UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
001-12934
(Commission file number)
ImmuCell Corporation
(Exact name of registrant as specified in its
charter)
(State of incorporation) (I.R.S. Employer Identification No.)
56 Evergreen Drive, Portland, Maine 04103
(Address of principal executive offices) (Zip Code)
(207)878-2770
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading symbol(s) Name of each exchange on which registered
Common Stock, $0.10 par value per share ICCC Nasdaq
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No☑
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No☑
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes☑ No
☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes☑No
☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company.
Large
accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer☑ Smaller reporting company ☑Emerging growth company ☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate
by check mark whether any of those error corrections are restatements that require a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The
aggregate market value of the voting and non-voting common equity held by non-affiliates at June 30, 2023 was approximately $31,165,000
based on the closing sales price on June 30, 2023 of $5.00 per share.
The
number of shares of the registrant’s common stock outstanding as of March 8, 2024 was 7,750,864.
ImmuCell Corporation
TABLE OF CONTENTS
December 31, 2023
PART I
ITEM 1 Business 1
ITEM 1A Risk Factors 11
ITEM 1B Unresolved Staff Comments 21
ITEM 1C Cybersecurity 21
ITEM 2 Properties 21
ITEM 3 Legal Proceedings 22
ITEM 4 Mine Safety Disclosures 22
PART II
ITEM 6 [Reserved] 23
ITEM 7A Quantitative and Qualitative Disclosures about Market Risk 38
ITEM 8 Financial Statements and Supplementary Data 38
ITEM 9A Controls and Procedures 38
ITEM 9B Other Information 39
ITEM 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 39
PART III
ITEM 10 Directors, Executive Officers and Corporate Governance 40
ITEM 11 Executive Compensation 44
ITEM 14 Principal Accountant Fees and Services 48
PART IV
ITEM 15 Exhibits and Financial Statement Schedules 51
Audited Financial Statements F-1 to F-25
Signatures
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ImmuCell Corporation
PART I
ITEM 1 – BUSINESS
Cautionary Note Regarding Forward-Looking Statements (Safe Harbor
Statement):
This Annual Report on Form 10-K (Annual Report) contains “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements can
be identified by the fact that they do not relate strictly to historical or current facts, and will often include words such as “expects”,
“may”, “anticipates”, “aims”, “intends”, “would”, “could”, “should”,
“will”, “plans”, “believes”, “estimates”, “targets”, “projects”,
“forecasts”, “seeks” and similar words and expressions. Such statements include, but are not limited to, any forward-looking
statements relating to: our plans and strategies for our business; projections of future financial or operational performance; the timing
and outcome of pending or anticipated applications for regulatory approvals; future demand for our products; the extent, nature and duration
of the COVID-19 pandemic and its consequences, and their direct and indirect impacts on our production activities, operating results and
financial condition and on the customers and markets that we serve; the impact of Russia’s unprovoked military invasion of Ukraine
(and attack on its people) and the war in the Middle East on the world economy including inflation and the price and availability of grain
and oil; the impact of the global supply-chain disruptions on our ability to obtain, in a timely and cost-effective fashion, all the supplies
and components we need to produce our products; the impact of inflation and rising interest rates on our operating expenses and financial
results; the scope and timing of ongoing and future product development work and commercialization of our products; future costs of product
development efforts; the estimated prevalence rate of subclinical mastitis and producers’ level of interest in treating subclinical
mastitis given the current economic and market conditions; the expected efficacy of new products; estimates about the market size for
our products; future market share of and revenue generated by current products and products still in development; our ability to increase
production output and reduce costs of goods sold per unit; the adequacy of our own manufacturing facilities or those of third parties
with which we have contractual relationships to meet demand for our products on a timely basis; the impacts of backlogs on customer relationships;
the efficacy, success and timeline to complete our contamination remediation efforts; the likelihood, severity or impact of future contamination
events; the anticipated costs of (or time to complete) planned expansions of our manufacturing facilities and the adequacy of our funds
available for these projects; the robustness of our manufacturing processes and related technical issues; estimates about our production
capacity, efficiency and yield; future regulatory requirements relating to our products; future expense ratios and margins; the efficacy
of our investments in our business; future compliance with bank debt covenants; anticipated changes in our manufacturing capabilities
and efficiencies; our effectiveness in competing against competitors within both our existing and our anticipated product markets; projections
about depreciation expense and its impact on income for book and tax return purposes; and any other statements that are not historical
facts. These statements are intended to provide management's current expectation of future events as of the date of this earnings release,
are based on management's estimates, projections, beliefs and assumptions as of the date hereof; and are not guarantees of future performance.
Such statements involve known and unknown risks and uncertainties that may cause the Company's actual results, financial or operational
performance or achievements to be materially different from those expressed or implied by these forward-looking statements, including,
but not limited to, those risks and uncertainties relating to: difficulties or delays in development, testing, regulatory approval, production
and marketing of our products (including the First Defense® product line and Re-Tain®), competition
within our anticipated product markets, customer acceptance of our new and existing products, product performance, alignment between our
manufacturing resources and product demand (including the consequences of backlogs), uncertainty associated with the timing and volume
of customer orders as we come out of a prolonged backlog, adverse impacts of supply chain disruptions on our operations and customer and
supplier relationships, commercial and operational risks relating to our current and planned expansion of production capacity, and other
risks and uncertainties detailed from time to time in filings we make with the Securities and Exchange Commission (SEC), including our
Quarterly Reports on Form 10-Q, our Annual Reports on Form 10-K and our Current Reports on Form 8-K. Such statements involve risks and
uncertainties and are based on our current expectations, but actual results may differ materially due to various factors, including the
risk factors summarized under PART I: ITEM 1A – RISK FACTORS of this Annual Report and uncertainties otherwise referred to
in this Annual Report. In addition, there can be no assurance that future risks, uncertainties or developments affecting us will be those
that we anticipate. We undertake no obligation to update any forward-looking statement, whether written or oral, that may be made from
time to time, whether as a result of new information, future developments or otherwise.
