Business Combinations

3 Months Ended

Mar. 31, 2015

Business Combinations

Business Combinations

C.BUSINESS COMBINATIONS

As part of our strategy to expand our portfolio with additional commercial-stage products, in November 2014, we acquired Lumara Health through which we acquired its product Makena.

On November 12, 2014, we completed our acquisition of Lumara Health at which time Lumara Health became our wholly-owned subsidiary. By virtue of the acquisition of Lumara Health, we acquired Lumara Health’s existing commercial product, 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. 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 finalization of certain adjustments related to Lumara Health’s financial position at the time of closing, including adjustments related to net working capital, net debt and transaction expenses) and issued approximately 3.2 million shares of our common stock, par value $0.01, having a value of approximately $112.0 million at the time of closing, to the holders of common stock, stock options, and restricted stock units (“RSUs”) 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 19, 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,” for additional information. See Note C 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 estimated total purchase price at fair value, subject to adjustment upon finalization of Lumara Health’s net working capital, net debt and transaction expenses as of the Lumara Acquisition Date (in thousands):

	Total Acquisition Date Fair Value
Cash consideration	$	600,000
Fair value of 3.2 million shares of AMAG common stock	111,964
Fair value of contingent milestone payments	205,000
Estimated working capital and other adjustments	821
Purchase price paid at closing	917,785
Less:
Due from sellers	(5,119		)
Cash acquired from Lumara Health	(5,219		)
Total purchase price	$	907,447

We accounted for the acquisition of Lumara Health 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. The following table summarizes the preliminary fair values assigned to the assets acquired and the liabilities assumed by us at the Lumara Acquisition Date (in thousands):

Accounts receivable	$	34,918
Inventories	30,300
Prepaid and other current assets	3,322
Deferred income tax assets	94,965
Property and equipment	60
Makena marketed product	797,100
IPR&D	79,100
Restricted cash	1,997
Other long-term assets	3,412
Accounts payable	(3,807		)
Accrued expenses	(41,532		)
Deferred income tax liabilities	(293,649		)
Other long-term liabilities	(4,563		)
Total estimated identifiable net assets	$	701,623
Goodwill	205,824
Total	$	907,447

The preliminary values assigned to accounts receivable, prepaid and other current assets, other long-term assets, accounts payable, accrued expenses, deferred income taxes, other long-term liabilities and goodwill presented in the table above are subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and liabilities assumed. 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 Lumara Acquisition Date.

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. The $205.8 million of goodwill resulting from the acquisition was primarily due to the net deferred tax liabilities recorded on the fair value adjustments to Lumara Health’s inventories and identifiable intangible assets. The goodwill is not deductible for income tax purposes.