We expect to continue to expand our presence in the generic topical pharmaceutical market through the filing of additional ANDAs with the FDA and the subsequent launch of products as these applications are approved. We received twelvefive approvals from our internally developed pipeline of topical generic products in 2018.2019. We intend to continue to submit further ANDAs to the FDA and abbreviated new drug submissions ("ANDS") to Health Canada in 2019.2020, although the typical timelines for submission and approval may be adversely impacted by the current COVID-19 pandemic. We will alsocontinue to seek to license or acquire further products, intellectual property, or pending applications to expand our portfolio.

In connection with the closingcompletion of the acquisition, we formed three subsidiaries: Teligent Luxembourg S.à.r.l., or LuxCo, a private limited company incorporated under the laws of the Grand Duchy of Luxembourg and wholly-owned by the Company; Teligent OÜ, a private limited company incorporated under the laws of the Republic of Estonia that is wholly-owned by LuxCo; and Teligent Canada Inc., a company incorporated under the laws of the Province of British Columbia that is wholly-owned by LuxCo.

Based on IQVIA data, the addressable market for the 20 products we have16 ANDA filings that Teligent has pending atwith the FDA totals approximately $1.5$1.06 billion in annual sales.per annum. We expect to continue to expand our presence in the generic topical pharmaceutical market through the submission of additional ANDAs to the FDA and the subsequent launch of products if and when these applications are approved by the FDA. Additionally, we plan to file further ANDSs with Health Canada in 2019.2020 to the extent the COVID-19 pandemic allows for the submission of new drug applications. We also have 4645 additional product candidates in various stages of development.

 

Prescription pharmaceutical products in the U.S. are generally marketed as either brand or generic drugs. Brand products are usually marketed under brand names through marketing programs that are designed to generate physician and consumer loyalty. Brand products are patent protected, which provides a period of market exclusivity during which time they are sold with little or no competition for the compound, although there typically are other participants in the therapeutic area. Additionally, brand products may benefit from other periods of non-patent market exclusivity.exclusivity available under various provisions of the Federal Food, Drug, and Cosmetic Act (FD&C Act). Exclusivity normally provides brand products with the ability to maintain their profitability for a period of time and brand products typically continue to play a significant role in the market due to physician and consumer loyalties after the end of patent protection or other market exclusivities.

The ANDA development process is generally less time-consuming and complex than the NDA development process. It typically does not require new preclinical and clinical studies, because it relies on the studies establishing safety and efficacy conducted for the RLD previously approved through the NDA process. The ANDA process, however, does typically require one or more bioequivalence studies to show that the ANDA drug is bioequivalent to the previously approved reference listed brand drug. Bioequivalence studies compare the bioavailability of the proposed drug product with that of the RLD product containing the same active ingredient. Bioavailability is a measure of the rate and extent to which the active ingredient or active moiety is absorbed from a drug product and becomes available at the site of action.action in a human patient. Thus, a demonstration of bioequivalence confirms the absence of a significant difference between the proposed product and the reference listed brand drug in terms of the rate and extent to which the active ingredient or active moiety becomes available at the site of drug action when administered at the same molar dose under similar conditions.

Generic products are generally introduced to the marketplace at the expiration of patent protection for the brand product or at the end of a period of non-patent market exclusivity. However, if an ANDA applicant files an ANDA containing a certification of invalidity, non-infringement or unenforceability related to a patent listed in the Orange Book with respect to a reference drug product,the relevant RLD, the applicant may be able to market the generic equivalent prior to the expiration of patent protection for the brand product. Such patent certification is commonly referred to as a Paragraph IV certification. If the holder of the NDA sues, claiming infringement or invalidation, within 45 days of notification by the applicant, the FDA may not approve the ANDA application until the earlier of the rendering of a court decision favorable to the ANDA applicant or the expiration of 30 months. An ANDA applicant that is first to file a Paragraph IV certification is eligible for a period of generic marketing exclusivity. This exclusivity, which under certain circumstances may be required to be shared with other ANDA sponsors that have made Paragraph IV certifications, lasts for 180 days, during which the FDA cannot grant final approval to other ANDA applications for a generic equivalent to the same reference drug.

In addition to patent exclusivity, the holder of the NDA for the listed drug may be entitled to a period of non-patent market exclusivity, during which the FDA cannot approve an application for a generic version product. If the reference drug is a new chemical entity, the FDA may not accept an ANDA for a generic product for up to five years following approval of the NDA for the new chemical entity. If it is not a new chemical entity, but the holder of the NDA conducted clinical trials essential to approval of the NDA or a supplement thereto, the FDA may not approve an ANDA for a reference NDA product before the expiration of three years. Certain other periods of exclusivity may be available if the RLD is indicated for treatment of a rare disease (i.e., orphan drug exclusivity) or the sponsor conducts pediatric studies in accordance with FDA requirements.

