PART I. FINANCIAL INFORMATI ON

The accompanying notes are an integral part of these condensed consolidated financial statements.

The accompanying notes are an integral part of these condensed consolidated financial statements.

The accompanying notes are an integral part of these condensed consolidated financial statements.

AMAG PHARMACEUTICALS, INC.

in sales milestone payments based on the achievement of annual sales milestones at targets ranging from $100.0 million to $900.0 million. We anticipate that results from the pivotal Phase 2b/3a study could be available as early as 2018. 

In November 2014, we acquired Lumara Health Inc. (“Lumara Health”), a privately held pharmaceutical company specializing in women’s health. In connection with the acquisition of Lumara Health, we acquired Makena , a progestin indicated to reduce the risk of preterm birth in women with a singleton pregnancy who have a history of singleton spontaneous preterm birth. Makena was approved by the FDA in February 2011 and was granted orphan drug exclusivity through February 3, 2018. We sell Makena to specialty pharmacies ,   specialty distributors, home infusion companies and former compounding pharmacies, which , in turn, sell Makena to healthcare providers, hospitals, government agencies and integrated delivery systems. Additional details regarding the acquisition of Lumara Health can be found in Note C, “ Business Combinations.”    

We also market and sell Feraheme , which was approved for marketing in the U.S. in June 2009 by the FDA for use as an IV iron replacement therapy for the treatment of iron deficiency anemia (“IDA”) in adult patients with chronic kidney disease. We began selling Feraheme in the U.S. in July 2009 through our commercial organization, including a specialty sales force. We sell Feraheme to authorized wholesalers and specialty distributors, who, in turn, sell Feraheme to healthcare providers who administer Feraheme primarily within hospitals, hematology and oncology centers, and nephrology clinics.  

In June 2013, we entered into a license agreement with Abeona Therapeutics, Inc. (“Abeona”) (formerly known as PlasmaTech Biopharmaceuticals, Inc. and Access Pharmaceuticals, Inc.) (the “ MuGard License Agreement”), under which we acquired the U.S. commercial rights to MuGard for the management of oral mucositis (the “MuGard Rights”).

B. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These condensed consolidated financial statements are unaudited and, in the opinion of management, include all adjustments necessary for a fair statement of the financial position and results of operations of the Company for the interim periods presented. Such adjustments consisted only of normal recurring items. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”).

In accordance with GAAP for interim financial reports and the instructions for Form 10-Q and the rules of the Securities and Exchange Commission, certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted. Our accounting policies are described in the Notes to the Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2014. Interim results are not necessarily indicative of the results of operations for the full year. These interim financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2014.

Principles of Consolidation

The accompanying condensed consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries. Our results of operations for the nine months ended September 30, 2015, include the results of Lumara Health, which we acquired on November 12, 2014 (the “Lumara Acquisition Date”) and CBR Holdings, since August 17, 2015 (the “CBR Acquisition Date”).

Use of Estimates and Assumptions

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. The most significant estimates and assumptions are used to determine amounts and values of, but are not limited to: revenue recognition related to product and services sales and collaboration agreements; product sales allowances and accruals; potential other ‑than ‑temporary impairment of investments; acquisition date fair value and subsequent fair value estimates used to assess impairment of long ‑lived assets, including goodwill, in ‑process research and development (“IPR&D”) and other intangible assets; contingent

consideration; debt obligations; accrued expenses; income taxes and equity ‑based compensation expense. Actual results could differ materially from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents consist principally of cash held in commercial bank accounts, money market funds and U.S. Treasury securities having an original maturity of less than three months. We consider all highly liquid investments with a maturity of three months or less as of the acquisition date to be cash equivalents. At September 30, 2015 and December 31, 2014, substantially all of our cash and cash equivalents were held in either commercial bank accounts or money market funds.

Restricted Cash

As of September 30, 2015, we classified $30.8 million as short-term restricted cash for certain payments owed to former CBR shareholders in connection with a sale transaction involving CBR, which was completed in September 2012 and which payment obligations were assumed by us in our August 2015 acquisition of CBR. The related liability was recorded in “ Payable to former CBR shareholders ” on our condensed consolidated balance sheet at September 30, 2015 and was paid in full in October 2015. As of September 30, 2015 and December 31, 2014, we classified $2.4 million as long-term restricted cash, which included $2.0 million held in a restricted fund previously established by Lumara Health in connection with its Chapter 11 plan of reorganization to pay potential claims against its former directors and officers and a $0.4 million security deposit delivered to the landlord of our Waltham, Massachusetts headquarters in the form of a revocable letter of credit.

