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spk01: Greetings, and welcome to the Telligent Second Quarter 2021 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Philip Yachnetz, Executive Vice President and Chief Legal Officer. Thank you. You may begin.
spk04: Thank you, Operator. Welcome to all of you joining us for Telligent's second quarter 2021 earnings conference call. Before we begin, we want to draw your attention to our legal disclosure regarding forward-looking statements. During the course of this conference call and the Q&A following, the company will make forward-looking statements regarding future events, including statements about financial, business, and commercialization plans and strategies, as well as certain critical strategic assessments we have undertaken which could impact fiscal year 2021 and beyond, as well as the currently ongoing inspection and reinspection by the US FDA. We encourage you to review the company's past and future filings with the SEC, in particular our annual report on Form 10-K for the period ending December 31, 2020. which identify specific factors that may cause the actual results or events to differ materially from those described in the forward-looking statement. You can find the SEC filings in the EDGAR database at www.sec.gov or in the investor relations section at the company's website at www.telligent.com. Please note that any comments made on today's call speak only as of today August 16th, 2021, and may not be accurate at the time of any replay or transcript rereading. I would now like to hand the conference call over to Tim Sawyer, our President and Chief Executive Officer. Tim?
spk05: Thank you, Phil. Good morning. And I'd like to thank all of you for joining us today on Telligent's second quarter 2021 earnings call. Joining me on the call his intelligence executive vice president and chief legal officer, Philip Yachna, and our chief financial officer, Ernie E. Palantonio. Although our second quarter was relatively quiet with respect to new announcements, intelligence productivity did not wane. In fact, our continued focus on remediation of the Buna facility proved extremely important. As we will discuss further later in this call, the FDA began its inspection process in mid-July, which is earlier than we anticipated. Our operating performance for the quarter was impacted by a combination of factors, including remediation-related activities, the ongoing effects of the COVID-19 pandemic, and modest generic pricing erosion within the topical segment. Looking forward, Intelligent Senior Management and our board continue to assess how to maximize shareholder value by leveraging all of our existing asset base, both physical assets and human capital, including the possible expansion into proprietary injectable development and manufacturing services. And we anticipate providing additional updates on the progress we are making on this effort throughout the remainder of 2021. Before commenting further on these items, Ernie DePalantonio will review our financial results for the second quarter of 2021. Ernie?
spk03: Thank you, Tim, and good morning, everyone. Total revenues were $10.4 million for the three months end of June 30th, 2021, versus $13.6 million in the prior period for 2020. The decrease was driven primarily by lost contract volume due to remediation-related activities, the continuing effects of the COVID-19 pandemic, and modest product price erosion due to generic competition. Cost of revenues increased $2.1 million to $13.1 million for the current period versus $11.1 million for the prior period, mainly attributable to the cost of inventory reserves as well as the ongoing cost of remediation and product expenses combined with lower absorption. Selling, general, and administrative expenses of $5.7 million for the current period increased from $5 million for the prior period. The increase was primarily due to higher professional fees resulting from our debt restructuring offset slightly by a decrease in personnel-related costs. Product development and research expenses were 2.2 million for the current period versus 1.9 million for the prior period. The increase was primarily due to API-related expenses offset by decreases in personnel costs, outside testing, and pilot batch expense. Net loss attributable to common stockholders decreased by 1.5 million or 10% to 12.9 million for the current period from 14.3 million for the prior period. The decrease was primarily due to a decrease in interest and other expenses of 4.5 million and a 4.6 million decrease in change in the fair value of derivative liability. Operating loss has increased by 6.3 million from the period to period to 10.7 million as a result of lower net product revenues and higher overall costs and expenses discussed above. Our cash and cash equivalents at June 30, 2021, were approximately $22.6 million versus $27.5 million at March 31, and compared to $5.9 million at December 31, 2020. We estimate that we will have sufficient operating cash until the end of 2021 or into the first quarter of 2022. I will now turn the call back over to Tim. Tim?
