Good morning everyone and welcome to the ImmuCell Corporation reports second quarter fiscal year 2020 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, today's event is being recorded. And at this time, I would like to turn the conference call over to Joe Diaz of Lytham Partners. Sir, please go ahead.

Hi Joe. Are you on mute maybe?

And ladies and gentlemen, I believe that we are having some technical difficulties here with Mr. Diaz's line. One moment while we rejoin his line. And ladies and gentlemen, we have Michael Bregman Brigham on the line and I will be turning the floor over to him. Please go ahead, sir.

Good morning everybody. Sorry about that glitch. I am not sure what happened. I had Joe on the line a minute ago. I will just read his intro real quick and get right down to the business here. So we just want to preface this discussion 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 in available under the cautionary note regarding forward-looking statements or Safe Harbor statement in the company's press release and its Form 10-Q, which can be obtained from the SEC or by visiting the Investors section of the company's website. So with that, introducing myself, I will jump right in. I am Michael Brigham, President and CEO of ImmuCell Corporation. I thank you all for taking the time to join today's call. I do appreciate that. As you may know, last night we filed our Form 10-Q for the three-month and six-month periods ended June 30, 2020 and issued a press release summarizing some of the key results. I am going to rehash a lot of the detail that you can pick up from the Q and the press release, but I would like to highlight a few of what I see as the more important disclosures. First, as you may know we issued a preliminary press release covering our topline sales results only on July 7. We are doing that to give investors a very timely look at this critical measure of our operations. There has been no change to those preliminary numbers. Product sales were up 9% in the quarter over same quarter prior…

[Operator Instructions]. And our first question today comes from Nathan Weinstein from Aegis Capital. Please go ahead with your question.

Good morning Michael. Congrats on the quarter and thanks for taking my questions. So just firstly here, coming through an unprecedented first half, can you talk about the general financial health of your customers?

Yes. Thanks Nathan. Good morning. It's a crazy ride. I think maybe the simplest metric to follow is milk price, Class III milk price, extremely volatile. So some may know, back in March producers were dumping milk. There was simply no place to put it. No place to move it. It was being dumped on farms. That milk price that I track, dropped down to a really low level of like $13, $12 during the April, May period and has rebounded very significantly here in May and June. The July price, $24.54. I have a chart that tracks this back to 1980. It's the second highest price, only lower than September 2014 high by $0.06. I mean it's an all-time high. So the milk price is strong and that's a leading indicator for good economics on the dairy. But I caution, because I think it's high now and it's likely to continue to be variable. So, so far so good. I think we came through the worst of March and April. July looks great. But I am concerned about the volatility. Let's see what August and September and balance of the year does. But at the moment, pretty darn good.

Okay. Thank you. Okay. That's helpful. And next if we could just turn to the product side between the commercial stage product, the First Defense and then thinking about Re-Tain which we are anticipating in the future. And can you may be just compare and contrast those markets in terms of their size and any discussion just comparing them, please?

Yes. So first, let's define the two products, maybe. First Defense is for the calf, Re-Tain for the cow. First Defense, the product we have been selling for years preventing scours, or diarrhea in the newborn. So that market I have defined I think pretty well and I refer you over to a slide in our deck, because we kind of look at that market in two ways. So if people have a chance to look for the specific answer, 16, 17, 18 of the slide deck, how are we doing against two markets. One, the products are given to the calf. So there other products that are given to the baby, we are growing there. And then the products that are vaccines given to the mother with the expectation that she will produce better colostrum to be fed to the babies. Now we compete in that area too because we know those vaccines are really variable. The response of those vaccine is going be variable. The quality of the colostrum is going to be variable. We know that as well or better than most because that's our production. Every batch we make is variable. Of course, we equalize for that in our fill rate. So the calf getting our product gets a measured dose. But yes, those are the two markets we compete with and we have got a lot of opportunity that dam-level vaccine is much bigger than the calf level.

Thank you. Great. And I guess just one more from me. If we are thinking about the model, if and when Re-Tain comes to market, how could the presenting that product in the portfolio impact may be seasonality in your P&L and also margins?

Yes. Thank you. I kind of dropped the second half of your question. So Re-Tain is for the cow. This is a very novel treatment for mastitis, subclinical mastitis. Novel because it's not a traditional antibiotics. Novel because it's going to be the first and only product that can be delivered without a milk discard requirement. In other words, when you are using antibiotics, you have got to dump the milk because of the residue in the milk. Our product will have a zero milk discard claim. So a new entry there into a different way of treating mastitis. But to seasonality, First Defense is very seasonal. Our beef business is extremely seasonal. All those calves are born early in the year, say February, March, April. And on the mastitis on the Re-Tain side, it is going to be more -- mastitis is present throughout the year. It's not a seasonal, like a beef calving season. So that Re-Tain will give us a level or sales profile through the year.

