ImmuCell Corporation (ICCC) Earnings Call Transcript & Summary

Good day, and welcome to the ImmuCell Corporation Annual Shareholder Meeting. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Michael Brigham, President and CEO of ImmuCell Corporation. Please go ahead, sir.

Okay. Well, thank you, Sarah. So it's just a couple of moments past 3:00. Let's get started. Good afternoon, stockholders and investors. I'm pleased to welcome you to the 2020 Annual Meeting of Stockholders of ImmuCell Corporation in the form of both a dial-in conference call and an audio webcast. I am Michael F. Brigham, President and CEO and a Director of the company. I would now like to take a role call and introduce you to the other Directors, officers and employees of the company who are participating remotely today. Bobbi Jo Brockmann, our Vice President of Sales and Marketing and a Director.

This is Bobbi here. Hello, everyone.

And Dave Cunningham, a Director.

Present.

And Steven Rosgen, Director.

Hello, everyone. Glad to be here.

And David Tomsche, our Chair of the Board of Directors.

Good afternoon.

And Paul Wainman.

Good afternoon, everyone.

And we have -- I meant to say, Paul Wainman, he's a Director. And Joe Crabb, our Vice President and Chief Scientific Officer.

Present.

Betsy Williams, Vice President of Manufacturing Operations.

Hello.

And Gustavo Scaffa, Senior Director of Quality.

Present.

John Zinckgraf, Director of Product Development.

Hi. Good afternoon.

And Beth Toothaker. Tooth's our Director of Finance and Administration, and she's the voting inspector for today's meeting.

Good afternoon.

Thank you. I'd also like to introduce Gloria J. Basse, a new nominee to our Board.

Hello. Good afternoon, everyone.

And also with us today is David Champoux, a partner with law firm of Pierce Atwood, the company's legal counsel.

Good afternoon.

And finally, on introductions and roll call, Christian Smith, partner with the accounting firm of Wipfli LLP, the company's independent registered public accounting firm.

Good afternoon.

Great. All right. So with that, I've asked some of the individuals who were just introduced to make various motions necessary to keep the formal part of the meeting moving. After the formal part of the meeting is over, I would like to review our updated corporate presentation slide deck, and this provides an overview of the company's business and is available under the Investors tab of the company's website at www.immucell.com or by a request to the company. So if you could, please access that, so you can see the slides as I go through them. After that, we will have time for a brief and informal discussion to address any business questions or issues that you may have. Please note that only participants utilizing the dial-in conference call as opposed to audio webcast, will be able to ask questions. Lastly, then in place of the customary on-site tour, we have loaded a video tour to -- of our new leased production space at 175 Industrial Way to our website. A link is provided on the First Defense page, or contact our office manager, Jen Turkewitz at (207) 878-2770, extension 0, or send her an e-mail at [email protected]. Jen will be standing by during the meeting. And we will be very happy to help you out and get you to either the corporate presentation slide deck or the link to the video or any SEC filings you might like to have sent to you. So with that, I will now begin to conduct the formal business portion of today's meeting, ask the voting inspector to help get us started. Beth?

As evidence that notice of this meeting was duly given, I have here an affidavit of American Stock Transfer & Trust Company, the company's transfer agent, that notice of this meeting has been duly given and that a proxy statement has been furnished by the company to every holder of common stock of record as of April 14, 2020. There is also available for inspection here a complete list of the stockholders entitled to vote at this meeting. I will now report the number of shares held by persons attending this meeting in person or represented at this meeting by proxy. Out of a total of 7,212,919 shares outstanding and entitled to vote at this meeting, there are present at this meeting in person or by proxy, the holders of approximately 5,821,384.8 shares, which constitute more than 80% of the outstanding shares entitled to vote.

Great. Thank you, Beth. On the basis of the figures just reported by the voting inspector, I declare the presence of a quorum at this meeting. As secretary of the company, I will now present to the meeting, the minutes of the Annual Meeting of Stockholders held on June 13, 2019. I have a copy of those minutes with me. Unless there is an objection, I will now entertain a motion to waive the reading of the minutes.

