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Teligent's (TLGT) CEO Jason Grenfell-Gardner on Q4 2015 Results - Earnings Call Transcript

Q4 2015 Earnings Conference Call

Executives

Jason Grenfell-Gardner - President and CEO

Jenniffer Collins - CFO

Analysts

Scott Henry - ROTH Capital Markets

Dillon Hoover - Craig Hallum

Rohit Vanjani - Oppenheimer

Greg Fraser - Deutsche Bank

Donald Ellis - JMP Securities

Operator

Good afternoon, and welcome to the Teligent Inc. Fourth Quarter and Yearend 2015 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.

Except for historical facts, the statements in this presentation as well as oral statements and 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, 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 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. Sir, please go ahead.

Jason Grenfell-Gardner

Thank you, Jamie and good afternoon ladies and gentlemen. Welcome to the Teligent business update covering the fourth quarter and full year of 2015. 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.

What an amazing year 2015 has been for Teligent, a year that we described at the beginning as one of building our foundation. Today I'd like to discuss some of the key elements of the solid foundation as we built in 2015 and give you an update on our future strategy. Then Jennifer will review the financial results for the fourth quarter of 2015, finally I’d like to share with you our expectations for 2016.

As we set out to continue to build the foundations of our business in 2015 we have outlined some key priorities, drive revenue growth, invest in R&D and maintaining profitability. While the early turbulence that we saw in the year could have knocked us off track, the team did an amazing job of managing the challenges in the market and delivering on our strategy. We finished 2015 with revenue up over 31% to 44.25 million notching up just over 13 million in the fourth quarter alone, we also maintained gross margin relatively stable at 48% for the year despite channel charges and step up in inventory related to our acquisitions. We scaled R&D as our business evolved throughout the year hitting our target of 30% of revenues invested in R&D and even after investing $13 million in R&D we still delivered a positive adjusted EBITDA of $2.7 million.

To my mind these results are evidence of the incredible team that we have here at Teligent, a team squarely focused on execution. In the last quarter through this execution we made significant strides in improving the diversification of the business and delivering on our strategic priorities. First we acquired our Canadian injectable platform Alveda Pharma which provides Teligent an exciting launch-pad for a broader injectable strategy. We also acquired the injectable assets in the U.S. of Concordia Pharmaceuticals related to the branded generic prototypes, Fortaz, Zinacef and Zantac. Finally we added some great talent. We welcomed our new CSO Steve Richardson, our General Manager for Canada Mike Bethell and in the past few weeks our General Manager for Estonia Anneli Simm.

In December we were pleased to announce the FDA approval of our supplemental NDA for cefotetan injection. This was the first of the AstraZeneca products that we acquired that we brought back into active regulatory status and which will be launched in the United States market this month. For those of you who are more familiar with the FDA what our team was able to do with this product was incredible bringing a product on drug shortage back to life in 13 months. We also made great strides in our physical plant development finalizing planning permission and approval for the expansion of our facility in South Jersey. As we broke ground earlier this year on the first stage of the demolition and renovation we see the tangible results of a year's worth of planning to ensure that we can execute on our pipeline.

Over the course of 2016 we anticipate significant progress towards plant completion in 2017. Finally at the end of October we made a couple of major changes, first we retired our previous name and became Teligent. This new look and feel is reflective of the organization that we've become over the past few years and embodies our hope and enthusiasm about the future and the people who are building it. We also changed our listing venue to NASDAQ in October which was a great day for the entire team.

So let me now turn to our TICO strategy and give you an update on the progress we have made starting with our topical business. In Q4, we filed six ANDAs and as of today we have 31 ANDAs on file with the FDA with a total addressable market of $1.4 billion per IMS Health Data as of January 2016. We've seen remarkable with the review of our pending applications over the course of the past year and have built an organization internally that is capable of responding in a timely manner to the FDA as it applies its GDUFA commitments.

As many of you know last month this resulted in our first GDUFA Year 3 approval precisely on its GDUFA goal date in a successful first cycle review. I have to say that for me this is again evidence of the quality of the team and the efforts they have put into ensuring the Teligent is delivering on its pipeline. We believe GDUFA is working and we believe that Teligent is well positioned to benefit from its implementation. Of our 31 pending ANDAs 18 are GDUFA Year 3 or 4 applications representing 74% of the value of the total addressable market, we have received action dates or GDUFA goal dates for all of our applications and we have a further 15 action or goal dates remaining in 2016. We continue to invest in this topical pipeline and anticipate maintaining our cadence of submissions in 2016.

On the injectable front, we're incredibly excited about this year. The Concordia products that we acquired in 2015 allowed us to jumpstart the commercial channels required for our future injectable pipeline drugs, including the CEFOTAN launch this month, but we're also eager to grow our pipeline in Canada. Drug shortages which has impacted the U.S. market have had similar and sometimes more severe impacts in the Canadian market. We look forward to working with our manufacturing partners to add incremental submissions to our Canadian pipeline to do our part to help alleviate some of these challenges in the market and to provide a reliable source of supply.

We are also continuing to work through the opportunities in the AZ portfolio with further submissions anticipated in 2016 to support these products, while we scale back some of this re-launch work in 2015 as a result of the rate of the underlying growth in our business, we believe we have prioritized the stronger parts of the portfolio for action and will retain some of these products for re-launch from the Teligent injectable site went online in 2017. Finally, our internal development program for injectables has started and we're looking forward to getting some of these additional products on stability in 2016.

