Q2 2020 ImmuCell Corp Earnings Call
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Good morning, everyone and welcome to the Immucell Corporation reports second quarter fiscal year 2020 financial results Conference call.
All participants will be no listen only mode.
Do you need it [laughter], placing all conference specialist by pressing the Starkey followed by zero.
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There's also no tease that out as being recorded and at this time I like to turn the conference call over to Joe Diaz, let them partners. Sir. Please go ahead.
Hey, Joe are you on mute maybe.
And ladies and gentlemen, I believe the we're having some technical difficulties here with Mr. D. as his line one let me while we rejoin line.
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And ladies and gentlemen, we have Michael Brigham and bring them on Hawaii, and I will be starting the floor over to him. Please go ahead Sir.
Hi, good morning, everybody, sorry about that glitch I'm not sure what happened out Joe on them line a minute ago I just read is intro real quick and get right down to the business here.
So we just want to preface this discussion with a caution regarding forward looking statements listeners are reminded that statements made by management. During the course of this call include forward looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those just discuss today. Additionally for me.
Jason regarding these risks and uncertainties is available under the cautionary note regarding forward looking statements are safe Harbor statement in the Companys press release in its form 10-Q, which can be obtained from the as you see or by visiting the investor section of the company's website.
So with that introducing myself I'll jump right in.
I am Michael Brigham President and CEO of immune cell Corporation. Thank you all for taking the time to join today's call I do appreciate that.
As you May know last night, we filed our form 10-Q for the three month and six month periods ended June 30, 2020, and issued a press release summarizing some of the key results I'm not going to rehash a lot of the detail that you can pick up from the Q.
And the press release, but I would like to highlight a few of what I see as a more important disclosures.
First as you May know, we issued a preliminary press release covering our topline sales results only on July 7th.
We are doing that to give investors a very timely look at this critical measure of our operations. There's been no change to those preliminary numbers product sales were up 9% in the quarter over same quarter. Prior year product sales were up 11% for the six months ended June 30, 2020 in comparison to same period prior year and product.
Sales were up 19% for the trailing 12 month period ended June 30, 2020 in comparison to the trailing 12 months ended June 30, 2019, we had a backlog of orders worth about $945000 as of June Thirtyth that is down from about 1.4 million as of March 31st we are working.
To complete the 3.5 million dollar investment to increase our production capacity.
The first phase of the project is complete we have moved our capsule assembly operations out of 56 evergreen into their renovated space at 175 industrial that commercial production is now going very well 175 second phases installation of the increase freeze drying capacity at 56 third and final phase.
Moving to gel formulation operations out of 56 and over the 175, and then doubling our liquid processing operations at 56, we're on track to complete the latter two phases of this investment before year end.
Let's move to gross margin you can find a.
Detailed analysis of gross margin on page 28 of the Mdna section of the form 10-Q gross margin gross margin dollars are up in all periods reported however, gross margin as a percent of sales was down for both the quarter and the six month period.
In comparison to the same periods during the prior year.
The two leading causes for this increasing percentage of sales are gel tubes, and biology first gel tubes are more expensive to make then a legacy capsule format, but we are selling a lot of them.
Second as we increase classroom collection to grow production.
We need to work with new cows that have not seen our proprietary vaccines yet the biological yield should increase as these cows come through our program. The second time. So we do expect to improve this gross margin percentage overtime, but our first priority right now is increasing the total dollar amount of gross margin.
Product development expenses continue to be our largest operating expense line item I think it's important to look at the impact of noncash expenses depreciation and stock based compensation comprised about 39%.
Of our product development expenses during the six month period ended June 32020.
Most of the depreciation charges result from the drug substance facility, we constructed and the related production equipment for retain.
Obviously the initiative to bring retained to market is very expensive. We are proceeding on plan to make our second phase submission of the CMC technical section to the FDA during the fourth quarter of this year, which will be subject to a six month review by the FDA.
I do focus more on cash flows in our GAAP net loss at this stage in our development page four of last Night's press release provides a look at the impact of all non cash expenses on our financial results. This is an important metric to consider in understanding our cash flows but the most important measure is the statement of cash flows on page four of the two.
Thank you.
Lastly, let me comment on the Covidien 19 pandemic. This situation is tough on everybody and tragic for many.
We are doing okay. So far man has some pretty low infection rate data, we have not lost significant time in production due to the pin them back pandemic.
But everything is different our dedicated production team has been flexible and creative pushing first defense production Ford our sales team has been able to pivot to stay safe and be successful at a time of reduced traveling from visits.
In almost all trade shows have been canceled.
We are grateful to be ahead of last year sales pace.
