ImmuCell Corporation (ICCC) Earnings Call Transcript & Summary

Thanks, Grant. Hello everyone, and good morning to each of you. My name is Joe Diaz, as Grant mentioned, and I represent Lytham Partners, the consulting firm handling Investor Relations for ImmuCell. We appreciate your presence today as we go over the unaudited financial results covering the year that closed on December 31, 2020. Before we proceed, I want to begin with a caution about forward-looking statements. Those listening should be aware that remarks from management throughout this call contain forward-looking statements, which carry risks and uncertainties that might lead actual results to vary materially from what is discussed today. You can find more details about those risks and uncertainties in the cautionary note on forward-looking statements included with the press release issued last night. Having said that, I'll now hand things over to Michael Brigham, ImmuCell Corporation's President and CEO, and afterward we'll take your questions. Michael?

Thanks, Joe. I’m glad to have this chance to share a few updates about what’s happening at ImmuCell. This is a really exciting period for us. Last night’s press release lays out the main financial results for the year that closed on December 31, 2020. Around March 30th, we plan to submit our Form 10-K, which will offer considerably more detail. You’re probably aware that on January 7th we put out a press release with our preliminary top line sales figures. We’ve been making these optional filings so investors can get a very prompt view of what I consider the most important gauge of our operations and financial performance early in the reporting cycle. Nothing has changed from the sales results we previously disclosed. For the year ended December 31, 2020, product sales rose 12% compared with 2019. That growth matters a great deal to us, and it has come alongside steady market share gains. To put it simply, our sales team keeps upending the conventional scour vaccine market by swapping out very outdated vaccine technology for our preformed antibodies. In addition to the top line results I just mentioned, which were already disclosed, there are three things I want to address with you today: first, where our investment to expand production capacity stands; second, the path toward regulatory approval for Re-Tain; and third, our cash flows. So, starting with where our investment to expand production capacity stands. As of 12/31/2020, we had a backlog of orders valued at roughly $1.8 million, whereas as of 12/31/2019 we had no backlog. That strong signal of demand for our product is a positive development and confirms why we need greater production capacity, since we must get every dose customers want into their hands. The leasehold improvements at our new formulation fill and assembling facility were finished during 2020. The last stage of this project, which includes a 100% increase in our liquid processing operations and a 50% increase in our freeze drying operation, remains on budget and on schedule to be completed during the second quarter of 2021. This work is being closely coordinated so that disruption to our ongoing operations and product supply is kept to a minimum. Before this added capacity is online, we do anticipate a decline in sales during the first quarter of 2021 versus the first quarter of 2020; this projected sales figure for the first quarter of 2021 comes to approximately 92% of the 4.1 million that we estimate to be our present production capacity per quarter. During the fourth quarter of 2020, we sold product equal to roughly 91% of that estimated quarterly capacity; we are working to clear this backlog and get back into a growth mode during the second half of 2021, assuming we capture anticipated demand and finish the year with inventory available on the shelf, ready for peak season sales during the first quarter of 2022, assuming we effectively complete our production capacity expansion investment. Moving on, regarding the path toward getting Re-Tain cleared by regulators, product development costs remain our biggest operating expense category, rising 18% to 4.4 million across 2020, which includes 1.5 million of non-cash depreciation expense. Let me discuss Re-Tain for a moment. The journey has been lengthy and costly, yet we are close to finishing what is needed for FDA approval of this first-of-its-kind therapy for subclinical mastitis in lactating dairy cows that avoids milk discard; we just filed the final one among five major technical sections needed for FDA approval; that particular one is called the Chemistry Manufacturing and Controls, or CMC Technical Section. A submission like this gets a six-month FDA review, which places us at a major decision point in the third quarter of 2021. Should the FDA raise questions for us, we might have to answer via an additional submission, which would then get another six-month review. We do not expect that a further submission would be necessary beyond that. As a result, we are preparing for a mass market launch in the second quarter of 2022, while staying ready to adjust through an initial limited launch plan in the fourth quarter of 2021 should approval arrive following our first submission. Third and finally, our cash flows. At this point in our development, I think we ought to concentrate on cash flows rather than our GAAP net loss. Page 5 of last night's press release gives a view of how non-cash expenses affect our financial results. We disclosed gains in both EBITDA and something I call a measure of cash flows, which I think matters most for monitoring our performance. Although both are significant metrics to weigh and to grasp our cash flows, the key measure is the statement of cash flows that will appear with our Form 10-K filing near the end of March. Assuming our audit wraps up, we do expect a year-over-year rise in net cash provided by operating activities of roughly $1.1 million, which benefited from 938,000 in other income tied to forgiveness of our paycheck protection program loan from the federal government; so to wrap up, I urge you to look over the press release we filed last night, and please also check our corporate presentation slide deck, a February update was just posted to our website last night. I think it offers a strong overview of our business strategy and objectives, along with our current financial results. Visit the investor section on our website and click corporate presentation, or simply reach out to our office and we can send you a copy. Having said that, I am glad to take your questions. Let's have the operator open up the lines.

