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

Good morning, everyone. Thanks for joining us today. We have a presentation with Microbix Biosystems where we're going to go through their fiscal Q1 results. With me today, I have Cameron Groome, CEO; Jim Currie, CFO; Ken Hughes, COO. Before we jump into everything, I don't think we're going to work off a presentation. Just so everyone is aware, this session will contain forward-looking statements. If you'd like to know more about those, you can find them on the company's presentation on the website, which will be updated today at some point. And the session will consist of a bit of an overview of the quarter from management, and then we'll jump into Q&A. So feel free to put any questions you have in the Q&A box, or you can e-mail them to me. And I apologize, I'm a little bit under the weather. So if I have a hack attack, my apologies in advance. I did go get tested, but it wasn't point of care. So 5 days later, I still don't know what I have. Cameron?

Well, case in point, Deborah. I hope you're feeling better soon. And maybe we'll get you into the lab, and we can add to our viral seed banks.

My bet is on RSV, but I thought I had it in December. So who knows? Anyway, more important things. Cameron, do you want to kick us off of the dialogue about the quarter?

Sure. Why don't I'll start with a bit of a financial overview and ask Jim to expand on that. And then we can talk about some of the operational achievements. I'll lead in on those and ask Ken to expand on some of those achievements. It's a pretty long list, and we go well above the point of time, but we'll try to keep everything concise. In short, it was an excellent quarter. We came in with revenues just over $6 million, and that is on the surface of it down versus the prior year quarter, but the prior year quarter included $4.1 million of nonrecurring milestone payments associated with our Kinlytic project, which is going extremely well, and we'll talk about it. So you're relevant comparable is revenues of over $6 million from recurring sales, recurring products to recurring customers versus $4.3 million in the prior year. We also had excellent progress in expanding gross margins, which is reflective of excellent work from our teams, from sales and marketing through engineering and operations in rigor on the manufacturing side and our gross margins expanded to 62% in this year versus 49% if we exclude the Kinlytic revenues in the prior year. We also had very good control of operational expenditures with those being down year-over-year, partly because of the lack of investment banking fees this year associated with the Kinlytic successful realization last year. And those led to a very strong net earnings of $856,000 routed to $900,000, if you're rounding up, or close to 15% gross margin on the quarter. And I think we are very happy with that and hope that our shareholders are, too. Jim, what would you want to speak to expand upon that?

Well, I think -- I mean, certainly, we did see really strong growth in our, let's call it, our recurring core businesses, a 40% growth. And along with that, as you mentioned, Cameron, excellent margins. We're starting to see the benefits from the efforts that are being put into our manufacturing processes, and they're achieving the margins that we have been hoping for and expecting for quite a while now. And so that's starting to produce a bottom line that is very strong as well. Also during the quarter, we continued to buy back shares, and we continued to do that in January as well. So over the last first 4 months of the year, we've bought back about 2.5 million shares. We've also, more recently, I guess, as a subsequent event in our notes in the financial statements, we noted the exercise of -- strong exercise of warrants that we saw in options in January. And so the combination of those 2 have brought an additional approximately just under $3 million of cash in as well and a recognition from our shareholders and those that participated in the private placement 5 years ago that we've got a really strong business right now, and they wanted to exercise their warrants and management wanted to exercise their options, too. So a good quarter.