Okay. Thank you Michael. Thanks for taking my questions.

Thanks Nathan. No problem at all.

Our next question comes from Sam Rebotsky from SER Asset Management. Please go ahead with your question.

Good morning Michael. How are you getting through this COVID? Hope everything is going well there.

Good. Thank you.

On the Re-Tain, which we expect to submit is basically in December. Is that the latest we will submit the Re-Tain to the FDA? Is that what our expectation is at the moment?

Yes. That definitely is our goal at this point. It's achievable. I mean we could have a surprise along this final path here. But now all efforts between ImmuCell and our contractor, everything we are doing here is gears towards fourth quarter submission. As you know, Sam, we need to get it in of the five technical sections, four complete. This is the fifth. We get it in. It goes for a six-month review. And then we will really know where we are as far as timing of launch because they are either going to come back with complete and we can launch or they are going to come back with questions and we will have resubmit for another six months. and we have got to start with the fourth quarter submission.

Okay. Initially when Lonza submitted the FDA and got the zero discard, are we producing 10 times? Or what kind of percentage times more material are we submitting than we initially submitted to the FDA?

Yes. Sam, I am a little confused. Lonza, really, I mean they were involved as a potential drug substance manufacturer many years ago, but no submissions were ever made with Lonza. I am guessing you might be referring to with this final section called CMC, Chemistry, Manufacturing and Controls. We have broken that down into two parts. A first phase and a second phase. Is that --?

Yes. My understanding is, you first submitted to the FDA and they said, yes. You met the zero discard and now you have to submit a larger quantity for production. And I am just trying to determine how much larger is the production? And generally speaking, you will have somebody on the ImmuCell site before you submit and make a judgment that it meets the zero discard before you submit it to the FDA?

Yes. It's really to, I think we need to separate it, two different questions. So human food safety. One of the completed four technical sections. That that drove the zero milk discard claim. So that's been complete for a while. That was, you are right, based on small quantities. Everything up until the CMC was based on research scale. Human food safety completed there in the third quarter of 2018. So all four technical section were small quantities. The fifth technical section is basically the FDA saying, hey, do the same, make the same product but make it at commercial scale. That's been the whole objective. That's a huge investment in the facility, the drug substance facility for the fifth technical section. So that first phase submission, we went ahead and submitted in drug substance and said, hey, have a look at that. They came back incomplete. We had some questions. We expected incomplete because they hadn't seen drug product. But it got us moving down the path of CMC submission. So when we submit the second phase drug substance and drug product, the Nisin and the Nisin-filled in a syringe, we will be responding to their questions to the drug substance first phase submission and we will be completing the submission with drug product produced at commercial scale.

Okay. That sounds very exciting. Now one more thing relative to Tri-Shield First Defense. We had a backlog and we reduced the backlog and we are waiting to produce more when the facility is available. When do we expect that facility to be available? And how much more production can we do currently as we could increase sales even though we reduced the backlog and so we could meet all the, I think it's 27 million or 18 million, whatever the number currently and then increase production and hopefully sell more internationally? So that's my question relative to the Tri-Shield First Defense?

Yes. You are getting towards that three stage investment that I described. So the first phase was getting that assembly, capsule assembly, out of 56 Evergreen because we needed to create space in this facility for the additional freeze-drying capacity. So objective one is complete. We made the space as we speak. We are in the final stages of getting that new freeze- dryer final construction, ship, install, validated, up and running in the next few months. Everything in the second and third phase and as soon as possible, is completed as soon as possible in this year. Freeze-dryer will come first. And that is critical. What we need to do is push more product through the freeze-dryer. So it happens here in the end of third, beginning of fourth we get everything we want. We get the additional freeze-dryer capacity up 50%. We get the additional liquid processing capacity up 100%. So that's where that investment is ramping up. It just was always the trigger in those three steps and we are pushing them, the sooner the better. That's how we get out of backlog. That's how we turn the corner.

Michael, it sounds very exciting. I am looking forward to meeting all our milestones, for ImmuCell to meet to milestones and looking forward to our reward at the end of the day. Good luck, Michael.

I know. Thanks for the patience, Sam. I appreciate it. Thanks.

[Operator Instructions]. Our next question comes from Tom Fox. Please go ahead with your question.

