Teligent, Inc.
Q3 2016 Earnings Call Transcript

Published: 28 Oct 2016

[Operator:]

Good afternoon, and welcome to the Teligent Incorporated Third Quarter 2016 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 note this event is being recorded. 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 Incorporated are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties. For example, 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, 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 for 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 turn the conference call over to Jason Grenfell-Gardner, President and CEO. Please go ahead.

[Jason Grenfell-Gardner:]

Thank you, Gary and good afternoon, ladies and gentlemen. Welcome to the Teligent business update covering the third quarter of 2016. I'm 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. Over the past three months, Teligent has continued to develop and diversify as we grow our business. R&D pipeline remained strong. We received two approvals in the U.S. both of which have been launched in less than 60 days from approval and we also received five approvals in Canada. With this increasing momentum, I am pleased to report that Teligent continues to be on track for our 2016 goals. Today I'll be giving you an update of our results for the third quarter, our progress with our pipeline and a brief update on our facility expansion. Jennifer will then provide a detailed breakdown of our financial performance for the third quarter. This afternoon we reported net revenue of $16.2 million up 39% over the same quarter in 2015. Although this is slightly down compared to the second quarter of 2016, that was driven by contract manufacturing revenue, which we accelerated exceptionally into the second quarter impacting third quarter contract manufacturing sales. We anticipate contract manufacturing revenue to achieve a more normal run rate in the fourth quarter. More importantly the Teligent label revenue has continued its sequential improvement reaching $13.9 million for the third quarter. I think that's a remarkable achievement. If you look back at the past four quarters, our Teligent label has grown from $8.1 million in the fourth quarter 2015 to $9.2 million in the first quarter of 2016 and $11.1 million in the second quarter 2016. Today's result of $13.9 million represents quarter on quarter growth of 25% compared to the second quarter of 2015, which has been driven by product launches and market share improvements. Overall we continue to see relatively stable markets despite some competitive launches over the past few quarters. Of course as new entrants get approval and launch products, we do tend to see price erosion in established markets. Over the past year, we've seen mid-single digit price erosion, which in our case has been more than offset by market share gains. This of course is the nature of our generic pharmaceutical industry and our goal in strategy at Teligent continues to be to ensure that we get sufficient pipeline approval and momentum to more than contemplate for competitive pressures. I applaud our team which has been very successful in doing this. Looking at pipeline development, I want to share with you some more granular data around our FDA interactions during the third quarter. Now for the avoidance of doubt, we don't intend to regularly dissect everything in the pipeline to this level but I'm hopeful that this will give you some insight into the work that our team is doing. During Q3 our team received 25 information requests from FDA including easily correctable deficiencies. During the quarter we had seven target action dates and four GDUFA dates. From these target action dates, we received four information requests, one complete response letter and final approvals. Of our four GDUFA dates we received four complete response letters. Comparing that performance to industry we're currently tracking for the GDUFA year three ahead of the industry average. While we would like to see faster approvals, I continue to be encouraged by the interactions that we have with the FDA and the fact that our views are continuing to progress. With each information request or complete response letter, we get an understanding of what work needs to be done to get our drugs approved and as our recent approvals indicate, we've been successful at navigating that FDA process. At the end of this third-quarter, Teligent had 34 ANDAs on file with FDA representing a total addressable market based on recent IMS Health data of $1.6 billion. Our model of development, filing, approval and launch is what has driven our growth over the past few years and we remain confident in our team's ability to continue to drive our growth with this model. As a final note on our manufacturing facility, I'm pleased to report that our progress has continued. One of the things I'm most proud of in this construction process is our ability to source locally including our U.S. steel, which is now on-site. We're pouring concrete, we're building walls and I am just excited to see this go up. There is still a lot of work to do, but our team is on it and is on target. With that, let me turn the call over to Jenniffer to provide some more detail on the third quarter results. Jenniffer?

