Q1 2022 ImmuCell Corp Earnings Call
Good morning. This is Andrea from chorus call I will be assisting with your conference call. This morning to get things started let me ask Joe do you have to open up the call.
Thank you Andrea good morning, and welcome to everyone on the call. This morning.
My name is Joe Diaz with Lytham partners, we are the Investor relations consulting firm for them yourself.
All of you for joining us today to discuss the.
Financial results for the first quarter ended March 31 2022.
I would like to preface this discussion today with a caution regarding forward looking statements.
As a reminder 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 discussed today.
Additional information regarding these risks and uncertainties is available under the cautionary note regarding forward looking statements or the safe Harbor statement provided with last Night's press release and with our Form 10-Q for the quarter ended March 31, 2022, and with the company's other periodic.
<unk> filings with the SEC.
With that said, let me turn the call over to Michael Brigham President and CEO of <unk> Corporation, after which we will open the call for your questions Michael.
Great. Thanks, Joe and good morning, everyone. We have some great stuff to talk about today, so let's get started.
The press release that we issued last night summarizes the unaudited financial results since that information is available to you I will not take your time here to review all the line item detail, but I would like to discuss some of the highlights.
Our efforts to scale up our production capacities and capture the acceleration in demand for first defense is paying off sales are up considerably and we are making big strides in reducing the amount of the order backlog.
As you May know on April 11th we issued a press release covering our preliminary topline sales results. We have been making these optional announcements to give investors a very timely look at product sales, which I believe is the most critical measure of our operations and financial performance early in the reporting period I have no changes.
So that very strong previous disclosure again product sales were up 46% during the first quarter of 2022 and up 45% for the 12 month period ended March 31 2022.
In comparison to the respective periods of the prior year.
That is a 6.6 million dollar increase in sales during the 12 month period ended March 31, 2022 compared to the prior 12 month period ended March 31 2021.
So we are beginning to capture the benefits of our strategic decisions to invest more in sales and marketing expenses and to expand our product line.
This sales growth is happening as we continue to manage the backlog of orders prior to our introduction of the newest extension of the first defense product line in late 2017, namely first defense Tri Shield annual production capacity of about $16 5 million was adequate to cover sales promptly.
Without an order backlog.
However, our world changed with the introduction of Tri Shield, we have been investing millions of dollars in capital expenditures to increase our production capacity. This kind of significant investment in real estate manpower and equipment does take time, despite all the orange urgency and energy our team puts into it the objective of the firm.
First phase of our production capacity expansion, which was initiated during 2019 was to increase our annual production capacity from $16 5 million to 23 million. We have achieved that goal with annualized production output being just about $22 9 million during the fourth quarter of 2021.
And about $23 8 million during the first quarter of 2022.
Given our sales of approximately $21 1 million. During the 12 months ended March 31, 2022, with an order backlog outstanding as of March 31st I feel confident that we made the right decision during the second quarter of 2021 to initiate an additional capital investment to further increase our annual.
<unk> capacity to about $35 million by the end of this year that work continues as planned.
The gross margin as a percentage of sales improved to 52% during the first quarter of 2022 compared to 39% during the first quarter of 2021, our gross margin percentage was 49, 5%. During the six month period ended March 31, 2022, and 48% during the 12 month period ended March 30.
One 2022.
The higher level of sales and improved gross margin helped US report net income of $736000.
During the first quarter of 2022 in contrast to a net loss of 441000 during the first quarter of 2021.
Earnings before interest taxes, depreciation and amortization or EBITDA increased to $1 million 434000. During the first quarter 2022 compared to 258000 during the first quarter of 2021.
These non-GAAP measures should be considered in context with our statement of cash flows that are presented in accordance with GAAP.
And then in addition to increasing first defense production capacity or other company changing goals to achieve FDA approval of retain.
We are anticipating a response from the FDA during the third quarter of 2022, So our second submission of the last of five technical sections significant technical sections pertained to retain this one specifically is called the chemistry manufacturing and controls technical section.
This will complete our new animal drug application. This response from the FDA will determine whether we will be able to commence market launch early in the fourth quarter of 2022.
At the same time, we were responding to observations from our recent preapproval inspection by the FDA.
