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

[Audio Gap] Meeting of Shareholders of Microbix Biosystems, Inc. I'm Christopher Lobb, the Corporate Secretary of the company and will act as Chairman of the meeting. We'll start the meeting by addressing the formal matters. Once these matters have been addressed, Cameron Groome, the President and Chief Executive Officer of the company, will provide a short summary of recent activities and events. Questions can be asked online, and Cameron will answer them at the end of his presentation. I hereby appoint [ Matthew Burt and Amanda Delio ] of TSX Trust Company to report on the shareholders present in person and the number of shares represented in person and by proxy and to compute the votes on any poll taken. Notice calling this meeting and the accompanying Management Information Circular have been distributed using the notice and access provisions under applicable securities regulations to all registered and nonregistered shareholders. These provisions allow us to post electronic versions of the proxy-related materials online rather than mailing paper copies to the shareholders. This allows us to reduce our postage and material costs and also has environmental benefits by reducing the volume of paper documents generated. Physical copies of the form of proxy, the supplemental mailing card and the notice and access letter have been mailed to all shareholders of the company and the registrar -- sorry, all shareholders of record, to the directors and to the auditors of the company. And the registrar and transfer agent has filed with me proof of service. I direct that a copy of such materials with proof of service be annexed to the minutes of this meeting as a schedule. I'll now ask someone to move and second a resolution dispensing with the reading of the notice.

I move a resolution as follows: be it resolved that the meeting of the notice of this meeting be dispensed with.

And I'm Ken Hughes and I'm a shareholder and I second that resolution.

I declare the resolution carried. The scrutineer's report shows a quorum to be present. I, therefore, declare the requisite quorum of shareholders is present and that the meeting is regularly constituted. I direct that the scrutineer's report be annexed to the minutes of the meeting. Before commencing the business of the meeting, I'd like to comment on the voting procedure during this shareholders' meeting. Each holder of a common share is entitled to 1 vote for each common share held. As a show of hands cannot be done during an online meeting, the shareholders have been asked to vote in advance of the meeting. At the time of each vote, we will indicate the result of that advance voting. I now present to the meeting the financial statements of the company for the fiscal year ended September 30, 2024 and the auditors' report thereon. It's not proposed to ask shareholders to approve the financial statements. However, Jim Currie, the Chief Financial Officer of the company, will be pleased to deal with any relevant questions that are asked online concerning the financial statements during the question-and-answer period at the end of the meeting. If the shareholders have questions of a general nature, they can also be asked online and answered after the formal part of the meeting is completed. It's now in order to proceed with the election of directors. The Board of Directors consists of 7 directors. I now declare the meeting open for nominations.

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

And I second that resolution.

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

I move a resolution as follows: be it resolved that Ernst & Young LLP be and they are hereby appointed auditors of the company to hold office until the next annual meeting of the shareholders or until their successor is appointed at such remuneration as may be fixed by the directors and the directors be and are hereby authorized to fix such remuneration.

And I second that resolution.

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

Sorry about that, I didn't realize I had that one my agenda. Mr. Chairman, I move that the meeting be terminated.

And for a final time, I second that resolution.

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

Thank you very much, Chris. And thank you Ken and Jim for ably assisting in this matter. So I thought I would give a bit of a -- backstop my comments with some presentation slides today. So I'm going to pull up a presentation deck and with that forward on the screen, if you bear with me for a moment. Let me share this and move it to full screen mode. Thank you. So first off, I just want to thank everybody today for taking the time to attend today's Annual General Meeting for the conclusion of fiscal 2024. Fiscal 2024 was a very successful year for our company. And we're very much counting on continuing on that track through fiscal 2025, the year that's now in process with everyone, of course, remembering we have a September 30 fiscal year-end. As you'd hope and expect, there'll be many forward-looking statements in my presentation and my comments today and we do rely on the safe harbor provisions for those forward-looking statements. So thank you for your understanding of that. I expect most of you listening are current shareholders but it's still worth mentioning our capital structure and listings as a publicly traded company. We're listed on the Toronto Stock Exchange and traded on the U.S. OTCQX system. We have a market capitalization of about CAD 60 million and about a CAD 0.40 share price. We do have certainly a very strong financial position, I'm pleased to report. And analysts have a target price of more than -- a 12-month target price of more than double our current stock trading price. So perhaps give some indication of the targeted trajectory of the business. Jim, I don't know if you'd want to comment. The numbers on this slide are as of the end of our first quarter, December 31, 2024, which is our first quarter of fiscal 2025. If you wanted to update any financial metrics since that time, perhaps could.