spk05: Thank you, Ernie. Realizing that our ongoing remediation of the FDA warning letter issued in November of 2019 is a focal point for our company and our investors, Let me now provide a brief update on our recent interactions with the FDA. As previously stated during our first quarter call in May, based on our assessment of the status of our remediation efforts at the Buena, New Jersey manufacturing facility, we believe we would be ready to inform the FDA of our inspection readiness during the third quarter of 2021. However, Prior to our informing the FDA of our inspection readiness, we were informed by the FDA that they would commence a periodic current good manufacturing practices inspection and a reinspection to follow up on the FDA warning letter remediation action in mid-July. This inspection and reinspection is still ongoing as of this time. Therefore, we cannot predict when the inspection and reinspection will be completed, when the results of the inspection will be made available to us by the FDA, what the specifics of those results may be, how those results may impact the restrictions imposed on the company by the FDA warning letter, and whether and when the results of the inspection and reinspection may or may not result in the removal or abating of the restrictions imposed on the company by the FDA warning letter. It should also be specifically noted that we have no control and are unable to predict when the FDA will provide formal communication of the results of the inspection and re-inspection, and more importantly, the impact, if any, on the existing warning letter. Therefore, Until such time as the results of the FDA's inspection and re-inspection are formally made available to us, and we have had ample opportunity to review and analyze those results with our consultants and our advisors, we will have no further comment on this matter. As we continue to work with the FDA to resolve these issues, We are also continuing to diligently pursue with our financial, strategic, and legal advisors critical assessments of our asset base, manufacturing capabilities, operational and strategic strengths, and how we can best leverage them moving forward to maximize shareholder value. As part of this strategic review, one of the most important decisions is assessing and determining the highest quality long-term growth opportunities for our company. An integral part of this analysis is examining in detail the evolving business trends in regards to technology, utilization, and outsourcing within the pharmaceutical manufacturing sector so we can fully assess our end market and position our company to take advantage of these trends. To that end, over the last several months, in consultation with external industry experts and our financial and strategic advisors has undertaken a comprehensive review of our end market. Based upon our current asset base, we believe that our future growth prospects can be significantly improved by directing and optimizing our efforts towards providing services for the development and manufacturing of proprietary injectables. There are several reasons why we believe further refining our ability to provide services for the development and manufacturing of proprietary injectable products represent a major future growth opportunity. First and foremost, the growth trends within the proprietary injectables market are at significantly higher rates than topicals, and we expect these trends will only continue over time. We believe that strong and sustainable growth in our end market would provide Telogen a demand-driven tailwind for our core manufacturing services offering, which over time should enable us to fully utilize our asset base and improve our potential profitability. Secondly, many drug developers, particularly the small to mid-sized companies, continue to outsource manufacturing of their key pipeline assets, particularly injectable-based formulations, which oftentimes require more complex manufacturing processes. Industry sources indicate that by the end of 2020, approximately 70% of all small to mid-sized pharmaceutical companies were outsourcing their drug manufacturing, up from 60% back in 2017. given the lack of internal capability coupled with variable cost structure associated with building out and operating such assets. It's not surprising to see the strong trend towards outsourcing continue over time. Additionally, we also believe the existing capacity constraints seen in pharmaceutical manufacturing provide a natural, supply-driven benefit that creates highly attractive pricing for outsourced manufacturing services. Thus, we believe these outsourcing trends provide yet another demand-driven potential benefit for the intelligent business model. And with our directing and optimizing our services towards injectable-based pipeline assets and capabilities, we believe that these dynamics could provide sustainable growth in our end market for years to come. Having touched upon the industry trends we see in the injectable side of our business, I'd also like to address our internal capabilities and why we're optimistic about the potential for our future growth prospects. As our investors know, our Buna manufacturing facility represents a major investment into expanding our manufacturing capability. Upon FDA approval, Buna will enable us to significantly expand our production capabilities within sterile injectable products for both vial and ampule In addition, the sterile production area of the BUNA facility is designed around isolator-based technology, and the facility also includes a versatile vial and ampule filling line capable of producing between 4 and 8 million units per year. We also have space and critical utilities already in the build-out for a potential future higher-speed filling line. We believe that once approved by the FDA, Buena's sterile production capability will support our pipeline of sterile injectable products in vial and ampule presentations, and we anticipate that this expansion will secure our long-term growth in contract and private label manufacturing and related services. We still have additional work to complete in regard to our strategic plan moving forward, and we will continue to keep you posted as we advance and finalize these plans. However, we believe that based on our current asset base in Buna, our future growth prospects would be improved by directing and optimizing our development and manufacturing services towards proprietary injectable products. We believe it's important to share with you our preliminary thinking at this stage and will continue to keep our investors apprised in the future quarters. Thank you. for taking the time to join us today. And I'd now like to turn the call back over to the operator for the question and answer session. Evan?
spk01: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, It may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from the line of Matt Hewitt with Craig Hallam. Please proceed with your question.
spk02: Good morning, and thanks for providing the update. First question for me, without getting into, I guess, going too deep into the remediation efforts and all that, but how quickly once the FDA comes back and let's say they give you the all clear, how quickly do you think that you can transition to ramp that facility back up? What would be required to do so?
