Good day and welcome to the ImmuCell Corporation reports Second Quarter Fiscal Year 2019 Financial Results. 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 note, this event is being recorded.

I would now like to turn the conference over to Joe Diaz with Lytham Partners. Please go ahead..

Thank you, Alyssa, and good morning to all of you on the call. My name is Joe Diaz, with Lytham Partners. We are the Investor Relations consultant firm for ImmuCell. I thank all of you for joining us today. We'd like to preface this discussion with a caution regarding forward-looking statements.

Listeners are reminded that statements made by the management team of ImmuCell 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 in the company's press release that was issued last night, as well as in the company's periodic filings with the SEC, which can be obtained from the SEC or by visiting the Investors section of the company's website at immucell.com.

With that said, let me turn the call over to Michael Brigham, President and CEO of ImmuCell Corporation, after which we will open the call for your questions.

Michael?.

Okay. Great. We have a very good roster assembled here. So thank you all for taking the time to join today's call. I do appreciate that. We have spent a fair amount of time preparing our quarterly report on Form 10-Q. I think it is worth a read. I'm not going to repeat a lot of those important details on this call.

But I do want to highlight three important milestones to look for going forward, and then mention what I see as the two most important financial results from last night's filings. So let me start with the three important milestones to watch for.

I think, as previously disclosed, you may know we have a $3 million project to expand production capacity for First Defense. That project's underway at the early stages, going well so far, just getting started here.

The goal and the end result of this project will be to increase our liquid processing capacity by 100%, increase our freeze-drying capacity by 50%. And what that means to us is that we expect this investment to increase the annual sales value of our production capacity from approximately $18 million to $27 million.

So we will keep you updated on that progress. Number two, we also have a $4 million project to create our own aseptic filling capability for Re-Tain. This investment is necessary to give us the needed control over the production process for Re-Tain from start to finish.

So at the same time we continue -- at the same time we're building this production capacity, the filling capacity, we continue to progress a short-term contract with our current aseptic filling CMO. And as you should anticipate, we will issue a press release when we have this matter resolved up or down.

Thirdly, we do expect the FDA to complete its review of our first phased drug substance submission of the CMC Technical Section, still here in the third quarter. This will be announced in a press release. So, with that let me turn to the two important financial disclosures.

So, I think it's really important to look at the non-GAAP disclosures in our press release. Of course, we don't put those in our Q, so I would point you to the press release when we look at such expense items, noncash expense items like, depreciation, amortization, stock-based compensation expense, income taxes. All these expenses are noncash to us.

So, at times our reported losses could have been income had not been for these large noncash charges. And we've laid that out pretty directly in the press release for your consideration. And then, let's talk about the sales results. So we had a very strong increase in total sales during the first half of the year, first half of 2019, ended June 30.

We don't focus too much on the quarterly results. With our relatively small numbers, a small dollar swing can result in a pretty large percentage change, plus the timing of order backlogs can distort the results. So, in my opinion, longer periods are better. Six months being up 21%, is what I look at. That's an additional $1.2 million in revenue.

That brings the trailing 12-month sales to $12.2 million. So that's a great result for us in this very difficult dairy economy. It's a great work by our sales team. Tri-Shield is creating most of this growth for us. Tri-Shield First Defense has created a new opportunity for us.

The new market opportunity for us is about quality over quantity and beyond vaccination. I have asked our VP of Sales and Marketing, Bobbi Jo Brockmann to join this morning's call to talk a bit about what this means to customers, after which I'll be happy to take your questions. Bobbi? Bobbi Jo Brockmann Thank you, Michael.

So, there is a significant change we are seeing in the dairy industry and in fact it's a positive one. A quality revolution is going on right now. So now, more than ever raising replacement heifers, those female calves that are destined for the milking stream, it's about making the best ones and not necessarily keeping every one.

So, in my 20 years since graduating from Iowa State, I've been focused nearly 100% on newborn calves, not just as a manufacturer rep selling calf products, but also actually raising calves, as I managed a dairy for seven years. I've witnessed this evolution very closely and it's fascinating to me.

Our industry has gone from a low-cost mindset, where many producers strategically avoided making investments in newborn calves which big surprise led to a relatively high death loss in that enterprise. The industry then moved into what I like to call the zombie apocalypse.

This is where we sharply reduced death loss, but we've swung the pendulum in the opposite direction, where we started nursing calves back from the dead. So this is reactive health strategy rather than a preventative approach. Met farms had a lot of costs, wrapped up in replacements that simply never met their genetic potential.

And then sexed semen became mainstream and we experienced a heifer baby boom like no other.

The industry tried raising all of these females with the same facilities without increasing staff much if at all and farms went from lines of hutches sitting for a week or two between fields to moving calves out before they were really ready just because more newborns were coming and hutch space was needed.

So pathogen load surged and we were still ending up with mediocre replacement heifers coming into the milking streams. But now we are hitting a quality revolution as many farms tighten up their calf operations.

So, genomic testing, crossing dairy cows with these semen to increase the value of old calves, those are at all-time highs as folks are being more strategic in how they use such semen. Producers are indeed raising fewer replacements than before, but they want these replacements to be quality right from the start.