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ImmuCell Corporation
OUTLINE TO ITEM 1 – BUSINESS:
- Summary
- Production Capacity Increase and Product Contamination
- Animal Health Products
- Sales and Markets
- Product Development
- Competition
- Intellectual Property
- Government Regulation
- Employees
- Public Information
Summary
ImmuCell Corporation was founded in 1982 and completed
an initial public offering of common stock in 1987. After achieving approval from the Center for Veterinary Biologics, U.S. Department
of Agriculture (USDA) to sell First Defense® in 1991, we focused most of our efforts during the 1990’s attempting
to develop human product applications of the underlying milk protein purification technology. Beginning in 1999, we re-focused our business
strategy on the First Defense® product line and other products that improve the health and productivity of dairy
and beef cattle. We support the dairy and beef industries’ purpose to produce nutritious, protein-rich food efficiently while ensuring
food quality and safety. Our products help address the growing human health concern about using less antibiotics in food-producing animals.
We aim to capitalize on the growth in sales of the First Defense® product line (a product that provides significant
Immediate ImmunityTM to newborn dairy and beef livestock)
and to revolutionize the mastitis treatment paradigm with Re-Tain®,
a novel product we are developing to treat this most significant cause of economic loss to the dairy industry.
During 2000, we began the development of Re-Tain®,
our purified Nisin treatment for subclinical mastitis in lactating dairy cows. No sales of this product can be made without prior approval
of our New Animal Drug Application (NADA) by the Center for Veterinary Medicine, U.S. Food and Drug Administration (FDA). We have achieved
FDA approval for four out of five of the significant Technical Sections required for product approval, and we have made our third submission
of the fifth Technical Section. We expect a response to this third submission from the FDA by May of 2024. Regulatory achievements to
date have significantly reduced the product development risks in the areas of safety and effectiveness. Our primary product development
focus has now turned to completion of the manufacturing objectives required for FDA approval.
Since 2006, we have made ongoing efforts to maintain
compliance with current Good Manufacturing Practice (cGMP) regulations in all of our manufacturing operations, which requires a sustained
investment that further enhances the quality of all of our products and our operating efficiency. As we make process improvements, we
continue to invest in personnel, equipment and facility modifications to increase the efficiency and quality of our operations.
During the eight-year period beginning January 1,
2016 and ended December 31, 2023, we funded our operations, constructed an FDA-regulated Drug Substance (DS) manufacturing facility for
Re-Tain® and invested capital to increase our production capacity for the First Defense® product
line. We have also initiated another capital investment (which investment is currently paused) to bring the formulation and aseptic filling
capabilities for Re-Tain® in house in order to end our present reliance on an outside contractor. From the first
quarter of 2016 through the second quarter of 2021, we issued an aggregate of 4,553,017 shares of common stock, raising gross proceeds
of approximately $26.7 million in six separate transactions. In order to minimize the dilutive effects of these transactions on our existing
stockholders, we chose not to issue any form of convertible or preferred securities and issued these common shares without any warrants.
Net of debt issuance and debt discount costs, we had approximately $12 million in outstanding debt as of December 31, 2023 compared to
approximately $3.2 million as of December 31, 2015. This equity and debt capital has been, and is being, used to increase the production
capacity for the First Defense® product line and
complete the development of Re-Tain® without relying on funding from a partner or licensee, thereby keeping control
over all product rights and future revenues. During this time, our total assets have increased to $43.8 million as of December 31, 2023
from $14.6 million as of December 31, 2015, and our stockholders’ equity has increased to $25 million as of December 31, 2023 from
$10.6 million as of December 31, 2015. This represents a 200%, or $29 million, increase in total assets and a 135%, or $14.4 million,
increase in stockholders’ equity over this eight-year period.
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ImmuCell Corporation
Production Capacity Increase and Product Contamination
During 2018, it became clear that demand for
Tri-Shield First Defense® was outpacing production. In response to this increasing demand, we began a series of
investments during 2019 to increase our production capacity for the First Defense® product line to approximately
$30 million per year. The necessary facility expansions and new equipment needed to increase production capacity were in place by the
end of 2022. See PART II: ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,
for more detail about our investments to increase production capacity.
As this increased production capacity was coming
online, a product contamination event was detected by standard in-process quality control testing around the end of the third quarter
of 2022. Scrapped product from contamination events (largely this one around the end of the third quarter) and other production process
losses resulted in a total charge to costs of goods sold of approximately $589,000 during 2022. We took immediate steps to address the
contamination, and production ran without issue during the balance of the fourth quarter of 2022. Then during the first quarter of 2023,
our standard in-process quality control testing detected a second contamination event. We slowed down our production output to take the
necessary steps to assess and remediate the issues and perform a deep sanitization of our facilities and process equipment. After several
months of processing without further contamination, we experienced a third contamination event during the third quarter of 2023. Scrapped
product from contamination events and other production process losses resulted in a total charge to costs of goods sold of approximately
$527,000 during 2023. We believe that the ongoing implementation of our capacity expansion plans and the corrective actions being taken
in response to these contamination events should allow us to operate at the higher level of production output going forward without further
significant contaminations. We worked diligently to address the situation and believe we are taking the appropriate steps to emerge from
this problem stronger with the production capacity in place to produce approximately $30 million of product per year going forward, while
continuing to ensure that any product that is put to market meets all quality standards.