Concentrations and Significant Customer Information

Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents, investments, and accounts receivable. As of September 30, 2015, our cash, cash equivalents and investments amounted to approximately $442.9 million. We currently invest our excess cash primarily in corporate debt securities, commercial paper, certificates of deposit and municipal securities. As of September 30, 2015, approximately $35.3 million of our total $167.5 million cash and cash equivalents balance was invested in institutional money market funds, of which $34.3 million was invested in a single fund.

Our operations are located primarily within the U.S. We focus on developing, manufacturing, and commercializing Makena and Feraheme and commercializing MuGard . In addition, we are focused on marketing and selling the CBR Services. We perform ongoing credit evaluations of our customers and generally do not require collateral. The following table sets forth customers or partners who represented 10% or more of our total revenues for the three and nine months ended September 30, 2015 and 2014:

In addition, approximately 25% and 27% of our Feraheme end-user demand during the nine months ended September 30, 2015 and 2014, respectively, was generated by members of a single group purchasing organization with which we have contracted. Revenues from outside of the U.S. amounted to approximately 17% and 11% of our total revenues for the nine months ended September 30, 2015 and 2014, respectively, and were principally related to deferred Feraheme revenue recognized in connection with the termination of our license, development and commercialization agreement with Takeda Pharmaceutical Company Limited (“Takeda”), which is headquartered in Japan.

Our net accounts receivable primarily represented amounts due for products sold directly to wholesalers, distributors, and specialty pharmacies and amounts due for CBR Services sold directly to consumers . Accounts receivable for our products are recorded net of reserves for estimated chargeback obligations, prompt payment discounts

and any allowance for doubtful accounts. Customers which represented greater than 10% of our accounts receivable balances as of September 30, 2015 and December 31, 2014 were as follows:

We are currently solely dependent on a single supplier for Feraheme drug substance (produced in two separate facilities) and finished drug product and a single supply chain for Makena finished drug product. In addition, we rely on single sources for certain materials required to provide the CBR Services. We would be exposed to a significant loss of revenue from the sale of our products and services if our suppliers and/or manufacturers cannot fulfill demand for any reason.

Revenue Recognition

We recognize revenue from the sale of our products and services as well as license fee, collaboration and other revenues, including milestone payments, other product revenues, and royalties we receive from our licensees. Revenue is recognized when the following criteria are met: persuasive evidence of an arrangement exists; delivery of product has occurred or services have been rendered; the sales price charged is fixed or determinable; and collection is reasonably assured.

We recognize U.S. product sales net of certain allowances and accruals in our condensed consolidated statement of operations at the time of sale. Our contractual adjustments include provisions for returns, pricing and prompt payment discounts, as well as wholesaler distribution fees, and volume-based and other commercial rebates. Governmental rebates relate to our reimbursement arrangements with state Medicaid programs.

The increases in contractual adjustments and governmental rebates primarily reflect the addition of Makena to our product portfolio in connection with the November 2014 acquisition of Lumara Health. During the nine months ended September 30, 2015, we reduced our Makena related Medicaid and other reserves by $5.3 million and we reduced our chargeback reserves by $1.9 million, all of which were initially recorded at the time of the Lumara acquisition. These adjustments were recorded to goodwill during the nine months ended September 30, 2015, as they occurred within the acquisition measurement period. We did not materially adjust our product sales allowances and accruals during the three or nine months ended September 30, 2014. If we determine in future periods that our actual experience is not indicative of our expectations, if our actual experience changes, or if other factors affect our estimates, we may be required to adjust our allowances and accruals estimates, which would affect our net product sales in the period of the adjustment and could be significant.

Service Revenue

For multiple element arrangements, we allocate revenue to all deliverables based on their relative selling prices. We determine the selling price to be used for allocating revenue to deliverables as follows (i) vendor specific objective evidence; (ii) third-party evidence of selling price and (iii) the best estimate of the selling price. Vendor specific objective evidence generally exists only when we sell the deliverable separately and it is the price actually charged by us for that deliverable. Any discounts given to the customer are allocated by applying the relative selling price method.

