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spk01: Good morning. Thank you everyone for joining us today. We are going to have a review of Microbex's 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 Groom, CEO, Ken Hughes, COO, and Jim Curry, 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. As I mentioned, there will be Q&A, so feel free to enter those in the bottom of your screen, or you can email them to me. With that out of the way, I'd like to introduce Cameron. Hi Cameron.
spk00: very much and and thank you um thank you for joining us as i think jim and ken q3 um 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 was 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 16th. And this partnership really achieves our goal of fully funding the return of Kinlytic with the use of third-party funds and resources. resources so that we're not in any way bleeding away resources from microbics as core missions, 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 while we're not allowed to mention Who that is, anyone intrepid 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 Kinlitic 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 50 million dollars. Canadian, about 35 million U.S. prior to the re-approval 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 soon. by the end of november i expect which should lead to further revenues to microbics from miles from upfront milestone payments as well as the reversal of the impairment that we took on this asset going into the covid at the end of uh 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, you know, maybe I can ask Ann to elucidate a little bit on the nature of the interactions going forward.
spk02: Yeah, SQL is a highly sophisticated group, well financed as already discussed and with deep understanding of biologics and biological drugs. And so the due diligence was very detailed and very collegial and ended up in a good place. We will be indeed reconfirming the council that FDA provided to us in 2017 before we move forward. there's no reason to believe it will change but you know there are vagaries in this and so we'll it is a milestone we need to get to but the analytics have moved on 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 clots and there's an aging population and a post-COVID population and there are shortages of other the other Thumbelitic TPA in the marketplace, and we would be actually going head to head with that. So that is a great pull. We've also heard from the European regulators who have an interest in this too. So we're moving forward. The relationship with SEEK was extremely collegial. In fact, we're already visiting. And next week, we're actually going to visit the CEO role 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 there. As Cameron says, detailed due diligence, We've been involved in this file for a long time. Microbics 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 microbics whatsoever as we realise it's a very important product and bring it back to the marketplace.
spk00: 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 Kinlitic going forward if the FDA responds positively as we hope and expect.
spk03: Sure, Cameron. In Q3, we saw recognition of a million dollars worth of million US of revenues, just over 1.3 million in revenues. in Q3 related to a two million cash upfront payment that we received, one million of which is returnable if they decide, if 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, There was a advisory fee that was associated with the signing of the agreement, a portion of which $250,000 U.S. 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 it's November the 14th is the latest date. but it could be sooner than that.
spk00: So when we do... I think, Jim, I would say end of November rather than a specific day, but thank you. Go ahead. Okay.
spk03: Once we see that payment, what will happen in that approval, there'll be two things that happen. One, we will recognize the $1 million of deferred revenue from the initial upfront payment, and we will also recognize another $2 million of deferred 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 it- Fiscal, yeah.
spk00: Fiscal Q4 or early Q1 of fiscal 24.
spk03: 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 3.1 million Canadian, 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.
spk00: And then I think, yeah, 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'd 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 I 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 microbics. So some good reading that we have here. Sorry, Jim, go ahead, please.
spk03: No. And beyond that, 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 royalty stream that we expect to see as we move forward.
spk00: great well thank you certainly we'll we'll have time for further questions about the kinetic project as we move into the the q a portion of this meeting and you know from here just say you know this is this is very material for us and i think it's very material for uh folks health to have a a very effective from politic returning to market in a few years time During Q3, we also announced multiple areas of progress with our CAPS programs, specifically four disclosures across June and July, the first being June 13th 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 20th a novel program with one of our proficiency testing and accreditation agencies LabQuality of Helsinki, Finland, we announced with them 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 to 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 as 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 moving five 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 a real big leap in the quality of care and our efforts caps 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 caps and really assert technical leadership. And we also announced that the AACC, or American Association of Clinical Chemistry, major industry meeting takes place every year. 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 four plex 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 caps, as well as demonstrating our technical leadership to to industry. 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 both our new enterprise resource planning or ERP software systems that control everything from and track everything from initial raw materials inventory ordering to collect a 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 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 4th. 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 part.
spk03: Thanks, Cameron. I guess technically the ERP was this quarter in the fourth 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, you know, and we've repeated that we're looking for 100 million in revenues within the five 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 and strategically based upon that information. So that's, as I say, it's early stages, but I could already see the access to the data being much more readily available than it was with our previous systems.
