Microbix Biosystems Inc
TSX:MBX
Microbix Biosystems Inc
TSX:MBX
Price:
0.335 CAD
-1.47%
Market Closed
Updated:
May 4, 2024
Section:
Earnings Call Analysis
Summary
Q1-2024
Q1-2024
Microbix Posts Record Quarter, Strong Outlook
Microbix reported a record-breaking fiscal Q1 with CAD 8.4 million in revenues, a notable increase driven by Kinlytic milestone payments of around USD 3 million. Product sales surged to $4.2 million, a 95% and 69% year-over-year jump in antigen and quality assessment product sales, respectively. Net earnings hit $2.5 million despite a one-time increase in G&A due to a USD 500,000 investment banking fee. Indicative of resilience and growth, the company projects a strong 2024 revenue record and anticipates continued revenue growth into 2025, even without Kinlytic contributions.
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Good morning, and thanks for joining us today. We've got an update from Microbix. They just reported their fiscal Q1 results this morning. So feel free to check those out if you haven't seen them yet. With me today, I've got Cameron Groome CEO; Jim Currie CFO; and Ken Hughes, COO. And they're going to do a little bit of a presentation then answer some questions for us. If you've got any questions, feel free to submit them at the box at the bottom or you can e-mail them to me. And as always, this presentation will contain forward-looking statements. So feel free to check those out on the presentation on the company's website, which was updated today. We might make a couple of changes and update again later this week, but all the financial numbers are in the new deck, if you want to check that out on Microbix website. And with that out of the way, I'd like to introduce the management team. Hi, gentlemen, Happy Valentine's Day.
Thank you. Hopefully showing shareholders a little love.
Yes. I think this is like the third or fourth Valentine's Day we've all spent together. That's pretty nice surprise. So yes, looking forward to hearing about the quarter.
Thank you so much, Deborah and good morning. Good morning, Jim and Ken as well. A pleasure to communicate the results for our Q1 of fiscal 2024, which is the quarter ended December 31, 2023. We have a September fiscal year-end. So this is our Q1 of fiscal '24. Very strong revenues, obviously, a record by far at CAD 8.4 million of revenues for the quarter that is notable based on the Kinlytic milestone payments that were recognized in the order of USD 3 million. But I think it's very important to point out in addition to that, that the product sales were up substantially for the quarter as well at $4.2 million versus $2.5 million in the prior year Q1. And that comprised a 95% year-over-year increase for the quarter in our sales of Antigens and a 69% increase year-over-year in our sales of quality assessment products, our test controls. So very strong overall revenues associated with partnering and/or organic product sales. And those numbers led to a very strong record sales number. They also led to a record bottom line number as well whereby we reported net earnings of $2.5 million for the quarter. And I'll call out certainly that within the quarter, we also absorbed in our G&A, 500,000 U.S. dollar investment banking fee, success fee to our agent Torreya partners, and with bank that helped with our Kinlytic partnering and this is the final last and final payment of advisory fees associated with the Kinlytic partnering transaction, but that did increase our G&A in order beyond what we're generating on or what we're required on an ongoing basis and should be recognized as a cost. That is IFRS handling of those matters. It is not taken into cost of goods sold associated milestone payment rather added into G&A. So if you pull that out, of course, our profit would have been higher. We similarly reported a very strong set of financial ratios. Our current ratio is back up over 8x, and our debt to equity was 0.35, which continues to come down as we continue to generate earnings and cash flow. Jim, what would you want to call out further in terms of the financial numbers for the quarter?
Well, I think you've covered most of the more significant ones. I think we're starting to see some good rebound from our Antigens business. So we went into the, let's call it, the doldrums during COVID with our Antigens business. And we're starting to see a bounce back in Q1, and we should continue to see that come through in Q2 as well. Our CAPS business had a strong quarter. Traditionally, if you look at our Q1, it's generally our weakest quarter historically. So it's unusual for it to be our strongest quarter at this point in time. But I think as you've outlined as well, we're also investing our operating expenses and our cost of goods for that matter, include our continued investment in people, in equipment, IT infrastructure to support the ongoing growth that we expect as we move forward.
Very good. Thank you, Jim. Ken, what would you want to bring forward?
Obviously, the think success is manifested in this quarter and continues and talk a little bit more later, the examples on Kinlytic and our relationship with Sequel and team is very strong. But also to Jim's point, we continue to invest in the infrastructure necessary to support growth. We have had a really strong Q1 from a historical perspective in the core business as well. We expect to go from there. The technical aspects that we've been implementing to, for instance, an example would be the Mycoplasma product, where we've adopted that from standard Kocher techniques into a bioreactor system, and therefore, throughput has increased as demand is increasing, which would be a key [indiscernible] we move through 2024 and beyond is illustrative of the success we're doing from an operational and scientific perspective.But also the eQMS and ERP transformation to support growth costs upfront, but the benefits down the line in terms of scalability and understanding of what we're doing and ultimately reducing cost of goods sold is clear, and we'll continue to invest in that. So we have very strong and the growth potential going forward is great.
