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

Good morning. Thanks for joining us. We have an update with Microbix, who just recently put out their Q2 numbers, which were excellent. With me, I have CEO, Cameron Groome; COO, Ken Hughes; and CFO, Jim Currie. We're going to do a little bit of a run through the quarter, and then we'll do a Q&A afterwards. 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 disclosure on their website. And there will be a Q&A section. So feel free to input your questions at the bottom. With that out of the way, I'd like to introduce Cameron. Hi, Cameron.

Hello, Deborah. Good morning, everyone. Thank you, everyone, for joining us today. It's a pleasure to chat. We'll endeavor to catch everyone up on goings on at Microbix and give a bit of a general outlook of how we see our business evolving. As you mentioned, Deborah, the principal objective this morning is to update about Q2 and give a bit of outlook. In terms of Q2, we had a record top line for a second quarter for Microbix which we're very pleased to generate CAD 4.9 million in sales for the quarter, which is up year-over-year for the quarter and of course the first half as well. We also recorded a very favorable gross margin of over 60% on our sales. And of course, most importantly, net margin as well on the order of 15% for the quarter with strongly positive net earnings and free cash flow as well. So this is -- continues to be reflective of our successful transformation into a medical devices company with a business model based on profitable growth. So I would represent this is not by accident, but by intent, and it's by a lot of dedicated work from a very talented management team and right up and down being confident at every level of staff. Our emphasis continues to be, of course, on creating, manufacturing and selling a variety of products that support the major players in the global diagnostic industry. We don't have the hubris to think we're going to go toe to toe with giants. So what we do is create products, and whether that's our quality assessment products, our test controls, whether that's our viral transport medium, whether that's our antigens, we're actually making big players our customers. And this means that we're identifying specific skill sets and areas of expertise where we can help our customers collaborate with them and develop and continue to foster great relationships. And we've got now over 100 customers. Obviously, you have an 80-20 rule in any business where the top 5 customers represent a good proportion of our sales. But that continues to diversify in spread, which is very, very healthy for us in cost. And in so doing and building those relationships, we really already have, I would represent, the relationships with the customers certainly in the diagnostics industry. We're starting to build those more oratory industry as well, which is a newer client base for us. And we've also got the products we need with the growing portfolio of caps such as reference behind me as well as our antigens and our VTM SKUs as well. And that gives us with the customers and products, it's now becoming more and more about demonstrating that we can fulfill the kind of scale that these major customers need and want to be ordering from us. And this is why we're investing more in our systems to enhance the robustness of them. And that involves our capacity for semi-automated and fully-automated production that involves the support systems such as digitized QMS and ERP systems upgrades we're now undertaking as well as personnel in terms of cross-training and developing skills and bringing on more and more talented people in the organization to keep growing. And this is targeted to get us from the current run rate of approximately $20 million a year in sales, up towards and then ultimately above the $100 million year sales mark, whereby our company is much more significant for investors, even for the global industry and becomes ever more valuable as we become embedded in more and more customers' key products and processes. It really gives us business with staying power and real earnings torque if I can use that term. So we've got the customer relationships. We've got the products. Now it's about demonstrating the robustness of our systems and the level of our capacity. And the great news, and we've all seen very tumultuous capital markets since the start of calendar 2022 and certainly, health care and life sciences companies share price has been generally indiscriminately sapped and we've been affected by that likewise. So as frustrating as it may be to see our record orders being clocked up and this is in fact our sixth consecutive profitable quarter that we reported, boy, it's a gut punch to see the shares trading here at 52-week low. But we're certainly not the only company affected by that. What is very, I think, good for Microbix is we're already fully capitalized to execute on our growth plans. We are not dependent on issuing shares at market to achieve the goals we've set out for Microbix for 2022, 2023 and beyond, but rather an extremely strong capital position, and we can answer some questions on that as well. But you'll see that our current ratio, which is our current assets over current liabilities is in record, our debt-to-equity level is falling, our cash position is extremely strong. So not only will we come out of this market downturn, doesn't affect our operations, but rather our share price, not only will we come out stronger on a relative basis, we'll be stronger as well on an absolute basis. So again, puts us in a very strong position to keep executing for shareholders, and we're just incredibly committed, enthusiastic about doing so. So that's overview comments. I think there's more people that know Microbix slightly on this call, that don't. So I'm not going to go in necessarily to use our time so much on a corporate deck. And there's a very good Microbix for beginners session archived on the Adelaide Capital website as is our leading presentation as well which goes into more the origin story of the company and how we got from the beginnings of the company to today. But what we'll I think focus on in the balance of this is give everyone an updating or at least assure on where we are and where we're going. So with that, maybe I can hand off to Jim to hit some highlights of Q2 and just give a bit of sense of our outlook as well for the balance of the year. Jim?