spk00: Thank you very much, Jim. No, I think that's great. Ken, could you dive in a little bit on the EQMS side?
spk02: Sure. And, you know, we've talked a lot over the last little while about capacity building and future proofing of this company. We are, you know, a well regulated company, ISO 1345, ISO 9001, we're regularly audited. And we've passed that superbly with essentially a paper based system. And that system is really as 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 realise efficiencies as we move forward. So our manufacturing is now under electronic quality management system. It's going to continue from there and testing as well and quality control. This is going to create great efficiencies and data integrity going forward and allow us to build our portfolio. We are still a small to 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 closely with all the departments to implement the qms 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
spk00: Great. Thank you. Thank you both. I thought now maybe, Deborah, we'd 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 caps and antigens add to which was added 1.3 million of revenue recognition from the milestone first half of the first milestone on Kinlitic. However, there were a spate 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 close to $1 million fall. followed by some adverse sales mix looking at Q3 over Q2 that meant a lower margin by about half a million dollars on sales mix, kinetic transaction expenses and fees and expenses. 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. You had about 2.2 million in negative variance associated with the quarter. Those were what led to a net loss in Q3 on essentially the same operating revenues of Q2 whereby we achieve breakeven results. So it's a frustrating quarter in many ways, but not a negative sea change in terms of direction of business. And Jim, maybe I can ask you to dive a smidge deeper into that and just speak to it a bit.
spk03: On the margin side of the business, we can see quite significant swings depending, especially in our antigen's 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, very 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 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 FX exchange one, again, We try and do some hedging on our US dollar side of things, not 100%. And we saw a strengthening of the Canadian dollar against the US dollar. And that impacts our fairly high amount of US dollar receivables that we've got at any point in time and or US 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 catalytic bill of $330,000 plus legal fees associated with that that both total about $400,000. So there's some one-time 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-catalytic level of revenues, the swing from both Both were quite wide between the quarters. And hopefully, I don't expect that to repeat in Q4.
spk00: Yeah, yeah, we are seeing, you know, we are seeing by division, you know, our antigens or ingredients business is effectively back at pre-pandemic levels running in the range of two and a half to three million a quarter. You'll recall in 2019 that that had been around the 12 million a year revenue mark and that dropped as low as just under 8 million, so a hit by about a third 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 caps, 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 assays. I don't have independent, substantiated 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 caps 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 the XTM 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'd 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 right down get it behind us we can sell off product we will if we can gain uh access to these um less strategic procurement groups we will and we're continuing to have those interactions but we did not want anything hanging over us um 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 at nearly a million dollars in Q3. So where we are today, We have very much a very strong pipeline of business projects. I was requested to go to the AAC 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 two 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 has been 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 financial position with um with the strong cash balances quarter and a very very strong ratios as well and the spend that we're doing is strategic it is not um you know just gna bloat um that we're generating this is real operational improvement so you know where we are today um i very much see our company uh prospering and continuing to execute on our approach of identifying winnable and defensible product categories in the diagnostics industry. We are for now within two of the three 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, you know, as Jim has mentioned and Ken has mentioned, we are very much driving towards our objective of achieving 100 million sales top line within the next five 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 Kidlytic and deriving value from that asset, which in and of itself may result in, you know, anywhere from 15 to 25 million per year, 100% margin royalty stream to microbics 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 Debra, maybe I can ask you to curate those.
spk01: Yeah, sounds good. So I think we'll start with VTM, if that's okay with you, Cameron. Certainly. One audience question I had was, please update on the status of reconnection efforts with Ontario's newly established purchase unit. Any progress there?
spk00: 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 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 were very comfortable importer 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 um hey i haven't received instructions to the contrary um 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 have not even had that opportunity. So it just gives you some visibility that there's some dysfunction that needs to be corrected there.
spk01: And with inventories now being written off and COVID fading, what are the realistic annual sales volumes for the BTM business once Ontario reconnects, if they reconnect?
spk00: You know, you could certainly be on an ongoing level, see the kind of revenues that we were generating previously, namely, you know, $4.2 million in fiscal 21 and $4.7 million in fiscal 22 would be in that nature of metric if we were called upon to provide about a third of the ongoing steady state needs. um you know the the other issue is of course you know the equipment that and systems that we brought in we had kept 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 very large production capacity that was paid for by the VTM we did sell and the grants we have received, that production productive capacity will be redirected whether we're 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 cycles, 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.
