Joe Diaz - Lytham Partners, LLC Michael Brigham - President, Chief Executive Officer, Treasurer, Secretary, Director.

Sam Rabotski - SER Asset Management Brian McCauley - Moloney Securities Larry Brookes - Moloney Securities.

Good afternoon, everyone. Welcome to the ImmuCell Corporation Third Quarter 2014 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note that today's event is being recorded.

At this time, I would like to turn the conference call over to Mr. Joe Diaz. Sir, please go ahead..

Thank you, Jamie. Thank all of you for joining us today to review the financial results of ImmuCell Corporation for the Third Quarter of Fiscal Year 2014, which ended on September 30, 2014. As the conference call operator indicated, my name is Joe Diaz. I am with Lytham Partners. We are the investor relations consulting firm for ImmuCell.

With us on the call representing the company today is Michael Brigham President and Chief Executive Officer. At the conclusion of today's prepared remarks, we will open the call for question and answer session.

If anyone participating on today's call does not have a full text copy of the release, you can retrieve it from the company's website at immucell.com. Before we begin with prepared remarks, we submit for the record the following statement.

Statements made by the management of ImmuCell during the course of this conference call that are not historical facts are considered to be forward-looking statements. The Private Securities Litigation Reform Act of 1995, provides a Safe Harbor for such forward-looking statements.

The words believe, expect, anticipate, estimate, will and other similar statements of expectation identify forward-looking statements.

Such statements involve risks and uncertainties, including but not limited to those risks and uncertainties relating to difficulties or delays in development, testing, regulatory approval, production and marketing of our products, competition within our participated product markets, the uncertainties associated with product development, pharmaceutical grade, Nisin manufacturing, our potential reliant upon third parties for financial support, products and services, changes in laws and regulations, decision-making by regulatory authorities, currency fluctuations and other risks detailed from time-to-time in filings that the company makes with the Securities and Exchange Commission.

Including quarterly reports on Form 10-Q, annual report on Form 10-K and current reports on Form 8-K.

Investors are cautioned that forward-looking statements made during the course of this conference call are based on management's current expectations and involve risks and uncertainties that could cause actual results to differ materially from the statements made. The company disclaims any obligation to update forward-looking statements.

With that, let me turn the call over to Michael Brigham, President and CEO of ImmuCell Corporation.

Michael?.

Thank you, Joe. Thank you to all of you participating in today's call. I greatly appreciate your time and your interest in ImmuCell. Although this is our first quarterly conference call, I know that most of you on this call are very familiar with the company, its history and recent operating performance.

With that being the case, I will dispense a long historical overview and get right into the results of the third quarter 2014.

We continue to execute on two core components of our business strategy, expanding the market penetration of First Defense, our best-in-class treatment for calf scours, an advancement and development of Mast Out, our novel treatment for subclinical mastitis and lactating dairy cows without the milk discard, our groundbreaking product innovation is unlike all other mastitis market.

All other mastitis treatments on the market today that are sold subject to milk discard requirement. Regarding First Defense, as some of you may know, calf scours takes a heavy toll in terms of the economic on the farm.

We estimate that animal scours related costs are approximately $358 million to the beef industry, so these are large market opportunities with great potential going forward. The market conditions are very good right now.

We have a very strong milk price, equally or perhaps more important, the milk-to-feed ratio is very strong, the price of bull calves is very unusually high at this time. One of our competitor product is experiencing an inventory shortage. Regarding Mast Out, sales of Mast Out are subject to approval of our New Animal Drug Application by the FDA.

The FDA's phase review process of a new animal drug allows us to break down the regulatory development process into five separate technical sections approvals as we go. We have three Technical Section Complete Letters in hand for environmental impact, target animal safety and effectiveness.

Our remaining efforts are now focused on completing the human food safety and the manufacturing technical sections. The big investments are behind us, the large clinical trial expenses are complete.

We just completed a $1.5 million investment in our facility at the beginning of the third quarter, so with these large expenses behind us, we returned to profitability in the third quarter of 2014 as projected.

As it relates to the operational and financial performance of the quarter and the nine-month period, for the third quarter ended September 30, 2014, total product sales increased 43% to $1.77 million versus $1.23 million in the same period of the prior year.

