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AMAG is a Hidden Biotech Gem
Fundamentals 
##Symbol##AMAG
##***Biotech
##Date##24 Aug 2015
Here's a story about a biotech that has grown free cash flow by more than 3,650% in a year, has higher operating margins than Biogen (BIIB), Amgen (AMGN) and Celgene (CELG) and still has a market cap less than $2 billion, while turning a profit and nearly unlimited upside potential. The company is AMAG Pharmaceuticals, it's a speciality biotech that focuses on maternal health, anemia, and cancer supportive care.
The biotech space is filled with very promising names, spanning the mega-cap realm with Amgen, Biogen, Celgene and Gilead, to the mid cap realm of Jazz, Alexion and Regeneron. Specific CML news has been written on many of them. Here is the link to the Biotech Corner:
Biotech Corner
On June 29th, 2015, the company said it would acquire Cord Blood Registry (CBR) for $700 million to expand its maternal health business. This is a little weird, but we have to dive deep in order to understand this company. The CBR business is tied to umbilical cord blood stem cell collection and storage after a baby is born. It's a fast growing business and one that has years of future potential usage. Those two are the crown jewel of biotech. And believe me, this company has a crown jewel.
The goal of saving the umbilical cord blood stem cells is to help children in the future gain access to their own stem cells to fight diseases. A very cool use of biotechnology and it has just barely scraped the surface of the social medical vernacular. CBR was the world's largest facility (storage) of this type, with estimates going as high as more than half of privately stored cord units in the US (Source: 24/7 WALL ST). According to AMAG, the acquisition fits perfectly into its maternal focused business and the revenue (and EBITDA) will be immediately accretive to AMAG's earnings. I do wonder, outloud, if there will be regulatory issues surrounding this business line.
Taking a step back, AMAG has three marketable products aside from this acquisition which are quite compelling: Feraheme (ferumoxytol), MuGard Mucoadhesive for oral mucositis, and Lumara Health's Makena (hydroxyprogesterone caproate). The first has already received regulatory approval in the United States, Canada and the EU and treats people with Chronic kidney disease (CKD). A caveat here is that because of a partnership scuffle, commercial success outside the US (i.e in Europe) is likely dead).
The real crown jewel is Makena and it is the only FDA approved therapy to reduce the risk of preterm (less than 37 weeks) birth in pregnant women who have spontaneously delivered a preterm baby in the past (Source: Seeking Alpha). Acceptance of Makena from the medical community has been extraordinary and widespread. The company has forecasted over $250 million in sales for the product in 2015 and the firm has a history of beating its own growth forecasts. But there is so much more going on.
With Makena and now the CBR acquisition, not only does AMAG have extraordinary growth potential in the near-term, it has a strangle hold on its maternity segment. Feraheme brings a strong portfolio diversification with hundreds of millions of dollars in potential annual revenue. The impact on revenue, operating margins, net income and free cash flow are not only something to behold, they're barely believable when we look at them in charts. And by barely unbelievable, I mean 3,650%+ growth in free cash flow in a year.
➜ AMAG generates $2.15 in revenue for every $1 in expense, which is extremely high and extraordinarily above the sector average of $0.71.
➜ AMAG generates $484,000 in revenue per employee which is below the sector average of $594,000.
AMAG's revenue is up 228% year-over-year and has broken revenue (TTM) all-time highs for the last five quarters. Operating margins are up over 100% year-over-year, and with the acquisitions, assets are up 265% year-over-year. The cherry(ies) on top is levered free cash flow (TTM) (and net income) that has turned from negative to positive and is just under $200 million in the trailing-twelve-months.
Gottlieb Risk Factor 
AMAG has elevated stock price movement potential over the next 30-days (movement up or down). Although several proprietary factors affect the risk rating, in particular for AMAG some of the items driving the rating are:
↳ A large absolute stock return over the last 3-months (-13.2%).
The stock price range reflected by the option market over the next 30-days is ($50.60, $64.60).
Technicals | Support: 33.78 | Resistance: 65.68 
AMAG's -3.92% drop today has a material impact on its technical outlook.
AMAG has a two bull (low rated) technical rating because it's trading below both its 10-day (short-term) and its 50-day (medium-term) moving averages. We do note that the stock is trading above the long-term 200-day moving average.