Very good. Thank you, Ken. Thank you, Jim. I'll call out one other thing that I think is relevant. In Q1, we also reported a record in terms of our sales of QAPs, our test control products. Sales of QAPs for the quarter were $2.25 million. That's far and away, just thinking far and away a record of product sales in that category as well and reflective of some major orders coming out -- we have PT category, we announced a record of a single batch of shipments of $1 million of proficiency testing oriented products as well as a $1 million order from one of our major QAPs clients as well. So really, things moving forward there and what we don't provide formal guidance going forward. I was running through our quarter in progress, and I know we have close to 20 active QAP customers that are now ordering product from us in that order. So that business continues to grow. And as Ken and Jim were both indicating our Antigens business as doctors are seeing patients and patients are seeing doctors in a more regular basis. There's quite a bit of strong demand in our Antigen business as well with its reporting a good quarter. Always a bit of quarter-to-quarter volatility on the Antigen business just based on large order deliveries. But we see that smoothing out between Antigens and QAPs and a more regular order flow as our number of products and number of customers continues to grow. That should start to smooth quarter-to-quarter. But certainly, we're looking at a revenue record by far for our fiscal 2024. And we have modeled out, of course, looking at the Kinlytic project will not record revenues each quarter because it's a development project, but we see revenue growth in 2025, even beyond Kinlytic, whereby we won't record revenues for Kinlytic in fiscal 2025. But we do see year-over-year sales growth being quite strong regarding. So very positive outlook for our business. I don't think there's anything negative that I can call out in this particular quarter or in our 2024 outlook. So things really moving along much as we have targeted and continue to drive forward too. So with that, Deborah, are there any questions that you have specifically before we should break for our audience.
No, I'm good, but we already have a few audience questions if you want to jump into those.
Okay. Why don't we? I think that's a great use of everyone's time. And please, I see some familiar shareholders and friends that have logged on, so thank everybody for spending your morning with us. Happy Valentine's Day, and let's have at it.
So what is the value of the QAPs sales delayed in Q4 '23 due to the timing of shipment to customers that's now included in this quarter?
I don't know that we had a lot of QAPs sales delayed in the quarter. We did have some Antigen sales that might have slipped out of Q1. But by large, I think we're on pace with our QAPs deliveries. Antigens can be a little more tricky because it's a multi-month production cycle and often you have multiple batches being pooled have to be validated and released. So if there's been any slippage from one quarter to the other, it would be on Antigens, not QAPs.
I had another QAPs question. How much of the QAPS revenue were actually due to stocking orders from Quidel?
With Quidel, there are several layers to that. There is the there's development work that we have conducted for them and are conducting for them and other customers I should add. There are then once -- so there's research and development associated revenues where we're optimizing product formulation really keying-in the true sense of the word, the levels on a multiplex control. Once that keying-in is completed to the customer satisfaction than for a commercial product for the full IVD FDA-approved product. There then have to be 3 validation lots and commercial scale that are produced. And then there are orders for stocking on an ongoing basis thereafter. So there's a layering effect that goes on. With respect to that specific customer, I believe they know they have announced publicly that they are working on 8 multiplex assays in association with their instrument. We certainly are aware of those and pleased to be associated across the full portfolio of assays. There are multiple other customers, of course, that we're supporting, some of whom were announced, companies like SpeedDX, BioGX, and Ulisse BioMed and others, where we're supporting them on different new and existing assays. So we do see quite a bit of activity. And our activity is involved in both the point-of-care testing categories where we're looking often in kit controls where our swap-based QAPs are included in kits that test cartridges, but we're also supporting company's onboarding new customers of their point-of-care instruments or lab-based instrumentation through our onboard kits for validation, verification and training. And we're also supporting, of course, lab-based assays such as our announced support for cervical cancer screening programs based on molecular tests for HPV, such as we've announced for the Netherlands in support of the Becton Dickinson core system and such as we have announced for the Republic of Ireland based on the Roche Cobas system in its assays. So quite a bit of work going on lab-based and point of care and proud to be affiliated with a whole bunch of such great companies and sites.
I think that was pretty much answered the second part of that question, which was an update on QAPs contracting. Is there anything else you can add?