[Jenniffer Collins:]

Thanks Jason. Good morning, everyone and again thanks for joining us today. Our total revenue for the third quarter of 2016 was $16.2 million and increase of 39% as compared to the same quarter last year. Net revenue from the sale of our own products increased 60% over the same quarter last year and increased 25% sequentially over the second quarter to $13.9 million. The increase in revenue compared to last year resulted from the expansion of our generic injectable product portfolio in the fourth quarter of 2015 through two acquisitions and six new product launches thus far this year. Revenue from Lidocaine ointment 5% represented just over 30% of total revenue in the third quarter compared to zero last year. However year-to-date, Lidocaine represented just under 17% of total revenue. As we expected our contract services revenue declined in the third quarter of 2016 compared to the second quarter. Product sales from our contract services business were $1.8 million in the third quarter of 2016 compared to $2.7 million in the same quarter last year and $6 million in the second quarter of this year. We're fortunate enough to secure orders from two new customers in the fourth quarter of last year as you may remember and they continued in the first and second quarter. We recorded one additional sale from one of those customers this quarter, however we currently do not expect any additional orders from either of these customers. In addition we had higher than expected demand from two of our existing contract pharmaceutical customers in the second quarter of 2016, which would have typically occurred in the third quarter. Contract services revenue as a percentage of total revenue was only 11% in the third quarter, compared to just over 35% in the second quarter of this year. As we often talked about, our contract service business is based on a purchase order basis, which can be variable from quarter-to-quarter in that business. Fortunately the heart of our TICO strategy focuses on the continued diversification of our Teligent label product portfolio and as I mentioned, Teligent products grew 25% sequentially in the third quarter of 2016. Contract services revenue from our pharmaceutical customers represented 78% of our third quarter contract services as compared to 92% last quarter with the balance coming from OTC and consumer products. Now let me turn to gross margin, gross margin in the third quarter of 2016 was 50% compared to 52% in the same quarter last year and 56% in the second quarter of 2016. The decline in gross margin from the second quarter was a result of product mix. As we've often talked about, our margins in the contract service business particularly for non-pharmaceutical products are not as strong as our Teligent products. We continue to grow revenue from our Teligent topical product sales but that did not offset the impact of the accelerated orders from our contract services customers in the second quarter. As we continue to grow our Teligent topical sales and reduce contract services revenue, we'll see margin improvement. Sales of our injectable products represented just over 26% of total revenue this quarter, compared to 23% last quarter and 0% in the third quarter of last year. Our partners currently manufacture all of our injectable products. The expansion of our facility to include sterile manufacturing capabilities and the transition of the manufacturing of the Teligent injectable products to our own plant will improve our gross margins over time as well. SG&A in the third quarter of 2016 was $3.7 million, consistent with the second quarter and compared to $2.4 million in the same quarter last year. SG&A in the third quarter includes amortization of $700,000 compared to $30,000 in the same quarter last year. The increased amortization resulted from our acquisitions in the fourth quarter of 2015. SG&A as a percentage of sales for the third quarter of 2016 was 23% compared to 21% last year. We do plan to make some additional investments in the corporate services group that will strengthen the growth of our business in 2016. Over time we expect SG&A as a percentage to be flat to down dependent on the range of total revenue. Consistent with our TICO strategy and our dedication to building a foundation to expand our product portfolio we continue to invest significantly in R&D. We invested $4 million in the third quarter as compared to $3.3 million in the same period last year. We filed 15 ANDAs in 2015 and expect to file 15 in 2016 in the U.S. and eight applications in Canada. We still expect total revenue to be between 28% and 30% of total revenue -- we still expect R&D to be 28% and 32% of total revenue this year. For the quarter ended September 30, 2016, net cash used by operations was $2.5 million which included $4 million of R&D. For the quarter ended September 30, 2016, cash used in investing activities was $4.1 million primary related to capital expenditures for the expansion of our Buena facility. We expect the final budget and the final expansion to include necessary equipments, utilities and process controls for the increased topical production and the new sterile still unfinished suite to approximate $50 million. To date, we spent just over $7 million and we hope this expansion will be completed by the end of next year. In the third quarter of 2016, we recorded a net loss of $2.7 million compared to $2.9 million last year. The net loss in the third quarter included foreign exchange gain of $0.4 million. As you may recall, when we completed the acquisition of Alveda, we established Teligent subsidiaries in Canada and Estonia to complete the purchase because of the fluctuation in exchange rates in the third quarter, this gain of foreign currency translation of $0.4 million on these intercompany loans was recorded. Depending on the changes in rates, we will continue to record a non-cash gain or loss on translation for the remainder of the term of these loans which are due in 2022. Due to the nature of this transaction, there is no economic benefit to the company that has this transaction. For the quarter ended September 30, 2016, our net loss included amortization and depreciation of $1 million compared to 2000 last year in the same quarter, the increase related to the amortization of intangible assets for acquisitions, we completed last year. Finally, we increased our R&D spend by approximately $0.7 million compared to last year to support our TICO strategy. Our net loss in the quarter includes $2.1 million in non-cash interest expense related to the amortization of the discount on our convertible notes. Non-cash interest in the same quarter last year was $1.9 million. We believe it is helpful for investors to review our adjusted EBITDA earnings before taxes, depreciation and amortization as well as our adjusted income. As you may have seen in the press release, non-GAAP disclosure related to how we calculate EBITDA, adjusted EBITDA and adjusted net income are included. We will continue to provide this information as we determine it will be helpful for investors to monitor the operations of our business excluding certain items as outlined in the tables of our release. Our adjusted EBITDA for the third quarter of 2016 was $2.1 million, which was after R&D spend of $4.0 million in the quarter. As always Jason and I are grateful for your participation today and look forward to updating you soon. I will now turn the call back to Jason for his closing remarks.

