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

Good morning. Thank you, everyone, for joining us today. We are going to have a review of Microbix Q3 numbers as well as an update on some of the catalysts that happened over the past quarter. With me, as always, I have Cameron Groome, CEO; Ken Hughes, COO; and Jim Currie, CFO. We won't be working off a presentation. There will be quite a bit of Q&A in the session. But this presentation will contain forward-looking statements, which you can find on the presentation on the website, which has been updated after the quarter. And as I mentioned, there will be Q&A. So feel free to enter those in the bottom of your screen or you can e-mail them to me. With that out of the way, I'd like to introduce Cameron. Hi Cameron.

Good morning Deborah. Thank you very much and thank you for joining us as I think, with Jim and Ken. Q3 was a relatively noisy quarter. So I thought we'd take some time this morning to unpack the results as well as touch on some of the milestones we achieved over the months since our last investor call, we've made around our Q2 results. And one of the first things I would bring to the fore would be our execution of an alliance for Kinlytic Urokinase our drug asset that was announced on May 16. And this partnership really achieves our goal of fully funding the return of Kinlytic with the use of third-party funds and resources so that we're not in any way leading away resources from Microbix's informations, but rather adding to them. And our partners on that alliance, Sequel Pharma is a portfolio company of one of the world's leading private equity investors in life sciences. And well, we're not allowed to mention who that is. Anyone in trepid enough to do a little digging, can probably sleuth that out. And it's worth, of course, mentioning that they have conducted considerable due diligence around Kinlytic and liked what they saw. There is one gating matter that we need to pass before they fully turn on the taps, which would involve an investment of about totaling about CAD 50 million, about USD 35 million prior to the reapproval or the supplemental BLA approval to enable sales to begin on this project. So that's some pretty meaningful sums. And that's to determine and make certain that the FDA has not vastly changed its pre-Covid position on the project, and we will know that outcome by the end of November, I expect, which should lead to further revenues to Microbix from miles from upfront milestone payments as well as the reversal of the impairment that we took on this asset going into COVID at the end of -- well, in COVID at the end of fiscal 2020. So we're very pleased with the outcome of this partnership agreement, and we certainly hope you are too. And maybe I can ask Ken to elucidate a little bit on the nature of the interactions going forward.

Yes. Sequel is a highly sophisticated group. Well Finance has already discussed and with deep understanding of biologics and biological drugs. And so the due diligence was very detailed and very collegial and end up in a good place. We will be indeed reconfirming the console that FDA provided to us in 2017 before we move forward. There's no reason to believe it will change, but there are vagaries in this, and so we'll -- it is a milestone we need to get to. But the analytics have moved down. The product is every bit as good as it ever was, and the market is crying out for thrombolytics at the moment. And there are rises in clocks is an aging population, a post-Covid population and our shortages of the other thrombolytic TPA in the marketplace, and we would be actually going head to head with that. So that is a great pool. We've also heard from the European regulators who want to have an interest in this, too. So we're going to move -- we're moving forward, the relationship with Sequel was extremely collegial, -- in fact, we're already visiting and this next week, we're actually going to visit the CRO that we'll be working with in terms of the analytics. So we're getting ahead of the curve here, everybody expects a fine outcome. And we're moving forward from that. As Cameron says, detailed due diligence. We've been involved in this file for a long time. Micro will be supporting their technical and scientific team, and we'll be paid to do that actually. So cost recovery, so we'll not be bleeding any resources for Microbix whatsoever, as we realize it's a very important product and bring it back to the marketplace.

Thank you very much, Ken. Jim, maybe I can ask you just to touch on a little bit of some of the accounting entries and funds flows that we may see from what we did see and what we may see from Kinlytic going forward, if the FDA responds positively as we hope and expect.

Sure Cameron. In Q3, we saw a recognition of $1 million worth of USD 1 million of revenues, just over $1.3 million in revenues in Q3 related to a $2 million cash upfront payment that we received, $1 million of which is returnable if they decide if the -- our partner decides not to proceed, which we're not anticipating at this point in time, but we can't recognize that until we've gained their approval to proceed, which will happen after the FDA guidance meeting. We also had to recognize we -- there was an advisory fee that was associated with the signing of the agreement, a portion of which USD 250,000 was payable upon the initial signing of the agreement. So that was booked in Q3 as well. So as we go forward, and again, it's entirely dependent upon the timing of the approval from our partner of the FDA guidance, which can go as late as, I guess, is November 14, is the latest, but it could be sooner than that. So when we do...

I think, Jim, I would say end of November rather than a specific day but thank you. Go ahead.