Very, very active lots of discussions ongoing and development work ongoing. Our team is extremely busy up and down the line from sales and business development, customer service through our product management through product development, R&D, manufacturing, QC, QA, finance. I don't think there's a department that isn't we're looking at a helpline.
We continue to develop our product pipeline. We have seen the announcement of H. Pylori QAPs portfolio. But we're continuing to work diligently in the laboratory to maintain what is in fact global leadership position in this particular area, a lot of product expertise and a growing portfolio of products to support in a particular area, which we obviously see that be something we're going to see a lot of growth in the next little while.
I think that's a great point. We really see just the breadth of our product development efforts. Coming out of COVID, everybody had respiratory viruses on the mind and thinking perhaps that our focus was limited to that area. We've certainly demonstrated that we're involved in viruses related to oncology through HPV involved with sexually transmitted infection testing, antimicrobial resistance profiling and lately as well with -- not lately, but disclosed recently H.Pylori, which is the bacteria implicated in as the cause of stomach ulcers and very challenging to create controls to validate molecular testing for HPV and other microbial first.
If you look at the Antigen portfolio, we've been putting out for many years, there's no particular focus on respiratory viruses there either. We have a diverse expertise here and a leadership expertise we're applying it to the QAPs as well. We'll continue to do that going forward.
Do you expect any other large cap orders from Quidel going forward? Do you see similarly strong organic sales?
Yes. To be brief, there is an ongoing order flow, including in the current quarter that is certainly material. We made the announcement of the first million set of orders for QAPs and the first $1 million set of orders from QAPs from a point-of-care customer. And we also made the announcement of the first $1 million set of deliveries for a proficiency testing customer. Both of those categories continue to grow. We won't be announcing order flow on a regular basis other than if they hit material new milestones. So those were, I think, some foreshadowing of the growth that we're seeing and just clarifying that providing proper ongoing disclosure of the progress of our business.
Staying on the QAPs theme. Is Microbix supplying QAPs for British Columbia as part of their announced transition to HPV screening and at-home testing?
We've certainly reached out the British Columbia. We haven't seen what they're doing in terms of control for their system and the ongoing quality assurance. We're certainly connecting with British Columbia on those matters, but I'd have to check with our sales and business development team as to the precise engagement on that. But certainly, it did not escape our notice. And we will be endeavoring to make sure that, frankly, that every province has a robust quality management system in place. This is incredibly critical for the effective use of molecular testing for HPV screening. As the interval moves to 5 years between tests, PCR is very accurate if it's run well. But we do not and cannot permit the health system to let people slip through with a false negative test result and go 5 years with potentially an infection progressing towards cancer that would be devastating. So this needs to be very much top of mind. Anybody in the region, if you've got contacts, don't be shy about feeding them over to us and we'll pull those threads very firmly to make sure that each province responsibly rolls out molecular testing as they do. And that really applies for any uses of PCR. It's got to be validated on a regular basis or systemic errors can and will and do slip in.
Can you provide more details on the extraordinary expenses in G&A this quarter? In other words, what is the cash G&A run rate to expect going forward, excluding onetime expenses, share-based comp and depreciation amortization?
Well, I'm going to ask Jim to go through line by line. I'd say Jim, just off the top of your head, please.
Not broadened. Well, I think at least in the quarter, you outlined the fact that we've got incremental costs associated with the support we got from Torreya for the Kinlytic transaction. So that was about I think it's 660-- It was USD 500,000, over C$ 607000 was reflected in our G&A operating expenses. Also embedded in our G&A was an additional $75,000 of amortization relating to the reversal of the impairment of our intangible asset for Kinlytic. So that will be reflected. That $75,000 a quarter will be reflected going forward, but the $660 million was a onetime transaction. That's the most significant. Certainly, if you go quarter-over-quarter, we've also got some incremental costs associated with our implementation of our ERP and eQMS system. So those 2 will be predominantly ongoing. We have gone through the majority of our implementation and consultative support. So it's more the subscription-based costs associated with those 2 systems that we'll be incurring as we move forward.
So the big items in G&A certainly the investment banking fee USD 0.5 million that was recorded in Q1 is an expense within G&A. And then as Jim mentioned, we are writing off amortizing the write-up of Kinlytic over a 10-year period, which is reflective of increase in our quarterly depreciation amortization.
Can you talk a bit about the buildup in working capital and drivers for that?
Certainly, our consumption of working capital is tied to the growth in sales. Obviously, we'll have a greater level of activity as we continue to build the business. Our accounts receivable and inventory will increase as we continue to grow sales, but I don't see an outsized level of consumption of working capital into those items. Our Antigen business has a longer cycle time for production and is hungrier for inventory numbers in that respect. The QAPs business has a quicker production cycle, and there's a little less hungry as I would call it, for working capital consumption. But Jim, I didn't mentally remark a big jump in working capital consumption in this quarter. What would be your comments on that?