Although topical injectables will be the core of our 2016 execution plan, we're still moving forward with our projects in the complex and ophthalmic side and continue to anticipate submitting our first ophthalmic supplements towards the middle of this year. As ever there's a lot going on in Teligent, we have diversified our business over the past year, increased our injectable capabilities, delivered on our R&D submissions and approvals and have built the foundation for the amazing growth that we see coming. That's why for us 2016 is the year where we're ready for launch.

But before I set out the specific objectives for the year to come, let me turn the call over Jenniffer to discuss the numbers for the fourth quarter of 2015, Jenniffer?

Jenniffer Collins

Thanks, Jason. Good afternoon everyone, and again thanks for joining us today. Our total revenue in the fourth quarter of 2015 was 13.1 million, an increase of 13% over the third quarter of 2015 and a decline of 5% as compared to the same quarter last year. Revenue for the fourth quarter of ’15 included 8.1 million of net revenues from the sale of our own products, compared to 10.5 million in the same period last year. Revenue from Econazole represented 29% of our total revenue in the fourth quarter, compared to 62% in the same quarter last year. The decline in overall revenue was attributed to those volume and price declines in the Econazole Nitrate Cream compared to last year.

As we discussed on the third quarter call back in October, our total revenue in the third quarter of ’15 was higher than originally anticipated due to higher than expected volumes for this product with one customer during that quarter. And you’ll remember we had indicated in October that we have seen that trend return to our expected levels for that customer in early October. We've also said that there was a forth company with an approval for Econazole and we did see some additional pricing pressure at the end of fourth quarter on the same product which we believe was created by the new competition. We have however been able to maintain our market share.

This pricing pressure caused our charge backs, rebates and other allowances to increase as a percentage of gross revenue as compared to the third quarter of this year. We believe we may see additional pricing pressure on this product from additional competition in 2016. As always we'll continue monitor our existing and future markets to understand any changes in the competitive environment.

Product sales from our contract services business was 4.8 million in Q4 of ’15 compared to 3.1 million in the same quarter last year and 2.7 million in the third quarter of this year. We were fortunate enough to secure orders from two new customers in the fourth quarter of 2015 while we did see orders from these customers continue in the first quarter of ’16 it is quite possible we will not see those trends continue throughout ’16. These orders are high margin contract customers and helped to offset some of the pricing pressure I discussed earlier.

Contract manufacturing and formulation services revenues from our pharmaceutical customers represented 91% of fourth quarter revenue as compared to 79% in Q4 last year. Sales of OTC and cosmetic products were 9% in the fourth quarter of ’15 compared to 21% last year. As we’ve discussed our contract manufacturing businesses make the order, there may be some variability in our percentage of contract sales that come from pharmaceutical customers quarter-to-quarter. However, we’ve been very successful in driving year-over-year transition to increase the number of pharmaceutical customers in our customer base.

Now let me turn to gross margin. Gross margin in the fourth quarter was 45% compared to 61% in the same quarter last year. The margin decline over last year was a direct result of the changes in revenue, I discussed earlier caused by pricing increases for Econazole September 2014 and compared to price declines throughout 2015 for the same product. As we’ve talked about in the past, our strategy is to build a diversified portfolio of Teligent products in the U.S. and now Canada as well, so that we’re able to compete in favorable trends on all individual products. Our diversified portfolio will protect us from the dependence on one or two products in the future.

We’ve started this already. For example, in the fourth quarter of 2015, sales of injectable products represented 15% of total revenue as compared to 0 in the third quarter of 2015. We expect to continue to demonstrate this strategy in 2016 as we launch more Teligent products. As part of the accounting for the Alveda purchase based on the value of the inventory we acquired we recorded a step up in inventory on the acquisition date. Our fourth quarter results included 318,000 of the write off of the inventory step up which is included in cost of goods. At December 31, 2015, there was another $0.5 million remaining in the inventory step up that will be included in cost of goods sold in 2016. This will have temporary impacts on margins in the fourth quarter of ’15 and the first quarter of ’16 for our Canadian products.

SG&A in the fourth quarter of ’15 was 4.9 million. This included 2.3 million of acquisition costs related to our purchase of Alveda Pharmaceuticals in November of 2015. SG&A not including acquisition costs as a percentage of sales in the fourth quarter of ’15 was 20% compared to 14% in the same quarter last year. SG&A expenses as a percentage of revenue declined in the fourth quarter of ’15 compared to 21% in the third quarter of ’15.

We do plan to make additional investments in the corporate services group that will support the growth of our business in 2016 and beyond. And we expect SG&A as a percentage of revenue to be flat to down depending on the range of revenue in 2016. Consistent with our TICO strategy and our dedication to building a foundation to extend our product portfolio, we continued to significantly invest in R&D last year. We invested 3.9 million in the fourth quarter alone as compared to 1.9 million of R&D in the same quarter last year.

We filed 15 ANDAs in 2015 compared to 11 last year. We expect to file at least 15 ANDAs in 2016 in the U.S. and eight more abbreviated new drug submissions in Canada. As Jason talked about our strategy is built upon our ability to outpace the industry in building a robust pipeline through high quality submissions and thoughtful and timely responses to the regulatory agencies. We will continue to increase our R&D spending in 2016 as compared to ’15 as we focus on expanding our portfolio of generic topical pharmaceutical products added to the 31 submissions we have on file in the U.S. today and the four in Canada.

As Jason discussed at the end of ’15, we received our first approval of one of our injectable products. In 2016, we expect to be working on our first organic injectable submissions by the end of the year; and therefore, total R&D in ’16 will be between 28% to 32% of total revenue. We understand it is time for our industry but based on the opportunities we see...


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