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

The meeting will come to order. Good afternoon, and welcome to the Annual Meeting of Shareholders of Microbix Biosystems, Inc. I am Christopher Lobb, Corporate Secretary to the company and will act as Chairman of the meeting. We'd like to thank our shareholders for accommodating and conducting the meeting online and by conference call during the coronavirus pandemic. We'll start the meeting by addressing the formal matters. And once these matters have been addressed, Cameron Groome, the President and Chief Executive Officer of the company, will provide a short summary of recent activities and events. Questions can be asked online, and Cameron will answer them at the end of his presentation. I hereby appoint Helen Kim and Megan Rocha of TSX Trust Company to report on the shareholders present in person and the number of shares represented in person and by proxy and to compute the votes on any poll taken. Notice calling the meeting and the accompanying management information circular have been distributed using the notice and access provisions under applicable securities regulations to all registered and nonregistered shareholders. These provisions allow us to post electronic versions of the proxy-related materials, online rather than mailing paper copies to shareholders. This allows us to reduce our postage and material cost also has environmental benefits by reducing the volume of paper documents generated. Physical copies of the formal proxy, the supplemental mailing card and the notice and access letters have been mailed to all shareholders of record, to the directors and to the auditors of the company, and a registrar and transfer agent has filed with me proof of service. I direct that a copy of such materials with proof of service being next to the minutes of this meeting as a schedule. I'll now ask someone to move and second the resolution dispensing with the reading of the notice.

Mr. Chairman, Mark Luscher, a shareholder and SVP of Scientific Affairs of the company. I move a resolution as follows: be it resolved that the reading of the notice of this meeting be dispensed with.

Ken Hughes, a shareholder. I second that resolution.

I declare the resolution carried. The scrutineers' report shows a quorum to be present. I, therefore, declare the requisite quorum of shareholders is present and that the meeting is regularly constituted. I direct that the scrutineers' report be next to the minutes of the meeting. Before commencing the business of the meeting, I'd like to comment on the voting procedure during this unique shareholders' meeting. Each holder of a common share is entitled to 1 vote for each common share held. As a show of hands cannot be done during an online meeting, shareholders have been asked to vote in advance of the meeting. At the time of each vote, we will indicate the result of that advanced voting. I now present to the meeting the financial statements of the company for the fiscal year ended September 30, 2021, and the auditor's report thereon. It's not proposed to ask shareholders to approve the financial statements. However, Cameron Groome, the President and Chief Executive Officer of the company, would be pleased to deal with any relevant questions that are asked online concerning the financial statements during the question-and-answer period at the end of the meeting. If shareholders have questions of a general nature, they can also be asked online and answered after the formal part of the meeting is completed. It's now in order to proceed with the election of directors. The Board of Directors consists of 7 directors. I now declare the meeting open for nominations.

Ken Hughes, a shareholder. I nominate Peter M. Blecher, Mark A. Cochran, Vaughn C. Embro-Pantalony, Joseph D. Renner, Martin Marino, Cameron Groome, Jennifer Stewart as Directors of the company to hold office until the next Annual Meeting of Shareholders or until their successors are elected or appointed.

Mark Luscher. I second the resolution.

Based on the scrutineer's report, I declare the resolution carried and those nominated to have been duly elected as directors of the company to hold office until the next Annual Meeting of Shareholders or until their successors are elected or appointed. The next item of business is the appointment of Ernst & Young LLP as auditors of the company and the authorization of the directors to fix their remuneration. I'll now ask someone to move and second a resolution appointing auditors and directing the directors to fix their remuneration.

Mark Luscher. Mr. Chairman, I move a resolution as follows: Be it resolved that Ernst & Young LLP be and they are hereby appointed auditors of the company to hold office until the next Annual Meeting of Shareholders or until their successor is appointed. As such remuneration as may be fixed by the directors and the directors be and are hereby authorized to fix such remuneration.

Ken Hughes. I second the resolution.

Based on the scrutineer's report, I declare the resolution carried. This concludes the formal part of the meeting, and I propose that we terminate the formal portion of the meeting and Cameron Groome, President and Chief Executive Officer of the company, will make a presentation to shareholders and thereafter respond to questions from shareholders that have been asked online. Accordingly, I now ask someone to move and second a resolution terminating the meeting.