Our product development objectives with retained is to demonstrate that our polypeptide antimicrobial nice in a can play a prep productive role in the treatment of subclinical mastitis and today is dairy industry and offer an effective alternative to traditional antibiotics.
Because labor requirements of all ensure memory drugs on the market today require the milk be discarded and then may be withheld during treatment period of time thereafter. It is common practice in the dairy industry do not treat sick animals that are still producing saleable milk retain provides an animal welfare benefit by removing this.
Economic disincentive to treating subclinical mastitis, allowing sick cows to be treated without them, it milk discard or meat withhold penalties.
In addition to improve animal welfare retain enhances food safety and sustainability.
By utilizing nice and it is not used in human medicine.
This is important because the overuse of traditional antibiotics and start to create antibiotic resistance, which is an ongoing public health concern.
So that brings this time with regards to first defense and retain at this point I would like to look back at the beginnings of these product initiatives.
To do that I'm very excited to introduce Dr. Joseph <unk> crabs, you chose our former Chief Scientific Officer N V. P of product development. He is now serving in a consultancy role to them yourself.
So thanks for joining Joe I got just two questions for you.
First defense was first approved by the USDA back in 1991 take us back to that time. Please.
How did you come up with the idea of purifying antibodies from milk to make our scours prevention product for newborn calves.
Okay. Thanks, a lot, Michael and Joe and everyone I appreciate the opportunity to have a little discussion.
Well I wasn't the first one to come up with the idea, but I did ultimately develop the product first defense I mean, it starts with the differences between our ruminants and primates believe it or not human infants get almost all of their immunity in their first days of life through the placenta of their mom.
I G G transfers across the placenta to the baby.
In ruminants the infant caf.
Receives all of its maternal antibody not from the placenta, but for mother's milk when colostrum. Okay. So it's always been known to be a very good practice in the dairy industry to feed your cabs, one gallon of high purity high high quality classroom, which contains a lot of antibodies for that for that developing cast.
And there was a lot of literature in the 19 eighties regarding using bovine colostrum to treat or prevent gastrointestinal illnesses.
In the seventies work by Norton Me this and others are primarily at the University of Nebraska identified several different types of viruses that cause gastro intestinal problems.
Problems in cabs.
And Norton establish the value of using vaccines for the dam in other words vaccine vaccinate. The mom. So she can provide specific immunity to the to the developing caf.
Right around that time and are in the late eighties and you saw was I came on board because they had a vaccine in an antibody purification background.
And we were working with Mead Johnson and infant Formula Company researching. The addition of adding bovine anti rotavirus antibodies into specific formulas for human infants.
And while that work never went forward too far we retain the animal health rights to the technology and we began working on first defense.
Our reasoning here was that.
If we could make it convenient dosage form of these antibodies that are strong against the gastrointestinal pathogens, we might have a good product to easily prevent this illness and caps.
So we focused on developing subunit or otherwise novel vaccines and we also focused on antibody purification technology. So that we could boost the antibody levels in classroom to the point, where we could offer an efficacious protective dose against multiple pathogens in a single orally delivered capsule.
Also we found that freeze dry which is our main method of Oh, drawing these purified antibodies turned out to be the most gentle way to.
Preserved the antibodies and so that was basically the beginning of the first of the first defense franchise.
Wow, Joe it's really interesting.
Something new every time you speak that's that's great history. Thanks.
Thanks for reviewing that let me.
Let me switch over to retain them.
So as we know repaying has a much longer development path with the F D. A than what we did experience with the USDA for first defense.
Take us back to the 2000, what was it about a nice and that interested you and how did you come up with the purification technology to make a pharmaceutical drug preparation nice and at commercial scale.
Sure. Thanks, a lot well then so to transition here after several years of working on human applications of these bovine antibodies immune cells, such as traveler's diarrhea, Clostridium difficile, and cryptosporidium and a lot of that was funded through spi or grants from the NIH.
In the late nineties.
Nineties, we made a strategic decision to focus on only animal health applications.
To focus in and be successful with animal health products mastitis, who's our obvious market because its the largest animal health market is responsible for approximately $2 billion worth of losses in the U S every year.
I became interested in back curious since that's potential mastitis treatments looking at some of the literature and through the work of fill Sears who at the time was in Cornell and later M. S U and some of the pioneering work of the company called applied Microbiology, who became a M. B and then ultimately became and 'twenty one.
