C. BUSINESS COMBINATIONS

As part of our strategy to expand our portfolio with additional commercial-stage products, in November 2014, we acquired Lumara Health and its product Makena. In addition, in June 2013, we entered into the MuGard License Agreement pursuant to which we obtained an exclusive, royalty-bearing license, with the right to grant sublicenses, to certain intellectual property rights, including know-how, patents and trademarks, to use, import, offer for sale, sell, manufacture and commercialize MuGard in the U.S. and its territories (the "U.S. Territory") for the management of all diseases or conditions of the oropharyngeal cavity, including mucositis.

Lumara Health

On the Lumara Acquisition Date, we completed our acquisition of 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, pursuant to the Lumara Agreement upon which time Lumara Health became our wholly owned subsidiary. 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.

Upon the closing of the Lumara Health acquisition (the "Closing"), we paid approximately $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) (the "Cash Consideration") 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 the Closing, to the holders of Lumara Health common stock, stock options, and RSUs.

We have agreed to pay additional merger consideration, up to a maximum of $350.0 million, based on the achievement of certain net sales milestones of Makena for the period from December 1, 2014 through December 19, 2019 as follows:

•	A one-time payment of $100.0 million payable upon achievement of $300.0 million in aggregate net sales in any consecutive 12-month period commencing in the month following the Lumara Acquisition Date ("the First Milestone"); plus

•	A one-time payment of $100.0 million payable upon achievement of $400.0 million in aggregate net sales in any consecutive 12-month period commencing in the month following the last month in the First Milestone period (the "Second Milestone"); if the Third Milestone payment (described below) has been or is required to be made prior to achieving the Second Milestone, the Second Milestone payment shall be reduced from $100.0 million to $50.0 million; plus
•	A one-time payment of $50.0 million payable if aggregate net sales equal or exceed $700.0 million in any consecutive 24-calendar month period (which may include the First Milestone period) (the "Third Milestone"); however, no Third Milestone payment will be made if the Second Milestone payment has been or is required to be made in the full amount of $100.0 million; plus
•	A one-time payment of $100.0 million payable upon achievement of $500.0 million in aggregate net sales in any consecutive 12-month period commencing in the month following the last month in the Second Milestone period (the "Fourth Milestone"); plus
•	A one-time payment of $50.0 million payable upon achievement of $200.0 million in aggregate net sales in each of the five consecutive calendar years from and including the 2015 calendar year to the 2019 calendar year (the "Fifth Milestone").

In the event that the conditions to more than one contingent payment are met in any calendar year, any portion of the total amount of contingent payment due in such calendar year in excess of $100.0 million shall be deferred until the next calendar year in which less than $100.0 million in contingent payments is due.

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 financed the $600.0 million upfront cash portion of the acquisition through $327.5 million of net proceeds from borrowings under a new $340.0 million term loan (the "Term Loan Facility"), as discussed in more detail in Note S, "Debt", and $272.5 million of existing cash on hand.

The fair value of the 3.2 million shares of AMAG common stock was determined based on the closing price of our common stock on the NASDAQ Global Select Market of $34.88 per share on November 11, 2014, the closing price immediately prior to the closing of the transaction.

The fair value of the contingent milestone payments was determined based on our probability-adjusted discounted cash flows estimated to be realized from the net sales of Makena from December 1, 2014 through December 31, 2019. The cash flows were discounted at a rate of 5%, which we believe is reasonable given the level of certainty of the pay-out.

The net working capital and other adjustments were estimated to be $0.8 million which we paid at the Closing. Subsequent to the Closing, we estimate that the net working capital and other adjustments will result in a reduction to the cash consideration of approximately $5.1 million. Accordingly, we recorded a $5.1 million receivable in prepaid and other current assets in the consolidated balance sheet at December 31, 2014. The net working capital and other adjustments are subject to change upon finalization of certain adjustments related to Lumara Health's financial position at the time of closing.

At the Closing, $7.0 million of the Cash Consideration was contributed into an escrow fund to secure any Lumara Health security holders' payment obligations with respect to the working capital, net debt and transaction expenses adjustments, which escrow will be released upon the final determination of the Cash Consideration. Also at the Closing, $35.0 million of the Cash Consideration was contributed to a separate escrow fund (the "Indemnification Escrow") to secure the former Lumara Health security holders' obligations to indemnify us for certain matters, including breaches of representations and warranties, covenants included in the Lumara Agreement, payments made by us to dissenting stockholders, specified tax claims, excess parachute claims, and certain claims related to the Women's Health division of Lumara Health, which was divested by Lumara Health prior to the Closing. The portion of the Indemnification Escrow that has not been reduced by any claims by us and is not subject to any unresolved claims will be released to the former Lumara Health security holders at the earlier of (a) March 15, 2016 and (b) five days after the date on which our audited financial statements for our fiscal year ending December 31, 2015 are filed with the Securities and Exchange Commission.

