Microbix Biosystems Inc. (MBX) Earnings Call Transcript & Summary

Good morning, thanks for joining us today. We have our webinar with Microbix, who have put out their Q4 numbers on December 23, i believe. And also had the material -- news out the day after about VTM sales to Ontario. So an exciting year end for the company. With me today, I have CEO, Cameron Groome, who I'm sure most of you know. Also, we have CFO, Jim Currie; and COO, Ken Hughes, for those who might be less familiar with those characters. The format of the webinar will be a run-through of some of the high-level points of the quarter. And then what will probably be a lengthy Q&A session as it usually is. As always, this presentation will contain forward-looking statements. If you'd like to know more about those, you can find them on the company's presentation on their website. And as I mentioned, there will be a Q&A section. So feel free to input your questions in the Q&A box at the bottom. With that out of the way, I'd like to introduce Cameron, Ken and Jim. Hi, gentlemen.

Hello, Deborah. Thank you very much, and thank you, everybody, for joining us. I see you've got a good crew and appreciate everybody taking their time this morning. We'll do our best to make it worthwhile. Deborah, I thought we'd run through a little bit about 2021 results, speak a bit about why those results were achieved, give some big picture items in terms of the outlook for the company and then conclude with a bit of a summary on what we see on a going-forward basis. Just very briefly for those who don't know our company well, Microbix is active in a number of areas. I'll just quickly share screen on one slide from our corporate presentation just describing the company, and where we are with Microbix. We develop, make and sell biological products and technologies from our base in Mississauga, Ontario, all over the world, and we have 3 principal revenue-generating segments or diagnostic quality assessment products or QAPs. These are the controls that help ensure the accuracy of a wide range of medical tests, including PCR and antigen tests for COVID. But much more broadly than that, we are also -- have become a core producer of viral transport medium for PCR and other testing for Ontario and are moving forward with material production and sales of that. And the core business from which we started our supply of anti -- native antigens as critical test ingredients. And these operations are what have generated growth, have primed us for continuing growth as we expand our production, optimize our production methods, optimize margins and drive share price appreciation. And there's considerable information about the company on our website, on our public filings. We are listed on the TSX and trade on the OTCQX market in the United States. So talking about 2021, we've accomplished a great deal across the fiscal 2021 ended September 30 and that includes growing sales by over $8 million and close to 80% year-over-year increase, so quite an achievement. We also improved our percentage gross margin by 15% year-over-year and over $6 million of incremental gross margin which realized strongly positive net earnings for each quarter and in fact, for the full fiscal year. In the process, we also massively strengthened our balance sheet and financial position to a much stronger position, a combination of earnings and cash flow and also an equity offering, public offering and concurrent private placement as well as the exercise of warrants from prior financings. We demonstrated very much successful growth in our quality assessment products, our test controls. Business increased top line over 200% year-over-year for that very important growth segment, and we launched the third revenue-generating unit with our viral transport medium sales brand at DXTM to Ontario and others generating $4.5 million of sales of that entirely new business area for still a resounding success there. And I have to highlight and speaking about this that this is a result of a lot of planning and efforts that go back several years. And it's the corporate expertise that was built over decades that enabled us to build on the specific skill sets of the company to drive the success. And we've not just done that in random, we had specific targets for 2021, and that extends into 2022 as well. So I think now we had the 2021 results and the reorder from Ontario that was announced on December 24 for our viral transport medium really puts to bed any -- it lays to rest any concerns about whether there will be orders and whether that is an ongoing business for us. We also would say that our quality assessment products, our QAPs prospects there have never been brighter as we move forward, particularly with different OEM discussions for supplying QAPs with different companies, test cartridges at fixed ratios and our antigen sales very much stable at margins that we've been working to improve across years. And as those recover, we'll drive we believe, more gross margin dollars out of every dollar of more gross margin, pennies out of every dollar of sales. So we should see some very strong fiscal 2022 results. And of course, we're well into the fiscal year now having a September 30 year-end, so our fiscal 2022 started on October 1 and our first quarter of the fiscal year ended on December 31. So some of the things that I most want to communicate today is how we're preparing Microbix to be the leader in its areas and also support a much larger scale of business during COVID and afterwards, we'll have a much greater emphasis, we believe, in worldwide health systems on bio vigilance and that bio vigilance is going to be driven by widespread and sophisticated diagnostic testing. And I've referred in prior webinars to this likely being the golden age for diagnostics industry, and we are broadly supporting it. So we are not one company with one platform trying to gain commercial success at the expense of others, we're very broadly supporting the industry in multiple areas and see Microbix benefiting from those broad trends. And those areas that will benefit specifically, that testing is going to require supplies and like VTM and above all test controls to ensure the accuracy because the only thing worse than no testing is inaccurate testing. And it's our products that help ensure that the testing doesn't result in false negatives or false positives. So we're incredibly well positioned, we believe, to benefit from the broad trends, not just during COVID, but as COVID goes from pandemic to endemic. So it's to support such growth. And I'm talking -- when I talk about growth, I'm talking about large percentage sales increases each year that we have to have both capacity and systems to support and enable that growth. And that's what we're setting up to take the company from where it is today to more on the order of $100 million top line, and that growth entails QAPs, supporting QAPs, supporting viral transport medium and having systems such as electronic quality management systems, enterprise resource planning systems, limb systems for that kind of scale. And that's what we are gearing up to be able to properly support that growth we actually make stuff, and you've invested in a very real company that's increasingly successful that is making critical products here in Ontario for the world. And we're building on 35 years of virology and diagnostic expertise, great connectivity across the whole diagnostics industry. We're now up to 100 staff across 3 facilities. We have the capability to manufacture at over 100 SKUs now at commercial scale with pending automation. We've got all the QC and QA capabilities and required registrations and licenses to make these critical products. We've got not only our own direct sales capabilities, but we also have global distribution network in place now with 9 distributors. We've got a strong balance sheet. We've got a growing market cap in the TSX listing at U.S. trading, and we've got, I would maintain, sophisticated management. that is seriously running the business and is very much shareholder value driven. So this is what I want to drive home today. And from there, certainly Ken and Jim can supplement those comments as we get into the question side of things. But I think 2021 has been a very strong year for us. 2022 is setting up to be even stronger, and we're creating all of the systems needed to sustain profitable growth for our company that will be meaningfully beneficial to all of us as shareholders, and we all are meaningful shareholders. So that's the sum of my comments and love to take some questions at this point.