[Jason Grenfell-Gardner:]

Thanks Jenniffer. So as you heard today, Teligent continues to execute on its TICO strategy to build a leading player in the specialty generic pharmaceutical space. Execution is the key to what we do and our team is as focused as ever to deliver on our goals. With that, let me now open up the call for questions, Gary.

[Operator:]

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Elliot Wilbur with Raymond James. Please go ahead.

[Daniel Sanchez:]

Hi this is Daniel Sanchez on for Elliot Wilbur. I just got a couple questions and I’ll hop back in the queue, but of the remaining nine products to be filed in the rest of 2016 do you have any update on how many of those have actually been submitted and if you could talk about the market dynamics in Lidocaine post recent competitive lunches, anything unusual happening and if you're seeing pricing behavior consistent with historical trends. Thank you.

[Jason Grenfell-Gardner:]

Sure. Thanks Dan. So in terms of the remaining NDAs to be filed for the fourth quarter we have filed some of those NDAs. Our goal is to keep tracking and make sure that we hit our goal. So, we'll give an update when we get through the fourth quarter, but we are definitely making progress on the filings that we have in front of us. With respect to Lidocaine as you know there has been a subsequent approval in Lidocaine in the past few months. They have been working to build some market share. I think they like us, however are relative newcomers to this market and there was a lot of installed market opportunity for both of us there. We continue to have I think as strong and growing scaling in Lidocaine and we’re happy with the competitive dynamics of the market.

[Daniel Sanchez:]

Anything regarding pricing?

[Jason Grenfell-Gardner:]

I really can't comment on specific pricing of individual products.

[Daniel Sanchez:]

Okay. Thank you.

[Operator:]

The next question comes from Matt Hewitt with Craig-Hallum. Please go ahead.

[Matt Hewitt:]

Hi, afternoon. Thanks for taking the questions.

[Jason Grenfell-Gardner:]

Hi Matt.

[Matt Hewitt:]

Hi, a couple for me. First of all, thank you for giving us the color on your NDA filings and progress with the FDA. I'm wondering as far as timing is concerned the complete response letters, there were information requests, how should we be thinking about those because some of those require a turnaround time of what is it 30 days back from the FDA. So, is there -- are you still optimistic, are you still anticipating several approvals here in the fourth quarter?

[Jason Grenfell-Gardner:]

Thanks for the question Matt. So interestingly this week was also the week for the Generic Pharmaceutical Manufacturers Association Fall Technical Conference, which is held together with the FDA and during that conference, we often get as industry a better insight into how the agency is functioning, how the agency is looking at priorities and how we can best position ourselves to maximize the quality of our submissions and ensure that we're doing what we need to do to get drugs approved. I think there were a few takeaways that came out of that and you'll see in my prepared remarks that I mentioned that Teligent is tracking ahead of industry in terms of GDUFA year three. Doctor [Rolls] presentation on Monday, which will eventually make its way to the FDA website broke out the various percentages of how industry has been performing in terms of refuse to receive first pass approvals, numbers of complete response letters, numbers of second complete response letters and so on. And by all of those metrics Teligent is doing better than industry. With respect to the information requests and the volume of information, I was speaking with our team that works with that today, we anticipate having processed more than 100 FDA information requests or deficiency responses over the course of this year and you're right, most of those are requiring turnaround times of 30 days and in some cases only seven. That's how we've invested in regulatory affairs. That's why we've built specific teams to address more clearly the urgency around some of those responses and I think those are the things that put us in the most favorable position to get things approved expeditiously. So while I can't comment specifically on the likelihood or not of specific approvals because this is a bit of a movable piece. We are doing our part to make sure that we are best positioned and so far the data seems to indicate that we're doing the right thing.

