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Edited Transcript of TLGT earnings conference call or presentation 18-Mar-19 12:00pm GMT

Q4 2018 Teligent Inc Earnings Call

Buena May 11, 2019 (Thomson StreetEvents) -- Edited Transcript of Teligent Inc earnings conference call or presentation Monday, March 18, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Damian Finio

Teligent, Inc. - Corporate Secretary & CFO

* Jason Grenfell-Gardner

Teligent, Inc. - President, CEO & Director

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Conference Call Participants

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* Elliot Henry Wilbur

Raymond James & Associates, Inc., Research Division - Senior Research Analyst

* Matthew Gregory Hewitt

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Teligent, Inc. Fourth Quarter 2018 Results Conference Call. (Operator Instructions) As a reminder, this conference call may be 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 involves risks and uncertainties. For example, without limitation, statements about the company's anticipated growth and future operations, the current or expected market size for its products, the success of current or future product offerings and the research and development efforts and the company's ability to file for and obtain U.S. Food and Drug Administration approvals for future products are forward-looking statements.

Forward-looking statements are merely the company's current predictions of future events. The statements are inherently uncertain, and actual results could differ materially from those 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 development.

I would now like to introduce your host for today's conference, Mr. Jason Grenfell-Gardner, President and CEO. Sir, you may begin.

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Jason Grenfell-Gardner, Teligent, Inc. - President, CEO & Director [2]

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Thank you, Crystal, and good morning, ladies and gentlemen. Welcome to the Teligent's business update covering the fourth quarter of 2018. I'm Jason Grenfell-Gardner, the President and CEO of Teligent, and I am joined today by Damian Finio, our Chief Financial Officer. Thank you for joining us this morning.

I'll be providing you an update on the core elements of our business and the latest on our injectable plans. Damian will then provide a more detailed breakout of our financial performance for the fourth quarter and our guidance for 2019.

Today, we released results for the fourth quarter of the year that capped out a year of robust growth, fueled by product launches and our international operations. Sales for the quarter were $16.8 million, while gross margin was 34%, broadly in line with the lower-end of our full year guidance.

Overall for the year, Teligent recorded growth of nearly 10% in an industry that has been plagued for the past few years with continuing price erosion. There are a few players in the generic pharmaceutical sector that can point to a year of growth in 2018, and Teligent delivered growth.

I would like to talk about 3 things today on our call. First, I'd like to provide a summary of the transformational work that was done in 2018; second, I'd like to provide you some perspective on our work in 2019 to bring sterile injectables online and to continue to drive our pipeline; finally, I would like to give you our sense of what's happening in our segments of the generic pharmaceutical industry and how we plan to position Teligent to respond to these challenges.

So first, let's recap the changes we've seen at Teligent over the past year. As you know, we commissioned our new factory, and during the last quarter of the year, we began the process of transferring the manufacture of our semisolid and liquid topical products into our new bulk drug compounding suites.

Now I know that it may sound like something a bit odd to mention, but I want to be certain that you understand the profound nature of the shift that is happening in manufacturing at Teligent. The new bulk drug compounding suites are more automated and better designed to allow us to improve the time and efficiency of our bulk drug compounding. This was critical for us to work through bottlenecks, given the rate of drug approvals and launches in our business. We've seen multiple hours removed from batches that should, over time, improve the operating leverage of the business.

We've also, however, had to add serialization to our facility, as has everyone else in our industry. This did not go perfectly. Many across the industry, including us, were challenged by service provider failures who struggle to manage the volume of data required to make the serialization systems around the industry work. This led to delays, rework and increased labor touch on finished goods. Although we believe that we have largely worked through the initial teething troubles of this implementation, it certainly did lead to inventory shortages in the fourth quarter that gave rise to failure-to-supply penalties. These have continued into the first quarter, but at a much lower rate, and our team projects having inventories at normal working levels again by the end of the second quarter of 2019.

In our sterile injectable suite, we have completed the media fills for a number of aseptic sizes to support our aseptic filling capabilities. As I mentioned on our last call, it was important for me that we get this right the first time. And so during the fourth quarter and into the first quarter, we have added-in incremental external experts to help us double- and triple-check our systems and provide incremental support to our ongoing work. Based on our current understood state of readiness, I believe we are still on track to have the facility inspected by FDA this year and for the first injectable product to be launched by the end of 2019. And that's pretty exciting, particularly given the dynamics that we continue to see in the injectable markets.