We believe that our efforts to increase production
capacity for the First Defense® product line are linked to our product contaminations. It was relatively simple
to run at lower production capacities for the 30 years between 1991 (the original USDA approval of First Defense®)
and 2021. The contamination events we suffered during 2022 and 2023 were largely the result of us processing more milk (colostrum) than
ever before in order to meet increasing customer demand. As we enter 2024, we believe that we have much improved processes and controls
in place to better support large-scale production from our raw material source farms through liquid processing. Our most important customer-focused
objectives going forward are to fulfill the large backlog of orders and then again be a reliable supplier of a very effective product
to the dairy and beef calf market.
Animal Health Products
The First Defense® product
line is manufactured from hyperimmunized cows’ colostrum (the antibody rich milk that a cow produces immediately after giving birth)
utilizing our proprietary vaccine and milk protein purification technologies. The First Defense® product line provides
bovine antibodies that newborn calves need but are unable to produce on their own immediately after birth. The target disease, calf scours
(bovine enteritis), causes diarrhea and dehydration in newborn calves and often leads to serious sickness and even death. The First
Defense®product line is the only USDA-licensed, orally delivered scours preventive product on the market
for calves with claims against E. coli, coronavirus and rotavirus (three leading causes of scours). A single dose of our product
provides a measured level of protection proven to reduce mortality and morbidity. Our pre-formed antibody products provide Immediate
ImmunityTM during the first few critical weeks of life when calves need this protection most. Studies have shown calves that
scour are more susceptible to other diseases later in life and under-perform calves that do not contract scours. The direct, two-part
mode-of-action of the First Defense® product line delivers specific immunoglobulins at the gut level to immediately
protect against disease, while also providing additional antibodies that are absorbed into the bloodstream. These circulating antibodies
function like a natural timed-release mechanism, as they are re-secreted into the gut later to provide extended protection. The First
Defense® product line is convenient to use. A calf needs to receive only one dose of First Defense®
within the first twelve hours after birth. Our capsule format of this product, which requires no mixing, is stored at room temperature,
while the gel tube formats of this product require refrigeration in accordance with product label indications. We are the market leader
(in terms of both unit volume and dollar sales) when compared to other calf-level scours preventatives and have greater market potential
as we gain market share from the dam-level (pre-calving scour vaccines) competitors. The third quarter of 2023 marked the 32nd
anniversary of the original USDA approval of this product in 1991. During the fourth quarter of 2023, our cumulative sales of First
Defense® since inception exceeded 33 million doses.
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ImmuCell Corporation
The product line extension, Tri-Shield First
Defense®, is the first calf-level,
passive antibody product on the market with USDA-approved disease claims providing Immediate ImmunityTM against each of the
three leading causes of calf scours (E. coli, coronavirus and rotavirus). This product achieved USDA approval during the fourth
quarter of 2017 and was listed with the Organic Materials Research Institute (OMRI) during the first quarter of 2019, which means it
can be used on organic farms. Tri-Shield®
combines the E. coli and coronavirus antibodies contained in our bivalent product with rotavirus antibodies in a single-dose gel
tube delivery format. This unique breadth of claims further differentiates our product from calf-level competitive products on the market
that contain only one or two of these label claims. The unique virus-like particle (VLP) technology that is used in our production process
increases rotavirus titers in colostrum to a level much greater than traditional vaccine technology can. Because it is possible that
some farms may not have (or perceive to have) a rotavirus problem, we are continuing to sell the bivalent formats of the First Defense®
product line as options for customers.
The First Defense® product
line continues to benefit from wide acceptance by dairy and beef producers as an effective tool to prevent scours in newborn calves, which
is the leading cause of death in preweaned calves. Our Beyond Vaccination® marketing campaign focuses on providing
antibodies without vaccination. A 100% vaccine protection rate is biologically impossible. The First Defense®
product line removes the variability associated with a scour vaccine response and instead provides a measured level of pre-formed antibodies,
protecting each calf with an equal level of scours protection. There is a strong link between how we sell our product and the challenges
we face in producing it. We know better than most how variable a cow’s response is to any vaccine. We see this in every batch of
First Defense® that we produce. The value in First
Defense® is that we adjust for this variability by
standardizing the antibody content, as needed, so the newborn is given a steady, equal level of protection with each dose. This technology
removes a producer’s reliance on variable vaccine responses to generate passive antibody protection and instead protects every calf
equally with a measured dose of Immediate ImmunityTM against
the most common scour pathogens. Preventing newborn calves from becoming sick helps them to reach their genetic potential and reduces
the need to use treatment antibiotics later in life. Plus, an effectively treated
calf is much less likely to require expensive antibiotic treatments or build antibiotic resistance. We are the only manufacturer
within the scour prevention space offering polyclonal multi-pathogen antibodies. The market is learning that the best preventative for
scours may not be a vaccine, and we are continuing to educate the market about the health benefits of a measured dose of pre-formed antibodies.
Historically, the most common tool to help combat
scours has been to vaccinate the mother cow (dam) with a scours vaccine and deliver the antibodies that she produces in her milk to the
newborn. It is generally believed that only 80% of animals respond to a vaccine, which could leave about 20% of calves unprotected. We
believe that the variability in a cow’s immune response to vaccines creates a sales opportunity for our product. Additionally, our
research suggests that treatment protocols for dam-level scours vaccine programs are not always followed, leaving even more calves compromised.