[Matt Hewitt:]

All right. Thank you for that. As far as you submit your responses to their questions or you provide them the information on the complete response letters, they have a turnaround time too, are you seeing that they're meeting the deadlines on their side of the equation?

[Jason Grenfell-Gardner:]

So with respect to the applications under GDUFA year three or later, the information responses are part of the review process that leads to the eventual GDUFA goal date and I would say that yes, the FDA is meeting its commitments. It is providing timely feedback and it's actually been very transparent with us compared to previous years in terms of where things are in the review process and what's to be expecting what's to come. In terms of things pre GDUFA your three, these are the things that are captured by quote unquote “target action dates” target action dates are a little bit less solid. We've seen some dates move and the one thing that is helpful is that we have a date. That date creates a sense of urgency if the agency is not going to be able to take an action or to provide feedback on that date, we generally hear from a project manager who says here's what’s happening, here's the new date and often that's two weeks out or four weeks out from the original target action date. And again target action dates can mean a number of things. It can be an information request. It can be a complete response letter. It can be a product approval for many of these products they’ve been there for quite some time and so as you approach those target action dates, it's a little bit uncertain what you're actually going to get on the other side of it. But I will say, all of those things are signs of progress in the pipeline. Every target action date letter, every information request even every complete response letter moves the ball forward and gives us the information on the work that we need to be able to drive things to approval.

[Matt Hewitt:]

Okay. Thank you. Maybe one more for me, then I’ll hop back in the queue, inter-quarter or actually just a few weeks ago, I guess it was, you issued a press release regarding your Estonia facility and how you’re going to ramp up some of the R&D capabilities there, could may be walk through some of the rationale why Estonia versus this brand new or expanded facility in Buena, New Jersey. Thank you.

[Jason Grenfell-Gardner:]

Yes, sure so as Jenniffer mentioned in her comments, we established a presence in Estonia and connection with our acquisition of the Canadian assets of Alveda Pharma in 2015. And there were a couple of reasons for doing that. The first is that the contract manufacturers that provide the services and provide the products for the Canadian market are all primarily European based. And so as we thought about how to manage that supply chain and how to be closer to those providers, we were looking for market where we could do that effectively, efficiently and from a cost perspective in a way that makes sense to us. Estonia gives us the ability to do that. We get incredible talent. We get proximity to our manufacturers and we also get a regime for managing our corporation as well as our tax exposures, which is very efficient for us. As we look at the ability to do more work in the future, it's really about trying to have capabilities and have access to talent in different markets and so with the Estonian seven hours away from us, we can do analytical development work in the lab in Estonia and transfer that to the lab in Buena and kind of continue working, continue progress and get efficiencies as we grow our business. That made a lot of sense to us and it allows do it in a very cost effective way.

[Matt Hewitt:]

Great. Thank you.

[Jason Grenfell-Gardner:]

Pleasure.

[Operator:]

The next question comes from Scott Henry with ROTH Capital. Please go ahead.

[Scott Henry:]

Thank you and good afternoon. I guess just to get started Jenniffer gave us some great color on Lidocaine 5% and it sounds like just over 30% would compute to about $4.9 million in the quarter. How should I think about that going forward? Is that the high watermark or was that a true number or was there any stocking? I'm just trying to get an idea how to extrapolate a very good number $4.9 million going forward?

[Jenniffer Collins:]

Hi Scott. Thanks for the question. I think for the quarter we saw -- we continue to make very good traction in Lidocaine market. I think as Jason mentioned, there was a new entrant in the last couple of months that's kind of in a similar position. We feel good about our position, but new entrants always have the possibility of additional competition, but I think our team has done a really good job with that product and we're I think that the fourth quarter in terms there was any significant changes in the contract is a good run rate for us on a go forward basis.