Morning, Michael. So, you'd said the Re-Tain filing was going to go in on December 31, which means it's presumably in by now — can you talk about what made pulling all of it together take as long as it did?

Sure, Sam — and morning to you as well. It's just a really complicated filing. So yes, a number of months back — honestly I can't recall the precise count of months — we put out that projection tied to year-end. That target wasn't hit, and I'm fine with that, because hitting the deadline we'd already told people about while delivering something short of our strongest work would have been a hollow victory. So we gave it whatever time was required to do it properly, and you have to recognize this is an extremely intricate filing, drawing on data and contributions from third parties. Once everything was assembled and correct, in it went, and like I said, it went in not long ago, so we're talking weeks either way on a matter of that size. To me that's essentially a rounding error. Getting it in earlier would have meant it wasn't ready.

So we've received everything we needed from Norbrook < > and I assume we're feeling better about the submission — has the FDA said anything back to us about it?

No, that's not something they do; we wouldn't anticipate that from them. No, what I mentioned is that there's a review period set by statute. There might be some exchanges back and forth over the course of those 6 months, but nothing that — we wouldn't anticipate hearing from them until that 6-month review window closes.

All right, and regarding preparing the facility for production, which upcoming quarter do we think will fall short on completing everything — around 90% submitted — at what point in Q2 do we anticipate being caught up, so that we can fully submit the product?

Correct, Sam, essentially it functions like an on-off switch. Those figures — 90%, 91%, 92% — vary a bit by period, with somewhat different percentages, yet more than 90% of what we can produce now represents what we handle at present; and what we can produce now stands at roughly 16.5 million each year. No matter how hard we run that plant, no matter how hard we run our people, we keep arriving at that same approximate figure; after that, once the additional line starts up, it's largely a matter of additional freeze drying, largely a matter of additional liquid processing. Once that begins operating, we shift from 16.5 million yearly capacity to 23 million yearly capacity. Therefore 23 million is the level we must reach, since it provides us a bit of extra room above the 15.3 that represented actual sales during 2020.

Regarding that 23 million, is it known which quarter we’re anticipating, or do we have…?

In the next quarter, 2Q, yes, that arrives — every bit of this work is finished here during 2Q, and that represents a shift out of the backlog. Will it satisfy continuing demand and then begin accumulating some inventory, so that we aren’t staring at this backlog as we move into the latter part of 2021, and above all, prepare for peak season sales in the first quarter of 2022.

That sounds great, Michael. It's been quite a fight, I suppose, what with the cold weather and all the rest of it. Best of luck to everyone at ImmuCell.

Hey Sam, thanks for that.

I appreciate that.

Michael F. Brigham replying: Yes, thank you for following along so attentively. Sam, I'm grateful. That's good.

Morning to you, Michael.

Hello, George — morning.

Morning; the quarter's orders appear to have been pretty robust, since my understanding is you entered it with a backlog of merely 100,000 and finished at 1.8, so it seems orders during the quarter came to, I believe, over $5 billion — is that right, and how does that stack up against earlier years?

George, that arithmetic isn't tracking for me. Year-end backlog on 12/31/2020 stood at 1.8 million; against that, 12/31/2019 showed zero; thus entering 2021's first quarter, we carried those 1.8 million in unfilled orders while steadily clearing them during Q1. Perhaps I missed your point — does what I said make sense.

I want to check whether what I'm about to ask is coherent. It looks like during Q4, you had orders you filled in that same period, and on top of those, 1.8 worth of orders that couldn't be filled. So it appears demand in Q4 was really strong — is that right?

Absolutely. Things truly gained momentum once we got into Q4. What I'm saying is those orders — there was an enormous level of demand during Q4, and since our backlog had grown bigger, we brought it down to a smaller level as of 9/30 — September 30, 2020, and then it just accumulated powerfully.

And that segment you tied to the dairy sector's momentum — what else would you credit for it, since it looked as though orders basically took off during Q4?