Mark Luscher. Mr. Chairman, I move the meeting be terminated.

Ken Hughes. I second that resolution, too.

I declare that this meeting is now terminated, and I invite Cameron Groome, the President and Chief Executive Officer of the company to address the shareholders.

Thank you very much, Mr. Chairman. Well, I'll share a screen with a presentation about Microbix. And hopefully, it will provide some valuable insights for everybody. And let me go see if this will go perfect. Thank you. So first of all, thank you very, very much for entrusting your capital to us and welcome to the Microbix Annual General Meeting of Shareholders for 2022. We greatly appreciate you taking the time to attend and support us. Thank you. As this is a public meeting, I do need to notify you that this presentation does contain forward-looking statements. But at the very least, I can be succinct about doing so. For today's presentation, I'm not going to spend too much time on the technical aspects of our products. I think as you are shareholders, you have some familiarity with what we're doing. And I'd rather give you context about where we've been, where we are and where we're going with Microbix. As you know, we have a long history that literally goes back to our Founder's father sparking an interest in public health and his son, Bill Gastle, our Founder, then had the courage to start and build a business, which has now become likely the longest lasting Canadian controlled life sciences company and that has a tremendous base of expertise. And it's that legacy that I've been entrusted with over the last 5 years, to be 5 years in July. And our focus over that time has really been on growing the sales-oriented businesses and moving the company into a phase of profitable growth. And that's something we've accomplished by moving the company into the creation and manufacturing of increasingly sophisticated suite of products that are fully regulated medical devices, products that are innovative, proprietary and branded. And that's led us to be able to move into newer product areas and generate some very strong growth in sales. And while we're now at a sales run rate of $20 million per year, we're nowhere near done yet. We're setting up, as I'll explain when we get into the forward-looking portions of this presentation, the steps we're taking to increase sales five to tenfold from here. And over the last 12 months, there's a lot of indication of what we, in fact, are doing. And this is driving -- driven us to record sales for fiscal 2021, record margins in EBITDA, material net earnings and positive cash flow. And you're seeing alongside these record results, a new and growing set of product lines further manufacturing capacity and upgrades to our control systems. And all of that, again, geared to support a greater level of growth. So these business lines relate to our all the assessment products or QAPs for helping ensure the accuracy of tests. Our DxTM branded viral transport medium for enabling collection of patient samples and our antigens for ingredients for the manufacture of different types of diagnostic tests. And each of these businesses has just great prospects that are going to move us forward into continuing sales growth and increased pace of product development, continuing gross margin expansions, earnings and, of course, related to those fundamentals of share price appreciation. The -- specifically, where we're -- what we're doing and continue to do is to create and manufacture products with real and sustainable product advantages. And this is driving each of those business lines to great success that being our QAPs, our DxTM and our antigen sales, each of which is now deeply embedded in the marketplace and very much driving growth for us. And specifically, what we've done and continue to do with these products is to create and manufacture product lines that have real and sustainable market advantages. And each 1 of our 3 business -- sales generating business divisions has those properties. And it's so those skills that are helping us move up to the whole new level of success by supporting our customers with products that are not -- that are unique, have great advantages that are not easily substituted or replaced. And it's those customers I'd like to highlight on this next slide. This is comprised of the names of just those customers and collaborators that frankly came readily to my mind over a Sunday morning coffee generating this slide. And I'd estimate that this slide represents about half of our active relationships. So we truly -- we've become a super connector in our industry of supporting the broad diagnostics industry, and this is leading to a real multiplication of opportunities for us in the complementarity of our product lines, our expertise and our relationships. And I believe we, as shareholders, are going to start to see increasing benefits from that. And we're already seeing those -- starting to see those benefits. It's that blend of product offerings and customer relationships that's driving the financial success that you're now seeing with growing sales, expanding gross margins in percentage terms and in real dollar terms, expanding EBITDA, the earnings before interest, taxes, depreciation and amortization, becoming very material for us and a marked improvement in our financial strength, both in terms of the current ratio, our current assets divided by our current liabilities and the debt-to-equity ratio, the totality of the company's debt compared to shareholders' equity, both of which are strong balance sheet strength measures continue to improve for us. And these improvements are really only starting to be reflected in Microbix's stock price. Well, we're certainly up. I personally don't believe there's yet a full appreciation of just where we now are much less where we're going. So let's now shift gears a little bit and speak about Microbix's future. Where we're going now in the future, of course, we have the sort of well-reasoned objectives you'd expect for each of our business lines with them all well suited to drive strong organic growth to which we can add judiciously with outside opportunities that are both pertinent and complementary. We look very carefully and spend a lot of time evaluating how to improve each one of these elements of our business, how do we continue optimizing our manufacturing processes for antigens? What new QAPs do we add to our product lines and what innovative, unique and advantageous characteristics they have for DxTM, while success with that product line that will continue to add to and build forward on and keep scaling our business. So how do we do that? How will we go about that? Why should you have confidence? Well, there's a number of very good reasons for that. We have great guidance and governance from our Board of Directors that we'll go into. Our management and staff are just, frankly, fabulous. We're blessed to secure a remarkable team of people with bench strength and bench depth. The customer relationships, access to market that were generated -- that we generated facilities and