AMAG Pharmaceuticals, Inc., a specialty pharmaceutical company, has entered into a definitive agreement to acquire Lumara Health Inc., a privately-held pharmaceutical company specializing in women's health, for $675 million ($600 million in cash and $75 million in stock) and additional contingent consideration of up to $350 million based on achievement of certain sales milestones. Lumara Health also announced that the company signed a separate agreement to divest certain other assets to a third party.

Lumara Health markets the fast-growing product Makena (hydroxyprogesterone caproate injection), which was granted 7-year orphan drug exclusivity in February 2011 and is the only US Food and Drug Administration (FDA)-approved product indicated to reduce the risk of preterm birth in women who are pregnant with one baby and who have delivered one preterm baby spontaneously in the past. Preterm birth is defined as the delivery of a baby at less than 37 weeks of pregnancy. Approximately one in every nine babies is born preterm, or 11.7 per cent of births in the United States.  Premature birth in the US costs $26.2 billion annually, and average first-year medical costs are approximately 10 times greater for preterm infants than for full-term infants.

"This is a truly transformative transaction that will propel AMAG into a profitable, high-growth multi-product specialty pharmaceutical company positioned for what we expect to be continued revenue and bottom-line growth, further business diversification and shareholder value creation," said William Heiden, president and chief executive officer of AMAG. "We believe the Lumara Health transaction will facilitate future product acquisitions in an attractive new therapeutic area and is an excellent strategic fit with our Feraheme market expansion plans."

Net sales of Makena over the 12 months ending August 31, 2014 were greater than $130 million, a 72% increase compared to the prior year period. In addition, based on the three months ended August 31, 2014, Makena and Lumara Health's maternal health business would be on pace to exceed annualized net sales of $180 million and EBITDA of $110 million. AMAG believes that positive market dynamics, including a favorable regulatory environment, and implementation of a new patient-centric business strategy contributed to the significant recent growth of Makena.

Heiden continued, "Makena is a unique product with clear clinical benefits that serves an important medical need for at-risk pregnant mothers and their unborn children. The consequences of preterm birth are a significant public health issue, and we believe that Makena will be a tremendous addition to our portfolio and will be complementary to AMAG's in-office injectables commercial expertise. We're also looking forward to welcoming to AMAG the talented Makena commercial team, which has put Makena on a remarkably strong sales growth trajectory. We believe that our combined larger scale, combined portfolio diversification, new resources and broader commercial expertise will allow AMAG to create new long-term growth opportunities and allow us to better serve patients."

"I strongly believe AMAG is the right partner to support the continued growth of Makena and our maternal health business," said Greg Divis, chief executive officer of Lumara Health. "This transaction is a great reflection of the outstanding work our team has done to build the maternal health franchise to what it is today, and I am pleased that this same team will continue to grow the brand within AMAG. It has been clear from the start of our discussions that AMAG shares our commitment to at-risk pregnant mothers, their babies and their healthcare providers."

Legislative and regulatory developments, positive trends for Makena's reimbursement, a reinvigorated patient-centric business strategy and ongoing lifecycle management programs support future growth and revenue potential and brand longevity. The Federal Drug Quality and Security Act, which was enacted into law in November 2013, provides strong protection for patient safety by clarifying and strengthening FDA's authority to enforce the Food, Drug and Cosmetic Act (FDCA).

The acquisition of Lumara Health provides a strategic commercial entry into the women's health segment. Women's health includes one of the largest pools of patients with iron deficiency anemia (IDA). Accordingly, if AMAG is successful at gaining FDA approval to expand the label of Feraheme (ferumoxytol) beyond the current chronic kidney disease (CKD) indication, the acquired commercial sales force could become a meaningful contributor to the growth of Feraheme in the future.  

The transaction is expected to result in projected combined 2015 product sales of $350 million and is expected to be immediately accretive to adjusted earnings per share, with cost synergies of at least $20 million per year. Following the closing of the transaction, AMAG expects to have approximately $100 million in cash and 25.2 million basic shares outstanding. AMAG intends to provide additional financial guidance for 2015 as promptly as practicable following completion of the transaction.

Upon closing, Lumara Health's commercial operations will function as a separate business unit within AMAG, reporting directly to William Heiden, president and chief executive officer of AMAG. AMAG intends to name current Lumara Health executives who will be joining AMAG's leadership team at or prior to closing.  

The transaction has been unanimously approved by both companies' boards of directors. The transaction has also been approved by the stockholders of Lumara Health. It is expected to be completed in the fourth quarter of 2014, following termination or expiration of the waiting period under the Hart-Scott-Rodino (HSR) Antitrust Improvements Act of 1976 and completion of financing.

AMAG intends to finance the transaction with a combination of cash on hand, approximately $75 million of newly issued common stock and $340 million in committed term B financing from Jefferies Finance LLC. The commitment from Jefferies Finance LLC to provide financing is subject to the satisfaction of customary conditions.  

In addition to the $675 million at closing, the terms of the agreement provide for contingent consideration of up to $350 million based on the achievement of various sales milestones for Makena, including sales achievement of $300 million, $400 million and $500 million in consecutive 12-month periods.

Through the transaction, AMAG will also acquire approximately $250 million in tax net operating loss carryforwards (NOL's) from Lumara Health, which are subject to annual limitations. These NOL's will be combined with AMAG's NOL's which totaled more than $258 million as of December 31, 2013.   AMAG's NOL's are not currently subject to limitation as to their use.

AMAG believes that its tax attributes following the closing of the transaction represent an important corporate asset that can provide long-term shareholder benefits. Concurrent with this transaction, AMAG's board has approved an amendment to its shareholder rights plan designed to preserve these tax assets (a Section 382 Amendment), which could be substantially limited if AMAG were to experience an ownership change. This Section 382 Amendment will make AMAG's shareholder rights plan similar to those adopted by numerous other public companies with significant tax assets. AMAG expects to seek shareholder approval of the Section 382 Amendment at its 2015 Annual Meeting. The rights issued under the amended plan will expire on September 26, 2015 if the Section 382 Amendment is not approved by AMAG's stockholders prior to that date or March 31, 2017, if the Section 382 Amendment is approved. The rights may also expire on an earlier date if certain events occur, as described more fully in the Section 382 Rights Amendment which will be summarized in and filed as an exhibit to our current report on Form 8-K announcing our entry into the merger agreement with Lumara Health.

Leerink Partners LLC and J.P. Morgan served as financial advisors to AMAG on the transaction. AMAG's legal advisors were Latham & Watkins LLP and Goodwin Procter LLP. Lumara Health's financial advisors for the transaction is Perella Weinberg Partners and T.R. Winston & Company and its legal advisor is Dechert LLP. Jefferies Finance LLC is serving as Lead Arranger on the debt financing.