Q3 2020 ImmuCell Corp Earnings Call

Good morning, and welcome to the U.S, So corporation reported third quarter fiscal year 2020.

Results Conference call.

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Please note. This event is being recorded I would now like to turn the conference over to Joe Diaz from partners. Please go ahead.

Thank you, Greg and good morning, everybody on today's call a sales.

GAAP rate or indicated my name is Joe Diaz I'm with Lytham partners will be Investor relations.

Switching from Premier.

Yourself.

Column, you for joining us today to discuss the unaudited financial results for the third quarter, which ended on September 30, 20 Twond.

I would like to profit share on this.

Discussion today with a caution regarding forward looking statements.

Listeners are reminded that statements made by management during the course on this call include forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from debt was discussed today.

Additional information regarding these risks and uncertainties is available under the cautionary note regarding forward looking statements or the safe Harbor statement in the company's press release and its form 10-Q, which can be obtained from the FCC or by visiting the investors section on.

The company's website at Immucell Dot com.

With that said, let me turn the call over to Michael Brigham President and CEO will be me sell Corporation after which we will open the call for your questions Michael.

Thanks, Joe I appreciate the opportunity to provide some updates on what is going on at me. So thank you all for taking the time to join todays call. Just last night, we filed our form 10-Q for the three month and nine month periods ended September 32020, and issued a press release summarizing some.

On the key results.

That kind of rehash a lot of the detail that you can pick up from the Q on the press release, but I would like to highlight a few of what I see is a more important disclosures.

First as you May know on October six.

We issued a press release covering our preliminary topline sales results only.

We are doing that to give investors a very time, they look at what I view as the most critical measure of our operations and financial performance early on the reporting period.

There has been no change to those preliminary numbers product sales were up 25% during the third quarter that follows on a 9% increase during the second quarter of 2020 on an 11% increase during the first quarter of 2020 products sales were up 15% during the nine month period ended September 32020.

And they were up 17% during the trailing 12 month period ended September 30 2020 all.

All the increases that I have just described are in comparison to the same period a year earlier. This growth is really exciting for us and it comes with consistent market share gain as well our sales team has been focused on disrupting the traditional scour vaccine market by replacing very old vaccine technology with our preferred.

Good day antibodies are.

Our production team is working hard to catch up with that demand.

We had a backlog of orders worth about $945000 as of June Thirtyth.

Reed, we reduced that to about 130000 as of September Thirtyth.

As market demand for first defense continues the street strength and meeting that demand is a good problem or challenge for us to have.

Plan to increase our production capacity first to 23 million per year, then later to about 30 million per year.

As discussed in detail as projects see in the 10-Q under the liquidity and capital resources section of the Mdna the heavy lifting on this project.

Being the renovations to our new formulation fill on packaging facility at 175 industrial way is complete and it is fully cgmp compliant with good material equipment and people flows a nice clean up both surfaces and rooms.

We are now implementing the work.

To increase our liquid processing capacity by 100% and our freeze drying capacity by 50%. This work is being carefully coordinated to minimize disruption to our ongoing operations on product supply.

We expect to fully realize the benefits of this expanded production capacity beginning in the second quarter of 2021.

That's moved to gross margin you can find a detailed analysis of gross margin in the 10-Q under the results of operations sections of the M. DNA, we achieved a 46% gross margin during the third quarter that is a three point improvement over the second quarter.

We're working hard on several fronts to try to improve this important measure the two leading causes for the increase in cost of goods sold.

Are the product sales mix shifting to gel tubes, and biology first gel tubes are more expensive to make then the legacy capsule product format. The Joe pace format produces a higher gross margin on a dollar basis on the capsule and we're selling a lot of those tubes.

Second as we increase classroom collection to support increased production, we need to work with new accounts that have not seen our proprietary vaccines yet the biological yields should increase as these accounts come through our program. The second time, spreading our fixed and relatively fixed costs over higher production volumes should improve.

On this going forward.

Next I am very happy to report the reason we were seeing some really good news from the federal government on.

Our paycheck protection program alone of almost $938000 has been fully forgiven. This income will be recognized during the fourth quarter. We have disclosed this in the subsequent events footnote number 20 as well as in the press release.

As we all know the COVID-19 pandemic.

Continues its unprecedented just disruption of the global economy and lives around the world and it challenges our employees on our operations and they may sell on many different ways.

We have not lost significant time in production due to the pandemic, but everything is different our dedicated production team has been flexible on creative pushing first defense production and facility expansions forward.

The government funding has allowed us to move forward with our expansion plans without significant interruption and operate our business without furloughs or layoffs in fact, we've been hiring.

Funding has helped US continue production at such an intense pace.

As safely as possible during this unprecedented time.