Supplemental ANDAs are required to secure FDA for approval of various types of changes to an approved application and these supplements may be under review for six months or more. In addition, certain types of changes may only be approved once new bioequivalence studies are conducted or other requirements are satisfied.

Facilities, procedures, operations and/or testing of products are subject to periodic inspection by Health Canada. In addition, Health Canada conducts pre-approval and post-approval reviews and plant inspections to determine whether our systems are in compliance with the Good Manufacturing Practices in Canada, Drug Establishment Licensing requirements and other provisions of the Regulations. Competitors are subject to similar regulations and inspections.

The federal government, provinces and territories in Canada operate drug benefit programs through which eligible recipients receive drugs through public funding; these drugs are listed on provincial or territorial Drug Benefit Formularies (each, a “Formulary”). Eligible recipients include First Nations and Inuit clients, seniors, persons on social assistance, low-income earners, and those with certain specified conditions or diseases. Formulary listings are also used by private payors to reimburse generic products. To be listed in a Formulary, drug products must have received an NOC from Health Canada and must comply with each jurisdiction’s individual review process.

The Company’s executive administrative offices are located in Buena, New Jersey, in two facilities which originally were approximately 33,000 square feet built on 8.44 acres of land in 1995, which we own. In 2017 we acquired an additional 3.0 acres of adjacent land in support of our facility expansion. We now own a total of 11.44 acres at our Buena facility. This facility is used for production, product development, marketing and warehousing for our pharmaceutical, cosmeceutical and cosmetic products. We completed construction on an expansion of our Buena, New Jersey facility to total approximately 110,000 square feet. Although the injectable manufacturing lines installed have yet to receive FDA approval, we received a Certificate of Occupancy in the fourth quarter of 2018 and are currently occupying the space. Once FDA approved, theThe expanded facility will increasehas increased our manufacturing capability for topical products and will also enable the production of sterile injectable products in both vial and ampule presentations. We are using this facility expansion as an opportunity to upgrade and improve the degree of automation and capacity in our existing topical production suite.presentations upon FDA approval. The sterile production area is designed around isolator-based technology. Our capabilities encompass a full suite of competencies, including manufacturing, regulatory, quality assurance and in-house validation. We are using this facility expansion as an opportunity to secure our long-term growth in manufacturing and marketing injectable in the US and to upgrade and improve the degree of automation and capacity in our existing topical production suite.

We lease additional warehouse space in Vineland, New Jersey, as needed to complement our existing warehouse capacity.

Revenues and gross margin derived from generic pharmaceutical products often follow a pattern based on regulatory and competitive factors that we believe are unique to the generic pharmaceutical industry. As the patent(s) for a brand name product and the statutory marketing exclusivity period (if any) expires, the first generic manufacturer to receive regulatory approval for a generic equivalent of the product often is able to capture a substantial share of the market. However, as other generic manufacturers receive regulatory approvals for identical competing products, that market share, and the price of that product, may decline depending on several factors, including the number of competitors, the price of the brand product and the pricing strategy of the new competitors. In addition, the FDA has continued to shorten the review and response time to certain ANDAs, as a result of their guidelines established under GDUFA, and it has recently finalized policies to implement the Competitive Generic Therapy (“GCT”) designation pathway created by Congress in 2017 as part of FDARA. Based on these trends and regulatory developments, competitors could potentially enter the markets in which we compete more quickly. We cannot provide assurance that we will be able to continue to develop such products or that the number of competitors with such products will not increase to such an extent that we may stop marketing a product for which we previously obtained approval, which may have a material adverse impact on our revenues and gross margin.

Our continued growth is dependent upon our ability to develop and commercialize products in a timely manner. We may encounter delays in testing and manufacturing new pharmaceutical products, submitting applications for regulatory approval,

receiving approval from the relevant authorities and commercializing new products. This process is costly and time-consuming. Delays at any stage could prevent us from successfully launching new products ahead of our competitors and could have a material adverse effect on our business, financial condition and results of operations. The recent COVID-19 pandemic may delay our applications in both submissions and approvals.

The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of the SEC and other government agencies on which our operations may rely, including those that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.

We manufacture drug products at one domestic manufacturing facility. This facility may be forced to shut down or may be unable to operate at full capacity as a result of hurricanes, tornadoes, earthquakes, storms and other extreme weather events as

well as strikes, war, violent upheavals, terrorist acts, pandemics and other force majeure events. A significant disruption at this facility, even on a short-term basis, could impair our ability to produce and ship drug products to the market on a timely basis, which may have a material adverse effect on our business, financial position and results of operations.operations through possible failure to supply fees or lost business opportunities. The recent COVID-19 pandemic may force us to temporarily close our production facility due to local, state or federal requirements.

