IMMUCELL CORP /DE/

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, goals and strategies for our business; projections of future financial or operational performance; the timing and outcome of pending or anticipated applications for regulatory approvals and pending or anticipated regulatory inspections of our facilities and those of our contract manufacturers; future demand for our products; future adoption ofRe-Tain® by dairy producers; growth in acceptance of ourFirst Defense® product line by dairy and beef producers; the impact of international disputes (including Russia’s invasion of Ukraine and unrest 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; future incidence rates of subclinical mastitis and producers’ level of interest in treating subclinical mastitis; 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 of our contamination remediation efforts; whether or not we will experience 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 to meet future demand and related technical issues; estimates about our future production capacity, efficiency and yield; the salability of products currently held in inventory pending regulatory approval; future regulatory requirements relating to our products; future expense ratios and margins; the future consequences and effectiveness of our investments in our business; future compliance with, or waivers of, bank debt covenants; anticipated changes in our manufacturing capabilities and efficiencies; our future 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 theFirst Defense® product line andRe-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 underPART II: OTHER INFORMATION, ITEM 1A-RISK FACTORSand 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.

OUTLINE TO ITEM 1 – BUSINESS:

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 sellFirst Defense® in 1991, we focused most of our efforts during the 1990’s on attempting to develop human product applications of the underlying milk protein purification technology. Beginning in 1999, we re-focused our business strategy on theFirst Defense® product line. 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 concerns through reduced use of antibiotics in food-producing animals. We have experienced significant growth in sales of ourFirst Defense® product line, a product that provides significantImmediate Immunity™ to newborn dairy and beef livestock.

We believe that our purified Nisin treatment for subclinical mastitis in lactating dairy cows (Re-Tain®) could revolutionize the way that farmers treat mastitis, the single most significant cause of economic loss to the dairy industry. Full commercial sales of this product cannot 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. We are now awaiting FDA action on our fourth submission of the fifth and final Technical Section, which we submitted in January of 2025. At the same time, we are initiating Investigational Product use of this product, as discussed in more detail later in this Annual Report.

We are making ongoing efforts to maintain compliance with current Good Manufacturing Practice (cGMP) regulations in all of our manufacturing operations, which requires a sustained investment but further enhances the quality of all of our products and our operating efficiency. We continue to invest in personnel, equipment and facility modifications to increase the efficiency and quality of our operations.

Over the past nine years, we funded our operations, constructed an FDA-regulated Drug Substance (DS) manufacturing facility forRe-Tain®and invested capital to increase our production capacity for theFirst Defense®product line. 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. During 2024, we issued an aggregate of 1,228,227 shares of common stock, raising gross proceeds of approximately $4.6 million, through our At-The-Market (ATM) Offering. 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 $10.5 million in outstanding debt as of December 31, 2024 compared to approximately $3.2 million as of December 31, 2015. This increase in equity and debt capital has been, and is being, used to increase the production capacity for theFirst Defense® product line and to complete the development ofRe-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 $45.1 million as of December 31, 2024 from $14.6 million as of December 31, 2015, and our stockholders’ equity has increased to $27.5 million as of December 31, 2024 from $10.6 million as of December 31, 2015. This represents a 209%, or $30.5 million, increase in total assets and a 159%, or $16.9 million, increase in stockholders’ equity over this nine-year period.

Production Capacity Increase and Product Contamination

During 2019, we began a series of investments to increase our production capacity for theFirst Defense® product line to $30 million or more per year. The facility expansions and new equipment needed to increase production capacity were in place by the end of 2022. Around the end of the third quarter of 2022, as this increased production capacity was coming online, we detected a product contamination event that required us to scrap significant inventory. 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, we 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 $407,000 and $527,000 during 2024 and 2023, respectively. We have been operating without any new contamination events since April of 2024.

It was relatively simple to run at lower production capacities for the 30 years between 1991 (the original USDA approval ofFirst Defense®) and 2021. We believe that the contamination events we suffered between 2022 and 2024 stemmed from us processing more milk (colostrum) from more farms than ever before in order to increase production output and meet increasing customer demand. We believe that we now have significantly 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 backlog of orders and then resume being a reliable supplier of a very effective product to the dairy and beef calf markets. Once achieved, our goal is to continue to expand our penetration of the beef market and less price sensitive dairies withTri-Shield®, while simultaneously launching a lower-cost spray-dried product without USDA claims, targeting more price sensitive large calf ranches and dairies. Overall, our goal is to continue to grow sales and differentiate our brands in both the beef and dairy markets.