Sure, Cameron. I guess a couple -- I mean, we've had a really strong beginning of this fiscal year and we've been able to, through the confidence of our shareholders and our management, we've raised funds through the exercise of warrants and options. So that's helped in our cash position. We've also been able to expand our credit facility as per the announcement this morning with the TD Bank. And so our cash position, including line of credit is over $18 million instead of $15 million. And in the meantime, that includes being able to pay down over $1 million of BDC debt as of this week, in fact. So again, strong start to the year and to our financial stability and our balance sheet.

Thank you so much, Jim. And just to mention, as we'll talk about later, we are still very actively buying back and canceling shares outstanding through our normal course issuer bid program, which does enable us to buy back up to 5% of the issued and outstanding shares every year subject to some very stringent trading roles on the part of the TSX. So that continues to more than offset the annual use of the stock option plan, which is part of our overall compensation system for directors, managers -- directors, executive management and managers of the corporation. So thank you for that. Joining us today, we're delighted to have many members of our talented management team. It's certainly not just me or Jim and Ken but very much a team, truly a team, as well as our dedicated and wise independent Board of Directors. And in welcoming everybody to the meeting today, I'll just also emphasize that the Board and management are very much also shareholders of Microbix. I was running some numbers preparing for this meeting. And collectively, we own about 22 million shares of Microbix and this is capital we've allocated at risk alongside other shareholders. So this is shares we bought with our own hard won savings. So our interests are very much aligned as co-shareholders with the broader shareholder base. So thank you and thank you, everyone, for joining us today and for all your hard work through fiscal 2024 and before and after that window of time. I believe most of you are aware of our major product lines in medical devices and test ingredients and their value drivers. So I won't go into great detail here today. Suffice to say that our list of clients really represents a who's who of the diagnostics industry. And we've become increasingly recognized and relied upon based on the quality of the work we're doing and the quality of products we're creating, manufacturing and exporting all around the world. And whether this is for our antigens, our quality assessment products or test controls or our reagents, we're very much sitting a unique place, that core of quality between our many customers in the categories of EQA, external quality assessment and proficiency testing agencies, test makers and clinical labs. And we're in that critical position between those customers and the markets they need to access in, whether it's research use only, in lab-developed tests, fully regulated in vitro diagnostic tests, point-of-care tests, all of those clients are relying upon us. And in the most succinct terms, our products help ensure that medical tests actually work. And this is critical so that patients get the correct diagnosis and flowing from that, the correct treatment. You never want to have a situation where a test isn't actually working and somebody who actually has a disease is told they don't or somebody that doesn't have a disease is told they do. Each of those send a freight train going down the wrong track and result in some very potentially catastrophic outcomes for individuals and for the health system generally. And this is what we do and why you're seeing growth in our business and our financial results being positive, such as we reported in fiscal 2024 and thus far, in fiscal 2025 and as well as before. And it's that same expertise as well that's led us to be able to identify and capitalize on an opportunity in the therapeutic drug area. And this is with Kinlytic, an FDA-approved clot buster or thrombolytic drug that we own that is now fully partner -- has a fully funded partnership to help return it to market and generate some great earnings potential for Microbix from this program while not diluting shareholders at all going forward. So we're very pleased to have a great partner and a great project plan moving forward. And Ken, did you want to provide any color around that and the progress we've been making on Kinlytic?

Absolutely. And as we've said many times before, in a public forum, we're working closely with our sophisticated partners at Sequel Pharma and the work is going extremely well to bring urokinase Kinlytic back to the marketplace. The group is no doubt aware that we engaged a international CDMO to upgrade processes to contemporary standards. That work is moving forward at a pace. And we previously disclosed that the target release for the product back into the marketplace is 2027. And there's no change to that time line whatsoever. We just continue to enhance that time line along its path. So yes, we're continuing to work very well with Sequel and we expect a successful outcome to this project.