[Scott Henry:]

Okay. Thank you for that color. And then you did not mention Econazole Nitrate at least I didn't catch you if you did. How should be think about that product? I'm assuming given the strength in Lidocaine 5% that it was probably a modest decline quarter-over-quarter, but I obviously have no way to know that any thoughts on that.

[Jenniffer Collins:]

It wasn’t over a 10% of revenue which is why I didn’t call it out specifically. So thousand of category of the other products now, but that’s are really in line with the strategy to diversify the product portfolio. Even though Lidocaine was 33% of total revenue for the quarter, it was 17% of total revenue for the year and as we continue to see additional product launches in our portfolio, the anticipation is that we'll continue that diversity from a revenue side.

[Scott Henry:]

Okay. So Econazole Nitrate clearly not the level it once was because the other products and then I guess the $1.8 million and I guess the contractor that sit there, contract services, How should we were expecting that to decline. So it’s not a surprise the magnitude is a little steeper but my question is how should -- is that $1.8 million is that a good number going forward or might it bounce back a little bit knowing that it is a lumpy category?

[Jenniffer Collins:]

Yes, I think on a run rate right now that if you model the contract services business on an annual basis at about $10 million that’s about right. We do have these fluctuations and purchase orders. We accelerated some in Q2. So that had impact on Q3 that we talked about earlier, but if you're looking at future modeling that business right now is around the $10 million range on a run rate basis.

[Scott Henry:]

Perfect, it’s very helpful and then I guess Jason I don't know if you want to give us any color we get a couple months left in the year, would you care to comment on how many target action dates you have left this year? Just trying to get a sense of how many shots you have on goal to get another product out there before the end of the year.

[Jason Grenfell-Gardner:]

I think and this is by my count looking through things, I think that there are five target action dates and two to three GDUFA goal dates remaining in the year. So there are certainly some opportunities to see some approvals before the end of the year.

[Scott Henry:]

Okay. Great. And then I guess just a final question, I feel like these regulations are always changing now, but with GDUFA date and you get a complete response, what typically goes on now in that category? Obviously sometimes they can be quicker or shorter timelines but any color on how it goes from there?

[Jason Grenfell-Gardner:]

Yes so the FDA again can't give a summary of GDUFA year three cohort on Monday and what I can tell you the based on the information that they gave about 20% of applications from industry have been refused to be received, 8% of applications have been approved or tentatively approved in the first cycle, 72% of applications have received a complete response letter in first cycle. And that's to be expected right. The FDA is ramping up the training of the individuals who are doing review. They've hired over 800 people and so it may take longer to get some of these things reviewed than the current clock allows for. From that complete response letter from the first cycle, in terms of responses to the CRL 43% of second cycle applications have been approved and 53% of second cycle applications have received a second complete response letter, 4% of second cycle applications have been withdrawn. One of the question marks of GDUFA in this GDUFA 1 is what happens to applications after a second complete response letter particularly it’s the second major complete response letter and without wanting to get too much into our nature of how the FDA is working through all of these issues, I think sponsors have to be very careful to ensure that the quality of their responses to these complete response letters are as good and completely solid as they can be. So there's -- but all of this if you take this in context means that industry and FDA are exchanging information. They’re exchanging data about these applications and that is so much better than where we were three or four years ago when applications could sit at the agency four years without any feedback, any review, any questions. So this is -- I think we're in a much better state of the world then we were before. Of course and this again comes back from anecdotal conversations over the week with other drug sponsors. Not everyone has ramped up from the industry side to be able to respond to FDA in a timely manner to be able to do the work that's necessary to answer the questions that come as part of this accelerated review process. At Teligent we made those investments and I think we've been talking about that for over a year now and so I think we’re in a pretty good position to prosecute our pipeline very well.

[Scott Henry:]

Okay. Thank you. That was great. Now, just want follow-up typically, how long of time would you expect to take between, the first round complete response letter in getting to the second round. So that would include time to resubmit and to get a response. So what’s the typical duration recognizing it’s probably a wide range?

[Jason Grenfell-Gardner:]

Well, so I think first you have to determine is this a major or minor complete response letter as categorized by FDA. If you take a minor complete response letter maybe there is one or two months worth of work on our side to put together the materials necessary to respond, once you responded a new clock starts in which FDA has three months to respond to that complete response letter. In the case of a major complete response letter you may look at anywhere from three months to a year to respond to that complete response letter particularly it requires new stability data, once that is responded to the FDA then has 10 months to respond to the major complete response letter an issue further action so, there are fairly defined clocks for the FDA. The question really is how quickly can industry, how quickly can we do the work necessary to respond than in some cases that response requires working time that is that can be substantial sometimes it can be very quick.

