in an overstatement of our related royalty obligation of $0.2 million for the quarter ended March 31, 2020 and $0.2 million for the quarter ended June 30, 2020. During the third quarter of 2020, we concluded that the errors were not material to any prior interim periods. However, we determined that correcting the aggregate error during the third quarter of 2020 would be material to the three-month period ended September 30, 2020. As a result, we have revised our historical financial statements to properly reflect the GTN adjustments and related royalty impact and accrual in the appropriate periods through an immaterial correction.
The effect of the correction to our condensed consolidated statement of stockholders’ equity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
As reported
|
|
Adjustment
|
|
As adjusted
|
|
Accumulated deficit
|
$
|
(1,051,153)
|
|
|
$
|
(5,216)
|
|
|
$
|
(1,056,369)
|
|
|
Total stockholders' equity
|
$
|
249,322
|
|
|
$
|
(5,216)
|
|
|
$
|
244,106
|
|
As previously reported, subsequent to the issuance of our Form 10-Q for the quarter ended March 31, 2020, management identified certain individually immaterial errors aggregating to $6.3 million related to governmental rebate accruals associated with Makena sales from 2016 through the first quarter of 2020. From 2016 through 2019, we understated our GTN adjustments for governmental rebates and the related accrual for a certain state program by $6.3 million and for the quarter ended March 31, 2020, we overstated these amounts by $1.8 million. As previously reported, we concluded that the errors were not material to any prior annual or interim period; however, we determined that correcting the aggregate error during the second quarter of 2020 would be material to the three-month period ended June 30, 2020. As a result, we have revised our historical financial statements to properly reflect GTN adjustments and the related accrual in the appropriate periods.
The effect of the corrections to our condensed consolidated statements of operations for the three and nine months ended September 30, 2019 are as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
Nine Months Ended September 30, 2019
|
|
|
As reported
|
|
Adj
|
|
As adjusted
|
|
As reported
|
|
Adj
|
|
As adjusted
|
|
Product sales, net
|
$
|
84,107
|
|
|
$
|
(323)
|
|
|
$
|
83,784
|
|
|
$
|
237,812
|
|
|
$
|
(981)
|
|
|
$
|
236,831
|
|
|
Total revenues
|
84,131
|
|
|
(323)
|
|
|
83,808
|
|
|
238,043
|
|
|
(981)
|
|
|
237,062
|
|
|
Net loss
|
$
|
(23,617)
|
|
|
$
|
(323)
|
|
|
$
|
(23,940)
|
|
|
$
|
(266,528)
|
|
|
$
|
(981)
|
|
|
$
|
(267,509)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
$
|
(0.70)
|
|
|
$
|
(0.01)
|
|
|
$
|
(0.71)
|
|
|
$
|
(7.83)
|
|
|
$
|
(0.02)
|
|
|
$
|
(7.85)
|
|
The condensed consolidated statements of other comprehensive loss for the three and nine months ended September 30, 2019 have been revised to include the changes to “net loss” summarized above.
The condensed consolidated statement of stockholders’ equity for the three months ended September 30, 2020 has been revised to reflect an increase of $5.2 million to the beginning “accumulated deficit” as of July 1, 2020, representing the accumulated error through that date. The condensed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2019 have been revised to include the changes to “net loss” summarized above as well as an increase of $5.1 million to the beginning “accumulated deficit” as of January 1, 2019, representing the accumulated error through that date.
The impact on our condensed consolidated statements of cash flows for the nine months ended September 30, 2019, was limited to the offsetting correction between “net loss” and changes in “accounts payable and accrued expenses” presented within “net cash used in operating activities”, as summarized in the above tables.
Refer to Amendment No. 1 on Form 10-K/A to our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on September 15, 2020 for the impact on periods reported in the Company’s 2019 Annual Report on Form 10-K filed with the SEC on March 6, 2020 and for the impact on our condensed consolidated statement of operations for the impacted periods.