capacity that we'll talk about as well as the support and control systems that we're continuing to upgrade as you might have seen in the news release yesterday of upgrading some critical aspects of those. So a little bit of that on our Board of Directors to start. We've got, as I said, a great slate of directors. Martin Marino is our independent Board Chairman with tremendous experience in the life science of business generally. Peter -- Dr. Peter Blecher, a prolific entrepreneur in his own right and a very keen mind at bringing a whole host of expertise together. Mark Cochran with tremendous expertise in both Canada and the U.S. in health care and venture capital in a broad variety of related companies and industries. He is the Chair of our Human Resources Governance and Compensation Committee. Vaughn Embro-Pantalony, my predecessor, who is independent share of our Audit Committee and has tremendous experience and skills. Joe Renner, a very successful entrepreneur and company founder of Zydus Pharmaceuticals, Co-Founder and current Chairman. And I'm very pleased to welcome Jennifer Stewart, who is now appointed to the Board based on today's shareholders vote brings a whole new skill sets in governance communications, media business and adds a tremendous skills and connectivity to our Board, and we welcome her I'd also like to take a moment to thank Anthony Giovinazzo who is not standing for reelection to the Board this year for personal reasons for the contributions he's made over the past year. In terms of our management group, we have a senior management team where we have weekly meetings to discuss strategic level issues within the company and how best to drive it forward to create real and lasting shareholder value. And that comprises a dozen individuals. We also have another group of managers that work closely alongside us and tremendously skilled staff of over -- it's now reached over 100 individuals. So I'm, of course, CEO. Jim Currie is our Chief Financial Officer sends his regrets today. Ken Hughes, our Chief Operating Officer, on the call. Philip Casselli, who is in disposed at the moment. Mark Luscher is also on our call and just brilliant team that we're privileged to work with, including Dr. Amer Alagic; Steve Hagerman; Dennis Haikalis our, Director of IT; Bo Hollas, Director of QA and compliance; Damian Klimaszewski, Director of Manufacturing; Lucy Lin, Director of QC; and Pavel Zhelev who is Director of QAPs. These are the people that create the value day-to-day for us, and we're frankly lucky to have each and every one of them. So I hope you'll come to appreciate as deeply as I do the commitment and the skill and talent of these individuals. In terms of our product lines, it's very interesting to think about what we've built in terms of the product lines and the connectivity that they drive to a whole bunch of different customer categories, those being the manufacturers, immunoassays, the lab accreditation agencies, the makers of molecular diagnostics, the clinical labs that conduct many of these tests, governments and a whole host of other customers that we're starting to work with directly that our customers that include industrial companies, manufacturing companies, mine-sites, film production companies, the military, hospital chains and clinics. We're seeing a real diversification and access to all those customers that we either have directly or through distributors. And Microbix products, I'm proud to say, are now being actively sold into over 30 countries. That being in North America, South America, Western Europe, Scandinavia, Asia and Australasia and Africa. So truly, we're becoming a global company in terms of where our products are benefiting human health and very proud to be involved in that basis. So thank you for making it happen. Our 3 facilities are also providing us tremendous both capacity and flexibility. And we started with 265 Watline, our antigens manufacturing facility, and that's where we do our active biologicals work and that is an owned facility. And it's been joined adjacently and these sort of are racked out in the way they appear on the street by our second site at 235 Watline, which is where we are scaling up production of our QAPs products lines. And now most recently, 275 Watline, which is where we are installing fully automated production of our VTM and adding to our overall warehouse capacity. Buildings 1 and 2, 235 and 265 Watline light are now fully built out. We'll continue to improve and add -- it's here and there to them, but they are now fully functioning facilities and 275 Watline is actually being reroof by our long-term lessor this week. And by the end of April, we will have completed our renovations to that facility to make it fully functional for both production and additional support functions for us. So it gives us some tremendous capabilities and just I hope drives a bit of the reality of our company and what it does and what it is doing. The other element, of course, is being able to drive our support systems. We need to continue to scale. We have moved, for example, from producing on the order of 100,000 vials of product in a year to 100,000 vials in a week with regards to our scale of our production. We produced -- in the first year, we offered Swab-based QAPs products, approximately 10,000 units we produced, well north of 10x that number in fiscal 2021, and we're producing multiples of that number in 2022. And going forward, we have to support a business that will be at least 5 to 10x the current scale. All of our systems need to be able to support that magnitude of activity and that increased pace of activity with no cracking, and we're taking all the steps necessary to be state-of-the-art in that regard and move forward into full scalability. And these are all planned investments that are fully supported by the resources on hand as well as those we raised in the last fiscal year with the public offering that we did in the spring of 2021. So where I would leave you is and move over to questions is that alongside directors, management and a lot of our staff, you, our shareholders, and you own a business that has a unique set of capabilities that has been built up over more than 3 decades. We have exciting product lines. We have long-standing and many strong customer relationships. We have great access to the markets that we need to move -- we need to be in. We have a clear vision as to how we're continuing to expand sales and earnings. We have the human resources, the infrastructure systems that we need to enable that sort of growth. I would represent the companies being both effectively governed and effectively managed, and it is very much, in my opinion, investable business. We already listed on the TSX and voted on the OTCQX in the United States. We are cashed up, we are profitable and it is our firm intention to continue to provide shareholders with strong returns for many years to come. So with that, I would conclude my remarks, open things up for questions and just thank you, again, for your attendance at this year's Annual General Meeting. Thank you.