Smoothed a product development expenses, which continued to be our largest operating expense line item I.

I think it is important to look at the impact of non cash expenses.

On this line item depreciation amortization and stock based compensation comprised about 38% of our product development expenses. During the nine month period ended September 32020, most of the depreciation charge or charges result from the nice on drug substance facility, we've constructed and the related.

<unk> production equipment for retain.

I'd like to talk a little bit about retain it it's been a long and expensive road, but we are nearing completion of the work required to achieve the FTC approval of this novel Subclinical mastitis treatment for lactating dairy cows, we have disclosed our best thinking and specific details about the final path to market launch of retained.

In the 10-Q under the results of operation section of the Mdna. It all comes down to achieving approval of the manufacturing technical section.

Which is known as the chemistry manufacturing and controls or CMC technical technical section.

This is the last of five technical sections required for product approval.

We are on track to make our first submission of the drug substance and drug product CMC technical section before year end. This kind of submission is subject to a six month review by the FDA that puts us at a huge fourq on the road near the end of the second quarter of 2021.

If the FTC has questions for us we could be required to respond through another submission, which will be subject to another six month review, we do not anticipate that ended and additional submission after that would be what would be required. Therefore, we are making plans from market launch during the first quarter 22 cents up 2022, well also developed.

On a flex launch plan that could that we couldn't act sooner if if approval comes through during the third quarter of 2021.

The path to market will clarify as we progress the next submissions.

Lastly, I do focus more on cash flows and on our GAAP net net loss at this stage on our development page four of last Night's press release provides a look at the impact of all non cash expenses on our financial statements. This is an important metric to consider on understanding our cash flows but the most important.

Measure is the statement on cash flows in the 10-Q.

So in conclusion I encourage you to review the form 10-Q, and the press release that we filed last night.

Also please have a look at our corporate presentation on slide deck in November update was just posted on our website last night I, but I believe it provides a very good summary of our business strategy and our objectives as well as our current financial results. So just see the investors section of our web site <unk> and click on corporate presentation.

With that said I would be happy to take your questions. Let's have the operator open up the lines. Thank you grant.

We will now begin the question and answer session to ask a question you may plus stars on one on your Touchtone phone.

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At this time, we will pause momentarily tests on Boston.

Hi, Dan you'd like to ask a question, let us start on one.

Our first question today will come from Sam Rebotsky with SCR asset management.

Please go ahead.

Good morning, and congratulations on my goal.

Hi, I'm.

I'm excited to see the submission.

Yep the day.

Before this.

December Weve, presumably tested many many times.

Is there any need to mid earlier than December 31, or how do we look at the time of submission.

Yeah.

There is a need but it won't go until it's ready I mean, the sooner the better but there's still a little bit of work to do a lot of that has to do with stability. So you know a lot of this is just time time.

Time passage he got to submit was a certain amount of stability on this product, but I think what Betsy Williams, our VP of manufacturing operations is done with the team to set this up.

The whole science team, Joe Crab Johnson Crapo, there's many others, they're all push on this as hard as possible on <unk>.

Yeah, I think our position was just just hold that line and get it in this year, but get it in right.

And Oh, okay.

Ah that's it.

It's a long time coming and exciting to hear that ER.

And as far as the money from the federal government <unk>, that's good too that will improve the balance sheet.

Also that was that pretty much from boiler plate or did you have to spend any time explaining or.

The process that you filed or how did that go yeah Sam.

I I would not I I guess, maybe boilerplate, but I don't I think we just had to spend a lot of time, explaining I mean, I guess, what I'm trying to say is our application was pretty straightforward, but I never take anything for granted it was so important for us to achieve that forgiveness as much as I was confident we would get it it's not.

On until it's done and I I R application was a simpler than many and maybe that's why we're sort of at the from the front tier of the forgiveness pipeline.

Pipeline here with other companies you know, it's not been forgiven yet because we were just a 100% payroll. So we didn't even have to get into.

You know rent and mortgage interest and overheads and supplies and different qualified expenses. We just said look this is a paycheck protection program.

We're 100% payroll I think that may have helped us.

Well I think that may have facilitated the the application going through.

Okay, and our as far as try Shield then of first defense what are we able to increase the sales in the current quarter from the September quarter.

Oh.

We have finished basically completed the backlog and are we able to increase the sales.

Based on some man.

Yeah, I mean, so that product it continues to see great demand I'm really happy.

To see what's going on there the dairy industry is having some good reasonably good economic measures like milk price is very strong right now so that's good for our customer what's good for our customers. Good for US ultimately we'd report those results early just like we did this quarter. So say you know January.

Sorry, 567 somewhere in there we will get a topline number together in a Plymouth free press release, obviously way way in advance of the yearend audit and the full TNL, but I I would like to continue that practice I think it's my best way to answer your question on.