This brings me to my second point, to talk about our R&D pipeline generally and our sterile injectable pipeline, in particular. Our R&D pipeline has continued to progress. You will have seen last week's approval of desonide ointment, which was received as a first cycle review 10 months from the date of submission. This R&D team finished 2018 in the top 15 of ANDA approvals of all companies in the generic pharmaceutical space. And frankly, that's remarkable for an organization of just 200 people. But more than this, it has been the pace of review and approval that speaks to the quality of our submissions, the mindset of our regulatory team and their responsiveness and the current environment under GDUFA II. We received 13 approvals during the year 2018 and launched 9 drugs. Already in 2019, we have received a further 2 approvals and launched a further 4 drugs.

In our generic orphan drug product, we have had discussions with the FDA through our development partners to clarify the pathway for the analytical work required to support that drug. Incremental testing was conducted throughout the fourth quarter and into the first quarter of 2019 to support the FDA's requests. Based on the work that has been done, our partners anticipate submitting the response to the major CRL by the end of this month of March 2019 and the FDA, we believe, will take up to 10 months to review this CRL response.

Finally, on our injectable pipeline, we are preparing a number of submissions for 2019 based on both our internally developed pipeline as well as our previously acquired products. Now you all know, I am an optimist and I expect things to happen as fast as humanly possible. Chemistry doesn't apparently always work that way, but that being said, I have been blown away by the pace at which our internal development has come up to speed. The rate-limiting factors on our injectable pipeline have quickly become the approval of the site and the resources that we can financially allocate to that pipeline.

Finally, I want to spend a couple of minutes talking about what we're seeing from the Teligent perspective in the industry and how it has impacted us specifically. Clearly, price erosion has been a common theme over the past couple of years. We have certainly seen that price erosion impacting our business here at Teligent. Indeed, as I look at our results for the year, price took a fairly significant chunk out of our revenues in our topical business, particularly for products that have lower barriers to entry.

However, we've had 3 things working in our favor to allow us to continue to show growth: first, we've had a dynamic and robust pipeline of drugs that were launched during the year. These drugs contributed significantly to both top line revenue as well as overall margin; second, we've had our nascent U.S. injectable business of 4 molecules, which, although impacted by supply challenges from our CMOs in 2018 on a volume basis, showed a stable pricing environment; finally, we've had a great year in our Canadian business where the team has done a fantastic job growing international revenues by over 50%.

As we look ahead, we believe that something has to give in this system. According to the IQVIA data, the generic dermatology market peaked at around $6 billion in total addressable market in 2016. Today, based on January data, that same market is about $3.8 billion. For comparison, that's slightly below the same period in January 2014, when the market was $4 billion. This is the wave of price erosion that we've been living through in our core market. And while we've still been able to deliver on revenue growth, margin erosion has impacted underlying profitability across the industry. Conversely, we continue to see market growth in the sterile injectable market. Today, the existing generic addressable market stands at $10.6 billion for injectables based on IQVIA data, up from $7.4 billion in 2014. Clearly, not all generic pharmaceutical markets are the same.

So how do we as Teligent respond to these challenges? The pricing dynamics seen in the generic dermatology market have led to some portfolio rationalization across the industry as competitors began to exit less profitable segments of the market. We have ourselves rationalized certain drugs from our portfolio that frankly cease to make sense on an ongoing basis. In fact, we probably should have done that faster as we look at the rates of declines in some highly competitive markets. But we've also taken a much tougher look at wholesale acquisition costs in our business model to attempt to manage the travel between gross sales to net sales, although this may seem arcane that travel has a significant potential to impact cash flows of the business. Finally, we've gotten to a point where we now have capacity to allow us to bring back some contract manufacturing in private label business, both for topicals as well as for injectables, and we've appointed someone to develop and grow that business directly. Although it's early days, I am encouraged by what we see as the opportunity landscape for quality manufactured contract product from Teligent.

We expect that the market for generic pharmaceutical products will continue to be dynamic. Supply, pipeline, quality and the strict control on cost will be critical for our success.

Let me turn the call over now to our Chief Financial Officer, Damian Finio, to provide his remarks on the quarter and the year. Damian?