Okay. The -- we will see -- once we see that payment, what will happen in that approval, there will be 2 things that happened. One, we will recognize the $1 million of deferred revenue from the initial upfront payment. And we also recognized another USD 2 million of -- from the Milestone payment that will be due at that point in time. Offsetting that slightly will be an additional advisory fee that was payable upon FDA guidance. And we're expecting to see that each of these -- it could be as early as...

Q4.

But fiscal Q4 or early Q1 fiscal '24. We will also then -- it will then move into an agreement where we will see with the confirmation of the proceeding moving forward with this product, we will also, from an accounting standpoint be required to reverse our impairment on this asset that we did a couple of years back. And we will, at that point in time, reverse the better part of CAD 3.1 million, which was what we had impaired back a couple of years ago. So that will show up as a credit below the operating income line credit when that reversal takes place. And again, that's going to be based upon the timing of the FDA guidance and approval as well.

And... I think yes, Jim, I think it's worth mentioning that there's a maximum level. Certainly, we view the asset with this positive guidance is worth a lot more than $3 million, but we're limited to the recovery of what we previously written off in the fourth quarter of 2020 fiscal as to what it can be marked up to. But there is a sponsored research analysis on Kinlytic that has been now made public and urge everyone to read that by KRC Insights discussing what Kinlytic is, the nature of the market on Kinlytic and its potential impact today and going forward for Microbix -- so some good reading it we had here. Sorry, Jim, go ahead, please.

No. And beyond that, there are obviously -- there will be milestones in the future based upon the progress of getting FDA approval for this for Kinlytic. Obviously, that will take time before we are starting to see the royalties that royalty stream that we expect to see as we move forward.

Very good. Great. Well, thank you. Certainly, we'll have time for further questions about the Kinlytic project as we move into the Q&A portion of this meeting. And from here, just say this is very material for us, and I think it's very material for folks health to have a very effective thrombolytic returning to market in a few years' time. During Q3, we also announced multiple areas of progress with our QAPs programs, specifically for disclosures across June and July, the first being June 13 disclosure on work we've done on antimicrobial resistant, sexually transmitted infections, research results posted at the ASM Microbe Conference, the American Society of Microbiology. So this is, again, peer-reviewed poster presentations of results with our partners. We also announced on June 20, a novel program with one of our proficiency testing and accreditation agency partners, labquality of Helsinki, Finland, the World's Spur, we announced with them in the world's first program for qualifying labs to do testing for genital ulcer diseases, which is very important. That labs have appropriate proficiency and accreditation, do those sorts of tests. Then in early July, we announced that Microbix is supporting the national cervical cancer screening program of the Netherlands, which is one of the countries in the world leading the move from 1950s, Pap testing technology is frontline screening where you're actually waiting for cells to be transforming or have transformed into cancer to detect cancer at an early stage rather than moving 5 years or more upstream and saying, do you have a high-risk type of HPV infection that may lead to cancer some years from now. So real a really big leap in the quality of care and our QAPs or high-risk strains of HPV have been selected to support that program across that country, and that's just the kind of thing that we're looking to do to lock in ongoing streams of revenues associated with our QAPs and really a certain technical leadership. And we also announced at the AACC or American Association of Clinical Chemistry. -- major industry meeting takes place every year. It's just been rebranded the American Diagnostics and Laboratory Medicine Conference, but everybody still will know it as AACC for some years, but we announced and presented data of novel Fourplex STI sexually transmitted infection test controls at that meeting extremely well received. So all of these programs becoming revenue generators for our company and incrementally building our sales and QAPs as well as demonstrating our technical leadership to industry. And finally, another major achievement in the quarter that I'll ask Jim and Ken to add further color on is achieving the go-lives on our -- both our new enterprise resource planning or ERP software systems that control everything from and track everything from initial raw materials inventory ordering to collection of receivables. So the control system for the whole business, as well as our electronic quality management system software upgrades, moving from countless binders of batch records, paper documentation, which we've done very effectively but becomes impractical as we expand the scope of activities and the frequency of production. So both these big achievements that we announced we were targeting and have now achieved the go-lives that were announced on August 4. And maybe I can ask Jim to talk a little bit about the ERP system importance. And Ken, I can ask you to touch on the eQMS.

Thanks, Cameron. I guess, technically, the ERP was this quarter, in the third quarter, but because we just announced it, we just went live a couple of weeks ago. And it's been an interesting process preparing for the go-live and since go-live. I think it's incredibly important for us as Cameron identified that and we've repeated that we're looking for $100 million in revenues within the 5-year period. And the likelihood of being able to do that with the systems that we have had in place historically was probably not as strong. So it became essential for us to improve our systems and broader from a manufacturing and financial. I'm looking forward to getting a lot more information out of the system and being able to do a lot more analytics and be able to provide our team with guidance both tactically as strategically based upon that information. So that's -- as I say, it's early stages, but I can already see the access to the data being much more readily available than it was with our previous systems.