Thank you, Cameron. So the first question that we have from the audience is about Kinlytic. Would you be able to provide an update on how that's transpiring?

Yes. We remain certainly hopeful that we will secure a partnership for Kinlytic. We have terms that we have discussed that we believe would be quite acceptable to to Microbix as well as jointly beneficial to a prospective partner, and we are looking forward to move to a definitive agreement on Kinlytic. And that and $5 might get you a cup of coffee, but until an agreement is signed, but we are optimistic and that is still an active file.

Okay. Thank you. And can you please explain where you're at in your capacity expansion?

Certainly, there are 2 expansions ongoing. One is in relation to our quality assessment products and that's taking place at our site #2 at 235 Watline Avenue in Mississauga. And the second that is underway is at 275 Watline, our third site in relation to viral transport medium RPX TM product line. And Ken, maybe I can ask you to dive in with some comments on how that's been proceeding through 2021 and how it's unfolding into 2022.

Well, absolutely. And at the start of 2021 and actually in 2020, we raised some money through Fed Dev Ontario, and the group is probably well aware of the Ontario Together Fund. Grant that we received in support of the activities we're doing with regards to VTM and the QAPs. And so in that period of time, not only have we been building the capacity in semi automation and staffing up and building our facilities, the group is probably well aware we activated some new laboratories in our second facility in 2021 is another laboratory just being built and is being commissioned in our second facility, and we've acquired the third facility where an automation suite for VTM, the DXTM production will be in place in the spring. So throughout the time we've been building that capacity and that will continue. So we'll now have 3 new laboratories online now, both in the spring and the automation for producing swap-based cuts and DXTM at much higher scale going from, say, 60,000 to 100,000 a week to 60,000 a day and therefore, building our footprint. And beyond that actually is ongoing right now, and we'll continue in that capacity building situation. Also to Cameron's point, automating our systems, the digitization of our quality management system and all of those processes that allow us to manage our growth is being put in place. We've just hired a Director of IT, for instance, to -- and his group will be solidifying that capability. We have some capability already. But as we're in this kind of meteoric growth phase, we wanted to make sure that we're not weighing down the rocket as it were as we move forward. So everything is designed to support rapid growth, it's exemplified by what we've done in 2021, and we consider that it will continue in 2022.

Thank you, Ken. Can you comment on the updated eligibility for PCR testing in Ontario that was announced a few days ago? Is this expected to significantly decrease the number of daily tests and thus the demand for VTM?

I think it's -- I certainly invite Ken to also weigh in there, but I think it's more a question that test capacity was more than maxed out. And these changes are not going to reduce testing volumes, but rather perhaps permit the system to keep up. Ken, what are your observations?

Yes, I completely agree. Obviously, the system is just bombed by the number of cases that are going right now. As we move through Omicron, and we get back into this kind of endemic reality, there's still going to be a whole load of testing going on. And don't forget, again, the kind of golden age of diagnostics. It's not just COVID out there, there's flu, whether it is viruses, human papillomavirus and nonviral related testing that's going to be going on, which is going to require transport medium and PCR-based testing. So in terms of growth in our business in support of that in Ontario and subsequently in Canada and then perhaps throughout the world, there's lots of opportunity there. And certainly, it's not going to be an impediment to our growth.