[Scott Henry:]

Okay great thank you for taking the question.

[Jason Grenfell-Gardner:]

That’s pleasure.

[Operator:]

The next question comes from Greg Gilbert with Deutsche Bank. Please go ahead.

[Greg Gilbert:]

Thanks. Good afternoon just to bolt on that last question Jason could offer your crystal ball prediction of the average review time for your filings going forward.

[Jason Grenfell-Gardner:]

That’s like a bad idea, Jennifer might take me, but I will say this I'm really encouraged by a some of the signs of them seeing in terms of our review process so, remember that the first thing that happens in the review process is an acceptance for filing review. Just told you 20% of industry applications are being refused to receive we don't see that, we see the, the number of questions coming from FDA as we submit our applications actually diminishing application by application. I’ve seen applications that we submitted with zero comments that were accepted for filing immediately. So, that's to meet. We are improvising FDAs comments and we are making sure that we're addressing some of those questions or concerns upfront. Of course we are now in GDUFA year five, GDUFA year five has a ten month review clock. I still think that that's really aggressive for the work that needs to be done given the amount of learning that still needs to be done organizational within the FDA as they trained this new group of people to be able to process those reviews. It would not surprise me that on average for industry that this would take at least one complete response letter cycle on average to get things reviewed and so you're probably looking at somewhere between 16 and 18 months for an industry review cycle. Of course the Teligent we tried to be above average so, we definitely tried to do better than that. We'll see what happens?

[Greg Gilbert:]

Okay I believe your R&D guidance for the year Jennifer implies the step up to about $6 million possibly more in the R&D spend fourth quarter and maybe in comment some of the drivers? Is it just additional filing activity? Are you taking on some more expensive clinical trial type of products?

[Jenniffer Collins:]

Thanks for the question Greg. It's really a combination of both. Obviously we need to get a lot of filings done before the end of the year to make our target as well as just the timing of test for the rest of the year. We have a few projects ongoing of resurrecting some of those. AstraZeneca products that have partners to get them back to the market and those CMOs in terms of some development work that needs to be done with those. Some of our other days of construction studies that we're doing, there is no end point studies in that number but some of that, it could slip into January, but that really is -- those additional expenses that we didn’t have in the third quarter.

[Greg Gilbert:]

Okay. And then Jason I don't know if I am pronouncing this right, but Fluocinolone, Teva could launch that soon. I know it's already pretty crowded. Would you expect any impact on your product, if they do launch that it's recently approved?

[Jason Grenfell-Gardner:]

Whenever anyone launches a product in our industry, we expect that there will be bumps along the way. We've managed to have I think pretty stable and reasonable market share over time with that product, despite I think three market entrants in addition to Teva already. So I think we fought our corner pretty well. I guess, I would remind you that the Fluocinolone solution is an authorized generic product. So from a margin perspective, 40% of the net sales goes to the NDA holder as part of royalty. So it is something that we have slightly lower margin on the impact of the incremental competition is not necessarily dollar-to-dollar, but we'll continue to fight our corner. I think we feel pretty good about it.

[Greg Gilbert:]

Okay. And lastly Jenniffer, what about taxes? Is '17 the year in which you pay taxes?

[Jenniffer Collins:]

Based on our current tax spending, Greg we anticipate that our carry-forward losses should cover us for 2017. We will update you more when we update 2017 guidance.

[Greg Gilbert:]

All right. Thank you guys.

[Operator:]

[Operator Instructions] The next question comes from [Kenneth Mass] with Mass Money Management. Please go ahead.

