AMAG May Have Its Pick of Suitors

Who will acquire AMAG Pharmaceuticals ( AMAG)?

Perhaps it's a bit premature to speculate on a takeout of the company just a few days after the approval of Feraheme. After all, AMAG's injectable iron replacement therapy won't even launch commercially until later this month, and as I pointed out Wednesday, Feraheme carries some uncertainties and risks as it enters the competitive chronic kidney disease treatment market.

But the changing landscape for treatment of dialysis and pre-dialysis patients, especially the specter of Medicare dialysis bundling looming in the near future, also means that incumbent players in this market need to take big steps to ensure their future success.

That's where an acquisition of AMAG makes sense.

So, who might express interest in AMAG? Let's start with Genzyme ( GENZ), which sells two drugs, Renagel and Renvela, that control phosphorous levels in kidney dialysis patients.

Control of Feraheme would give Genzyme another product to sell to dialysis centers and at a higher operating margin given the company's existing sales force.

It's worth noting, too, that Genzyme's growth strategy these days seems to hinge largely on business development deals and acquisitions. And both Genzyme and AMAG are located in the greater Boston area, which makes integration of the two companies much easier.

Amgen ( AMGN) and Johnson & Johnson ( JNJ) sell anemia drugs used to treat chronic kidney disease patients that could end up getting hurt by the new Medicare bundling rules that will force dialysis providers to accept one lump reimbursement for dialysis services and drugs. Right now, those two items are reimbursed separately.

RealMoney Barometer Poll
1 What would best describe your stance heading into the coming week of trading?
Bullish
Bearish
Neutral
2 Which of these sectors do you think is set to move up in the coming week?
3 Which of these sectors do you think is set to move down in the coming week?

View the results without voting

Amgen is particularly vulnerable because sales of its anemia drugs, Epogen and Aranesp, make up about 40% of the company's overall revenue. Aranesp is also used to treat cancer patients.

Conceivably, if dialysis providers want to maintain profits under Medicare bundling, they'll probably use fewer ESAs and more iron replacement products like Feraheme, which also control anemia but are less expensive.

Either Amgen or Johnson & Johnson could make a move for AMAG in order to preserve, or even grow, their respective nephrology businesses.

Lastly, I'd consider Davita ( DVA), one of the two largest dialysis service providers in the U.S. Fresenius ( FMS) is Davita's main rival.

Again, the play here is profit protection in a Medicare bundled environment. Acquiring AMAG would give Davita control over a key drug used to treat kidney disease patients, thereby allowing Davita to better control costs.

Fresenius has already done similar deals, acquiring the phosphate binder Phoslo from Nabi Pharmaceuticals ( NABI) and buying an exclusive marketing license for Venofer, a competing iron replacement therapy.

Davita and AMAG have an interesting connection, as well. Dr. Allen Nissenson, a prominent kidney disease specialist, currently serves as chief medical officer for Davita, but previously, he was chairman of AMAG's scientific advisory board and has been a public proponent of Feraheme.

Adam Feuerstein writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

More from Stocks

Steel Stocks Are Monday's Biggest Losers From Cooling China Trade Tensions

Steel Stocks Are Monday's Biggest Losers From Cooling China Trade Tensions

Tesla's $78,000 Model 3 Is a Bargain. Here's Why

Tesla's $78,000 Model 3 Is a Bargain. Here's Why

Is Tesla's Stock Set to Nearly Double to $500?

Is Tesla's Stock Set to Nearly Double to $500?

Dow Rises Sharply as U.S.-China Trade Tensions Thaw

Dow Rises Sharply as U.S.-China Trade Tensions Thaw

GE's $11.1 Billion Deal With Wabtec Should Have Warren Buffett Feeling Very Sad

GE's $11.1 Billion Deal With Wabtec Should Have Warren Buffett Feeling Very Sad