spk05: Okay, thanks Matt, appreciate it. So just to make sure I understand the question, you're saying if the FDA were to provide a positive inspection, you're looking for the timeline for us to finalize the upgrades to the injectable facility?
spk02: No, I'm just, even on the topical side, I mean, how quickly can you ramp that back up? I mean, I know that you've got a number of ANDAs that have been pending approval. You've got drugs that you have been manufacturing, and I'm guessing that you're not running at full speed right now, so how quickly once you've gotten the all clear on the topicals, and I guess we can get to the injectables in a second, but yeah, just on the topicals.
spk05: Sorry, I didn't understand you there. I just wanted to make sure. So we are manufacturing topicals today, obviously. And we're doing the necessary work to make sure those products meet all of the FDA guidelines. So we are manufacturing today. We will be able to... ramp up. It will take a little bit of time, but we will be able to ramp up. But I would say to you that, you know, dependent on that is going to be, you know, the timeline that it takes for the FDA to approve any new applications. We do have a number of applications that are pending, and it will be, you know, dependent on the FDA to approve those new products for us to be able to launch them.
spk02: Okay, fair enough. And then I guess on the flip side, with the injectables facility that would still need an FDA inspection and an all-clear. Do you feel like you're ready on the injectable side, or have you been focused primarily on the remediations?
spk05: We've been focused, so very good question. We've been focused primarily on the remediation. We definitely have continued work to do to prepare ourselves for the injectables for the injectables manufacturing. The real key there, though, obviously is that we're going to need to have a product filing, a PAS filing, that will trigger that inspection. But I would tell you that we have additional work to do at this point in time to be ready for that PAS inspection.
spk02: Fair enough. Okay. And then maybe let's, I don't know, fast forward to... whether it's a year from now or whatever, once the remediation efforts are complete, and I know there's always ongoing work to do, but how much of a cost savings will that be, or how much of these current costs go away once the remediation is complete and you've gotten the all clear from the FDA, not just on the topical side, but on the injectable side, once those facilities are cleared? I mean, are we talking a couple million dollars a quarter of costs that go away that can start to flow back through to the bottom line?
spk05: I don't know that it's that high. Obviously, the additional costs that we expend on third-party consultants and whatnot would go away, and then we could improve our manufacturing efficiency. I would tell you that it's... It takes a while for that to flow out because you're right, but it probably would be a couple of million dollars a year.
spk03: Matt, this is Ernie. Hi. You'd also have higher gross profit on those products because you'd be working as a CMO on those, so your costs would be offset.
spk02: Okay. Fair enough. All right. Thank you. I guess maybe the last one is, Have you continued efforts on developing new products for the pipeline? And maybe an update if you have one on where the pipeline currently sits.
spk05: Sure. We currently have seven products, topical products pending at the agency and three injectables products pending at the agency that we're prosecuting. So a variety of AMDA and NDA applications. And so those are the ones we're actively prosecuting at this moment in time. We have been spending the majority of our research efforts most recently on individual product remediation to ensure their viability in the market. So we have not been focused on new product development.
spk02: Understood. All right. Thank you very much for the update.
spk04: Matt, just going back to your initial question, I think part of it may have been – You were looking for some guidance on the topical products that we may have paused due to remediation efforts and when they may start generating revenue again. Once we finish the remediation on those products that we paused, they will be reintroduced into the market. They don't require any sort of a FDA clearance. We paused them voluntarily to remediate the quality issues we may have spotted or the quality concerns we may have spotted. But once we've fully remediated those to our satisfaction, we'd be reintroducing those products right back into the market. Therefore, the revenue would start picking up again from those pause products.
spk02: Well, that's very helpful. Thank you.
spk04: Thanks.
spk01: We have no further questions at this time. I'd like to turn the floor back over to Tim Sawyer for closing comments.
spk05: Thank you, Devin. Listen, thank you all for joining us today. We appreciate your time. We appreciate your continued support, and I wish you a great day. Thank you. Bye-bye.
spk01: This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day. Thank you. Thank you. Bye. Greetings and welcome to the Telligent Second Quarter 2021 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Philip Yachnatz, Executive Vice President and Chief Legal Officer. Thank you. You may begin.
