Why Do Hedge Funds Like AMAG Pharmaceuticals?

AMAG Pharmaceuticals, Inc. (NASDAQ:AMAG) is an $817 million platform company with four products: Feraheme, a treatment for iron deficiency anemia (IDA), MuGard, an oral rinse for oral wounds, Cord Blood Registry, a registry for women to store stem cells contained in the umbilical cord of newborns, and Makena, an FDA-approved therapy to reduce recurrent preterm birth in certain at risk women.

In this article, we’ll take a closer look at AMAG and use the latest 13F filing data to determine hedge fund activity in the stock during the second quarter among the select group of funds that we monitor.

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AMAG Pharmaceuticals, Inc. (NASDAQ:AMAG) acquired Cord Blood Registry in the third quarter of 2015 and Makena in 2014. Makena is AMAG’s crown jewel, with $78.4 million in net product sales and 37% share of the total market in the second quarter (up by 23% year-over-year in terms of sales and up by 4% sequentially in terms of market share). Makena’s share of the market has steadily increased as AMAG has consistently expanded distribution and introduced new versions of the product. In the first quarter, AMAG entered into a new agreement with a leading provider of home nursing services, in which the provider will exclusively provide at-home administration of Makena instead of using the previous compounded hydroxyprogesterone caproate. In July, the company also received approval from the FDA to introduce a single-dose, preservative-free formulation of Makena. Because of its efforts, AMAG’s management believes Makena sales will increase by 23%-to-35% year-over-year to $310 million-to-$340 million in 2016.

Although AMAG shares have retraced sharply from last year due to investors selling off platform companies that acquire other companies with debt to generate growth, due to Valeant Pharmaceuticals Intl Inc (NYSE:VRX)’s troubles, AMAG doesn’t face as big of a problem as Valeant does. AMAG’s total-debt-to-2016-expected-adjusted-EBITDA ratio of 4 is relatively low, and the company doesn’t need to raise prices to generate higher revenue as Valeant does. In the second quarter, all of AMAG’s Makena sales growth was due to an increase in volume rather than price. AMAG’s second quarter earnings were also better-than-expected, coming in at $1.45 per share versus estimates of $1.20 per share. Guidance was on point as well, as AMAG’s management expects adjusted net income of $195 million-to-$225 million and adjusted EBITDA of $255 million-to-$285 million, giving AMAG a bargain priced valuation of 3.7-times-to-4.3-times 2016 EPS guidance and 4.5-times-to-5-times EV/2016 EBITDA. The bargain priced valuation is likely the reason why many hedge funds are long AMAG.

On the next page, we’ll examine hedge fund activity concerning AMAG in the second quarter.

Of the 749 select hedge funds that we track which filed 13F’s for the June 30 reporting period, 19 funds owned $284.55 million worth of AMAG Pharmaceuticals, Inc. (NASDAQ:AMAG) shares at the end of June, which accounted for 34.40% of the float, down from 25 funds with $283.94 million worth of shares on March 31.

In terms of individual hedge fund activity, Phill Gross and Robert Atchinson‘s Adage Capital Management raised its stake in AMAG by 15% to slightly over 2.5 million shares during the March 31-to-June 30 period. Those 2.5 million shares were worth $61.43 million at the end of June and accounted for 0.16% of the value of Adage’s equity portfolio. Going the other way during the same quarter was Ross Margolies‘ Stelliam Investment Management, which cut its AMAG holding by 26% to 1.10 million shares. Anders Hallberg and Carl Bennet‘s Healthinvest Partners Ab also pared its stake in AMAG, by around 10% to 671,585 shares at the end of June. Unlike Adage and Stelliam, Healthinvest has far greater exposure to the stock; despite the cut to its stake, AMAG still comprised 7.36% of the value of Healthinvest’s equity portfolio at the end of the second quarter.

Disclosure: None