Teligent, Inc.
Q4 2016 Earnings Call Transcript

Published: 8 Mar 2017

[Operator:]

Good day and welcome to the Teligent, Inc. Fourth Quarter and Year-End 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 that 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, 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 limitations 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, FDA 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 turn the conference over to Jason Grenfell-Gardner, President and CEO. Please go ahead.

[Jason Grenfell-Gardner:]

Thank you, Daniel and good afternoon ladies and gentlemen. Welcome to the Teligent business update covering the fourth 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. As you've seen from our results announcement this afternoon, Teligent has reported another strong quarter of revenue capping off a year of significant growth. Early in 2016 we described this year as a launch year for Teligent and with nine product approvals and the five launches resulting in year-on-year growth in revenue of $22.6 million, I'm pleased to say that we've achieved liftoff. On today's call I want to share with you a few updates on our portfolio, our capital expenditure plan, and our goals for 2017. Jenniffer will then provide further details around the financial performance of the fourth quarter 2016 and the full year. Today we announced fourth quarter revenue of $17.9 million which represents growth of 37% over the same period in 2015 and 11% over the last quarter. This growth continued to be driven by Teligent’s focus on execution through getting drugs approved, making them and launching them. Our team has done a tremendous job in 2016 in shortening the period between product approval and product launch, which has helped us to achieve our market goals. Through these product launches we have continued to diversify our business model with our total portfolio of topical products at year end in the United States at 16 products in 30 forms, four injectable products in 20 forms, and a further 26 injectable products in Canada. Those of you who have followed our story for some time will recognize that the portfolio has undergone a significant change and derisking as we've continued to bring new products to market. This broader portfolio has facilitated our delivery of the excellent results this quarter. We reported today adjusted EBITDA up from 0.9 million in the same quarter last year. These great results come even after our investment of $4.6 million in the quarter in our R&D program. In R&D we successfully filed six ANDA’s with the FDA in the fourth quarter finishing 2016 with 36 applications on file with the FDA and three applications on file with Health Canada. As of year-end 2016 our pipeline at FDA had a total addressable market per quintiles IMS of $2 billion. This pipeline that Teligent has built we believe is a rather unique asset and I want to be certain that we all understand how this pipeline sets Teligent apart from much of the rest of our peer group in the generic industry. You may recall that I referred to Teligent as the disrupter in our industry early in 2016. What I meant by that was that Teligent’s ability to navigate drugs through the approval process at FDA in a timely manner and launch them successfully makes us a little bit different. We're not so much playing defense trying to protect our installed markets but rather playing offence as we launch new drugs into the market. That's why if you compare our results to those of our peers, a few key differentiators stand out. First, we invest significantly more in R&D and we get significantly more out of it. With GDUFA clearly working, Teligent largely post GDUFA year tree pipeline has progressed very well compared to the pipelines of our peers. Second, we punch above our weight when it comes ANDAs on file with the FDA particularly in the specialty generics space. And finally because we are market entrants rather than incumbents we don't face the same pricing erosion that our competitors do. In fact price erosion in the Teligent U.S. generic business for the fourth quarter was only 0.69% or roughly 7/10 of 1%. I think that's what it means when we say we say Teligent is a disruptor in this space. So what comes next, 2017 is going to be a really exciting year for Teligent. We've been making great strides in the build out of our facility expansion at the manufacturing site in Buena Vista Township, New Jersey. We are on track to have the facility finished and validated by the end of this year which will enable us to hit our timelines for in-house injectable ANDA submissions by the first half of 2018. We've begun the process of transitioning our R&D focus from topicals to injectables which will be largely complete by the fourth quarter of this year. We're able to do this as by the fourth quarter we will have substantially achieved our goals around our topical development program with topical ANDAs becoming more focused on applications which require in-depth clinical end point studies. Finally, we're committing to continuing our extreme focus on execution. We believe in developing drugs, getting them approved, and launching them in the market all in a timely manner. We believe this is the foundation of a sound specialty generic pharmaceutical business and we are absolutely dedicated to executing this business plan whilst continuing to manage our cost structure and our supply chain. That's what we do best at Teligent. Let me now turn this call over to Jenniffer to discuss the financial results of the fourth quarter.