Thanks, Cameron. Cameron's done a good job of providing an overview of where we finished off in the quarter. Very strong performance, $4.9 million, 12% growth on last year. Through the first half of the year, we're 30% above where we were last year on the top line. Again, as Cameron indicated, 6 straight quarters of profitable growth. I can tell you, I certainly like that after a number of previous quarters where that wasn't the case. And certainly, what that's helped to do is leave us with a good strong cash balance to invest in the future. A year ago, we had a public offering where we raised in the neighborhood of $6 million, and we outlined what we were going to do from a strategic standpoint. And we've been doing that, and that's led to some of the results that we've got today and the results that we're expecting as we go forward. And nothing's changed in that strategy. We are continuing to work on what we said we were going to work on a year ago. You'll have seen operating expenses climb. That's one area where we're again investing. It's primarily happening in sales and marketing, business development areas, research and development. Also, we had some funding last year, our OTF grant funding we received from the Ontario government to support the VTM business. We completed that program at the end of last year from a funding perspective. So we didn't have any funding in the first half of this year and we did last year. So that had about a $0.5 million impact on our operating expenses. So -- but this investment that we're making, as we identified was what we had planned to do, some of it's coming from depreciation on capital equipment investments in a variety of different areas in all of our business areas, we're making these investments and continue to make these investments. The cash position -- we ended the quarter with $12.2 million in cash, plus we got another couple of million in credit facility with our bank. And so we're well-positioned to make the investments and continue with the growth that we've seen over the last 12 to 24 months. That's what I've got from an update on the quarter and the half. Ken, is there anything else you wanted to add at this point in time?

All right. Thanks, Jim. Absolutely. And to Jim's point and to Cameron's point, we are following the trajectory that we articulated in the past. In the last couple of years, we moved from one facility, our original antigen facility to the second one, which now has 3 operational labs making, I'll call the assessment products, and the additional capabilities are being put in there right now to further build capacity. We also now have a third building, which is just being kitted out and that ultimately will be our VTM building, and we're just installing processes there. On top of that, of course, we want to future-proof ourselves for growth, that's a term I use a lot. We're a $20 million run rate company now. To Cameron's point again, we're targeting $100 million and we need the capacity to do that. So we're upgrading our quality management system to state-of-the-art eQMS SaaS solutions, Software as a Service solutions and also our ERP and laboratory information management systems in the next little while. And the whole purpose of that is capacity building anticipating the -- basically, the deal flow that's going to come through, and we have to be able to satisfy that with our manufacturing quality development and QA teams. And so that's all what we're doing right now. It's going very well as planned, and we expect the trajectory to continue.

Well, thank you, Ken. And very much so this is entirely what we're seeing. These are not nipping out to the corner store for 1/4 milk business development cycles that we deal with. We're actually working very much to embed Microbix products into the consumables of major multinational diagnostics companies and that is not a trivial exercise from integrating quality management agreements, purchase and sale agreements, delivery schedules, customizing product in setting release criteria. So there is a long industrial-style business cycle on this. But in turn, it's incredibly sticky business as secured and it's set at very acceptable margins as well. So this is what we're moving forward on. You've seen announcements from Microbix over the course of the spring, at attendance at different industry conferences as well. And that's only intensify the level of business development that we've been conducting. And that's really setting up a very strong pipeline, the cap side of our business, quality assessment products or test controls would be another description of both the positive or negative patient sample mimics that help to ensure diagnostic tests are actually functioning properly. And we're seeing some big drivers in that area, one of which being the greater availability and acceptance of the point-of-care testing solutions. And these are the sophisticated, but perhaps toaster-size instruments that can run tests for multiple disease conditions at the same time. And we're right in the position we need to be with -- for that transition with our lock swab based controls from our alliance with Copan Italia is working out very well, something that was being established even before the pandemic broke. And we are right in the course of supporting the transition from single-channel testing. Your testing might have been from one organism, viral or bacterial, into multiple organisms simultaneously from one sample. And that evolution we anticipated, we're now surfing that wave as well as the availability of tests for antimicrobial resistance to not only type what bacteria is causing an infection would then be able to determine what antibiotic resistance change that bacteria is carrying so that you can inform the judgment as to what drug antibiotic therapy to prescribe. So this just provides better health care for all of us, health care that's available at the point of care that has sophisticated capabilities and most importantly, that it actually works, and it's that side of things that we're helping with delivery. So this ties in beautifully with our relationships that have been long established on antigens on test ingredient side of our business and now flows quite naturally into the provision of the test control medical devices and likewise into providing sample collection devices such as our viral transport media. So really, all elements of our business are moving along nicely. And we see each of them having very good prospects. But I think it's difficult to dispute that the biggest driver of sales growth for us will be in cap side and test controls area. We have very solid performance of growth from our VTM and antigen business as well.

When you talk to officials from public health now about, obviously, we don't have to advertise how good doing diagnostics right is now based on what we've just endured over the last couple of years. When they're talking about what are we going to do next? What's next or how are we going to continue to build on the new wave of diagnostic excellence, the things that come up are human papilloma virus for various cancers and antimicrobial resistance as major focuses going forward. And the other one other STIs, other gastrointestinal and other things as well. But the group should be aware that Microbix has been deeply involved in human papilloma virus and antimicrobial resistance before the pandemic started. So we're really nicely positioned to support the excellence in diagnostics from our customers in public health and in industry as we go forward. And we're setting the table for that. So people foolishly at times think we might be a COVID play. Anybody that looks at us knows better than that, of course. But these new opportunities are right there just right at the end of the street here, and we're working in setting the capacity to be able to service that going forward and build this business way beyond COVID, then through respiratory in the human papilloma virus and beyond. And that's really what Microbix is all about right now.

