Teligent, Inc.
Q1 2017 Earnings Call Transcript

Published: 2 May 2017

[Operator:]

Good afternoon everyone, and welcome to the Teligent Incorporated First Quarter 2017 Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note, today's event is being recorded. This call will include certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include but are not limited to plans, objectives, expectations, and intentions, and other statements contained in this press release that are not historical facts and statements, identified by words such as plan, believe, continue, should, or words of similar meaning. Factors that could cause actual results to differ materially from these expectations include but are not limited to our inability to meet current or future regulatory requirements in connection with existing or future ANDAs, our inability to achieve profitability, our failure to obtain FDA approvals as anticipated, our inability to execute and implement our business plan and strategy, the potential lack of market acceptance of our products, our inability to protect our intellectual property rights, changes in global political economic business, competitive market and regulatory factors, and our inability to complete successfully future product acquisitions. These statements are based on our current beliefs and expectations, and are inherently subject to various risks and uncertainties, including those set forth under the caption Risk Factors in Teligent Incorporated's most recent annual report on Form 10-K, quarterly reports on Form 10-Q and other periodic reports we file with the Securities and Exchange Commission, Teligent, Inc. does not undertake any obligation to update any forward-looking statements contained in this document as a result of new information, future events, or otherwise except as required by law. At this time, I'd like to turn the conference over to Mr. Jason Grenfell-Gardner. Sir, please go ahead.

[Jason Grenfell-Gardner:]

All right. Thank you, Jamie, and good afternoon ladies and gentlemen. Welcome to the Teligent business update covering the first quarter of 2017. I am Jason Grenfell-Gardner, the President and CEO of Teligent, and I'm joined today by Jenniffer Collins, our Chief Financial Officer. Thank you for joining us today. I'll be providing you an update on the core elements of our business and our expansion plans, Jenniffer will then provide a more detailed breakout of our financial performance for the first quarter. Since our last call in April, we have continued our commitment to execution of the Teligent business model. And it's this model that is driving the success that we reported today. This afternoon, we announced the best results that we've seen from Teligent during this journey together as we execute this plan. This is a plan built on a solid product development platform, excellent regulatory capabilities, and timely and effective product launch. With every quarter that passes, our fundamental commitment to this business plan diversifies our revenue base, improves our capabilities, and delivers financial results. As you have seen from the results released today, we announced a massive quarter of revenue for Teligent. While it may start to feel like that's something that we say every quarter, we're very cognizant of the effort that goes behind delivering these results. Revenue for this quarter was $19.9 million, up 11% over the fourth quarter of 2016, and up 27% over the same period of 2016. Now, even more interesting to us is the composition of revenue. In the first quarter, Teligent Label revenue across the portfolio in the U.S. and Canada were $16.4 million, up 79% over the same period last year. This growth has been driven by a combination of new product launches and competitive supply chain dynamics, to which Teligent has been able to respond effectively. In particular, we launched four products in the first quarter in the U.S., and grew revenue in Canada over 30% compared to the first quarter of 2016. I would like specifically to commend the work of the Teligent team in shorting the timeline between approval and launch, which has had a notable impact on our ability to generate revenue from our product pipeline as products are approved. Between new product launches and favorable market conditions, we delivered gross margin of 55% for the quarter. Fundamental pricing dynamics remain flat-to-slightly-positive for the period across the Teligent portfolio. As a result, we delivered adjusted EBITDA for the quarter of $4.9 million, up from $2.8 million in the same period last year. This was a great quarter, but let me talk a little bit about what comes next. Over the coming quarter, our team is focused on delivering products in the existing product pipeline, responding to FDA and Health Canada inquiries, and preparing for the final submissions for 2017. This is the crunch period of GDUFA year five and year four overlap for FDA submissions. And we are committed to upholding our responsibilities with respect to the FDA to ensure the timely processing of our applications. I would point out that the two approvals that we received in this past quarter were great examples of the benefit of this discipline, with one application approved at 18 months, and the other at just over 14 months. To the extent that we can replicate these timely approvals with our current investments in R&D, we will continue to deliver value in the form of the return on these investments as we launch products to the market. We have 33 ANDAs on file with the FDA today that represent a total adjustable market of approximately $2 billion. And of that, 88% of the value is from applications filed post GDUFA year three. Now, of course, in order to be able to execute the launch of these products we need to have the capacity to support our production. Those of you who follow me on Twitter @GrenfellGardner will have seen some photographs of the current state of the facility expansion. We've achieved watertight in line with schedule, and are now working through our interior fit [ph] out. Based on our current plans we will be occupying this facility in 127 days from today for laboratory and support services, and will be filling our first liquid in a vial by the end of this year. I think if you check out the photograph you will share my sense of pride at what we've been able to build in South Jersey over the past few months. It's pretty remarkable. Looking forward to the guidance for the rest of the year, we maintain our guidance including our revenue outlook, at $85 million to $100 million; with an associated gross margin of 50% to 54%, and R&D spend of 24% to 27% of total revenue. With that, let me turn the call over to Jenniffer to provide more details on the results for the quarter.