Can you maybe give an update on VTM orders outside of Ontario? Is that something that you're still looking at expanding outside of Ontario and...

Most certainly, we are. And it's a bit -- we occasionally share some frustration of shareholders on visibility of order flow. However, it's very good that we effectively moved out all of our inventory of VTM has been provided to [indiscernible] , and I think everyone is thankful that we build inventory or it might have been a very difficult situation all around had that not been the case. So we're in full swing production and I suspect we will fill orders as soon and ship product as soon as it becomes available.

Our communications consider other provinces throughout Canada. But right now, Ontario has taken everything we've got, and it could take more if we could make it faster, and that's why we're ramping up.

Okay. And then I had a question, which is somewhat of a follow-on question. I lost it -- sorry, there's a bunch coming in. Let's back up a little bit, still talking about the VTM automation. What's the time line to $100 million in revenue business?

Well, I think we can talk about capacity, I would be reluctant to talk precisely about whether every iota of capacity is used. But we are -- we have demonstrated our capabilities to produce quite readily 50,000 vials per week. We had -- we did run a number of books double shifted at 100,000 vials per week that is full tilt, however that is full tilt, however. What we're looking at is automating such that we should be able to produce on a single shift more on the order of 50,000 units a day or perhaps double shifting that could be up to 100,000 of the units a day. So that is the sort of automation equipment that we're procuring and that will arrive in Q1, the calendar Q1, the quarter that we are in and we'll have to see exactly when the qualification procedures are completed to put that into use, but all of that is furiously ongoing now. Ken, did you want to add to that at all?

No, that's exactly right, and that's the time line. The team has done a superb job in the semi-manual semi-automated scale up to meet demand that's currently in place, but to go outside of Ontario and beyond and take a bigger share of Ontario, we're going to have to automate. And we've already ordered the equipment. We're setting up the qualification technologies, we got the team in place. We're building out the facility in our third building right now. And so in the spring, we should be good to go and move on from there.

And how much will these expansions cost? And will you be able to complete them with your current and generated cash?

Yes, I'm going to adds to that. Jim, why don't -- perhaps you can jump in and talk a little bit about the costs associated with that expansion. Thanks.

Sure. Let me first start by thanking those that are on the call today. Many of you are shareholders of ours who have been shareholders for a long period of time. And through some of the private placements and public offering, you provide us with the funding that we needed to grow the business. And we've just discussed a few examples of what we've been using those funds for. One was we were able to build inventory of VTM without an order in place, which was very excellent timing for the province. I'm sure they're very happy with the fact that we had built that inventory. And also, it's allowing us to make these investments in automation and also the facilities that we've got going on right now. So we've got budgeted and we had, as part of our public offering, use of funds, the -- these items as investment opportunity items, and we'll be spending. We will have spent probably somewhere in the neighborhood of about $300,000 on improving the facilities in one of our locations and building lab capabilities. Our new facility will likely be spending in the neighborhood of $0.5 million in that particular facility on getting it ready for a lab as well as expanding our office capabilities. In addition, we're also making investments in the automation. And that automation will -- which has started, and we will spend about $1 million in the first 6 months. And we've got continued plans for additional automation in fiscal '22 later on as well.

And fair to say that those projects are all funded from the capital that we have on hand.

Sorry, I should have said that.

You currently producing VTM? Or is it paused for expansion?

It was paused for expansion and is now back in production.

Yes. The Sweden our second facility is now in full swing, making VTM in support of the government of Ontario right now and obviously, in the communications elsewhere. The third facility will house the fully automated line in the spring.

And what's your full production run rate?

We are currently producing on a single shift at 50,000 vials per week. Ken, have you spoken with Damian and team about potentially doubling that up again or...

Indeed, I have and we're doing exactly that.

Very good.

Yes. I didn't really need to speak to Damian, he was already on it as usual.

It's good, good.

I have a couple of questions related to VTM generally, if you could clarify. Is your VTM specific to COVID? And if so, what's the plan to expand its use? Maybe you could talk a little bit about the universality of VTM.

Sure. Our VTM is characterized for any viral testing currently and can be used for that broad purpose. There are different kinds of transport medium for different kinds of testing. For example, if you want to reculture bacteria or recover live virus. So those are different nuance formulations of VTM that certainly we're capable of producing. The one that we manufactured was specifically as requested by public health authorities, and that's why we made this specific type. And it's been very positively received by, I think, pretty much everyone who's used it is what -- Ken, maybe you can expand on that feedback.