Yes. Thank you. Thank you, Jim. Great points. Certainly, we are active in the normal course issuer bid, the share buyback program, as Jim indicated. And our strong financial ratios are after the impact of those purchases, which, of course, is a use of liquidity and reduces shareholder equity somewhat as we are buying back those shares. But we consider that to continue to be an excellent use of shareholder capital in adding to the pro rata ownership of each shareholder. And cash position, very strong. The warrant and option exercises, of course, occurred principally subsequent to the quarter end for Q1. So those numbers are not reflected in our cash balances at the end of the quarter from December 31. So that's, in fact, on top of and in addition to. And it's nice to see a little bit of recognition of the really great operational progress of the business that drives these financial results with the share price beginning to reflect a little bit of the fundamental -- a little bit more of the fundamental value of the company as we've seen the share price move up sharply from lows at the end of October to crest slightly over $0.52 on some of these announcements and then consolidate a little bit in the high 40s currently. So we're not -- the share price is the tail wagged by the fundamental dog rather than the other way around. And I'd remind everybody that in terms of our announcements, we announce things when they are done. We don't announce typically intentions. And the only exception to that would be something that we discussed in January that I'll get to the importance of. But during the quarter, we had some excellent milestones. In the fall, we achieved our IVDR accreditation for sales in the European Union. This is a big upgrade in the rigor of the in vitro medical device rules in the European Union moving from directives, softer and less rigorous controls on how medical devices are able to access that market to the regulations. So IVDD has disappeared and IVDR has come in, and many companies have had great difficulty in moving to that higher level of accreditation. We have done so successfully as we announced in the fall. We're also very conscious of expanding the total addressable markets that Microbix can access. Of course, every day, we're working to sell more products and services to current customers, and we're looking to add customers. But we've also been working very hard to expand our total addressable markets. And as evidence of that, I'll point to 3 things. One is the first quality assessment product, we fielded in the genetic testing market, our QAPs for an urgent point-of-care genetic test with a partner in the U.K. We've also begun to field products in oncology moving into QAPs on the formalin-fixed paraffin-embedded tissue sample mimetics, very high-end stuff and say that 3x quickly, it's a lot of fun. But that drives us into the field of oncology. So moving beyond our traditional specialty and infectious disease, into being able to address genetic testing markets and oncology markets. So unbounded potential in terms of driving sales growth in that field. And another exciting area, and this is the sort of exception we've made in terms of not disclosing the projects until they're done because of the broader strategic significance of this, but this is starting our recombinant program. Microbix has been the world leader in the production of native or natural antigen products as test ingredients, but had not moved into synthetic or recombinant antigen capabilities in production, and we now have the resources, both financial and people to do that without it being an insurmountable lift. And we announced that intention in January, which in turn expands massively the total addressable markets for our antigens business, and we'll ensure that it continues to grow. And as Jim indicated, its performance was extremely strong in Q1, and we expect that strength to continue as we do the growth in the quality assessment product business. And lastly, and I'll ask Ken to expand on these various points. The movements of QAPs and expanding that market, expanding the addressable markets and antigens, but also to speak to Kinlytic. And without too much spoiler alert, Ken, I think it's fair to say that our Kinlytic biologic therapeutics program is progressing extremely well, also. And that is a big value builder for Microbix. It would have been far too heavy spend for us to support as a small Canadian public company, but through partners, we're making it happen. And this is getting ever closer and is going to be something very transformative for Microbix within the next couple of years. So not so far away now and getting closer every day. So Ken, maybe you could expand on some of the successes that the teams have had and just cover the waterfront.

I mean starting in the core business, right, I've talked -- we've talked a lot about capacity building, and capacity building is not just square footage and headcount, it's also capabilities and time to deploy those capabilities, and that's what we've been doing. You can see how we're servicing the market, how we're doing growth, but also we're building margin by reducing costs through efficiencies using our quality management system, reducing the testing lower to QC and also increasing yields and then maybe reducing to almost 0 batch period. These things happen, but the reducing in -- reduction in batch failures has led to this margin increase. So we're deploying that capability in all aspects of our core business. That's why you see growth, and we have much more capacity than that. So we're ready to go and deploy that capacity going forward. Speaking of capacity, we're all scientists, we're experts in synthetic as well as that native biology. And therefore, the recombinant program with a bit of power behind it is going to move quickly. You can expect to see the first products coming out in the next few months and certainly, several both in prokaryotic and bacterial expression and eukaryotic meaning mammalian human cell expression before the end of the fiscal year. And as Carmen quite correctly says that addresses multiple new large and growing markets and also creates internal customers who don't have to stuff in it as well. So we're really setting the store for rapid growth, as you already said and you're already seeing the benefits of that. So then I'll switch to Kinlytic. I have nothing to say, other than what I said last time, which is the relationship with Sequel is fine. Everything is on schedule. There's no change to the time line. We're moving forward nicely with the international CDMO, which is working on the drug substance, which is the purified product. Sequel is just -- in collaboration with Microbix identified the CDMO, the contract manufacturer who will fill the finished product and package it, and that's just being pared right now, and that's another multinational driving force company going forward. And also, we've had lots of discussions about it because we're -- obviously, we're doing catheter clearance right now. But we're not stopping there, and we're already talking about the next indications, the next jurisdictions, looking at stroke, looking at heart attacks and things of that nature, pulmonary embolism and deep vein thrombosis, the bigger indications to drive this franchise to multibillion-dollar opportunities. And we have the technical capacity to do that. We have the technical capacity to upgrade all these processes to temporary standards to maximize the margins associated with that. The top line and the bottom line get maximized by what we're doing. So like I said, last time, I haven't got much bad to tell you. Everything is on schedule. We're growing nicely. I can't speak highly enough for the technical team. And Microbix, the manufacturing, the R&D, the QC, the QA and everything else around the IT group, we're driving everything as it should as we said we would, and we're going to be successful.