spk01: That's all I see on VTM. So let's move over to Kinlytic. I have a couple questions there. Jim, I think this one's 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.
spk03: No, I'm kidding.
spk00: I'll answer.
spk03: 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 Kinlitic.
spk00: And that reversal will have a net earnings impact just below the operating line, but it is legitimate earnings impact of that as well, of course, of a further 3 million U.S. inbound with an associated expense of half a million us outbound so a net cash inflow of um a further wealth we already have a million of that so a net cash inflow of a further million and a half us and can you give us an update on the ongoing kinetic fda process the next milestones to look out for as well as timelines involved Absolutely. I'll give some 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 the FDA meeting has been booked. um and that will happen and then it becomes a question of getting mutually agreed meeting minutes from that meeting and then our partner analyzing those meeting minutes and 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've booked for anybody who's a technical junkie is what's called a type C meeting. And a date 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.
spk02: Yeah, when in 2017 when we met with the FDA, we provided a detailed package on the how we're going to manufacture urokinase and kinlytic and the analytics we're going to do and how we're going to kind of bring the process up to contemporary standards and that meeting went very well and the FDA gave us a very specific guidance, positive guidance at that time. And so six years later, we're going back just to reconfirm that guidance. We actually updated the package a little bit because analytics and 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. Assuming they do that, and there's no reason to believe at this point that they won't, they 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 non-clinical studies, animal pharmacokinetics and so on and so forth, which microbics does have expertise in, as do our partners now. So we're moving forward to collegially, and we're looking forward to a good outcome. And I think the time frame is about right. About the end of November, we should have had the back and forth with the FDA of a detailed plan of action, and we'll be executing on that. And again, capacity building, we're meeting with the CMOs, COOs, contract manufacturers, and contract research organizations that we'll be working with to bring this to fruition to initially address the US markets and then the global markets from there.
spk00: Yes, so this is this is very much getting in and getting into the weeds and validating, you know, has anything changed adversely from from the timelines of the prospective timelines for satisfying FDA objectives and and moving forward to the filing of the supplemental biologics licensing application or SBLA associated with the product, validating all the things that Ken was speaking of, what is the You know, 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 and by geography thereafter. And all our numbers, by the way, are just driven by U.S. catheter clearance. Everything else is gravy.
spk02: 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 Microbics currently holds and now is partnering with Sequel to bring this to fruition. So this product was well understood and has decades of clinical success. And we're just bringing it back in a new manufacturing situation with contemporary technologies that we're all very skilled at, at Microbics and at Sequel and CMOs and CROs working with and so we'll execute appropriately.
spk01: Can you reference global markets? Have you already enhanced efforts to launch Kinlitic in other countries outside of North America?
spk00: It's a great question, Debra. 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 revised FDA guidance and confirm that we're moving forward on this, and ourselves with Canadian regulators to say, you know, will you slipstream in with our program for FDA? And that would be one of the first additional markets. Europe will be slightly different. Kinolytic 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, you know, this and a few dollars won't get you coffee, but it is helpful intel. We have received contact outreach to microbics from the European Medicines Agency saying, 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 us process so that 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 and our partner have been doing a boatload of work around that.
spk02: We want to recognize that the current marketplace in the US and in Europe and elsewhere is a monopoly for tissue plasminogen activator, which is a good product, but it is in short supply and the need for Thumbelytics 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 US as well. So clearly there's a market pull for this particular product.
spk00: Yeah. And there have been there have been there is both shortages, the issue of shortages from more patients needing thrombolytics and more medicines being infused by catheter. There is also been a history of plant outages and batch failures in the production of TPA that make it make it quite nerve wracking for regulators to say, hey, what what the heck would we do if TPA goes off on?
spk01: Okay. And then moving on to cats, so please comment on the status of development work with additional medical device manufacturers for additional cats, how many opportunities are realistically close to signing a contract within the next six months.