Very much so. And tremendous breadth to our portfolio of product areas that we're involved with. Certainly respiratory viruses generally is a broad category, not just COVID for this thing from the truth. And then as Ken is indicating, things like human papilloma virus trial to diseases, gastrointestinal, urinary tract sexually transmitted. The list goes on and on. We're really hitting some very large market opportunities with global leaders in those fields. So it's quite gratifying to have actual strategy be paying off in this manner for us. Outlook for the balance of the year. I think we're -- we've been quite consistent in that regard. We've indicated that sales have been bouncing along the plus or minus $5 million a quarter range for several quarters now. And what we're really looking is now is some of these long business development cycle relationships are starting to come to fruition that we'll likely see Q3 be not markedly dissimilar to our Q2 top line numbers, might start with $5 million, might start with $6 million, but we'll see how that final order book concludes. And then looking more at Q4 as a prospective breakout quarter in terms of moving substantively above that level. And there's a lot of moving parts on this. I think we have some good visibility on our antigen order book for Q3 and Q4 at this stage because that is a longer development cycle for manufacturing orders. So we are seeing the antigen side of the business come back and it really comes down to when does the ticket go in for manufacturing and when does the product ship and on what side of a quarter and do different shipments fall as to whether -- what integer our Q4 sales number starts at, but I think we continue to look at that as being a convincing breakout quarter for Microbix and really substantiating what we've been talking about in terms of the growth potential for the company and realizing growth potential. So very positive about things, in spite of, as Jim was alluding, that we've done exactly what we said we were going to do with the capital that we raised in the spring of 2021. The good news story is that we continue to accumulate capital and accumulate cash on a net basis in spite of a very aggressive CapEx program as well as considerable repayment of debt that we've undertaken also. So it's a good position to be in absolutely. So before we break for some questions that I think may queue up and certainly encourage those of you that have chosen to join us to, anything on your mind if we can help address, please don't be shy about it, but maybe I can start with asking Deborah if she has any questions from her discussions with shareholders that have come up.

Well, I see that we have a whole bunch in the chat already. So if it's okay with you, Cameron, maybe we can just address some of the audience questions.

Sure. Sure. Absolutely.

So the first -- I got some through e-mail as well. So yes, the first question that came in is why...

Is about Asian sales, I see. Yes, Asia continues to be an interesting matter. I think the 0 COVID policy in China continues to or at least notional 0 COVID, I don't know the extent which it's believable that there is 0 COVID there, but anyway, there have been considerable lockdowns. The city of Shanghai, 25 million continues to be locked down, at least the last time I looked with ports closed. So tremendous amount of business disruption. So that has affected antigen sales into Asia. We're starting to see that move closer to normality with some beginnings of reorder flow into Asia and the antigen business generally was affected by that, just the very breadth of our product offerings there impacted our sales. One of our key areas, of course, is the TORCH panel antigens for prenatal testing for exposure, internal exposure and immunity to those diseases and many appointments, medical appointments, just were not being made or happening during COVID, it did affect our antigen business. So we were down, and I think you've seen this quarter likely as the low for that business from $3 million a quarter pre-COVID on our antigen business to more in the order of $1.6 million this quarter. And our order book certainly supports something much closer to the prior levels for Q3 and Q4. We'll see what Q1 and Q2 of next year -- next fiscal year look like, but we do have visibility usually a couple of quarters in advance. Jim, is that a good characterization on the antigen side?

On the antigen side, yes. But I think -- I mean, the question was more around Asia, which isn't all of the antigen business, right? So while in fact our sales were actually up to our Asian distributor in Q2 of this year, double what they were last year in the same quarter. And the sales in this past quarter were actually more than they were for the previous 3 quarters. So we are starting to see an uptick in orders coming from our Asian distributor. And also, as we go forward into Q3 and Q4, we're starting to see that uptick. A lot more activity coming from that Asian distributor in terms of the order book as well. So while the antigens, as Cameron said, were down in the quarter, it wasn't a result of our Asian distributor. It's more in regards to timing. So we've got some large antigen customers which just happened to be weaker in this past quarter, but we're going to see some significant uptick based upon the order book in the Q3, Q4 and into Q1 for that matter because we've got an order book for some of these larger customers that go out to the first and second quarter of next year.

Very good. Thank you for supplementing that, Jim. I think it does give us -- because of the long production cycles in the antigen business, the customers know they have to order -- the large customers have to order many months in advance. So we are seeing that encouragement moving forward. I don't think the sales are necessarily flowing through into Asia, but Jim is quite right that our distributor is ordering now in anticipation of resumption demand from their end users. Another question we had were with regard to viral transport medium mart, DxTM brand in viral transport medium and the question, any sales beyond the government of Ontario? And the answer to that is yes. We are making some private industry sales. They are still in the minority. We're still largely for better or worse, the government has been taking the absolute lion's share of our production. We are moving forward with the renovation build-out of -- the rebuild essentially of site 3 to support -- have a dedicated site for our viral transport medium production, and that's really for 2 reasons. One is to have a properly configured site with a fully automated production of VTM. And the second reason is we need to recapture the production spaces in our second site for a much larger scale of quality assessment products of caps manufacturing, and that needs to be recaptured now. So we're just now working on final finishes for Building 3. The construction is complete, and we have to have the quality system sign-offs to begin to use that facility and that's not quite ready yet. And then we're pushing hard to get the automation equipment in and that should be -- was to have been completed much earlier, but due to the supply chain challenges and getting all sorts of components that is probably going to be finished closer to late summer for the fully-automated line installed and operable. Ken, is there anything you wanted to supplement on those comments?