We are competing effectively against these dam-level vaccine products. Our marketing campaign, Beyond Vaccination®,
emphasizes that by delivering Immediate ImmunityTM directly to the calf via the First Defense®
product line, producers can reduce stress-causing injections to the cow. Reliance on a dam-level scours vaccine requires that money be
spent before it is known whether the cow is carrying a viable, valued calf. With the First Defense®
product line, that investment can be targeted to the calves that are most critical to the operation. This, in turn, can free up space
in the cow’s vaccination schedule to improve her immune response to vaccines that are critical to her health.
First Defense Technology®
is a unique whey protein concentrate that is processed utilizing our proprietary colostrum (first milk) protein purification methods,
for the nutritional and feed supplement markets without the claims of our USDA-licensed product. During 2012, we initiated a limited launch
of a gel tube delivery format of our First Defense Technology® in a gel solution. We achieved USDA claims for this
product format during the fourth quarter of 2018 and Canadian approval during the first quarter of 2019, and it is now being sold as Dual-Force
First Defense®. We are selling the same concentrated whey proteins in a bulk powder format (no capsule), which is delivered
with a scoop and mixed with colostrum for feeding to calves. We are working to achieve USDA claims for this product format. During 2011,
Milk Products, LLC of Chilton, Wisconsin launched commercial sales of their product, Ultra Start® 150 Plus and certain
similar private label products, which are colostrum replacers with First Defense Technology®Inside.
During 2001, we began to offer our own, internally
developed California Mastitis Test (CMT). CMT is most often used as a quick on-farm diagnostic to determine which quarter
of the udder is mastitic. This test can be performed at cow-side for early detection of mastitis. CMT products are also made by
other manufacturers and are readily available to the dairy producer.
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ImmuCell Corporation
Sales and Markets
We believe that the long-term growth in sales
of the First Defense® product line may reflect, at least in part, the success of our strategic decision to invest
in additional sales and marketing efforts to help us introduce the expanding First Defense® product line to new
customers. Our communications campaign continues to emphasize how the unique ability of the First Defense® product
line to provide Immediate ImmunityTM generates a dependable and competitive return on investment for dairy and beef producers.
Our sales and marketing team consists of one vice president, one commercial research and technical services veterinarian, one commercial
leader of stakeholder engagement, one director of marketing and eight regional sales managers. The First Defense®
product line and CMT are sold primarily through major animal health distributors who, in turn, sell to veterinary clinics, fleet
stores and direct to farms. Our expanded sales and marketing team has proven to be a worthy investment, validating that our message resonates
well with customers. Now that our increased production capacity is in place, we anticipate being able to escalate our growth curve after
we recover from the brand damage that can come with an extended duration of short supply.
Sales of the First Defense®
product line are normally seasonal, with higher sales expected during the first quarter, largely driven by the beef calving season, which
runs primarily from January to April, unlike the dairy industry in which operations generally calve year round. Warm and dry weather
reduces the producer’s perception of the need for a disease preventative product like the First Defense® product
line. However, heat stress on calves caused by extremely hot summer weather can increase the incidence of scours, just as harsher winter
weather benefits our sales. Other competition for resources that dairy producers allocate to their calf enterprises has been increased
by the many new products (principally feed supplements) that have been introduced to the calf market.
We estimate that the total U.S. market for scours
preventative products (including sales of our product) that are given to newborn calves (the calf-level market) is approximately $25.6
million per year. With the additional claim for our new product (Tri-Shield First Defense®) against rotavirus, we
are now also competing against the dam-level vaccine products that are given to the mother cow to increase the antibody level against
specific scours-causing pathogens in the colostrum that she produces for her newborn. We estimate that the dam-level product category
covers approximately twice as many calves as the calf-level product segment reaches. We estimate that the total domestic addressable market
(both calf and dam levels) is approximately $75.4 million per year.
Based
on market share information that we purchase from the leading source of this data for the animal health sector, we believe that we are
gaining market share in the United States year after year. We aim to continue these market share gains in both the dairy and beef
segments. Our share of the dairy and beef market (calculated on the basis of calves treated) of the scour preventative products administered
at the calf-level was approximately:
Our share of the dairy and beef market (calculated
on the basis of calves treated) of both products administered at the calf-level and vaccines administered to the dam prior to calving
(adjusting for two doses of dam-level scour vaccines required for primary vaccination of first-calf heifers) was approximately:
We continue our efforts to grow sales of the First
Defense® product line in North America, where there are approximately 40 million dairy and beef cows in the United
States and approximately 4.5 million dairy and beef cows in Canada. We believe that significant market opportunities exist in other international
territories. The majority of our international sales are to Canada. We price our products in U.S. dollars. To the extent that the value
of the dollar declines with respect to any other currency, our competitive position may be enhanced. Conversely, an increase in the value
of the dollar in any country in which we sell products may have the effect of increasing the local price of our products, thereby leading
to a potential reduction in demand. Generally, our international sales have been generated through relationships with in-country distributors
that have knowledge of the local regulatory and marketing requirements. We are initiating our plan to expand the number of countries to
which our First Defense® product line is approved for export. Generally, it is our intent to be the holder of these
product registrations for each country rather than rely on distribution partners to gain and hold these registrations. This is a long
regulatory process but allows us to maximize the use of our product label claims. Industry practices, economic conditions, cause of disease,
distribution channels and regulatory requirements may differ in these international markets from what we experience in North America,
potentially making it more difficult or costly for us to generate and sustain sales volumes at profitable margins in these markets.