And then would you like me to ask the questions?

Certainly, Deborah. Always a pleasure. Your voice is much more melodious than mine as well.

Well, we'll see. Like some people, I'm still recovering from COVID. So the first question is, why did Anthony Giovinazzo sell all his shares on February 28?

Anthony has indicated to us that he was reducing his Board commitments for personal reasons, not just Microbix, but other boards as well and had other calls upon his capital. Beyond that, I did not privy at his motivations.

I think that officially answers it. Can you please provide your thoughts as to future demand for your products as government requirements for COVID-19 tests are being reduced?

Government requirements for COVID-19 tests are an interesting element. We are not in the areas where our -- certainly, our products are not directed towards matters like travel testing and some of the more recent emergence. We're much more connected with public health matters where people are in the health system getting tested for a whole variety of infectious diseases. Certainly, some of our products are directed -- have benefited from COVID. Others have been harmed by it. I would, estimate we've certainly given up as much as we've gotten in regards to COVID. There were whole other categories of infectious disease testing that have taken a hit, such as our antigen business that's down approximately 1/3 from its pre-COVID levels, which we expect to rebound as the pandemic becomes more endemic and there are other elements of our business such as testing for sexually transmitted diseases and other ailments that where testing has been virtually been suspended as a result of COVID that will rebound afterwards. So there will be, as Ken would say, swings and roundabouts in terms of the product mix. But in the overall viewpoint of our business, tremendous additional molecular diagnostics capacity has been built up as a result of the pandemic. And we see some tremendous benefits for Microbix as that capacity is intelligently redeployed. And I would encourage people to watch some of the other Microbix presentations that have been archived on the Adelaide's Capital website. Adelaide Capital YouTube channel, I believe, where we talk more specifically about Microbix's product lines in some of our areas, such as our controls business and as well as our antigen business, but our controls business very much will see tremendous benefits as the industry moves from single channel COVID testing to multiplex testing. So single Swab-based patient sample will in future test for not just COVID but also influenza A, influenza B, virus called RSV and possibly a suite -- a whole broader suite of viruses. And we're seeing that trend move across product lines in the industry, and we're uniquely positioned to benefit from that. We're also seeing test for bacterial infections, not just look to type the organism, but to simultaneously assess what antibiotics it is resistant to and which ones it is susceptible to, to better direct therapy. And we're also extremely well positioned to benefit from those innovations. So while we see changes to product mix for Microbix, we certainly do not see anything other than a positive outlook for our business in the near, mid and long term. Right now, magnitude-wise, we're sort of in this plus or minus $5 million a quarter range currently. And where we're targeting is to break out significantly beyond that over the next couple of quarters, move into something closer to $10 million a quarter range of product sales and then continue to double that again going forward. And that's why we're making these investments in systems. And this is based on feedback we have from our business development work and our customer relationships that drive that as a well-reasoned expectation on our part, not a field of dreams.

