Basis of Presentation and Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2014

Basis of Presentation and Summary of Significant Accounting Policies

Use of Estimates and Assumptions

Use of Estimates and Assumptions

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 in, but are not limited to, revenue recognition related to product sales and collaboration agreements, product sales allowances and accruals, assessing investments for potential other-than-temporary impairment, determining the fair values of our investments, assets acquired in a business combination, our debt obligations, and contingent consideration, the impairment of long-lived assets, including intangible assets, accrued expenses, and equity-based compensation expense. Actual results could differ materially from those estimates.

Cash and Cash Equivalents

Cash and Cash Equivalents

Cash and cash equivalents consists 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 at acquisition date to be cash equivalents. At March 31, 2014, substantially all of our cash and cash equivalents were held in either commercial bank accounts or money market funds.

Principles of Consolidation

Principles of Consolidation

The accompanying condensed consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries, AMAG Europe Limited, AMAG Securities Corporation and Snowbird, Inc. AMAG Europe Limited was incorporated in October 2009 in London, England. AMAG Securities Corporation is a Massachusetts corporation which was incorporated in August 2007. Snowbird, Inc. is a Delaware corporation which was incorporated in December 2013. All intercompany account balances and transactions between the companies have been eliminated.

Fair Value Measurements

Fair Value Measurements

Under current accounting standards, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

Current accounting guidance establishes a hierarchy used to categorize how fair value is measured and which is based on three levels of inputs, of which the first two are considered observable and the third unobservable, as follows:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

We hold certain assets and liabilities that are required to be measured at fair value on a recurring basis, including our cash equivalents, investments, and contingent consideration.

Revenue Recognition and Related Sales Allowances and Accruals

Revenue Recognition and Related Sales Allowances and Accruals

An analysis of our U.S. Feraheme product sales allowances and accruals for the three months ended March 31, 2014 and 2013 is as follows (in thousands):

	Three Months Ended March 31,
	2014			2013
Provision for U.S. Feraheme product sales allowances and accruals
Discounts and chargebacks	$	10,533		$	7,493
Government and other rebates	3,187			2,387
Returns	226			193
Total provision for U.S. Feraheme product sales allowances and accruals	$	13,946		$	10,073
Total gross U.S. Feraheme product sales	$	31,321		$	25,651
Total provision for U.S. Feraheme product sales allowances and  accruals as a percent of total gross U.S. Feraheme product sales	45		%	39		%

Consistent with industry practice, we generally offer our wholesalers, specialty distributors and other customers a limited right to return Feraheme based on the product’s expiration date which, once packaged, is currently five years in the U.S. We estimate product returns based on the historical return patterns and known or expected changes in the marketplace. We currently have limited actual returns data, and therefore are not able to solely rely on our actual returns experience. We track actual returns by individual production lots. Returns on lots eligible for credits under our returned goods policy are monitored and compared with historical return trends and rates.

We consider several additional factors in our product return estimation process, including our internal sales forecasts and inventory levels in the distribution channel. We expect that wholesalers and healthcare providers will not stock significant inventory due to the cost and expense to store Feraheme. Based on these factors, we determine whether an adjustment to the sales return reserve is appropriate.

We record an estimate of returns at the time of sale. If necessary, our estimated rate of returns may be adjusted for actual return experience as it becomes available and for known or expected changes in the marketplace. We did not significantly adjust our reserve for product returns during the three months ended March 31, 2014 or 2013. To date, returns of Feraheme have been relatively limited and returns experience may change over time. A future adjustment to our product returns estimate would result in a corresponding change to our net product sales in the period of adjustment and could be significant.

In addition, as part of our sales allowances and accruals, we reserve for estimated Medicaid rebates associated with instances where Medicaid will act as the insurer and for which we are required to pay a statutory rebate to Medicaid. We regularly assess our Medicaid reserve balance and the rate at which we accrue for claims against product sales. We did not adjust our Medicaid reserve balance during the three months ended March 31, 2014 or 2013. If we determine in future periods that our actual rebate experience is not indicative of expected claims, if our actual claims experience changes, or if other factors affect estimated claims rates, we may be required to adjust our current Medicaid accumulated reserve estimate, which would affect our net product sales in the period of the adjustment and could be significant.