For the nine months of 2014, product sales increased 21% to $5.39 million versus $4.45 million in the same period last year. Our lead product First Defense comprises approximately 90% of our total sales.

Those results put us that nine consecutive quarters of positive sales growth in 15 out of last 16 quarters in comparison to the same quarters of the prior years, led by Bobbi Jo Brockmann, our Director of Sales and Marketing. Our expanding sales team is doing a great job. We recently increased that sales team by two additional reps.

We now have regional sales and marketing managers in each of the significant dairy pockets in the U.S. that being California, Texas, Idaho, Wisconsin and the Eastern U.S. Gross margin in the third quarter of 2014 was 61% compared to 50% in the third quarter of last year.

The very good result during the third quarter of 2014 is not something I expect to be repeated on a regular basis. Gross margin during the first nine months of 2014 was 58% compared to 55% during the first nine months of last year. We do expect to maintain gross margins above 50% for the full-year. I would like to talk a bit about the bottom-line.

As projected after the large investment in product development expenses during the first half of 2014 that I mentioned just a moment ago. The company returned to profitability during the third quarter of 2014.

Net income was $10,000, which is less than one penny per diluted share during the third quarter of 2014 in comparison to net income of $57,000 or $0.02 per diluted share during the third quarter of 2013, The net loss was $298,000 or $0.10 per share during the first nine months of 2014, in contrast to net income of $268,000 or $0.09 per diluted share during the first nine months of 2013.

To wrap up my comments, we are pleased with the continued momentum in sales growth of our First Defense product and continuing progress we are making in our Mast Out FDA approval process. While we still have ways to go, we can definitely see light at the end of the tunnel and we anticipate being able to begin commercialization of Mast Out in 2016.

We continue to invest in our expanding sales and marketing team to increase our presence on farm in with distributors. We continue to fund operations and that includes all the R&D and FDA-related expense from internally generated cash flow. We maintain more than $4.5 million in cash less with less than $1 million in bank debt.

All-in-all, we are pleased with the great progress achieved to this point. With that, I would like to open up the call for your questions.

Operator?.

Ladies and gentlemen, we will now begin the question and answer session. [Operator Instructions] Our first question comes from Sam Rabotski from SER Asset Management. Please go ahead with your question..

Congratulations, Michael. It is a phenomenal quarter, achieving your profit would have even been higher compared to the previous year, because you question picked up a $250,000 license fee, which you didn't have in this quarter, so that's good.

What do you expect going forward as far as sales? With the additional two salespeople, do you expect to continue improving sales?.

Yes. We have been adding sales reps from one to six now over the last five years, in proportion to sales and each time you see the sales grow, we have been able to reinvest in more coverage and more foods in the barn.

Yes, with the dairy market is very strong right now for those indices I mentioned and our sales team going into 2015, will be on the ground for full 12 months. The last two reps just came in, in the third quarter of this year, so we are optimistic. Good market, great sales effort by our team, more the same..

I guess you will get a handle, since they are just recently hired and recently in the last six months, they should be improving in the next year and is there any additional sales reps that you want to hire for overseas or anything like that at this point in time?.

You know then these people to come to us with a great depth of experience, so they need to learn First Defense, but they don't need to learn the dairy market. As far as for the international markets, our product gets up into Canada with a very strong distributor right now. It does a great job for us up there called Kane.

We get a little bit into Japan and a little bit in the South Korea with distributors in country, so right now that is I see us continuing that strategy of the international sales being led by in-country distributors..

Okay. One of the exciting things I guess you saw today that Zoetis an activist shareholder targeted the stock, so the space that your operating in there is a lot of companies that want to invest in this and this seems to produce a lot of interest.

Do you have a plan to tell your story more to the potential investors since there is an awful lot of people that want to invest in this area?.

Well, as you know, Sam I would like to remind or inform the others on the call that we just engaged Lytham Partners here in the second quarter of 2014. I think they have been doing a great job helping us meet interested investors.

Again, this call is our first effort on a quarterly conference call, so I am pleased with how Lytham is helping us we would like to continue again more the same with that effort..

You doing a good job, I am going to permit somebody else to ask some questions and I will come back into the call later. Keep up the good work, Michael..

I appreciate that..

[Operator Instructions] Our next question comes from Brian McCauley from Moloney Securities. Please go ahead with your question..