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ImmuCell Corporation
We introduced First Defense®
into South Korea in 2005 through Medexx Co., Ltd of Gyeonggi-do, Korea and its equivalent into Japan in 2007 through NYS Co., Ltd of Iwate,
Japan. We are working with Medexx to expand our business in South Korea to include the registration of Tri-Shield First Defense®.
The business in Japan is currently not active, but we are working to resume sales in this territory. We entered into distribution contracts
covering certain Middle Eastern countries with Triplest for Drugs and Trade of Madaba, Jordan during the first quarter of 2017 (no sales
have yet been achieved under this contract) and covering Iran with Senikco, LLC of Laguna Niguel, California during the fourth quarter
of 2016 (sales have been initiated under this contract). We are investigating the requirements to sell the First Defense®
product line in Mexico, Pakistan and India.
With
Re-Tain®, we are working to expand our product portfolio
to include an intramammary infusion for the treatment of subclinical mastitis in lactating dairy cows. Mastitis is inflammation of the
mammary gland typically associated with a bacterial infection. It is estimated to cost the U.S. dairy industry approximately $2 billion
in economic harm per year. It is the most costly and common disease affecting the dairy industry. This illness is categorized as either
clinical mastitis or subclinical mastitis. Clinical mastitis infections cause visibly abnormal milk which cannot be sold. On the other
hand, subclinical mastitis infections do not cause any visible changes in milk or udder appearance, making it difficult to detect.
Most mastitis cases treated today are those that reach the clinical stage even though it is understood that clinical cases are only the
tip of the mastitis iceberg. Milk from cows with subclinical mastitis can still be sold if not treated with traditional antibiotics. Milk
from cows treated with traditional antibiotics must be discarded for the duration of the treatment and for 1.5 to 4 days after the last
treatment, depending on the antibiotic that was used. The cost of that milk discard along with the stress and risk in moving the cow to
the hospital pen is thought to be a primary reason more subclinical mastitis cases are not treated today. However, the cascade of negative
events triggered by subclinical mastitis for both the dairy producer and the milk processor are significant. These include lower milk
production (some have estimated approximately 1,500 pounds of lost milk, or about $270 at $18.00 per hundredweight per infected cow per
lactation), higher rates of clinical mastitis, lower conception rates, increased abortions, increased cull rates, reduced or foregone
milk quality premiums, shorter shelf life for fluid milk, and both lower yields and less flavor for cheese. Cows with subclinical
mastitis maintain a reservoir of infection within the herd and increase exposure of healthy cows to contagious pathogens. Subclinical
mastitis also increases the risk of various quality defects on a variety of final dairy products.
The
active ingredient in Re-Tain® is pharmaceutical-grade
Nisin-A. FDA approval for this drug would establish an entirely new class of anti-infective that is different from those currently available
to treat mastitis. This new class, called bacteriocins, are anti-microbial polypeptides with no resistance risk for human health. Bacteriocins
selectively target Gram+ bacteria, the same bacteria that commonly cause mastitis. We expect Re-Tain® will
be the first FDA-approved intramammary treatment for subclinical mastitis without an FDA-required milk discard or meat withhold. This
gives us the opportunity to revolutionize the way mastitis is treated, since Re-Tain® is
specifically designed to treat ahead of clinical signs without an FDA-required milk discard or meat withhold. As a result, we believe
that our product can help cows reach their peak milk production and not be sent to the hospital pen.
Referencing the big picture, we are introducing
an entirely new class of socially-responsible antimicrobials as an animal drug, a bacteriocin, that does not promote resistance against
antibiotics used in human medicine. As the great NHL hockey player, Wayne Gretzky, is known to have said, “I skate to where the
puck is going to be, not where it has been.” This is motivational to us. We believe our product fits very well with where the industry
is going to be in the coming years. Sustainability objectives of the industry require that less antibiotics be used in food producing
animals, yet a new product to treat mastitis has not been developed in years (other than new formulations of the same old stuff). The
over-use of antibiotics that are medically important to human healthcare is a growing concern of our society and an active issue with
the FDA, largely because of the growing evidence that this over-use contributes to antibiotic resistance. The industry could keep treating
this very significant disease with traditional antibiotics, but it takes innovation to bring a bacteriocin like Nisin to market. We believe
that societal animal welfare objectives will put more and more pressure on the industry to treat cows with subclinical infections.
Because
Nisin is a naturally occurring bacteriocin that is not used in human medicines, it could alleviate some of the social and public
health concerns that the widespread use of antibiotics encourages the growth of antibiotic-resistant bacteria. For example, there is a
fear that the possible overuse of antibiotics in livestock undermines the effectiveness of these drugs to combat human illnesses and contributes
to a rising number of life-threatening human infections from antibiotic-resistant bacteria, commonly known as “superbugs”.
The FDA has expressed a commitment to addressing this public health risk. Citing concerns about untreatable, life-threatening infections
in humans, new FDA and European regulations are aimed at restricting the use of antibiotics (such as penicillin and cephalosporins) in
food animals and at improving milk quality. By reducing the risk of antibiotic residues and slowing the development of antibiotic-resistant
organisms, we believe that we can improve food quality and preserve medically important antibiotics for human disease treatment. This
current environment is favorable to the introduction of our new product as an alternative to traditional antibiotics. We believe that
this changing environment of new regulations and public opinion supports the value of our ongoing development and commercialization efforts
for Re-Tain®. Additionally, we believe that the use of our First Defense® product line is
consistent with this trend of reducing the use of antibiotics because the prevention of calf scours early in life with our purified colostrum
antibodies can reduce the need to use treatment antibiotics later in a calf’s life.