I move that the reading of the minutes of the Annual Meeting of Stockholders held on June 13, 2019 be and is hereby waived, Michael.

I second the motion.

Okay. Thank you, Steven and Joe. The proxy holder has voted in favor. Therefore, I declare the motion carried. I believe you've all received copies of the company's proxy statement containing a description of the matters upon which you will be asked to consider and act for this meeting. We will now proceed to those matters. Beth?

We asked that any stockholder who wished to vote their shares in person rather than by proxy contact the company in advance of this meeting to facilitate remote voting. I report that no stockholders contacted the company to vote in this manner.

Therefore, let's proceed right to the voting. The first order of business is the election of Directors to serve the company until the next Annual Meeting of Stockholders and until their successors are elected and qualified.

I nominate for election Gloria J. Basse, Michael F. Brigham, Bobbi Jo Brockmann, David S. Cunningham; Steven T. Rosgen, Jonathan E. Rothschild, David S. Tomsche and Paul R. Wainman to act as Directors of the company until the next Annual Meeting of Stockholders and until their successors are elected and qualified.

I second the nominations.

Thank you, Dave and Paul. [Voting]

I declare that the polls are now closed. I ask the voting inspector to report the results of the voting. Beth?

I report that each of the 8 persons nominated for the office of Director has received a plurality of votes cast at the meeting.

With that, I declare that Ms. Basse, Mr. Brigham, Ms. Brockmann, Mr. Cunningham, Mr. Rosgen, Mr. Rothschild, Dr. Tomsche and Mr. Wainman are elected Directors of the company. The second order of business is to consider a nonbinding advisory resolution on the company's executive compensation program.

I move the adoption of the following resolution. Resolved, that a nonbinding advisory vote on the company's executive compensation program be and hereby is approved.

I second the motion.

Thank you, David and Steven. [Voting]

I declare that the polls are now closed. I ask the voting inspector to report the results of the voting.

I report that of the shares present and entitled to vote on this matter, 2,962,108.6 shares voted for, 105,665 shares voted against and 51,063 shares abstained. The shares voted in favor of this nonbinding resolution represent 95% of the shares that voted on this item.

Thanks, Beth. I declare that the nonbinding advisory vote on executive compensation has been approved. The third item of business is to consider a nonbinding advisory resolution on the frequency of the company's voting on the compensation paid to the company's named executive officers.

I move the adoption of the following resolution. Resolved, that a nonbinding advisory vote to conduct future advisory votes on the compensation paid to executive officers every year be and it hereby is approved.

And I, Bobbi, second that motion.

Great. Thank you, David and Bobbi. [Voting]

I declare the polls are now closed, and I ask the voting inspector to report the results of the voting. Beth?

I report that the nonbinding advisory resolution on conducting future advisory votes on the compensation paid to executive officers every year reserved -- every year received a plurality of the votes cast at the meeting.

Thank you, Beth. I declare that the nonbinding advisory vote on conducting advisory votes on the compensation paid to officers every year has been approved. Moving to the fourth item of business, it is to consider an act on the proposal to approve an amendment to the company's certificate of incorporation to increase the number of authorized shares of common stock from 11 million to 15 million.

I move the adoption of the following resolution. Resolved, that the amendment to the company's certificate of incorporation to increase the number of authorized shares of common stock from 11 million to 15 million be and it hereby is approved.

And I second the motion.

Thank you, David and Bobbi. [Voting]

I declare that the polls are now closed. I ask the voting inspector to report the results of the voting. Beth?

I report that the holders of the majority of the outstanding common stock of the company as of April 14, 2020 have voted in favor of the amendment.

Okay. Thanks, Beth. I declare that the proposal to amend the company's certificate of incorporation to increase the number of authorized shares of common stock from 11 million to 15 million has been approved. The fifth order of business is to consider an act on the proposal to ratify the appointment by the Audit Committee of the Board of Directors of Wipfli LLP as the independent registered public accounting firm for the company for the year ending December 31, 2020.