S. RECENTLY ISSUED AND PROPOSED ACCOUNTING PRONOUNCEMENTS
From time to time, new accounting pronouncements are issued by FASB or other standard setting bodies that are adopted by us as of the specified effective date.
In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). This standard simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. ASU 2020-06 is effective for annual reporting periods beginning after December 15, 2021 and interim periods within those annual periods. Early adoption is permitted but no earlier than annual reporting periods beginning after December 15, 2020 and interim periods within those annual periods. We are currently evaluating the impact of adoption of ASU 2020-06 on our condensed consolidated financial statements.
T. SUBSEQUENT EVENTS
Agreement and Plan of Merger
On October 1, 2020, we entered into the Merger Agreement with Covis and Merger Sub, pursuant to which Merger Sub has launched the Offer. The Merger Agreement has been unanimously approved by the boards of directors of AMAG and Covis. The Offer commenced on October 15, 2020 and will remain open for a minimum of 20 business days. The completion of the Offer is subject to customary closing conditions, including the tender of at least a majority of the outstanding shares of AMAG’s common stock, the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (which condition was satisfied on October 23, 2020), and other customary conditions. Upon the completion of the Offer, Merger Sub will merge with and into AMAG, with AMAG continuing as the surviving corporation (the “Merger”) and any outstanding shares of common that were not tendered in the Offer (or owned by Covis) will be automatically cancelled and converted into the right to receive an amount in cash equal to $13.75 per share, without interest. In addition, immediately prior to, and contingent upon, the closing of the Merger, each outstanding AMAG in-the-money stock option and restricted stock unit, whether vested or unvested, will be cancelled and automatically converted into the right to receive a cash payment in accordance with the terms of the Merger Agreement. The Offer and Merger are not subject to a financing condition.
The Merger Agreement contains customary representations, warranties and covenants, including covenants obligating AMAG to continue to conduct its business in the ordinary course, to cooperate in seeking regulatory approvals and not to engage in certain specified transactions or activities without Covis’s prior consent. The Merger Agreement also contains certain termination rights for each of AMAG and Covis, including the right to terminate the agreement if the Offer has not been consummated by January 28, 2021 or if the other party has materially breached and not cured any representation, warranty or covenant in the Merger Agreement. If we terminate the Merger Agreement under certain specified circumstances, we would be required to pay Covis a termination fee of $16.25 million.
Securities Litigation
In connection with the proposed Merger with Covis, seven complaints have been filed against the Company and its directors and certain officers, one of which also names Covis and certain of its affiliates as defendants. The complaints contain substantially similar allegations and generally allege that the Company’s solicitation/recommendation statement filed with the SEC on October 15, 2020 misrepresents and/or omits certain purportedly material information relating to financial projections and the analysis performed by the Company’s financial advisor in connection with the transaction and therefore violated Sections 14(e), 14(d)(4) and 20(a) of the Securities Exchange Act of 1934. The complaints seek, among other things, an injunction enjoining the consummation of the proposed transaction (or, if consummated, rescinding the transaction or awarding rescissory damages), costs related to the actions, including plaintiff’s attorneys’ fees and experts’ fees, declaratory relief, and any other relief the court may deem just and proper. In addition, one complaint also asserts that the directors breached their fiduciary duty of candor/disclosure by omitting purportedly material information from the solicitation/recommendation statement. We are currently unable to predict the outcome or reasonably estimate the range of potential loss associated with these claims, if any. It is possible that additional similar cases may also be filed in connection with the Merger.
FDA’s Proposal Regarding Makena
On October 5, 2020, we received a notice from the Center for Drug Evaluation and Research of the Food and Drug Administration (“FDA”) that the FDA is proposing to withdraw approval of Makena and that AMAG has the opportunity to request a hearing on the withdrawal. On October 14, 2020, we filed a request for a hearing with the FDA, together with an extension request for providing the supplemental information in support of our request for a hearing. On October 22, 2020, the FDA agreed to an extension and we plan to submit to the FDA by December 4, 2020 data, information, and analyses to demonstrate that there is a genuine and substantial issue of material fact that requires a hearing.