We have identified two deliverables contained in the revenue arrangements for the CBR Services, which involve the storage of umbilical cord blood and/or cord tissue products, namely: (i) enrollment, including the provision of a collection kit and unit processing, with revenue for this deliverable recognized after the collection and successful processing of a cord blood/cord tissue unit; and (ii) the storage of a specimen for either an annual fee or a prepayment of 18 years or the lifetime of the newborn donor (“lifetime option”). For the lifetime option, storage fees are not charged during the lifetime of the newborn donor. However, if the newborn donor dies and his/her legal guardian chooses to continue to store the newborn stem cells and/or cord tissue, the number of remaining years of storage covered by the lifetime option without additional charge is calculated by taking the average of male and female life expectancies based on lifetime actuarial tables published by the Social Security Administration and in effect at the time of the newborn’s birth and subtracting the age at death. We have allocated revenue between these two deliverables using the relative selling price method. The selling price for the enrollment, collection kit and processing deliverable and the lifetime option are estimated based on the published selling prices because we do not have vendor specific objective evidence or third-party evidence of selling price for these elements. The selling price for the annual storage option is determined based on vendor specific objective evidence as we have standalone renewals to support the selling price.

Deferred revenue includes (i) amounts collected in advance of unit processing and (ii) amounts associated with unearned storage fees collected at the beginning of the storage contract term, net of allocated discounts. Amounts not expected to be recognized within the next year are classified as long-term deferred revenues.

IPR&D

IPR&D acquired in a business combination is capitalized on our condensed consolidated balance sheet at the acquisition ‑date fair value, net of any accumulated impairment losses. IPR&D is tested for impairment on an annual basis or more frequently if indicators of impairment are present, until completion or abandonment of the projects. If we determine that IPR&D becomes impaired or is abandoned, the carrying value of the IPR&D is written down to its fair value with the related impairment charge recognized in our condensed consolidated statement of operations in the period in which the impairment occurs. Upon successful completion of each project and launch of the product, we will make a separate determination of the estimated useful life of the IPR&D intangible asset and the related amortization will be recorded as an expense prospectively over its estimated useful life.

C. BUSINESS COMBINATIONS

CBR Acquisition

On August 17, 2015 , we acquired CBR Holdings, at which time CBR Holdings became a wholly-owned subsidiary of AMAG. CBR Holdings, through its wholly-owned subsidiary, Cbr Systems, Inc., operated CBR, a privately held umbilical cord blood stem cell and cord tissue collection, processing and storage company , which we purchased for $700.0 million in cash consideration, subject to estimated working capital, indebtedness and other adjustments. We believe CBR is a strong strategic fit for our growing business and offers a unique opportunity to reach a broader population of expectant mothers who may benefit from our product offerings in the maternal health space, including Makena.    

The following table summarizes the components of the estimated total purchase price for CBR, subject to finalization of the net working capital, indebtedness and other adjustments as of the CBR Acquisition Date (in thousands):

The net working capital and other adjustments were estimated to be $17.8 million at closing, which included $7.2 million for the excess of the payable to former CBR shareholders over the restricted cash balance at closing. Subsequent to the closing, we estimated that the net working capital and other adjustments will be approximately $17.6 million, resulting in an increase to the cash consideration paid for CBR of approximately $0.2 million. Accordingly, we recorded a $0.2 million reduction to other amounts due from the sellers recorded in prepaid expenses and other current assets in the condensed consolidated balance sheet at September 30, 2015.

We accounted for the acquisition of CBR as a business combination using the acquisition method of accounting. Under the acquisition method of accounting, the total purchase price of an acquisition is allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the date of acquisition. We have made a preliminary allocation of the purchase price to the net tangible and intangible assets acquired and liabilities assumed, based on available information and various assumptions we believe are reasonable, with the remaining purchase price recorded as goodwill. Due to the close proximity of the acquisition date to the quarter ended September 30, 2015, we were unable to complete our analysis of fair value.

The following table summarizes the preliminary fair values assigned to the CBR assets acquired and the liabilities assumed by us along with the resulting goodwill at the CBR Acquisition Date (in thousands):

The values assigned to the assets and liabilities presented in the table above are preliminary and subject to change as additional information becomes available concerning the acquisition date fair value and tax basis of the assets acquired and liabilities assumed in the transaction. Any adjustments to the preliminary fair value of these acquired assets and liabilities assumed will be made as soon as practicable but not later than one year from the CBR Acquisition Date.