[Unidentified Analyst:]

Good day. I would like to address this to Jason, I don't know whether you're catching the vibe or a drift of the questions that have been coming to you, but I'm a long-term stockholder from the $4 range have been very, very disappointed in how you've been running the company. I think you've been overly aggressive looking at the future, which I look at now as being about 2020 or 21, you have over invested in research and development to the cost of current stockholders. When I came in you talked about making profits consistently, you comment help that greatly, but then you just went and did a brilliant secondary as far as the raising of bond funds at the top. And then after that, it became like hey I'm running this company for the insiders here. If you would cut down on R&D by 15%, you probably wouldn't have changed at all the revenues that you've got. You're way behind on GDUFA. You are flushing money, unquestionably you're building a great company and when you get your facility up in '17, you're going to then reinvest in the AstraZeneca items instead of paying attention and knocking off 10%, 15%, 20% of your R&D running it at a profit and making current stockholders happy rather than the insiders and people that will be buying the stock in 10 or 15 -- in five years. I would go on and additionally say I would like your email address, so I could be able to send commentary on this kind of thing, you seems to be very hard to get a hold of. The GDUFA things that we're standing with, with 34 of them, hey how many of them are way behind deadline? How come you have to insist on them we need 15 of these, but it may take 16 months rather than now? Why can't you be running this at a profit for us?

[Jason Grenfell-Gardner:]

Thanks Ken. So I appreciate everyone's views and of course I take your comment seriously. So let me address some of your concerns. First I think about how we position this company within the context of a broader industry. We've looked at the question of capital allocation pretty seriously as we thought about how to grow this business and as we talk about going this business, I'll remind you that this business has grown from $8 million from the year I started to what will be $65 million to $72 million this year. So I think from a track record of growth in revenue, we've done pretty good. I will also say in terms of returns for our shareholders from the day that I started the stock was $1.2 and today the stock is $7.92. So, our stockholders who have been with us from the beginning have also seen I think pretty substantial returns on the investment they’ve made. Now over the course of the past 18 months, let's look at how industry has thought about capital allocation. When we did our secondary back in December 2014, we were really looking at how to drive the injectable part of our business and why did we do that? We did that because we knew that there were a limited number of opportunities eventually in the topical space. And if we didn't have more cards to play with, we were really going to be victims of the potential competitive pressures that were going to come out of the FDA. So we made that pivot to be able to look at the broader injectable market. Of course you will know across the course of 2015 that a number of firms went out and deployed capital at what I think we’re really astronomical valuations paying sometimes more than 20 times EBITDA for organizations whose cash flows eventually are going to be questionable because people like us are going to get products launched and going to erode those cash flows over time. So now with an arsenal of 34 ANDAs on file a number of ANDAs which have been approved this year a business that is growing almost 50% of the bottom end of the estimates year-on-year, I’m very, very confident that we are making the right decisions in terms of capital allocation. And so why I appreciate the comments and I appreciate the feedbacks, based on the information, I have and the data that I see in terms of our competition and the opportunities that present themselves to us for the capital allocation that we have, I think that we're making the right choices. And the fact that we're able to drive a pipeline that can get drugs approved, they can actually give us more shots on goal so that so that we can diversify our cash flows and be able to maintain growth and the business for shareholders long term. I think that's what's important because none of us want to be back in a situation like we were 15 months ago when we faced almost 80% of our business being attacked in one single product in terms of our margin. So without a diversification, without that ability to deploy capital more broadly, I think we would be in a really that place. So, I take your point. I understand the question about how we think about profitability and so on, but to be fair I don't think that $3 to $4 million worth of profitability is going to make up for the risk that we would be taking and the ability to actually drive your long-term value. Thank you for the question.

[Operator:]

The next question comes from Andy Summers with Janus. Please go ahead.

[Andy Summers:]

Hi guys. I guess it tough to follow that sort of line of questioning, but before I asked any questions I just want to say that, we have a completely different view of the way you guys are running the company than the last caller. We think it's admirable that you are investing for the long term in a world where many management teams are incentivized to only thing about the short term. We like the fact that you're managing the business for long-term and we look forward to being shareholders when the company is far bigger than it is today. So, we are big fans of the way you’re running the company and we believe the investments you’re making today are going to pay off we are big fans of the strategy. So having said that Jennifer, I do have a question on inventories up quarter-over -quarter up year-over-year could you give us some color on where inventories are expected to trend from here?

[Jenniffer Collins:]

Yes, thanks Andy and thanks for the comments. We really appreciate that. I think the increases in inventory are driven not necessarily by inventory in the individual finished goods as much of it is by our preparation for launches. So you're seeing a lot of that inventory increase in the near term in order for us to prepare for the dates that our upcoming. So, when we have these GDUFA dates for the end of '16 and early '17 that our goal is to be able to launch those products as close to the approval date as possible. In terms of we don’t really have product in terms of regular inventory that's sitting and waiting. On average there's less than 30 days of product with our customers on the Teligent label business.