I muted myself. It's amazing after all these years, we still do that. Ken make some great points. I mean the quality of the team that we have is just superlative, and we can't say enough about them or be thankful enough, and we're moving. We've, I think, created a very positive culture where people enjoy working at Microbix and the dynamic and the team spirit. And we're moving to even in our compensation systems to a higher proportion of variable compensation that's performance-driven by design. And that includes performance-driven and KPI-driven bonus systems. We have, of course, our ongoing option plan, which embeds and really incents people to do their best and become eligible for those by moving up in the organization. And we're seeing the benefit of those designed systems in that. I just learned yesterday at our senior management team call that another scientists who had left Microbix is coming back. So we have people that do enjoy working with us. And I just think we've created culture that works, and we're seeing the results of that as shareholders. And some of the other things I'll mention, just on cutting edge, for example, in January, we announced our -- speaking of synthetic biology, our work on H5N1 influenza, the Bird Flu that continues to simmer in dairy cattle populations and in poultry populations. And we have created a forward-looking synthetic -- safe synthetic biology construct that can be used in a QAPs to check whether the existing flu tests, whether they're commercial FDA-approved assays or lab-developed tests can actually detect H5N1 Flu, which is, of course, critical to managing any emerging viral outbreaks. So proud to be working on that with one of the global leaders in that field. American Proficiency Institute that has 20,000 clinical labs subscribed to its programs, not all of those in the respiratory category, but it just goes to show how we are very much at the forefront of this kind of innovative work in public health and in individual health, witness Deborah's difficulty in getting a definitive diagnosis in a timely manner for respiratory virus. I mean, this shouldn't happen in the 21st century. It's bonkers. And we're taking very strong leadership role even in policy development and making sure that these next-generation diagnostics are used to the best possible effect, and that can be in flu, in the genetic testing field, the quality assessment product we've launched there is rapid emergency point of care -- supports emergency Point-of-Care-Test to detect whether people have a gene variant that will cause them to go profoundly and irreversibly deaf, if they are given even a single dose of very effective antibiotic. So if you've got a bloodstream infection that could kill you within hours and the physician says, this is the best possible drug, but I don't know if you'll go deaf. What a difficult challenge of a decision to make and a test that costs tens of dollars, if it's properly controlled and has the quality systems can run it can make that difficult determination much easier and much more effective. And again, the kind of leading-edge work that we're supporting with our company that drives the thought leadership and drives more customers to choose to work with us as their preferred partner when they're launching these innovative next-generation diagnostics. So just indicative of why our sales are growing, why our margins are improving. It's both the outward facing and the inward progress that we make on that front. So coming back to the quarter, I'd say it's an excellent quarter. We're very pleased to be in such a strong position. It's by design, not by accident, and we'll continue to drive forward on that basis. Jim, did you want to make any further remarks before we start to field some questions from investors?

No, I don't think so, Cameron. I think you've done an excellent job of covering where we are. And I mean, we're -- it's been a strong quarter, and we're looking forward to the rest of the fiscal year with our business. We do have a good, strong order backlog. So it again gives us an indication of the business going forward, especially in our androgens business, and we've got a good strong backlog right now. So we're looking at a good second quarter and into the remainder of the year.

Yes. No, that's great. And we've sort of talked about target range in the 20% to 40% revenue growth. We came in at 40% on the button for Q1. Please don't set that as the benchmark for every single quarter. We're growing revenues in an outsized rate, but we're not magicians and mathematical geniuses setting the quarter at that number.

All right. You're ready for some questions.

Sure thing, Deborah. Fire away.

And actually, maybe I'll share this with the audience because I was telling you before, Cameron. So the only reason I went to the doctors because I had 6 respiratory infections in the past year. And I thought for sure, something must be wrong. So they did a chest x-ray, which came back really fine. Then the doctor told me that's not unusual anymore to have 6 chest infections a year. She said since COVID, like the rate of respiratory infections is skyrocketed. And that I shouldn't be concerned apparently. This is just the new normal which is crazy. Anyway, but I remember before COVID, I never got sick really. And now, I am sick, I guess, 6 times a year. Anyway...

I'll see what I can -- we're doing some investor conference and meetings in a few cities next week. I'll see if I can bring some immunochromatography strip tests with us and see if we can pin that down for you...

Well, maybe the investors don't want you to bring me.

Well, I think we might be changing plans if you're not better by then.

I'll be fine. So going through questions, there's quite a lot, so I'm going to try and keep it thematic. So I'm going to start with QAPs. So if anyone has questions about QAPs, please start entering them now. So I don't have to jump back. So what percentage of QAPS revenue relate to assays currently in development versus assays that are commercial?