I move the adoption of the following resolution. Resolved, that the appointment by the Audit Committee of the Board of Directors of Wipfli LLP as the independent registered public accounting firm for the company for the year ending December 31, 2020 be and it hereby is ratified.

I second the motion.

Thank you, Paul and Steven. [Voting]

I declare that the polls are now closed. I ask the voting inspector to report the results of the voting. Beth?

I report that of the shares present and entitled to vote on this matter, 5,794,780.8 million shares voted for, 11,076 shares voted against and 15,528 shares abstained. The shares voted in favor of this ratification represent 99.5% of the shares that voted on this item.

Okay. Thank you, Beth. With that, I declare that the proposal to ratify the appointment by the Audit Committee of the Board of Directors of Wipfli LLP as the independent registered public accounting firm for the company for the year ending December 31, 2020, has been improved. I believe that all stockholders received, along with the company's proxy statement, a copy of the company's annual report on Form 10-K for the fiscal year ended December 31, 2019. The annual report contains the audited financial statements for the year. I will be commenting on the current business of the company following the adjournment of the formal part of this meeting. There being no other business to properly come before this meeting, then this completes the formal business of the meeting. A motion to adjourn would now be in order.

I move that the meeting be adjourned.

I second the motion.

Okay. Thank you, David and Joe. The meeting is now adjourned. Before turning to a review of our corporate presentation slide deck, I would like to take a moment to welcome Gloria Basse as our newest outside Director. Gloria brings a great deal of animal health marketing experience to our Board, including almost 30 years with Zoetis. As we continue to grow First Defense sales and prepare for the launch of Re-Tain, Gloria's skills and experience will be of great value to the Board and to the company. Welcome, and thank you, Gloria. So next, I would like to review the corporate presentation slide deck. And then we'll open the floor to an informal discussion and Q&A. Before doing so, I would like to ask our attorney to provide you with some standard legal disclaimer language. David?

During the course of this meeting, company representatives might make reference to future events or expected future results or predictions about steps the company plans to take in the future. It is important for you to understand that these so-called forward-looking statements are subject to significant risks and uncertainties, and that the actual results might differ materially from those projected or anticipated in the forward-looking statements. The company's most recent annual report on Form 10-K and its most recent quarterly report on Form 10-Q contain lists and more detailed descriptions of risk factors that make the company's future performance uncertain as well as other cautionary statements that should be considered in connection with any such forward-looking statements. These won't be read aloud to you today, but please note that copies of the 10-K and 10-Q are available online or by request to the company, and the company encourages you to familiarize yourself with the types of risk factors that affect its business. To summarize, to the extent that company representatives make statements here today about future events or developments or expectations, please recognize that there are many, many factors that could keep these from happening in the way that those representatives might suggest or predict.