Yes. I'm not pretty -- where we stand now. Obviously we're implementing the semi-automated VTM process in Building 3 ahead of the fully-automated one. So the 100,000 a week capacity will be then transferred out of Building 1 to give the capacity needed for the caps -- sorry, Building 2, to give the capacity we required for all these opportunities that are coming down the pike. And I noticed there was a question about a Building 4 and what I said in my last talk with Adelaide Capital. And of course, as we build that capacity, I know we're successful in that regard, we understand that the caps component may become rather large, and we'll be tapping out the capacity of Building 2 very quickly. And therefore, we are indeed already kind of just having a little scope around to see about the Building 4. Because obviously, we're trying to target the $100 million mark and capacity building is what we're about right now, the systems to support the capacity and the space and the excellent staff members to drive that capacity. So yes, we're looking pretty aggressively in that regard.

And clearly, we approach these issues with a very responsible demeanor. So it should guide you that we have some justifiable confidence about the prospective demand for our products before we even have that glimmer in our eye. The next question we have is regarding recruiting and training personnel. And we've all read sort of about the grade resignation and people will be thinking work like balance coming out of 2 years of lockdown. Certainly, personnel retention is something we and recruitment is there are both things we take incredibly seriously. We've continued to upgrade, revisit our compensation grids to make sure they are staying competitive in a more inflationary environment. We are continuing to look to enhance staff benefits as well, so the compensation increases will be more on a variable basis rather than a fixed basis. So bonuses, profit sharing are things that we're looking at, we have established some tiered seniority tiered group RSP benefits already. So we're really modernizing the compensation system of the company as much as we can. I think the only issues with regards to recruitment and retention, we've seen our -- some of the more government-funded organizations that don't seem to be anchored to any reality. So we have lost, I think, some staff that may be lured into a good time rather than a long time in joining organizations where it's going to be a great party as long as the funding lasts, but they're not sustainable in our view over the longer term. But in spite of that, we want to make sure that we're not facing an untenable level of staff turnover. And thus far, you see a bit of it. We watch it. It goes up and down, but we're going to make damn keep our good people.

There was a component of that question that talked about margins...

Sorry, it got deleted before I got to that.

Yes. I think we've identified areas where it's -- there's pressure on compensation, inflationary as well as competitive. However, we're putting in place automation that is expected to help us to maintain and improve margins for those particular products. So that's the offset that we're going to see to some of the potential increases in compensation in the manufacturing environment.

Yes. And to be clear, on Jim's comment, automation is not to replace staff, automation is to remove drudgery and enable us to move people as they gain experience into roles of greater responsibility and greater creativity for that matter as well.

Real good point.

Yes. Someone has asked -- making a statement, I guess, that cap sales will be to increase significantly in Q3, Q4 to meet revenue targets and that what announcements or discussions are ongoing with regards to that. There's a ton of stuff ongoing. We are still a relatively small fish in a big pond. And we don't necessarily drive the agenda, drive the timing of announcements or concluding agreements, but I can tell you that Microbix is working very closely with the growing number of global leaders in the field and the best objective evidence I give with regards to that is to actually look at some of the collaborators on the posters of results that we have presented at different conferences. And you can see that the people collaborating with us that we are targeting most instances to become customers are global leaders in that regard. And as we conclude agreements with different companies, as they are material, we will make announcements, but those announcements may be Microbix announcing an agreement with broad terms disclosed with an unnamed party they may be announcements where we named the party or they could be now joint announcements depending on the preferences of the different partners. But we continue to work on those, and I don't think we are materially off our budgets thus far, we're within probably 5% of our top line to bottom line budgets for the first half. So we're certainly optimistic that we'll keep on pace for the second half. And with regards to ship dates, it always comes down to which side of a quarter end is something ship. But certainly, we're working previously to make sure we're not just putting up good short-term numbers, but we're also building the relationships and the trajectory for lasting value, lasting success. Cap, why question, why have cap sales has been roughly flat for the past while. Cap sales have taken a bit to build. We've seen some good penetration. A lot of the tests that have been rolled out in the past while have been under emergency use authorizations where the requirements for compliance controls have been waived. And some of that is coming to an end that companies have to start to make choices as to whether they want to remove a product from the market or whether they want to become fully compliant for controls. And that type of the spear on some of that is on the respiratory side, but also more broadly, a lot of new point-of-care antigen test instruments and point-of-care PCR instruments have been rolled out. And if those instruments are going to stay successful and last beyond COVID, if they have to have a broader portfolio, broader menu of tests and that broader menu has to be fully compliant with having controls paired and partnered with those test cartridges. So we're seeing a big inrush of interest today as actually people can come off of full emergency mode with regards to the pandemic. So paradoxically, I think some people have said, well, is Microbix is somehow linked to the fortunes of COVID, perhaps but not in the direction people were thinking. So we really have some very good opportunities coming in. The other thing we're doing and is perhaps a more granular explanation is the goodly number of our sales over the past 12 months were in the onboard kit category. And this is for qualifying newly installed instruments for usage and training technicians on those instruments. So the rate of placement of new instruments has slowed a little bit, and we're now moving for a far stickier regular and larger business where our caps are actually included in fixed ratios with the test cartridge boxes that could be 1 control for 25, 1 control 40, 50, usually in the 25% to 40% range. And that gives a much more regular flow of business in a much more massive flow business. So we're actually looking from selling hundreds of kits at a time that might comprise anywhere from 12 to 30 controls a kid and an onboard kit to actually selling tens and hundreds of thousands of individual units for inclusion in boxes of replacement cartridges and kits of test replacement cartridges. So that transition is now ongoing. That's one of the big things we see as being a driver for the kind of sales breakout that we've described. I hope that gives you some color as to why there has been a pause in the growth trajectory and why we feel that pause will soon yet. Another question, pricing and volume trends in the antigen business is one question and how selling prices are developing and then unit sales of caps and capacity utilization. With regards to antigen pricing, large customers have multiyear contracts with us at half price adjustment clauses in those, and those are usually linked to CPI and it might multiples of CPI, but linked to CPI. So we do have the ability to reprice and pass-through cost increases. We have to be sensitive to our customers as they, in turn, may have contracts, and there's some ebb and flow and discussion that goes on there. But we do see our average selling price is increasing, and we do believe we have pricing power in that side of the business. Jim, would you concur with that?