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Damian Finio, Teligent, Inc. - Corporate Secretary & CFO [3]

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Thank you, Jason, and good morning, everyone. On today's call, I would like to highlight the key components of our fourth quarter and full year 2018 financial performance and our outlook of Teligent's 2019 projected financial performance.

So let's start with the highlights of our fourth quarter financial performance. We posted net revenues of $16.8 million, driven by year-on-year growth of 39% and 19% in our Canadian business and U.S. portfolio of topical products, respectively.

On our earnings call in November, we mentioned that our success in obtaining FDA approvals and launching new products had a significant impact on the workload of our quality department, and we were addressing serialization challenges resulting in shipping delays, which ultimately led to failure-to-supply fees. Although this operational issue was addressed during the first quarter of 2019, we incurred $1.4 million of failure-to-supply fees in the United States in the fourth quarter. These fees are included in net revenues, lowered our fourth quarter gross profit and EBITDA by $1.4 million and reduced our gross margin from 39% to 34%. We also posted a $1.9 million noncash impairment charge on intangible assets that were acquired in prior years from AstraZeneca and Alveda. This charge is reported as amortization and selling, general and administrative expenses on the statement of operations, but has no impact on EBITDA.

Lastly, we executed a loan agreement with Ares Capital management on December 13, 2018, using a portion of the proceeds to extinguish our 2021 term loan, and beginning just a few days later, initiated a buyback process of our December 2019 convertible bonds. By year-end, we purchased $53 million of our remaining $68.7 million of December 2019 convertible bonds. These debt-related transactions in the fourth quarter had an impact on cash interest paid during the fourth quarter that I wanted to briefly explain. So please note, I am referring to the $4.2 million of cash interest expense included in the reconciliation of non-GAAP measures from today's earnings release.

When we extinguished our 2021 term loan, we paid both the accrued interest and a 2% prepayment penalty. In addition, we paid 6 months of interest for the first time to our May 2023 bondholders in November, and we paid 6 months of interest to our December 2019 bondholders in mid-December. In addition, as I mentioned, we initiated the bond buyback process immediately following the execution of the Ares loan agreement in mid-December and, therefore, we were also required to pay another week or so of accrued interest to those bondholders who sold their bonds back to Teligent. We ended the year with $9.7 million of cash on the balance sheet.

Turning to 2018 full year financial performance. We posted $65.9 million of revenues, a top line year-over-year increase of 9% despite the failure-to-supply fees mentioned previously, and in a year when many generic pharmaceutical manufacturers reported revenue declines. Overall, we consider this to be strong top line growth on a consolidated basis and are especially encouraged by the 53% growth in revenues reported by our Canadian business.

Turning to our expense base. The cost savings initiatives that began in the second quarter of 2018 continue. However, the progress we made reducing discretionary spending is masked by the year-on-year increase reported in selling, general and administrative expenses. In 2018, selling, general and administrative expenses included a $1.9 million impairment charge mentioned previously, a $0.6 million increase in our bad debt reserves as well as $3.1 million of incremental legal and audit-related professional fees and staff transition costs. We view the audit and staff transition costs incurred as investments in our internal control framework that will benefit the company going forward.

And my last comment regarding 2018. As an accelerated filer, the deadline for our Form 10-K is today. However, in order to allow the time needed to obtain our former external audit firm's consent on the comparative figures included in our 2018 10-K, we will be filing Form 12b-25 with the SEC to formally request an extension. Our intent is to file Form 10-K as soon as possible, but no later than the April 2nd extended deadline.

Looking ahead to 2019. With the construction of our expanded facility completed and major steps taken with our capital structure, our priorities are to; one, prepare the organization for the upcoming FDA prior approval inspection; and two, focus on operational execution, capitalizing on the lessons learned last year, as we continue to scale up this business.

In terms of our financial performance guidance for the year ending December 31, 2019, we are projecting; first, consolidated revenues in excess of $72.5 million, which would represent double-digit percentage growth over 2018. Our revenue guidance excludes any potential upside in revenues relating to the launch of the orphan product, but includes projected incremental revenues generated by launching our first manufactured injectable products in the U.S.; Second, we expect a consolidated gross margin above 40%; third, in line with 2018, an R&D investment of $13 million to $15 million; and fourth, an adjusted EBITDA margin greater than 10%. We are defining adjusted EBITDA as GAAP EBITDA plus any noncash stock expenses and any foreign currency exchange gains or losses.