And you partially answered one of the questions which was, when will facilities for QAPs and VTM be actually shipping products at the expected expanded levels. It is unclear if buildout includes installation of machines, quality systems implemented, et cetera.

It's a pretty good compound question, but I'll look to take it apart a little bit. In terms of facilities, 235 Watline, our QAPs facility is fully buildout. And we're now increasing the amount of automation equipment in that facility. We need the empty tile from Building 3 before we can fully use Building 2 for its intended uses. And that's something that should be realized within the next 1 month or 2 that we can actually move VTM production into Building 3 and free up Building 2 for its originally intended uses. For Building 3, that building will be qualified for use in April and May. We have equipment expected to arrive front to back, filling, capping, labeling line that should be arriving in the month of late May or early June and be qualified for use approximately a month after that. Ken and Mark, would you want to supplement any of those comments? This is in the monologue on my part.

[ capabilities here. I mean, right now, we're on a trajectory, of course, and 235 is currently housing as well as 265, Building 1, QAPs production and VTM production. In the beginning of April, Building 3 will be ready as a physical structure. They've put the last finishes on right now and the validation will occur and the semi-automated production of VTM, which we're talking about 100,000 units a week kind of scale will be implemented immediately, and that will completely free up 235 for QAPs as we ramp up in the various orders that are coming down their way. As Cameron quite correctly says, the fully automated units will be in place in the summertime, and then we're going right up to 400,000 units a week and beyond. And then we'll be servicing not only Ontario, but the balance of Canada and looking at industrial partners as well. So building capacity in that regard. But right now, on the ramp we're on, the facilities we have can handle it and Stage 2 handle it. And correctly, of course, the infrastructure system, the quality management system, the ERP and so on and so forth will just support that building out and rapid growth in the next little while.

Very good. Thank you, Ken.

Thanks, Ken and Cameron. So how much of the current ramp-up is premarketed, if any?

Well, based -- if I'm interpreting premarket as in presold or expected to be utilized, yes, we expect that to be consumed fairly quickly. In the QAPs side of things are some of the discussions we have ongoing are for clients that may need thousands of units a month. Other clients need tens of thousands of units a month from us. Other clients need hundreds of thousands of units a month. And some of those clients need several products at those volumes. . So I wouldn't be surprised at all to see our QAPs production from Building 2 spoken for sooner rather than later. We will have flexibility to do some work in Building 1 and Building 3 as well, but we're very optimistic of that outlook. With regards to DxTM production, we've become the mainstay, I'd say, the mainstay supplier and only Canadian supplier to the province of Ontario. And that continues to move forward very well for us, but we need significant capacity beyond those needs before we can really effectively secure other business. So you have to have the capacity to make the sales, we're actually in the manufacturing business. So we build it and in parallel, we're working with securing those customers. But this is a very important step for us for both sustainability and growth delay in these systems and have the physical space available.

Makes sense. And to what extent are your sales growth expectations meeting the current unmet market need versus taking market share away from competitors?

