Expert Financial Analysis and Reporting

Key Points:

• Recent announcement that AMAG will not pursue Orphan Drug Exclusivity for Makena SC has hammered the stock of AMAG, but has had only a modest effect on ATRS.
• I believe that this does not change the commercial opportunity for Makena SC over the next two to three years.
• This potentially could move the launch date up four months to 4Q, 2017.
• I continue with my Buy on Antares and my Neutral rating on AMAG. There is reasonable potential for an upgrade on AMAG at some later date.

Recent Press Release Leads to Stock Plunge for AMAG

The stock price of AMAG took a major hit following a press release on January 9, 2017 that caused the price to plunge from $36 to $23. The press release stated that full year 2016 sales were expected to be $529 to $551 million which was slightly less than consensus estimates of $551 million. It issued further guidance for 2017 sales of $620 to $670 million. Taking the mid-points of 2016 and 2017 sales guidance, this suggests an increase in sales of 19% for 2017.

I think that the more important reason for the decline was the statement that they were discontinuing a pain study that would have been the basis for seeking Orphan Drug exclusivity for the subcutaneous delivery form of Makena (Makena SC) that they are developing. This was cited as the reason for a downgrade from a brokerage analyst who had been a major supporter of the stock. This report gives my interpretation of the importance of this decision for AMAG and also for my Buy recommendation on Antares, which is providing the injection device used in Makena SC.

I listened to the Company’s presentation at the JP Morgan conference which spent a considerable amount of time on this issue and I report the highlights of that presentation in this report.

Implications for Approval and Commercialization of Makena SC.

Based on my analysis, the decision to discontinue the pain study and not seek Orphan Drug approval for Makena SC is neutral or even a very modest positive (surprisingly) in the period of one to three years and a modest negative beyond two to three years. The decision actually moves up the potential approval from 1Q, 2018 to 4Q, 2017 assuming that the FDA meets its approval timeline objective, an always risky assumption.

The advantage of gaining Orphan Drug approval would have been that AMAG would have had seven years of exclusivity on selling a subcutaneous dosage form of Makena. Without Orphan drug approval, other companies can develop a subcutaneous dosage form under the 505 (b) 2 pathway which would only require them to demonstrate bio-equivalency to Makena IM which is administered intramuscularly. However, they would have to use a different injector than the Antares device used in Makena SC because of Antares patents on its device.

Let’s look at the forms of potential competition to Makena SC. If a potential competitor wanted to sell an AB rated generic version of Makena SC, it would not only have to show bio-equivalence but also that the action of their injector is equivalent to the Antares injector. The issues that Antares and Teva encountered in their attempts to develop AB rated versions to sumatriptan and EpiPen suggests that this can be a very difficult undertaking. It is more likely that a potential competitor in order to gain approval will have to market its product as a branded competitor and not as a substitutable generic. I think this is the probable outcome and is a much less onerous outcome. (As I go into later, there are likely to be generics that are based on vials and which require intra-muscular injections. I view this as a modest negative,)

I also do not expect a rush of companies trying to develop subcutaneous formulations of Makena. There aren’t just that many injector devices to choose from. Also, AMAG management has said that the active pharmaceutical ingredient of Makena-hydroxyprogesterone caproate- is highly viscous and difficult to administer via subcutaneous administration. They were highly impressed by the demonstrated ability of the Antares injector to develop testosterone which is also highly viscous. They have stated there were not a lot of subcutaneous injectors to select from and that the Antares injector was the best option.

I am not aware of any company now working on a subcutaneous injector product to compete with Makena SC although there may be one or more. Given the size of the market opportunity, I think that it is highly likely that there will be attempts. However, if it is the case that no one has started such a project, it is likely that it will take three years to develop a product and gain approval. It is also likely that the product would be sold as a branded product and not as a substitutable AB generic to Makena SC. Experience with branded competitors to EpiPen has shown that branded competitors gain only modest market shares.