The only item of significance that was unusual in the quarter was we had USD 1 million in deferred revenue that was since we received the initial payment for the upfront for Kinlytic back in May. It was pulled out of deferred revenue and moved into revenue. So that was a better part of $1.5 billion that occurred in Q1.
Will the IT onetime expense or G&A expenses adjusted for onetime expenses continue to be high going forward?
Well, I think the one time, the majority of what I would call onetime expenses, I think as I explained in my previous comments on G&A, we have predominantly gone and we're now into more of the ongoing operating expenses associated with the subscription-based services that we've got for both NetSuite and our master control and our QA side.
There will be some savings down the line. There is the reclaiment when you're moving from a pit-based system to a fully integrated digital system, a transition period and a learning period and implementation period where both systems have to exist in parallel because we have to get product out the door. And so those exist in parallel right now and the transition it's more profound from to digital with time. So as we actually implement all of those systems and people get fully trained and familiar with the efficiencies will go and -- we're not going to lose anybody. But as we grow, we don't have to add more capacity and therefore, the actual cost of the individual items will go down. So those savings are going to be realized as we move forward. And at the same time, it will give us the capacity to sustain our growth without blowing up, which we would if we continued with a PFS system. So there's a little bit of that plans going on right now, but as we move forward, that's going to change to the benefits of development.
This is all about reducing drudgery and decreasing error rates.Jim, you were going to say something?
No, no, I was just going to say that's a good point. I think we're not yet seeing the, call it, savings or avoiding incremental costs that we would see as we move forward with the efficiencies and effectiveness of the stat based upon their utilization of the tools.
This is an investment for the box side we're going to realize as we continue our growth.
Can you provide an update on the NCIB?
The NCIB restarted on December 8. As we announced on December 6 there was a gap of a couple of months there between the end of the previous NCIB and the restart of this NCIB. We did switch investment dealers. There was an issue with the prior dealer did not like crossing blocks unless they had both sides of the trade. This investment dealer does not share that issue. So we have successfully transacted a block trade on the new NCIB. The delay probably exacerbated a bit of the downside move on the stock during the fall, but actually the delay ended up working out to our advantage because the added volume it was with trading volume that was recorded associated with the reconfirmation of our Kinlytic project funding in November, was able to be calculated into the permitted daily buyback numbers for the NCIB when renewed. So we're actually able to buy a little over 12,000 shares a day on a normal basis, plus 1 block trade per week, and we have been quite active. Jim, you'd have a better handle on the number we bought back on the NCIB to date, but I'm thinking we're somewhere between 400,000 and 500,000 shares, will that be in the ballpark?
Yes. We had 140-some-odd thousand in Q1, and we had over 400,000 in January. So when I say Q1, it was actually, as you said, between December 8 and 31. But so we're closer to 600,000 shares that we've repurchased so far.
So we certainly intend to be active with the NCIB. Last year, we were able to buy back about 2% even as limited under the conduct of the prior dealer, no complaints about other than those foibles, but we certainly look to buy back as the NCIB says up 5% as permitted under the rules and continue to be active. And the great thing about that is certainly more than offsetting the ongoing use of the stock option plan, which is entails 2% potential options issued each year that, of course, have the best over 3 years staff have to stay on for a full 3 years more before those options awarded in any year vest and those options have a 5-year life. So there is an evergreen element to the plan. But with the NCIB, we're seeing a net decrease in shares outstanding, not a net increase insurance outstanding. I'll also mention there are 5.75 million warrants that expire in May with an $0.80 strike price, and those will fall off the fully diluted cap table unless our shares appreciate significantly between now and the end of May. So we'll do our best on that front. But I think unless market tone improves dramatically, we may see those fall away from the cap table.
On the same theme, I think that there's some management options expiring soon. Do you want to give us a little bit of an update on that?
Certainly, there were -- in 2019 on the use of the stock option plan, and this was I think, the first year that it was used as redesigned. There were 1.92 million options issued with a $0.23 strike price, and those expire at the end of the day on February 22. As it stands currently, the majority of those have been exercised. And of course, Canada revenue agency demands, it's pound of flash upfront. So there is always not only in our executives and managers and directors called to put up funds to exercise those stock options. They are immediately called to put up the funds for any taxable gain associated with those CRA immediately demands payment on those. So you always have executives needing to sell some of those shares in order to pay at a minimum, the cash taxes and some portion of the exercise price. And I think we've seen a lot of those go through. I will personally be selling some shares over the next few weeks to partially fund my exercise, so full disclosure there. But all of us have increased our net positions and continue to increase our net positions and our net investment in the company, and I think that's incredibly important for shareholders to know that senior management has skin in the game that we have downside risk if we don't deliver not just the upside risk on options. So I haven't calculated since I started as CEO. I bought in excess of 3 million shares, using cash money that nobody has required me to buy. So whether I've got more after-tax dollars in then I pulled out, I don't know, but it's probably pretty close to a wash.
