Teligent, Inc.
Q2 2020 Earnings Call Transcript

Published: 19 Aug 2020

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Teligent, Inc. Second Quarter 2020 Results Conference Call. At this time, all participants’ lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference may be recorded. [Operator Instructions] Except for historical facts, the statements in this presentation as well as oral statements or other written statements made or to be made by Teligent, Inc. are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties. For example, without limitation, statements about the company's anticipated growth and future operations, the current or expected market size for its products, the success of current or future product offerings, and the research and development efforts and the company's ability to file for and obtain U.S. Food and Drug Administration approvals for future products are forward-looking statements. Forward-looking statements are merely the company's current predictions of future events. The statements are inherently uncertain, and actual results could differ materially from the statements made herein. There is no assurance that the company will achieve the sales levels that will make its operations profitable or that FDA filings and approvals will be completed and obtained as anticipated. For a description of additional risks and uncertainties, please refer to the company's filings with the Securities and Exchange Commission, including its latest annual report on Form 10-K and its latest quarterly report on Form 10-Q. The company assumes no obligation to update its forward-looking statements to reflect new information and developments. I would now like to hand the conference over to your speaker today, Mr. Tim Sawyer, President and CEO. Thank you. Please go ahead, sir.

[Tim Sawyer:]

Thank you, Daniel. Good morning, everybody. I'm Tim Sawyer, President and CEO of Teligent, and I'm joined this morning by our Chief Financial Officer, Damian Finio. First and most importantly, I'm happy to report that Teligent employees around the world and particularly those in Buena, New Jersey, are still safe and sound. Although, we've had a handful of employees test positive for COVID-19. They were not exposed to the virus on company premises. And because of safety procedures we put in place at the onset of the pandemic, none of our facilities were impacted nor their colleagues infected. Each of these employees have been thankfully managing their symptoms at home. We continue to remain open at all company locations and will be as long as permitted by local authorities and conditions remain safe for our employees to continue manufacturing pharmaceutical products for the patients that need them. All nonproduction, quality or R&D employees continue to work from home in accordance with state and local guidelines. As a consequence of COVID-19, dermatology visits are still down versus pre-pandemic levels. But as states and municipalities continue to reopen, we began to see an uptick in second quarter patient demand. Current estimates show the market has returned to approximately 80% of pre-pandemic levels, at least for now. We remain cautiously optimistic as we have all learned that this situation can change very rapidly. Despite the COVID-19 challenges, we posted solid second quarter revenues of $13.6 million, gross profit of $2.5 million and a gross margin of 18%, resulting in an adjusted EBITDA loss of $2.3 million, all improvements over the first quarter of 2020. If we continue to control our operating expenses, focus on execution, drive topline revenues and improve margins, we can get there. I'm confident our employees are up to the task. Although, the PPP loan we received in May helped us to keep employees on board for an extended period of time. In late June, we took another big step towards rightsizing the business. We initiated a reduction in force at our facility in Buena. These decisions are never easy, especially during a global pandemic. We did what we could to assist the impacted employees and their families. In order to maintain business operations, it was critically important to take this step. We ramped down production in line with patient demand and to maintain appropriate inventory levels and preserve cash. In fact, I'm pleased to report that as of today, we have no topical products on back order for the first time since 2018. Our focus on execution is beginning to pay off. We are regaining our reputation as a reliable supplier for our customers and taking action to be more cost competitive on cost. Given the recurring challenges we had fulfilling customer orders, we recognize it will take further effort and time to rebuild sustained credibility, but without a doubt, we are seeing traction. We are committed to being a customer-focused organization. In addition to doing what is needed to right-size the business and preserve cash, we remain focused on quality and preparing for the FDA's inspection. However, on August 13, the company received an additional comment letter from the FDA relating to our responses to the Warning Letter issued in November of 2019. The comment letter indicated that the FDA has reviewed the company's responses and deemed them to be inadequate as the company failed to address and/or provide supporting documentation to several of the concerns raised in the Warning Letter. This news is both disappointing and unexpected. However, the letter is not an indication of further imminent action on the FDA's part, but the opportunity for Teligent to make further improvements and provide additional responses and supporting documentation to the FDA prior to their coming in for an inspection. I remain confident in our quality department and the strides we have made over the course of the last 15 months since we received the agency's 483 observations in May of 2019. The company is targeting a written response to the FDA's most recent correspondence by mid-September 2020. What excites me right now is the teamwork I'm seeing across all departments on a daily basis. The resilience, tenacity and sheer grit of our employees that they continually display is motivating for me and others. I'll continue to beat the execution drum, insisting that everyone pays attention to the details as not doing so is often the root cause of poor execution. Given the level of uncertainty and potential consequences of less stringent state and local COVID-19 related guidelines, it is extremely challenging to predict patient demand and whether or not there might be a second wave of declining dermatology visits. However, with current patient demand data and the June reduction in force, we project third quarter financial results in line with the actual second quarter performance. As for the strategic review of noncore assets initiated in October of 2019, we deemed the bids received inadequate to continue the process. The majority of the attention was on Teligent Canada. We value our Canadian business as it generates positive cash flow and EBITDA and represents a market where we can further -- that we can further leverage when we launch our injectables from the US. The bids received were simply not competitive or representative of what we see as the commercial value of Teligent Canada to our organization. We closed down the process as we have other priorities to address that require our full focus and attention. Lastly, we received word from our development partner that the FDA issued a disciplined review letter on our complex drug ANDA submission. Additional work on the application in the analytical validation area is necessary. The required corrective actions will take until the end of the year to generate, and we would expect final FDA action on the filing in the third quarter of 2021. We will provide additional updates as appropriate as this progress progresses, excuse me, this process progresses. COVID-19 has changed everything we once knew. And unfortunately, it appears as if we'll all be dealing with the impacts for some time, but the world is resilient, and we have all started to establish a new normal for ourselves. For Teligent, the new normal looks like a reduced employee base that is hyper-focused on execution. For our manufacturing-related employees, it looks like arriving at the facility each day, strictly adhering to multiple safety procedures while performing the usual tasks. And for we, nonmanufacturing employees, the new normal is working from home, adjusting to a new routine and schedule, leveraging technology and finding new ways to be more efficient and effective. However, what has not changed is the fact that Teligent is a US-based pharmaceutical manufacturer, with topical and expected injectable manufacturing capacity with a simplified and lean infrastructure. I remain confident that Teligent is positioned for future growth and there's value in saying made in America. Now let me turn the call over to our Chief Financial Officer, Damian Finio, to provide more detail on Teligent's financial performance and other key highlights from the second quarter of 2020. After we hear from Damian, I'll share some final thoughts before opening the call up to questions. Damian?