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. 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 Lumara Acquisition Date to the fiscal 2014 year-end, we were unable to complete our analysis of fair value.

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.

The gross contractual amount of accounts receivable at the Lumara Acquisition Date was $40.5 million. The $30.3 million fair value of inventories included a fair value step-up adjustment of $26.1 million, which will be amortized and recognized as cost of product sales in our consolidated statements of operations as the related inventories are sold. We recognized $1.3 million of the fair value adjustment as cost of product sales during the year ended December 31, 2014. The remaining $24.8 million is estimated to be recognized as follows: $11.1 million in fiscal 2015, $3.5 million in fiscal 2016, $4.0 million in fiscal 2017, $3.5 million in fiscal 2018 and $2.7 million in fiscal 2019.

The fair value amounts for the Makena marketed product (the "Marketed Product") and IPR&D 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). We determined the fair value of the Marketed Product and the IPR&D using the 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 useful 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 each project or product (including net revenues, cost of product sales, research and development costs, selling and marketing costs and working capital/asset contributory asset charges), the discount rate that measures the risk inherent in each future cash flow stream, the assessment of each asset's life cycle, competitive trends impacting the asset and each cash flow stream as well as other factors, including the major risks and uncertainties associated with the timely and successful completion of the IPR&D projects, such as legal risk and regulatory risk.

The fair value of the acquired IPR&D asset represents the value assigned to acquired research and development projects that, as of the Lumara Acquisition Date, had not established technological feasibility and had no alternative future use, including certain programs associated with the Makena lifecycle management program to extend the brand franchise beyond the February 2018 exclusivity date, such as new routes of administration, the use of new delivery technologies, as well as reformulation technologies. We believe the fair values assigned to the Marketed Product and IPR&D assets are based upon reasonable estimates and assumptions given available facts and circumstances as of the Lumara Acquisition Date. If these assets are not successful or successfully developed, sales and profitability may be adversely affected in future periods, and as a result, the value of the assets may become impaired.

The acquisition of Lumara Health is expected to result in carryover basis for all tax attributes. Both AMAG and Lumara Health have deferred tax assets for which full valuation allowances were provided in the pre-acquisition financial statements. However, we have considered certain of the deferred tax liabilities recorded in acquisition accounting as sources of income to support realization of Lumara Health's deferred tax assets at December 31, 2014. Based on the preliminary fair value adjustments primarily related to inventories and identifiable intangible assets acquired, we recorded a net deferred tax liability of $198.7 million in our consolidated balance sheet as of December 31, 2014 using a combined federal and state statutory income tax rate of 38.8%. The net deferred tax liability represents the $293.7 million of deferred tax liabilities recorded in acquisition accounting (primarily related to the fair value adjustments to Lumara Health's inventories and identifiable intangible assets) offset by $95.0 million of deferred tax assets acquired from Lumara Health which we have determined, on a preliminary basis, are 'more likely than not' to be realized. See Note K, "Income Taxes," for additional information.

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 Lumara pre-acquisition, and management's assessment of the combined company's ability to utilize the future benefits from acquired and legacy deferred tax assets.

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.

Acquisition-related costs are not included as a component of consideration transferred and are expensed as incurred. We incurred approximately $9.5 million of acquisition-related costs in 2014 related to the merger with Lumara Health. These costs primarily represented financial advisory fees, legal fees, due diligence and other costs and expenses.

During the post-acquisition period in fiscal 2014, Lumara Health generated $22.5 million of revenue from sales of Makena. We determined that separate disclosure of Lumara Health's earnings for the post-acquisition period in fiscal 2014 is not practicable due to the integration of Lumara Health's operations into our business upon acquisition.

The following table presents our revenue and net income (loss) on a pro forma combined basis, assuming that the merger occurred on January 1, 2013 and does 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 the impact of any non-recurring activity. For purposes of preparing the following pro forma information, certain items recorded in 2014, such as the $153.2 million tax benefit and the $9.5 million of acquisition-related costs are reflected in 2013 as if the acquisition occurred on January 1, 2013. In addition, the pro forma combined net income (loss) in fiscal 2013 does not give effect to the elimination of approximately $385.9 million of non-recurring reorganization gains, net of losses and expenses, realized in connection with Lumara Health's exit from bankruptcy in September 2013 as such amounts are not directly related to the acquisition of Lumara Health (in thousands):

	Year Ended December 31,
	2014			2013
Pro forma combined revenues	$	267,705		$	179,561
Pro forma combined net income (loss)	$	(23,942	)	$	463,522

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.