Yes. We've had lots of feedback from the end user -- not on the utility and the quality and consistency of our materials. I mean, as we talked about earlier, we're very serious about quality and scale up at Microbix and that's manifested in the customer satisfaction feedback we get from the end user. Yes, our current DXTM is indeed a viral transport medium, not just the COVID transport medium. So any viral load can be pulled out for PCR testing. If you want to outgrow materials for COVID testing, that's a different formulation. And there's also fully inactivating formulations. And part of our development effort is to add to the menu of transport mediums. But current DXTM is a fully viral transport medium and not just focused on COVID, it would work for flu and RSV and other things that you've probably heard about in the last while.

Okay. I'm just looking -- I don't think that there's anything else in the chat on VTM. So -- oh, yes, there's one more. Are you looking to secure a long-term guaranteed minimum contract for VTM in Ontario, et cetera, to secure long-term visibility?

Certainly, we are. And I think our relationship has been very good with the province, and we're encouraging them to look out longer than just order by order in order that we can provide the continuity and it isn't just lining up the fact that we built inventory at risk a bit perhaps was preventing some difficult situations for Ontarians. So we very much want that long-term relationship where we plan together for inventories and can become more intimately involved and even in their projections because certainly, we have a very broad overview of what's going on in the industry generally and can add value at the table. So yes, very much on our radar and to do that provincially with Ontario, with other provinces and indeed, federally as well.

Okay. And are you looking at any acquisitions in complementary or new business lines?

We do consider them until relatively recently, our market capitalization has not made it overly appealing to and valuation is not made it overly appealing. And we're still looking at a pretty low forward multiple on our shares. So it's an expensive currency you're using. And we do have some cash. There are opportunities that we see from a sales channel point of view, from a complementary product line point of view and even from a supplier integration point of view that we could look at. The considerations are, of course, do you rent? Do you build or do you buy any time you're looking at an acquisition? Just you don't want to make acquisitions just for the sake of being seen to be doing something. So they have to be at the right price. They have to be the right fit. And we also have to make sure that our management team has incremental bandwidth that we can successfully integrate in the acquisition, and we look at things through that very broad lens. And -- but we do continue to have a strong balance sheet and are in a good position from both a cash point of view and an equity point of view. If we see the right opportunity, we have some good capability to act on that. Jim, have you -- have you spent all the money on the balance sheet yet? Or do we still have a little bit that's hanging around?

Yes, we still have a little hanging around. Ken hasn't spent it all.

Yes.

We deploy it properly.

Yes.

And whether the automation is complete, do you -- are you guiding to any sort of like gross or EBITDA margin forecast? What's sort of like what [indiscernible] for?

We're not guiding specifically by product and by product line, but we are guiding toward -- we are targeting to see corporately a better than 60% gross margin. And certainly, we'd like to see new products introduced to be better than that margin to bias it upwards not downwards. So we came in for fiscal 2021 at a 59% gross margin and that was up from 44% the year prior. And Jim, I'm not sure I have it in my head as to what our fiscal 2019 margin was, but the -- gross margin, but certainly, we're pushing to see margins in the 60s.

Okay. And you referenced potential VTM demand from other regions? Are you actually starting to see that demand from provinces or other countries from around the world?

Well, you know the -- there is a bit of, I think, moving as a pack in terms of the projections and many people were thinking perhaps they could take a wait and see attitude with regards to procurement and supply and that's certainly proven to be a dangerous strategy. So anyone that was thinking of buying product from us is now going to have to get in line. So we'll be moving forward. We have made some commercial sales. We have made some sales too -- into other provinces. But for now, as we're advancing with the one that brung us, and with Ontario providing a significant grant funding in Fed Dev -- provincially and the Fed Dev Ontario program from the federal side that geared towards Ontario, it's our first loyalty necessarily has to be to Ontario and Ontarians.

Okay...

That will broaden -- that said, that will broaden out quite dramatically in the next few months as our automation capacity comes online, the extent to which we have any supply surplus to the needs of material. We will be delighted, of course, to provide that more broadly. And we're looking at, of course, the larger Canadian provinces, we're looking at the smaller Canadian provinces, and we're looking at procurement at the federal level as well.

I think that covers off all the questions about VTM. So let's move on to QAPs. So I believe you mentioned in your introduction, you're now supplying QAPs to OEMs and defined quantity with their test cartridges, how many OEMs, can you provide any guidance as to the magnitude of this recurring business?

Well, these are the discussions we're now working to conclude and as they come to the fore, what we want to see happening is that our QAPs will be included with a positive swap-based control, for example, in every kit of 25 to 50 cartridges such that it's predictable in recurring revenue stream business. And the capabilities that we've demonstrated, whether it's with the original COVID Wuhan strain, whether it's with variants of concern that we've generated and the multiplex control that we announced on December 20, these are all demonstrating capabilities. And that OEM segment of our business, we believe, will become a large driver of growth in 2022 and beyond 2022. So those are matters that are concluding and in real time and that we're working on now.