Thank you very much, Jim. No, I think that's great. And Ken, could you dive in a little bit on the eQMS side?

Sure. And we've talked a lot over the last little while about capacity building and future proofing of this company. We are a well-regulated company, ISO 13485, ISO 9001 we're regularly audited and we've passed that superbly with essentially a paper-based system. And that system is really a stretched as it could possibly be at the place we are now. And so we announced the intention to future proof and build capacity in this area, and that's exactly what we've done. To Jim's point to allow us to build $50 million, $100 million and beyond. There was no way we could do that with the systems we have. And now we have these systems in place and we're going to continue to realize efficiencies as we move forward. So our manufacturing is now under electronic quality management system. It's going to continue from the end testing as well and quality control. This is going to create great efficiencies and data integrity going forward will allow us to build our portfolio. We are still a small and medium-sized company with a very complex portfolio of products. So we need to have the necessary systems to manage that properly and to allow their growth as we stop being a small medium-sized company and start being a medium big company. And we have to have the system to do that. So I'm very pleased and thrilled that we put together an excellent IT group. We've been working crudely with all the departments to implement the eQMS and the ERP upgrades necessary to allow us to continue our growth in the next little while. And that's why it's so important and pivotal to what we're trying to achieve.

Great. I thought now maybe Deborah, we move over to touch upon the results for Q3 and unpack those a little bit. We had a quite acceptable top line of $5.5 million in revenues, just shy of our all-time prior record of $5.6 million. But this being achieved without any DxTM revenues. So we -- the revenues were comprised of $4.2 million of sales from ongoing sales of QAPs and antigens, add to which was added $1.3 million of revenue recognition from the milestone first half of the first milestone on Kinlytic. However, there were a state of relatively unusual expenses associated with the quarter that totaled 2.2 million that pulled us into a net loss for the quarter. And just going through those a little bit by order of magnitude, the largest was our decision to take a write-down of our DxTM inventory, and we'll go into a little bit about why we did so. But that totaled $1 million -- close to $1 million followed by some adverse sales mix looking at Q3 over Q2 that meant a lower margin by about $0.5 million on sales mix, Kinlytic transaction expenses and fees and expenses that Jim mentioned of about $400,000. And some IT and FX matters totaling about the IT expenses and FX expenses, foreign exchange totaling about $300,000. So you had about $2.2 million in negative variance associated with the quarter. And those were what led to a net loss in Q3 on essentially the same operating revenues of Q2, whereby we achieved breakeven results. So it's a frustrating quarter in many ways, but not a negative C change in terms of direction of business. And Jim, maybe I can ask you to dive a smidge deeper into that, just speak to it a bit.

Sure. One on the margin side of the business, we can see quite significant swings depending especially in our antigens business. We can see quite significant swings depending on what products we're shipping as the margins differential between some of the products are quite large. Q2, we saw -- we had a very favorable product mix, and it just happened in Q3 that we had an unfavorable product mix. And that accounted for a fair chunk of margin impact, somewhere in the neighborhood of $400,000 during the quarter. On the operating expense side, IT expenses, especially year-over-year, we were not spending much on our -- on the IT front a year ago versus where we are today, not only in staff, but as well in terms of subscription fees as well as consulting fees for the implementations of the new programs. And the exchange -- FX exchange one, again, is we try to do some hedging on our U.S. dollar side of things, not 100%, and we saw a strengthening of the Canadian dollar against the U.S.. And that impacts our U.S. fairly high amount of U.S. dollar receivables that we've got at any point in time and/or U.S. cash that we have in the bank. So that presented an FX loss versus an FX gain in the previous period. Also within the operating expenses was the fee related to the Kinlytic deal of $330,000 plus legal fees, associated, with that, both total about $400,000. So there's some onetime stuff sitting in the operating expenses that we wouldn't have typically seen. So while all things were favorable in Q2 at a similar non- Kinlytic level of revenues, the swing both were quite wide between the quarters. And hopefully, expect repeat that to repeat in Q4.

