ImmuCell Corporation (ICCC) Earnings Call Transcript & Summary

Thanks, Mike, and good afternoon to everyone, welcome. I'm Joe Diaz, and I work with Lytham Partners. Our firm serves as the investor relations consultant for ImmuCell. I appreciate each of you taking the time to be with us today as we go over the unaudited financial results covering the year that ended December 31, 2019. Before we get into that, I want to begin with a cautionary note about forward-looking statements. Those listening should be aware that when management speaks on this call, they will be making forward-looking statements, and those carry risks and uncertainties, meaning actual results might diverge materially from what gets discussed today. You can find more details about those risks and uncertainties in the cautionary note on forward-looking statements within the safe harbor statements included in the press release the company put out yesterday evening, and also in the periodic filings the company makes with the Securities and Exchange Commission, which you can get from the SEC or by going to the Investor Section of the company's website at immucell.com; having said that, I'll hand things over to Michael Brigham, who serves as President and CEO of ImmuCell Corporation, and once he's finished, we'll take your questions. Michael?

Alright, I truly appreciate everyone making time to be on today's call. That means a lot to me. I won't go back through all the specifics — those are available in the press release we put out yesterday evening. What I would like to do instead is spend this time drawing attention to 4 key points. So let's start by looking at how sales grew. We posted a 25% rise in total sales, reaching $13.7 million for 2019 compared with 2018. This reflects ongoing excellent efforts from our sales group, with a product that produces clear benefits for our customers daily. You might remember that demand outstripped supply for Tri-Shield First Defense during the first half of 2019, since it was difficult to manufacture sufficient quantities of the complex rotavirus vaccine use and the maker of this product. I want to take this moment to openly praise our manufacturing, our quality, and our product development teams, who collaborated effectively to fix this production lab challenge at the start of 2019. Consequently, in the latter half of 2019, we could go back to a mass market selling approach through distribution for Tri-Shield First Defense. Because of that, I think comparing the sales figures for the second half of 2019 against the second half of 2018 also matters. Total product sales rose by $1.5 million, or 30%, to $6.6 million across the six-month period ended December 31, 2019 versus the six-month period ended 2031 — December 31, 2018. My second point is that at this point in the company's evolution, I feel that top line sales growth and positive cash flows carry more weight than our bottom line earnings or losses. On this, I'd direct you to page four of our press release. I believe it's important to examine the non-GAAP disclosures in the press release. I think we ought to keep in mind how much certain non-cash expenses factor into our net loss, such as depreciation and amortization, stock-based compensation expense and income taxes. Depreciation expense by itself was greater than our loss before income taxes for the year ended December 31, 2019. EBITDA, a non-GAAP financial measure described in greater detail on page four of last night's press release, grew to roughly $1.4 million for the year ended December 31, 2019, up from only about $88,000 for the year ended December 31, 2018. My third point — I'd like to say a little about our marketing campaign beyond vaccination. It's entirely focused on preventing unnecessary vaccinations. Keep the needles for the mother cows for critical disease vaccinations, and instead give First Defense to help the newborn calf begin life healthily. We think dairy and beef producers increasingly grasp our value proposition of fewer needles in cows and fewer antibiotics in calves. There's a powerful connection between the way we market our product and the difficulties we encounter in making it. We understand better than almost anyone how much variation there is in how cows respond to any vaccine. This pattern shows up in each set of first events we make. What sets us apart is that we make adjustments for that variability along with antibody content when necessary, which means the newborn gets consistent, equal protection from every dose of First Defense; that's the finest method for a producer to be sure each calf has the same level of protection. Beyond that — and treating a calf effectively doesn't call for costly antibiotic treatments. To keep up with rising demand, we're well along in building our expanded manufacturing facility to boost production capacity for the First Defense product line; we anticipate finishing that work largely on schedule near the close of the upcoming second quarter, which will raise our yearly production capacity from roughly $18 million to roughly $27 million. You'll have a chance to tour this new space if you can join us at our Annual Meeting of Stockholders on June 10 in Portland. Within the next week or so, we'll put some photos of the construction progress on our website; and finally, regarding Re-Tain, our manufacturing, quality and product development teams recently did a superb job finishing our response to an FDA inspection of our Drug Substance production facility. That positions us for the planned second phase submission of the manufacturing Technical Section to the FDA later this year. It will contain responses to queries from the initial first phase Drug Substance submission plus detailed information about the manufacturer of our drug products. So, I believe we've covered the four most important topics; sales growth, the impact of non-cash expenses on our operating results, status of our production, capacity expansion, and the regulatory status of Re-Tain. So, to wrap up, I urge you to look over the press release we filed last night. We anticipate filing our Annual Report on Form 10-K with all the details on or about March 27, 2020. Also, please check out the updated corporate presentation slide deck. A February update will go up later today. I think it offers a very solid summary of our business strategy and objectives, along with our current financial results. Also visit the Investor Section on our website and click on Corporate Presentation. For that — to gain access to that slide deck. I hope — yeah, I hope you value the streamlined approach to this call to free up more time for your questions, which matter to me. So, with that said, let's have the operator open the lines for your questions. I'll gladly take some questions.

Yes. Morning, everybody. At what point do you expect sales outside the country to get going?

What you're really asking, I believe, is when do we grow them? Sure, we already have certain sales abroad right now, obviously, what's occurred with Canada has been going on for some time. We bring a small amount of product into Japan, South Korea, and a few of these new markets we're working on at present ought to begin coming online during the later portion of this year and into 2020. So it's a step-by-step buildout, one territory at a time, attempting to secure the licensure and locate the proper in-country marketer. That last part isn't the problem. Getting licensure within the country is the problem. That's the short answer. I'd say we're observing movement near the close of this year and further into 2020.