Can you quantify what a large driver of growth would be?

Well, depending on the size of the company, we could be looking at anywhere from 10,000 units a month per customer up into hundreds of thousands of units per month. And typically, those are in tens of dollars per unit in terms of the cost or in terms of the sales price from Microbix. So these are large numbers that we're talking about.

And for how long are those discussions, would you expect to see some of those deals signed in the coming quarters?

Yes.

Okay. And then you mentioned the multiplex QAPs that you announced on December 20, I think, are you currently selling those?

We are now -- we have sold some of those to procurement or proficiency testing organizations, and we're now gearing those for sales to OEMs as well as to clinical labs. So the announcement we made is for the fully IVD version or red flock SKUs, and those are available now for labs. So any labs running a multiplex instrument and instrument that's testing for multiple viruses, multiple respiratory viruses, those 4 specifically can now instead of having to stock for controls to run them at intervals can use one single control and know that each one of their test channels or tests that they're running concurrently is actually working. So this is efficiency and cost saving and the real innovation on our part.

That's multiplex QAPs test for different variants as well?

Yes, we could create a multiplex that covered off different variants also. Thus far, that's not being a driver for us, but we could also -- we could readily create such a product. Ken, what would your thoughts be on?

Just to agree, the capabilities in the lab research team and the manufacturing implementation team is such that we could readily do multiplexed variant control. Right now, people are asking for different viruses on control. So -- and we can do that as well because we grow them all as I think everybody watching is well aware. So we have that kind of ability to respond to the ask in real time and do it very quickly with our quality management system in line, we can do these things in a matter of weeks if the opportunity presents itself. And I think we've already alluded to our activities in Omicron by way of an example. So yes, we're pretty responsive to the realities of the day given the technologies we have in-house.

Yes. And from a technical perspective, the question with variance is, was there a mutation in the area of the viral genome that your PCR test was using? So the PCR tests look at a genetic segment or segments of the virus. And if those segments have mutated, then the test functionality is degraded. And that's really what we want to know. So as the virus continues to drift, you have to look and say, was the test, if you're a test manufacturer or a clinical lab, was the test that I'm making or the test that I'm using affected by these mutations. And what we're providing is a good way of checking.

I have a question. When did you get a dog, Cameron?

I did not. That is the question. You can ask me, does your dog bite? And I can say that's not my dog.

All right. So I have a couple more questions. Just about the testing. So maybe we could back it up a little bit for some of the people on the call that are newer to Microbix and QAPs. Can you elaborate about false positives and how Microbix eliminates false positives and false negatives? Right now, false positives with rapid tests are widely talked about. So maybe you can just talk a little bit about the functionality of your QAPs.

Well, there's 2 broad test technologies that we're talking about here. One is the PCR testing. And one is the antigen test. And the PCR testing is looking for the genetic sequences of the viral RNA, whereas the antigen tests are looking for the surface proteins on the virus or proteins within the virus and detecting those. The rapid tests have a bigger issue likely with both negatives than false positives. It's not -- they're probably only capable of detecting around 2/3 of positives through the whole sequence of infection through to becoming symptomatic. They're very accurate when you're symptomatic, but less so in increased symptomatic phases. The PCR tests very exquisitely accurate, but if it's pushed too far, it can result in false positives if there are too many cycles of amplification that are conducted. But any of these can be affected by systemic errors. And that's what the controls are most about catching. They're not enhancing the accuracy of the test per se. They're catching errors that can be driven by technicians. They're performing steps wrongly or in the wrong order, reagents that spoiled are being used in the wrong way or instruments that have gone out of calibration or perhaps an electrode is corroded or a channel of fluid is gummed up. These are where systemic errors can happen, and that's what you want to catch is the thousands and tens of thousands of errors that can result from one of these systemic problems, and that's what we're about catching. Ken, did you want to supplement that?

Yes. We've seen situations where there's been a whole portfolio load of false negatives coming out of the labs where they've had systemic problems. And we described QAPs as workflow controls, which covers all aspects of that. When you're getting a patient specimen and you're testing it and you're asking the question, are they positive or are they negative, then, of course, an error can be made. When you run controls, we know and they're validated, they are positive or they are negative. And you must get that result to sure that your whole system is working. A lot of QAPs look like patient specimens and not just a little bit of nucleotide. It looked like something that came up with somebody's knows and they're on swaps. And so you run it through the whole system, and you know the validated is positive. So you must get that result. If you get that result and you should and you know that your whole system is working, and you have much better confidence that what you're doing throughout the system is working for all the patient specimens. That's really what the control does. It doesn't enhance the accuracy of any individual test, it just make sure it works at all. And that's where we see major problems, particularly with false negatives.