Hi, Mike. Good quarter. Thank you..

Hey, Brian, yes. That is kind of fun. Thank you..

Yes. You mentioned the facility is being constructed.

When will that be complete and when that does happen? Will you be staffing that with additional people or do you have staff in place now?.

Good question, Brian. Thanks. Let me just make sure we are clear here. We have been making two investments in the facility. The first one is Nisin production, so that is the investment that was completed beginning of third quarter.

That is where we are making the pharmaceutical grade Nisin for Mast Out as well as the active ingredient for our topical wipe, Wipe Out. The total budget for these two projects is $3 million. About half of that is done with the Nisin investment. I think you are referring to the second investment, which is an expansion of the side of our building.

That is going pretty well. As always could be faster. We got only a month or two later start than I would have liked, but we got the permit and got plans and we got the builders and we are really, really rocking and rolling and right now.

To answer your question that second investment is going to be completed here somewhere between end of fourth quarter, beginning of the first quarter, it is not really a big expansion of staff there. This is really space needed to spread out and separate processes that are being run right now on a campaign basis.

As sales grow, production grows and using two labs for one or one lab for two processes is just not good practice, so we are going to be able to spread out and be more efficient, you know, improves more product and I might mention if you don't mind taking a peek at our website you want to track that visually.

Go under What's New, and we are keeping a series of photos up there and you can see just as of today the roofing structure going on the building and we intend to keep updating that to see a pictorial of our construction progress there..

Okay. Great. Thanks a lot Mike..

Thanks, Brian..

Our next question comes from Tony Polack from [indiscernible]. Please go ahead..

Good afternoon. Hi.

Could you give us an ideal of the market for Mast Out, the size of the market? Assuming you get approval sometime in 2016, how quickly you can start producing?.

Yes.

The facility that I just described being completed third quarter is a small scale facility, not adequate for commercial quantities, sufficient for regulatory approval, cost of goods verification and some test marketing really, but to answer your question directly, we did do a bit of market research on that and there is a several assumptions that I won't detail here, but they are detailed in our slide deck, on our Investor Relations section of the website, which is I think a pretty good number that we work with, is seeing this product be a $5 million kind of revenue stream in year one and growing over the next 10 years up to $30 million product.

I would caution, it's also hard to make these projections, because today there really is no market for the treatment subclinical disease, so we are really creating a new market that doesn't exist today.

Again, we have to make some assumptions and some estimations to make those projections, but we did want to give you and other investors sort of a ballpark that make it. This is a significant product in a dairy field, significant new tool in mastitis treatment and in our market adding $5 million to up to $30 million sales is our goal..

Is there anything like a ROI on these type products or the ultimate buyer of it?.

Yes. Right, so the issue is the product is going to be premium cost compared to the current antibiotics are sold, but in return the producer gets to sell his milk, so it's a disease the subclinical mastitis is largely ignored today because the producer needs to generate that milk revenue. He knows the cow is sick, but he to needs to sell that milk.

With our product, he will be able to get something like $100 to $250 worth of milk revenue that he doesn't have to discard, where they use one of the other traditional antibiotics on the market, so the ROI is based on cleaning up the herd, getting a healthier cow producing more milk and being more efficient and saving that hundred that $100 to $150 worth of lost milk discard requirement from traditional antibiotics..

Is there a, I don't know if this is - if we know this is their percentage of the total population that you are going to be selling to that has this disease? Is it to quarter 0.25%, 1%? Do you have any idea?.

Yes. We have pretty good idea. I mean, we do study that a bit and I want to try and give you my best answer, Tony, but also a more detailed answer if you wouldn't mind. If you have time, look on our website the Investor Relations slide deck. The details are over there, so I'm just checking around Slide 27.

We also talk about what we know about the market. We also talk about that milk discard cost on Slide 25. What we know about the market is that approximately 2% of our herd is clinically affected at any one-time.

That is where the treatment is today, because when that cow is clinically infected, they are going to not be selling that milk anyways, because it is so infected it is not salable..

Right..

Now, on the subclinical side, there is a much greater infection rate. The cows are walking around the barn with about a infection rate of 20% to 30%, but that milk is salable, so much bigger infection but not as critical as far as it is saleable versus non-salable..