Great question. Most of -- I'd have to revert back for a precise split. I don't have that at my fingertips, but the majority of -- vast majority of sales of QAPs in the first quarter, were driven to fully commercial programs. There was relatively little development revenue in this particular quarter. The majority of sales were to the proficiency testing and accreditation or external quality assessment agencies with some sales to ongoing partners, ships for training new sites and installations and small orders from -- small ongoing order flow -- smaller ongoing order flow from clinical laboratories around the world. So I would say we were likely less than 10% or less in terms of development revenues is the proportion for the quarter. Jim, does that sound about right to you? Yes. Okay. You are on mute. Thank you. Okay. Next, Deborah? Deborah, you're on mute now.

Okay. Now I'm back. Was the reduced activity from test manufacturer that impacted your QAPS revenue, transient reduction in activity or likely to continue, i.e., a canceled program?

I would say firmly a transient reduction related to timing of programs. We expect from that customer and others, we expect orders of training panels and prelaunch and launch inventories in our fiscal Q3 and Q4. But of course, the future is always subject to risk, but that is our firm expectation driven by the communications with our customers.

Right. Great. And I see that there is an add-on question, which you already answered, part of, which was, what percentage of QAPS revenue relate to assays currently in development versus assays that are commercial? The second part of that is, where do you expect this ratio to be at the end of the year?

I would like to see it come up a little bit. I think the development work we have other -- we have a variety of customers for whom there are pending development projects. So I think that proportion will increase. But I think it would still be less than 1/4 of overall QAPS revenues. Development -- just keeping in mind, Deborah, what you're reading, development projects. Oftentimes, we will charge a fee for such development work if it's not an off-the-shelf product to cover our labor and materials, but that's not the end game for that. So a project starts, it may have revenues in the tens of thousands associated with development work, then that follows by validation lots. Typically, there are 3 smallest possible commercial scale production runs to validate the repeatability and start to generate any specific stability data that might be needed. Then there's launch inventory that's generated and then the ongoing commercial pull. So it can take many months for a development project to translate into ongoing commercial sales.

Got it. Can you provide more color on the slowdown and delays in QAPs sales?

It's a delicate question. I'd prefer not to kiss and tell with regards to customer programs, but I think it's fair to say that a customer that had been planning to develop a whole portfolio of assays in parallel has moved to serial development of a narrower front of tests in succession. And it's that change to strategy that's driven some of the short-term reduction in QAPs revenues, just fewer production lots, validation lots being produced in parallel.

Then I have a couple of QAPs questions via e-mail. Regarding the delays at one of your customers, can we expect these to be gone next quarter? Or what time frame are we talking about?

I don't think those will be gone next quarter. I think we'll start to see that in Q3 and Q4 if that particular partner is moving forward on time. Of course, when a new assay or program is launched, you have to count back months from that for the production of product to support that launch. So if a launch is to take place in -- towards the end of the year, for example, in December, we've got to be thinking about production of the supporting QAPs associated with that through the early part of the fall at the latest to do that. And of course, the products have to be designed and validated well before that. So you're counting backwards, minimum of 1 quarter, maximum 3 quarters, likely from that program launch.

What gives you confidence to guide for 20% plus growth in QAPs? Are there new projects on the horizon?

Yes, there are new projects on the horizon with multiple customers, and we have continuing growth from almost every customer in our QAPs field. So it really comes down to issues of timing quarter-to-quarter. And oftentimes, too, this happens with our antigen business as well, depending on which side of the quarter end, a shipment organically falls upon affects the quarter-to-quarter revenues. We used to see much more quarter-to-quarter volatility in the sales of the business, but as we're growing the customers and the product line and the product categories, that's started -- been starting to smooth out, there's always an element of that.

I see one last QAPs question. This $1.6 million a quarter in QAPs seem sustainable. Is there any Quidel, Savanna revenue in the budget for 2025?

I'll address both questions. Absolutely, that is more than we expect and are targeting significantly in excess of those sales, particularly in the back half of the year. Recall that last year, we did about nearly $7 million in sales of QAPs over the full year. So we are targeting a higher run rate than $1.6 billion a quarter, of course. And we're targeting higher QAPs sales in 2025 fiscal than in 2024. And that falls from a variety of customers, including QuidelOrtho.

And moving on to antigens with the 118% growth in antigens due to customer order lumpiness or other onetime things? Or should this level of antigen revenues be sustainable?

I can cover that one...

Yes, go ahead, Jim.

Yes, there was a combination of things. I think I would say that the antigen revenues of Q1 last year were probably weaker than we would have typically seen. But -- so it got enhanced this year by some really strong growth. But I would expect that for the remainder, at least our outlook for the year is that the antigen business should be staying at comparable levels to what it was in Q1 for the remainder of this year, at least.