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We estimate that the approximate cost to the U.S.
dairy industry of discarded milk associated with the use of traditional antibiotic products currently on the market may be around $300
million per year. These high milk discard costs associated with traditional antibiotic treatments lead producers to only treat mastitis
after clinical signs develop. The Re-Tain®label will be
for subclinical mastitis (not clinical). Without an FDA-required milk discard or meat withhold cost, we expect producers to be more motivated
to identify and treat cows at the subclinical stage. In addition, we expect thatRe-Tain® likely will be
priced at a premium to the traditional antibiotic products currently on the market, which are all sold subject to milk discard and meat
withhold requirements. To validate our confidence in the value proposition of our product, we initiated a stochastic model led by researchers
at Michigan State University. This model simulated the dynamics of subclinical mastitis detected during the first week of lactation. The
study involved assessing probabilities of events, both production and health related, and their associated costs using a model grounded
in pathogen-specific assumptions drawn from peer-reviewed literature. The study indicated that treatment with our product generated a
positive economic benefit and was the optimal economic strategy for treating subclinical mastitis in most herds. The extent of the economic
benefit varies depending on factors such as bacteriological cure rates, parity of the animal and the cost of Re-Tain®.
These findings, which were subsequently published in the Journal of Dairy Science in January 2024, will guide our pricing strategies.
It
is difficult to accurately estimate the potential size of the subclinical mastitis market because presently this disease is largely left
untreated. We believe that approximately 20% to 40% of the U.S. dairy herd is infected with subclinical mastitis at any given time. This
compares to approximately 2% of the U.S. herd that is thought to be infected with clinical mastitis, where approximately $65 million per
year is spent on drug treatments. Rarely is an industry revolutionized overnight. Getting producers to change protocols to make subclinical
mastitis treatment a standard and routine procedure is going to take initiative, but we believe producers are eager for something new
and better since the FDA has not approved an intramammary treatment within the last 20 years. Similar market opportunities are
likely to exist outside the United States. We believe the use of Re-Tain® could be expanded, with additional data
and regulatory approval, to support treatment late in lactation. We also believe there may be a market for Re-Tain®
in small ruminants, where the majority of mastitis cases are caused by strep-like organisms aligned with our effectiveness data.
Based on consultations with industry experts
and key opinion leaders, we have opted to carefully control the launch of this novel product over the first 18 to 24 months after FDA
approval, as we seek to transform the way that mastitis is treated in the dairy industry over the long term, which we refer to as our
“Controlled Launch” strategy. Our goal is to help early adopters select treatment candidates, develop easy to use protocols,
optimize treatment results and realize a positive return on their investment. We intend to limit initial distribution of Re-Tain®
to a level that enables our sales team to select the optimal dairy farms at which to introduce Re-Tain® and
to limit the initial numbers of participating farms so that the desired levels of support and guidance relating to effective usage of
Re-Tain® can be provided with our available resources. Our overarching objective is to minimize the risk of early-stage
unsatisfactory outcomes that could harm the longer-term prospects and market acceptance of Re-Tain®. This strategy
is also prudent since our saleable inventory is fixed until an FDA-approved alternative contract manufacturer for aseptic filling is identified
or our own aseptic filling capability is developed and approved by the FDA. While we are dedicated to increasing our sales revenue, we
must consider the damage a mass market strategy could cause to the long-term value of the product. We have seen products sold by much
larger companies that were substantially damaged by such failed market launch strategies. We continue to develop detailed launch plans,
focusing on the readiness of dairy operators to successfully introduce Re-Tain® to their herds. We believe that
these prudent steps, while potentially leading to lower initial Re-Tain® revenues, may create a smooth and successful
launch and could safeguard the longer-term performance of our investment in Re-Tain®.
We expect the DS production facility that we
constructed to have initial annual production capacity sufficient to meet approximately $7 million to $10 million in sales of Re-Tain®
at current production yields without factoring in potential yield improvements, but our supply of finished Drug Product (DP) will be limited
until we find an alternative aseptic formulation and filling capability, as discussed above. This production capacity estimate does not
yet reflect any inventory build strategies or ongoing yield improvement initiatives. We have available space in our existing facilities
to double the production capacity by installing a second equipment train. A decision on whether to use this space for a doubling of the
DS production capacity or for in-house aseptic formulation and filling DP equipment will be made post-approval. Our objective is to supply
initial market launch with approximately 100,000 to 150,000 doses of Re-Tain® (enough to treat up to 50,000 cows
with three doses per cow) that would be aseptically formulated and filled by our DP manufacturer. The expiry dates on this product would
be 18-24 months after the date of production, meaning that product expiry could be approximately between September of 2025 and March of
2026. We may not reach 50,000 cows during the Controlled Launch. Further, early adopters may be offered discounted or promotional goods
as an incentive to collaborate with us on data collection during the Controlled Launch. We
are expecting a pause in supply to the market after the Controlled Launch after goods produced by our contract DP manufacturer are consumed
and before we obtain FDA approval of an alternative DP manufacturing option. Although these projections are subject to many risks and
uncertainties (some of which are detailed in this Annual Report), if executed correctly, we believe this strategy will lend itself to
a more gradual adoption curve but higher and more sustainable sales over the long-term. In an effort to provide greater visibility into
the launch of Re-Tain®, we have expanded Note 17, “Segment Information”, to the accompanying audited
financial statements to now display a break-out of our financial results among the following three components of our business: i) Scours,
ii) Mastitis and iii) Other, in order to allow investors to see our progress with both products.