Yes. Yes, we are seeing by division, our antigens or ingredients business is effectively back at pre pandemic levels running in the range of $2.5 million to $3 million a quarter. You'll recall in 2019 that had been around the $12 million a year revenue mark and then dropped as low as just under $8 million, so a hit by about 1/3 from the pandemic. That's come back quite strongly. But as Jim mentioned, there's quite a bit of revenue or margin fluctuation depending on the product mix within that unit. With QAPs, we're continuing to lock in customers and very much poised for growth, and I know this is certainly a source of confusion, if not frustration. -- for many shareholders, but we're hearing quite a bit of FDA backlog on approval of instruments and assets. I don't have independent substantial data on that, but this is what we're hearing from our customers, and that has a knock-on effect to us. So we've been kind of thus far seeing that $1.5 million a quarter QAPs range, and we're really pushing hard with our customers as their instruments and assays get approved that we'll see a break above that level, but it has been a source of delay on the regulatory side with that. And then DxTM is really a problem child for us in the portfolio, and we were selling product to Public Health Ontario whose objectives were through university health networks whose objectives were very much aligned with the policy objectives for security and supply of the provincial government, and that was handed back to other procurement groups that have no such strategic outlook on security of supply and, frankly, returned to the same importers from whom they've been buying product without even us even having the opportunity to quote so enormously aggravating on that basis, and we're continuing to work through those issues. But we felt the most prudent thing is as our DxTM inventory was becoming short dated that we would take that write-down, get it behind us. We can sell off product, we will. If we can gain access to these less strategic procurement groups, we will, and we're continuing to have those interactions, but we did not want anything hanging over us in terms of the value of inventory on our books. We would like to keep a clean balance sheet. And we bit the bullet and took that right down of nearly $1 million in Q3. So where we are today, we have very much a strong -- a very strong pipeline of business projects. I was requested to go to the AACC meeting in California relatively last minute to meet with a number of customers, very strong interactions and pipeline there. But it is -- again, this is a business-to-business sales in a highly regulated industry. It can go 2 years from first contact to real revenue generation and the Netherlands would be a prime example of that. those discussions took nearly that long. We have, as we mentioned, with the ERP and eQMS and many, many other aspects of production. We have ever-improving systems to execute on this. And we have a very robust balance sheet and financial position with a strong cash balance at the quarter and a very, very strong ratios as well. And the spend that we're doing is strategic. It is not just G&A bloat that we're generating. This is real operational improvement. So where we are today, I very much see our company prospering and continuing to execute on our approach of identifying winnable and fencible product categories in the diagnostics industry. We are now within 2 of the 3 largest segments of that industry, those being immunologic testing and molecular testing. We're identifying and working to secure new million-dollar-plus accounts among major diagnostic test makers, accreditation agencies and labs. And as Jim has mentioned, and Ken has mentioned, we are very much driving towards our objective of achieving $100 million in sales top line within the next 5 years and making certain we have the infrastructure and the teams of people to make that a reality. So that's very much what we're continuing to do. And Q3, one has to dig into it a little bit to see that going on. And of course, that very healthy engine is turbocharged by what we're executing on Kinlytic driving value from that asset, which in and of itself may result in anywhere from $15 million to $25 million per year, 100% margin royalty streaming to Microbix in a few years' time. So that would be, I think, a pretty good summary, and I know we probably have some questions outstanding, and Deborah, maybe I can ask you to curate those.

Yes, sounds good. So I think we'll start with VTM, if that's okay with you, Cameron. One audience question I had was, "Please update on the status of reconnection efforts with Ontario's newly established purchase unit? Any progress there?"

We have been in touch with government at various levels, the provincial government at various levels, including the new supply Ontario agency. The purchase of the VTM, however, has not yet come under the purview of that agency of supply Ontario, that is. And the parties under whose purview it is, have gone back to what I presume we're very comfortable in order relationships that they had prior to COVID for the procurement of VTM for the province. So you have a complete misalignment between the never again policy objectives of our elected officials and the Hey, I haven't received instructions to the contrary, purchasing practices of the procurement authorities. So it's a misalignment within government that we have certainly pointed out. And we would welcome the opportunity to match price with imports, but we have not even had that opportunity. So it just gives you some visibility that there's some dysfunction that needs to be corrected there.

And with inventories now being written off and COVID fading, what are the realistic annual sales volumes for the VTM business once Ontario reconnects if they reconnect?

You could certainly be on an ongoing level, see the kind of revenues that we were generating previously, namely $4.2 million in fiscal '21 and $4.7 million in fiscal '22 would be in that nature of metric as we were called upon this provided about 1/3 of the ongoing steady state needs. The other issue is, of course, the equipment that and systems that we brought in, we have stepped back and very much focused on VTM production. But going forward, we'll be looking for other opportunities, whether it's providing for our diagnostics clients now that we have a very large production capacity that was paid for by the VTM. We did sell and the grants we have received. -- that productive capacity will be redirected whether we're providing in-kit diluents or matching viral transport medium to go with test units. We have the opportunity to go after that business. But again, these are fairly long business-to-business sales cycle. So it doesn't happen overnight. You don't just show up and say, Hi, I've got capacity and turn it on a month later, it will take a number of quarters to be able to redirect that capacity successfully.