Great. All right. Thank you for the information..

Thanks, Tony..

Our next question from [Frank Gaspar], private investor. Please go ahead with your question..

Yes. Mike. Great quarter..

Thanks, Frank, to reconnect..

A brief questions, have you put - pharmaceutical grade Nisin in new facility yet?.

Yes. We got right into that. We are on pause there for construction in the first half of the year, but the entire second half of the year leading up to our target date for a submission of this manufacturing technical section is March of 2015. It is going to be plus or minus. It is a little hard to nail it down precisely, but it is a good estimate.

Over those nine months, that is essentially what we are doing is optimizing the process, running all equipment, optimizing, validating the equipment and establishing the critical data that goes into that called CMC Chemistry Manufacturing and Controls technical section to the FDA..

It's fair to say then that you have a viable manufacturing method for Nisin for the pharmaceutical grade?.

Right. I mean that my answer is yes. Absolutely, I think we have had that for quite a while, but now we are able to tweak it. The caution is of course, this is the pilot scale. Again, sufficient for regulatory approval, but not sufficient to build inventory for those sales numbers I referred to..

Right.

Is this protected in any way?.

Nisin was discovered in 1928, been used in food application since 1950, so it has been around for a long time.

There is not a blockbusters sort of composition of matter-type patent, so our intellectual property revolves around a manufacturing patent we have, the proprietary technology have, the know-how and of course the protection will get from the FDA as a first of kind, first intramammary drug approval for Nisin the FDA will offer competitive protection for five years.

The other piece I should mention the IP package will be the strain itself, which is a high producing strain and proprietary to ImmuCell..

Great. Moving to First Defense, the ongoing effort to get additional indications for that, I believe, you said in the press release that you expected to be completed by the end of the year. Could you add some more color to that in regards to what that really means in the way of when what if -.

The nice thing about the USDA as opposed to the FDA CVM is, it is a shorter regulatory process. The other difference is it's much less strict. In other words, when we make a submission on the FDA side, we know we are going to turn in six months.

The USDA doesn't have those kind of strict timelines, but they tend to be much quicker, so there is not five technical sections to go through. We have pre-agreed a protocol, we are running the trial right now. We think we will complete that trial by right around year end, make that submission to the USDA and get turnaround in 2016.

The reason I can't say six months from submission, is that USDA has a lot of discretion. We would approximate six months. It is going to be six to nine. It is not going to be year or two years.

There is not a statutory turn requirement for when they get back to us, so that's why we have been a little vague on that timing just knowing what we can control the trial and knowing what we can estimate is somewhere but after that submission in early '15, they get back to us and we - up or down on this additional claim for rotavirus..

I heard the first effort wasn't quite successful.

Is that yet to be determined for this test or the test results indicating that the formulation is on the type that the light effectiveness?.

Right, so we have done several different development project with rota. This current one is technology out of Baylor College of Medicine, so a lot of the early work starts and stops. The delay there was really more model development. It is the same technology we are putting into a better trial, so I would say I would answer in two parts.

One, the old previous technology prior to Baylor was not successful and we are very, very pleased and very optimistic about the Baylor technology and we like a model we developed and we would now run it full - with USDA concurrence on numbers and stats, but it is placebo-controlled, so we really don't know until that blind is broken..

Our next question comes from Steven Farber from Far Ventures. Please go ahead your question..

Michael, congratulations on the quarter, and I appreciate you taking the questions on the call.

Just a small bit of clarification for me, if you would, with respect to the physical improvements to the plant and equipment that you are adding and paying for and funding for out of operations, typically some companies might consider some of these items as CapEx and capitalized, but just for my own calculation purposes, is it correct in my calculations that these items are being expensed as research and development as opposed to being capitalized?.

Well, Steve, honestly, yes and no. The total project budget is $3 million. That that first half of it was expensed, because that is going into a plant that doesn't have a commercial purpose, at least it doesn't have a significant commercial purpose, so that is what we referred to as the Nisin plant.

That where we ran through as a product development expense. Now, the second investment, the one that you can see the photo progress on our website, the more USDA, more First Defense related facility addition, yes. That is being capitalized as a capital asset..

Okay. I understand. Thanks. Thanks again for doing the call..

Thanks, Steve. I appreciate it..