[Jenniffer Collins:]

Thanks Jason. Good afternoon everyone, and again thanks for joining us today. Our total revenue for the first quarter of 2017 was $19.9 million, an increase of 27% compared to the same quarter last year. Net revenue from the sale of our own products increased 79% over the same quarter last year, and increased approximately 12% sequentially over the fourth quarter of '16 to $16.4 million. The increase in revenue compared to last year resulted from the expansion of our generic product portfolio to 22 products, up from 13 products just a year ago. Two products exceeded 10% of total revenue in the first quarter. Revenues from Lidocaine Ointment represented 17% of total revenue, and revenue from Zantac Injection represented 18% of total revenue in the first quarter. Product sales from our Contract Services business were $3.4 million in the first quarter, compared to $6.2 million in the same quarter last year. Contract Services as a percentage of total revenue was 17% in the first quarter, compared to 40% of total revenue in the same quarter last year. Our TICO strategy focuses on the continued diversification of our Teligent Label products. And as I mentioned, Teligent product sales grew 12% sequentially in the first quarter, 79% over last year. Contract Services revenue from pharmaceutical products customers represented 85% of first quarter Contract Services revenue, as compared to 90% last quarter, the balance of that revenue coming from OTC and consumer products. Now let me turn the gross margin. Gross margin in the first quarter was 55% compared to 51% in the same quarter last year, and 51% in the fourth quarter of '16. The improvement of gross margin was the result of product mix. We continue to grow revenue from our Teligent products, sales of injectable products represented just over 38% of revenue in the first quarter, and compared to 24% in the fourth quarter of last year. Our partners currently manufacture all of our injectable products. With the expansion of our facilities to include steroid manufacturing capabilities and the transition of our manufacturing of our Teligent injectable products to our own plants will improve margins over time. SG&A in the first quarter was $4.3 million compared to $4.2 million in the fourth quarter and $3.4 million in the same quarter last year. SG&A as a percentage of sales for the first quarter of 2017 was 22% compared to 23% in the same quarter last year. We do plan to continue to make some additional investments in corporate services to support our growth of our business in 2017 and beyond but we do expect over time SG&A as a percentage of revenue to be flat to down depending on the range of total revenues. Consistent with our TICO strategy and our dedication to building the foundation to expand our product portfolio, we continue to significantly invest in R&D. We invested $3.7 million in the first quarter as compared to $3.7 million in the same period last year. The most significant portion of our R&D cost related to clinical studies and development work to support our TICO strategy based on the timing of these milestones and studies looks significant sequential quarterly growth in R&D to reach our total R&D expenses and the percentage of revenue of between 24% and 27% for the full year. For the quarter ended, March 31, 2017 net cash provided by operations was $1.9 million which included spend of $3.7 million in R&D. For the quarter ended March 31, 2017 cash used in our investing activities was $8.6 million primarily related to the capital expenditures for the expansion of our facility. We expect the final budget for the facility expansion including our necessary equipment, utilities, process controls to approximate $55 million and we hope it will be complete by the end of 2017. In the first quarter of 2017 we reported net income of $0.8 million compared to net loss of $1 million in the same quarter last year. The net income in the first quarter included gain related to foreign exchange of $1.1 million. As you may recall, we completed the Alveda acquisition we established Teligent's subsidiaries in Canada and Estonia to complete the purchase based on the fluctuation in foreign exchange rates during the quarter, we recorded this non-cash gain of $1.1 million related to the foreign currency translation of these inter-company loans. Pending on changes in the rates, we will continue to see a non cash gain or loss on translation for the remainder of the term of these loans, due to the nature of these transactions there is no economic benefit to the company to hedge this transaction. For the quarter ended, March 31, 2017 net loss included amortization and depreciation of $1.1 million consistent with the same quarter last year. Our net income in this quarter include $2.3 million of non- cash interest expense related to the amortization of discount related to our convertible notes, we believe it's helpful for investors to review our adjusted EBITDA, earnings before interest taxes, depreciation and amortization as well as adjusted net income. As you may have seen in our release, there is non-GAAP disclosure related to how to calculate EBITDA, adjusted EBITDA and adjusted net income. We will continue to provide this information as long as we determine to be helpful for investors to monitor the operations of our business. Our adjusted EBITDA for the first quarter was $4.9 million which after R&D spend of $3.7 million in the first quarter. As always Jason and I are grateful for your participation today and we look forward to updating you again soon. I will now turn the call back to Jason for his closing remarks.