Well, we're not achieving our budgetary objectives.
So in conclusion I encourage you again to review the form 10-Q, and the press release will be filed last night also please take a look at our update a corporate presentation slide deck and August update was just posted to our website last night I believe it provides a very good summary of our business and objectives as well as our current financial results.
He invested so you'll see the investors section of our website and click on corporate presentation.
That with that said I will be happy to take your questions, let's have the operator open up the lines.
Ladies and gentlemen at this point, we will begin the question and answer session.
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Good question.
And our first question today comes from.
Nathan Weinstein from annual capital. Please go ahead with your question.
So good morning, Michael Congrats on the quarter and thanks for taking my questions I'm. So just firstly here I coming through and unprecedented first half can you talk about the general financial health of your cost names.
Yeah. Thanks, Nathan good morning.
It's a crazy right.
I think maybe the simplest metric to follow his milk price class three milk price extremely volatile. So some may know back in March.
Producers were dumping milk, there was simply no place to put it no place to move it was being dumped.
On farms that mill price that I that I track, you know drop down to a really low level of like $13 $12. During the April may period, and has rebounded very significantly here in may and June the July price $24.54.
I I have a chart. The tracks is back to 1980, it's the second highest price only lower than a September 14 high by six pennies I mean, it's it's it's an all time high so the milk price is strong and that that that that that's a leading indicator for.
Good good economics on the dairy, but I caution because they think is high now and it just it's likely to continue to be variable. So so far so good I think we came through the worst the March April July looks great but.
You know I I am concerned about the volatility, let's see what August September balance of the year does but at the moment pretty darn good.
Great.
Thank you Okay. That's helpful and and next if we could just trying to the product side between the commercial stage products first offense, and then thinking about retain which were anticipating I'm in the future and can you maybe just compare and contrast, those markets in terms of their size and any discussion just comparing them. Please.
Yeah. So first if that's the that's defined the two products maybe a first defense for the Caf retained for the cow first defense the product we've been selling for years, preventing scours or diarrhea in the newborn.
So so.
That market I've defined you know I think pretty well I'm not going to refer over to a slide in our deck, because we've kind of look at that that market in two ways. So if people have a chance to look for this specific answers 17, 16 17 18 of the slide deck, how are we doing against two to two markets one the products.
Scitor given to the Caf. So there are other products are given to the baby.
We're growing there and then the products are there they're vaccines given to the mother <unk>.
For the expectation that she'll produce better call aastrom to be fed to the babies now we compete in that area too because we know those vaccines are really variable. The response to those vaccines is going to be variables. The quality of the classroom is gonna be variable, we know that as well or better than most 'cause. That's our production every batch we make is variable of course, we equalized.
For that in our fill rates so the caf getting our product gets measured dose.
But.
Yeah. Those are the two markets, we compete with and we've got a lot opportunity that that that that damn level vaccine is much bigger.
Then the cap level.
Thank you great and I guess, just one more for me if we're thinking about the model if and when reaching comes to market. How can the president of that product in their portfolio impact maybe seasonality in European L and also margins.
Thank you it kind of drop the second half your question. So retain them is for the cow. This is a very novel treatment for mastitis subclinical mastitis novel, because it's not a traditional antibiotic novel, because it's going to be the first and only.
Product that can be delivered without just milk discard requirement in other words when he was down about actually got to dump the milk because of the residue in the milk our product will have a zero milk discard claims so a new entry there and into a different way of treating mastitis, but to seasonality you know first offenses varies.
Seasonal our beef business is extremely seasonal all those calves are born early in the year say February March April.
And the a and on them on the mastitis on the retain side. It is going to be more mastitis is present throughout the year. Its Nazis, there's not a seasonal like a beef calving season.
So that that retained will give us a level or a.
Sales profile through the year.
Okay. Thank you Michael Thanks for taking my questions Hey, Thanks, Nathan no problem at all good.
Our next question comes from Sam Rebotsky from as he our asset management. Please go ahead with your question.
Good good morning, Michael Hi, how are you is getting through this cold winter.
Hope everything is going well there.
Oh.
Okay. Thank you.
They are on the retain which we expect to submit it's basically.
<unk> delay the December is that the latest will submit the read change to the F.D.A. is that what our expectation is at the moment.
Yeah, they definitely as our goal at this point you know it's achievable I mean, there we could have a surprise it wrong. This final path here, but now all all efforts between immune cell in our contractor Oh everything we're doing here is geared towards fourth quarter submission.
As you know Sam that's that we didn't to get it in the five technical sections for a complete this is the fifth.