On the most a timely basis possible.

Well, that's wonderful and Oh, we prepared a yet to do any further shipping selling of Ah first offense and try shield overseas and when do you think that would happen.

Yeah I appreciate your interest there you've definitely kept us a focused on that goal, but we've been a little careful I mean, I don't want to get some distance from this backlog before we open up new markets. So.

He brockmann, our VP of sales and marketing has done a great job on qualifying certain new markets on this and it new international markets, but.

They're gonna be stays a little bit they're gonna be paused, a little bit later, and a 21 and into 22 I want to make sure. We've got North America totaled.

Totally covered totally out of backlog with some buffer stock before we we create that you know that extra demand.

Through new international markets beyond the Japan, and South Korea, where we are today.

Well, congratulations and let so the goal would keep getting better.

That we improve everything and and everybody should have <unk> not this year next year, a happy Thanksgiving and.

And happy holidays.

As sad sad to look at it that way, Sam, but I think you're right I'm staying put this year.

They stay on stay safe, let's get through this all together.

Yes, good luck, everybody all Emmys image, so shareholders employees and everybody. Thank you bank of Sam very nice.

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Yeah on the Seattle question today, we ask that you Press Star then one.

Star then one ask your question.

Our next question will come from strength Casper, who is a private investor.

Hey, Scott.

Yeah, Mike like.

Gross on net sales.

Okay.

Could you on thanks, Frank a good day.

Yes, yes, it's been a while yeah could you [laughter].

Can you maybe gifts.

Give some idea as to.

Once a farmer.

Those debt each channel or how did you know that his channel has subclinical mastitis and how does it.

Progressed from you.

Okay.

True what chain of events.

Well to the first part of this.

As far as the sparkling.

Monitoring somatic cell counts on the milk I know, there's been watching on accounts behavior, so their temperature <unk> and and the quality of the milk or the low level of somatic cell counts in the milk.

I don't know if I quit on stood the second part Frank how does it progressed to us.

Yes, yes.

<unk> <unk>.

That's all right now that he knows.

Now let me ask did she does.

The bond on most specifically, which channel what are they doing a ball cash on.

The should not shell cash.

Well, so they'd be doing both so they'd have an idea of their herd health level and then they have specific how I d.. So I guess from catching up to your question. Yeah. We we would want them to be watching and actually selecting the highest somatic cell count cows. These are cows that are otherwise healthy either there either.

Moving there they're moving with the heard there are not often a sick kal Penn, they're being built but they're becoming sick, they're not producing as much smell and on is producing the highest quality milk. So we want to find those cows select them for treatment you know before <unk>.

Two one before they get sicker and too so that we can improve their quality of milk their quantity of milk production you know.

As soon as they pick them off those those.

Those heard checks.

Once no.

[laughter], what does that how does the farm or get your product.

Into he changed it just goes by.

Or is there.

Some kind of veterinarian.

Oh.

Yeah change yeah. It it's a very it's very much we're not recreating that part of the practice. So it's it's what's what they're doing today is a it's a our delivery our two bar syringe looks very much like the <unk>. The common EBITDA antibiotics that are on the market today.

So they know how to go to the fridge grab that too it's a simple in fusion in to the t. to opening up.

They would just be infusing the nice N. The retained products instead of the one of those traditional antibiotic products, but otherwise you know very similar mode of delivery.

The the the infusion and they're very familiar with that and.

Pretty simple to do.

No I just one more thing yeah, you're right on.

Hi gently.

So you have two major suppliers cash.

Lets Cindy on 10-Q.

Net you sell to <unk> on how you envision slaying.

Oh into this launch.

A huge role.

Down the road initially maybe a pretty small role as we get started.

But but ultimately is just just like first defense all of our first offense goes right through distribution and you're right MW I N animal health International are there.

Two biggest for us on there are two big on the two biggest for I think for all animal health manufacturers. They just have so they just have a network throughout the country.

So you know it's really just the same people the same network the same warehouses as as first defense moves through so we'll retain.

And that's all that I had like and again congratulate everyone and.

I have been following warm and yourself on quite some time, yeah, you got a great.

Oh, well wash there. Thank you I agree I agree greatly Frank Thank you so much for that.

Again, if youd like to ask the question. It is starts on the one Star then one ask your question.

All right well there being no further questions on this.

On the swaps include our question and answer session.

I would like to turn the conference back over to Joe Diaz for any closing on one.

Hi, Thank you grant and thanks to all of you from participating on today's call we.

We reported talking with you again.

We view the results from the fourth quarter on fourth quarter 2020 sometime in February of 2021 have a great weekend, please take shape and well. Thank you.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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