[Andy Summers:]

Okay. So I guess in one sense we can view it as a sign of confidence in your future launches?

[Jenniffer Collins:]

Absolutely.

[Andy Summers:]

Okay. And then kind of a longer-term question but I think it's pretty obvious that you guys will not be free cash flow positive in 2016 and 2017, but is it too ambitious to think that you guys could be free cash flow positive in 2018 and beyond?

[Jenniffer Collins:]

No I think that's completely possible. Again we're looking at trajectory of 34 applications on file and the timing of those approvals and obviously if that's accelerated in your scenario that could come sooner than the end of 2018. But that's completely possible based on what time we file.

[Andy Summers:]

Okay, great. Thanks. All right guys, keep doing what you're doing. We are big fans. Thank you.

[Jenniffer Collins:]

Thanks Andy.

[Jenniffer Collins:]

Thanks Andy.

[Operator:]

The next question comes from Sumant Kulkarni with Bank of America. Please go ahead.

[Sumant Kulkarni:]

Good evening. Thanks for taking my questions. I have a quick couple, first at what point should we expect Teligent to get more active on Paragraph IV filings? And second some of the larger players in the generic space appear to be getting more active in the topical arena, for example Mylan with its recent purchase of Renaissance, how have you seen that change any of the ground reality in the topical space if it has led to anything?

[Jason Grenfell-Gardner:]

Thanks Sumant. So in terms of Paragraph IV filings, if we think about it across the TICO strategy, I think I would think about it this way, that most of what's there in the topical universe is really P3 opportunities, P2, P3 most of that stuff is relatively I think seasoned in terms of its intellectual property. As you look at injectables, our strategy on injectables is absolutely the opposite of P4 what we're looking at our products where we think that there are supply-chain opportunities where we think that supply chains are constrained and by stepping in and being the backup supplier, the quality supplier of choice, we will be able to build better value over time than being a follow-on P4 player. If you look at some of the opportunities in the complex products, in the ophthalmic products, I would argue that for us the opportunities are probably more 505(b)(2) than P4 particularly on the ophthalmic side when you look at the opportunities to look at preservative free ophthalmics and things like that, there's really to us more to play for in 505(b)(2) than in P4. So I think P4 is probably not something that we're going to see as a core part of the strategy. Of course there is always that one-off project we have a P4 pending now there could be more as you prosecute the pipeline, but for right now it's not the core of what we want to do. In terms of your second question as we think about some of the larger players and how they're looking at, how they're looking at the topical universe, I would say it's probably even broader than just the bigger players and I think we look at it from a couple of different angles. The first is that when we think about incremental competition, we certainly expect that over time where there have been significant price increases, these things that you see in the past few years of 400%, 500%, 800% price increases and particularly for drugs that have fairly straightforward bioequivalence requirements you're going to eventually attract incremental competition. Now the one caveat that I will say to that is that as I've been developing my own topical experience over the course of my time here at Teligent doing topical bioequivalence is not quite the same as doing pharmacokinetic studies for oral drugs or for intramuscular injectable drugs, there is really a little bit more art than just pure science in getting this done. And I think that's why you haven't seen as many potential new competitors or new entrants into some of these markets as one might have expected. Where you have been seeing a little bit of incremental competition and we talked about Lidocaine today and we talked about Fluocinolone a season topical solution, those are both molecules which have really low barriers in terms of competitive entry from a bioequivalence perspective as they're both bio-laser products. So I think the skills that we've generated in terms of our ability to do Basal studies, the way we've been able to develop our in vitro release testing capabilities for topical products should hold us in pretty good stead and as we then broaden the portfolio to include the other product forms I think that will also help us to diversify our business model.

[Sumant Kulkarni:]

Thank you.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Jason Grenfell-Gardner for any closing remarks.

[Jason Grenfell-Gardner:]

All right. Thanks Greg, Gray. Thank you for joining us on today's call. We always appreciate the time that we get to spend with all of the questions the thoughts and we also appreciate your continued support. There are 151 people here at Teligent who are working every day to deliver value to grow this business and to ensure that our shareholders as well as our colleagues and stakeholders continue to have success and your support means a lot to them and it means a lot to us. Thank you for your continued interest and have a great evening.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.