ImmuCell Corporation

Good morning. This is Andrea from Chorus Call. I will be assisting with your conference call this morning. To get things started, let me ask Joe Diaz to open up the call.

Thank you, Andrea. Good morning and welcome to everyone on the call this morning. My name is Joe Diaz with Litham Partners. We are the investor relations consulting firm for Emucel. Thank all of you for joining us today to discuss the unaided financial results for the first quarter ended March 31, 2022. I would 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 or the safe harbor statement provided with last night's press release and with our Form 10-Q for the quarter ended March 31, 2022, and with the company's other periodic filings with the SEC. 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, and good morning, everyone. We have some great stuff to talk about today, so let's get started. The press release that we issued last night summarizes the unaudited financial results. Since that information is available to you, I will not take your time here to review all the line item detail, but I would like to discuss some of the highlights. Our efforts to scale up our production capacity to capture the acceleration in demand for first defense is paying off. Sales are up considerably, and we are making big strides in reducing the amount of the order backlog. As you may know, on April 11th, 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 product sales, which I believe is the most critical measure of our operations and financial performance early in the reporting period. I have no changes to that very strong previous disclosure. Again, Product sales were up 46% during the first quarter of 2022 and up 45% for the 12-month period ended March 31, 2022, in comparison to the respective periods of the prior year. That is a $6.6 million increase in sales during the 12-month period ended March 31, 2022, compared to the prior 12-month period ended March 31, 2021. So we are beginning to capture the benefits of our strategic decisions to invest more in sales and marketing expenses and to expand our product line. This sales growth is happening as we continue to manage a backlog of orders. Prior to our introduction of the newest extension of the First Defense product line in late 2017, namely First Defense TriShield, annual production capacity of about 16.5 million was adequate to cover sales promptly without an order backlog. However, our world changed with the introduction of TriShield. We have been investing millions of dollars in capital expenditures to increase our production capacity. This kind of significant investment in real estate, manpower, and equipment does take time, despite all the urgency and energy our team puts into it. The objective of the first phase of our production capacity expansion, which was initiated during 2019, was to increase our annual production capacity from 16.5 million to 23 million. We have achieved that goal with the annualized production output being just about 22.9 million during the fourth quarter of 2021 and about 23.8 million during the first quarter of 2022. Given our sales of approximately $21.1 million during the 12 months ended March 31, 2022, with an order backlog outstanding as of March 31, I feel confident that we made the right decision during the second quarter of 2021 to initiate an additional capital investment to further increase our annual production capacity to about $35 million by the end of this year. That work continues as planned. The gross margin as a percentage of sales improved to 52% during the first quarter of 2022 compared to 39% during the first quarter of 2021. Our gross margin percentage was 49.5% during the six-month period ended March 31, 2022, and 48% during the 12-month period ended March 31, 2022. The higher level of sales and improved gross margin helped us report net income of $736,000 during the first quarter of 2022, in contrast to a net loss of $441,000 during the first quarter of 2021. Earnings before interest, taxes, depreciation, and amortization, or EBITDA, increased to $1,434,000 during the first quarter of 2022, compared to $258,000 during the first quarter of 2021. These non-GAAP measures should be considered in context with our statement of cash flows that is presented in accordance with GAAP. In addition to increasing First Defense production capacity, our other company changing goal is to achieve FDA approval of Retain. We are anticipating a response from the FDA during the third quarter of 2022 to our second submission of the last of five technical sections, significant technical sections pertaining to Retain. This one specifically is called the Chemistry, Manufacturing, and Controls Technical Section. This would complete our new animal drug application. This response from the FDA will determine whether we will be able to commence market launch early in the fourth quarter of 2022. At the same time, we are responding to observations from a recent pre-approval inspection by the FDA. So our product development objective with Retain is to demonstrate that our polypeptide antimicrobial, Niacin A, can play a productive role in the treatment of subclinical mastitis in today's dairy industry and offer an effective alternative to traditional antibiotics. Because label requirements of all intramammary drugs on the market today require that milk be discarded and that meat be withheld during treatment for a period of time thereafter, it is common practice in the dairy industry to not treat sick animals that are still producing saleable milk. Retain provides an animal welfare benefit by removing the economic disincentive to treating subclinical mastitis and allowing sick cows to be treated without the milk discard or the meat withhold penalties. In addition to improved animal welfare, Retain enhances food safety and sustainability by utilizing niacin, that is not used in human medicine. This is important because the overuse of traditional antibiotics is thought to create antibiotic resistance, which is an ongoing public health concern. So that brings us current with regards to First Defense and Retain. At this point, I would like to look back at the beginnings of these product initiatives. To do that, I'm very excited to introduce Dr. Joseph H. Crabb to you. Joe is our former Chief Scientific Officer. and VP of Product Development. He is now serving in a consultancy role to ImmiCell. So thanks for joining, Joe. I got just two questions for you. First Offense was first approved by the USDA back in 1991. Take us back to that time, please. How did you come up with the idea of purifying antibodies from milk to make a scours prevention product for newborn calves?