Yes, Cameron. We certainly like, we pressure our suppliers, there's pressure from our customers to keep our prices as flat as possible, but I think everybody is recognizing that we're in a different environment right now in terms of costs that are leading to increases in prices. We continue to invest funds on in our manufacturing environment with research and development on improving our costs as well, improving the yields, especially on the antigen side of the business, which can have a large impact on our cost base. So we're working on both ends. We're working on raising prices and obviously, on the other hand, trying to keep our costs down or even lower.

Yes. And we have to be sensitive. Our customers sometimes need time to adjust in order that they can get better test reimbursement or pricing. Don't want our customers to lose contracts by being noncompetitive. But typically, the antigen side of the antigen as a component is a relatively small portion of the overall test price. So this is not a showstopper for anyone if we need to -- we genuinely need to raise prices to maintain our margins and as well as to further optimize the technology.

And the products are very sticky by virtue of their specificity and the quality systems that drive them. They have very specific capabilities, which are germane to the devices they support. And to Jim's point, as well, we spent a lot of time on operational excellence, building yields and minimizing our costs. But at the end of the day, we're kind of the intel inside of a lot of tests and the customer is well aware of the excellence of the products we provided under the quality systems that we run.

One of the next question was with regards to caps sales and how those have grown year-over-year. There are 2 formats of caps principally that we provide, there is the small vial usually with 0.5 to 1 ml liquid within them. And then there is the flocked swab the swap-based controls that are room temperature stable and very suitable for use with different point-of-care tests. The biggest growth area in our cap sales has been on the swab format much as we hoped and expected. We just began to offer that format late in fiscal 2020 with some initial sampling and stocking shipments in -- at the very end of Q3. So at the end of June 2020, and then we had a trickle of reorders towards the end of September of 2020. So we perhaps sold 10,000 units of that format that year just again, the very, very beginnings. That grew by well in excess of tenfold in 2021 and will grow -- is growing in multiples of that level for 2022 and we see it growing another 5x to 10x in 2023. So this is some very explosive growth. And keep in mind, when we talk about these products, we're taking a flocked swab that costs tens cents and turning it into a sophisticated molecular or antigen test controlling cells for tens, dollars. So there's a real increase in the value associated with the products with, of course, these being world-leading sophisticated medical prices in their own right from our partner Copan. So that's really moving forward. It's really about the capacity we've taken same way Microbix used to produce 100,000 of files of this format per year and we're now moving forward if we're producing 100,000 files of viral transport medium per week. So that's over 50x scaling. So I think we've demonstrated our ability to scale and for the cap side of things, we're moving from what had been almost an artisanal production scaling to something that is much more industrial and will scale 10, 20 fold from where we see it today. Ken, did you want to supplement any comments on that?

I think the description of capacity is really good. I mean, as you said, with viral transport media, even though we've scaled through ourselves, we're currently running at a $100,000 a week. And with the cap, we can do see 100,000 amongst generally speaking, the intent is to go by another order of magnitude to service the businesses that are coming our way. And so that's the capacity building we're doing right now. Obviously, we're a manufacturing group, we have the necessary quote -- systems and the engineers in place to do that. So we're basically just implementing those processes right now.

Yes. No, very much the case. And I stepped out of frame for a moment because I wanted to get a proper sample of our DxTM viral transport medium, but making 100,000 units of this per week is not a trivial exercise, and that is before our full automation. So that's very, very good. And that's been substantially taken up as referenced by procurement authorities of the province. Ontario who validated through public health Ontario, our VTM, the first-class product with really unprecedented quality in terms of the rate, the contamination spoilage rate. We've got first-class medium and first-class files and systems and billing and sterility, all of the above is very, very, very good. So we're now, as we come closer to bringing on additional capacity. We're now engaging more and more with other prospective buyers that we can provide strategic levels of product to them and expect to be able to do so shortly. So that's moving forward very well.

From end users seeing just the excellence of this product, how it works very well in various and sundry labs. And to Cameron's point, $100,000 a week is good, right now. But as we move to $50,000 to $100,000 a day, that's going to allow us to satisfy ex Ontario and for the major players in strategic amounts going forward. That's really the intent.

