Morgan Stanley | aesmcu
`
`September 8, 2017 07:00 AM GMT
`
`AMAG Pharmaceuticals, Inc.
`
`Bullish on lntrarosa as the Next
`
`AMAG Value Driver Following
`Survey; Initiate OW, $26 PT
`
`E Stock Rat ng
`
`Overweight
`
`0 Industry V ew
`
`ln-Line
`
`
`
`© Pr oeTarget
`
`$26.00
`
`
`
`We are bullish on AMAG, a stock that has been pressured
`
`from concerns about the impact of Makena generics. an
`
`overhang that may be overstated. Further, our AlphaWise
`OB/GYN survey sees a differentiated profile for newly
`
`launched lntrarosa that appears underappreciated at current
`levels.
`
`hitiating coverage on AMAG with Ovenrveiglrt rating. $26 PT. AMAG
`Pharmaceut cals s a b opharmaceut cal company that spec al zes n women's
`
`health prescr pt on drugs and serv ces as well as hematology products. nvestors
`
`have focused ntently on the companY's largest current revenue drver Makena
`
`wh ch faces the loss of orphan drug exclus vty and the potent al for generc
`
`competton n ebruary 2018. We beleve the bear case for Makena s largely
`
`pr ced n at these levels and look toward the underapprec ated aspects of
`
`AMAG's future growth nclud ng ntrarosa for dyspareun a (pa n dur ng sex)
`related to menopause n women label expans on for V ron eraheme and
`
`durable revenue and valuat on support from the Cord Blood Reg stry (CBR)
`serv ce.
`
`Winter is coming for Makena. but AlphaWise survey and proprietary scenario
`
`analysis suggest the bear case is largely priced in. Orphan drug exclus v ty for
`
`ntramuscular Makena a progesterone nject on used to reduce the r sk of
`recurrent preterm b rth exp res on ebruary 3 2018. We antc pate at least one
`
`gener c entrant nto the market follow ng exclus v ty exp rat on as does the
`
`company. Our d lgence supported by our propr etary AlphaW se survey of 108
`
`US OB/GYNs suggests that phys c ans would prefer AMAG's subcutaneous auto-
`
`njector should t ga n approval and that there 5 some sense of loyalty to
`
`branded ntramuscular Makena suggest ng there w ll l kely be durab lty for
`
`AMAG n th 5 segment of the market. urther our propretary scenaro analys 5
`
`suggests that the bear case s largely pr ced n w th 3 base case NPV for the
`
`Makena franch se of ~$10 per share a best-case scenar o (2 year delay for
`
`generc Makena) value of $26 per share and a worst-case scenar o
`
`(subcutaneous Makena not approvable mult ple gener cs n 2018) of $5 per
`share.
`
`AlphaWise survey supports lntrarosa positive differentiation and shong intent
`
`Page 1 of 61
`
`FOU N DATI 0 N
`
`ALPHAWISE
`Evidence-based research
`MORGAN 8 AN EYSICO.
`
`C
`
`Thomas J Sm th
`EOU Y ANA YS
`hornosJSInl h@rnorgens mleysom
`Andrew S Berens
`EQU Y ANA YS
`Andew.8erer|s@rnorgons enley.corn
`
`Benjam n J Ad er. Ph D
`RESEARCH ASSOC A E
`Beqamlaneranormns onleysorn
`
`+ 2276 6209
`
`+ 2276 307
`
`+ 2 2 296 5305
`
`Overweight
`In Lire
`$26.00
`S 8 70
`$65
`$36 83 6 00
`12/16 12/17: 12l18e 12/19e
`5.24
`4.61
`0.66
`0.64
`
`AMAG Pharmaceuticals, Inc. ( AMAG.0, AMAG US)
`Biotechnology I United Stu: ofAmaioo
`Stock Retirg
`Industry View
`Prioe “get
`Shr price, close (Sep 7, 20 7)
`Mkt cop, ourr (mm)
`52 Week Range
`Fiscal Year Ending
`ModdWae EPS (S)
`Prior Morten/are EPS
`(S)
`PIE
`Consensus EPS (S)§
`Div yld (1.)