The gross contractual amount of accounts receivable at the CBR Acquisition Date was $11.6 million. The fair value amounts for CBR’s customer relationships, trade names and trademarks were determined based on assumptions that market participants would use in pricing an asset, based on the most advantageous market for the assets (i.e., its highest

and best use). The final fair value determination for the identifiable intangible assets may differ from the preliminary estimates, and such differences could be material. We determined the fair value of the customer relationships, using an income approach, which is a valuation technique that provides an estimate of the fair value of an asset based on market participant expectations of the cash flows an asset would generate over its remaining life. Some of the more significant assumptions used in the income approach from the perspective of a market participant include the estimated net cash flows for each year for the identifiable intangible asset (including service revenues, cost of services, research and development costs, selling general and administrative costs and working capital/contributory asset charges), the discount rate that measures the risk inherent in each cash flow stream, as well as other factors. The fair value of the trade names and trademarks was determined using the relief from royalty method which is an income approach. No assurances can be given that the underlying assumptions used to determine the fair value of the customer relationships, trade names and trademarks will not change. For this and other reasons, actual results may vary significantly from the estimated results. We believe the fair values assigned to the CBR customer relationships, and the trade names and trademarks are based upon reasonable estimates and assumptions given available facts and circumstances as of the CBR Acquisition Date. If these assets are not successful, sales and profitability may be adversely affected in future periods, and as a result, the value of the assets may become impaired.

The CBR customer relationships will be amortized to selling, general and administrative expenses based on an economic consumption model over an expected useful life of approximately 20 years. The trade names and trademark intangible asset is deemed to be an indefinite-lived asset, which is not amortized but will be subject to periodic assessments of impairment.

Based on the preliminary fair value adjustments primarily related to deferred revenue and identifiable intangible assets acquired, we recorded a net deferred tax liability of $144.9 million in our condensed consolidated balance sheet as of September 30, 2015 using a combined federal and state statutory income tax rate of 37% . The net deferred tax liability represents the $149.5 million of deferred tax liabilities recorded in acquisition accounting (primarily related to the fair value adjustments to CBR’s deferred revenue and identifiable intangible assets) offset by $4.6 million of deferred tax assets acquired from CBR.

These tax estimates are preliminary and subject to change based on, among other things, management’s final determination of the fair values of the tangible and identifiable intangible assets acquired and liabilities assumed by jurisdiction, the deductibility of acquisition-related costs and other costs deducted by CBR prior to the acquisition, and management’s assessment of the combined company’s ability to utilize the future benefits from acquired and legacy deferred tax assets.

Acquisition-related costs are not included as a component of consideration transferred and are expensed as incurred. We incurred approximately $8.5 million and $11.2 million of acquisition-related costs in the three and nine months ended September 30, 2015, respectively, related to the CBR acquisition. These costs primarily represented financial advisory fees, legal fees, due diligence and other costs and expenses.

During the post-closing period in the three months ended September 30, 2015, CBR generated approximately $7.2 million of revenue. We determined that separate disclosure of CBR’s earnings for the post acquisition period in the three and nine months ended September 30, 2015 is not practicable due to the integration of CBR’s operations into our business upon acquisition.

Lumara Health Acquisition

On November 12, 2014, we acquired Lumara Health at which time Lumara Health became our wholly-owned subsidiary. By virtue of the acquisition, we acquired Lumara Health’s existing commercial product, Makena . Under the terms of the acquisition agreement, we acquired 100% of the equity ownership of Lumara Health, excluding the assets and liabilities of the Women’s Health Division and certain other assets and liabilities, which were divested by Lumara Health prior to closing, for $600.0 million in cash, subject to certain net working capital, net debt and transaction expense adjustments, and issued approximately 3.2 million shares of our common stock, par value $0.01 per share, having a value of approximately $112.0 million at the time of closing, to the holders of common stock of Lumara Health.

We have agreed to pay additional merger consideration, up to a maximum of $350.0 million, based upon the achievement of certain net sales milestones of Makena for the period from December 1, 2014 through December 31,

2019. This contingent consideration is recorded as a liability and measured at fair value based upon significant unobservable inputs. See Note E, “ Fair Value Measurements ,” to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q and Note C, “ Business Combinations ,” to the Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2014 for additional information.

The following table summarizes the components of the total purchase price paid for Lumara Health, as adjusted for the final net working capital and other adjustments (in thousands):

In June 2015, we received $0.6 million from the former stockholders of Lumara Health in connection with the final settlement of the net working capital, net debt and transaction expenses as of the Lumara Acquisition Date. In addition, during the nine months ended September 30, 2015, we adjusted the preliminary fair values assigned to the assets acquired and the liabilities assumed by us at the Lumara Acquisition Date, as discussed in Note H, “ Goodwill, IPR&D and Other Intangible Assets, Net .” These measurement period adjustments have been reflected as a current period adjustment to these balances during the nine months ended September 30, 2015 in accordance with the guidance in Accounting Standards Update (“ASU”) 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”), which we adopted early.