spk00: I would say we have several possibilities within the next six months, taking the dictionary definition of several being three or more, but not many. And those are beyond contracts. There are a lot of companies that... number of companies that have said to us, you know, we may not have you manufacture in-kit 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 purchasers of our tests and instruments. So that's not the 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 a million dollar a year counts 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 microbics controls in those kits. And that business we're seeing more of emerging as well. But again, the business development cycles of highly regulated products are not short. So but we are seeing that happen. And, you know, one of our frustrations is, you know, a partner says, well, you know, we're expecting our, you know, FDA approval any time now. And, you know, that any time drags on and drags on and we get pulled with that. So so we do have a wonderful pipeline that's emerging. But the frustrations with regards to timing.
spk01: So the delays are mostly to do with FDA approvals?
spk00: Yes.
spk01: Okay. Do you anticipate additional agreements with other countries on the screening programs using the Netherlands as a template? Any large population countries?
spk00: uh yes we do anticipate um other such agreements and you know the um same way that um you know on one one particular instrument system you know we helped a helped qualification of that instrument system workflow in prince edward island and um you know people quite correctly said what what the hell are you worried about prince edward island for there's you know 140 000 people on the whole on the whole island um that directly led us to be able to support the netherlands with the population 100 times that of 14 million uh or more than 14 million so we see that moving forward and maybe the next step is a country with a population you know 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 right down the path, the strategic pathway that we're taking. you know, embed ourselves, work with and support leaders in the field. And then those large population countries will indeed come. And they will come for, you know, papillomavirus, cervical cancer, 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 caps coming down the pipes.
spk01: And can you provide some more information on the lab quality initiative and opportunity there?
spk00: Yeah, absolutely. So LabQuality is a provider of external quality assessment programs. That's the European terminology for proficiency testing and laboratory accreditation programs. So they are a very sophisticated provider of those programs for Northern Europe and Scandinavia and a number of other countries. um i think all together can about 60 countries they support if i'm going my memory serves something like that so yeah so so lab quality uh flagged that um there was an increasing need to test for um genital ulcer diseases things like herpes simplex virus one and two varicella zoster, which is chickenpox, the consequences of syphilis, and moving into more emerging diseases like mpox, aka monkeypox, and said there is no, to their knowledge, no formal program to check the proficiency of labs for running those tests accurately and and consistently so with our collaboration with them they created such first such program that we're aware of using microbics as controls and you know that that's that's a kind of program that We'll start in five or six figures in the first year as labs familiarize themselves. Do I want to participate? Yeah, I should. I need to. I have to. And that will grow into seven-figure annual potential for us. And unless we screw it up from there, it becomes an annuity stream for both companies as it becomes well accepted by the labs who've say, yes, now I can maintain my quality system by checking my procedures three times a year at a minimum. And then if they say, well, you know, and I'm going to do daily, weekly, monthly quality checks in addition to the informal proficiency program. then why wouldn't I buy the microbics products? And that can be another seven-figure revenue stream for us as well. So again, building our reputational franchise and awareness of microbics within the labs where we're still a relative unknown.
spk01: And one last audience question. So on the last call, Mr. Groom commented on the CAPS 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?
spk00: I would say it is continued. We are having active collaborations with a number of the largest companies in the world in the diagnostics industry. Our ongoing work is in converting technical collaborations into revenue streams. And we have seen and do see, and I encourage anyone to pull down the or the three posters of results that I spoke of earlier, the ASM microbe 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 companies now, you know, similar to our kinetic partnership, when you're dealing with, you know, major global scale players, they don't, they don't, you know, there would be a news release, there would be 10 news releases a day with them if they let every one of the collaborators necessarily publish who they're working with. We have to be respectful that we're still a relatively small company, but we're working with giants now. I think that will ultimately accrue some very substantial benefits to microbics and microbic 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 caps with extremely aggressive rate tightening cycle. has meant that a lot of this fundamental progress that we're making isn't reflected in share price and makes us all a little cranky about it. 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 any VE. without any bxtm in sales in that number and certainly i'd like to uh i hope we'll realize um a q4 with with similar or better revenue strength uh possibly before before even any analytic revenues so um you know without without giving any formal guidance we're certainly targeting to continue our growth and we see before too long that are certainly targeting our cap sales to start to exceed our antigen sales even while those have strongly recovered and there are you know are promising to continue to grow as well I had another audience question last earnings you thought it would be a photo finish whether cap revenue hit 10 million this year
spk01: How are you feeling about this now? It seems like continued delays will cause you to fall material below the plan.