Largely, we're meeting unmet needs. The products that we're creating in the QAPs side are products of sophistication that I don't believe has really existed previously. And for supply chain needs, some of our other products such as DxTM, there's a screaming need for secure domestic supply. There is, of course, a lot of political and economic instability. Globally, there are supply chain challenges, left, right and center, and we've gone out of our way to make sure that our supply chain is secure. I'm on the board of another company that does some importation into Canada, and one of its challenges is that it is to reliably get a production -- container production out of Asia into a North American distribution hub is up to 16 weeks to do that reliably. That is not particularly friendly to the more immediate needs of health care systems, particularly in the midst of the pandemic that is still ongoing, but even more broadly going forward. We're going to see domestic supply really looked at in a, I think, a light -- in the light that it should be that it's far more essential going forward. And we have some very strong capabilities and positioning in that regard and a real trust with our customers as well.

Okay. And then according to recent research report, there will be significant cash reserves accumulated this year, once capacity expansion is completed, what do you see as the top 3 potential uses for this cash?

Well, we're blessed to be -- even in the face of significant capital programs, we have been accumulating cash and that really comes down to a decision that we'll take with the Board at the appropriate time. I like having a bit of dry powder available just to future-proof the company that much more. Going forward, if that cash becomes too large of a sum, there certainly ways that can be returned to shareholders, whether it's via buybacks, dividends or it can also be used to potentially acquire as opposed to lease new facilities for further capacity expansion and would also very carefully and judiciously look at complementary acquisitions as well. I previously worked as an investment banker, and I know the challenges of integration are nontrivial. So we'll always look very carefully as to whether we build, rent or buy in terms of complementary capabilities and anything we did do in that regard would definitely be something that is playing to our existing strengths technically in terms of product offerings and customer relationships. We're not going to go on any wild tangents. So this is -- these are high-class questions to be asking, and we'll certainly look at them very strongly to the benefit of shareholders at the Board level.

Okay. Nice to have cash growing.

Well, it's a whole lot better than not having it.

That's for sure. And so how much of the growth in QAPs over the next 1 to 2 years will be from proceed versus read?

Great question. Where we've seen very strong and continue to see very strong growth in the proficiency testing, the category, these are the sales to the lab accreditation organization. That's a niche that we're very strong in and continue to see strong growth in. The other 2 are the proceed and onboard that are sales principally to the test of manufacturers, driven sales directly to them or driven by customer referrals from them. And that's been a very strong growing category for us. I think in the near term, that's where we're seeing a great deal of attraction. The sales to the clinical laboratory customers, that's been very satisfactory in terms of the growth as well, but it isn't taking off quite as quickly. The labs are still running flat out on COVID-related matters, and it's a challenge to get the attention of those buyers to make any process changes even though they may be remarkable process improvements, there's just a level of fatigue there and difficulty in gaining face-to-face access due to pandemic conditions. So that would be, I think, the one that is, I'd say, the sales to the diagnostic OEMs is meeting or exceeding our expectations as are the proficiency testing organizations and the lab side of things is lagging a little bit.

Okay. And then VTM. VTM sales have helped Microbix last year. Could we expect more announcements of future sales company named not important, but sales of VTM is important to share value.

Yes, absolutely. And we need to strike a bit of balance here. We announced our initial order, of course, that was starting out in this business and making a wild success a bit in fiscal 2021. There were then some questions. Well, is this a one-off? We announced our second order due to its material size and that people have that legitimate question, what our policy will be going forward in that business ? I don't want to get into a situation of creating unnecessary volatility, just waiting for additional orders each time. And when is a particular penny going to drop rather, I think we'll announce that in the broader context of business updates rather than be disclosing each individual order. If orders reach a certain threshold of materiality, of course, we'll look at those, and that applies to all 3 current business lines.

Can you give us a general sense of what those thresholds might be?

Yes. I think if there's something above and beyond the normal course of business, we'd, of course, look to announce that. But that would be a Board dialogue and with securities council as well.

Okay. And then given the disappointing albeit unjustified share price performance, is there a priority being made to retire the remaining convertible debt? Maybe you can give us an update there, Cameron?