[Jenniffer Collins:]

Thanks Jason, good afternoon everyone and again thanks for joining us today. As Jason mentioned total revenues for the fourth quarter of 2016 was 17.9 million, an increase of 37% as compared to last year and 11% as compared to the third quarter. Net revenue from the sale of our own products increased just over 80% from the same quarter last year and increased 6% sequentially over the third quarter to reach 14.7 million. The increase in revenue compared to last year resulted from the expansion of our generic injectable portfolio in the fourth quarter of 2015 through our two acquisitions and our five new topical product launches in 2016. Revenues from our Lidocaine Ointment 5% represented 39% of fourth quarter revenue compared to just 0% last year. Year-to-date Lidocaine 5% represented just under 23% of total revenue. Product sales from our contract services business was 3.1 million in the fourth quarter of 2016 compared to 4.9 million in the same quarter last year, and 1.8 million in the third quarter of 2016. As you may remember we are fortunate enough to secure orders from two new customers in the fourth quarter of last year which we did not expect or see continue in the back half of 2016. Contract services revenue as a percentage of total revenue was 17% in the fourth quarter compared to 11% of total revenue in the third quarter of this year. Contract services revenue from our pharmaceutical customers represented just over 90% for the fourth quarter compared to 78% last year with the balance coming from OTC and consumer products. Gross margin in the fourth quarter of 2016 was 51% compared to 45% in the same quarter last year and 50% in the third quarter of 2016. Gross margin in the fourth quarter was slightly less than expected due to the mix of products sold in the fourth quarter of 2016. As we've often talked about, our margins in our contract service business particularly for non-pharmaceutical products are not as strong as some of our Teligent products. We continue to grow our revenue from Teligent topical products and we will continue to grow our topical sales and reduce contract services in the future which will show a margin improvement. Sales of injectable products represented just over 24% of total revenue in the fourth quarter, as compared to 26% in the third quarter of 2016 and 16% in the same quarter last year. Our partners currently manufacture all of our injectable products. The expansion of our facilities to include sterile manufacturing capabilities and the transition of the manufacturing and some of these products to our own plants will also improve gross margins overtime. SG&A in the fourth quarter of 2016 was 4.2 million compared to 3.7 million in the third quarter and compared to 4.9 million in the same quarter last year. SG&A in the fourth quarter of 2016 included amortization of 700,000 compared to 400,000 in the same quarter last year. The increased amortization resulted from the acquisitions in the fourth quarter of 2015. SG&A as a percentage of total sales for the fourth quarter of 2016 and 2015 were 23% and 37% respectively. We made additional investments in the fourth quarter of 2016 in our corporate services group that will help to support the growth of our business in 2017 and beyond. Overtime we do expect SG&A as a percentage of total revenues to be flat to down depending on the range of revenues. Consistent with our TICO strategy and our dedication to building a foundation to expand our portfolio, we continue to invest significantly in R&D. We invested 4.7 million in the fourth quarter of 2016 compared to 3.9 million in the same period last year. We filed 12 ANDAs in 2016 and eight applications in Canada. We received nine product approvals from our own organic pipeline in the U.S. in 2016 and an additional eight approvals from Health Canada in 2016. For the year total R&D as a percentage of total revenues were 26% for 2016 and 30% for 2015. For the year ended 12-31-16 net cash provided by operations was total of 1.1 million which was after we spent 17 million on R&D expenses. For the year ended December 31, 2016 cash used in investing activities was 22 million primary related to 13.5 million in CAPEX for the extension of our facility in South Jersey. We expect the final budget for this facility including necessary equipment, utilities, and process controls for our increased topical production as well as our new sterile selling finished suite to approximate 55 million when it's finished. To date we've spent just over 15 million. We hope to have this expansion completed before the end of 2017. In the fourth quarter of 2016 we recorded a net loss of 5.4 million compared to a net loss of 6.4 million in the same quarter last year. The net loss in the fourth quarter included a loss related to foreign exchange of 2.2 million. As you may recall when we completed the Alveda acquisition we established Teligent's subsidiaries in Canada and Estonia to complete the purchase. Because of the fluctuation in foreign exchange rates during the fourth quarter of 2016 we recorded $0.2 million loss related to foreign currency translation -- in a company loan. Pending on the changes in foreign currency we will continue to record a non cash gain or loss on the translation for the remainder of the term of these loans which are due in 2022. Due to the nature of this transaction there's no economic benefit for the company to hedge this transaction. 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 non-GAAP disclosure related to how we calculated EBITDA, adjusted EBITDA, and adjusted net income are included. We will continue to provide this information as long as we determine is helpful for investors to monitor the operations of our business excluding certain items as outlined in the table. Our adjusted EBITDA in the fourth quarter was 2.1 million which is after our R&D spend of 4.6 million. AS always Jason and I are grateful for your participation and we look forward to updating you again soon. I’ll now turn the call back to Jason for his closing remarks.