I have also exercised some options recently. It's not quite on the scale of the millions Cameron was talking about but still I've sold not one. I didn't enjoy paying taxes let me tell you.
One more question on the cap table. Any thought to doing a stock consolidation to get you out of the penny stock category?
It's been brought up in a few things. There's always pros and cons associated with share consolidations companies. And certainly, in my experience, tend to trade down towards the prior share price, not up. And usually for every person that says it's a great idea, there's somebody bimetal posed. Probably the only argument I've seen Pro within the context of a TSX listing is to consolidate to the point where the shares become marginable and that can be an advantage to some investors. So we continue to watch that, but we've not taken any steps to act upon. But certainly, if we had an overwhelming majority of shareholders suggesting we do it, we take it to the Board. But so to date, opinion seems fairly evenly divided between whether that's a good idea or not.
Have you thought much about potentially uplisting on NASDAQ? There's been some incredible returns in the U.S. biotech space over the past year and seems to be money flowing into that sector. Is that something that you're considering?
Not at the present time. The costs of maintaining a NASDAQ listing are quite considerable. There is the exemption, I forget for how many years it runs for companies with, I think, under a $750 million market cap from full Sarbanes-Oxley compliance. But you still have NASDAQ fees. You still have U.S. Legal counsel fees and then immediately whenever a company misses a quarter, there's a whole bunch of ambulance chasers lining up to sue the company in the U.S. So I think at the present time, there's more downside than upside for us in that. But we do plan to do some marketing to investors in the United States over the course of 2024. Deborah, if you've got anyone in mind, we could do some of that work with, let me know.
Yes, absolutely. Moving on to Kinlytic, I have quite a few Kinlytic questions. I think about of 14 them. So bear with me, I'll try and make that as logically as possible. So the first question, does your hope for record full year revenue include the Kinlytic licensing revenue received in Q1? I think what they're asking is, is it going to be a record year removing that Kinlytic revenue?
While we miss our budget, it will be a record even without Kinlytic revenue.
Are there any Kinlytic related consulting revenues associated with helping Sequel get to commercialization?
Yes, there will be. Our agreement with Sequel includes to avoid what's called the multi-deliverable liability includes full recovery of our costs for any support that we provide. I don't know at this point, I haven't gone over with Jim as to whether we book that as revenue or an offset to expenses. But effectively, what support we provide will be fully reimbursed by Sequel.
And timing of the rest of the $30 million from Sequel?
We will see some milestone payment on sBLA reapproval by FDA, and then we will see sales-driven milestones of up to $30 million, and we will see ongoing royalty payments on top of those sales milestones once the product is back into the market. Our principal objective with the Kinlytic agreement was a partner that is capable of assisting us with the post-approval marketing and with the regulatory filings and ongoing monitoring and post-approval matters is capable of certainly helping us manage the different contractors and do that work in advance of it and not to have it bleeding out capital from microbics in the pre-commercial period. We've set fulfilled all those objectives. And I think Ken, who is the lead on the day-to-day relationship with Sequel and its financial partners can comment on the nature of that relationship and how that's proceeding. Ken, do you want to comment on that?
It's an excellent relationship to address the of costs going out. We are covered on an hourly basis to support the growth, and we maintain the necessary time sheets and activity is going to going forward. The Sequel group are extremely sophisticated in business and commercialization and in the technical aspects. And so we've formed a very strong team to drive this forward, and it's moving forward in a piece. We're executing as we said we would. The time line that acumen alluded to is in place and the technical business acumen is there. So we expect to be extremely successful and forgotten execute for the next couple of years and then realize the revenue.
And what is the status of Kinlytic primary CMO review?
This refers to -- just so we're describing or explaining the acronyms of CMO or CDMO refers to contract manufacturing organization or contract development and manufacturing organization. With the Kinlytic project, there are different contract organizations will work with the first of which I believe this question first to is for the production of new drug substance or the active ingredient, the active Kinlytic urokinase, low molecular urokinase enzyme. That is a first critical milestone of the project, and it is advancing quite satisfactorily.