Good morning. Thank you for taking my question. It's about subclinical mastitis testing. Correct me if I am wrong here, but in order to detect subclinical mastitis, you need to test for it. So I have a two-part question. One, what percentage of farmers actually test for subclinical mastitis? And two, of the ones that don't, would there be a learning curve to learn how to test for it? Or is it something that the vets do? If you can just elaborate on all that. Thank you.

Yes. It's a great question, really important question because I know define the launch rate here of this product because we are entering into a sort of a new way of thinking. So you are right. A lot of these cows, these producers know that they are sick. They are walking around sick. High somatic cell counts, that's measurable, but they ignore it. Because the milk is still saleable. So our objective, what we need to do is come in and help the producers find these cows and show the benefit. The main reason they are being ignored and again producers knows they are sick but if you can sell the milk, they just ignore it and they walk around sick. We will come in, help them and say, here is the benefit. You have been ignoring that cow because you knew if you treated her, you have to dump the milk. Now don't ignore it. It's bad for the animal, bad for your milk production, bad for your milk quality, quantity. Treat her because you no longer have to dump that milk. So that is one of the biggest objectives for the launch is we are creating a new market. So there is a lot of education that's going to need to go on here. And I was just trying to reference one thing in the Q for you. A little more detailed answer. With me one second. So there is a risk factor, if you will, page 38, 39. I they think it is very relevant to your question. These are the things that we need to overcome. Sorry, I made the wrong reference just struggling to find it. I can follow-up that. I don't need to hold up other people. But here we go, sorry, finally it's not 38, it's 37. Uncertainty of market size and product sales estimates. I mean that's our answer to your question. That's what we have to do. We have to create awareness and create a demand for this new way, this new treatment paradigm.

So are you saying that they do not have, maybe I didn't catch this when you answered it. But are you saying that they do not have to test for subclinical mastitis?

They don't have to. Obviously, we will be showing the benefits to why you should. They all have somatic cell count measures. So they can see an indication. You can culture anytime you want. We have to create the demand for culture and using more cultures and using more somatic cells and not ignoring these sick cows. So it can be done. This is not done because, what are you going to do with the result right now? They could get a result, yes. She is subclinical infected. But I am not going to treat here. I need to sell the milk. So that's the paradigm shift.

Okay. That answers my question. Thank you very much.

Thanks Tom.

[Operator Instructions]. And our next question comes from Brad McCurtain from Maine Securities. Please go ahead with your question.

Thank you. Hi. Good morning Michael. And as always, thank you for all of the time you spend with us to help understand the process and the products and everything else. You are really, really wonderful at explaining, giving us time to ask questions and I appreciate it. Just, I have two questions. One, I just wanted to follow-up on the prior question about the testing and education. And then secondly, I wanted to ask you a little bit about the labeling process for the Nisin products for mastitis. On the testing situation, do we have our own test kits? Or is that a third party for them? And how do you plan to get the test kits into their hand, if it's not our product, how do you plan to get that test kit in the farmer's hands at a reasonable price and educate them on how to do the testing? Do you have a partner out there who manufactures these? Or is it a distributor?

Yes. That's the idea. Thanks. It's third-party. That is not our business. They do sell the CMT, that's California Mastitis Test. It basically helps you identify which quarter of the four are infected. But the culturing is done by vets. The somatic cell count is done by your milking system. These tests exist. There is a couple of different vendors that dominate the space. And we going to help them sell more of their product.

Sure. So I mean it involves a vet having to come out. There is nothing you can do yourself? The vet has to come out.

Yes. There are some on-farm culturing. There are some on-farm testing that can be done. Some are sent back to the lab. So it's a mix. But yes, the somatic cells is all on-farm. It's right off the milk line.

And what's the timeframe that a cow will be using our product before it is recovered? I realize, with zero discard, it's not really an issue in terms that. But the milk production goes down quite a bit when we a cow has mastitis. And so I am wondering, how long it takes to build that back up again?

Well, the treatment is three successive milkings. So some firms are doing three milking today. So they are done treating in one day and they are going to see that recovery over the next few milkings. So it's pretty quick. But you have got to get through three successive milkings. If you are milking twice a day, it's a day-and-a-half. And that's the treatment period. And the response or the heal or the correction is right after that third treatment.

Okay. Versus the antibiotic alternative is what a couple weeks? Or is that also --

No, you are going to see a response quick but you are going to see discard anywhere from 24 to 96 hours. So I think when we compare Re-Tain to traditional antibiotics, we will be comparing, not so much, I don't think the response rate, but the discard period. So you may be getting a response, but it doesn't matter if she is healthy after that last infusion of antibiotic. You still are discarding for up to 96 hours.