Yes, very much. The next question is really about CapEx dollars invested from here to get to $100 million revenue level. We've been investing CapEx on things like the eQMS on the enterprise electronic quality management system, documentation management for QC and QA product release, the criteria, the enterprise resource planning or ERP system software, just those is $600,000 spend in 2022 on those essential systems. We've also been spent on the build-out of our third site in terms of creating the production laboratory spaces within that site and then spending on the automation equipment for VTM spending on semi automation equipment at this stage for caps production. But Jim seems to still be building up cash in spite of all that spend. Jim, what do you want to comment further on CapEx?

Yes. No, we have been making the CapEx in a variety of areas. I mean we went a number of years where we didn't have the funds to make the capital investment even in our core antigen business. So I think we've been making it across the board in the antigen business and then all 3 facilities to expand and create the expansion capabilities for not just VTM, not just caps, but antigens as well. And yes, I continue to accumulate cash despite you and Ken trying to spend it. But I still manage to retain some of it for the…

We're spending it in the right places. And I think that is something we'll continue to do. We emphasize to everybody on the team if you need something, a piece of equipment, you need additional trained staff to execute on what you've been tasked with, you need to ask it. It's our job as senior management to make sure the team has the resources to do their best work. And that's very much the approach we've taken, and it's immediately bearing fruit.

The other thing that you had -- I think I mentioned earlier, Cameron, was we've also used the funds to pay down some of our debt. We've prepaid one of our larger debentures. We've just recently in our most recent quarterly results, I identified the fact that we've also paid off one of our other debentures. We paid off a BDC loan that we had previously as well prepaid it. So we are trying to get rid of some of the more expensive debt that we've got on our books as well.

Yes. Absolutely so, Jim. And for CapEx to $100 million, we have tremendous flexibility now. Not only do we have the capital and cash that Jim has indicated. But I think our legitimate ability if we saw the need for additional bank debt, we would actually have recourse to that under turns of EBITDA basis. We could probably expand our current bank line from $2 million to $10 million if we needed to. So between cash on hand and legitimate debt capacity on a prudent level, we could certainly fund whatever CapEx we require to drive sales to that, including if we saw the need to be even to the extent of purchasing a fourth site that we're being more appropriate than we see -- and equipping the other thing as well, we'll continue to look with some of the public private partnerships and government leveraging capabilities for economic growth as we have with our very successful FedDev Ontario loan program and our very successful Ontario Together Fund grant. And just as a point of mention, the Ontario Together Fund grant by the Ministry of Economic Development job creation and trade material deemed our program entirely successful with regards to moving to strategic supply of viral transport medium signed off on the file and at least the pullback balance of that grant Microbix. So again, doing saying what we're going to do and then most importantly, going ahead and doing it and doing it on time and on budget. So that's the way we're looking to roll and keep building value for everybody. So I think weighted average cost of capital is something we understand and we're managing that quite effectively, I would represent. Another compound -- sorry, I'm just looking at a compound question here. Approximate sales split to the 3 business lines. I think the biggest growth for us growth potential. Well, gosh, biggest growth potential is likely in the quality assessment products just that, that is a potential expectation that will leap to tens of millions. I think we will see a -- from there, we may see a doubling, tripling, quadrupling of viral transport medium sales if we achieve our objectives in selling more broadly, which certainly we're pushing hard to do, and we'll see a recovery and a resumption of growth in our antigen business. So today, we're at, call it 50% antigen 12 months trailing, we're roughly 50% antigen sales, 25% caps, 25% VTM. I think you'll see those relative proportions change to a greater proportion of caps and probably 50% caps and 25% VTM and antigens in 2023. And beyond that, we'll see exactly what those splits start to look like. Update on what's currently happening with respect to our Kinlytic urokinase partnering asset. That continues to be an active file. We're working now under Ken's leadership to revalidate drug substance manufacturing agreements and reprice those in light of you have more inflationary times just to keep those files and relationships refreshed. We do have multiple parties under confidentiality, expressing interest in the asset, and we'll continue to update shareholders in generalities as that moves forward, but we do hope to secure a definitive agreement. But the timing of pinning that down has been very challenging in the base of COVID. Many of the companies who are the most logical partners, companies that focused on sales of hospital-based products, just saw their sales completely collapse as procedures weren't taking place in the hospitals. The sales of the incumbent product cash flow activities have held up beautifully throughout, which is just incredible that they were almost entirely unaffected by COVID, which really speaks to the robustness of this market and its appeal to potential partners. So we'll see if more players start coming back into the fold on this, but we have 2 very qualified potential partners currently that we're in dialogue. And order priority possible uses of cash balances and future earnings. Well, there's a saying and embarrassment of riches. I think hopefully, we won't get excessively -- well, hopefully, we will get excessively embarrassed. But some of the things we've been using cash for thus far are upgrading systems, increasing capacity, paying down debt. Those uses won't change. Some of the other uses, we are starting to look more favorably upon or even in the order of share buybacks. Our effective price of issuance in our last offering, if once splits at the half warrant that was on our $0.60 unit offering was $0.51. We're trading around that level now even after tremendous advancement in the fundamentals of the bar business. So we're starting to look at possible share buybacks as a field effective use of capital, not to deplete our forecast, but to a lot, at least some level and make sure there is not an opportunity for a potential acquirer to lowball shareholders based on a excessively low share price. So that's something we are seriously considering it. We'll update as we go through the process of evaluation and regulatory confirmation, that is a fourth possible use of capital to add to the other 3. Another one would be if we made the evaluation that it made more sense to purchase a for site that the least one, that would be another possible use of capital. But we'll see how that shakes out as well. I think that's covered CapEx budget for this year and next. Well, we haven't done our budget for next year yet. But I think, certainly, a lot of our capital is spoken for capital budget is allocated already for Building 3 and the automation of VTM and the automation of caps and the upgrades to ERP and software. But collectively, the remaining spend on those wouldn't amount to a couple of million bucks. So we're in a very strong position for that. We do see continuing to staff up as the pace of product development continues in the pace of manufacturing, and we're also doing a lot of cross training of employees between things like caps and VTM as well as antigens as well so that we have a very flexible and well-trained workforce as well, so some very good things going on here.