Animal Health Products

TheFirst 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. TheFirst 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. TheFirst Defense® product line is the only USDA-licensed, orally delivered scours preventive product on the market for calves with claims against 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 provideImmediate Immunity™during the first few critical weeks of life when calves need this protection most. Studies have shown that calves with scours 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 theFirst 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. TheFirst Defense®product line is convenient to use. A calf needs to receive only one dose ofFirst 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 2024 marked the 33 rd anniversary of the original USDA approval of this product in 1991. During the fourth quarter of 2024, our cumulative sales of**First Defense®**since inception passed 36 million doses.

The product line extension,Tri-Shield First Defense®, is the first calf-level, passive antibody product on the market with USDA-approved disease claims providingImmediate Immunity™ 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 theE. 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 do not perceive to have) a rotavirus problem, we are continuing to sell the bivalent formats of the**First Defense®**product line as options for customers.

TheFirst 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. OurBeyond Vaccination®marketing campaign focuses on providing antibodies without vaccination. A 100% vaccine protection rate is biologically impossible. TheFirst 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 ofFirst Defense® that we produce. The value inFirst 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 ofImmediate Immunity™. 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 deliveringImmediate Immunity™ directly to the calf via theFirst 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 theFirst 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 colostrum 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. We are working to expand this product category to include a spray-dried, bulk powder format. During 2012, we initiated a limited launch of a gel tube delivery format of ourFirst 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 asDual-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 withFirst Defense Technology® Inside.

During 2001, we began to offer our own, internally developedCalifornia Mastitis Test (CMT).CMTis 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.CMTproducts are also made by other manufacturers and are readily available to the dairy producer.

Sales and Markets

We believe that the long-term growth in sales of theFirst 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 expandingFirst Defense®product line to new customers. Our communications campaign continues to emphasize how the unique ability of theFirst Defense®product line to provideImmediate Immunity™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 leader of stakeholder engagement, one director of marketing and six regional sales managers. TheFirst Defense® product line andCMTare sold primarily through major animal health distributors who, in turn, sell to veterinary clinics, fleet stores and direct to farms. Our 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 are more actively marketing to the beef market and pursuing new international territories. 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 theFirst 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 theFirst Defense® product line. However, heat stress on calves caused by extremely hot summer weather and cold stress during the winter months can increase the incidence of scours. 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 $31.1 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 $81.8 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, but we also believe that these gains have been limited by our short supply of product to the market in recent years. 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 theFirst Defense® product line in North America, where there are approximately 37.3 million dairy and beef cows in the United States and approximately 4.4 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 implementing our plan to expand the number of countries to which ourFirst 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.

We introducedFirst 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 ofTri-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 and covering Iran with Senikco, LLC of Laguna Niguel, California during the fourth quarter of 2016. We are investigating the requirements to sell theFirst Defense® product line in Mexico, Pakistan and India.

WithRe-Tain®, we are working to expand our product portfolio to include this 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 inRe-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 expectRe-Tain®will be the first FDA-approved intramammary treatment for subclinical mastitis without an FDA-required milk discard or pre-slaughter withdrawal period. This gives us the opportunity to revolutionize the way mastitis is treated, sinceRe-Tain®is specifically designed to treat ahead of clinical signs without an FDA-required milk discard or pre-slaughter withdrawal period. 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 place increased pressure on the industry to treat cows with subclinical infections rather than ignore them and leave them sick.

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 forRe-Tain®. Additionally, we believe that the use of ourFirst 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.

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. TheRe-Tain® label will be for subclinical mastitis (not clinical). Without an FDA-required milk discard or pre-slaughter withdrawal cost, we expect producers to be more motivated to identify and treat cows at the subclinical stage. 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 ofRe-Tain®. These findings, which were subsequently published in the Journal of Dairy Science in January of 2024, will guide our pricing strategies. In addition, we expect thatRe-Tain® will be priced at a premium to the traditional antibiotic products currently on the market, which are all sold subject to milk discard and pre-slaughter withdrawal period requirements.

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 $40 million per year is spent on drug treatments. We believe more than this amount is spent on dry cow 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 ofRe-Tain®could be expanded, with additional data and regulatory approval, to support treatment late in lactation. We also believe there may be a market forRe-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 upon 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 ofRe-Tain®to a level that enables our sales team to select the optimal dairy farms at which to introduceRe-Tain®and to limit the initial numbers of participating farms so that the desired levels of support and guidance relating to effective usage ofRe-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 ofRe-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 introduceRe-Tain® to their herds. We believe that these prudent steps, while potentially leading to lower initialRe-Tain® revenues, may create a smooth and successful launch and could safeguard the longer-term performance of our investment inRe-Tain®.