[Damian Finio:]

Thank you, Tim, and good morning, everyone. On today's call, I will provide detail on four topics. First, our second quarter 2020 financial performance; second, an update on more aggressive actions taken to reduce expenses and preserve cash; third, our NASDAQ listing status; and fourth, the debt transaction we executed with bondholders and announced to the market on July 20. So let's start with second quarter financial performance. On our last call, I mentioned that we were projecting improvement in both top and bottom line financial performance in the second quarter over the first quarter. In line with that projection, we reported second quarter revenues of $13.6 million, representing a $6.1 million or 82% improvement over the prior quarter. We are encouraged by the partial recovery to pre-COVID-19 level revenues. Of the $6.1 million improvement in revenue over the prior quarter, $3.4 million was driven by strong sales of US topical products. $2.3 million was attributable to improved performance of our injectable line of products sold by Teligent Canada, and the remainder was derived from improved US injectable contract manufacturing and product development revenues. In the second quarter, we recorded $0.3 million of failure to supply penalties, $0.2 million of which were in Canada. We also recorded incremental inventory reserves of $0.4 million. Gross profit and gross margin for the second quarter were dampened by these adjustments. However, we posted improved gross profits of $2.5 million and returned to a positive gross margin of 18%. Margins are still well below mid-year 2019 levels due to failure to supply, incremental inventory reserves, change in customer and product mix and price erosion. Second quarter development cost of $1.9 million were in line with reported first quarter results and our internal expectations. First quarter 2020 selling, general and administrative costs included continued incremental legal fees associated with ongoing litigation, NASDAQ delisting challenges and amended debt agreements. But in the second quarter, selling, general and administrative costs declined to $5 million. This is a $1.7 million decline over the prior quarter, driven by the company's ongoing efforts to reduce discretionary spending and less litigation and debt-related professional fees. All in all, as projected in our last call, these improvements in financial performance drove an increase in adjusted EBITDA from a loss of $7.5 million in the first quarter to a loss of $2.3 million in the second quarter. As disclosed in Form 8-K filed on July 21, 2020, the company is projecting revenues of $13.5 million and $15.5 million for the third and fourth quarters of 2020, respectively. And we are projecting negative adjusted EBITDA of $1.0 million and $0.4 million for the third and fourth quarters of 2020, respectively. Our revenue projections for the third and fourth quarter assume that demand for our portfolio of products will remain at 80% of pre-COVID-19 levels. Of course, with the virus continuing to spread in the United States and many states pulling back on their plans to reopen, these assumptions are subject to change. In recent weeks, the situation in Canada is more stable than the US, but elective surgeries are still well below pre-COVID-19 levels. Second, switching gears, we continue to work diligently to control what we can. From a top line perspective, as Tim mentioned and as reflected in our second quarter results, we are encouraged by the positive signs suggesting patients are beginning to return to the dermatologists, and demand for our products is improving. We continue to take aggressive actions to reduce costs and preserve cash. On our last call, I mentioned that we implemented an 8-week reduction in pay for employees earning more than $100,000 in annual salary, furloughed a portion of our staff and introduced a company-wide effort to reduce discretionary spending. In the first quarter, we also froze most of our recruiting efforts and scrutinized roles left vacant by employees exiting the organization. In late June, we made the difficult decision to implement a reduction in force in Buena, New Jersey. As a consequence of this action and the actions taken in the first quarter, our employee base at the end of the second quarter is down 31% year-to-date. Impacted employees were offered severance, much of which will be paid before the end of the third quarter, but a $0.3 million charge was recorded in the second quarter results announced today. We will continue to actively monitor discretionary spending and maintain staffing levels in parallel with customer demand. Regarding the third topic, Teligent's NASDAQ listing status, on May 28, we initiated a reverse stock split on the ratio basis of 10

[Tim Sawyer:]

Thanks, Damian. As we highlighted, the company posted decent second quarter results, and we continued to make the tough decisions needed to right-size and streamline the organization and our expenses. We will continue to navigate through some significant headwinds, and no one knows exactly how COVID-19 will continue to play out. We will focus on addressing the FDA's recent communication, subsequent inspection and launching injectables soon thereafter. Amidst all these challenges, we remain proud to run a US pharmaceutical manufacturing facility. We believe, made in America has value. We hope that you and your families are safe and in good health. Daniel, if you could open the call up for questions, we would appreciate it. Thank you.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.