As well as building the physical capacity, we're obviously hiring top talent right now and that's in support of what we're trying to achieve here. So we're getting some pretty good people in the door, quality specialists, engineers, scientists, IT specialists, that type of thing to support the growth we're having. But to Cameron's point and to Jim's point, we're nicely cashed up to cover all of that, and it's not a problem to do so as we build and future-proof the company.

Yes, very much the case. And this is all part of that path to get to $100 million in sales, making sure that we're identifying obstacles well in advance and removing those or coming up with the solutions to work through those real-world challenges. This is not a meme stock that the company that we're running. We make stuff and sell it fully regulated products to real customers that impact -- that would directly impact your health. So these are nontrivial exercise, and it takes the setup. It takes a while, but the annuity potential for these events and the margins aren't bad either. Another question -- sorry, R&D expenditures, yes, they're going to go up, continue to go up. We don't do R in the sense of discovery research. What we're doing is creation of new methods to create innovative value-added products and creating those products and doing that alongside partners. So much more D than R, but we'll continue to see that escalate in an intelligent fashion.

There's a related question further down, which is R&D expenses have been rising. Can you provide any specific or general guidance as to the main areas where these funds are being invested?

Main area that funds are being invested is increasing the breadth and sophistication of our quality assessment products. And that's at the direct urging of potential customers. So this isn't building on speculation, this is really building in full alignment with customers. So when you see us having confidence in the direction of revenues and revenue growth when we're developing enabling products for major international companies, we have some pretty good confidence that they're going to buy them at the end of the day. Now our risk is if somebody fails miserably in the market, but if they're going to be spending tens, if not hundreds of millions on product launches, where we're integral to the success of that product. That's a very good calculated business risk. Question about securing a longer-term VTM contract with Ontario. Yes, we're still in discussions with that. Certainly, the current election going on is a bit of a distraction. But we're emphasizing the need for us to be a supply chain partner with carrying that base load. And it's a bit annoying when we're -- we get this question again and again and these relationships evolve. But we had the question before the first order, when is the first order and then first order wasn't a day old before people were asking when we were going to get a second order. The second order landed bigger than the first and people immediately shifted over to when are you going to go to the third order. So we see this as being a continuing progression and the more we will continue to push to move it towards greater clarity and visibility, but we certainly don't see any aspect of this business going away. Right now it's just lumpy in terms of the order flow disclosure. But the need remains and some of you know I'm on board of another company that does a lot of importation from Asia. What I'm advised is that it is at least 16 weeks to get a container reliably from a manufacturing companies distribution hub in North America. That's completely untenable for critical medical products to be able to predict a sixth wave, for example, and then say, well, it takes a month to make the product at least 4 months, even if the port reopens to get product into North America, you've got to have domestic suppliers. The days of just-in-time global supply chains are not. So we're not expecting 100% of Ontario's demand or other provinces, but we certainly would like to take on the base load and be able to provide them as well as search capacity that isn't going to take months to come online and realize product delivery. And that's a benefit as well to our caps business, our antigen business, just that we're a secure and trusted supplier.

Cameron, talking about VTM, can you comment on discussions with orders with other provinces federally or other groups?

I prefer not to at this time, Deborah. Those discussions are beginning and moving ahead, but I would feel uncomfortable about getting granular about what feelings are going on with whom.

Sure. That was just a question further down.

No, no, that's fair. Question about SQI Diagnostics, known like them on the stock, good guys. And the question is COVID antibody tests. Well, there's been potentially a good scientific rationale for using antibody tests to perhaps inform the intervals between vaccinations, for example or to confirm prior exposures, but there has not been broad uptake of serology-based COVID testing for a variety of reasons. And I think the -- that's an intersect of medicine and politics that would be a longer conversation. We have time for here. But certainly, we already have the availability of controls for COVID serology tests and to the extent those start to move more into the mainstream for whatever reason, we're already ready to go on and we can support SQI and we could support other companies with such tests as well. Ken, did you want to briefly expand on anything there?

Just that we have indeed have serology controls, and that we've had that done a lot of clinical testing and we perform admirably as we would expect them to. And so if that market -- as and when that market takes off, we'll be very disappointed.

Amazon, Okay. Just looking at this question. The single-use at-home test has inherent limits to the sensitivity and specificity. So the ability to pick up true positives and the ability not to pick up true negatives. So you're not going to have controls so much in a single immunochromatography antigen strip test. That's not really a market that we would go after. Our market could include self-collection using our VTM of certain test types and our markets could include -- do include the uses of point-of-care tests in places like pharmacies or clinics or industrial settings where people actually are doing enough test volume frequency that controls to catch systemic errors makes sense, but there isn't really a role for our control. Somebody isn't going to buy 2 strip tests from Amazon because they're visiting Gramont and use a control on one of them. That isn't really our market, but our market is more the institutional settings where somebody wants to make sure that they're not developing any kind of persistent error that put people's health at risk. Ken, did you want to comment on that Amazon issue any further or...