Our next question comes from Larry Brookes from Moloney Securities. Please go ahead with your question..

Hi. I am wondering in reference to the completion of your building or completion of acceptance of FDA once that is done after 2016 if all goes well. You talk about $5 million in sales the first year. Clearly, I would guess, that would not occur in '16.

How do get to that level? I mean, is that something where you build, continue to expand to your facility or use someone else's or you partner up? I mean, what is the next step after 2016, 2017?.

That is an excellent question, Larry. I mean, that is our biggest open strategic question as a company. I mean, we have on the one hand this growing revenue stream, very measurable very, very positive especially in this quarter.

This Mast Out, absent the capital we need to build bigger plan, we have estimated that number publicly at somewhere around $8 million, $9 million, $10 million. Simply money we don't have.

You are absolutely right that you can't get $5 million in sales out of our small scale plant, so our goal is to take out enough risk to find that financing whether it is debt or equity or partner, but continue advance Mast Out and we do need that financial help to build large scale plant, that is what we do not have today and certainly don't have - can't pay for it out of our $4.5 million or so cash..

In other words, most of this will be run internally? In other words, you don't expect - once this is approved by the FDA - if it is approved by the FDA, you would find a partner at that point.

You feel like expanding is the way you are going?.

Well, quite honestly our original development goal was take the risk, be the small company that takes out the initial development risk right out through efficacy, right out through zero milk discard.

Sam reference a license payment third quarter last year that came from a partner that did not close the deal, so there is an open project that is not completed. We don't have the money to do that, so whether I would still hope that. There is quite a lot of risk taken out by the time you have an FDA approval.

I would like to build a plan before that date..

Yes. Just what I am getting at is, let's say, you don't have a partner. You get the approval in '16, '17. To ramp up sales, you will have to start over again to build the plant if that is what you are going to….

Right, build a plan, get it into somebody else's plant, build the plant with their money, but you are absolutely right that projection I made of first quarter sales assumes you have got inventory to reach those sales and that will not come from the small scale plant..

Yes. Okay..

That is our challenge. That is a big one. That has been going on for a few years now, but..

Well, that is why you paid the big bucks to figure this out..

We got to figure this one out. You bet..

Good. Okay. Thank you..

Thanks, Larry..

Our final question today comes from Sam Rabotski from SER Asset Management..

Michael, sort of we have gotten the - we don't have to discard the milk, which is good. Is it possible that the farmer may want to prophylactically give the cow the Mast Out even though there is no subclinical, because of the negativity about the antibiotics there has been this big uproar about the new district giving antibiotics to the cow.

Would it be possible to increase the size of the market if instead of just giving it for subclinical mastitis, you might give it for prophylactically?.

Right, so I have to be very careful here, because we don't support or condone off-label uses, but that our label claim will be the treatment of subclinical mastitis in lactating dairy cows. I think it is highly likely, we would be very interested in pursuing a clinical claim as a separate application.

Will some people use the product off-label on clinically infected cows? They don't have to be - that can be returned to the commercial milk barn quicker? That is possible, but it would be off-label. I think the other answer to your question Sam is, yes, we are treating subclinical mastitis, but subclinical mastitis often advances to clinical.

While that is our label, the effect of our product is also preventing those clinical flare-ups to some extent, so some of that is organic. It is natural. You treated subclinical, the cows is not going to get clinical infection. The other is subject to a different application. That is a different trial.

We did not run our trial in clinically infected cows. We ran it on subclinical mastitis..

Michael, everything is exciting. I think at this point, the people have to discover what you are doing. There is an awful lot of opportunities for ImmuCell. Good luck. Good luck to the team and just keep hiring the sales people and sell the product..

Good. Thank you, Sam. I appreciate that..

Ladies and gentlemen, I am showing no additional questions. I would like to turn the conference call back over for any closing remarks..

For me, Michael Brigham, I appreciate anyone that is still on the line, I appreciate those that cut off just moments ago. Thanks. This is a new experience for me. Great effort by Lytham to get it set up, a good communication tool. We will do more the same and I made a few references to the website. It is up-to-date as of 4 o'clock today.

Investor presentation, the Q, the press release and I would encourage you to take a look if you can make time for that..

Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending. You may now disconnect your telephone lines..