Lastly, in terms of phasing, we anticipate a sequential decline in revenue from fourth quarter 2018 to first quarter 2019 of approximately 20%, with the ramp up beginning in the second quarter and continuing through to year-end. The projected decline in first quarter revenues is due primarily to the disruption in our Canadian supply chain relating to the serialization efforts of our larger European contract manufacturers and due to the operational challenges in our quality department that have now been addressed and that I mentioned previously.

Overall, we are encouraged by our top line performance and the diversity of our U.S. and Canadian portfolio of products. And speaking on behalf of everyone here at Teligent, we're excited about the opportunities and priorities that lie ahead for our organization, and we are confident that we will deliver our 2019 financial performance guidance.

Let me turn the call back over to Jason for closing comments before we take any questions.

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Jason Grenfell-Gardner, Teligent, Inc. - President, CEO & Director [4]

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All right. Thank you, Damian. 2018 was a long year. It's not one that I would want to repeat regularly, but it is one that came with some very satisfying achievements. We weren't perfect. There were definitely some bumps along this road. But what we did deliver was America's newest state-of-the-art manufacturing facility for topical and injectable drugs. We delivered a pipeline that pumped out new drug approvals faster than once a month. We worked through thorny financial challenges and delivered a restructured balance sheet that put us on a firm footing for growth with long-term partners. And we positioned the company in the best growing segment in generic pharmaceuticals, the sterile injectable space, arming it with the best manufacturing technology, the best development and regulatory team and the drive to see it through.

Before opening up for questions, I would like to extend my personal thanks to our Teligent teams in the United States, Canada and Estonia who have been working to make Teligent successful. I remain grateful and proud of their dedication and generosity of spirit that they have poured into this company every day. Thank you to all of them for what they do.

With that, Crystal, let's open this up to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Matt Hewitt from Craig-Hallum Capital Group.

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Matthew Gregory Hewitt, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [2]

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A couple. First on the failure-to-supply penalties. Are the issues with the serialization on where you've been having challenges getting those implemented or is it on the -- on your suppliers and some of your contractors having issues?

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Jason Grenfell-Gardner, Teligent, Inc. - President, CEO & Director [3]

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No, it's really an internal challenge. So -- and it's a combination between what we are doing in manufacturing and in the data services that provide the numbers that feed into serialization and the ability to send them back into the cloud. There are a very few data suppliers who support this. And when the system went live, they had challenges. So that led to us bulking product, putting a lot of things into [WIP] and then having to run it through that system on a repeated basis. It was a pretty daunting challenge. Thankfully, we've gotten to a point now where it is running relatively smoothly on all lines. It's not perfect yet, but it's certainly much better than it was. And we are able now to address inventory in a more timely manner.

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Matthew Gregory Hewitt, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [4]

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Okay. And then shifting over to some of the products. With the injectables, I think, some of us had been anticipating maybe a first-half launch for some of those reintroduced injectables. It sounds like that's been pushed out a little bit. Is that a function of maybe the timing of the FDA inspection of the facility or has something else come into the fold?

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Jason Grenfell-Gardner, Teligent, Inc. - President, CEO & Director [5]

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We never intended to launch the first injectable products in the first half of this year, so I'm not sure where that misunderstanding comes from. Our goal is to get the facility inspected by the FDA around the first half of this year, which would then help us launch product in the back half of this year. But it's going to depend on FDA and our readiness to submit. We think that we're pretty much on our time line for being able to trigger that inspection in the first half of this year. We'll continue to update our readiness assessment on an ongoing basis, as we get informed by our own internal audits, but currently that's our plan.

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Matthew Gregory Hewitt, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [6]

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Okay. And then maybe one more, and I'll hop back into queue. Regarding the orphan drug and actually tying this in a little bit to the injectables. So you anticipate revenues from the injectables, I guess, number one, how much have you factored into your guidance for the injectables? And number two, at least from the outside, it would appear that the orphan, if you resubmit or submit the response to the major CRL in the next week or 2, there would be a very high potential for that product to be approved yet this year. But it sounds like you haven't included anything from the orphan drug in your guidance. Maybe help us understand some of the puts and takes there.