I remind all readers that a report just like this one is available for any company for free on CMLviz.com. No e-mail. No login. Free. Forever. Period.
Let's look at the core elements that drive the company's fundamental rating.
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Fundamentals Rating Summary |
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Before we dig into the fundamental trends that drive the rating, let's look at a two-year stock chart with regression channel and 10-day momentum (on the bottom).
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Now let's examine the visualizations of the critical financial measures.
| METRIC | CURRENT | 1YR AGO | 2YR AGO | DIRECTION |
| Revenue (TTM US$ Millions) | 292 | 89 | 76 |  |
Revenue (TTM) is trending higher meaning that it has increased for at least five consecutive quarters. AMAG is not only growing revenue by 228.4% year-over-year, but it's 4.5 fundamental (star) rating implies that the revenue acceleration is pushing the core fundamentals of the company forward. While massive revenue growth often times comes at the expense of earnings, free cash flow and operating margins, that is not at all the case for AMAG. In fact, it's the opposite -- the firm is driving higher margins as revenue explodes.
What do all these numbers mean?
AMAG's fundamental rating benefited these results:
1. The one-year change was positive.
2. The one-year change was greater than +20% (an extra boost to the rating).
3. The two-year change was positive.
Finally, the up trend (consecutive quarters) in revenue benefited the fundamental (star) rating.
Let's look at Revenue (TTM US$ Millions) in the chart below.
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| METRIC | CURRENT | 1YR AGO | 2YR AGO | DIRECTION |
| Operating Revenues/Operating Expense | 2.15 | 1.07 | 0.94 | RISING |
Operating revenue over operating expense simply shows us how much revenue (in dollars) is generated for every dollar of expense. The ratio must be (at a minimum) above 1.0 in order for a company to turn an operating profit. For the latest quarter AMAG showed a ratio of 2.15 which is a breathtaking 101% rise year-over-year and compares to the sector average of $0.71 (biotech in totality averages an operating loss). For comparison purposes, that $2.15 in operating revenue per $1 of expense is higher than Biogen (BIIB) , Amgen (AMGN) and Celgen (CELG). Hello?
What do all these numbers mean?
A year ago Operating Revenues/Operating Expense was 1.07. In the last year we can see operating margins are increasing and are also currently greater than 1.0 (the critical level).
AMAG's fundamental rating was affected from the operating margin numbers in two ways:
1. The current value is above 1.0 (the firm generates an operating profit).
2. The one-year change was positive (raises the rating).
Let's look at Operating Revenues/Operating Expense in the chart below with the total assets in the orange line.
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| METRIC | CURRENT | 1YR AGO | 2YR AGO | DIRECTION |
| Net Income (TTM US$ Millions) | 191 | -12 | -13 | |
Net Income (after tax profit) over the trailing twelve months (TTM) for AMAG is rising and trending higher (it has increased for at least five consecutive quarters). The company has gone from a net loss one-year ago, to a net profit of $191 million.
In our next chart we plot Net Income (TTM US$ Millions) in the blue bars.
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| METRIC | CURRENT | 1YR AGO | 2YR AGO | DIRECTION |
| Levered Free Cash Flow (TTM US$ Millions) | 147 | 4 | 7 | RISING |
With revenue, operating margins and net income breaking all-time highs, it's no surprise that levered free cash flow is also at an all-time high. Levered Free Cash Flow (TTM US$ Millions) is a critical determinant of stock price since market cap is the present value of all future free cash flows. For AMAG the metric is up 3,652% year-over-year, which is crazy, and of course driven by small number math (it has risen from $4 million to $147 million year-over-year).
For our next chart we plot Levered Free Cash Flow (TTM US$ Millions) in the blue bars through time. Note the green bar, which is the all-time high.
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Summary
AMAG has created a wonderful business for itself in a niche market that is in fact not so "nichy" if the future yields the promise of today. The growth potential of CBR is basically unlimited as it becomes a part of our normal medical birthing process and its pre-term birth drug, Makena, has been a huge win with wonderful growth potential and wide acceptance in the medical community. The company has a nice diversification play with its CKD drug. Finally, the company's operations are extraordinarily efficient, yielding margins higher than even the best of the best biotechs.
The bearish argument surrounds the size of the addressable market for Makena and the time it will take for medical (and public) acecptance of umbilical cord blood stem cell collection.
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