Okay. Thank you, David. Let's go to the corporate presentation slide deck, which does provide an overview of the company's business. Again, to review the slides with me, please go to the Investors tab of our website at www.immucell.com, or call (207) 878-2770, extension 0, or send an e-mail to [email protected] for help, and Jen would be very happy to send the deck directly to you. So the deck is quite a few slides. I'm just going to review what I think are the core ones, the first 20 slides or so. I'll start in with Slide 4. And again, what I meant to mention, if you're on the webcast, you do need to dial in. Only participants by the conference call can take Q&A after this -- participate in the Q&A after this slide deck review. So jumping in on Slide 5. It's a good summary of our business, broken down by product and by real estate. So the picture on the top is 56 Evergreen, that's our corporate headquarters and USDA facility. Picture on the bottom is our new facility for Re-Tain, the FDA facility, both within a short walk. So we are capitalizing on what we see as a lot of significant growth on First Defense, this product for the dairy and beef calves and then revolutionizing the way subclinical mastitis is treated with Re-Tain. And First Defense delivers immediate immunity to new born dairy and beef calves, and allows them to avoid unnecessary dam vaccines. Now when we go to Re-Tain, we're talking about the largest cause of economic harm to the dairy industry, mastitis. So more details to follow. But what role does ImmuCell play? Several, I think. We're obviously, as I just mentioned, focused on 2 very -- the very most frustrating problems to the dairy systems, scours and mastitis. We're improving the food chain with less antibiotics, and we know that cows are more productive if they reduce the use of certain nonessential vaccines. We also know the demand for animal protein produce of high quality and low cost is only going to go up as the world population expands. And we have started to initiate efforts to sell First Defense into some new international markets. So moving to Slide 7 and keeping things very simple, breaking it down to what are the 3 most critical actions that we must perform in the next short period of time: number one, continue significantly grow First Defense product line, gross sales of First Defense; number two, achieve this FDA approval, long sought after approval of Re-Tain; and number three, with that approval, prove market acceptance of Re-Tain. And I add number four, just to support the industry, don't drink juice, on Slide 8. Drink milk, enjoy your milk and cookies. On Slide 10, and eat some pizza and support the dairy industry. Slide 11, just is sort of an organizing slide, a lot of detail there. I will leave it to you to review the details. But if we look at our product line, it's First Defense and Re-Tain, as I mentioned. Let's -- we've got about 8 slides to just run through here on the First Defense at the left side here. But let's start with Slide 12. I did talk about the virtual tour. We'll come back to that in a minute. This expansion that we've been working on this year is -- just been completed. Some pictures there of the new facility. I'll explain what that means when we talk about the virtual tour at the end. There are a couple of still shots. On 13, again, I break things down to make it simple. What are the 3 things that producers do to prevent scours? Number one, they either do nothing and then they're going to be burdened with treatment costs. Number two, they're going to treat the calf, and we'll talk about that; and then number three, some will vaccinate the mother to improve the colostrum she produces for the baby, or at least the hope to improve the colostrum that she produces for the baby. So let's go to number two, treat the calf. Slide 14 outlines the competitive products. So Calf-Guard by Zoetis, BOVILIS by Merck, Bovine Ecolizer on its way out to the market. They have announced -- Elanco has announced they're not going to produce more inventory, and they're selling out what they have on the shelf. So really, the competition comes down to Calf-Guard. We love our competitive position against Calf-Guard. It is a modified live-virus vaccine. We see lots of benefits to First Defense over that approach to preventing scours. You're vaccinating a newborn, you know the newborn's immune system is naive and not functioning. If you get a response, it's going to be a delayed response. And regardless, you're going to be stressing that animal with that vaccine. We argue, leave her alone, save her energy, she's got enough unavoidable challenges to use her immune energy against. And lastly, I would say, if you use Calf-Guard, you do have to hold back the colostrum because the antibodies in the colostrum will inactivate the virus in the vaccine, and we say that's crazy. Give immediate immunity right after birth, right with colostrum. The more colostrum, the better quality, the better, right? With First Defense, don't withhold anything and let us do the work. We deliver immediate immunity. We don't ask the calf's immune system to respond to a vaccine challenge. So going to Slide 15, where does that leave us and where are we as far as market share? The vast majority of that blue space is Calf-Guard. They have a low-priced product, and they have a lot of volume. And we chip away at it. It's going over the last 3 years, our red piece of the pie went from 32% to 34% to 36% on a volume