We have multiple well-qualified CDM over who presented outstanding proposals to us. And we're very comfortable that they'll do everything, including site transfer implementation, updating our processes to contemporary standards and then preparing GMP materials for clinical trials. That is the heaviest lift in the project and we've had a number of, as I say, excellent proposals. We're in the process of going through the contracting with one leader right now. It's going very, very well, and we're setting up the physical tech transfer materials as we hit the ground running, but there's already a lot of technical discussions underway. We're very well set up and very well supported by Sequel in this regard.
Can you comment on any efforts to either expand the approved indications for Kinlytic and any further geographic approvals? Will this effort happen concurrently with current build-out?
Kinlytic of course, has current approvals in the United States for the catheter clearance indication, which is virtually an ex vivo use. The drug is instilled into the catheter lumen to dissolve a blood clot that can then be sucked out of the catheter safely. The second indication for which it has approval is the treatment, the systemic usage where the drug is infused into a patient's circulatory system to with the objective of dissolving the clots in pulmonary embolism indication. That is the second indication for which it is approved. It has approvals for those same 2 indications in Canada as well. Although we have not been engaged with Canadian regulators, and this is much more U.S.-centric because of the larger market size. So the question relates to what about the other indication, pulmonary embolism and what about other markets. So we are certainly discussing both. With respect to other markets, we have been in touch with the European Medicines Agency due to issues with availability of the incumbent product and just the need for security and health of patients for there to be other options available. We are also looking at how manufacture drug product can be optimized going forward to better support the more drug substance hungry or API hungry pulmonary embolism indication. And that would be using some of the very same expertises we use in our cell comparison culture a viral antigen business for cell culturing and employing that expertise to refine and further modernize and optimize Kinlytic production methods. Ken, I probably don't want to go too far down the technical rabbit, but is there anything you want to add to that?
No, that's fine. We're stating this appropriately. We have an approved indication for classic clearance, which we're addressing right now in the U.S. It's important to that I understand as well with the interactions in Europe that they reached out to us say, "We hear you're doing urokinase don't forget about us as you move forward." So it's a regulatory pull and there are shortages of this product in this space that exist right now. And so people are motivated to accept the product that we're making. In terms of the technical aspects, absolutely, we'll deal with the North American market for catheters. We'll deal with the world market for catheters and in parallel, look to increase scale to satisfy the systemic clock starting, which is exemplified by pulmonary embolism, but there's also deepen thrombosis peripheral, arterial occlusive disease, stroke, heart attack, there's all manner of indications down the line that we can get into and we have every intention to do that. And as we see in the world where cardiovascular issues are getting more profound, post-COVID and with an aging and I can see there's less physically fit population. There's a huge pull there, and we're going to service all of those markets in due course.
Can you describe the likelihood of success versus failure regarding the Kinlytic re-launch?
Well, we don't typically drive forward towards failure to us and certainly to our partner who will be investing on the order of $50 million before revenues start to flow. We all believe that the risks associated with this project are quite small. It is already an approved drug. There are no visible technical or logistics hurdles that we can see. And the revalidations are all to us quite clear. So we believe the risk to be very manageable. It's really a risk of execution that we watch carefully and manage carefully on the contractors doing the actual physical and intellectual work. Ken, is that a fair assessment in your view?
That's a fair assessment from a technical perspective. We know how to make urokinase. We've done it before. We know how to upgrade the system and so do our CDMO counterparts and so does Sequel. I guess the biggest real to illustrate the derisking or the lack of risk associated with what is effectively a biopharmaceutical program is that urokinase has been approved for decades. Clinical trial is straightforward. There is absolutely no chance of clinical failure in this project. And with a new chemical entity or a new biologic, the drugs which end the Phase I clinical trials, less than 10% exit Phase III successfully. So you can see a risk there. We do not have that risk. There is no chance of clinical failure and we have a deep understanding of how to manufacture this product. We're simply installing a new site and bringing the systems up with contemporary standards and then if we have to a comparative clinical trial, which is very, very straightforward to do. And as I will say it again, there is no chance of clinical failure.
To be clear, the trial is looking, does the drug dissolve blood clots. And this is a trial versus placebo, whereby patients would see saline instilled in a catheter versus kinlytic and is Kinlytic dissolving blood clots the way it is expected to and should.
The 90-minute endpoint associated with that, you follow the patients for a month to make sure they're under adverse events, again, decades of experience with no adverse events. But even if we have to do this study at all and then we move on forward from there, millions of catheters placed every year. We need 300 patients, the time lines associated with clinical trial and the costs are very, very small. And again, not a chance it's going to fail.
So bringing forward our product into a market that's on the order of $500 million a year in sales is and in capturing a significant proportion of that unit volume is what we're looking to do, and we believe we're on a very broad and firm track to doing so.