After discussions with the M. B, we were able to secure an animal animal health rights to their nice and technology and we started off by purchasing their products already on the market. It was a nice based pre milking teat wipe called wipe out our reasoning here was that we could establish the proof of <unk>.
Concept of nice and being a useful against mastitis pathogens, but having some experience with this with this T Y and we also gained experience in manufacturing nicely.
Well ultimately the wipe out was a good product it never really could compete on a cost basis with the iodine and core exiting based products that were already on the market, but we were able to leverage the nice and technology and develop retain and in doing so we developed a novel purification method.
That ended up with a pharmaceutical grade Nisin I E 90, 95% pure niacin.
And since nice and was used.
For many many years and in the food industry as a food preservative, a much crude or form of nice and we felt that we would have a clearer path through the F. D. A to develop this product for mastitis applications as an interim memory because of its long using history as a safe product in food.
That ended up not being totally true we ended up going down pretty much the standard drug pathway or retain but.
Thankfully, we were able to secure the zero milk discard, which is which is a critical difference between retail and the other interim memories, which are primarily based on antibiotics.
So hopefully in the coming months, we're going to meet the goal and be able to launch the product there or anything else I can add to that Michael.
Well I'm I'm, just so glad you joined the call.
You've captured 30 years or so in a few minutes and I've.
I've traveled that road with you and boy is it it was really good to hear a concise summary like that.
I hope that was of interest and benefit to our investors. So no. So thanks for sharing that Joe.
I really do appreciate it.
So that's that's watch the clock here, a little bit and conclude this conference call. It at least our presentation portion I encourage you.
To review the press release and the quarterly report on Form 10-Q that we filed last night also please have a look at our corporate presentation slide deck May update was just posted to our website last night I.
I believe it provides a very good summary of our business strategy and objectives as well as our current financial results. So just see the investors section of our website and click on the corporate presentation.
So with that said I will be happy to take your questions. Let's have the operator open up the lines. Thank you Andrea.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If youre using a speakerphone, please pick up the handset before pressing the keys.
To withdraw your question. Please press Star then two.
Once again that was star then one to ask a question at this time, we will pause momentarily to assemble the roster.
And our first question will.
From John Lipman, a private Investor. Please go ahead.
Hey, good morning, Michael and Joe Nice to hear you.
Thanks for the time and thanks for the great quarter couple of questions for you Michael just reading through.
Your 10-K.
The other day.
A very big investment has gone into this great story Gerald laid out for us with Knight and how you've come here.
The company has projected.
Potentially if approved a million in sales for 2023.
Uh huh.
Retained and maybe potentially another million on top of that for 2024.
It seems like that might be a very small amount of sales for a company that spent a lot of money and a lot of time getting to that kind of blockbuster product could you talk to us about where you derive those potential revenues and what the real revenue opportunity is here for reaching.
Yeah, Thanks, John good to connect here.
So the term we use for this launch strategy is a control launch. So there's two ways to go we could put this product out to distribution just like we do with first defense.
Essentially deliver to the warehouses and let the reps take it out to the farm are theres, a great deal of risk without with a novel product like retain.
We've opted.
For this controlled launch strategy, well, while not showing a hockey stick of revenue in say the first 18 months, but.
Really focusing and prioritizing.
Great customer experiences with it with the first group of customers that see the product. So we can make sure that it's administered correctly its dose correctly, it's getting into the right cows, and we manage very carefully our industry a risk like a like a hot milk tank or or or.
And faulted cheese tank.
<unk> is used appropriately to avoid some of these risks I think while it requires a little bit of patience to it.
To get to get into the company know that we've built the capacity production capacity of $10 million.
I think trying to grab that through a mass market distribution launch in the first year or so.
It's too risky or the sales team is really prepping up really well you've seen the recent hires a doctor lithium doctor Wooster Hamburg.
These are guys are gonna help Bobby and Kathy and the team manage this controlled launch and secure the long term benefit of the product at the expensive, perhaps a a you know a quicker bigger launch in the first year. So it is a bit of a trade off but I think the benefit long term is smart.
And we get this we get this product.
Launched you know.
Appropriately and used appropriately for the maximum benefit over the years, two three and four and I look forward to the day, where we say a $10 million in capacity coming out of today's plant is not enough and we need to expand it. So we can step down that path together.