basis of this market that, again, we define as the calf-level products. Switching to my number three, the dam vaccines. The third thing that producers do to prevent scours. They do vaccinate the mother. She will respond to that vaccine in a variable way. And we argue that a lot of that vaccine effort is wasted. It either -- it doesn't create the desired effect. The colostrum isn't as good as you'd hope it would be. We know that very well. We see this every day on the production side of First Defense. Every batch we make is variable. Of course, we equalize for that before we sell a finished dose, so the producer is getting a measured level of antibodies in each capsule or each gel tube, but not so with the vaccine. It's variable. And also you're delivering to bull calves you might not invest in. We say, give 100% of your investment to the live born valued calf the heifer. But this makes the market as much bigger when we start talking about these dam vaccines. Again, just quickly going back to Slide 13. We talked about estimated product sales being around $21 million, $22 million on the calf level, about double that in the vaccine. How many of these vaccine products are sold by the Zoetis and Merck and Elanco? About $42.5 million. So when we look at the pie chart on 17, we're happy to see that red getting bigger, and we hope to keep making it -- keep delivering that growth, 9.7% to 10.3% to 11% growth year-after-year as we compete better and better in going beyond vaccination, consider leaving the mother alone. Don't stick a needle in that mother. Let her be and let her save her immune energy for disease purposes, responding to disease vaccines, not essentially for a feed vaccine. So that's the Beyond Vaccination story, and that's really -- we're much more productive in that area with Tri-Shield. It gives us a that rotavirus coverage. Now we look and perform much more like a vaccine. And that's where a lot of our growth is coming from right now. Again, I'm just going back to Slide 14 for a second, where we checked off the competitive claims. But now we're the only 1 with all 3, E. coli, corona and rota. So it helps us compete very well against those dam vaccines as far label claims. So you met Bobbi Jo Brockmann. She's our VP of Sales and Marketing. She's got 8 people on her team right now, a couple of open positions presently, but that won't last. So a team of 9 going up against huge, huge companies with many more sales reps than we have. So we do that with really good technology, and we do that with really good support from distribution. So Slide 18 is listing out our primary distributors. Over half of our sales go to the top 2, MWI Animal Health and Animal Health International. Pretty typical of most animal health manufacturers. Those are the big guys. And our job is to arrive with distribution, educate distribution, show them the benefits of First Defense, let them go out and then spread the word. We go out to farms, we spread the word directly, and we further sale back to distribution. Then 19 is a little bit of our fun slide, but we do see ourselves as calf heroes as we work in the barn every day. Slide 20 brings me back to my product lines. So that's kind of my pause on First Defense. I'll move over to Re-Tain. I've got just about 6 slides there. But I did mention upfront, Slide 21, mastitis is a huge problem, the biggest problem to the dairy industry, costs the industry about $2 billion a year. Lots of traditional antibiotics out there to treat the disease, none with a 0 milk discard. So the next couple of slides will describe what I mean by that, but that is the revolution. That's what's totally unique about Re-Tain. It will be the only product on the market to treat mastitis without a milk discard. So 22 tries to sort of explain that challenge, that problem. This cow is stuck between a rock and a hard place. The producer knows his cow is sick, but he can't afford to treat her. He can't afford to treat her, because if he treats her, he's got to dump the milk. And what we're trying to do is don't -- say don't ignore that sick cow. Treat her, don't let her walk around the barn spreading pathogens. These product features are outlined on Slide 23, the value proposition. But she's producing less milk because she's sick, she's producing less quality milk and they get paid on quality. Less quality milk because she's sick. She's spreading the pathogen. Improve your herd, do right by the cow, now you can treat early because you don't have to worry about that discarded milk. Most of the current practices to treating clinical mastitis, our claim, at least at first, will be subclinical mastitis. The treatment is largely in the clinical mastitis, because at that point, the milk can't be sold, the cow doesn't want to be touched, she's quite sick, she definitely doesn't want to be milked, she could be dying. So they're going to either call her or treat her. What we're saying is don't wait that long. Don't -- treat subclinical mastitis, don't -- take that problem out early. Slide 24 is a bit busy, but shows the products that are out there. And you can show the competitive claims. It does show the competitive claims. 