I stated earlier that I believe that the decision to not seek Orphan Drug approval is a modest positive for Makena SC in the next two to three years. This is because the product will likely be commercialized four months earlier and I do not see another subcutaneous injector competitor entering the market for two to three years. If Makena SC had gained Orphan Drug exclusivity, it would have prevented any other company from marketing a subcutaneous version of Makena for seven years. Without this protection, competition is likely in the timeframe beyond two to three years. Hence, it is a longer term negative.

Investment Opinion on AMAG and Antares

My interest in AMAG is derivative of my long standing Buy recommendation of Antares. I initiated coverage of AMAG last June in a report called AMAG Pharmaceuticals: Initiation of Research on a Complex but Potentially Very Interesting Investment Situation (AMAG, Neutral, $24). This was motivated by Antares’ involvement in the development of Makena SC. Approval of Makena SC could have a substantial impact on the profits of Antares.

Projecting the revenue potential of Makena SC is complex. The Makena franchise is expected to achieve sales on $333 to $336 million in 2016 and grow to $410 to $440 million in 2017. Orphan Drug exclusivity for the Makena franchise ends in February 2018 and generic competitors are likely although it is unclear as to how quickly they will come to market. The type of generic entry is also unclear as to whether it will be in a preservative free, single vial or a multi-dose, non-preservative vial. Most of current sales are in the preservative free, single vial.

Even with generic competition, I expect that much of this market will switch to Makena SC if and when it becomes available due to the significant reduction in pain as compared to a painful, intramuscular injection and the much greater efficiency it provides in the physician’s office. I think that Makena SC will take over a good part of this $400+ million market. The terms of the deal with Antares haven’t been publicly revealed, but my guess is that each $100 million of Makena SC sales leads to $8 to $10 million of pretax profits for Antares.

I think that approval of Makena SC would be a major boost for Antares and my best judgment is that this will occur late in 4Q, 2017 and strongly supports my Buy recommendation. This would also be a positive for AMAG and could lead me to recommend the stock at some point. However, I find AMAG to be a complex company and I lack confidence in my understanding of Cord Blood Registry and Feraheme, its other two major product groups.

Another reason for remaining neutral on AMAG is the uncertainty that always prevails around the timing of approval and subsequent commercialization of a new product. A delay in approval or concern about the sales trajectory of the launch could have a major impact on the stock. While I expect approval of Makena SC in 4Q, 2017 and a rapid conversion of Makena IM sales to Makena SC, history suggests there is a reasonable potential for a delay in approval and uncertainty on the commercialization potential. These could have profound negative effects on AMAG’s stock price. While this would be a negative for Antares, there are several other important product development efforts underway so that the stock could do well without any contribution from Makena SC.

Highlights from JP Morgan Presentation

Advantages of Makena SC

The current Makena intra-muscular injection is drawn into a syringe and injected deep into the patients’ buttocks over a minute with a large gauge needle. This is a painful exercise. Makena IM causes considerable pain to all patients. In contrast, 75% of patients who used SC Makena reported no injection site pain or irritation. A subcutaneous delivery form promises a shorter and less painful experience for pregnant women.

Makena SC with its smaller gauge needle and faster injection time also offers greater convenience for office workers. It is much easier for physicians and their staffs to handle and administer the drug. For example, the caregiver currently has to withdraw the drug from a vial into a syringe and then change to a different gauge needle to give the injection. Disposal of the injector is also much easier. AMAG believes that its advantages will allow Makena SC to largely replace Makena IM.

Registrational Plans

They are currently conducting a pharmacokinetic study that compares the IM and SC injections of Makena. As previously mentioned, they were also conducting a pain study intended to gain Orphan Drug exclusivity. Preliminary data has indicated that they were unlikely to show superiority and therefore they discontinued the pain study. The Company is moving forward with their plan to file a sNDA in the second quarter of 2017. Because they are not requesting Orphan Drug exclusivity, they expect a six month time clock for approval instead of ten months. This pulls forward potential approval for Makena SC into 4Q, 2017. Had they gone the Orphan drug route, expected approval would have been in 1Q, 2018.