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Through our anticipated growth in sales of the First
Defense® product line, and as additional resources are dedicated to production, sales, marketing and technical services,
it is our objective to exceed our total product sales of approximately $17.5 million achieved during the year ended December 31, 2023
as soon as possible. Our longer-term goal is to exceed $35 million of annual total product sales as soon as possible during the four-year
period after the market launch of Re-Tain®.
Product Development
Most of our product development spending has been
focused on the development of Re-Tain®, our purified
Nisin treatment for subclinical mastitis in lactating cows. During the 24-year period that began on January 1, 2000 and ended on December
31, 2023, we invested an aggregate of approximately $28.1 million (excluding depreciation and the capital cost of our DS production facility)
in the development of this product. This estimation reflects only direct expenditures and includes no allocation of product development
or administrative overhead expenses. Approximately $2.9 million of this investment was offset by related product licensing revenues and
grant income, most of which was earned from 2001 to 2007.
During 2000, we acquired an exclusive license from
Nutrition 21, Inc. (formerly Applied Microbiology Inc. or AMBI) to develop and market Nisin-based products for animal health applications,
which allowed us to initiate the development of Re-Tain®. In 2004, we paid Nutrition 21 approximately $965,000 to
buy out this royalty and milestone-based license to Nisin, thereby acquiring control of the animal health applications of Nisin. Nisin
is a well characterized substance, having been used in food preservation applications for over 50 years. Food-grade Nisin, however, cannot
be used in pharmaceutical applications because of its low purity. A much less pure preparation of our active ingredient, Nisin, is commonly
used as a food preservative and has been given “Generally Regarded as Safe” (GRAS) status by the FDA. We are also investigating
potential applications of Nisin for other animal health applications as well as for humans. Our Nisin technology includes patented processing
and purification methods to achieve pharmaceutical-grade purity.
During
2004, we entered into a product development and marketing agreement with Zoetis (formerly Pfizer Animal Health, a division of Pfizer,
Inc.) covering this product. That company elected to terminate the agreement in 2007. We believe that this decision was not based on any
unanticipated efficacy or regulatory issues. Rather, we believe the decision was primarily driven by a marketing concern relating to their
fear that the milk from treated cows could interfere with the manufacture of certain cultured dairy products. Due to the zero-milk discard
feature, there is a risk that Nisin from the milk of treated cows could interfere with the manufacture of certain (but not all) commercial
cultured dairy products, such as some kinds of cheese and yogurt, if a process tank contains a high enough percentage of milk from treated
cows. The impact of this potential interference ranges from a delay in the manufacturing process (which does happen at times for other
reasons) to the less likely stopping of a cheese starter culture. Milk from cows that have been treated with our product that is sold
exclusively for fluid milk products presents no such risk. We worked with scientists and mastitis experts to conduct a formal risk assessment
to quantify the impact that milk from treated cows may have on cultured dairy products. This study concluded that the dilution of milk
from treated cows through comingling with milk from untreated cows during normal milk hauling and storage practices reduces the risk of
interference with commercial dairy cultures to a negligible level when the product is used in accordance with the product label. Further,
we believe that such a premium-priced product will be used selectively, which reduces the risk of cheese interference and is consistent
with modern “precision dairying” practices that discourage the indiscriminate use of drug treatments. Among the measures that
we intend to deploy will be detailed guidance on limiting the portion of a herd that is treated with Re-Tain®
at any one time in order to avoid concentration levels in the milk that could lead to the rejection of the contents in a cheese tank.
Our second most important product development
initiatives (in terms of dollars invested and, we believe, potential market impact) have been focused on other improvements, extensions
or additions to our First Defense® product line. During the second quarter of 2009, we entered into a perpetual,
exclusive license with the Baylor College of Medicine covering the underlying rotavirus vaccine technology used to generate the specific
antibodies for use with animals. We achieved product license approval and initiated market launch of this product, Tri-Shield First
Defense®, during the fourth quarter of 2017. During the third quarter of 2018, we obtained approval from the Canadian
Food Inspection Agency to sell Tri-Shield® in Canada. We initiated sales in Canada through our in-country distributor
during the fourth quarter of 2019. We achieved USDA approval of our bivalent gel tube formulation (formerly marketed as First Defense
Technology®) during the fourth quarter of 2018 and have re-branded this product format as Dual-Force First Defense®.
We are currently working to establish USDA claims for our bivalent bulk powder formulation of First Defense Technology®.
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ImmuCell Corporation
We are also working to expand our product development
pipeline of antimicrobials that can be used as alternatives to traditional antibiotics through expansions of our Nisin technology and
yield improvements. We intend to begin new development projects that are aligned with our core competencies and market focus. We also
remain interested in acquiring, on suitable terms, other new products and technologies that fit with our sales focus on the dairy and
beef industries when we have adequate cash reserves.
Competition
Our competition in the animal health market includes
other biotechnology companies and major animal health companies. Most, if not all, of these competitors have substantially greater financial,
marketing, manufacturing and human resources and more extensive product development capabilities than we do.
There are several other products on the market
(some with claims and some without) that are delivered to newborn calves to prevent scours. We believe that the First Defense®
product line offers two significant competitive advantages. First, the First Defense® product line is the
only calf-level product that provides protection against E. coli, coronavirus and rotavirus, three of the leading causes of calf
scours. Second, being derived from colostrum, our product offers Immediate ImmunityTM through antibodies that both
function at the gut level and are absorbed into the blood stream for future protection. All formats of our product can be administered
immediately after birth and are not negatively affected by maternal colostrum.