And when you use the term up to, what determines whether it's 80 hours or 96? Do you have to keep testing for antibiotic in the milk?

Each product is issued with a label and restrictions. So it's a product-by-product specific. I have got a good slide on that if you don't mind, because we just tried to answer the question a little bit in the deck. If you have chance to look at slide 25, we have kind of laid out some of the products and some of the discards.

Yes. Okay.

It's by label, by product.

Okay. And then the other question I wanted to ask is on the labeling process. Has that begun yet with FDA?

Yes. Sorry and my reference should have been to slide 26 on the discard periods.

Okay.

So yes, that's established. That was established in those other four technical sections. So they have issued a draft label. It still needs to be finalized. But what we needed to know to proceed with the drug substance investment is that our label was set and agreed as far as the breadth of claims and as far as a zero milk discard. So those four technical sections sort of establish that. And then it's about manufacturing and they will come back in the end and detail the final label. But we have established what is critical is the bugs that will be labeled and the zero milk discard that will be labeled.

Okay. Is that something that?

Yes. It is.

So the label is? Where would I find them.

Right in my Q.

In the current Q?

Yes. As far as those two key things. Bear with me one second. Shoot, Brad, I am going to need to find it. But yes, we call out the effectiveness, sorry, page 29, there is a review of the five technical sections and the label of the bugs was established line number three and the zero milk discard was established under line number four on page 29.

Okay. And are you taking this yourself, you and Joe? Or do you have a site helping you with this?

My role is limited. I encourage the experts. This submission is led by quality, Gustavo Scaffa, led by production VP Betsy Williams and like you mentioned, Joe Crabb and our Director of PD as well, John Zinckgraf. So the four of them are the leads. We do access consultants but we drive the process. We make all the submissions.

Okay. So do you have a timetable at all then for this educational piece that you referenced on the prior question? When do you plan to start that? Because right now, we are kind of looking at June 30, 2021 as being our date when hopefully we can start going forward for commercial sales?

Yes. You have got to be ready for that. It will be a little, six months is the review period. Then there still is more to do after that. There is a 60-day administrative review once you get the complete letter. So you are looking end of July or shortly thereafter. We have got to jump in to start that pre-launch marketing in the beginning of 2021 and hope that's needed for that first time complete. If not, you are six-month ahead. You have started the education and you are not able to something for another submission, for another six months review period. But yes, present, it moves forward here the end of this year, beginning of next year, our sales team begins to multitask, First Defense and Re-Tain.

Yes. And at what point do you begin manufacturing?

Well, we are. So we have to be manufacturing to complete the submission. So we are manufacturing today to complete that drug product submission. And then it ramps up into 2021 as you begin to build product for a launch.

Right.

That plant is turned on. That plant is operating commercially, right now not at full capacity, but yes.

Yes. But that's mostly for submissions, correct?

Moat of that product, we hope, depending on timing and shelf life and expiration, but some of that would be salable. It wouldn't be salable till FDA approval. But it would meet all the requirements. So we hope some of that will be our initial launch quantities.

Yes. Shelf life is how long from manufacturing date?

Shelf life?

Yes. From manufacturing date?

Yes. 24, right now. I mean that has to be reviewed and finalized and approved. But we hope it's up to 24.

24 months?

24 months, sorry. Thank you.

Yes. Okay. Sounds good but do you plan to scale up my manufacturing prior to approval or not until you get approval?

Yes. We start scaling up next year. I mean we are not going to go to full capacity, but it will be a scaled up process. So we will be prepared on the optimistic third quarter 2021 launch with some product.

So you think you will start scaling up manufacturing in the second quarter or not until you get approval? I am just trying to --

Yes. So we are manufacturing today and will continue to manufacture right through to launch. It will just be at an increasing rate. But yes, it's just a question of your plant is running or the question is how many times per month you run it.

Okay. Well, thank you. As always, Michael, you are very generous with your time and answers on here. it's great. Thank you.

Hi Brad. Thank you. I appreciate that. Very good.

And ladies and gentlemen, with that, we have reached the end of today's question-and-answer session. I would like to turn the conference call back over to Joe Diaz for any closing remarks.

Thank you Jamie. And thanks to 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 2020 during the week of November 9. Have a great end of the week. Stay safe and be well. Thank you. Have good day.

And ladies and gentlemen, with that we will conclude today's conference call. Thank you for attending. You may now disconnect your lines.