And are you trying to sell VTM to other provinces?

It's a questionable the extent to which Quebec or Alberta or British Columbia will be enthused by having an Ontario supplier as opposed to trying to light off a supplier in one of their provinces, but those dialogues will happen and will continue...

That's all I see on VTM. So let's move over to Kinlytic. I have a couple of questions there. Jim, I think this one is for you. What are the tax implications of the impairment reversal, Will there be a tax payment required...

Sounds like a good question for Cameron actually. No, no I'm kidding the...

I'll answer...

There shouldn't be any implications. It certainly will not be a payment. We're still sitting on a number of tax losses that would prevent any kind of payment being made at this point in time related to Kinlytic.

And that reversal will have a net earnings impact... Just... Is below the operating line, but it is legitimate earnings impact of that as well, of course, of a further USD 3 million inbound with an associated expense of the USD 0.5 million outbound. So a net cash inflow of a further -- well, we already have $1 million of that. So net cash inflow of a further USD 1.5 million.

And can you give us an update on the ongoing Kinlytic FDA process, the next milestones to look out for as well as time lines involved?

Absolutely. I'll give some top line guidance in that and then ask Ken to go into some greater detail. We're not going to give specific dates because the FDA meeting has been booked and that will happen, and then it becomes a question of getting a mutually agreed meeting minutes from that meeting and then our partner analyzing those meeting minutes and reaching its decision. So there is an expectation that by the end of November, we will certainly have clarity on all those points and the nature of meeting that we booked for anybody, it's a technical junky is what's called a Type C meeting and a ticket for that meeting has been secured -- and Ken, maybe you can -- I'll leave you to talk to the documentation around that meeting and how that tends to unfold.

Yes. When we -- in 2017, when we met with the FDA, we provided a detailed package on the -- how we're going to manufacture urokinase and ticket and the analytics that we're going to do and how we're going to kind of bring the process up to contemporary standards. And that may work very well and the FDA give us a very specific guidance, positive guidance at that time. And so 6 years later, we went back just to reconfirm that guidance. We actually updated the package a little bit because analytics and the procedural things have improved as technology evolves and answered some of the more overarching questions that were left out from 2017, very specific stuff at a technical level. So the purpose of this meeting is with our partners together to meet with the FDA and have them reconfirm the very strong and positive counsel they gave us in 2017 assume you do that. And there's no reason to believe at this point that they won't, that will be moving forward at a pace. I mean, it's a very detailed dossier you provide to the FDA, which looks at raw materials, all processes, validation, analytics, clinical studies and nonclinical studies, animal pharmacokinetics and so on and so forth, which Microbix does have expertise in as do our partners now. So we're moving forward collegially, we expect looking forward with a good outcome. And I think the time seems about right. Of the end of November, we should have had the back and forth of the FDA on a detailed plan of action, and we'll be executing on that and was again a capacity building when meeting with the CMO, with CROs, contract manufacturers and contract research organizations that we'll be working with to bring this to fruition, initially address the U.S. market and then the global markets from that.

Thank You Ken. Yes. So this is very much getting in and getting the weeds and validating -- has anything changed adversely from the time lines of prospective time lines for satisfying FDA objectives and moving forward to the filing of the supplemental biologics licensing application or sBLA associated with the product, validating all the things that Ken speaking of, what is the -- what are the analytics, what is the manufacturing process, what is the drug substance, what is the drug product, bringing all that forward back into a position where it can be relaunched into the U.S. market for catheter clearance initially and then perhaps broadened out by clinical indication by geography thereafter. And all our numbers, by the way, are just driven by U.S. catheter clearance, everything else is gravy.

And it's important to know that this is not a new product. I'm sure everybody probably knows this, but it is a supplement to the existing approved regulatory file that Microbix currently holds and now is partnering with Sequel to bring this to fruition. So this product is well understood in the decades of clinical success and we're just bringing it back in a new manufacturing situation with contemporary technologies that we're all very scaled at Microbix and at Sequel and at other C and CMOs and CROs would be working with, and so we'll execute appropriately.

Can you reference global markets? Have you already enhanced efforts to launch Kinlytic in other countries outside of North America?