Yes. No, thank you, Jim. And this growth is in part driven by new assays in new geographic markets, pulling a real pull of antigens for us and validates the premise that we've talked about that new geographies is a means of growth for the current antigen portfolio. And now with our recombinant program, we're expanding the antigen portfolio. And wonderful thing is that our QAPs business will become the first customer for the new antigens that we're creating. And as we validate those for use in our own product line, those products can be successively added to our catalog.

So that builds our catalog and builds our margins at the same time and builds our expertise for new opportunities as they come down the pike. We have mature native antigen in sales, and we're growing those in geographies, but we also have the new initiatives to add to the portfolio of offerings, which will continue to grow also.

And it also goes a long way to making sure our supply chains are bulletproof with regards to QAPs product. Why some -- for antigen-based QAPs, why buy from outside when we can create these internally.

Okay. I have a couple more questions specifically related to the recombinant antigens. So native antigens used to set you apart from the competition. What gave rise to the need to start producing recombinant antigens?

Great question. Often, there are many instances in which a native antigen will provide an immunoassay, a test looking for antibodies in your blood. Better sensitivity and specificity than is possible with a recombinant antigen. But there are instances where a recombinant is sufficient and can be a better economic solution -- can be a cheaper solution for that. We were working in that high-end element in the native antigens, and this enables us to go into broader markets and also for emerging pathogens, there could be cases where either the risk class of the pathogen is precludes doing a native production, or it is more efficient to do recombinant. So this just expands our addressable markets. Ken, do you want to expand on that?

Yes. I mean, all of what you said is correct. And to add to that, there are just some organisms that you cannot grow in the native sense. You can't do it in a commercial way. With these capabilities in synthetic biology, we can create flexibilities of that or individual antigens which are dominion to our antigen business going forward. It's not that we're in any way undermining our expertise in native antigens, and it still allows us to stand apart from everybody else. We're just adding additional capabilities and also we could increase potency of products by mixing them together in appropriate strategic ways as well. So just adding to the capacity, which you can apply to these opportunities. So, yes. That's the only thing I would add to what Cameron said, it's about capabilities.

Yes. Capacity and capability is really the 2 areas that we're looking at there. And as we look at recombinants, nobody knows better. We have all the tools to analyze what constitutes a good recombinant that has the right immunogenicity and the right properties to be recognized by the necessary antibodies. So it's really, again, deploying expertise we already have in-house in the best possible ways.

You know we deploy that expertise in the QAPs all the time. We're now adapting it to new opportunities with the bandwidth to do it. And that's going to just create more opportunity going forward.

You would say you have competitive advantages in recombinant antigens?

I would say we have competitive advantages in knowing what a recombinant antigen needs to look like and needs to be, and now we're building the capabilities and capacity to do that at commercial scale, and we're doing it at a hell of a clip.

How much of Q1 antigen's revenue was actually recombinant antigens?

Very, very little. This is just a newly announced program. We have done a few recombinants in the past on request of customers, and we do sell it a little bit. But the vast majority of sales in Q1 and in every quarter, our native product, have been native product historically.

Do you expect margins on recombinant antigens to be lower than your other products?

Good question. In -- I think there will be a range of -- there will be a range of margins on that. If there's something that is more widely available, of course, you'll have greater difficulty distinguishing yourself. But if we are able to, as we expect, create value-added and unique products, then those will have margins comparable or better than what we generate off the native program. Ken, what would be your thoughts on that?

It's completely variable and depending on the individual protein, and whether or not you express it in bacteria, which is generally easier or mammalian of human cells going for eukaryotic expression, but also the nature of the individual protein organism you're expressing, has its own idiosyncrasies with regards to yields. So in some cases, the margins will be massive. In some cases, there will be less massive. But in many of those cases, you won't be able to do it by any other route anyway. So basically, we're deploying differential expertise where it makes more sense to do it.

We'll have a breakout call, I think, on some of the nuances there. I'm not going to -- I'm not going to let Ken get into too much genetic engineering on this call.

Yes. I can do that now and again.

Can recombinant antigens cannibalize native antigens market?

No, not for the products we're looking at. The product line in Microbix, in most cases, would have been cannibalized a long time ago if they could be, and we will occasionally see movement as assays are redeveloped, but it's a fairly well-established business that we have. And we would have to look at the performance in the economics before we would swap over program. But there may be prospects, as Ken has indicated, to enhance the potency of a native product by mixing in part of recombinant. And again, that would be a capability that we would have fairly uniquely.