We get it in it goes for a six month review and minimal really a you know where we are as far as timing of launched because they're either going to come back with complete and we can launch are they going to come back with questions. We'll have to resubmit for another six months.
To start a hockey fourth quarter submission.
Okay, and usually when Lonza submitted the F.D.A. and got the zero discard <unk> <unk> are we producing 10 times or what kind of percentage.
<unk> times more material resubmitting than we initially submitted to the F.D.A.
Yeah, Hi, Sam I'm little confused bonds and.
Really in I mean, they were involved as a potential.
Drug substance manufacture many years ago, but no submissions were ever made with Lonza I'm guessing you might be referring to our <unk> with this final section called CMC chemistry manufacturing controls.
We have broken that down into two parts. The first phase in the second phase is that is that the is that <unk>. Yeah. My understanding is you first admitted to the F.D.A. and they said, yes, you met the zero. This card and now you have to submit a larger quantity.
Production and I'm, just trying to determine how much larger is the production and generally speaking well you you will.
Have somebody on the immune cell site before you submit and make a judgment that didn't meet the zero discard before you submitted to the F.D.A.
Yeah, it's really too I think we need to separates two different question. So human food safety one of the completed for technical sections that that drove the zero milk discard claims. So that's been complete for a while that was you're right based on small quantities you know everything up until this CMC was based on sort of research.
Her at scale.
Human food safety completed there in the third quarter of 18. So all four technical sections were small quantities. The fifth technical section is basically the FDIC, saying I do the same make the same product that make it at commercial scale. That's been the whole objective that's a huge investment in the facility the drug substance facility for the fifth technical said.
Action, So that first phase submission. We went ahead and submitted in drug substance and said hey, how to look at that.
They came back and complete they had some questions we expected incomplete because they hadn't seen drug product, but it got to you know moving down the path at CMC. So the submission. So when we submit the second phase drug substance and drug product the nice thing and the nice and filled in a syringe we will be response.
Into their questions to the drug substance first phase submission and will be completing you know that the submission with drug product produced at commercial scale.
Okay that sounds very exciting no one more thing relative did try shield first defense, we had a backlog and we've reduced the backlog and we're waiting to produce more when the facility is available when is that when do we expect that facility.
To be available and Oh Wow, how much more production can we do currently as we could increase sales, even though we reduced the backlog and ER. So we could.
Need all the ER I think it's the 27 million or 18, whatever the number of currently and then increased production and and hopefully sell more internationally.
So that's my question relative to the try shield first defense, Yeah, you're getting started to that three staged investment that I described so you know the first phase was getting that assembly capsule assembly out of 56, evergreen because we needed to create space and this facility for the adjust.
No freeze drying capacity. So objective one is complete we've made the space as we speak where the final stages of getting that new freeze dryer final construction ship install validated up and running in the next few months everything in it and then second and third phase and as soon as possible <unk>.
Cleated as soon as possible in this year.
Freeze dryer will come first and that is critical what we need to do is push.
More products through the freeze dryer so.
It happens here in the you know and a third beginning of fourth we get we get everything we want it we get the additional freeze drying capacity up 50%.
We get the additional liquid processing capacity up 100%. So that's where that investment is wrapping up a you know it just it was all its its triggered and those three steps and there.
We're pushing them, it's the sooner the better that's how we get out of backlog, that's how we turned the corner.
Michael It sounds very exciting I'm looking forward to meeting all our milestones for him yourself to meet the milestones and looking forward to Oh.
Reward at the end to the day good luck Oh, thanks for the patient Sam and I appreciate it. Thanks.
Once again, if he would like to asking a question. Please press Star then one so it's all your questions you made press star in two.
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One final opportunity to ask questions. Please press Star then one to join the question can you.
Star and then choose to remember yourself from the Q. Our next question comes from Tom Box. Please go ahead with your question.
Good morning. Thank you for taking my question, it's about subclinical mastitis casting.
Correct me, if I'm wrong here.
In order to detect subclinical mastitis, you need to pass for it. So I have a two part question one what percentage of farmers actually cause for sub Grandevo mastitis and two of the ones that no.
Would there be I learning curve.
Cool learn how to cause for or as a public that but still you can to collaborate on all that thank you.
Yeah, It's a great questions really important question because I know a defined you know launch rate here of this product because it we are entering into a.
Sort of a new way of thinking so you're right a lot of these cows. These producers and know that they're sick.
They're walking around sick, hi, somatic cell counts, that's measurable, but they ignore it because the milk is still salable.
So our objective our art are what we need to do is come in and and find these help the producers findings cows and show the benefit the reason <unk>. The main reason, they're being ignored and again.