A couple more Kinlytic questions if we can move on. When do you expect Kinlytic royalties to begin? And can you outline how you expect it to ramp up after it's approved? Is the guidance still USD 15 million to USD 25 million eventually?
Sorry, can you repeat that?
When do you expect Kinlytic royalties to begin? And can you outline how you expect it to ramp up after it's approved? And is the guidance still USD 15 million to USD 25 million.
Just breaking into the 3 parts. So in terms of when, I believe we would remain unchanged to look at around a 3-year time frame for that. So we would be looking at calendar 2027 for the drug to reenter the market. I think that's a reasonable time line for the project. Not a quarter away, but incredibly fast for real drug commercialization. In terms of the ramp, we believe that there will be a relatively rapid adoption of the product when it is launched. As we will be planning quite effective advantages versus the incumbent product. And in terms of guidance, I think we would remain unchanged in that USD 15 million, USD 25 million royalty range expectation. And that may not be achieved in year 1 of commercialization, but certainly should be in the ballpark for year 2 or 3 post launch.
I thought I was done but I've got some follow-up questions for you, Ken. So a follow-up on CMO question. Will CMO selection be accompanied by a press release?
Yes. Our disclosure policy on Kinlytic going forward, our partners are private company funded by private equity. They are consequently very private people. If they have their full druthers, nothing at all will be said further about Kinlytic until such time as the supplement to the biologics licensing application is reapproved or is approved by FDA. We, as a public company, don't have that luxury. So we will make disclosures on an ongoing basis as material project milestones are achieved. And those will be in addition to the continuous disclosure in our MD&A and regular filings. So expectation wise, we've mapped that out. We've discussed it with Sequel. We're likely looking at 2 to 3 news releases a year on Kinlytic. We're not going to disclose every time somebody goes to the washer but in terms of major project milestones, we will disclose, and that will include the final science field and delivered contracting of drug substance CDMO.
And when do you expect regulatory clarity with respect to the need for clinical trials?
I think until and unless, otherwise, we determine otherwise, it should be assumed there will be some clinical work associated with the project. And if that changes, we'll certainly advice.
That includes the clinical trial I talked about earlier. There is clarity in the regulatory process; the FDA guidance that we received last year was ambiguous. We will present the preclinical comparability analysis to FDA and then discuss whether or not we even need to bother do in a clinical trial because the analytics will be so strong. If it is, it will be a very short process, as I said, with no chance of clinical failure and we'll be basically capping off of the comparability exercise with the previous Kinlytic product before we upgraded the systems. And the time line we're talking about now includes that clinical trial.
Moving on let's go with VTM, we haven't talked about VTM for a while, but 2 questions. So is full automation of flexible VTM SCD line complete, can you provide any updates on SCD discussions with existing customers and VTM with Ontario or others?
Not sure what SCD is. Let me just see if I can read the question directly here. The full automation of that is not complete. We have had just tortures with our manufacturer doing the engineering, design and construction of the filling line. We have now done off-site testing and the filling line, and we're quite satisfied with the robustness of the instrument, where we are still working through is to make sure that we have accurate CAD/CAM schematics for every single part within the machine so that as it goes into regular usage, we can have parts readily replacement, parts readily machined. We do see site delivery and site acceptance over the next weeks not -- certainly, over the next 6 to 8 weeks, I would say, in terms of actually having the equipment on delivered into our site and that timing should be quite good for us. We have been enormously frustrated by the seeming capriciousness of some of the procurement processes in the government sense. We continue to work in establishing paths forward for government procurement, but frankly, we'll deploy the instrument in use for private industry and some of our private industry customers have expressed material and emerging interest in our doing reagent manufacture for them. So it will be very odd and unfortunate if the original objective of the instrument providing a secure supply of highest-quality viral transport medium from a domestic source for Ontario and for Canada is not its ultimate destiny, but we will not have idle capacity standing by.
In the interim, it's important to know that we still have semi-automated processes in place fully validated that we use to provide over 2 million units of viral transport begin to Ontario back in the day. So also perhaps interesting to note that we are receiving now orders from private companies for product, which is in the similar space to the DxTM and using those capabilities to satisfy them while we get the fully automated system. And we'll be building that business line going forward.
And why are Antigen sales typically slower in fiscal Q1 compared to the rest of the year? Are customers not spending remaining budgets end of year or getting ahead of any price increases?
It often just comes out to when customers want to receive product, and we're building towards those orders and delivery dates. Jim, are there any specific reasons to jump to your mind on that?
Yes. We do have one of our larger customers that doesn't tend to buy much in our first quarter, which by coincidence happens to be their fourth quarter. So I think they're probably concerned about buildup of inventory. So that tends to be one reason why we might see it. It doesn't impact their annual spend, but it does tend to push more of it into Q2 through Q4. That's just one example.