Federal laws regarding reporting and payment obligations with respect to a pharmaceutical company’s participation in federal health care programs, including Medicare and Medicaid, are complex. These programs generally require us to pay rebates or provide discounts to government payors in connection with our products that are dispensed to beneficiaries of these programs. In some cases, such as with the Medicaid Drug Rebate Program, the rebates are based on pricing and rebate calculations that we report on a quarterly basis to the government agencies that administer the programs. Because our processes for calculating applicable government prices and the judgments involved in making these calculations involve subjective decisions and complex methodologies, these calculations are subject to risk of errors and differing interpretations. In addition, they are subject to review and challenge by the applicable governmental agencies, and it is possible that such reviews could result in changes that may have material adverse legal, regulatory, or economic consequences. Responding to current and future changes may increase our costs and the complexity of compliance will be time-consuming, and could have a material adverse effect on our results of operations. TheFor example, the U.S. Department of Health and Human Services (“DHHS”) has issued a proposed rule that would remove safe harbor protections for certain rebates, which if finalized as released would go into effect in January 2020.rebates. Given the complexity of the drug pricing systems in the United States, DHHS is also soliciting input on multiple issues and other proposals as part of this formal rulemaking process, and the timeline for any final government action could be lengthy. It is unclear what changes a DHHS final rule, if any, would make to the current drug rebate rules for Medicare and Medicaid programs, and what the potential impact of such changes would be to our business or operations.

There also continues to be uncertainty that any provisions of the Affordable Care Act will continue to exist in their current form. Certain legislators are continuing their efforts to repeal the Act, although there is little clarity on how such a repeal would

be implemented and what an Affordable Care Act replacement might look like, and there continue to be lawsuits in federal courts seeking to invalidate parts or all of the Act. For the immediate future, there continues to be significant uncertainty regarding the health care, health care coverage and health care insurance markets. Both Congress and President Trump have expressed an intention to repeal or repeal and replace the Affordable Care Act, and as a result certain sections of the Affordable Care Act have not been fully implemented or effectively repealed, and the Fifth Circuit Court of Appeals recently upheld a lower court decision finding the Affordable Care Act’s individual mandate to be unconstitutional. The 116th Congress conveneduncertainty around the future of the Affordable Care Act, and in January 2019 is expectedparticular the impact to focus on health care markets broadly and alsoreimbursement levels, may lead to target widely publicized cases of product failures as well as corporate misconductuncertainty or delay in the health care industry writ large. The 116th Congress haspurchasing decisions of our customers, which may in turn negatively impact our product sales. If there are not adequate reimbursement levels, our business and results of operations could be adversely affected. Similarly, there are a much different Housenumber of Representatives than the prior 115th Congress,state and theselocal legislative and other political changes create additional uncertainty for all industries offering goods and servicesregulatory efforts related to medical professionals,drug pricing, including generic pharmaceuticals like ours.drug price transparency laws that apply to pharmaceutical manufacturers, that may have an impact on our business.

We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products or additional pricing pressures. The recent COVID-19 pandemic may introduce temporary or permanent healthcare reform measures for which we cannot predict the financial implication of on our business.

Our applications for the regulatory approval of our products incorporate the results of testing and other information that is conducted or gathered by independent third parties (including, for example, manufacturers of raw materials, testing laboratories, CROs or independent research facilities). Our ability to obtain regulatory approval of the products being tested is dependent upon the quality of the work performed by these third parties, the quality of the third parties’ facilities, and the accuracy of the information provided to us by third parties. We have little or no control over any of these factors. If this testing is not performed properly, our ability to obtain regulatory approvals could be restricted or delayed. In addition, if third party fraud or other recordkeeping problems are discovered after our products are approved for marketing, any government investigations or findings could result in any products that incorporated those fraudulent results having their regulatory approvals withdrawn. The recent COVID-19 pandemic may create additional risk and delays at our independent third party service providers.

Current economic conditions may cause a decline in business and consumer spending which could adversely affect our business and financial performance. Our operating results are impacted by the health of the North American economies. Our business and financial performance, including collection of our accounts receivable, realization of inventory, recoverability of assets including investments, may be adversely affected by current and future economic conditions, such as a reduction in the availability of credit, financial market volatility and recession. The recent COVID-19 pandemic may negatively impact North American economies, introduce extreme market volatility and potentially trigger a global recession.

If the U.S. economy rapidly contracts or expands, we may have difficulty quickly scaling our operations in response, which may negatively impact our business and financial position.