Zoetis sells a product (Calf-Guard®)
that competes directly with the First Defense® product line in preventing scours via oral delivery to newborn calves.
Their product is a modified-live virus vaccine. Newborn calves respond poorly to vaccines and the immune system must be given time to
develop a response to vaccines. Both our product and Calf-Guard® carry claims against coronavirus and rotavirus infections,
but this competing product does not carry a claim against E. coli infections like our product does. It is common practice to delay
colostrum feeding when dosing a calf with Calf-Guard® so that the antibodies in the colostrum do not inactivate this vaccine
product. There is no nutritional or health benefit to withholding milk from newborn calves. In contrast, we encourage the feeding of four
quarts of high quality colostrum immediately after birth when dosing a calf with our product, which is standard practice for good calf
health. Because the antibodies in our product would likely work to inactivate a modified-live virus vaccine, rendering it useless or less
useful, our product label historically included a precaution that First Defense® should not be used within five
days of such a vaccine. During the first quarter of 2015, the USDA granted us permission to remove this precaution from our label, and
we have done so. We believe that this precaution should be required on the Calf-Guard® label to prevent inactivation of
that product by First Defense® antibodies or by colostrum. Our product is priced at a premium to Calf-Guard®.
During the fourth quarter of 2016, Merck launched
a new competing product into this market space. This product (BOVILIS® Coronavirus) is a modified-live virus intranasal
vaccine that carries a claim against coronavirus only. Around the end of 2019,
Elanco Animal Health gave notice to the market that it had discontinued the manufacture of its competing products, Bovine Ecolizer®
and Bovine Ecolizer + C20, and subsequently exited the market during the first quarter of 2021. This product was the smallest of our three
significant calf-level competitors.
When compared to the other USDA-approved calf-level
scours preventatives, we lead in both sales dollars and calves treated within the U.S. market. This product category is comprised of the
three primary brands discussed above that are given either orally or intranasally to newborn dairy and beef calves immediately after birth.
With the rotavirus claim for our product (Tri-Shield First Defense®), we are now also competing against dam-level
vaccine products that are given to the mother cow to increase the antibody level against scours-causing pathogens in the colostrum that
she produces for her newborn. Those products are sold by Elanco (Scour BosTM), Merck (Guardian®) and Zoetis (ScourGuard®).
Despite the best-managed dam vaccine program, colostrum quality is naturally variable and newborn calves do not always get the antibodies
they need from maternal colostrum. We believe that the measured dose of antibodies in our product provides more consistent protection
than such vaccine products.
We would consider any company that sells an antibiotic
to treat mastitis, such as Boehringer Ingelheim, Merck Animal Health and Zoetis, to be among the potential competitors with respect to
Re-Tain®. We expect the FDA to grant a period of
five years of market exclusivity for our product (meaning the FDA would not grant approval to a second NADA with the same active drug
for a period of five years after the first NADA approval is granted) under Section 512(c)(2)F of the Federal Food, Drug, and Cosmetic
Act. Our Nisin A is produced from our high-yielding, proprietary L. lactis strain and purified to a high level, providing us with
a level of protection over a competitor that might try to develop a similar product.
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We may not be aware of competition that we face,
or may face in the future, from other companies. Our competitive position will be highly influenced by our ability to attract and retain
key scientific, manufacturing, managerial and sales and marketing personnel, to develop and effectively produce and market proprietary
technologies and products. We need to obtain USDA, FDA or foreign approvals for new products to effectively promote and market our products.
We must have available properly-licensed, efficient and effective raw material and finished product manufacturing resources to continue
to profitably sell our current products. We currently compete on the basis of product performance, price, distribution capability and
customer support. We continue to monitor our network of independent distributors to maintain our competitive position.
Intellectual Property
We own a broad
collection of registered and unregistered intellectual property rights relating to our research, products and processes. These rights
include patents, copyrights, trademarks, trade dress, trade secrets, know-how and other intellectual property rights in the United States
and other countries. We believe the ownership of our intellectual property rights is an important factor in our business and that our
success depends in part on such ownership. We also rely heavily on the innovative skills, technical competence and marketing abilities
of our personnel. The Nisin A that is produced from our proprietary strain of L. lactis is an essential component of our Re-Tain®
product and related intellectual property. We enter into and rely on confidentiality and proprietary
rights agreements with our employees, contractors and business partners to protect our trade secrets, proprietary developments and confidential
information.
We own U.S. Patent No. 10,023,617 entitled “Methods
and Systems of Producing Pharmaceutical Grade Lantibiotics”, which covers key, novel and proprietary aspects of our manufacturing
process for preparing pharmaceutical-grade Nisin and was issued during the third quarter of 2018. In the future, we may file additional
patent applications for certain products under development. There can be no assurance that patents will be issued with respect to any
pending or future applications. In some cases, we have chosen (and may choose in the future) not to seek patent protection for certain
products or processes. In those instances, we have sought (and may seek in the future) to maintain the confidentiality of any relevant
intellectual property and other proprietary rights through operational measures and contractual agreements.
We own numerous trademarks and trade dress that
are very important to our business and have several trademark and trade dress registrations in the United States, Canada and Iran. We
own the following U.S. trademark registrations: IMMUCELL, FIRST DEFENSE, FD FIRST DEFENSE (& Design), FIRST DEFENSE
TECHNOLOGY, TRI-SHIELD FIRST DEFENSE, TRI-SHIELD FIRST DEFENSE (& Design), YOUR CALF CREW, BEYOND VACCINATION, BEYOND VACCINATION