[Jason Grenfell-Gardner:]

Thanks, Jenniffer. As you can tell from our comments today, this has been a great quarter in remarkably busy year. We still have a lot of work to do to execute on our pipeline and expansion plans but I'm confident that from the results today, you had a better sense of what Teligent has done and what it can do with its internal capabilities. This is frankly an amazing team that knows how to deliver with a constant focus on execution. With that Jamie, let me open this up for questions.

[Operator:]

Ladies and gentlemen, at this time we will begin the question-and-answer session. [Operator Instructions] Our first question today comes from Elliot Wilbur from Raymond James. Please go ahead with your question.

[Unidentified Analyst:]

Hi, this is David on for Elliott, thanks for taking the questions. So to begin, could you provide a quick update on the launches of the original approvals that came near the back-end of last year and launched earlier this year? And have you been finding that the market share has been attainable with typical 15% to 20% generic price concessions or have the incumbent players been holding on for share a little bit more largely than expected? Thanks.

[Jason Grenfell-Gardner:]

Hi David, this is Jason. Thanks for your question. So I believe at this point we launched all three of those products that we did at the very end of last year as well as one further product that was approved a little bit before that. All four of those launches went pretty much according to the play book. We didn't see anything particularly unique or different than what we had seen in the past. What I would say though is that the important thing for success of those product launches is really around the ability to get those products to market as quickly post approval as possible. In order to do that, our team has put together a pretty robust process around product launch that involves pre-stocking of certain printed materials, the ability to respond quickly in terms of the manufacturing schedule, I have to say they did just a fantastic job in the first quarter of shrinking that timeline between approval and launch that's really critical so, I would say on the whole this is gone pretty much according to, to what we expect in the playbook of course as you know over time those shares ramp and they sort of normalized I thought it all happen overnight but so far we are. We're working our plan.

[Unidentified Analyst:]

Great, thanks. And just secondly as a quick follow up based on the current timeline are you still on track to be able to handle injectable submissions by the first half of 2018 and if so could you just give us a quick reminder as to what the target opportunity set and range of capabilities would look like on the injectables front.

[Jason Grenfell-Gardner:]

Well, the first part of the question is easier than the second part. The first part the answer is yes the goal as I said in terms of facilities expansion is to ensure that we have the facility ready to produce injectable products by the end of this year and the team has already identified the lead products that will go into that facility and what order as we get through the end of 2017 and end of 2018. Of course when we talk about the product set or the opportunity set it's down to a couple of things obviously there are the products from the AstraZeneca and valiant acquisition that we made back in 2014 and 15 that have the opportunity to be made economically in our own facility in a way that we wouldn't have been able to do with CMO's because of the cost of side transfers and scale ups and so on. So, those are part of the strategy around developing injectable capability inside. But the second part is around the internally developed pipeline and there what I'm particularly excited about is the ability of our team to start to pick it [ph] away from topical development in back half of this year towards injectable development and to see those teams apply the same degree of productivity towards injectables, if not better that we had around topical in some of our bigger topical years for the internal development program. As we get into the end of the back half of this year and more towards 2018, I think will start to tell you a little bit more about the shape of that injectable pipeline and that opportunity said but it is going to be driven by a very similar philosophy R&D productivity and getting drugs approved.

[Unidentified Analyst:]

Great, thank you.

[Jason Grenfell-Gardner:]

Thank you.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from Matthew Hewitt from Craig-Hallum. Please go ahead with your question.

[Matthew Hewitt:]

Good afternoon. Thank you for having a little time for the Q&A. Well, first half, and I think Jenniffer, I think you addresses like so make sure heard it correctly R&D little late versus our expectations coming in the Q1 here but did you say that you expect a sequential ramp over the course of the year to get you to your guidance.

[Jenniffer Collins:]

That's correct. Thanks, Matt. We did have a certain milestones in kind of that will be accomplished in Q2 and Q3, SO Q1 is lighter than the rest of the year will be I mean mathematically to get to the 24% to 27% of top line we're going to have to increase than rather significantly in the back half of the year to get there.

[Matthew Hewitt:]

Okay, got it, thank you. You mentioned Zentec obviously a strong performance in the corner I believe that was a situation or the drug advantage shortage there have been a price increase and maybe walk through some of the dynamics with that product and where it sits today.

[Jason Grenfell-Gardner:]

So we continue to supply Zentec to the market as we have done varying this period of supply volatility. How that will resolve over the course of the coming months and quarters? I think we all have to wait and see I don't know that it's easy for us to predict that. What I can says that we have taken a number of steps to ensure that we have the most robust supply chain in that drug in the industry. We are validating a second sources supply. And have sense over pretty significant time on that. So related strong inventory position to be able to keep the market fully stocked and supplied and we continue to execute that plan as best we can.