They need them to be quality and are willing to invest more in preventative health programs. And since variability degrades the performance of our production system, this movement is pretty important, especially considering the last 15 years, half of the U.S. dairy farms have disappeared.

What's really exciting for us is those that are still in this game and poised to thrive are focusing on heifer return on investment by reducing the variability which widens the gap between genetic potential and field performance.

Those producers are looking for a guarantee when it comes to newborn calf immunity and we are the only product that can do that for both bacterial and viral scours. So, the competition, these scour vaccines, they date back to the 1970s. These are vaccines given to the cow for no other reason, but to protect the calf.

They've been around forever, but the protection they provide is highly variable. It is biologically impossible for a 100% vaccine response rate. It's generally assumed 70% to 80% of cows may be responding. Well, this leaves 20% to 30% of the calf crop unprotected.

We are the only tool that can take the market beyond vaccination and protect every calf equally. So, it takes time to change a tradition that is going green, but the quality revolution we are seeing regarding replacement heifers aligns very well with our goal to replace the variable vaccine response with our verified antibodies.

We're on the front end of this market disruption. It's exciting. And the investment we're making in production expansion is important, so more producers can go beyond vaccination with guaranteed levels of immunity. I have to say it's really nice to have the opportunity to share some market insights with you folks.

I appreciate that and I hope you found it interesting. With that, I'll turn it back over to Mike..

That's great. Thanks Bobbi. That's a really great -- some great insight and some color to these numbers and what's going on in our market. So, it's clear to me you and the sales team are doing a really great job. So, with that in conclusion, I do think we hit most of the important topics.

I encourage you to review our press release and Form 10-Q for more details. You may also want to review our Investor Relations slide deck. An updated version has been posted to our website, see the Investors section and click on Corporate Presentation. I hope you appreciate the streamlined approach to this call.

This saves more time for your questions which are important to me. So, with that said, let's have the operator open up the lines for your questions..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Sam Rebotsky with SER Asset Management. Please go ahead..

Yes, good morning Michael, good morning Bobbi. Through -- in the 10-Q, you talked about the First Defense and your basically ability to get from $18 million to $27 million. And you talked about international also.

To what extent, do you have enough inventory to be more – ship more to internationally? And how do you expect to increase international sales?.

Yeah. Thanks Sam. Good to hear your voice. So, on the inventory night and day, we are way better positioned today than just six and 12 months ago. So we've never had a big problem with the bivalent formats. The First Defense we – as you do know, we've had quite a shortage of the Tri-Shield.

What's exciting, what's positive is the Tri-Shield inventory is now building. We've solved the vaccine problem that was keeping us from immunizing enough cows, and then making us unable to produce enough doses. So those challenges of 2018 are behind us.

We're building inventory across the product line and positioning the sales team to take the Tri-Shield back to a mass distribution strategy here, during the second half of the year, which will be a great move for us, let our sales team focus more on creating new business.

We've had to invest a huge amount of time and just allocating scarce product over the past year. So, inventory is building. Tri-Shield is fixed. I think we're positive there. The international market is something that we – different regulatory requirements. Today, we've been successful in Canada. That's our largest international market ex U.S.

anyway, a little bit into South Korea, a little bit into Japan. But we are working on the regulatory requirements to access some new markets. I think those are still a year or so out a year maybe plus out. But we can now really pursue those opportunities with greater energy, greater urgency, having the inventory situation fixed.

So, obviously, we didn't want to create a new market, if it's just added to our scarcity. So that's out in front of us a bit, but it's definitely a priority for the next year to get entry and just build on one territory that's on..

Okay. Now as far as the Tri-Shield, you say you expect to have $1.5 million sales in the next two quarters. Do you – your building of inventory this is all dependent upon getting larger amounts of inventory.

And what do you need to do and how soon do you think you could get to building inventory to increase sales beyond $1.5 million?.

All right. Okay. So the $1.5 million, we referenced in our filing was a production number, but the way Bobbi and our sales team's role they sell most of everything we produce. But what we're confident of is, what we can produce, what we're going to see over the next couple of quarters is, how much of that can be shipped out our door.

So, the inventory is building, and that again will get us back to a mass-market approach through distribution rather than direct to identified farms. So we're going to see that. We've seen that build over the last five quarters, and then projected what we'll see in the second half of the year.

And the third and fourth quarter will reflect that transition from scarcity to inventory from direct allocation to farm to – back to distribution. So I look forward to seeing those numbers with you Sam to see our third and fourth quarter results..

So you expect to be able to produce enough inventory to sell even more than the $1.5 million? In other words, you don't have the bottleneck now? You have the ability to produce what you think the market wants?.

Well, when you analyze take that $1.5 million and annualize it to $6 million a year that's our starting point -- that's not our starting point that's our next step. So bringing sales up -- the production of that level lets sales work that inventory out the door.