It's a great question, Deborah. Kinlytic is approved. It is an approved drug in the United States and in Canada. So bringing it back in the U.S. has been our primary focus. As we get the FDA revised FDA guidance and confirm that we're moving forward on it, there will be engagement by our partners and ourselves with Canadian regulators to say, will you slipstream in with our program for FDA. And that would be one of the first additional markets. Europe will be slightly different. -- Kinlytic, low molecular weight urokinase is not an approved drug in the EU. So there may be additional work that needs to be done to bring it to the forefront of the -- to bring it to market and make it available to patients in the EU. Now an encouraging element, this and a few dollars won't get your coffee, but it is helpful income. We have received contact outreach to Microbix from the European Medicines Agency saying, "Hey, don't forget about us. And please use our small- and medium-sized enterprise support group to help you navigate the EU process because we believe this drug should be made also made available in the EU and to the extent possible while respecting our regulations, we would want that to happen in parallel with the U.S. process. So that initial connection has been made. But frankly, our focus thus far has been on a boatload of work to get prepped for the FDA meeting and start to activate prior discussions. When we didn't have a funding partner with groups about the analytics and the contract manufacturing and the clinical element and Ken has been doing the Canada partner have been doing a boatload of work around that.

I want to recognize that the current marketplace in the U.S. and in Europe and elsewhere is a monopoly for tissue plasma imaging activate, which is a good product, but it is in short supply and the need for thrombolytic is continuing to increase. And so that's what drove the European Medicines Agency to reach out to us for security of supply and capacity. And that applies in the U.S. as well. So clearly, there's a market pull of this particular product.

And there have been -- there is both shortages, the issue of shortages from more patients needing thrombolytics and more medicines being infused by catheter -- there has also been a history of plant outages and batch failures in the production of TPA that make it quite nerve-racking for regulators to say, hey, what the heck would we do if TPA goes off on.

Okay. And then moving on to QAPs. So please comment on the status of development work with additional medical device manufacturers for additional QAPs. How many opportunities are realistically close to signing a contract within the next 6 months?

I would say we have several possibilities within the next 6 months, taking the dictionary definition of several being 3 or more, but not many. And those are beyond contracts. There are a lot of companies that -- a number of companies that have said to us, we may not have you manufacture in controls for us, but we will certainly be buying onboard kits from you to help qualify new instrument installations. Those we will buy from you directly. And we will also be referencing your products in our instructions for use for all purchases of our tests and instruments. So that's not the golden ticket that we're looking for from a lot of customers, whereby we're actually doing manufacturing for them and they are our purchaser at very high volumes, but it is tremendous progress and maybe $1 million dollar a year accounts in its own right. But not $10 million accounts, and we're really pushing wherever we can to become an integral supply chain partner, whereby each box of 20-25 cartridges includes one or more Microbix controls in those kits. And that business, we're seeing more of emerging as well. But again, the business development cycles are -- of highly regulated products are not short. So -- but we are seeing that happen. And one of our frustrations is a partner says, well, we're expecting our FDA approval anytime now and at any time drags on and drags on and we get pulled with that. So we do have a wonderful pipeline that's emerging, but the frustrations with regards to timing.

So the delays are mostly to do with FDA approvals.

Yes.

Moving on to some more QAP questions. Do you anticipate additional agreements with other countries on the greeting programs using the Netherlands as a template, any large population countries?

Yes. We do anticipate other such agreements. And the same way that on one particular instrument system, we helped a health qualification of that instrument system workflow in Prince Edward Island and people quite crackly said what the hell are you worried about Prince Edward Island for there is 140,000 people on the whole island. -- that directly led us to be able to support the Netherlands with a population 100x that of $14 million or more than $14 million. So we see that moving forward and maybe the next step is a country with a population multiples of that of the Netherlands or maybe the next one to tip into the boat is another small country supporting another company's instrumentation and testing system that will, in turn, lead to other large population opportunities. So I think that question is write down the path, the strategic pathway that we're taking indebt ourselves work with and support leaders in the field and then those large population countries will indeed come and they will come for papillomavirus, cervical cancer screening programs, they will come for respiratory syndromic testing. They will come for STI, multiplex testing. They will come for a whole other opportunities of that nature where we see high-volume usage of QAPs coming down the pipes.

And can you provide some more information on the lab quality initiative and opportunity there.

Yes, absolutely. So lab quality is a provider of external quality assessment programs, that's the European terminology for proficiency testing and laboratory accreditation program. So they are a very sophisticated provider of those programs for Northern Europe and Scandinavia and a number of other countries. I think altogether, Ken, about 60 countries, they support ongoing my memory serves...

Something like that.

