ImmuCell Corporation

Good morning, and welcome to a Musil Corporation reports third quarter, September 30, 2024, an audited financial results conference call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference call over to Joe Diaz of Listen Partners. Please go ahead.

Thank you, Wyatt, and good morning, and welcome to everybody on today's call. As the conference call operator indicated, my name is Joe Diaz with Lithum Partners. We're the investor relations consulting firm for Emucel. I thank all of you for joining us today to discuss the unaudited financial results for the quarter ended September 30, 2024. Listeners are reminded and cautioned at statements made by management. During the course of this call include forward-looking statements, include any statements that refer to future events or expected future results or predictions about the steps the company plans to take in the future. These statements are not guarantees of performance and are subject to risks and uncertainties that could cause actual results, outcomes, or events to differ materially from those discussed today. Additional information regarding forward-looking statements and the risks and uncertainties that could impact future results Outcomes or events is available under the cautionary note regarding forward looking statements or the safe harbor statement provided with the press release and the form 10 K that the company filed last night, along with the company's other periodic filings with the SEC information discussed on today's call. speaks only as of today, Thursday, November 14, 2024. The company undertakes no obligation to update any information discussed on today's call. Please note that references to certain non-GAAP financial measures may be made during today's call. The company included definitions of these terms as well as reconciliations of these figures to the most comparable GAAP financial measures in last night's press release, in order to better assist you in understanding its financial performance. With that said, let me turn the call over to Michael Brigham, President and CEO of Imicel Corporation, after which we will open the call for your question.

Michael. Hey, all right. Thanks, Joe. And good morning, everyone. I am excited. I say that for a few reasons. First, I say that because some have told me that my voice does not always demonstrate that. Please judge me by my words and our disclosures. I'm excited to have a really difficult period largely behind us. The best evidence of that is that we have not had another contamination in our production process since the first half of April of 2024. We have a great opportunity to increase 2024 sales over both 2023 and 2022. We can see the potential of achieving FDA approval of Retain around the corner after all these years of investment. and we are eager to find out what the market thinks of our new novel product. We are fortunate to be experiencing strong customer demand for the first defense product line, but the significant investments in facilities, equipment, and staffing necessary to double our production capacity have been challenging. Despite delays in the installation of certain equipment, we completed these capacity-expanding investments around the end of 2022, around the same time As we began to operate at this higher output level, we began experiencing a production contamination events that became more frequent during 2023 and continued into April of 2024. We have investigated these events thoroughly. We were optimizing raw material mix to maintain acceptable bioburden levels while also maximizing yields. We also believe that some of the contamination was caused by equipment and processes that were not adequately optimized to run at a higher level of production output. These new remediation steps implemented during April of 2024 in response to the most recent contamination events appear to be very successful so far because, as I said, we have run without contamination since then and to the present. We do not see one smoking gun as a root cause to the contamination and yield losses. We think the solution is more about optimizing and controlling critical process parameters and multiple production inputs and process steps. The remediation steps of the contamination events required several adjustments, all within our USDA approved outline of production. Further, I would like to confirm that throughout these contamination events, all product that was sold to market had passed final USDA release testing requirements. When I look back, I see something that is now very understandable. After successfully running the same process for over 30 years, sudden growth is hard. We work with a high bio-burden source material, that being farm milk. We needed to better control the quality at the source of this growth. We are doing that now. Similar challenges were incurred in our downstream processing as we pushed our well-established process and equipment harder. We believe that the operational improvements implemented are allowing us to run more effectively at a higher output level going forward. To be successful, we must avoid future significant contamination events and equipment breakdowns, and operate with good production yields. So, turning to the P&L results, product sales increased by 11%, 51%, and 46% during the three 9- and 12-month periods ended September 30, 2024, respectively, in comparison to the same periods ended September 30, 2023. This helped us reduce The order backlogged to $6.8 million as of October 30th. This is exciting, but this top-line success has not been matched with adequate gross margin to the bottom line. Like most other companies in this economy, we are facing challenging inflationary pressures on the cost of labor and components. This impacts just about everything we buy. In addition, the other cause of the gross margin deterioration in the production yield losses that we have incurred during Excuse me. I just wanted to say this impacts just about everything we buy. In addition, the other cause of the gross margin deterioration is the production yield losses that we have incurred during the recent periods. That being said, our gross margin as a percentage of product sales did improve from 23% to 26% during the comparable three-month periods, from 21% to 27% during the comparable three-month nine-month periods and from 22% to 27% during the comparable 12-month periods. But this is still well short of our 35% to 40% target. We do believe that by both remediating the contamination events and optimizing the operation of the new equipment installed to increase production output, we can improve process yields beginning during the fourth quarter of 24 and into 25. With these strong sales, we were able to improve earnings before interest, taxes, depreciation, and amortization, or EBITDA, from negative $95,000 during the three-month period ended September 30, 2023, to positive EBITDA of $119,000 during the three-month period ended September 30, 2024. And we did reduce negative EBITDA to $2.3 million during the nine-month period ended September 30, 2023, to negative $221,000 during the nine-month period ended September 30, 2024. We have decided that some stockholder dilution is necessary in order to improve our cash position. To that end, our at-the-market offering has contributed meaningfully to our capital needs during 2024. It has helped us improve our cash position from just $979,000 as of December 31, 2023, to approximately $3.8 million as of September 30, 2024, as we stabilize our production systems at a higher output level. Concurrently, we are reducing product development expenses as we await approval of retain by the FDA. After an investment of about 25 years and approximately $50 million in the development of this technology, We are committed to seeing this product through to regulatory approval and the initiation of our previously disclosed limited distribution control launch strategy. At the same time, we were also in the very early stages of exploring potential strategic partnerships that could offset some of our product development expenses and enhance a mass market launch of Retain. So we will remain focused on the commercial opportunity we have with First Defense as we work through what we see as the final stages of the regulatory approval process and our effort to bring RETAIN to market. In May, the FDA issued a CMC technical section incomplete letter in response to our third submission of the CMC technical section for RETAIN. Pursuant to the incomplete letter, the FDA has provided some minor questions about our submission requiring a fourth submission. which is typically subject to a six-month review. However, the FDA has indicated that this resubmission potentially could be handled through a shortened review period because the open ends are not complex. Most critical to the timeline, however, is that the FDA has also required that we not resubmit the CMC technical section until inspectional observations at the facilities of our drug product contract manufacturer are resolved. Given the unique facts and circumstances, we are working with the FDA and our drug product contract manufacturer to obtain an expedited review. This is part of the process, and we are continuing to move forward. Regardless, we remain poised and excited to revolutionize the way that subclinical mastitis is treated in today's dairy market with a novel alternative to traditional antibiotics without FDA-required medications. milk discard and meat withhold label restrictions. So that's the big picture. With regards to the other financial results, the press release provides the unaudited P&L results and some unaudited summary balance sheet data. Further, our Form 10-Q provides all the unaudited financial details and management's discussion and analysis. We'll not take our time on this call to review all that in detail. But just lastly, I encourage you to review our corporate presentation slide deck. I do believe it provides a very good summary of our business and objectives as well as our current financial results. A November update was just posted to our website last night. See the investor section of our website and click on corporate presentation or contact us for a copy. With that said, I'd be very happy to take your questions. Let's have the operator... Open up the lines, please.