AMAG Pharmaceuticals, Inc. (NASDAQ:AMAG) announced toward the end of last week that the FDA has accepted a supplemental New Drug Application (sNDA) for a drug called Feraheme. The application has the potential to quite significantly expand the target population for the drug and – as such – if the FDA gives it a regulatory green light, AMAG is likely going to pick up some near-term strength on the decision.

So what is the drug?

As noted, it is called Feraheme and it’s currently approved as an iron replacement product indicated for the treatment of iron deficiency anemia in adult patients with chronic kidney disease (CKD). The science behind this one is about straightforward – it’s basically a solution that contains elemental iron and low bleomycin-detectable iron, both of which were used as substitutes for the naturally occurring iron that is in the blood and that patients in this indication. In other words, the company is basically using the drug to inject iron into a patient that doesn’t have enough of it.

The expanded application is seeking to build on the above noted CKD label to include the treatment of all adults with iron deficiency anemia (IDA) who have an intolerance or unsatisfactory response to oral iron. As noted, that’s a pretty big market, so what are the chances of approval?

Well, this one isn’t particularly easy to call. The drug has been shown to work (if it didn’t work, the FDA wouldn’t have approved it in the first place for CKD) but as is always the case in the source of indications, showing that therapy can be effective is only half the battle. The committee also has to prove that it can be safe to use and administer in the patients that are taking it.

In a condition like CKD, there aren’t a huge amount of treatment options available to patients. As such, the FDA will generally accept a slightly rougher safety profile than it might if there were already some effective and safe treatments on shelves. In this instance, there have arisen some safety concerns surrounding the drugs potential to induce an allergic reaction in patients. These concerns led the agency to issue a warning with its approval of the drug initially, and subsequent to this initial warning, a strengthening of the warning in question that added some pretty strict regulations to the label. Readers looking to find out about the regulations can do so here.

Anyway, the point here is that blanket approval in the IDA population is going to necessitate a pretty strong safety argument and – right now – AMAG might struggle to satisfy the FDA based on the data that has arisen since the drug’s initial approval. There already exists some treatments available in this population (sure, this one is targeting those who cannot take the oral alternative, but overall iron is SOC, not sole therapy) and this is definitely going to weigh into the agency’s decision as and when PDUFA comes around.

With that said, however, just because there is an allergic reaction risk doesn’t mean that AMAG and Feraheme don’t have a chance of expanding the label based on the just submitted application. Just as we have seen with a number of other drugs with questionable safety profiles, Feraheme may well be able to pick up a regulator green light but it might have to do so with a pretty severe label. If this is the case, it then becomes all about whether or not the label in question limits the potential target population for AMAG.

If not, then there’s no real problem and the company should appreciate considerably in line with an FDA recommendation. If the label does exclude a certain portion of the population (say, those who have experienced anaphylactic shock previously, or some other type of limiting factor) then this will in turn limit the potential for revenue generation in the asset and – by proxy – will limit the impact on valuation that comes about on the back of an approval.

Markets are calculating impact based on this uncertainty and AMAG is somewhat flat on the announcement. We may see some appreciation heading into PDUFA, which comes in at February 2, 2018, as speculative traders load up in anticipation of a positive outcome.