25 is really what it's all about. This cost of dumped milk is such an impediment to treatment. And that, again, is the unique feature that you can see on the average cost of dumped -- dumping milk during treatment days and during discard days, 0 for Re-Tain, and it's quite a lot of money for these other 3 products with the subclinical claims. So the big issue is get to market, get FDA approval. Like I said, number two, critical objective is get FDA approval, number three is prove market acceptance. So where are we with the FDA? There are 5 technical sections to any new animal drug application. For us, 4 of them are complete, means the FDA has issued a technical section complete letter. They are laid out there as 1, 2, 3, 4. Most important was number four, human food safety. That secured the 0 milk discard claim. It's a 0 meat withhold claim as well. With that, I mean, let's put it this way, without that, I don't think we would have gone forward. We really weren't going to come to market with a me-too product against those huge pharma companies. But with this unique feature from the human food safety, we went forward with manufacturing. We did spend some time looking at CMOs to make the Nisin for us, the active ingredient Nisin. We did look at partners and the potential to partner up with someone who had manufacturing capacity or capability. And we ended up doing neither, and we were fortunate enough to be able to raise enough money to build the plant for ourselves. So we control the product and don't share profits or just receive royalties. So that last section is where we're at. I introduced you to Betsy Williams. She's our VP of Manufacturing Operations. She's been in charge of putting this plant up, building this plant and putting it up and running, getting it up and running. We're at a point now where we have split the submission, this manufacturing technical section submission into drug substance and drug product. Drug substance has been submitted. The answer from -- the review from the FDA has been completed. So we know what they're looking for on drug substance. We've mounted our responses, and we will provide them as soon as we make the second phase submission. So the second phase submission, which is expected to go in at the end of this year, will be the drug substance with the responses to their queries and the drug product. The drug product is currently being produced for us by Norbrook, a CMO out of Northern Ireland. So we're putting that package together. The drug substance that we make here in Portland and then the aseptically filled, formulated and aseptically filled product into these drug product syringes by Norbrook. That will go in towards the end of this year, fourth quarter, barring any unforeseen interruptions. With that, the FDA will review it for 6 months, statutory review period, brings us up into the second quarter of '21. And now we hope we'll see a complete letter at that point. We think we have a good shot at that because of that phase submission, whereas we know what they're looking for on drug substance. So we hope to see no surprises there. Teaming up with Norbrook, brings an expert to bear, who's an FDA-licensed facility and doing this work for other companies. So we think there's a risk reduction there. But regardless, when we get out into the second quarter 2021, it will be in the FDA's hand. If they have further questions, we would have to respond to those questions and submit for another 6 months review. So that's the fork in the road in '21. If we can get it first time complete, we go to market third quarter. If not, we go-to-market end of '21 into the very beginning of '22. That is where I want to sort of jump out of the slide deck. I would just mention, if you are looking at that deck, the other sections, the testimonials are just phenomenal. I mean, it's where I get some of my confidence on what producers say about this product. Just, it's worth a read. That's Section 2. Some good financial data in Section 3. Of course, all the details in our Q and K SEC filings, but picked out some highlights and some good disclosures there in Section 3, and then just supporting information on 4. So I guess, really, that's where I'm at with the corporate presentation. So with that, let's move on to the Q&A session. Again, only participants utilizing the dial-in conference call will be able to ask questions. So let's just pause here for a moment, and let the operator assemble the roster.

[Operator Instructions] At this time, we will pause momentarily to assemble the roster. I'm currently showing no question. Thank you.

Great. I don't think I'll pause longer. That's just fine. I did see on the screen here that we had several stockholders participating and listening, and I appreciate you doing that. So lastly, as I said earlier, in place of the customary on-site tour, we have loaded a video tour of our new 14,300 square feet of leased production space at 175 Industrial Way. It's what we've just completed renovating and fitting out. It's on our website. A link is provided on the First Defense page, or again, now or at any time, you may contact Jen, our Office Manager, at (207) 878-2770, extension to 0, or just send her an e-mail at [email protected]. She's standing by now, and she could send you that link or send you those reports at any time. So with that, this concludes the informal portion of our meeting. Thank you all for attending this virtual meeting. These are difficult times, and we are all doing the best we can to adopt and stay safe. I look forward to speaking with you -- with most of you, again, to review the second quarter financial results towards the end of the week of August 10. Be well and be safe, and have a great rest of the week.

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