The convertible -- the remaining convertible debt we have is in the amount of $4 million that expires across 2028 and 2029. It is not burdensome upon us, it is in solid hands. There was -- there were some expiring warrants in late December and some debt that converted in February. I do not believe particularly that those are a driver for Microbix's share price. We saw a sell-off in -- across the health care sector in the New Year, and I think Microbix was largely caught up into that. Our business could have been perceived as being more COVID dependent, when it is clearly not. But there were -- there was pressure on the health care sector very broadly, and I don't think we were affected more than peer companies in that regard. So certainly, I don't believe our company fully -- our share price fully reflects the value we're building -- we've built and continue to build in the company, but that's my opinion and shareholders can certainly vote their capital in that regard. But it's often the marginal buyer and the marginal seller that can help set the price in the short term.

Certainly on Kinlytic -- we haven't had an update on Kinlytic, and I have one specific question, which is if you have enough cash, would you fund the Kinlytic without a partner?

I don't think we would do that without a partner. Certainly, that would be a big directional change for the company. Our drive has been to make very certain the businesses fully provisioned for growth, and we see tremendous opportunities in the core business. If we had so much cash to fully fund that without in any way deprovisioning or underprovisioning the growth of our existing businesses, we might consider it, but we're not there at the present time. That is still, all in all, about $20 million commitment to get it to the supplemental BLA stage and then you'd be looking at the marketing launch and inventory expenses beyond that. So our firm preference is still to partner that asset. It still has value. It is still an active file and it has been written down to 0 on our balance sheet. So it is -- it remains pure upside for shareholders and doesn't -- we want to make sure that it really is a net -- purely a net benefit to the company. It's not to say we might not come in alongside a partner to some level, but I don't think we take on that full burden on our own shoulders.

Would you put any skin in the game to finance Kinlytic as a show of confidence to lead others and own a bigger piece?

Yes, I think we would. Yes. We damn will want the partner to have skin in the game, too. So -- but we wouldn't rule that out.

Okay. And I have one final question, which related back to a previous question. When do you think you will be in a position to announce enhanced manufacturing initial sales increases? And will initial expanded shipments be primarily 1 customer or perhaps several? Will you announce which customers are expanding their business with you?

Let me take that back to front. With regards to customers, of course, we have to respect the customers' wishes. So depending on what the customer is comfortable with, it may be us -- it could be us announcing a certain level of business without naming the customer or potentially without even naming the precise product SKUs, it might be additional business in QAPs or antigens or DxTM and not even specifically mentioning what subcategory within those businesses or it could be naming the organization per se, such as we've done with our strategic partner on QAPs, for Copan Italia or for -- with our relationship -- exclusive relationship with SpeeDX out of Australia, a very talented molecular diagnostic assay developers. So in some cases, we will name those. In other cases, we won't. Could you remind me the balance of that question?

Sure. When do you think you'll be in a position to enhance manufacturing initial sales increases and will initial expanded shipments be primarily 1 customer or perhaps several?

We've already announced -- announcing manufacturing progress. We made announcement earlier in the year about some of the completion of 235 renovations, Site 2 for production labs and the full commencement of renovations to Site 3. We've also recently, just the other day, announced the systems and control systems upgrades that we're now undertaking. We'll likely announce when we're completed and commissioned on Site 3. I think that's an important milestone. And we'll see about -- going forward, I tease about when will Site 4 be necessitated, but we'll certainly look to fill the first 3 to capacity before we pull the trigger on anything in that regard. With regards to customers, I do believe there will be multiple customers, but there will be a spectrum size. Some of those customers will be potentially massive. Other ones will be medium or smaller. Each one of those is important to us diversifying the customer base as well as diversifying the product line. It's not for the sake of diversification per se, but just to make sure that we maintain our own pricing power and strategic capacity. Ken, did you -- you popped into onto the screen, dive-in, please?

I'll just make a comment about capacity. I mean we've announced 3 labs in Building 2 in the last little while, which have been building capacity and will service the near-term growth that we require. We also brought some efficiencies into 265, a lot of discussion about the bioreactor suite, which has really improved in throughput, but we're continuing to work on efficiencies there as well. So the capacity that we've already built and announced in those 2 facilities are supporting the growth in the business. The third facility, of course, gets to the next level. And it supports the medium -- the short, intermediate and long-term growth along each until we get business building forward, of course. But the capacity development is ongoing, and we continue to build ahead of what we need to support the business, which is the trajectory is clearly on. So we're going to continue announcing capacity building, but we've been doing that for last a little while. That's a big part of what we're about right now.