It's always nice to have a little buffer stock, especially as we go into the first quarter our busiest seasonal sales quarter. But yeah, that's where Tri-Shield goes. It goes from $0.25 million per quarter in sales up to this new level here in this third and fourth quarter of the year and then we hit the busy season first quarter of 2020..

Okay. Now I just want to switch to the Norbrook and getting your -- versus setting up a plant. Norbrook -- besides the date that you need to match Norbrook had some problems with meeting the FDA requirements.

Is that factored into the time frame? Is that helping you negotiate with Norbrook the fact that they've had problems?.

It's been a painful and long negotiation as all our investors that are following that are aware. It's something that I think what we need to do is grab control as I mentioned in my prepared comments grabbing control from start to finish.

So, what we can control is our ability -- so again, Sam, for the benefit of others what we're talking about here is we make the drug substance the active ingredient. Somebody else the CMO fills it into a syringe aseptically for us. We have not been able to do that. We previously didn't have the money to invest in that capability.

Having raised money here in March, we have the financing. We are investing. We are going to bring that aseptic fill in-house so that we can control beginning and ending from drug substance to drug product.

And what that does is leave a window where we know the shorter-term bridge to market is through the CMO, and we're going to try and make that happen, but we can't control an outside party.

And we are focused on both getting the best short-term bridge we can for the nearest to market with the CMO and then controlling our destiny being able to have this product produced here in Portland Maine under one roof from beginning to finished product..

Okay. One final question.

I assume you'll be making presentations and telling your story, what's your plans? Where do you expect to tell your story in the next six months or so?.

Yeah. So, we do work with different partners on that kind of Investor Relations outreach. Our schedule is basically to get out after each quarter for two days. Lytham has a great network of small cap interested investors that Joe and his team put me in front of. So we'll continue to do that.

I think the schedule is basically that Sam two days after each quarter. And then special events pop up, like I do expect to be at the Alpha Select. I believe that's in November down in New York. So we'll go anywhere. We'll go where the network is strongest where the interest is strongest. We do tend to end up in New York quite frequently..

All right. Good luck, Mike. Hopefully, we get to meet all our milestones sooner than later. Good luck..

Perfect. Agreed Sam. Thank you..

[Operator Instructions] Our next question today comes from Joe Diaz with Lytham Partners. Please go ahead..

Michael, Bobbi, I wonder if you might give us a little bit more color on the opportunity that the dam vaccine market represents.

Yes, they've been doing what they've been doing forever and how is it that you're going to get them to change? And what could that possibly mean for the company in terms of a revenue ramp in the coming years?.

Yes, Joe, that's a good question. So for so long we are focused really just on the calf-level market where products are delivered directly to the calf. With Tri-Shield, it's really helped us get sort of to a new market. We think it's twice as big as the calf-level market. So we're going to compete at both levels.

We're going to continue to try and earn sales away from competitive products given to the newborn calf, while we get into what Bobbi was talking about in her comments Beyond Vaccination get into a -- challenging the effectiveness of a dam vaccine that's given just to take care of the baby want to deliver our product directly to the newborn.

So we see that market as twice as big, so good opportunity for us to grow sales at both levels.

Bobbi, anything you want to add there on the dam vaccine or Beyond Vaccination?.

So on the producer side, what's really exciting to be able to bring them a different technology is, how they can target that investment. So if you're going to use a dam vaccine as your scour preventative, you have to give that before you know if you even have a live-borne calf.

This quality over quantity trend that we're seeing fewer people are -- or there still were replacement efforts being held back, so there's more bull calves. And so you'd have to invest that vaccine cost before you even know if you had a heifer calf on the ground. So you can really target your spending better with our product.

The other thing that we're investigating is the common sense theory that the fewer vaccines you give to an animal the better they'll respond to the other vaccines that are more important for cow health.

And so if we can drop that scour vaccine and the mother cow's vaccination program, she'll respond better to the other vaccines that are more important for her individual health. So there's a couple of benefits from the producer side that are really helping drive that change in our paper..

Yeah. Thanks for that Bobbi. I was just thinking about more -- a direct answer to Joe your question. I think we've been -- pretty good estimate but it's an estimate that calf-level product category is worth about $18 million in sales per year.

The dam vaccine market is about double that in the neighborhood of $36 million per year in sales of those vaccine products..

Any -- can you give us a little bit of a sense of what's going on with the milk price right now and the important metrics in that regard? We've been in a real trough here for a while.

Are you seeing any sunshine going forward?.

Well, you can't pay a lot of bills with a one-month trend. But I hope July's price holds and improves, but July was a very positive month, so the first half of the year was not that strong. June, July a little stronger. So hopefully we're in a recovery mode here. I think we'll have to just wait and see what happens over the next few months..

Okay. Thank you..

[Operator Instructions] As there are no further questions this concludes our question-and-answer session. I would like to turn the conference back over to Joe Diaz for any closing remarks..

Thanks, Alyssa. And again thank all of you for participating in today's call. We look forward to talking with you again to review the results for the third quarter of 2019 somewhere around the middle of November. Again I would encourage you to review our SEC filings for the full unaudited second quarter details. Thank you again and have a great week..

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