[Jason Grenfell-Gardner:]

Okay, thanks Jenniffer. So before we turn to questions let me talk briefly about our guidance for 2017 that we released today. First, we expect revenue for the full year of 2017 in a range of $85 million to $100 million. This represents growth of between 27% and 51% over 2016. Second, we expect the associated gross margin with these revenues of between 50% and 54% for 2017 largely in line with our results for 2016. Finally, we will continue to invest in R&D as we maintain our aggressive focus on the pipeline. We anticipate the total R&D expense for the year 2017 to approximate 24% to 27% of total revenue. Our investment in this pipeline is what drives and will continue to drive our growth and profitability in the years to come. Teligent is building a unique, diversified specialty generics business focused on our areas of TICO, topical, injectable, complex, and ophthalmic drugs. We've had a great 2016 and we look forward to the opportunities that we have in 2017. And one last thing, yesterday we announced the approval of our Triamcinolone Acetonide Ointment USP, 0.5%, an ANDA that spent only eighteen months at FDA. I'm pleased to announce that today we received notification this afternoon from FDA that our ANDA for Clobetasol Propionate Gel 0.05% has also been approved. This ANDA was filed in December 2015 and was at FDA for 14 months. The ANDA received approval in a first cycle review ahead of its GDUFA goal date. I would like to congratulate our entire team on their remarkable work. They are what makes the Teligent model work and what we believe makes us unique. Now with that Daniel let me open up our call for questions.

[Operator:]

Thank you. [Operator Instructions]. And now our first question comes from Elliot Wilbur with Raymond James. Please go ahead.

[Elliot Wilbur:]

Thank you. Good afternoon and congratulations on the first cycle approval Jason. I guess that puts you in the 9%.

[Jason Grenfell-Gardner:]

It puts us ahead of the 9% but we're always happy to have it.

[Elliot Wilbur:]

Thanks, so just real quickly in thinking about revenue expectations for 2017 in terms of kind of bridging the growth between 2016 and 2017, can you just maybe sort of walk us through kind of the key pushes and pulls and obviously very dependent upon the new product cadence but maybe just give us a little bit better sense of what you have in terms of approvals that are yet to be launched versus what you're expecting in terms of potential new product contribution? And then maybe just give us a little bit of color on base performance, appreciate your commentary around the price erosion experienced in 4Q but it looks like at least in January we are seeing a little bit more incremental competition on Econazole and Lidocaine, so maybe just a little bit of color on kind of how those products or the basis is performing in 1Q 2017?