Does that help answer your question there John .
Yes.
Controlled launch.
Make sure that customers understand how the product works and to then see that into the market sounds like to me.
Question on <unk>.
You know great profitability in the period.
We're showing now with lack of development costs for retain.
As you watch if you do launch retained in our approved can you talk to us about the scaling up.
His support retain while we're tempering you know sales do you have any expectations that and also scaling up your business on the first defense franchise, you know being able to hit 30 plus million in sales potential do you see that you're going to need to add a lot of you know cap.
Or any a large staff to support the business or you're pretty comfortable with the higher sales growth with the current staffing infrastructure that you have today.
Yeah, John that's a great follow up because it really helps make more sense of this controlled launch strategy. We first if we're so fortunate to have first defense the growth. We're seeing there. It helps create some of that patients we need to do this controlled launch with retain so yes staffing is increasing.
The Capex is really well defined.
I don't see any surprises we know we know what we need to do to do the complete this growth on first defense and that's laid out in the queue by by specific project and then disclosing are they you know the the cost of those projects versus available cash we have.
Got headroom.
For the first time in <unk> history, which is which is unique in my experience with them and so we're always scrambling with not enough cash, but so first events I feel like that that's well defined in the in our in the in the queue and then on retain you know the the staffing will increase but it's not.
Huge so what we're seeing is the staff today of about 67, just under 70 people I can see very quickly going into 'twenty three it will be up to 80, but its not a its not a huge explosion in staffing and again, the capex is is budgeted and known and and and and the cashiers.
Available to fund it so I would say modest on on personnel, but we definitely need some new people.
And our Capex is in good shape.
Michael could you just one last thing and I appreciate the answers to the questions can you just talk to us about the.
Back to.
Uh huh.
Two parts on retain do we need to.
Kate or teach.
The farmers and the people you know in the dairy industry that are going to be using retain how to apply the product or is it something that they are aware and know how to use already in the plant.
Yeah, very fair a very good question.
The ladder its a standard interim memory infusion. So it is a tube illiquid that is infused through the T. The opening just like the other mastitis treatments on the market so as far as application are the.
The customer will need no training and nothing new this is what they do the current intermammary tubes on the market today.
Great and then and then my last one and it's probably in the K, but.
I I I must not have picked it up could you just talk to US about first defense has been fantastic. The growth has been just stellar can you talk to us about the barriers to entry the pattern the IP here it.
Seems like you've got a special sauce here, that's generating a lot of cash I assume it would attract attention from others.
Yeah, well, that's a great question, having a given Joe the the.
Turning to discuss the history. So a lot of that technology is very old so none of it is patented.
So we rely exclusively on the intellectual property around the manufacturing process as Joe described from the proprietary vaccines, we use in the production process to what we do and what we're expanding here in Portland as far as the purification and Joe even mentioned some of the technology around the freeze drying just.
The particulars of how you purify those antibodies to to get them down to a small say four to five gram deliverable dose. It's tricky. It's a lot of management at the farm level. Our farm team is is unique in what they can do to manage the vaccine program there.
Hyper immunization vaccine program.
And the collection and the ship back to main and then the process here, which is what we're.
Essentially doubling or more so it's it's process knowhow and theres not a blockbuster kind of patent that you might see in a typical pharma drug, but we're not a typical pharma company.
Well, thank you I'll, let other people ask some questions.
I wish you well and a fantastic job that Youre doing that Michael Hey, Great Joe John Excuse me great to catch up Thank you John .
Once again, if you would like to ask a question. Please press Star then one.
And our next question will come from Joe Diaz from Lytham Partners. Please go ahead.
Thank you.
Leveraging off of Oh.
The previous questioner with regard to first defense and you're increasing production capacity.
What what's your plan going forward here in the next couple of years and are you confident that that market will continue to grow in and growing capacity makes sense.
Yeah, well, certainly it's hard to predict the future market and future sales I'm more focus on capacity I'm very confident there are the sales team, who will support me, 100% or more and that none of us can live further.
Under this backlog can.
Condition, that's really difficult on the team is really difficult and our customer.
You know the Capex that I referred to the sort of the two phases of expansion that I referred to going from $16 five to 23 to 35 all of that is in place we needed to just finish off some of this.
The equipment installation and validation and put it in USDA approved operation.