`Unless otherwise noted. el metrics are based on Morgen SurleyModeque
`framework
`§=Consensusdetaisprmidedby1homsmneuers Bflmes
`e=MorganSanleyReseerchestlrrmes
`
`6.6
`6.00
`
`4.1
`(1 .33)
`
`28.3
`(1 .59)
`
`29.4
`(0.35)
`
`QUARTERLY MODELWARE EPS (S)
`2017e
`2017c
`Prior
`Current
`2016
`Quartz
`2 563
`0 76
`0
`203
`30
`02
`0 34
`62
`03
`0 53
`59
`04
`e = Morgan Sanley Research estimates. a = Actual Comparryrepaled data
`
`2018e
`Prior
`
`2018c
`Current
`
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`
`Biogen Exhibit 2183
`
`Mylan v. Biogen
`IPR 2018—01403
`
`

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`2
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`Page 2 of 61
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`Morgan Stanley | aesmca
`
`Risk Reward
`
`FOUNDATION
`
`With the Makena bear case largely priced in, we look ahead to Intrarosa as a growth
`
`Investment Thesis
`
`I Makena bear case is largely priced in.
`Wh le nvestor focus has been on the
`
`ant c pated loss of orphan drug exclus v ty
`(ODE) and potent al for lfe cycle extens on of
`Makena AMAG's largest current source of
`revenue we bel eve the bear case s largely
`pr ced n. Our August 2017 AlphaW se
`OB/GYN survey shows phys c ans are pos tve
`on the auto- njector wth some sense of
`loyalty to the branded ntramuscular Makena
`wh le our propretary scenar o analys 5 shows
`NP'V for the Makena franch se of $10 per
`share n our base case $5 per share n our
`worst case scenar o and $26 per share n our
`best case scenar o.
`
`I Intrarosa is an underappreciated growth
`
`driver, with AlphaWise OB/GYN survey
`showing strong positive differentiafion and
`presaibing intentions. ntrarosa a vag nal
`stero d to treat dyspareun a (pa n dur ng sex)
`s v ewed as pos t vely d fferent ated by over
`80% of OB/GYNs n our AlphaW se survey
`wth peak usage expected n ~25% of
`dyspareun a patents. The lack of a black box
`warn ng s a s gn fcant postve d fferent at ng
`factor wh ch we th nk s lkely to dr ve uptake
`n patents concerned about the long-term
`use of estrogen therap es and/or at moderate
`r sk of breast cancer. We see peak sales of
`~$330mn for ntrarosa 3x h gher than current
`consensus peak of ~$125mn.
`
`I CBR and Feraherne provide strong
`revenue/NPV backbone, while Feraherne
`
`label expansion represents upside. Cord
`Blood Reg stry (CBR) and the eraheme base
`bus ness represent a comb ned ~$16 per share
`of NPV n our model. eraheme label
`
`expans on nto broad DA wth an DA
`
`decs on (PDU A) date n eb 2018 represents
`an add t onal ~$65mn of sales at peak ($2
`share NPV) wh ch we do not bel eve s
`
`reflected n consensus today.
`
`Key Value Drivers
`
`I The key valuat on drvers are commerc al
`execut on for approved drugs Makena
`
`
`
`dnver
`
`$10
`
`oS
`
`Mar-is
`aws
`. fihT-pfiep IB
`Milkmen RmManguleyResearch
`
`Mam
`Supra
`_wsmxmum
`
`$911
`
`Ih-Ia
`
`SqHfl
`
`$26
`Price Target
`We derive our PT from a risk-adjusted sum-of—the-parts (SOP) analysis.
`We forecast expected revenue/profits for each drug/condition
`
`combination. We assume a 9% WACC and no terminal growth to
`
`derive our NPV. We then assign a probability factor for each
`drug/condition to reflect clinical and regulatory risks/timing, sum the
`
`risk-adjusted NPVs and add cash in excess of required investment.
`
`Bull
`Risk-adjusted SOP
`
`$40
`
`n a best-case scenaro Makena gener cs are delayed by 2 or more years and
`AMAG s able to rap dly convert the market to subcutaneous Makena follow ng
`DA approval n eb 2018 result ng n peak Makena sales of ~$§lOmn. The
`ntrarosa launch exceeds expectat ons wth qu ck adopt on and m n mal payor
`pushback wth greater uptake and peak sales of $l+50mn. eraheme usage n
`broad DA dr ves h gher-than-ant c pated revenue growth.