All right. Thanks. Just one more thing. Given everything the company now has in the pipeline, are you going to be stepping up your Investor Relations efforts?

That's a reasonable thing to ask. Joe Diaz from Lytham Partners is here with me on this call. We've partnered for a handful of years now. As I see it, at present, the way we approach things in terms of our budget for time and our budget for money means fully handling these quarterly events, 4 times per year — the call, the SEC filing, the press release, plus whatever news comes up in between. After that, we head out with Joe into his network of relevant investors across the country, and we do roughly 3 visits each quarter — 3, occasionally 4, days where he fills a day with a full roster of various investors in various cities. So that's what we're doing now. It comes back to the time and money budget. We're a smaller organization. The IR department basically was just me at that point. So yes, more of the same there, and I don't see a reason to bring in a full IR department and attempt to turn that into a bigger effort. I think we just keep working with Joe and reach the right people at the right time, that 3 — around 3 times — 3 — 3 to 4 days each quarter. I hope that answers it fairly, Bill.

Alright. Sure thing. Thanks.

Hello, Michael.

Hey, Sam.

We've reached sales of nearly $14 million, while our capacity stands at $18 million, and we anticipate reaching $27 million by June. So, out of that additional $4 million, what portion will we actually capture? Is our pace sufficient? During the first four months, or across the entire year, will that extra $4 million be put to use? At what rate — what capacity — are we currently operating to drive sales higher?

Yes, I'm quite at ease, naturally, and plainly, just referencing what happened before. What I mean is truly remarkable expansion: 25% across the year, 30% during that six-month stretch — I pointed to the last six months of 2019 compared with the final six of 2018. Seeing that pattern continue would be great. Our sales force is executing everything correctly. Customers value the effectiveness the product delivers. Speaking as the operator here, from an operational standpoint, that $18 million is being strained in every possible way. Every dose this plant can produce is essentially being pushed to the limit. So, knowing we're at nearly $14 million while running at full — almost 100% capacity as in 2018 — given how we're expanding, I'm not at ease. I believe this increase in capacity is arriving at the right moment. Whether that judgment holds up will be shown over the coming quarters.

And we've got a solid team and great contractors. Every day it's a bustling job site over there, right across the street from my current spot. Things are moving along nicely, and like I mentioned, I expect it to be up and running near the close of Q2; that's the timeline we require. I'd rather not — I'd rather not push it any tighter than that.

All right. And what number of shifts are you operating? And so by the 6-month mark you'll be at full utilization and/or the plant will be operational by the close of the second quarter. And do you — at this point you possess the capacity, the ability to sell increasing amounts of product abroad. Is the international print — is demand much higher than what you're providing, or how does that look?

Yeah. So, the shifting, and then overseas is kind of a comparable question to the one Bill posed, the shifting is — I believe previously we ran one shift. But we — to back up that single shift, quite a bit of second shift activity happens around it; so, the full staff — it's a full normal daytime shift, but setup tasks occur on weekends. Consider freeze drying as an illustration — the lyophilizer runs continuously, never shutting down overnight. Consequently, although most of our staff is on a single day shift, the operation is sustained by personnel and machinery active around the clock. As for overseas markets, my sense is our timing has worked out well. I'm glad we aren't facing substantial foreign demand while trying to meet it from the current plant. Once those markets develop, our new facility will be ready. Our capacity will be greater. We'll be capable of meeting whatever demand arises. So I find this promising. I believe we need to have a presence there. Even so, the results we're sharing now show plenty of room to grow. Whether you look at the product lineup or the U.S. — I should say the North American market — I believe the buildout was both necessary and warranted purely on the strength of the growth we expect in North America by itself.

All right. So given that the coronavirus is all over the news, and on that very first day, close to 2.5 million shares changed hands. Regarding pigs, we looked into whether this corona — whether First Defense Tri-Shield, our product, could be useful or potentially applicable for pigs. And I realize a human version is a long way off, with everyone else piling in. But could you discuss our product and coronavirus, and what opportunities you see?

Yeah, I'd say our being linked to the World Health Emergency originating in China was somewhat off base; we got swept into certain cycles, certain websites, and, I'd argue, certain manipulators who linked anything at all to coronavirus. Let me be clear about all of that. Our coronavirus application is in animal health — that human coronavirus, whatever you want to call it, COVID-19, the novel coronavirus, is a separate subtype. So we aren't certain. My view is that cross protection probably won't happen, but we're communicating with the appropriate parties such as CDC, NIH, USDA. Should it arise that we get tested — should our product undergo testing and yield a positive result, we would absolutely issue a press release about it. Building up volume and anticipation on that basis isn't right, in my opinion. I fail to see the scientific rationale. Still, we will say we're extremely well connected, mainly via the USDA, in case it does cross over and does turn into an — this novel — if COVID-19 turns into an animal health issue, whether with cows, whether with pigs, as you brought up, we'd like to be positioned with our antibodies to find out whether we might assist, whether a human and animal health advantage exists. Plus the business advantage, obviously; so we'll keep talking to the appropriate parties. But I don't wish to build expectations around it. It's somewhat outside our focus, I believe. I simply want to reflect on and acknowledge the suffering this has brought, roughly — these figures shift daily, more than 1,000 deaths, 70,000 infections. Where is this headed? What effect will it have on the economy as a whole?

OK, thanks, Michael.

We're keeping an eye on that.

Okay. Good luck.