Thank you so much, Ken. That's great. Talking about this, it is difficult now to understate just how good Microbix' capabilities and capacity have become. We now very much have globally competitive and cutting-edge expertise as well as capacity. And it's that capacity, whether it's in manufacturing, whether it's in innovation and product generation and systems that really sets us up to be able to capitalize on opportunities, have more customers, more touch points and drive for greater success. And Ken, if you would touch on maybe what we've built in capabilities and capacity to secure those opportunities, that would be great.

Yes. Capacity building, capability building is something we focused on over the last few years. We've used government grant funding and interest-free loans to drive this as well as reinvesting our own profits. And while we maintain a profitable business, we have managed to develop a appropriate growth to get critical mass to realize further opportunities. For instance, we've gone from 1 building to 3. We've doubled staff. We've added machinery and capabilities. We've added the electronic quality management system, the enterprise resource planning software too and integrated those to maximize efficiencies. All of this has allowed us to get the critical mass to build from there and we -- and that will just allow us to build top line, increase efficiencies, build margins and build profits. That's what we said we'd do all along. We're now just going to use that capability and that capacity to pursue the opportunities going forward. Things are going very well at Microbix and we're going to continue to steer the ship that way.

Thank you, Ken. That's a great summary. And with doing that, we've obviously doubled revenues and -- more than doubled revenues in the process and continue to drive to that. And you can see just some of the things we've done across fiscal 2024. And I'll just remind everybody, our policy is, internally, we announce things when they are done. We don't announce things when they are conceived. So these are fully baked projects that are now revenue generating and moving forward and moving ahead. And it takes time, of course, to get traction in the marketplace with new initiatives but all these are building forward. And whether it's in areas like cervical cancer screening using PCR detection of HPV, point-of-care testing, molecular diagnostics, more generally, immunoassays, syndromic testing, testing for a series of pathogens, any one of which could be cause of a disease -- set of disease symptoms, antimicrobial resistance. We're becoming recognized as a go-to expert partner for global firms in all these different areas. And we've certainly not slowed down. Just in the past 6 months, the capabilities that Ken spoke to are enabling us to accelerate the pace of innovation and sets us up to access even more new opportunities such as in molecular pathology, recombinant antigen capabilities. We're building out emerging diseases that we're helping prepare to address. And with that, comes the improving access to capital, such as from the exercise of investor warrants, political recognition, such as the recent visit from the Premier of Ontario and ultimately, also investor recognition as we've seen from the share price appreciation, leading to a new 52-week high of share price in February. All of these one -- from one flows to the next and generates the operational and financial success. And of course, the finances flow from that with our achieving both record revenues of over $25 million in fiscal 2024 and record net earnings of over $3.5 million for fiscal 2024. And in so doing, we balance to strike. And maybe, Jim, if I could ask you to speak to how we balance between capability building, capacity building in our bottom line.

Sure, Cameron. Yes, as Cameron just outlined, our revenues are greater than $25 million. We grew 50% on our top line and that came from a couple of different sources. One is, we saw a 40% growth in our core businesses, our antigen and CAPS businesses. As well as we saw the recognition of over USD 3 million in milestone payments for the Kinlytic product as well. And we've done that with -- while at the same time, growing our margins. Our margins grew from 40% last year to over 53% for our core business this year, producing 22% EBITDA. We've -- so we've also taken the money that we've received and generated from the business and reinvested it in the business. So we're not just taking a tactical approach, we're taking a strategic approach. And we've invested close to $2 million in capital expenditures during the year. As Cameron indicated, we've repurchased shares. We repurchased 2.6 million shares in fiscal 2024 and over 8 million shares since the inception of putting the NCIB in place a couple of years ago. So we're in a strong financial position. We are balancing. We're looking at today's requirements as well as we're making sure that we've got the funding to support the business as we go forward and work on the strategic projects that we have in place. So excellent position. As I outlined on the previous -- one of Cameron's previous slides, again, cash position was growing even in the last -- I had written in my notes here and we had $15 million in cash and line of credit. And we've invested a bunch of money in the last quarter. But at the same time, we've added to that. We've now got over $18 million available to us to help grow the business as we go forward.