`
`Base
`Risk-adjusted SOP
`
`$26
`
`Makena faces generc compett on from one gener c upon orphan drug
`exclus vty exp ry n eb 2018 followed shortly thereafter by ntroduct on of the
`company's subcutaneous auto- njector. ntrarosa sees a gradual launch that
`starts to accelerate n 2018 dr ven by the drug's d fferent ated attr butes and
`ncreased phys c an awareness. We see peak sales of ~$330mn n 2030. We see
`peak sales eraheme label expans on nto broad DA 5 successful drv ng
`~$60mn of ncremental peak revenue.
`
`Bear
`Risk-adjusted SOP
`
`$10
`
`n a worst-case scenaro mult ple Makena gener cs enter the market and
`subcutaneous auto- njector Makena never reaches the market. ntrarosa's
`launch d sappo nts and/or market dynam cs change (e black box removed from
`all local estrogens) that make the product's d fferent at on less appeal ng
`lead ng to peak sales of less than ~$100mn. eraheme does not ga n broad
`label expans on.
`
`Page 3 of 61
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`

`

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`Page 5 of 61
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`6
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`Page 6 of 61
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`MorganStanley | nzsmcn
`
`FOUNDATION
`
`Importantly. over 80% of prescribers in our AlphaWise survey see htrarosa as a
`
`positively differentiated product for the treahnent of dyspareunia. The most pos t ve
`
`po nt of d fferent at on for our OB/GYN respondents was the lack of a black box
`warn ng for ntrarosa w th 88% of phys c ans nd cat ng th s was pos t vely d fferent ated
`
`vs other treatments. Other factors nclud ng the safety/tolerab lty prof le mechan sm
`
`of act on eff cacy prof le and shape/s ze were also cons dered to be pos tvely
`d fferent ated factors. Also of note phys c an respondents d d not appear to see e ther
`
`the type of adm n strat on (e v a d sposable appl cator) or dosage/adm n strat on (once
`
`da ly at bedt me) as a negat ve d fferent at ng factor w th 95% see ng pos t ve or no
`d fferent at on for the d sposable appl cator and 76% for the dosage/adm n strat on
`
`frequency. See the ntra rosa - AlphaW se Survey Supports D fferent ated Prof le and
`
`$300mn+ Peak Revenues sect on of th 5 report for add t onal deta ls and ns ghts from
`the survey.
`
`Exhibit 2: 83% of OB/GYNs n our August A phaw se survey v ew Intrarosa as pos t ve y
`d fferent ated re at veto other ava ab etreatments
`
`lntranosa's Attributes Relative to Other Available Treatments
`
`
`
`
`JJ',‘ 40' ‘ LU ‘ tU,‘(1‘. 1U] .
`
`
`
`
`
`Lack o a black box wamung
`
` run-u----
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`E \cacy pro Ile
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`Dosage and admnnlsltallon
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`ype o admlnlslratlon
`'-----------------------------------------------------------------------------
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`L...........................................................................a
`IVery postllvely d1 erenllaled
`ISurnewhal posmvely d1 erentlated
`INul dl erenhated
`
`SaucezAmMse,Morgm&uieyReseam
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`Shares also appear to be discounting Feraheme label expansion, with FDA decision
`
`expected in February 2018. The .V. ron product eraheme has prov ded a steady
`
`backbone of revenue growth for AMAG s nce ts n tal approval n 2009. Wh le
`
`eraheme has recently faced strong compett on from Vfor‘s njectafer wh ch 5
`
`approved wth a broader label and no black box warn ng pos tve Phase 3 data reported
`
`n May 2017 show that eraheme safety and eff cacy n the broader ron def c ency
`
`anem a ( DA) populat on s s m lar to njectafer wth some potent al d fferent at on vs.
`njectafer's h gher rate of hypophosphatem a. Consensus currently models ~12% YoY
`
`sales growth n 2018 about n-l ne wth the 9% annual growth n 2017 overlook ng
`
`potent al growth from an expanded label that could come w th an DA dec 5 on on
`
`ebruary 2 2018.