Those are sick, but you can sell the milk.
Right and they walk around sick.
We will come in yeah, we help them and I said, here's the benefit you you've been ignoring that cow because you knew if you treated or you have to dump the milk.
Now don't anymore, it's bad for the animal Jaffe bad for your mill production bad for your.
Quality quantity treater, because you no longer half the dumped that milk so.
You know it's it's it's that's that is one of the biggest objectives or you know.
For the <unk> for the launches, we're creating we're creating a new markets. So we got to do it there's a lot education, that's going to need to go on here.
And I was just trying to reference one thing in the queue for you.
A more detailed answer.
With me one second.
So there's a there's a risk factor if you will it's 38.
39, they think is very relevant to your question.
These are the things that we need to overcome.
Sorry, I meant the wrong referenced just struggling to find it.
I can follow up there I don't need to hold up other people that are.
Here we go.
Sorry. Other finally, it's not 38 37 uncertainty of market size and product sales estimates I mean.
That's our answers. Your question you know there that's that's what we have to do we have to.
Create awareness and create a demand for this new way this new this new NEWP new treatment paradigm.
So are you, saying the the they do not have <unk>, maybe I didn't catch this when you answered it but are you, saying that they do not have to test for subclinical mastitis. They don't have to obviously will be showing the benefits to why you should they.
They all have somatic cell count measures. So they can see an indication you can culture anytime you want we have to create the.
Demand for culture, and using more cultures and using more smac cells and not ignoring you sell these accounts. So it can be done it's just not done because you know.
What are you gonna do with result, right now that could get a result yep. She so quickly in fact, if I'm not I'm gonna treater.
Oh I need to sell the milk so that's the paradigm shift.
[laughter].
Okay that answers my question. Thank you very much thanks, Tom Yeah.
Once again, if you would like to ask a question. Please press Star then one.
With all your questions you May press Star and you.
Canada Star then one last question.
And our next question comes from Brad Mccartin Bromine Securities. Please go ahead with your question.
Thank you Hey, good morning, Michael and as always thank you for them.
All the time, you spend with us to help understand the process and the products and everything else you really really wonderful it at explaining these giving us time to ask questions I appreciate it.
Just I had two questions one I just wanted to follow up in the prior question.
About the testing in education, and then secondly wanted to ask you a little bit about the label in process for.
At night.
Nice in product from that stage on on the yeah, Hi testing situation.
Do you ever on test kits or is that a third party for them and what's how do you plan to get the test kits engine here, it's not our product how do you plan to get that test kit in farmer scans at a reasonable pricing and educate them on how to do the testing you have a partner out there who who manufacture seizures distributor.
Yeah, and Brad Yeah. Thanks, its third party that does that is not our business.
Yeah, we do sell this CMT this California mastitis tests. It basically helps you identify which quarter of the four or in fact, it but the culturing is done by that's the smack cell count is done by your your milking system. These these tests exists there's a couple of different vendors the kind of dominate the space and we're going to help them.
So more of their product.
Sure. So I mean, it involves a bit having commodities nothing you can do yourself that has term hours. So yeah. There are some on farm Coltrane, there's a smartphone testing that can be done some are sent back to the labs. So it's a it's a it's a mix.
But yeah. The some attic cells is all on farm is right off the locally.
And what's what's the timeframe. It did the car will be be using our product before it. It is recovering I realize you described it's not really an issue in terms of that but no production goes down quite a bit when when it has mastitis and so I'm wondering how long it takes to build that back up.
Good.
Well the treatment is three successive milk things. So some farms are doing.
Three milligrams a day, so they're done treating in one day and they're going to see that recovery you know over the next few milking. So it's it's pretty it's pretty quick but you've got to get through a three successive milk things for milking twice a day, it's a day and a half.
And you know that that's that's a treatment period on the their response or the he'll or the correction is right after that their treatment.
Okay versus the antibiotic alternative is what a couple of weeks.
Well right now so yeah, no that you're going to see a response, a quick but you're going to see discard anywhere from 24 to 96 hours. So I think when we when we compare retains a traditionally our box will be comparing.
Not so much I don't think the response rate, but the the discard period. So yes, you maybe getting a response, but it doesn't matter. If she is healthy after that last infusion of antibiotic you still are discarding for up to 96 hours.
And when you use the term up to what determines whether it's 80 hours. You're 96 do you have to keep testing for antibiotic I'm not sure eats each product is is issued a with a label and okay. We'll restrictions so it's a product by product specific.
Got it could slide on that if you don't mind, Brad because we just try to answer that question a little bit in the deck.