Even following repayment of debt and repurchasing of shares. Yes. Thank you so much, Jim. That's great. This is a great sort of point at which to move to a more future-looking orientation. We've talked a little bit about the past, a lot about the present. Where are we going now? Well, this is really driving continued growth in revenues and earnings in a variety of fashions, continuing to grow our capabilities, our capacity profile and using tools such as those outlined here to drive continuing growth in revenues, earnings and drive share price performance as well. So where I'd conclude in takeaways is that we are successfully building shareholder value that is real, that is material and that is durable. And by becoming that go-to partner for our customers and applying the capabilities we have, we're creating a great suite of products and services that enables us to grow revenues, generate material margins, expanding net earnings and share price appreciation. And that's why we're here and we're doing it in a way that improves quality of life for everybody and adds to society. So we're very much a positive force in the world as well as a positive force for our shareholders. So with that, we are very, very appreciative of everyone's ongoing support and participation in this journey that we continue to be on. And we thank you for remaining -- being, remaining or becoming shareholders of the company. Much appreciated. Thank you again for attending today's AGM. And now would be a great time to address some questions. So thank you for rejoining us, Deborah.

Excellent. And congratulations to the entire team on an excellent 2024, both calendar and fiscal. So jumping into some questions here I have from the audience. What are the next few updates, including timing we should expect on Kinlytic until it's ultimately approved?

Great question. I'll maybe take a stab at that. As our partner is a private corporation funded by private equity, they tend to be quite private. And with a little bit of teasing, their preference would be to not disclose anything until one day Kinlytic reappears on FDA approved back on the market. We, of course, are a public company, so we have obligations for ongoing disclosure. So we kind of have to find a middle ground between disclosing nothing and disclosing too much. So we have disclosed, of course, the agreement. We disclosed the reconfirmation of the FDA guidance and the second milestone relating to the agreement. We've disclosed the engagement of the contract drug manufacturing organization, or CDMO, which to redevelop drug active manufacturing, as Ken described. A next major milestone would likely be the engagement of a contract drug product manufacturing organization that being the group that would do the final formulation of the drug active with the excipients like lyophilization, [ vialing ], labeling, et cetera. And when that is fully moving forward, that would likely be a point of disclosure for us to again reconfirm that the project is moving forward on time lines. And thereafter, I think I'd want to defer to some of my notes on prior discussions with Sequel as to what's that fair balance between not disclosing too much competitive intelligence and fulfilling Microbix's disclosure obligations. But the drug product, CDMO disclosure, I think, will be the next are we on course confirmation for shareholders.

Okay. Great. Another audience question here. How big is the opportunity in VTM if Canada and the province of Ontario are serious about sourcing at home?

Gosh, good question. We did close to $5 million of sales, I think $4.5 million and $4.7 million in 2021 and 2022, respectively, of VTM sales. There is still a substantial usage of viral transport medium and universal transport medium in Ontario and in Canada, that would justify certainly similar numbers, if not greater numbers. The question is just are politicians serious abou0t bringing production home and securing supply chains. And we continue to be active in our government relations engagement work, both at the federal and the provincial levels. But often, governments move at a more, we'll call it a measured pace than private industry. So it is a slow -- certainly a slower process than we would like but we continue to work on that file. But I think if we saw a resumption of similar or greater levels than we've seen in 2021 and '22, we'd be pleased.

Okay. Great. Does Microbix need to do acquisitions to reach its target of $100 million in revenue within 3 to 5 years?