`
`Cord Blood Registry (CBR) provides an important durable revenue stream and NPV
`
`badcbone. CBR s the world's largest newborn stem cell collect on and storage
`
`company hous ng 600k+ preserved umb lcal cord blood and t ssue stem cell un ts
`
`Page 7 of 61
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`

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`Page 8 of 61
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`

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`HMflE Eflgnmgnamflflnalg Mal! Elm
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`Exhibit 3: AMAG: Risk-Adjusted Sum-of—the—Parts Valuation
`AMAG Pharmaceuticals Valuation
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`Page 9 of 61
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`
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`MorganStanley | nzsmcn
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`FOUNDATION
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`approval and mult ple generc entrants our NPV for AMAG shares rema ns ~25% above
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`current levels lead ng us to suggest that the bear case for Makena 5 already largely
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`reflected n AMAG's current share pr ce.
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`Exhibit 4: Makena Revenue Eros on Base Case
`Exhflt 5: Makena Market Share Poa—ODE Exp ry Base Case
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`
`
`
`
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`1:
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`htnrosa for dyspareunia: AMAG acqu red ntrarosa a vag nal nsert for the treatment
`
`of dyspareun a (pa n dur ng sexual ntercourse) a common symptom of vulvar vag nal
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`atrophy (WA) due to menopause v a a lcens ng deal wth Endoceut cs n eb 2017
`launch ng the drug n July wth a 137 rep f eld sales force. The current market for
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`dyspareun a treatments cons sts of estrogen-based therap es wh ch generate more than
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`$1bn n sales annually. ntrarosa wh ch conta ns the stero d prasterone s the frst
`prescr pt on treatment approved w thout a Black Box warn ng related to estrogen-
`
`conta n ng therap es.
`
`As deta led n the ntrarosa - AlphaW se Survey Supports D fferent ated Prof le and
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`$300mn+ Peak Revenues sect on of th 5 report our August 2017 AlphaW se survey of
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`108 OB/GYNs n the US revealed that phys cans overwhelm ngly v ew ntrarosa as a
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`pos t vely d fferent ated treatment opt on due to ts lack of boxed warn ng. Wh le we
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`bel eve the launch s lkely to be gradual wth gat ng factors nclud ng lack of phys c an
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`awareness payor hurdles and formulary acceptance tak ng months to resolve we note
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`that th s has largely become the norm w th most recent drug launches. We advocate
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`look ng beyond the n t al weekly and monthly prescr pt on launch data to the larger
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`potent al of th 5 product wh ch our external d lgence and propr etary AlphaW se survey
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`nd cate s substant al w th phys c ans ntend ng to prescr be ntrarosa to ~25% of the r
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`dyspareun a pat ents.
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`n our deta led prescr pt on-based model for ntrarosa we have d v ded the market nto
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`f ve d st nct opportun t es nclud ng (1) ex st ng local cream treatments (Estrace and
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`Premar n) (2) ex st ng vag nal nsert market (Vag fern and generc equ valents) (3) other
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`dyspareun a prescr pt ons (nclud ng Estr ng and Osphena) and (It) a market expans on
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`opportun ty for ntrarosa to potent ally tap nto pat ents w th an elevated r sk of
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`develop ng breast cancer ('Moderate R sk') and S) a second market expans on
`opportun ty n pat ents wth a h story of breast cancer who would otherw se not seek
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`therapeut c ntervent on w th one of the estrogen-conta n ng alternat ves due to the
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`Page 11 of 61
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`11
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`MorganStanley | REweH
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`FOUNDATION
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`lack of black box warn ng language. We bel eve the greatest penetrat on s lkely to
`
`come from the vag nal nserts opportun ty model ng ~2h96 peak share nto th 5 segment
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`n l ne w th our AlphaW se survey results. We model sl ghtly less penetrat on nto
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`pat ents ut l 2 ng vag nal creams or other estrogen-conta n ng therap es.
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`We bel eve the expans on opportun t es represent a un que opportun ty for ntrarosa
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`gven the drug's lack of black box warn ng relat ve to other estrogen-conta n ng
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`alternat ves. We conservat vely model a s ngle d g t percentage penetrat on nto the
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`'Moderate R sk' group of women wh ch we def ne as those women 55 and older who
`
`have an elevated rsk of breast cancer. nally we model a low 5 ngle d gt percentage
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`penetrat on nto pat ents w th 3 h story of breast cancer who also exper ence symptoms
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`of WA. Wh le we acknowledge the presence of 'Warn ng and Precaut on' language n
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`the label stat ng that ntrarosa has not been tested n these pat ents we do bel eve that
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`among the ~2mn women w th late onse