Yes. So lab quality flagged that there was an increasing need to test for general ulcer diseases, things like herpes simplex virus 1 and 2, Varicella zoster, which is chicken box, the consequences of syphilis and moving into in more emerging diseases like [M-OX], AKA monkeypox. And so there is no -- to their knowledge, no formal program to check the proficiency of labs for running those tests accurately and consistently. So with our collaboration with them, they created such first such program that we're aware of using Microbix's controls. And that's a kind of program that will start 5 or 6 figures in the first year as labs familiarize themselves, do I want to participate? Yes, I should. I need to. I have to and that will grow into 7-figure annual potential for us. And unless we screw it up from there becomes an annuity stream for both companies as it becomes well accepted by the labs who say, yes, now I can maintain my quality system by checking my procedures 3 times a year at a minimum. And then if they say, well, and I'm going to do daily, weekly, monthly quality checks in addition to the formal proficiency program, then why wouldn't I buy the Microbix products and then that could be another 7-figure revenue stream for us as well. So again, building our reputational franchise and awareness of Microbix within the lab where we're still a relative unknown.

And one last audience question. So on the last call, Mr. Groome commented on the QAPs business pipeline saying that the number of new companies and new programs with existing clients was just wild. Has the business pipeline momentum continued stabilized or reversed?

I would say it has continued. We are having active collaborations with a number of the largest companies in the world in the diagnostics industry. Our ongoing work isn't converting in technical collaborations into revenue streams. And we have seen and do see and I encourage anyone to pull down the 4 -- or the 3 posters of results that we -- that I spoke of earlier, the ASM Microbix conference, the AACC results as well as some of the data with regards to the Netherlands program. These are indicators of the caliber of collaborators we're working with now and the size of the company is now similar to our Kinlytic partnership, when you're dealing with major global scale players, they don't -- there would be a news release. There will be 10 news releases a day with them that they let every one of the collaborators necessarily publish who they're working with. So we have to be respectful that we're still a relatively small company, but we're working with giants now. And I think that will ultimately accrue some very substantial benefits to Microbix colleagues and Microbix shareholders. Part of this, of course, we also have a macro environment for equities, let's call a spade a spade. This has not been a kind market for small QAPs with an extremely aggressive rate tightening cycle has meant that a lot of this fundamental progress that we're making isn't reflected in share price. It makes us all a little cranky, but we are building a real business with real customers, real sales. Our Q3 results of $5.5 million, we're within $100,000 of our all-time record without -- without any DxTM sales in that number. And certainly, I'd like to -- I hope we'll realize a Q4 with similar or better revenue strength, possibly before with, before even any Kinlytic revenues. So without giving any formal guidance, we're certainly targeting to continue our growth. And we see before too long that are certainly targeting our QAP sales to start to exceed our antigen sales even while those have strongly recovered and are promising to continue to grow as well.

I had another audience question. Last earnings, you thought it would be a photo finish whether QAP revenue hit $10 million this year. How are you feeling about this now? It seems like continued delays will cause you to fall materially below the plan?

I think that's fair that it will be a stretch. We did not expect the extent of the regulatory delays in our partners' approvals. And while those are breaking towards 7-figure sales numbers from those partners, they're not in multiples of that figure yet. We're still in the prelaunch stocking phase for onboard kits and beginnings of their inventory and fabs to support product launches, but those product launches have not happened yet. So that definitely plays...

And can you comment on your average burden cost per employee? And if you see this remaining consistent or drifted upwards and at what pace?

I'm not sure -- could you repeat the question? I'm not sure I understood the phraseology there.

So they're looking for your average burden cost per employee.

I look at looking at that question as well. And I wasn't quite sure what the question was referring to. Certainly, if you look at -- if they were referring to our manufacturing burden costs, certainly, we will have seen it go up slightly in the past year or 2 as we've made investments in our infrastructure to support the business, whether it's systems or processes. We've made investments to grow the business, and we've got the capacity for a much larger level of revenues that we're generating today. And that's why as Ken indicated that we're building for the future. So there are some costs today, i.e., the some of the consulting costs relating to the ERP solution that are more onetime costs and are -- so they're burdened right now. But in next year, we would not see the same level of burden on the organization. So my expectation is that over time, we should see our average burden cost, if I understand it correctly, improve.