The other aspect is that the nonrecombinant products that we already have are very sticky and a cross validation to drop in a recombinant maybe more work than people would want to do and to Cameron's point, if it was that easy to do, it'd already been done. So we don't expect to lose anything of any significance from our native antigen supplies. This is entirely additive to the current business.

Previously, you said you expected antigens to grow at 5% to 10% per year over the long term. With your new recombinant antigen capabilities, do you expect this growth rate to accelerate materially?

Over time, yes. It opens up more opportunities, new opportunities, broader opportunities for that business. And we've been seeing an acceleration of growth based on new geographies, principally uptake of our antigens into immunoassays in Asian markets. And we will -- and the 5% to 10% was more the Western European and North American growth rate with higher growth rate in new markets. Now I think we can start to consider a higher growth rate in aggregate for our antigen business based on the decision and the support of the Board to move forward with a full recombinant antigen program.

One last question on recombinants. Do you foresee -- like what sort of CapEx do you foresee spending on this business?

Surprisingly, little. As we look at this, and we've got a great Board of Directors and they challenge in the right way the management team to think about these growth opportunities, and they put our feet to the fire in across 2024, saying, what are the initiatives you need to think about guys that will accelerate growth? And how does this look like from a CapEx point of view, from a spend point of view, P&L, balance sheet up and down the line? And we brought forward a series of recommendations to the Board for review at our annual off-site and don't get excited about the offsite. It's in Mississauga, nothing too exotic, and we reviewed those. And we received the go-ahead in November to move forward with that, completed our internal planning, reallocating teams, setting budgets and thereby announced the go-live of that program in January. So it's really good. It's going to be -- we estimate a spend of perhaps $0.5 million a year on that. Not that if you were starting this from greenfield, it would be millions and millions and millions of dollars potentially. But because we already have the expertise in the infrastructure, it's much less costly for us to do, but that's a unique situation for Microbix.

Yes. I mean, it has to be remembered that we have many excellent molecular biologists, molecular virologists, protein biochemists on staff already to deal with our core business and the native antigens as well as recombinant QAPs. So this is about bringing expertise together and letting it loose, and we're already seeing great progress.

Yes. And R&D, manufacturing, QC, QA, all this infrastructure is already in place, and it's adding that increment and focusing the energy. So this is a wonderful thing.

Then a couple of more general questions about financials. Do you feel like 60% plus gross margins is a sustainable level going forward?

It depends on just how wild Jim goes on the spending, I think. Jim, why don't you take that question?

Yes. It's a bit of a tough question. But with the antigen business, mix of products has -- can have a significant impact on the margin in any particular quarter. So Q1 was pretty favorable, and 62% overall was a strong margin. Would we expect to be in the 60% to 65% range for the right now? Probably not. I would say the high 50s is sort of where we're sort of expecting to be for fiscal 2025. But you could see a 3% or 5% variance, plus or minus on that, depending on the product mix that takes place during a quarter.

And we're not done on the optimizations across product lines. So incrementally, that will move forward. And of course, that also is affected by pricing, policies and negotiations as well as product mix.

And do you expect operating expenses to remain relatively stable at this level for the remainder of the year?

My first blush would be yes. But Jim, why don't you take that one?

Yes. I mean in terms of Q1, again probably not at that level for the whole year. But certainly, we're not anticipating anything significant in the way of operating expense increase during the year at this point in time.

Yes. I mean we do have a bit of creep with cost of living adjustments for staff and so forth. But these are not sea change items. These are more incremental than you'd expect given the current inflationary environment.

Yes, we have the majority of the capacity we need to drive what we need to do. Any changes will be minor.

Getting down to the last couple of questions. So excellent results and progress. Thank you of all the announced initiatives and excluding Kinlytics since it's further out. Which do you see as potentially the most impactful for 2025?

For 2025, interesting. These -- all these programs will have a far greater longitudinal impact than just in 2025. I would say the most strategic for me, and this is excluding Kinlytic because the question said to exclude Kinlytic. I think the moves into QAPs areas beyond infectious disease is very important for us in opening up markets in oncology and genetic disease is very important. And I would say that moving the antigens opportunities into the recombinant category as well as the native antigen category is similarly strategic. Ken and Jim, what would you want to say there?

We agree with what you just said. All of -- there's a steep linear growth in antigens and a potential logarithmic growth in QAPs as we move forward. We've discussed many times before. I expect all of those initiatives to materially increase in 2025, but certainly beyond that. This is a longitudinal opportunity -- multiple longitudinal opportunities as we go forward.

Yes. Jim, what would your thoughts be?

No, I don't have anything to add beyond what you and Ken have just outlined.