Yes. And what you really want is to be bookending a run of tests with the known positive and known negative. Microbix controls that the start of the day or the start of the shift, for example, an end the day with a known positive and a known negative. And it's only if our positive control shows positive and our negative control shows negative that you can start the day's work. And it's only at the end of the day or the end of the shift when the positive is positive and the negative is negative that you can have confidence that everything happened that happened in the middle was actually functioning properly. And if anything untoward happens, if they're front end to the back end, either side of that bookend, you say, wait a minute, stop, we have a problem, it can be identified and caught immediately. And what you don't want is the catastrophe such as has happened in the U.K., where a lab went some long period of time without catching a systemic error and told somewhere between 40,000 and 50,000 individuals, no, you don't have COVID. Perhaps you don't have anything at all and send them back to work, back to visit relatives who might be exposing people at risk of grave harm.

How often do they run the tests on the equipment? Is there a standardized -- like every 50 tests or 100 tests?

This is -- sometimes it's a manufacturer's guideline. For example, with the OEMs and the discussions we're having, they say every 50th cartridge, for example, you will spend that 50th cartridge to make sure the machine is still working properly and that everything is functioning well. In the laboratory setting, the regulations are, you must use third-party controls as a part of your quality system, but it does not say how often you need to use them. And this is something we're going to get involved in from an industry point of view is saying, let's set some standards because we've seen very diligent laboratory directors that use controls very regularly to ensure that quality control, and we've seen other people that are very cavalier and frankly, that's frightening.

Do you provide any of the inputs to the at-home rapid tests?

The at-home testing is a different scenario whereby somebody is getting a single kit. So we do provide inputs for at-home testing in our viral transport medium. So for example, if there's anybody whose school-age children on the call who may have gotten an at-home PCR collection kit or a collection kit at home have a look. And you may be pleased to see there's a tube of Microbix DXTM in that collection kit. Controls are not used the same way for those at-home kits because obviously, a mother or a person isn't running 50 or 100 tests at once to check for systemic errors. So that would be where we participate in that area is through viral transport medium.

So fluid in the bottom is still VTM, it's not something different?

Well, if it's our DXTM, you'll see Microbix on the label.

Okay. Actually have a rapid test somewhere around here, I might go grab it.

Well, this would be for at-home collection, Deborah, not the rapid test. So if somebody is collecting for collecting at home for laboratory-based testing, that's where we play a role.

The ones that they send you, you have to send it back.

Yes.

Yes. So home swapping, put it in now a VTM, send it back to a pharmacy or to a designated area for subsequent testing.

What's the liquid they use in the rapid tests?

It can be anything from a specific reagent to just a saline solution that physically drives the sample through the strip. It widely varies between tests.

Okay. I think that's everything on QAPs, let me just double check. And I had one question on the antigen business. So what sort of recovery are you currently seeing in that side of the business?

Antigen business, we continue to see a lower level of antigen business. We don't anticipate that it will recover fully to the $1 million a month pre-COVID in 2022. There's still sadly quite a number of medical procedures that aren't getting conducted because of COVID and people not seeing their doctors and their doctors not wanting to see patients. So that business continues to be under top line pressure. But we are certainly continuing to work to enhance the margin in that business and having quite some success in doing so. So we'll be poised when the top line starts to recover, we'll get more margin out of every dollar of sales associated with that business. Jim, what would you want to supplement on that just from top line perspective?

I think from a top line perspective, I think you're correct. I mean, we're not expecting the prepandemic level of revenues. And however, we have seen some limited growth over the last year in that business. And the margins have -- are starting to improve quite well. And so we're poised to produce greater margin from that business when we do get back to post pandemic levels.

Yes. The group is likely well aware of the implementation of the very active strategy on [indiscernible], which is now bearing great fruit with regards to margin and efficiency and shout out to the team here and the technical manufacturing team and quality control team for pushing that through. We're applying that type of discipline to all our products in the antigen space. And so to maximize margins for everything we do here and that will continue. And so hopefully, the top line and the margin bottom line will continue to increase in what is really a reasonably mature market, but we'll continue to grow within it.

Some good opportunities there, though. We are seeing opportunities that will emerge ultimately in Asia as this stabilizes, and we have some other ideas that we're pursuing that may make the antigen business even more interesting.

And there's a reason why we're putting together the BSL-3 containment Sweden Microbix as well in this -- in fiscal 2022 per our business plan.

Can you maybe explain what that process looks like and how you achieve that status?

Which process and which status, Deborah?

Sorry, did you just say that you're -- sorry, maybe I misunderstood Ken, I thought you were talking about upgrading to Level 3?