[Jason Grenfell-Gardner:]

Sure, so let's talk a little bit about the revenue bridge first. So, we have four products that were approved in the back half of 2016 that are being launched in the first quarter of 2017 and I think three out of those four have already launched with the fourth one launching this month. We have an addition to that now those two approvals which have come out this week which we also anticipate will be launched in the first quarter of -- first half of 2017. I don't know yet when today's approval will be launched but I hope to find that out this week. So you obviously have, as part of that revenue growth you have the bridge that comes from the new product approvals. As ever with our guidance we try to give you a view to what we think we have in hand or what we feel confident about which takes the consideration of those products that have been approved pending a launch within this year and those things that we see in the potential pipeline for 2017 approvals. Of course again going back to what we said about the pipeline, over 85% of the total value of our pipeline is related to submissions that are post GDUFA year three. And so with that there is, I think a significant opportunity for us to continue to get products approved and get them launched as we move into the remainder of this year. With your question about first quarter price erosion, I have to say first, we won't give commentary on specific individual products. But I think we've seen a market that continues to be very much in line with our experience in the fourth quarter.

[Elliot Wilbur:]

Okay, and I want to ask a follow up question on the pipeline as well. There's been a lot of movement obviously in terms of filing then and approvals. But the current constitution 35 ANDAs, 2 billion in sales at least on a dollar basis seems to be quite a bit higher than your last update. So, the question is basically were there a couple of products that may have been filed late in 2016 that are -- have relatively large markets associated with them or is that just more of update kind of across the portfolio?

[Jason Grenfell-Gardner:]

I think the total market size is largely consistent with where we have been. I mean there are pushes and pulls again as things get approved and then you put more things in. And obviously the market has continued to evolve as well and there are a couple of paragraphs fours in there that brand markets that have been pretty exuberant. So, by and large I think it's consistent with previous data.

[Elliot Wilbur:]

Okay and last question for you is given the heightened state of competition in the topical space, previously I guess sort of our long running assumption is that in terms of a new entrant into market we could essentially use 15% to 20% price discounting in order to encourage switching and ultimately, thinking about your positioning that you could capture roughly 15% to 20% of the market. Given the state of competition currently do you still think that 15% to 20% switch price dynamic is an accurate gauge?

[Jason Grenfell-Gardner:]

I mean, I think that those trends seem to be fairly consistent. And if you look at what some of the installed competitors in the market have seen in terms of price erosion that's probably again consistent with market entry. As market entrants, depending on how those markets are we shape our market expectations accordingly given the number of competitors and given how they're distributed across the customer base. But as it were we're trying to make sure we do the best to maximize the value that we have out of the pipeline.

[Elliot Wilbur:]

Alright, thank you.

[Operator:]

Our next question comes from Greg Fraser with Deutsche Bank. Please go ahead.

[Gregory Fraser:]

Hi folks, this Fraser on for Gregg Gilbert. On the guidance, can you give us a sense of how much contribution from new launches you have factored into the 85 million to 100 million? And should we think about sales for new products is spread out over the year or more weighted towards later in the year?

[Jenniffer Collins:]

Hi Greg, it is Jen. Thanks for your question. So what we tried to do with the range of guidance is take the information that we have in hand both from existing products and the launches that we have pending to get us closer to the bottom end of the range. And then have the other opportunities and the other approvals for the remainder of the year to get up to the top end of the range. So that is kind of the most color that I can give you around how we came up with it but it's really based on what we know today to get the bottom end of the range.

[Gregory Fraser:]

Okay, that's helpful. What about Lidocaine, can you comment on what you're assuming for that product in 2017?

[Jenniffer Collins:]

I think we mentioned we're not going to comment on individual products or revenue contribution in 2017. I think based on his comments as well we have been consistent with kind of what we've seen in terms of price erosion and our market share for Lidocaine in the beginning of 2017. So we feel good about our position.

[Gregory Fraser:]

Okay, then last question is just can give us an update on your orphan drug ANDA that you were working on? Thank you.

[Jason Grenfell-Gardner:]

Sure, so that ANDA went to clinic in January. We’re now in a wash out period, the second dosing will happen here still in the first quarter. We will be reviewing those results at the beginning of the second quarter. And depending on how those results look we’ll seek to file hopefully within the first half of this year.