spk00: 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, you know, seven figure sales numbers from those partners, they're not in multiples of that figure yet. We're still in the in the pre-launch stocking phase for onboard kits and beginnings of their inventory apps to support product launches. But those product launches have not happened yet. So that definitely delays us.
spk01: And can you comment on your average burden cost per employee? And if you see this remaining consistent or drifting upwards and at what pace?
spk00: I'm not sure. Could you repeat the question? I'm not sure I understood the phraseology there.
spk01: So they're looking for your average burden cost per employee.
spk03: I was looking at that question as well and wasn't quite sure what the question was referring to. Certainly, if you look at if they were referring to our manufacturing burdened costs, certainly we will have seen it go up slightly in the past year or two 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 than 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. some of the consulting costs relating to the ERP solution that are more one-time costs and are, so they're burdened right now, but in next year we would not see the same level of burden on the organizations. So my expectation is that over time we should see our average burden cost, if I understand it correctly, improve.
spk00: Yeah, and part of the efficiencies that we're driving are certainly to not be increasing the headcount in a linear fashion with revenues. We want to resist increasing headcount 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 and their best work. And I think we are doing that successfully. We are very much stronger in our processes and logistics and resources than 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, you know, and now the flip side of that, you know, labor costs we see particularly in the GTA, you know, 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.
spk02: Deliberately bringing these systems in place to increase efficiencies. There's some costs associated in the short term of actually doing that, because if you don't do anything, it doesn't cost anything. But if you actually do stuff, it costs something to do. So we will put the systems in place as we grow and realise those efficiencies going forward. And it's not that we're going to lay people off, but as we grow, Their efficiency will increase and everything else with that mistake frequency will go down because it's not paper. It's all automated and we move on from there. But that was a stated objective to get the systems in place to allow our growth. And that's what we've done. And there's a cost associated with that.
spk00: Yeah. And I think we've got three fabulous, fabulous people working up and down the line and we've 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.
spk01: And what are you most optimistic about looking forward to fiscal 2024?
spk00: Well, to me, our caps are undimmed in terms of the prospects there. It's annoying to have regulatory delays slow things down, but we are having wonderful interactions with different large company perspective customers in our caps business. I think that's excellent. Our antigen business and many elements is working at very high level. Through 2023, we've added capacity 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. 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 without And if the access to capital dries up, they're dead. That's not an approach we've taken. And we can participate very strongly in the economic upside of Kinlitic with somebody with much deeper pockets providing the funding for that project. So I think those are the three elements I'm very optimistic about. And, you know, I'm not pessimistic about the XTM or the prospect of redirecting that productive capacity. But I am realistic about timelines for getting that clicking over to the same extent the other three elements for our business.
spk01: 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?
spk00: Yes and yes. We have identified some opportunities that could be quite interesting and additive and synergistic with our business. We did not bring those into the fold previously. 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, you know, as our ERP system is going live and make sure that it's functioning without major bugs and we have the quality management system modules rolling out through the organization, we're much better equipped to successfully integrate an acquisition. And, you know, any investors have seen failed integrations of acquisitions will understand where I'm coming from here. You know, we need to make sure it's okay now, you know, maybe the acquisition has a paper-based quality management system that we can teach them to come into the digital world with us that our ERP system will successfully support their onboarding and we have management bandwidth to do all that so you know 2023 we chose not to 2024 we'll see what terms are but The, the, and another element is of course, um, you know, if our paper were more valuable, it would become more appealing for us to make acquisitions as well from a value exchange ratio. Um, you know, the fact that our currency is depressed, um, you know, makes it somewhat less appealing from a valuation point of view. So really systems integration held us back. Um, and let's, let's have our breakout core, see our equity a little bit stronger, and then we can evaluate, um, when it's beneficial to microbic 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.
spk01: 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?
spk00: No, I think we've gone through and covered off things fairly well. As I said, it's a solid order from a top line point of view, a lot of noise in terms of the costs and expenses to go through. But we're in a very strong week. We need to be in 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, the 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 this are things we're right in the thick of now, and it's a great place to be.
spk01: Great. 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 or if you'd like a one-on-one call, you can easily arrange that. And yeah, I hope everyone has a great day and a great week.
spk00: Thank you so much, Debra. Thank you, Jamie. Thank you, Ken. And everybody for joining.
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