Thank you, Ken. If I can put Mark on the spot a little bit. Mark, have you noticed any increase in the pace of product development within the R&D group or product releases within QA and or QC and QA? Mark, you're on mute.

We've had some fantastic product cycle improvements, most recently for the release of the Omicron control, fully IVD registered control that we produced from idea to product realization in approximately 8 weeks. And that's just representative of some of the progress we've seen. There have been a number of products where we have been in a position, a good understanding of product formulation, the appropriate partnerships to really be able to quickly assess products in the marketplace that we're turning around products like we have never seen before. So it's very exciting times.

Fabulous. Thank you, Mark. Deborah, I hope that gives enough color for that specific question.

So well, we'll find out if we get another question or not, Cameron. I have one last question, which is about inflation. How will rising costs affect the company, especially with employee remuneration?

It's a great question, Deborah, and we're doing our best to manage that. We are -- we have instituted cost of -- annual cost of living allowances for employees, salaries, and that's a part of it. We've also worked to enhance benefits in particularly deferred compensation in a tax-effective way, Group RSP enhancements, which is good to keep more funds in the hands of employees as opposed to revenue Canada, god bless them. We are seeing increases in supply chain pricing, and we're having to move those through to our customers. I think it's fair to say we're in a more inflationary environment than any of us have seen over the past years. And we just have to make sure that we're balancing out and not losing customers as a result of necessary price increases but rather working with both our suppliers and our customers that Microbix is maintaining or improving its margins and managing those pressures successfully. So it's a definite balancing act. We're seeing it, absolutely, both in availability of products and pricing of products. And one of the different ways that we're managing it is good logistics and supply management on our part, and we've also -- I'll also mention that while in fiscal '21, we grew sales by over $8 million without any increase in inventory levels. This year, we've committed over $1 million of additional capital into raw materials inventory to make sure that we're not caught short. And thus far, we have not had any disruptions to delivery schedules with customers that have not been foreseen and managed. So these are challenging operational times, but I think we're rising to and addressing those challenges. Ken, as COO, do you want to comment further on that?

Yes, we are always monitoring the issues with regards to inflationary pressures in supply chain and obviously, managing turnover of staff. I mean people do leave and they don't leave because Microbix is a bad place, they leave to other opportunities and that's inevitable. We do see inflation in that regard as well. So we're continually reevaluating our systems to make sure we called on to the best staff because as Cameron said earlier, we do have a great crew of people who are really doing excellent work and pushing this business beyond. Now we do have a lot of staff members who are also shareholders. So they, of course, believe in what they're driving as well, and we, of course, encourage that. So there's an ongoing flow with regard to inventory management, supplier management, trying to get things in Canada as much as possible, that was a big asset with regards to our DxTM product by way of example. But the other thing is looking at the staff and looking at what the appropriate levels of compensation and long-term compensation to make sure that we're just not going to follow with the resignation that some people may have heard of is coming at the end of the pandemic as we go endemic. So yes, it's very much an ongoing thing from an operational perspective at Microbix. I think one we're managing pretty well.

Thank you, Ken. Well, we're coming up on the hour mark, and I want to be very respectful of shareholders' time. But maybe before we conclude, if there are any further questions, Deborah, coming from the participants.

No, I don't see any other questions. So maybe if you want to just wrap things up if there's anything you didn't touch on, Cameron?

Well, thank you very much, Deborah. And thank you, Chris, for historically chairing our meeting, and Helen and team for your work in gathering and tabulating shareholder votes. It's very important. We'd like to thank shareholders who have taken the trouble to vote. It's very important for us who want to continue building the business on your behalf and having an engaged and supportive base of shareholders is incredibly relevant and important. And to thank, again, our Board, management, staff for all the support through this past year. It's been humbling and a real privilege to lead the company and be able to help drive this success. So again, let me conclude with how I started by thanking you all as shareholders for entrusting your capital to us at Microbix. We take it very, very seriously. And thank you again for taking your very valuable time today to join us for the AGM. And I appreciate you taking the time to listen. Thank you, again.

Thanks, Cameron.