[Operator:]

Our next question comes from Matt Hewitt with Craig-Hallum Capital Group. Please go ahead.

[Matthew Hewitt:]

Good afternoon, congratulations on a strong finish to the year.

[Jenniffer Collins:]

Thanks Matt.

[Matthew Hewitt:]

Couple of questions so first, regarding the filings how should we be thinking about that from a cadence perspective. I think the six in Q4 was a little bit light, I'm guessing some have already been likely filed here in Q1 but from an R&D perspective, obviously those submissions can carry some extra expense when those go through, how should we be thinking about that on a sequential basis this year?

[Jason Grenfell-Gardner:]

So, I think we intentionally didn't want to start thinking about the numbers of filings in the year but rather the quality of the filings and their likelihood of approval within our first cycle review. That's our focus as we think about the pipeline. And you go back and look at the fourth quarter of 2016, I think you can see some of that. We actually responded to, I think the final thought total was something like 120 interactions with FDA related to the pipeline last year. So when you think about that workload together with new ANDA submissions obviously getting stuff out of the FDA is probably more important than throwing stuff into the FDA particularly if you don’t have the time and the effort to quality check it. We don’t want to do that. So the other piece of this is to be mindful that in the first half of this year you have the overlap of the review cycle periods for GDUFA year four and GDUFA year five. You will know Matt that in GDUFA year five we are moving from a 15 month clock to first cycle review to a ten month clock which means that we are in this weird zone where the GDUFA year five filings are going through essentially an accelerated review process compared to what we've been doing in GDUFA years three and four. So that has put a lot of strain and stress on the organization and the regulatory team and all of the teams that support to make sure that we can continue to respond to FDA on time, in a complete manner, and in quality response to the information requests that they have. That's my number one priority for the first half of this year. So we've staggered the ANDA filings, there will of course still be ANDA filings for the first half of this here and you'll -- we will update you on a quarterly basis as we progress. But I don't want to focus on that ANDA submission cadence. What I want to focus on is the quality of our responses to get drugs approved.

[Matthew Hewitt:]

Fair enough, I understand. And actually I think you just touched on a little bit, I know that at the recent industry meetings here last month, if I'm not mistaken the FDA committed to having the backlog of applications cleared up by the time of GDUFA two hits. Obviously that would be a huge boon to a company such as yours where you've got this bolus of applications that have been submitted here over the past couple years. What is your confidence level that they can hit that given your experience, given the number of I think you've had what two or three first cycle approvals now and how should we be thinking about that as it pertains to the year?

[Jason Grenfell-Gardner:]

I think that's a great question. So, first you'll also know that from the industry events the agency is very concerned about improving the overall percentage of first cycle reviews but that requires the industry to do its part as well in terms of timely response to information requests, ensuring that the DMS that are submitted to support applications are complete and submitted ahead of the ANDA submissions, and ensuring that the quality of what's submitted is high. We've done a really good job, our team has done an amazing job of getting all of those responses back to FDA on time and complete. And I think that's what led to our above average performance in first cycle review. I would say we've had I think the numbers for now first cycle approvals. And even for the ones that have gone through minor CRLs like the Triamcinolone Acetonide that went through a minor CRL but was approved still within 18 months which is exactly according to the timelines that the FDA has set out. So there is work that we have to do and there's obviously the work that the FDA is doing. But we're very confident that provided that we submit good applications and we respond completely and in a timely manner, the FDA will continue to perform in a very predictable way.

[Matthew Hewitt:]

Alright, maybe one last one from me, kind of relevant to this. So, a year ago -- I think it was a year ago you stepped up an entire team, I think it was six or seven people whose sole responsibility was to respond to these inquiries from the FDA. Obviously that's been a very successful venture and team. How does that team change or does it change as you work through some of the -- as the FDA works through some of the backlog, as you get more efficient and are making your submissions in a way that you're not necessarily meeting that number of heads, do you shift some of those resources to back to the R&D development or is this going to be a kind of a steady state team going forward? Thank you.