Okay. One thing I'll add is just considering the question as well is that we are already in the QAPs side. We are already generating good margins. And these are good margins driven by relatively small product volumes but lot sizes. The huge lot size volume opportunities have been elusive in the timing of lighting those off. But as we get more customers lined up for these big volume opportunities, that's where the steep linear growth that Ken describes for QAPs can go exponentially. And the fact that our business is already profitable and demonstrating good margins on relatively small lot sizes where the setup and takedown and line clearance and everything kills you on the margin is very, very positive. As we move to realize some of these big volume opportunities, we'll see -- at that point, I believe we'll see both margin expansion and big revenue growth. And I can't tell you exactly when because that's out of our control, but we're lining up more and more of such opportunities.

I can certainly see it from an operational perspective. There's no lack of focus on increasing margins by operational efficiency, and that's something we're really focused on going forward. And I think we've seen that evidenced in this particular quarter, and we'll continue to see that.

Yes, and a lot of the work we're doing now is this sort of custom work. It's relatively low volume still if we are able to roll out 10 million model Ts and they're all black, well, obviously, the margin shoots up associated with that.

A couple of final questions. This one is #2 in the question in the box, and I'm a little bit confused by it, but I think they're asking for an update on the partnership or a contract side with drug manufacturing organization. Is there an update on that, I think, for Kinlytic?

Let me take a stab at that, Ken, and maybe you can expand on it. There are several critical components to the Kinlytic program. We have tremendous capability in cell culture, which is the basis for manufacturing product, but we are not a GMP drug manufacturer. We're virology facility. So you can't be doing that work for creating product for clinical use in our facilities. So there are the 2 largest segments of project spend associated with Kinlytic or as Ken delineated a contract drug manufacturing organization, or CDMO to make what's called drug substance, and that's the active protein ingredient, that is the active ingredient of Kinlytic. And that contract was signed in early part of 2024 and has been proceeding very well since that time, and that's certainly well in excess of USD 10 million spend by our partner on that program. And then the second CDMO that needs to be brought on, the second principle one that needs to be brought on is what's called for drug product. And this is the process of actively formulating the ingredient with the correct excipients, lyophilizing or freeze drying that product, having it in the final vial format for ready for clinical use. And that is, in turn, a multimillion dollar contract with already qualified facilities to do that work, and that will be the next major evidence of progress. And as is our normal practice, we'll announce that when that is completely signed and done as evidence of progress, and that will be -- the level of disclosure will be in negotiation with our partner as they are a private company and the preference would be, say, nothing ever and pop on to the market one day, and we have public company reporting obligations. So there's a bit of to and fro that needs to be done there. But that's something we do expect certainly in 2025, just to be very clear, and it will happen, I believe.

The time line for the whole of the Kinlytic project has not changed at all. There's another aspect is what Cameron just described describes the opportunity for a small dose in clearing catheters or preserving flow-through catheters, but there are other indications where process upgrades will be needed. And I think the group knows that Microbix has been involved with urokinase for decades and is manufactured in a development sense many times. And so we're going to participate in that scale to address things like pulmonary embolism, deep vein thrombosis going forward. It's every intention to do that. So yes, we're going to be -- we're currently providing technical counsel to Sequel as they move forward, but we're going to continue to be technically involved through all aspects of this project.

Yes. The manufacturing process upgrades that can be done once there is in-dated validated drug available to do comparability analysis, we can then modernize manufacturing tremendously. And frankly, I don't think there's any organization that has better expertise in the precise areas that are required processed than Microbix. So we're really excited about that.

It's right in our technical sweet spot.

Yes. And that is critical for enabling Kinlytic to, as Ken has indicated, to move beyond the catheter clearance indication, which doesn't use a lot of drug active substance back into the systemic treatments of pulmonary embolisms and deep vein thrombosis, peripheral arterial occlusions and other such clots that use a lot more drug. So you've got to manufacture it much more efficiently, and that's where we can bring our expertise to bear to realize those opportunities, which are potentially massive.

One more Kinlytic question. Please remind us as well as the Kinlytic manufacturing steps, what also needs to be done? And how long will those steps take?

Ken, do you want to -- just do an overview of process front to back?