No, I think that's fine. We got -- you need the volume where the control is relevant, if it's just kind of a then do what you want to do, but I think that's not really our market yet.

Yes, agreed. Okay. Caps expansion, when is that commissioned? Well, that's already commissioned. We already have 2 material production labs in our 235 Watling facility. They got grabbed to some extent to do DxTM production as well. So what we will be doing in the coming weeks and this is weeks not months, but we will be fully recapturing that space for dedicated caps production and DxTM will move exclusively into Building 3. So then we have systems where we can produce quite a satisfactory number of caps liquid or swab-based controls for the near term. But frankly, just the magnitude of some of the customers we're speaking to and concluding arrangements with may consume that capacity sooner rather than later, and that's why we're sort of alluding to looking at additional sites. So at that point, our -- you will not be pleased with our numbers, let's put it that way. I think that addresses that. There is a question of when does the relationship with Copan swabs expire. This is a contract or an agreement that I think both parties are very pleased with. This is a just a tremendous family-owned company, wonderful folks can't say great nothings about their philosophical approach in business ethics. And it's been a long time thought of the company going back to its founder that FLOQSwabs were the absolute best format for test controls, and we've been privileged to help make that vision a reality. So we don't see that agreement ending. I'd like to think that this is a relationship that will span decades. So -- and we're going to do our damndest to earn that privilege. So there is no expiry or views on that, and we view this as a generational relationship. And I certainly hope Copan does as well. Do we need a foresight paid $100 million in sales, boy, that's an interesting one. We probably should, do we absolutely need to. I think we could juggle space in the 3 sites we have to hit that number. But I'd like to think we're going to keep an empty tile and stay a step or 2 ahead of the need and not be pitched. And at some point, it gets to with the dollar numbers that we could realize and should realize the cost of leasing and to a lesser extent, the cost of purchasing and equipping even starts to become trivial. So we really will continue to monitor that. And I wouldn't be shocked if we -- if we are looking at pulling the trigger on something like this year, sometime next spring. But we've got a very, very sharp eye going on this right now.

There was related question, which is would you break out in some detail the path to $100 million in revenues in terms of business lines, margins, time to get there, et cetera?

That's the kind of thing I think any securities lawyer with tie me down and beath me senseless for doing, we'll sketch the broad strokes, but I wouldn't want to telegraph that to competitors for starters and then there are always surprises between -- in how you get to the destination. And it's the ability to management to adapt and overcome that defines the success. So I'd be too concerned about some plot twist leading people to think we've misguided. But I'm very confident we'll get there.

I would comment that the trajectory or the path to $100 million depends on the product mix. And to the previous question about facilities, we can get a long way there in the facilities we've got. And to Cameron's point, by the time we get there, the fourth building would be really a no-brainer. But we can build a -- put it this way, we're not constrained at $20 million in the facilities we've got, not even close.

Yes. I mean if -- I would see absolutely 0 issues in getting the $10 million a quarter in the facilities that we have. And then you can then look at double shifting and that takes you to $80 million. So you're 80% of the way there with the sites we have. It's the growth potentially outstripping that then you say, "Well, gosh, if we want to move to full automation on caps, for example, you're never going to be able to shut down your current production labs. So you actually need an empty tile to be able to do that. You might as well sketch out the workflow from blank canvas rather than trying to rip down walls in the existing facility. It's just not efficient.

Yes. And you're building for what's next at the same time.

Makes sense. Well, that's it for questions. If anyone has any further questions, feel free to reach out, and I can get those answered for you. Cameron, is there anything else you wanted to add into the session today?

I would just reiterate, Deborah, that we're growing sales. We've grown margins. We're profitable, we're throwing off cash. We have a clear direction and to achieve a 5-fold growth from here. We've got customers. We've got the products, the associated capabilities and there are no obstacles that we've not identified already that we're not already in the course of addressing. So we're just, I think, in a very powerful position to drive value for shareholders, and we're all really committed to doing that. So I think -- I know we've got a number of our staff listening in as well. I'd just like to thank you guys for the work you're doing, and it's just superlative and we couldn't be prouder to have such a great team. So -- and we're going to keep doing our damndest to make sure that Microbix is an exciting and rewarding place to continue building careers at.

Yes, it's good to see some insider buying too recently.

Yes.

Why not at that stock price? Come on.

All good. Absolutely. And I've been adding to my position. I had some options I negotiated when I came in that are in the money and I'm exercising and holding all of those, but they don't show up on the insider for some reason, they don't show up on the insider list. But I've increased my holdings by 750,000 shares since the start of the year and will increase by that much again before the end of the summer.

Great. Well, thank you all for your time. Thank you to the audience for your questions. And yes, I really enjoyed the presentation. Congrats on the quarter and looking forward to the second half of the year. Should be exciting times.

Well, thank you, Deborah. Thank you, Jim. Thank you, Ken, and thank everybody on the call for taking your valuable time to get updated and for entrusting us with a portion of your capital. Couldn't be more thankful.

Thanks. Have a great afternoon, everyone.

Thank you. Take care. Bye.