Yes. And part of the efficiencies that we're driving are certainly to not be increasing the headcount in line -- in a sort of linear fashion with revenues, we want to resist increasing head count while we're growing revenues by having greater levels of automation, reducing the drudgery on our employees and having everybody do their highest best use in their best work. And I think we are doing that successfully. We are very much stronger in our processes and logistics and resources than it would have been a few years ago. So we can support the large customers that we're targeting to become regular clients and be reliable supply chain partners to them. So -- and now the flip side of that, labor costs, we see particularly in the GTA housing costs are crazy for employees. Grocery costs are off the hook. So there is some upward pressure on wages as well. But again, we won't be increasing headcount at the same rate as we're targeting to grow sales.

Deliberately bringing these systems in place to increase efficiency -- there's some costs associated in the short term of actually doing that because we don't do anything, it doesn't cost anything. But if you actually do stuff, it cost, it costs something to do. So we will put the systems in place as we grow and realize those efficiencies going forward. And it's not that we're going to lay people off. But as we grow, that efficiency will increase and everything else with that mistake, frequency will go down because it is not paper, it is all automated and we will move on from there. But that was a stated objective to get the systems in coped to allow our growth, and that's what we've done and it's a cost associated with that.

Yes. Yes. And I think we've got fabulous people working up and down the line, and we cross-train people wherever possible. And when people are ready and want to assume greater responsibilities, we want a bigger company to be able to accommodate those career objectives as well.

And what are you most optimistic about looking forward to fiscal 2024?

Well, to me, our QAPs are undimmed in terms of the prospects there. It's annoying to have regulatory delays, slow things down. But we have a wonderful interactions with different large company prospective customers on our QAPs business. I think that's excellent. Our antigen business and many elements is working at a very high level, we through 2023. We've added capacity in -- by necessity as things have snapped back quite hard there. So that's looking very good. And we're continuing to look at ways to increase our efficiencies in the antigen business, too, that's an area of continued analysis and judicious investment for us. And then for Kinlytic as well, I mean, this takes us into the therapeutics area where there are big potential upsides without potentially bankrupting our company by so doing as we often see companies try to undertake these spends with our partners. And if the access to capital drives up their debt, that's not an approach we've taken, and we can participate very strongly in the economic upside of Kinlytic with somebody with much deeper pockets providing the funding for that project. So I think those are the 3 elements I'm very optimistic about. And I'm not pessimistic about the DxTM or the prospects of redirecting that productive capacity. But I am realistic about the time lines for getting that, clicking over to the same extent, the other 3 elements for our business.

One last question, Cameron. Have you thought about any acquisitions to grow the business? Is there anything that you're looking at doing in terms of inorganic growth?

Yes and yes. We have identified some opportunities that could be quite interesting in additive and synergistic with our business. We did not bring those into the fold this thus far this year because we, frankly, had our teams occupied up and down the line with the ERP system and eQMS upgrades. And it really would have been a bridge too far to say we're in the midst of bringing new control systems online for our business. And by the way, here's another business we're trying to integrate simultaneously would not have been wise in my view. So as our ERP system is going live and make sure that it's functioning without the major funds, and we have the quality management system modules rolling out through the organization. We're much better equipped to successfully integrate an acquisition and any investors have seen failed integrations of acquisitions will understand where I'm coming from here. We need to make sure it's okay. Now maybe the acquisition has a paper-based quality management system, and we can teach them to come into the digital world with us that our ERP system will successfully support their onboarding and that we have management bandwidth to do all that. So 2023, we chose not to; 2024, we'll see what terms are. But the -- and another element is, of course, if our paper were more valuable, it would become more appealing for us to make acquisitions as well from the value exchange ratio. -- the fact that our currency is depressed makes it somewhat less appealing from the valuation point of view. So really systems integration held us back, and let's have our breakout core see our equity a little bit stronger, and then we can evaluate when it's benefits from the Microbix shareholders to do something in terms of an acquisition and provide both growth and synergy through that. I hope that's a good explanation of our reasoning.

Makes sense. That's all the questions I have. I don't see any other audience questions. Was there something you wanted to talk about today that we didn't get around to...

No, I think we've gone through and covered off being fairly well. It's -- as I said, it's a solid order from a top line point of view, a lot of noise in terms of the cost and expenses to go through. But we're in a very strong -- we continue to be a very strong financial position. We continue to be in a very strong strategic position to really capture a lot of the growth trends within the industry to move to point of care, the move to greater use of molecular diagnostics, the greater syndromic testing, antimicrobial resistance testing, extended genotyping, viruses. All of these are things we are right in the thick of now, and it's a great place to be.

Okay. Well, thank you so much for your time. Thanks to the audience for participating. If anyone has any additional questions, feel free to reach out if you'd like a one-on-one call, you can easily arrange that. And yes, everyone has a great day and a great week.

Thank you so much, Deborah. And take care, everyone. Bye.