[Jason Grenfell-Gardner:]

Sure, so I think by now I think it's likely to be a steady 2018 because we're moving from 15 months to 10 months in terms of the review cycle. And that's going to require again just the turnaround time that is remarkable when you have 35 or 40 ANDAs on file with FDA. And so it's always going to require some maintenance and some attending and some focus and remember that it is across disciplines, its across areas of competence within the organization. But I have to again say they have done a truly remarkable job, their dedication is noticed, and they achieved results. And so we're very proud of them.

[Matthew Hewitt:]

Great. Thank you.

[Operator:]

[Operator Instructions]. The next question comes from Scott Henry with ROTH Capital. Please go ahead.

[Scott Henry:]

Thank you, good afternoon and congratulations. The guidance really very strong, very reflective of your accomplishments. Couple questions first, Jenniffer I think you told us what percent Lidocaine 5% was in Q4. I didn’t quite get that could you pass that on?

[Jenniffer Collins:]

Yeah, it was 39% for the quarter and just under 23% for the year Scott.

[Scott Henry:]

Okay, great. And did you give any guidance on how we should think of SG&A into 2017, imagine increase a little bit but probably not nearly as much as sales, just any color there?

[Jenniffer Collins:]

Yeah, I think that we're still seeing as I spoke on the call we have made good investment in 2016 and toward the back half which will get annualized into 2017. So there will be a dollar increase in SG&A in 2017 to support really the growth of the business that we started to invest in between the ERP system and the building out of the corporate services infrastructure. So those two things will cause in terms of dollars to increase but obviously as we continue to grow revenue at one end of the range or the other as a percentage of revenue we expect it to decline over time.

[Scott Henry:]

Okay, great. And another question is kind of tricky because I know you don't want to speak to specific products but it seems like generic Ranitidine in some of your product offerings it seems like a pretty good opportunity. I know you have kind of some of your anchor products in 2016, especially this year comes on Nitrate Lidocaine 5%, should we think about this generic being as moving into one of those anchor product positions?

[Jason Grenfell-Gardner:]

It's a good question Scott. I think obviously whether its Ranitidine or it is some of the other products in the portfolio, what's I think critical to remember is that one of the strategies of I think the generic pharmaceutical industry is to have enough cards to play as markets change. And to ensure that you have a robust supply chain to be able to respond in a timely manner to significant changes in demand. Though in the past quarter or so Ranitidine has been certainly above our expectations but that will come and go. I mean I don't think it is something that is going to be structurally permanent or structurally meaningful over the longer-term. So I don't think I would model that out. I would take that as a short-term gain and sort of take it for what it is. But part of the idea of having a broader portfolio is to be able to be well positioned if there are market shortages to make sure that the market statements supply and will continue to do that ensure that we have a robust supply chain that allows us to do so.

[Scott Henry:]

Okay, thank you for that color and that kind of leads into my final question is with these products here you are inevitably going to have lumpiness from opportunities that come and go. But when we think about the trend, I mean we now have 2015, 2016, and you've given us kind of a 2017 guidance, when we think about 2018 I know that's a long way off but should we continue to think about this a separating trend line factoring in lumpiness from quarter-to-quarter, I'm just trying to get some sort of thoughts on how you think about the big picture going from 2017 to 2018?

[Jason Grenfell-Gardner:]

Well, I can talk a little bit about the nature of the product portfolio and how we think it changes. And then I will let Jenniffer talk about some of the more specifics of that. But let's start with just thinking about the product portfolio. And I like your word acceleration, think about the acceleration that's happened in terms of the product approvals that Teligent has seen over the course of the past few years. From one approval I think in 2014 to nine approvals in 2016 and as that approval cycle at FDA shrinks, as the team continues to perform at a high level of responding as we get even stronger at the applications that we have on file despite the increase in complexity that we've added in terms of the products that we're doing. I can imagine a world in which that continues to accelerate. And as we think about the transition from topicals to injectables in 2017 from an R&D perspective there's a really exciting opportunity I think that comes in 2018 and 2019 for even greater acceleration around ANDA submissions and around ANDA approvals. So there's a lot of items there. The physical plant, the transition of the development team, but they're all things that we know how to do and all of those applications, eventual approvals, and product launches will mean revenue. And so the goal certainly in what I said in my share is to ensure that we're allocating capital in a way that facilitates that acceleration. So let me turn over to Jenniffer.