MuGard

MuGard was launched in the U.S. by PlasmaTech Biopharmaceuticals, Inc. (formerly known as Access Pharmaceuticals, Inc. ("PlasmaTech") in 2010 after receiving 510(k) clearance from the FDA and is indicated for the management of oral mucositis/stomatitis (that may be caused by radiotherapy and/or chemotherapy) and all types of oral wounds (mouth sores and injuries), including aphthous ulcers/canker sores and traumatic ulcers, such as those caused by oral surgery or ill-fitting dentures or braces.

PlasmaTech remains responsible for the manufacture of MuGard and we have entered into a quality agreement and a supply agreement with PlasmaTech under which we purchase MuGard inventory from PlasmaTech. Our inventory purchases are at the price actually paid by PlasmaTech to purchase it from a third-party plus a mark-up to cover administration, handling and overhead.

In consideration for the license, we paid PlasmaTech an upfront payment of $3.3 million on June 6, 2013 (the "MuGard License Date"). We are required to pay royalties to PlasmaTech on future net sales of MuGard until the later of (a) the expiration of the licensed patents or (b) the tenth anniversary of the first commercial sale of MuGard under the MuGard License Agreement in the U.S. Territory ("the "Royalty Term"). These tiered, double-digit royalty rates decrease for any part of the Royalty Term occurring after the expiration of the licensed patents and are subject to off-set against certain of our expenses. After the expiration of the Royalty Term, the license shall become a fully paid-up, royalty-free and perpetual license in the U.S. Territory. In addition to making an upfront payment of $3.3 million, we also acquired $0.2 million of existing MuGard inventory from PlasmaTech, which was included in our consolidated balance sheet as of the MuGard License Date.

We did not assume any pre-existing liabilities related to the MuGard business, contingent or otherwise, arising prior to the MuGard License Date. We are accounting for the acquisition of the MuGard Rights as a business combination under the acquisition method of accounting since we acquired the U.S. commercial rights for MuGard and inventory, and obtained access to certain related regulatory assets and product supply, employees and other assets, including certain patent and trademark rights, contracts, and related books and records, held by PlasmaTech which are exclusively related to MuGard (inputs), including the infrastructure to sell, distribute and market MuGard (processes) and net sales of MuGard (outputs). In addition, during the term of the MuGard License Agreement, we will have control over sales, distribution and marketing of MuGard in the U.S. as PlasmaTech has assigned to us all of its right, title and interest in MuGard-related internet and social media outlets and other sales, marketing and promotional materials currently owned or controlled by PlasmaTech. PlasmaTech will no longer commercialize, market, promote, sell or make public communications relating to MuGard in the U.S Territory, except as may be agreed to by us. PlasmaTech has also agreed to not, directly or indirectly, research, develop, market, sell or commercialize any medical devices that directly compete with MuGard for the treatment of any diseases or conditions of the oropharyngeal cavity in the U.S. Territory.

We estimated the fair value of the acquired MuGard Rights using the income approach, which is a valuation technique to convert future amounts to a single present amount (discounted) and is described above.

The following table summarizes the total consideration for the MuGard Rights (in thousands):

	Total Acquisition Date Fair Value
Cash	$	3,434
Acquisition-related contingent consideration		13,700

Total consideration	$	17,134

The $17.1 million total consideration includes the estimated fair value of the contingent consideration at the MuGard License Date. During 2013, we completed the valuation for the acquisition of the MuGard Rights and determined the fair value of the contingent consideration to be $13.7 million as of the MuGard License Date, and the fair value of the intangible asset was determined to be $16.9 million as of the MuGard License Date. The acquisition date fair value of the contingent consideration was determined based on various market factors, including an analysis of estimated sales using a discount rate of approximately 15%. As of December 31, 2014, we estimated that the undiscounted royalty amounts we could pay under the MuGard License Agreement may range from $20.0 million to $28.0 million over a ten year period, which is our best estimate of the period over which we expect the majority of the asset's cash flows to be derived.

The following table summarizes the fair values of the assets acquired related to the business combination as of the MuGard License Date (in thousands):

Assets Acquired:
MuGard intangible asset	$	16,893
Inventory		241

Net identifiable assets acquired	$	17,134

The acquisition date fair value of the intangible asset was determined based on various market factors, including an analysis of estimated sales using a discount rate of 19%. This measure is based on significant Level 3 inputs not observable in the market. Such valuations require significant estimates and assumptions including but not limited to: estimating future cash flows from product sales and developing appropriate discount and probability rates. We believe the estimated fair values of the MuGard Rights are based on reasonable assumptions, however, we cannot provide assurance that the underlying assumptions used to forecast the cash flows will materialize as we estimated and thus, our actual results may vary significantly from the estimated results.

Acquisition-related costs are not included as a component of consideration transferred and are expensed as incurred. We incurred approximately $0.8 million of acquisition-related costs in 2013, which were primarily related to professional and legal fees.

Pro forma results of operations would not be materially different as a result of the acquisition of the MuGard Rights and therefore are not presented.