It's about the level of containment of the individual viruses that you can grow in any sort of scale. So you're looking at finishes in air flow and general safety and containment associated with that. Right now, we have a manufacturing level CL or BSL2 plus, that's what the virus is and other pathogens we currently grow in activate or antigens and for our cuts to handle like something like real corona, real SARS-CoV-2 or some of the more interesting tropical viruses, you need some additional capabilities within the labs and that's what we're building out. There's a number of opportunities in this regard. Also just you can do with nasty pathogens if you can contain them properly, and we would never grow nasty ones without proper containment, put it that way.

Correct. And these distinctions, for example, dengue amongst the tropical diseases, dengue is classed as containment Level 2 or biosafety level 2, but very analogous viruses such as Chikungunya or Zika are classed as Level 3 and it will help our business to be able to safely work with a more fulsome spectrum of organisms and to do so with the diligence that we've demonstrated over 30-plus years.

Okay. And the margin expansion you discussed on the antigen side, is that a result of the conversion that happened to bioreactors? Or is that a number of different factors?

It's a number of different factors. Certainly, the bioreactor conversion has been one that took a product with subpar margins and has moved it closer to where we want to see it, still not fully there yet. And that same level of diligence and innovative thinking is being applied to a number of different antigen products to really get the maximum margin dollars out of each one. And we have seen, frankly, a negative impact had we not done that work. We would have had the antigen business being a drag on the company rather than a benefit to the company if we were achieving the margins of several years ago, and it's seen some of the reduction in the sales level. So we've seen benefit from these improvements, but we'll see a much greater benefit when sales research through the $1 million a month range that they were pre-COVID that will be much stronger results than we've ever seen so far from that business.

Okay. Does technology like that of Pond Technologies represent a threat to MBX, Pond Technologies, claims, microalgae and genetic engineering have created new opportunities versus 1 million cells, et cetera. I don't know if I put you on the spot. I hadn't heard of that company previously.

We know Pond Tech. We like them. We've had discussions with Pond Tech. There are a number of platforms that one can look at and consider there are multiple ways of making synthetic antigens synthetically. But there are very many variables that determine whether an antigen is acceptable for use in the diagnostic test. And we make some synthetic antigens ourselves already, for example. Our clients tend to be looking at absolute gold standard. They want the real virus made in a real mammalian cell so that it is as sensitive and specific as possible when put into their tests, so they tend to be incredibly quality conscious and very conservative. So we may look at technologies like Pond but it will be many years before we would see change over from our customers one way or the other.

Okay. And then I had a question about antibody testing. Do you make any products for antibody testing at this time?

We have developed QAPs to support COVID serology tests, and that's something we have available. the use of serology testing to look at your antibody levels for COVID has not taken off the way many felt it would and governments have expressed some reluctance even to have people test their antibody levels because they don't want to dilute the message of vaccination. But we will ultimately I think, see a role in that to say if we're -- people are going to lose patience when their booster looks like a coffee loyalty card and you're saying every seventh shot, you get a free cup of coffee is not going to go over well. So I think ultimately, we will see an adoption to say, do you have a protective level of antibodies if you're at risk. Otherwise, we have to recall there are the memory cells that for somebody who's otherwise healthy and low risk may be adequately protective in and of themselves. But for those at risk, there may be a role for serology testing to maintain a higher level of protection. Ken, what would you have to say about that?

Only that we do indeed have a serology testing QAPs and we're actually developing a suite of serology QAPs with different specificities. And so yes, I mean, we complete the portfolio. We have antigen QAPs. We have PCR and nucleotide QAPs. And now we're going to -- we have serology QAPs as well. And as the market evolves, we will be there immediate.

Those haven't yet been taken through the red process to be fully IVD controls just because there hasn't been the pressing need, and we've been prioritizing that, that's something we could readily add to the lab testing eligible product portfolio as a red control product when that market becomes ripe.

And we have done some qualification in third party laboratories and they worked beautifully as expected.

Interesting. I kind of like that concept actually where you get your serology tests and so you're not -- how many vaccinations you've had or whatever it just tells you, are you immune. How far away do you think we are from being able to implement that in like a rapid test or like efficient turnaround time?

Well, some of those tests are available now as strip with a drop of -- a few drops of blood can assess in a qualitative or semiquantitative fashion the level of antibodies to spike protein, for example. So those exist now and they were created very quickly following the discovery of COVID. The question has more been what's the health care and clinical relevance of that testing and how do we deploy it. It was, that was nice to know, but not too relevant before we had vaccines, while they're available now. It becomes more relevant as we say, to whom do we give those vaccines and at what intervals do we look to give boosters.

Okay. A couple more questions. Just maybe more general questions on your results. When can we expect Q1 results? Mid-February?