If you have chance look at slide 25 to the kind of laid out some of the products and some of the discards.
Yep, Okay, but each one is well, it's probably by label byproducts.
Okay.
And then the other question I wanted to ask is is the labeling process has that begun yet but at the age.
Yes, yes, sorry, and that my reference should have been to slide 26.
On the discard periods. Okay. So yes, that's established you know that was established or.
In in those other for technical sections, So they've issued a draft label it still needs to be finalized, but what we needed to know to proceed with the drug substance investment is that our label was was satin agreed as far as the breadth of claims and as far as a zero milk discard so those for technical section sort of establish that.
And then it's about manufacturing and they will come back on the N. and detailed a final label, but we've established what is critical as the bugs it'll be labeled and zero <unk> milk discard that will be labeled.
Okay is that something that can be made public.
Yeah. It is Oh <unk> their label is yeah, there would you ever that claims right in my Q.
In the current Q.
Yeah as far as the yeah. Those two key things are they the there with anyone second.
[noise] shoot.
I'm going to need to find it but yeah, we when we call out the effectiveness sorry page 29, there's a review of the five technical sections and the label.
Of the Bugs was establish under my number three and the zero milk discard was established undermine number four on page 29.
Okay. Okay.
And I. It are you taking us to yourself, you when Joe or where you have a side to help helping you with this year.
My role as a is limited I encourage the a experts. This this submission is led by quality established gossip Skava led by production VP Betsy Williams and the like you mentioned, Joe Crab and our director of PD is well Johnson craft that said the for them or they are the leads.
We we do access consultants, but but we we drive the process we drive we make all the submission.
Okay. Okay.
And so he did you have a timetable in all then for this educational piece that you referenced on the on the prior question.
When you play into that because right now what kind of looking at June Thirtyth <unk> of 2020 2021 as being a date when hopefully we can start going forward for commercial sales.
Yeah, you've got to you know you've got to be ready for that it'll be a little you know six months is the review period. Then there's still has more to do after that Theres, a 60 day administrative review.
You know once you get to complete letter I'm, so you're looking into July or shortly thereafter.
Oh, we gotta, we got to jump in its either start that you start that prelaunch marketing.
In the beginning a 21 and you know hope that it's needed for that first time complete if not your six months ahead. You know you started the education and you're not able to sell something for for another submission you know for another six month review period, but yeah present. It moves forward here. The end of this year beginning of next year, our sales team to begin.
Tends to multi task.
Yeah first defense and retain.
Yep.
And it and at what point do you begin manufacturing [noise].
Well, we are so we have to be manufacturing to complete the submission. So we are manufacturing today, Oh wait that a drug products submission and then as it ramps up into 21 as you begin to build product for for a launch.
Right. So definitely I was apparent on that plant is operating commercially right right now not at full capacity, but then yeah.
Yeah, but that's mostly for submissions correct. It's not you know that product. We hope that we you know depending on timing and shelf life exploration, but some of that would you know it would be salable.
It wouldn't be saleable till after the approval, but it would need all the requirements. So.
We hope some of that will be our initial launch quantities.
Yep shelf life is how long from manufacturing date.
Shelf life, Yes, I mean, it's I guess you had to 24 right now I mean, there has to be reviewed and finalize an approved but.
I hope it's up to 24.
24 months 24 months sorry, thank you.
Yeah, Okay. Okay.
Okay.
Sounds good <unk> do you plan to scale up on manufacturing prior to approval will not until you get approval.
Yeah into Internet restart scaling up next year I mean, we're not going to go to full capacity, but it'll be a scaled up process. So we.
Well, we've prepared on the optimistic of you know a third quarter 21 launch or with some product.
So you do you think you'll start scaling up manufacturing in the second quarter or not until they get approval or I'm just trying to.
Yeah. So we haven't got worse or manufacturing today, and we'll continue to me interactor right through to launch it'll just be at at Inc. increasing rate.
But yeah. It's just a question of urea plant is running the question is do you did you know how many times per month you run it.
Yeah Okay.
Well. Thank you is always Michael you're very generous with your timing and answers on here and it's it's it's great. Thank you Hey, Brad. Thank you appreciate that very good yeah.
And ladies and gentlemen, without we reached the end of today's question and answer session I'd like to turn the conference call back over to Joe Diaz for any closing remarks.
Thank you Jamie and thanks to all of you know participating in today's call. We look forward to talking with you again to review the results.
<unk> 2020 during the week of November mines.
Great ended the we stay safe and be well like you have a good day.
And ladies and gentlemen went that will conclude today's topic probably be thank you for attending you may now disconnect your lines.
[noise].