It's a very good question. We are continuing to grow our core business and we're achieving in the range -- already achieving in the range of $5 million to $6 million and targeting $6 million or more sort of on a rolling basis for our revenues. So we're already approaching in that $20 million, $25 million band and pushing higher than that. So we'd certainly like to break in the next 12 months into $7 million or $8 million orders from what we've seen previously in $5 million and $6 million organic revenue orders. That's very much what we're targeting. So you're already getting closer to the $50 million mark there, then we certainly see Kinlytic kicking in hard in late 2027, into 2028. And that's not so very far away now. And that could generate $15 million to $25 million in revenues for Microbix on an annual basis before too long, those being U.S. dollars. So now you're well on your way to $100 million. If there were appropriately priced and strategically synergistic acquisitions, we'd certainly consider them and those give you a leg up towards $100 million. It's an open question as to whether that is needed to achieve a target of $100 million in 3 to 5 years. So would it help? Absolutely. But it has to be the right asset on the right terms for us to want to do it.

All right. I see one final question. So if anyone else has any questions, make sure you get them in. So I think the question is, would the shares be easier to buy for institutional investors, if they were consolidated? Are we trying to make our shares less attractive because we are trying to buy back shares?

Two-part question. I'll address each one. On a purely technical level, there is no difference in whether or not shares are consolidated in terms of the ease of there being bought by institutional investors. So the mechanics are precisely identical in buying a $0.40 share versus a 10-for-1 consolidated $4 share, for example. So the mechanics are no different at all. I think what's implied there, is the psychology different? Do institutional investors have a bias for a certain share price? We see that a little bit on the -- for companies that have listed on the NASDAQ that sets an arbitrary, you must be above x price per share to be listed. That's a purely psychological issue. We don't feel we have the scale yet to justify the expense of maintaining a full NASDAQ listing. And until -- typically, companies would want to see $50 million to $75 million in revenues to really get that broader audience on the NASDAQ, which costs you about $1 million a year to maintain, plus heightened directors and officers insurance as there's a tendency for nuisance lawsuits to be filed if ever quarterly guidance is missed, for example. So there's a lot of downside to U.S. listing as well as upside. Currently, we are not looking to consolidate the shares and we are certainly not looking to make our shares less attractive because we're trying to buy them back. We're just -- we see them as attractive and we buy back to the limit of the daily trading volume that we can under the TSX normal course issuer bid rules. And we've also demonstrated, we're willing to react to blocks of shares when they're made available to repurchase them as well. So I think we're quite active on share repurchase but we do not have current plans to consolidate shares.

And can you please comment on the impact of tariffs on your business?

Yes, if the prospective tariffs stood still long enough for us to pin down, what that would mean, it would be somewhat easier. There's a lot of moving parts with regards to tariffs. They have been on again, off again, quite consistently as we know. Those reading our disclosures will see that 80% of our revenues are denominated in U.S. dollars over the past quarters. That does not mean that 80% of the products are destined to go into the U.S. as end users. So there's a -- I would estimate that both 30% of our sales in the past few quarters have been to end users in the United States. And so that would be the ultimate exposure but a lot of that revenue has been derived from product development as opposed to product manufacturing. And we've usually costed in the development into the first deliveries of lots. So if we and our customers determine that -- in fact, that convenience is going to attract a greater tariffing, we may look more finely on where the value proposition really lies between product development and product delivery and reallocate. So I think your exposure could be perhaps half that brute number of 30%. And many of our products are quite unique and are quite deeply embedded in the regulatory files of our customers. So it would be a cost of doing business for our clients rather than an inducement to change. We're not selling 2x4s and somebody says, well, gosh, I can use yellow pine just as readily as spruce, it's not an easily substituted good.

All right. That's all the questions I have from the audience. Was there anything else you wanted to discuss today?

No, I think that would be the summation of our comments. Deborah, thank you so much. And thank you, Jim, Ken and Chris as well. Our fiscal 2024 was successful by every measure. We have generated great financial results for that year. We have seen our shares recently attained a new 52-week share price high. And we've vastly added to both our capabilities and our capacity through the year while, in fact, improving our balance sheet strength and repurchasing shares as well. So thank you, everyone, for continuing to join us and for your support in fiscal 2024 and into the current fiscal 2025 and beyond. Thank you.

Thank you, everyone. I think with that, we can conclude things. I appreciate everyone participating from the audience and I appreciate the update. I hope you all have a great afternoon.

Thanks, everyone.

Thank you, all.

Thank you, everyone.