Q1 results would be mid-February. So we would be looking on just looking at the calendar, probably on...

Between the 10th and the 14th.

Yes, exactly. So that would be the time line for the release of Q1 results. And Q1, we are just looking at preliminary figures now and will certainly discuss them in due course, but it is looking to be quite a reasonable top line and a positive bottom line.

I know previously, we were guiding to some seasonality in Q1. Is that a typical seasonal sort of slower quarter?

Yes. Q1 is typically slower. It's -- historically, there has been the proficiency testing industry in the U.S. These are the groups that periodically check how the labs are doing in their third-party agencies that give the labs a blinded group of samples that they must complete in a given time line. Those events the tradition in the U.S. and Canada has been that there are 3 events per year for the labs and that's meant that we would typically ship product in Q2, Q3 and Q4 to support those events. We did see a few more shipments for efficiency testing in our Q1 of this year, but Q1 has historically been a slower quarter for Microbix. We, of course, came in with shipments on December 24 of viral transport medium, which certainly helped the complexion of our Q1 numbers, we did offer to put in a free Christmas hat with the order, but it was deemed not necessary. The other thing I would mention in Q1, we had anticipated taking a noncash charge of approximately $0.5 million in our Q1 associated with the early repayment of our debenture, that ends up being taken in Q4 due to an accrual-based methodology that was driven by our auditors. So that charge was taken in Q4, not in Q -- and will not therefore occur in Q1.

Okay. And then are there any other seasonal trends that you see year-to-year or any other seasonality in the business?

Well, I think, broadly speaking, respiratory viruses tend to circulate more in the winter in the northern hemisphere. So we will have some inherent seasonality in the respiratory business. In other sides of testing, that is not the case. For example, there's not a specific seasonality on things like HPV and other nonrespiratory viruses. But when it's cold and damp out and people are congregated indoors and viruses don't get burned off by bright sunlight it so much, they tend to circulate more in the winter time. But again, there's an offset that some of our shipments would tend -- for that purpose would tend to happen a few months before the season if our customers are planning appropriately.

Got it. Great. And then final question. So what are the main catalysts for investors to look forward to in 2022?

I think some of the catalysts -- I'll invite Jim and Ken to step in as well. But some of the catalysts I would look for more industry alliances that we'll be looking to put together in terms of our QAPs sales, I think, be scaling and automation steps that we're taking to drive and support growth as well as with any kinlytic alliance as well. Jim and Ken, what would be your -- some of the ones you'd want to highlight?

Connectivity and increasing sales ex Ontario, downstream of the automation of DXTM would be a good example and continuing enhancing capabilities within our system to support this growth with inventory management and supply from there. But really, it would be a diversifying geography as well as product portfolio as we move forward, and I think we're nicely set up to do exactly that in 2022.

Yes. I think deploying the capital that we've been provided by our investors with in a variety of areas and expanding the business, whether it's research and development, sales and marketing, or with the expansion of the facilities and the automation is incredibly important. We're also looking at our systems as well and enhancing our internal systems, ERP solutions and QMS systems to support the growth of the business as well.

Okay. Great. Well, that's pretty close to on the hour. Thank you, everyone, for participating, for your questions. Cameron and team, is there anything that you wanted to discuss today that wasn't discussed?

One thing I'll mention, Deborah, is I will be -- I have some stock options that I negotiated when I came on as CEO that are expiring in 2022 and will expire in August. I'm going to be exercising those in 4 tranches over the course of the year, one after Q4 shortly, one after Q1 results are announced, one after Q2 results are announced and one after Q3 results are announced. So just that everyone is expecting that. I will be meaningfully adding to my net holdings, but there will be some of those for tax purposes and capital purposes that I cannot hang on to just because it would be too much of a strain on my liquidity. So I will be adding to my net holdings, but will be active in 4 tranches across the year.

Not uncommon. Okay. With that, well, I think we can end it there. Congratulations on another fantastic year at Microbix. This company continues to get better and better. Congrats on Q4 and sliding that VTM order in before year-end. And I think the market was anticipating that. So lots to look forward to. Excited to see the Q1 results. And yes, thank you so much for your time.

Thank you very much, Deborah. It's been great to have your support and out of Adelaide through the year. We've done our very finest work, I think, in driving real value growth for shareholders, and that's something we're going to continue to do. We've got a great team, the 3 of us here, me, Jim and Ken are just scratching the surface of the the great people that we have working with us, and it amazes me every day, just the talent that we have within a company of our size.

That's great. Always a pleasure and what a great way to start the year off. So congrats to you all. If anyone has any additional questions, feel free to reach out, and I'll get those answered for you. And everyone have a good 2022.

Thank you. And thank you for everybody on the call, taking your valuable time to spend with us.

Absolutely.