[Matthew Hewitt:]

All right, maybe one last one for me; regarding the current shortages in the market in various drugs some of which you are a participant others where you're not, but maybe talk about some of the dynamics there exceptionally as the FDA drugs work towards expediting the approval process and trying to get some of their internal targets. How have you been able to I guess position either your existing portfolio or maybe as you look at opportunities to submit and those areas of particular where you see opportunities and how does that change your, I guess you're go to market strategy whether it's on a pricing level or supply level anything along those lines to be really helpful? Thank you.

[Jason Grenfell-Gardner:]

The first thing I would say about that is that this is not necessarily a strategy where we say look there's a drug shortage let's run after that opportunity. That's not drives our portfolio selection of the last stage. You look across TICO and start with topical. In topical we set out a very broad strategy around classes of products and what we have said is that we will be in every AV rated [ph] products, in every AV rated steroid where markets make sense. And by the end of this year we will have achieved our goal of submitting every product in those product categories. And we look forward into the AV rated topical products that require I set it aside. We're going to be very circumspect about how we think about which products we go after more to be mindful of clinical risk and be mindful of what the returns are on the investment that we're going to have to make and some of those heavier programs and longer duration clinical trials. So that's kind of topical. We're in the neighborhood where we're going to be, and we're also very sensitive as a player of our scale in a market of fairly large players. The one thing that we can trade on is reliability of our supply, and so with Jennifer help and with the team that we have insourcing a manufacturing. We will not to be able to ensure that we have the most robust supply chain around the products that we supplied to the market and that's been very helpful to us. As we think about moving forward into injectables, the injectable portfolio is kind of story of two parts the first is one of capability standing out internal capabilities to manage sterile injectable products which is what we did in 2014 and 2015 with the acquisitions that we made from AstraZeneca and Valeant in building in the capability to manage their contract manufacturers with largely the goal of 2015 and to 2016. And now creating internal development programs and internal manufacturing as we take the 2017 and 2018 and looking at those target areas of the portfolio the goal year is not to change the next Paragraph IV first file opportunity and be your final number 13 on the next try to go generic. We don't think that's an efficient use of our shareholders' capital rather. We prefer to look at opportunities, we mentioned Zentec, but opportunities like that where these are single-player, two-player markets where we think the supply chains have the potential for weakness. And there's an element there batting against some of the competition, but knowing what this team is capable of delivering from a supply chain perspective, I think we can position Teligent as one of the most reliable suppliers and multi-source generic injectables in the U.S. And that's the goal.

[Matthew Hewitt:]

Okay, great. May be one follow-up, AstraZeneca and Valeant, the portfolio which required a couple of years ago, any update on, maybe when we'll see the next re-launch out of those portfolios?

[Jason Grenfell-Gardner:]

I don't have the re-launch schedule in front of me, but I can say that we are actively working with -- I think five CMO partners now, primarily in Europe to support some of those re-launches, the first [indiscernible] will be submitted for its PIS this year, we obviously have to work on a couple of the injectable products that are going through either de-novo submissions or post-approval change. So there's a lot of heavy lifting going on there, but it's more been about, I guess, prioritization rather than ticking the box. And what I mean by that is that we look across the assets that we acquired. We look at the market opportunities and we balance that against the internal requirements for us to take some of those products back to market, because simply sites transferring something to a CMO generally outside the United States takes a lot of time, and it takes a lot of internal resource to make that happen. So -- and frankly it's expensive. So there have to be a really strong economic and internal rationale that makes those do that compared to waiting for six months for our colleagues to finish the work on our facility, so that we can bring those in-house and achieve the better economics for doing the products ourselves. So that's the sort of balance. And what I can tell you is there's lot of folks working very hard to make sure that all those pieces happen both internally and externally. So you'll see more of those this year, as we continue to roll them out.

[Matthew Hewitt:]

Okay, great. Thank you for taking the questions.

[Jason Grenfell-Gardner:]

All right, thank you.

[Operator:]

[Operator Instruction] And ladies and gentlemen, at this time, I'm showing no questions. I would like to turn the conference card back over to management for any closing remarks.

[Jason Grenfell-Gardner:]

Okay, thanks, Jenny. So, first, thank you all for joining us on today's call and for your continued support and interest in Teligent. Jenniffer and I look forward to seeing some of you at the Deutsche Bank Healthcare Conference tomorrow in Boston, and later in the month at the Bank of America Merrill Lynch Conference in Las Vegas. I'd also forward to seeing you at our annual meeting and stockholders in New York on May 18. Please check your proxy statement for details. Thank you again for your support, and have a great evening.

[Operator:]

Ladies and gentlemen, that does conclude today's conference call. Thank you for attending. You may now disconnect your lines.