spk04: Thank you, Operator. Welcome to all of you joining us for Telligent's second quarter 2021 earnings conference call. Before we begin, we want to draw your attention to our legal disclosure regarding forward-looking statements. During the course of this conference call and the Q&A following, the company will make forward-looking statements regarding future events, including statements about financial, business, and commercialization plans and strategies, as well as certain critical strategic assessments we have undertaken, which could impact fiscal year 2021 and beyond, as well as the currently ongoing inspection and reinspection by the US FDA. We encourage you to review the company's past and future filings with the SEC, in particular, our annual report on Form 10-K for the period ending December 31, 2021. which identify specific factors that may cause the actual results or events to differ materially from those described in the forward-looking statements. You can find the SEC filings in the EDGAR database at www.sec.gov or in the investor relations section at the company's website at www.telligent.com. Please note that any comments made on today's call speak only as of today August 16th, 2021, and may not be accurate at the time of any replay or transcript rereading. I would now like to hand the conference call over to Tim Sawyer, our President and Chief Executive Officer. Tim?
spk05: Thank you, Phil. Good morning. And I'd like to thank all of you for joining us today on Intelligent's second quarter 2021 earnings call. Joining me on the call his intelligence executive vice president and chief legal officer, Philip Yachman, and our chief financial officer, Ernie E. Palantonio. Although our second quarter was relatively quiet with respect to new announcements, intelligence productivity did not wane. In fact, our continued focus on remediation of the Buna facility proved extremely important. As we will discuss further later in this call, the FDA began its inspection process in mid-July, which is earlier than we anticipated. Our operating performance for the quarter was impacted by a combination of factors, including remediation-related activities, the ongoing effects of the COVID-19 pandemic, and modest generic pricing erosion within the topical segment. Looking forward, Intelligent Senior Management and our board continue to assess how to maximize shareholder value by leveraging all of our existing asset base, both physical assets and human capital, including the possible expansion into proprietary injectable development and manufacturing services. And we anticipate providing additional updates on the progress we are making on this effort throughout the remainder of 2021. Before commenting further on these items, Ernie DePalantonio will review our financial results for the second quarter of 2021. Ernie?
spk03: Thank you, Tim, and good morning, everyone. Total revenues were $10.4 million for the three months end of June 30th, 2021, versus $13.6 million in the prior period for 2020. The decrease was driven primarily by lost contract volume due to remediation-related activities, the continuing effects of the COVID-19 pandemic, and modest product price erosion due to generic competition. Cost of revenues increased $2.1 million to $13.1 million for the current period versus $11.1 million for the prior period, mainly attributable to the cost of inventory reserves as well as the ongoing cost of remediation and product expenses combined with lower absorption. Selling, general, and administrative expenses of $5.7 million for the current period increased from $5 million for the prior period. The increase was primarily due to higher professional fees resulting from our debt restructuring offset slightly by a decrease in personnel-related costs. Product development and research expenses were 2.2 million for the current period versus 1.9 million for the prior period. The increase was primarily due to API-related expenses offset by decreases in personnel costs, outside testing, and pilot batch expense. Net loss attributable to common stockholders decreased by 1.5 million or 10% to 12.9 million for the current period from 14.3 million for the prior period. The decrease was primarily due to a decrease in interest and other expenses of 4.5 million and a 4.6 million decrease in change in the fair value of derivative liability. Operating loss has increased by 6.3 million from the period to period to 10.7 million as a result of lower net product revenues and higher overall costs and expenses discussed above. Our cash and cash equivalents at June 30, 2021, were approximately $22.6 million versus $27.5 million at March 31, and compared to $5.9 million at December 31, 2020. We estimate that we will have sufficient operating cash until the end of 2021 or into the first quarter of 2022. I will now turn the call back over to Tim. Tim?
spk05: Thank you, Ernie. Realizing that our ongoing remediation of the FDA warning letter issued in November of 2019 is a focal point for our company and our investors, Let me now provide a brief update on our recent interactions with the FDA. As previously stated during our first quarter call in May, based on our assessment of the status of our remediation efforts at the Buena, New Jersey manufacturing facility, we believe we would be ready to inform the FDA of our inspection readiness during the third quarter of 2021. However, Prior to our informing the FDA of our inspection readiness, we were informed by the FDA that they would commence a periodic current good manufacturing practices inspection and a reinspection to follow up on the FDA warning letter remediation action in mid-July. This inspection and reinspection is still ongoing as of this time. Therefore, we cannot predict when the inspection and reinspection will be completed, when the results of the inspection will be made available to us by the FDA, what the specifics of those results may be, how those results may impact the restrictions imposed on the company by the FDA warning letter, and whether and when the results of the inspection and reinspection may or may not result in the removal or abating of the restrictions imposed on the company by the FDA warning letter. It should also be specifically noted that we have no control and are unable to predict when the FDA will provide formal communication of the results of the inspection and re-inspection, and more importantly, the impact, if any, on the existing warning letter. Therefore, until such time as the results of the FDA's inspection and re-inspection are formally made available to us, and we have had ample opportunity to review and analyze those results with our consultants
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