We expect the DS production facility that we constructed to have initial annual production capacity sufficient to meet approximately $10 million in sales ofRe-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 DS facilities to double the production capacity by installing a second DS 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 product produced at our DS facility and filled by our contract DP manufacturer. 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. Note 16, “Segment Information”, to the accompanying audited financial statements displays 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.

Through our anticipated growth in sales of theFirst 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 $26.5 million achieved during the year ended December 31, 2024 as soon as possible. Our longer-term goal is to exceed $35 million in product sales by approximately 2027.

Product Development

Most of our product development spending has been focused on the development ofRe-Tain®, our purified Nisin treatment for subclinical mastitis in lactating cows. Between 2000 and 2024, we invested an aggregate of approximately $30.2 million in direct expenditures for the development of this product (excluding depreciation, the capital cost of our DS production facility and 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. More recently, we have initiated a preliminary investigation into potential applications of Nisin for human healthcare, but we do not see a clear commercial path at this time.

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 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 withRe-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.

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 ofRe-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. Our Nisin technology includes patented processing and purification methods to achieve pharmaceutical-grade 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 second most important product development initiative (in terms of dollars invested and, we believe, potential market impact) has been focused on other improvements, extensions or additions to ourFirst Defense® product line. We anticipate initiating commercial sales of a new spray-dried format of ourFirst Defense Technology® in a bulk powder later this year. 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 sellTri-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 asFirst Defense Technology®) during the fourth quarter of 2018 and have re-branded this product format asDual-Force First Defense®. We are currently working to establish USDA claims for our bivalent bulk powder formulation ofFirst Defense Technology®.

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 theFirst Defense® product line offers two significant competitive advantages. First, theFirst 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 offersImmediate Immunity TMthrough 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 theFirst 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 againstE. coliinfections 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 thatFirst 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 byFirst 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 Bos™), 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 toRe-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, proprietaryL. 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.

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 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 ofL. 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 (& Design), CALF HERO, DUAL-FORCE, TRI-SHIELD and RE-TAIN.We also own U.S. registrations claiming rights in the color blue for our blue gel and blue bolusFIRST DEFENSE products. We also own common law rights in theIMMEDIATE IMMUNITY trademark and other trademarks.

Government Regulation

We believe that we are in compliance with current regulatory requirements relating to our business and products. The manufacture and sale of animal health biologicals within the United States is generally regulated by the USDA. We have received USDA and Canadian Food Inspection Agency approval for the bolus format ofFirst Defense®and for the gel tube formats ofTri-Shield First Defense®andDual-Force First Defense®.Re-Tain® is regulated by the FDA, which regulates veterinary drugs. Regulations in the European Union will likely require thatRe-Tain® be sold subject to a milk discard requirement in that territory, although the duration of the milk discard requirement may be shorter than the discard requirement applicable to competing antibiotic products in that market. Comparable agencies exist in foreign countries, and foreign sales of our products will be subject to regulation by such agencies. Many countries have laws regulating the production, sale, distribution or use of biological products, and we may have to obtain approvals from regulatory authorities in countries in which we propose to sell our products. Depending upon the product and its applications, obtaining regulatory approvals may be a relatively brief and inexpensive procedure or it may involve extensive clinical tests, incurring significant expenses and an approval process of several years’ duration. We generally rely on in-country experts to assist us with or to perform international regulatory applications.

Employees

We currently employ 75 employees (including 6 part-time employees) in comparison to 79 employees (including 5 part-time employees) approximately a year ago. Approximately 57 full-time equivalent employees are engaged in quality and manufacturing operations, 8.5 full-time equivalent employees in sales and marketing, 2.5 full-time equivalent employees in product development activities (primarily supporting facility maintenance and operation, regulatory filings and commercial scale-up forRe-Tain®) and 4 full-time equivalent employees in finance and administration. As needed, we augment our staff with contracted temporary employees. All of our employees are required to execute non-disclosure and invention assignment agreements (and some are required to execute non-compete agreements) intended to protect our rights in our proprietary products. We are not a party to any collective bargaining agreement and consider our employee relations to be excellent.

Public Information

As a reporting company, we file quarterly and annual reports with the Securities and Exchange Commission (SEC) on Form 10-Q and Form 10-K, respectively. We also file current reports on Form 8-K, whenever events warrant or require such a filing. The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site that contains reports, proxy and information statements and other information about us that we file electronically with the SEC athttp://www.sec.gov. Our internet address is http://www.immucell.com. References to our website in this Annual Report are inactive textual references only, and the content of our website should not be deemed incorporated by reference for any purpose.