[Jenniffer Collins:]

Scott you know in terms of the trajectory of the business I think that the things that we look at are what we haven't filed with the FDA are ready which when you talk about the addressable market of those and the opportunities that will come into the come into the model whether they be at the end of 2017 or into 2018. The builder of the opportunities that we already have in hand. So continuing to replenish that pipeline, continuing to add capabilities like sterile capabilities in 2017, those are the things that are going to continue on that trajectory. So is it imaginable that, that could happen into 2018, I think that based on those facts I think that supports that.

[Scott Henry:]

Great, thank you for taking the questions.

[Operator:]

Our next question comes from Frank Gerardi with Univest Management. Please go ahead.

[Frank Gerardi:]

Congratulation Jason and Jenniffer for continued growth for Teligent. I have two questions, my first question, I believe that some of the pricing pressure on the stock recently can be attributed to the ongoing probe in the generic price fixing progress ongoing. I know that Perrigo, Talum [ph], IWIN [ph], and Heritage have been named, understanding that a subpoena is an investigative tool and not necessarily indication of guilt, can you mention has Teligent been subpoenaed or involved in any way in the probe?

[Jason Grenfell-Gardner:]

So first, hi Frank it is so great to have you on this call as a long time investor of Teligent and its management. It is always great to see you here. So first, thank you and welcome. Your question is a good one. There's been a lot going on in this sector and we follow it as everyone else does. So I'm grateful for the opportunity to say that no, Teligent has not been involved in any of the DOJ investigations nor has it been subpoenaed or in any other way involved relating to the work that the DOJ is doing.

[Frank Gerardi:]

Thank you. My second question relates to your new facility and the injectables. I understand it is 75,000 square foot facility and I believe on a previous call you said the capacity would be up to a million doses of vaccines a year. Why don’t you ramp up to that, what can we expect in revenues going out and the vaccine division in the new facility in 2018 and beyond?

[Jason Grenfell-Gardner:]

So the facility that we're building, the 75,000 square feet accomplishes two things. The first is the expansion of the physical footprint for the topical manufacturing. Obviously with all of these ANDAs on file for the topicals we need to be able to manufacture them. And so that is kind of phase one. Even if we didn't want to get into injectables we would have to do that. On the injectable side and just to be clear, we're really making hospital critical care injectables not vaccine. Still sterile injectable dose product. Phase one will achieve somewhere between 4 million to 5 million units with the goal that in 2019 we would make a subsequent investment to increase that by a further 45 million units of capacity. We haven't given any specific revenue guidance related to that but I can say to you that we've done the math and we get some really great ROI based on the investments that we're making.

[Frank Gerardi:]

Thank you so much for taking the call and I wish you continued success and great pleasure to invest in Teligent.

[Jason Grenfell-Gardner:]

Thanks again Frank.

[Jenniffer Collins:]

Thanks Frank.

[Operator:]

We now have a follow up question from Matt Hewitt with Craig-Hallum Capital Group.

[Matthew Hewitt:]

Hi, thank you. I have got a couple of different follow-up questions. First, I didn't hear you mention it and if you could provide it would be great. The TAM for the Clobetasol 5% gel that you just received approval for?

[Jason Grenfell-Gardner:]

The Clobetasol 5% gel currently has a total market of $10.9 million.

[Matthew Hewitt:]

Okay, great, thank you. And then I thought I heard you say that you have a couple of P4 challenges that weren’t submissions that were done in Q4, is that correct and are those your first ones?