The initial plan was to seek Orphan drug exclusivity. Since this initial decision they did some market research with physicians and payers. Their initial conclusion was that what mattered most was less injection pain. However, they found somewhat surprisingly that the primary thing physicians were looking for was shortening office staff time of treatment and increasing office efficiency. Less pain for the patient was an important, but lesser consideration. The pain issue also was of almost no importance to payors.

They also became better educated on the patent portfolio of Antares and the plans to file additional patents. They believe these provide a pretty high level of protection for the auto-injector although not as much as Orphan drug exclusivity as I have previously explained.

As a result, they have changed their mind. They will simply be filing the pharmacokinetic data in the second quarter to seek approval and expect approval in 4Q, 2017.

Regulatory Requirements to Gain Approval of Makena SC

The FDA has provided written guidance to the industry on requirements to move from intra-muscular to a subcutaneous dosage form which is based on comparable bioavailability. These set a range of 85% to 120% that has to be met for the relevant parameters. These can differ for different y types of drugs. For example, in developing an AB rated generic to short acting EpiPen, Tmax and Cmax are important. AUC is not so is not so much so. If a company is developing a therapy that requires a duration of therapy of seven days like Makena, AUC is more important. The FDA also says that in the event that a company doesn’t meet all of the parameters of comparability, the Company needs to explain why that may not be relevant to its product.

AMAG will release PK results in 1Q, 2017 and they are optimistic about a positive outcome. What is their confidence level in the PK study? For the last several months they have been doing pilot studies comparing SC and IM. It is not unusual when moving from IM to SC that you tweak the formulation and volume to make it as comparable as possible. The initial pilot studies indicated that they had a comparable formulation and they repeated those studies to increase that confidence. This has given them the confidence to go on to a larger PK study that involves 120 patients with 60 patients in the IM and 60 patients in the SC arm. These are healthy volunteers. They receive a single injection of either IM or SC and blood draws are then taken over a period of 42 days. That data is now being collected and sent to the blood lab to be analyzed.

Commercial Launch Issues

This moves the launch plans forward to 4Q, 2017 roughly four months sooner than would have been the case. When they launched the single vial Makena IM they were doing a soft conversion. They were letting the physicians decide whether to convert from the multi-does vial. Over a four month period roughly 50% of the market converted from multi-dose to single dose. In the case of Makena SC, the sales force will be more active in encouraging physicians to convert.

They will use much the same strategy with the 4Q launch as they would have done if they launched four months later. They will likely not immediately pull the 1 ml and 5 ml vials off the market place. Most of their enrollments today go through Makena Care Connection. Though this activity, they will actively reach out to physicians who write a prescription for the 1 ml or 5 ml vial and ask them if they have heard of the new formulation. They can outline some of the advantages and they can have a rep in the office in the next few days to help a physician get trained on Makena SC. They have seen that patients who start with the 5 ml vial don’t switch to the 1 ml vial. They don’t expect patients started on the 1 ml or 5 ml vials to switch in mid-stream to Makena SC.

One of the most important things to realize in marketing Makena SC is that the decision makers are the office staff. The patient will be less of an influence on the decision. The office staff will tell the patient what they are going to get. The sub-cutaneous formulation formulation is so much easier for the office staff to use. They just pull it off the shelf, press it against the skin, count to seventeen and then throw the used injector it in the garbage. The IM is more complicated. You have to withdraw the product from the vial into the syringe. You then change the needle and ask the patient to disrobe. Then you stick a large gauge needle into the buttocks and keep it there for a minute. It is big deal. Getting the sales team out and talking to the nursing staff will be the big thing in converting the market from IM to SC.