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Jason Grenfell-Gardner, Teligent, Inc. - President, CEO & Director [7]

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Let me start with the orphan drug, and then I'll let Damian touch on the guidance. On the orphan drug, we're responding to a major CRL that under GDUFA II normally has a 10-month review time by FDA. So if we respond at the end of March, its normal target action date will be in January 2021 -- or 2020, rather, apologies. So for that reason, even though there is a potential for FDA to accelerate that, we think the most appropriate way to forecast that is according to the normal GDUFA standards. I'm going to let Damian talk about guidance.

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Damian Finio, Teligent, Inc. - Corporate Secretary & CFO [8]

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Thanks, Matt. In terms of 2019 guidance, I would say we're including incremental revenues from the launch of injectables in the fourth quarter. But what's really driving 2019 revenues above 2018 actual revenues is the utilization of the launches Jason mentioned in 2018 as well as continued launches in 2019. I would add, it also is a bit of a customer mix story which is enabling us to improve margins. And I think Jason also mentioned continued diligence in managing our cost base brings us down to EBITDA guidance that's well above where we landed in 2018.

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Operator [9]

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And our next question comes from Elliot Wilbur from Raymond James.

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Elliot Henry Wilbur, Raymond James & Associates, Inc., Research Division - Senior Research Analyst [10]

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First question -- or first 2 questions for Jason. Specifically with respect to triggering the FDA inspection at the Buena facility, what exactly is the triggering event? Is it a filing or is it more of a general GMP inspection?

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Jason Grenfell-Gardner, Teligent, Inc. - President, CEO & Director [11]

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Yes. So we anticipate filing a prior approval supplement to support a site transfer of a drug that we already own, as the triggering event, that would bring the FDA to inspect the facility.

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Elliot Henry Wilbur, Raymond James & Associates, Inc., Research Division - Senior Research Analyst [12]

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Okay. And that's, obviously, still expected first half event?

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Jason Grenfell-Gardner, Teligent, Inc. - President, CEO & Director [13]

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That's correct.

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Elliot Henry Wilbur, Raymond James & Associates, Inc., Research Division - Senior Research Analyst [14]

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Okay. And then bigger picture question, Jason. I guess given a multitude of industry issues and then some of the company-specific challenges that you faced in 2018, I mean, how are you just feeling about the company's execution in terms of launch success being able to essentially capture what we always perceive to be sort of your fair share of the market for each of these individual new launches? It just seems from the data that has come out to date that maybe that's been a little bit more challenging than previously expected?

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Jason Grenfell-Gardner, Teligent, Inc. - President, CEO & Director [15]

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That is a really great question. So I look at our ability to launch products into markets and gain share, and I look at some of those markets, we've done a really great job of capturing share. And in fact, I would say that we've hit our targets in terms of share and often exceeded them. I don't think that the challenge is in gathering share. I think that the challenge is in making sure that we achieve the appropriate margins. And so as I look at the sort of mix of customers that we're managing, I really believe that we need to prioritize margin over volume and sometimes over revenue. I look at 2018, we grew volume significantly, we also grew revenue. But it was the margin erosion that came through pricing challenges in some of these lower barrier-to-entry products that really was quite tough. Now as you know, as the pipeline has continued to mature and as we look at the approvals we got in 2018, we're seeing more of our portfolio in the higher barrier-to-entry segments of the dermatology space. That's probably helpful to us as we think about the margin story over time. But that's -- that margin component of this is something that we're going to spend a significant amount of focus on in 2019. We care much more about margin than we care about percentages of market share.

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Elliot Henry Wilbur, Raymond James & Associates, Inc., Research Division - Senior Research Analyst [16]

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Okay. And a question -- couple of questions for Damian as well and perhaps yourself, Jason. Could you just help us think about -- I mean, obviously, counting on some element of revenue streams from the injectable business probably would be perceived to be somewhat more risky, obviously, in generating revenue from approved products or to-be-launched products that are already approved. But maybe just help us think about the progression of pipeline events over the course of 2019, essentially what -- how many potential incremental approvals and/or launches there are?