That gets us there by everything is in place I mentioned, just you know it's continues as planned to get to that 35 million here, but by the end of the year.
So no no more big hurdles like new real estate, it's more finish what we started and its online and.
Yeah that that's as critical as we go through the second half of this year to transition from a company that asking each sales team to allocate scarce product.
Two more productively asking the sales team to go find new customers and retain and recover the retain current and recover those we may have lost during the period of short supply.
Alright.
Yeah.
I hope, both you and Doctor Crab mentioned that nitrogen.
[noise] polypeptide anti microbial that it's not an anti biotic could could you give us a little bit of a background on the difference between the two.
Yeah I'm, that's a big word for me is I'm glad Jos on the call I'm going to I'm going to I'm going to I'm going to ask Joe to speak to that please Joe Okay. Sure I'll try to do is somewhat simplified.
Nice and has a polypeptide polypeptide is native amino acids like a protein.
A protein is a polypeptide too, but most proteins are very large nice and tight.
Happens to be a relatively small polypeptide 34 amino acids.
The traditional antibiotics like the beta lactam are very small molecules are much much smaller than nice and then they tend not to break down.
In the environment. So one of the attributes of nice and it says because it's kind of like a protein.
It does its work.
Against Mastitis, but then in the milk it will eventually break down so it's not a problem.
That's one that's one issue the other issue is the use of nice and does not the nice and does not cause.
On the development of anti microbial resistance, because it's a completely different class of molecules in the traditional antimicrobials.
Third aspect of nice and which is interesting is that your beta lactam like penicillin work their mechanism of action is to stop the growth of our bacteria by interfering with the biosynthesis of its cell wall.
But nice and interestingly different because nice and being a polypeptide and modified in a certain way doesn't stop the growth of bacteria. It actually pokes a hole in the bacterium and kills it directly so while nice and kills it can kill growing cells or resting cells.
Traditionally antibiotics can only kill growing cells. So theres a couple of differences between license and traditional antibiotics.
Thanks, Joe I always appreciate the way you take some pretty complex science and.
But I know, there's some common speak thank you.
One other question as it relates to nice.
You mentioned that it's naturally occurring in the environment.
Food preservative.
It is the nice thing that will be used and retain any different.
Hum.
The only differences, it's purified pharmaceutical level of purity. So for example, now you soon in other bacteria assumes or produced by normal bacteria in the environment, they're produced as a mechanism of having sort of.
Sort of bacterial competition, they produce bacteria since to establish their niche.
So yeah, they're produced in the environment, but they also degrade in the environment.
And then so so so yeah nice it is naturally produced by the bacteria like many of the like essentially all of the data locked him sort of naturally produced by a fungus.
So you know that so are nice and is the same nice and that's produced by a certain type of bacteria, but we take the purification of it up to a pharmaceutical level, which is something that's not seen so if you look at for example, the food grade nice and preparations that you can buy to.
Preserve things like dairy foods, those preparations were actually 2.5% pure NYC and the rest is milk solids are nice and is essentially 95% pure pharmaceutical grade.
So Joe what are you, saying right is that there's no way the FDA would approve this interim memory infusion at that $2 five level, we had to get to that 95 to two to be considered for approval by the F. D. A.
Yeah, I mean, its generally considered you need a pharmaceutical has to be over 90% pure but the other interesting aspect is that if you infuse the crude preparation of nice it into the into the utter you would have a massive inflammatory response because of all the other impurities. So you know part of the drug approval process is due.
The target animal safety study, where you look at infusing the product on the effect of on the animal does he utters swell does it get Red does it get hot you caused mastitis all of those things.
It can be caused by the impurity. So so it's incumbent on us to have a very high purity product with us.
Right makes sense.
Alright, Thank you guys.
Well, that's the way you're welcome.
Yeah. Thank you. So that's that's that's wrap here.
Although I'd say that Oh.
I guess I'd really just turn it over to Joe are we I think that's wrap this call Joe I think I see no other questions coming so there are no other questioners in the queue show that being the case, let's go ahead and wrap up today. We appreciate everybody taking time to go over this quarters results, we will look forward.
They're talking with you again.
After the next quarter and we expect that it'll be some time.
In early August so have a great weekend and stay safe and we'll talk to you again have a great day.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
Okay.
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