Experience with the Launch of the 1 ml Vial

On April 1, 2016 they launched a single dose, preservative free 1 ml vial. Prior to that they had only sold a 5ml vial that was not preservative free. The single dose now represents about 75% of sales of their product. By mid-2017 they expect to have 85% transitioned.

Potential Generic Competition to the Makena Franchise

A potential generic to Makena IM was launched last year in a highly unusual way.  It is a multi-dose, 5 ml vial of Delalutin (hydroxyprogesterone caproate) that includes a preservative. It contains the same active ingredient as in Makena IM. Because of Makena’s Orphan Drug exclusivity for use in pre-term birth, a generic cannot be launched to Makena until the exclusivity expires on February 3 2018. Even though the active ingredient in Delalutin is the same as Makena, it cannot be used in the same indication as Makena. Its approved indication is for treating non-pregnant women for very different conditions than preventing pre-term birth. Using this product as a substitute for Makena would constitute off-label use and the FDA can get pretty upset when this happens. AMAG has spoken to the FDA in advance about its concern for potential off-label promotion. AMAG says that they have various regulatory and legal avenues if that were to happen.

AMAG also says that there really isn’t any great urgency from the perspective of the patient and physician to move from Makena IM to a generic. Reimbursement procedures are established and this is not a hassle for physicians. Also, AMAG’s co-pay assistance programs aim to make out of pocket expense (if any) affordable for patients. AMAG feels they don’t have much to worry about in terms of generic completion through February 3, 2018. What about after that?

AMAG management notes that FDA approval for ANDAs based on recent experience is roughly 36 months from the time of submission generic competitor would need to prepare a separate ANDA for Makena IM from that for Delalutin.  In order to have an early 2018 launch, the dossier would have had to have been submitted in early 2015 in order to gain approval in early 2018 if the historical experience of a 36 month FDA review period holds. Even before this, they would have had to have conducted bioequivalence studies needed for the ANDA in 2014 or earlier. However, in 2014 Makena did not have high visibility for the commercial potential that has subsequently been seen. This raises the question that generic approval could be meaningfully later than February 3, 2018.

AMAG has moved aggressively to convert the market from the five dose preservative containing vial (the dosage form of Delalutin) to the single-dose preservative free vial. The potential generic competitor may be launching Delalutin into a multi-dose market that may no longer exist. AMAG has the option to pull its 5 dose vial from the commercial market, i.e. they would no longer offer the product. However, they could not remove the regulatory approval because all of the bioequivalence work for Makena SC is really based on data from the initial approval of Makena IM.

The 5 ml vial of Makena IM paradoxically may provide a barrier to generic entry in the next year or so. If AMAG withdrew the 5 ml vial, some formularies could take this as a reason to stock Delalutin even though it does not have the right indication. Hence, they have no plans to discontinue the 5 ml. at least in the first half of 2017. However, as they look at the transition to the 1 ml vial through the year they may reassess that position.

AMAG is assuming that there will be generic competition on February 3, 2018 when the Orphan Drug exclusivity ends. Their first strategy is to try to get as many patients as possible onto the SC formulation. They also will launch an authorized generic to the 1 ml vial. Depending on what percentage they are able to transition to Makena SC, there could remain a meaningful market segment of single dose or multi-dose users.

As they then move through 2018 there is an opportunity for Makena SC to capture share from this generic base. If a generic is introduced, it will likely mean that Makena SC will be placed on a higher tier in the formulary. In that event, they will adjust their co-pays so that patients are buffered from any change in co-pay. Bear in mind that AMAG has set up the Makena Care call center so that the vast majority of prescriptions written for Makena come through Makena Care Connection. This helps patients to get paid and to deal with any reimbursement issues. Its goal is to make sure that the patient is taken care of while minimizing the hassles for the physicians’ staff.

Importantly, AMAG management believes that it will be able to switch most of the market to Makena SC and if this achieved, almost no physicians will go back to vials and intramuscular injections.

 

 

 

 

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