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Jason Grenfell-Gardner, Teligent, Inc. - President, CEO & Director [17]

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Well, I can start with that. So there are, I think, 22 ANDAs currently pending at FDA. We anticipate continuing a pace of filings throughout this year that will keep that pipeline full. One of the interesting communication challenges that we will have during the year is making sure that we give you the good mix between ANDAs on file as well as responses to complete response letters or filing of supplements to the existing ANDAs and NDAs that we own as we manage that site transfer process into the facility to support injectables. So we'll be giving you updates throughout the year on the shape of that. And it really starts accelerating in the second half of this year once the sterile injectable facility is fully online. The team is, obviously, making exhibit batches and supporting batches at the moment to be able to support those submissions. We, obviously, need to generate stability data concurrent with that. But it's a pretty full pipeline of opportunities that help support the growth. When we think about what does that mean in terms of the financial projections for the year, obviously, the biggest components of this, as Damian mentioned in his remarks, are related to the annualization of the products that were launched in 2018 as well as the approvals that we expect to get throughout the year. I don't know Damian if you'd like to add any further commentary to that?

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Damian Finio, Teligent, Inc. - Corporate Secretary & CFO [18]

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Yes, I would add. So, Elliot, the way I look at the revenue forecast for 2019, let's talk about U.S. first and then Canada. In U.S., as Jason said, launch annualization of last year's products plus new launches, but I would say it's more heavily weighted towards the annualization of last year's launches rather than on this year's new launches. I mentioned customer mix, I would say that also includes expanding our customer base, and then Jason also had mentioned contract manufacturing and private label opportunities. So it's a combination of those 3 things that drive the U.S. revenue forecast for 2019. In Canada, we mentioned some serialization challenges with our contract manufacturers. But once we get past that, which is right around the corner, we expect there to be continued drug shortage opportunities that the team in Canada can take advantage of as well as an expanded customer call list. So I think it's a combination of those 3 things for the U.S. and those 2 things for Canada rather than relying on injectables that drives our 2019 revenue guidance.

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Elliot Henry Wilbur, Raymond James & Associates, Inc., Research Division - Senior Research Analyst [19]

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Okay. And just 2 quick financial ones for yourself, Damian. Gross net or net to gross this period improved to around 50%, and I know that number has been improving over the course of 2018. Is this sort of the new normal? Or is there an opportunity to further improve this level and maybe enhance operating cash flow generation somewhat more?

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Damian Finio, Teligent, Inc. - Corporate Secretary & CFO [20]

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Yes. In the second quarter and third quarter 2018, we took some actions to both reduce WACs as well as to increase contract price where possible and prune the customer list. So both of those things helped in that regard in 2018. In 2019, we do think there are continued opportunities to do the same with a different group of products. So I think we'd expect that to maintain or continue the progress we made last year.

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Elliot Henry Wilbur, Raymond James & Associates, Inc., Research Division - Senior Research Analyst [21]

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Okay, last one. Any color you could provide on operating cash flow expectations for 2019?

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Damian Finio, Teligent, Inc. - Corporate Secretary & CFO [22]

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Yes, absolutely. So as I mentioned, we ended the year at $9.7 million of cash in the bank, with $10 million remaining on our revolving loan with Ares. When I look at cash forecasts for 2019, we no longer are paying the general contractors. So construction has been completed. That's been our biggest cash burn over the past 2 years. Our next interests on the bond is not payable until May. Now, we also have an opportunity, I mentioned on the last call, with Ares to pick interest or defer interest on the loan. Our goal would be to pay interest rather than forego paying interest and have it be compounded as principal on the debt, but we have that option if needed in order to help us with cash flow and launching products. I think the last thing, I would say, I mentioned that the first quarter revenues are expected to be about 20% lower than Q4. So of course, the follow-on from that is a shortage in cash collections in the early part of second quarter that we'll need to manage through. But I think all in all, the pluses outweigh the minuses in cash flow projections.

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Operator [23]

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And I am showing no further questions from our phone lines. I'd now like to turn the conference back over to Jason Grenfell-Gardner for any closing remarks.

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Jason Grenfell-Gardner, Teligent, Inc. - President, CEO & Director [24]

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Okay. Thank you, Crystal. And thank you all for joining us today. I look forward to seeing some of you at the ROTH Conference this week in California and at other conferences throughout this spring. Thank you for joining us. Thank you for your support of Teligent. And have a great morning.

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Operator [25]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone, have a wonderful day.