We will need to hire or retain qualified personnel with expertise in nonclinical testing, government regulation, formulation and manufacturing, sales and marketing and finance. We compete for qualified individuals with numerous pharmaceutical and consumer products companies, universities and other research institutions. Competition for such individuals is intense, and we cannot be certain that our search for such personnel will be successful. Attracting and retaining qualified personnel will be critical to our success. The recent COVID-19 pandemic may cause additional retention and recruitment challenges for the Company.

As required by Section 404 of the Sarbanes-Oxley Act of 2002, management has conducted an evaluation of the effectiveness of our internal control over financial reporting at December 31, 2018.2019. We identified a number of material weaknesses in our internal control over financial reporting and concluded that, as of December 31, 2018,2019, we did not maintain effective control

over financial reporting based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. For a detailed description of these material weaknesses, see Item 9A, "Controls and Procedures." Each of our material weaknesses results in more than a remote likelihood that a material misstatement of the annual or interim financial statements that we prepare will not be prevented or detected. As a result, we must perform extensive additional work to obtain reasonable assurance regarding the reliability of our financial statements. In addition, on March 15, 2018, we filed an amendment to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 and on December 12, 2018, we filed an amendment to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, in each case in order to revise and restate certain items disclosed in such reports. Moreover, other material weaknesses may be identified.

Although we report our financial results in U.S. Dollars, a portion of our revenues and other liabilities and our costs are denominated in non-U.S. currencies, including the Euro and Canadian Dollar. Our results of operations and, in some cases, cash flows, have in the past been and may in the future be adversely affected by certain movements in currency exchange rates. The occurrence of any of the above risks could cause a material adverse effect on our business, financial condition, results of operations, cash flows, and/or share price. The recent COVID-19 pandemic could potentially create incremental foreign currency volatility and increase our risks.

On December 22, 2017, President Trump signed into law the “United States Tax Cuts and Jobs Act,” or U.S. TCJA, significantly revising the Internal Revenue Code of 1986, as amended, or the Code. The U.S. TCJA, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations on the deductibility of interest and net operating loss carryforwards, allows for the expensing of capital expenditures, and puts into effect the migration from a “worldwide” system of taxation to a territorial system. Our net deferred tax assets and liabilities have been revalued at the newly enacted U.S. corporate rate, and the impact was recognized in our tax expense in the year of enactment. We continue to examine the impact this tax reform legislation may have on our business. We urge investors to consult with their legal and tax advisers regarding the implications of the U.S. TCJA on an investment in our common stock.

Total revenues increased 9%, or $5.7were $65.9 million in the Current Year compared to $65.9 million Current Year from $60.2 millionin the Prior Year.  The increase was primarily due to (i) increased revenue from the expansion of our own generic pharmaceutical product line of $1.6 million, (ii) increased revenues from our specialty generic injectable portfolio in Canada of $7.0 million, partially offset by (iii) decreased contract manufacturing revenues of $3.0 million.

Total costs and expenditures increased 12%decreased 9%, or $9.0$7.0 million to $81.0$73.9 million in the Current Year from $72.0$81.0 million in the Prior Year. Cost of revenues increaseddecreased as a percentage of total revenue to 66%64% in the Current Year as compared to 55%66% in the Prior Year. Cost of revenues increased $10.7decreased $1.1 million in the Current Year mainly due to $8.2 million increase from incremental sales volume(i) product mix with lower standard costs, (ii) favorable material revaluations in 2019, (iii) less impact of annual physical inventory and $1.9 million increase from incremental material price. Our rapid growth has contributed to some production inefficiencies, as we have expanded our manufacturing footprint(iv) lower direct salaries and capacity in topical manufacturing and have added sterile manufacturing capabilities to our facility. Costrelated costs inclusive of revenues included an incremental change in inventory reserves of $1.5 millionstock-based compensation related to inventoryoptions and raw materials that were expectedrestricted stock offset by increases to expireindirect salaries as the Company increased quality staffing in less than six months.2019 and depreciation due to the opening of portions of the new facility.

Selling, general and administrative expenses in the Current Year increaseddecreased by $3.5$2.6 million as compared to the Prior Year. The changes primarily consist of (i) $1.9 million impairment loss in the CurrentPrior Year, as compared(ii) $0.7 million decrease in salaries and related costs inclusive of stock-based compensation related to $0.1options and restricted stock, (iii) $0.8 million from the Prior year, (ii) $2.5decrease in bad debt expense and (iv) $0.4 million incrementaldecrease in other costs partially offset by an increase of $0.6 million in professional fees in the Current Year including ongoing legal litigation,fees and audit fees partially offset by (iii) a reductionand an increase of $1.2$0.6 million in bad debt related expenses in the Current Year.lease expense.