[Jason Grenfell-Gardner:]

They weren't done in Q4. There are two I think pending paragraphs 4 submissions. One of them has been disclosed in our filings I believe related to Pennsaid 2%. Second, we haven't disclosed the target but it is something that we have submitted in 2016. I don't believe it was Q4, I think it was actually in Q3. But it's something that we would still hope to seek approval for in 2017.

[Matthew Hewitt:]

Okay, and I guess as far as those are concerned should we be factoring or thinking about some incremental legal costs associated with those or are you part of a maybe a consortium that's challenging the patents, just trying to think about the expense side of those?

[Jason Grenfell-Gardner:]

So all of the legal expenses related to ongoing litigation for the P4s have been factored into Jenniffer's forecast for SG&A in our budget.

[Matthew Hewitt:]

Okay and then where was this last one here. Several companies here over the past couple weeks as they've reported earnings some of your larger peers have specifically called out wanting to or planning to invest significantly more dollars into the injectable space. It's a market that's had challenges for our manufacturing capacity side and obviously you're very well positioned for that opportunity with the new facility. But how do those comments either change or help shape your go to market strategy as you look to make the hospital injectable a bigger portion of your revenues?

[Jason Grenfell-Gardner:]

Well, I think first of all it's a good thing generally for those of us who are healthcare consumers that more people do pay attention to the hospital injectable space. This is a market that since 2008 has suffered significant drug shortages every year that really don't seem to get much better. You look at some of the major facilities that supply the market and they continued to have ongoing regulatory challenges. We've seen warning letters even over the course of the past few weeks related to sterile injectable manufacturing sites run by some of the largest companies in the world. So, look I think that you've got to be mindful of a couple of things. First, there is a physical plant question, where are you going to make these sterile injectable drugs. I will tell you that many of the facilities that exist for sterile injectable manufacturer probably need to make some pretty significant investments around the manufacturing technology that supports that and that's not an easy thing to do. So that takes time. The second is, the question of who is really driving the injectable development these days and why don't those drug shortage lists get shorter. And why aren’t these issues resolved. I think it's because perhaps people are happy to talk about doing these things but translating talk into action is tough. We've been working on this injectable plan since 2014 when we acquired our first injectable ANDAs with NDAs. We brought the first of those drugs back to market. We've built a team, a really amazing team for injectable drug development. And we've started building the physical plant that will now be in place at the end of this year. That's a lot of work and a lot of process in a company that is very focused on getting stuff done. I'm not sure how in a slightly bigger or perhaps lower organization how that might happen quite to the extent that we do. But again as healthcare consumers we wish them luck to the extent that we end up with more diversified supply chains we all benefit. Specifically for Teligent I think that we are happy with the decisions we have and where we are.

[Matthew Hewitt:]

Alright, maybe one last one from me, are you still considering or looking at small business development opportunities product or product lines that might fit in nicely with the current portfolio? Thanks again for taking the questions.

[Jason Grenfell-Gardner:]

Sure, I mean we do continue to scan the business development here and we look at products as they become available, we look at businesses as they become available. We still have a very strict filter. Our approached evaluation is mindful about what we're actually buying in terms of cash flows and what we're actually buying in terms of capabilities. It is something that we can do and it's something that we can do ourselves at less cost. We would rather make it than buy it. And we always hold ourselves to that standard. But there are certainly opportunities out there that we find interesting and intriguing particularly when they add incremental capabilities and fit still within the universe of TICO. So still looking but for right now we're happy with our execution strategy. But thank you Matt.

[Operator:]

At this moment we have no further questions and so I would like to conclude the question-and-answer session and turn the conference back over to Jason Grenfell-Gardner for any closing remarks.

[Jason Grenfell-Gardner:]

Alright, thank you Daniel and thank you everyone for your support and your continued interest in Teligent. We look forward to seeing a number of you in some of the upcoming conferences. Thank you again and have a great evening.

[Operator:]

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