So we -- yes, absolutely. So we grow cells. It expresses the urokinase, which is the active Kinlytic at a commercial scale, then we purify that product. And then we put it into lyophilizer freeze-dried form, which is stable, packaged and labeled for distribution. So that's the first thing that we'll be doing in upgrading all the process technologies to contemporary standards as expected. And that's what we've discussed with the FDA. Then we have to compare in an analytical sense with the previously marketed product. Recall, of course, that alpha-kinase, which is the original Kinlytic from Abbott Laboratories, was a standard of care in these indications for multiple decades. So there's absolutely no chance of clinical failure in this product. But what we're doing is showing it's sufficiently comparable to the previous product going forward, and there's a good chance we'll be able to do that only with analytical work. If that's not the case, we would have to do a small clinical trial, and we're talking about a very quick 6 months 300-patient trial. Just so from a safety perspective, again, there's no chance of clinical failure. But if there's some exclusions in the biochemistry there, that will look -- that would play into the regulatory process in about 6 months, but really it still fall in 2027. So everything is quite mechanistic going through. It's about the analysis of the product. It's about bringing it up to contemporary standards and manufacturing, which we do, which all our CDMOs do. And so we're just moving forward kind of from an engineering perspective right now, and it's going to be well.

A couple more fun questions for you. So have you experienced any significant growth in orders because of tariffs potentially coming into effect?

No, not as yet. I'm just thinking. No, not so much, not -- certainly not in the Q1 period. We did not. And in Q2, really, we're watching this carefully with our customers. Our -- much of our revenues are denominated in U.S. dollars, as everybody knows from our notes to financials, but not all of our product is destined for end use in the United States. So there's a much lesser exposure than that in terms of the proportion of revenues that could be affected. Most of our products are quite unique and are sole-source products for our customers. So it would impact them directly without an alternative to do much. I think some of our most generic products like flu in a vial, for example, is somewhat more generic. Those could be affected. But I think you're looking at direct exposure, perhaps 5% of revenues could be affected by switching suppliers beyond that, we would work with our customers on mitigation strategies, whether that's -- do you really need this shipped in the United States, if you're using it in manufacturing in the U.K., for example, well, why don't we just ship it directly to the U.K. and you can do the QC there. So there's lots of different procedures we can take, but I'm not going to get too much into tactics on addressing that. But we will certainly -- it will be unpleasant, but I don't think it will be devastating to us.

I had one other question, which was any impact -- any anticipated impact on margin?

Yes. The margin, our initial short term, we might see a couple of points of impact on margin. And if they persisted that might be twice that. So 2% to 4% is my best guess at this point. I think the bigger question is, how would margins be impacted by countervailing tariffs. Oftentimes, we're ordering supplies and materials from a distributor or a wholesaler in Canada, but we don't know where the products necessarily are coming from that they're supplying us, and we'd have to do a more -- we're in the midst of doing some analyses on our vulnerability to countervailing tariffs in this respect.

One last question that I see, Cameron. So other than share buybacks, what do you intend to do with the pile of cash that you've built up?

Well, it's a great question. It's a nice -- it's a high-class problem to have. We will continue with share buybacks. $15 million is -- which is about what we have in the bank currently is much bigger than Microbix has been accustomed to in the past, but it's still laughably small in the big scheme of things. We will continue to be active in share buybacks. And I think now that we have, our ERP system were fully lit up with Jim's team and excellent progress on our digital quality management or eQMS systems. It becomes a little more practical to look. Are there brilliantly accretive and strategically valuable acquisitions? If we identify those, it starts to open up that opportunity as well. For us, particularly with our share price not being quite so low using a combination of cash, equity and potentially even banking lines, we might -- we will keep our eyes open and see if anything significant comes along that would further add to our capabilities and capacity from an acquisition point of view. And down the road, it may not even be beyond the pale to consider a dividend, but that's not something I've discussed with the Board. So this is just me riffing. So I think we won't permit a large amount of cash to just sit there and not be effectively used. But again, having the global instability that we see as we're looking at more customers making us a critical sole source supplier, having some cash on the balance sheet and demonstrating staying power is an advantage, too. So we won't be carelessly running around to sling our cash at the wrong opportunities.

No big cash bonus for IR, and...

Sorry, it's just not on the table, Deborah. My apologies.

Okay. Well, that's all the questions that I see. Was there anything that you wanted to cover today that we didn't get to? Any final thoughts or comments?

I would just say it's -- we've gotten the company to a very strong position by design, and we're going to continue to build strength and build fundamental value for shareholders, which I hope and I believe that we're demonstrating and we'll continue to demonstrate going forward. So -- and just thank you to our Board. Thank you to our very talented staff and to the shareholders for all your support and that goes to our customers and suppliers, too. So thank -- just very thankful, and I think this quarter reflects good fundamentals.

Okay. Well, thanks to you 3 for enduring me and my raspy voice, and thanks to the audience for all your questions. If there's anything that I didn't ask or that you wanted to follow up with me afterwards, feel free to send you an email, get your one-on-one call or get whatever questions answered that you like. I hope everyone has a nice afternoon and a nice long weekend.

Thank you, everybody. You take care.

Thanks, everybody. Take care.