The following table summarizes the fair values assigned to assets acquired and the liabilities assumed by us along with the resulting goodwill at the Lumara Health Acquisition Date, as adjusted for certain measurement period adjustments for Lumara Health recorded during the nine months ended September 30, 2015 (in thousands):

Unaudited Pro Forma Supplemental Information

The following supplemental unaudited pro forma information presents our revenue and net income (loss) on a pro forma combined basis, including Lumara Health and CBR , and assuming that the CBR acquisition occurred on January 1, 2014 and that the Lumara Health acquisition occurred on January 1, 2013. For purposes of preparing the following pro forma information, certain items recorded during the three and nine months ended September 30, 2015, such as the $8.5 million and $11.2 million of acquisition-related costs, the $10.4 million loss on debt extinguishment ,   $9.2 million of other one-time fees and expenses incurred in connection with the CBR acquisition financing are reflected in 2014 as if the CBR acquisition occurred on January 1, 2014. Certain items recorded in 2014, such as the $1.9 million of acquisition-related costs incurred in connection with the acquisition of Lumara Health have been excluded from 2014 as the pro forma results assume the Lumara Health acquisition occurred on January 1, 2013. The pro forma amounts do not include any expected cost savings or restructuring actions which may be achievable or which may occur subsequent to the acquisition of Lumara Health or CBR or the impact of any non-recurring activity. The following table presents unaudited pro forma consolidated results (in thousands, except per share data):

The pro forma adjustments reflected in the pro forma combined net income (loss) in the above table primarily represent adjustments to historical amortization of intangible assets, adjustments to historical depreciation of property, plant and equipment and reductions to historical CBR revenues due to fair value adjustments in purchase accounting to intangible assets, property, plant and equipment and deferred revenue, respectively. In addition, the pro forma combined net income (loss) includes increased interest expense due to the increase in total term loan borrowings and the issuance of the 2023 Senior Notes in connection with the CBR acquisition. Income taxes for all periods were adjusted accordingly. This pro forma financial information is not necessarily indicative of our consolidated operating results that would have been reported had the transactions been completed as described herein, nor is such information necessarily indicative of our consolidated results for any future period.

Goodwill

Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the fair values of the net assets acquired and liabilities assumed. In connection with our August 2015 acquisition of CBR, we recognized $439.3 million of goodwill as of September 30, 2015, primarily due to deferred tax liabilities recorded on the fair value adjustments, primarily those adjustments relating to intangible assets and deferred revenue, and to the synergies expected from combining our operations with CBR. In connection with our November 2014 acquisition of Lumara Health, we recognized $198.1 million of goodwill as of September 30, 2015, primarily due to the net deferred tax liabilities recorded on the fair value adjustments to Lumara Health’s inventories and identifiable intangible asset . The $637.4 million of goodwill resulting from the CBR and Lumara Health acquisitions is not deductible for income tax purposes. 

D. INVESTMENTS

As of September 30, 2015 and December 31, 2014, our investments equaled $275.3 million and $24.9 million, respectively, and consisted of securities classified as available-for-sale.

The following is a summary of our investments as of September 30, 2015 and December 31, 2014 (in thousands):

The $250. 5 million increase in our total investments was primarily due to the   $188.8 million of net proceeds from our March 2015 public equity offering , as discussed in Note N, “ Stockholders’ Equity . ”  

Impairments and Unrealized Gains and Losses on Investments

We did not recognize any other-than-temporary impairment losses in our condensed consolidated statements of operations related to our securities during any of the three or nine month periods ended September 30, 2015 and 2014. We considered various factors, including the length of time that each security was in an unrealized loss position and our ability and intent to hold these securities until the recovery of their amortized cost basis occurs. Future events may occur, or additional information may become available, which may cause us to identify credit losses where we do not expect to receive cash flows sufficient to recover the entire amortized cost basis of a security and which may necessitate the recording of future realized losses on securities in our portfolio. Significant losses in the estimated fair values of our investments could have a material adverse effect on our earnings in future periods.

E. FAIR VALUE MEASUREMENTS

The following tables represent the fair value hierarchy as of September 30, 2015 and December 31, 2014 for those assets and liabilities that we measure at fair value on a recurring basis (in thousands):