ImmuCell Corporation

Good morning, everyone, and welcome to the EMU Cell Corporation Report's first quarter of fiscal year 2021 financial results conference call. All participants will be in a listen-only mode. Should you need assistance, please say no to a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Joe Diaz with Lithium Partners. Sir, please go ahead.

Thank you, Jamie. Good morning and welcome to all. As Jamie indicated, my name is Joe Diaz. I'm with Lithium Partners. We're the investor relations consulting firm. We're in the cell. Again, we thank all of you for joining us to discuss the unaudited financial results for the first quarter of 2021. I'd like to preface this discussion today with a caution regarding forward-looking statements. Listeners are reminded that statements made by management 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 better known as the Safe Harbor Statement, provided in last night's press release and the company's quarterly report on Form 10Q. With that said, let me turn the call over to Michael Brigham, President and CEO of Emucel Corporation, after which we will open the call for your questions. Michael.

Great. Thanks, Joe. I appreciate the opportunity to provide some updates on what is going on at Emucel, the press release and the quarterly report on Form 10Q. that we disclosed last night cover the key financial highlights and all the details. As you may know, on April 7th, we issued a press release covering our preliminary top-line sales results. We have been making these optional announcements to give investors a very timely look at what I view as the most critical measure of our operations and financial performance, that being product sales, early in the reporting period. Again, product sales are down 16% compared to the first quarter of 2020. I should note that sales during the first quarter of 2020 benefited from some ending inventory going into the quarter on hand as of December 31, 2019. While we produced product at about 100% of our current production capacity during the first quarter of 2021, it was not enough and strong demand created a backlog worth approximately 3.1 million dollars as of March 31, 2021, which was increased from about 1.8 million as of December 31, 2020. Our investment to increase our annual production capacity from approximately 16.5 million to 23 million is on track to be complete by the end of June. With that, we do expect to make up for the first quarter drop in sales and report sales growth for the full year 2021 over 2020. Our sales team has been working very diligently to manage the product shortfall with customers. I can now see the light at the end of this 18-month tunnel to where we can start selling with inventory on the shelf sometime during the third quarter. The drop in gross margin to 39% of sales during the first quarter of 21 is also related to this capacity expansion. To demonstrate, I will review some informal pro forma finances with you. Had we been able to reduce costs by $287,000 during the first quarter, our gross margin percentage would have been 46% instead of the 39% we reported. We have identified costs aggregating at at least that amount that I would consider upfront startup or one-time costs These are costs that we had to incur to benefit from the future capacity expansion, but they were not necessary to meet the first quarter production output. In addition to the top line sales results, the production capacity expansion, and the gross margin results just discussed, I would like to touch on three more topics. One, the use of proceeds from April's equity raise. Two, our cash flows. And three, the road to regulatory approval of retain. First, as you may know, we raised $4,250,000 in new equity at $8.25 per share last month. That was a straight common stock deal, no warrants, no converts, very low issuance costs. This funding, together with some other available cash, allows us to aggressively take on four new important growth investments, aggregating about $5.4 million. We are investing to scale up and upgrade our vaccine production capacity, expand and improve our colostrum collection capabilities and logistics, further increase our annual production capacity for First Defense from the new level of 23 million to about 30 million, and for build inventory levels as we come out of backlog and prepare for peak selling season during the first quarter of 2022. Full details about these investments and other capital expenditure projects that we are working on can be found in our quarterly report in the MD&A section under Liquidity and Capital Resources around pages 25 to 26. I appreciate the confidence that these new investors have demonstrated in our business, and I believe we are putting this money to very productive use to grow our business for the benefit of all stockholders. So secondly, our cash flows. Driven primarily by large product development expenses to bring retained to market, we continue to report a net loss. However, I think we should focus on our cash flows more than our gap net loss at this stage in our development. Page four of last night's press release provides a look at the impact of certain non-cash expenses on our financial results. You can see that we continue to report positive EBITDA, which I believe is the most relevant to tracking our bottom line performance at this stage. But the most important measure is the statement of cash flows on page four of our quarterly report. Third and lastly, the road to regulatory approval of Retain. It has been a long and it has been an expensive road, but we are nearing completion of the work required to achieve FDA approval of this novel subclinical mastitis treatment for lactating dairy cows without a milk discard or meat withhold. During the first quarter, we submitted the last of five technical sections required for FDA approval. This kind of submission is subject to a six-month review by the FDA. That puts us at a huge fork in the road during the third quarter of this year. If the FDA has questions for us, we could be required to respond through another submission, which would be subject to an additional six-month review. We do not anticipate that an additional submission would be required after that. Therefore, we are making plans for a mass market launch during the second quarter of 2022 while also being prepared to flex to an initial limited launch plan around the end of this year in the event that approval comes through in response to our first submission. Retain puts a second horse in the race for us as we strive to keep growing our total product sales. So in conclusion, I encourage you to review the press release and the quarterly report on Form 10-Q that we filed last night. Also, please have a look at our corporate presentation slide deck. A May update was just posted to our website last night. I believe it provides a very good summary of our business strategy and objectives as well as our current financial results. You would see the Investors section on our website and click on Corporate Presentation. With that said, I will be happy to take your questions. Let's have the operator open up the lines. Thanks, Jamie.