As the question poses it could be somebody not wanting to carry too much inventory over fiscal year-end. But it doesn't affect things on an annual basis, but it does add to that quarterly shift.
Can you discuss the financial model going forward? I would like to get an appreciation for operating leverage as caps and antigen sales ramp up.
There should be very good operating leverage as we ramp up. Our margin projections for products are depending on mix. We're certainly looking to keep gross margins above the 50% mark and guide them towards 60% to the extent we can. There's always quarter-to-quarter volatility, and we have been slapped once or twice with some strings of batch failures in Antigens such as we saw in '23, that pulled down margins below target for some of the year. But if we look and add $2 million in revenues, for example, half that should immediately drop toward an EBITDA line. So we won't see a direct increase in G&A costs, for example, or selling costs associated with revenue growth. So we do see some good leverage coming forward on that.Jim, what would you want to comment on?
Well, I think you've covered off most areas. Clearly, we want to continue to focus on our core businesses as we have been doing historically. But certainly, we're starting to see the comps business continue to grow, and it's one of our key areas of growth. The Antigen business, it's not going to grow by 50% each year. But we should see some growth as the market expands and we also hopefully add on some new clients in the Antigen business. And the expansion in Asia/China is significant for us through our distributor in Asia.
Based on the work we're doing in the manufacturing development group as well, we expect the cost of an individual unit that were down as we continue with efficiencies. I would offer the transition of Mycoplasma from standard culture to bioreactors as exemplifier of that, and we have a mandate to continue doing that. So in the Antigen business, we will see geographical other growth, but we'll also see bigger margins because of increasing efficiencies.
Our breakeven certainly has increased, and that's by necessity and by design, not by accident. Our business is immeasurably stronger than it was a few years ago and continues to get stronger year-by-year. To win business from major international customers who are looking at us as a critical sole source supplier, you do not win that business if you do not have state-of-the-art systems, the quality systems and control systems and processes and best-in-class pricing. So all of these are what we're driving forward to successfully not just maintain the business but grow the business and provide that operating leverage.
And what's the outlook for cash taxes given we seem well on the way to consistent profitability?
Jim, what would our remaining loss shields look like?
They're in the area of about $12 million. So we're a ways away from paying cash taxes. I'd love to work our way through them really quickly. But being reasonable, I think we're a few years out.
I was going to say that's a high champagne kind of problem there.
Got a page [indiscernible] some point. Four years ago, Microbix was $0.40 and today, it is again, how have the financials change from then to now, i.e., where were annual sales 4 years ago versus today? Cameron I'll do you favor and pull up that slide we put together yesterday while you answer?
Our revenues 4 years ago versus 2023, we're about $13 million. So we're looking to hopefully be double that. And we continue to believe our stock is significantly underpriced. And that's why we're buying back.
Just on this, on revenues, you can see, well, if we look at the history of revenues, we've certainly been making efforts to grow our revenues substantially. We'll be well through north of -- we might have to reset the Y axis on the revenue graph for 2024 with any luck. So we are continuing to grow sales substantially and overall revenues. Our dollars of gross margin is increasing, and we're certainly making efforts to increase the percentage gross margins as well. You can see, likewise, we've moved to consistently positive EBITDA for the business, and we have also greatly improved the liquidity and the current ratio and the debt-to-equity ratio over the period as well. So by all financial measures, I think we're executing to the best of our ability, and I think we're executing well.
Do we expect updated analyst coverage reports in the near future?
I hope so. I have had some exchanges with David Martin, Bloom Burton's very capable analyst over the course of this morning. So I'm hopeful we'll see some comments out of Bloom Burton's on about the quarter and about our outlook. And the analysts whom we occasionally commissioned to independently comment, Bruce Krugel, KRC Insights and it's intended that we'll have some comments from him as well about Q1. So we should have at least 2 comments. One, entirely independent, one independent view but commissioned by the company. And I believe there are some other analysts listening in on the call and certainly to the extent that they see business reasons to initiate coverage on Microbix, we certainly welcome additional attention.
That's it. We got through all the questions. Was there anything that we didn't discuss today that you wanted to cover?
I think we're very much in leading-edge areas now, enabling use of better use and well controlled and well monitored use of exquisitely sensitive PCR tests in the clinical laboratory setting. We're enabling the rollout of that same technology to point of care to be closer to the patient and be able to provide better health care to patient groups that are now underserved by centralized medicine. We're also really on the cutting edge of multiplex testing antimicrobial resistance work. All of these issues, what's called the syndromic testing is the other work for multiplex testing. So all of these are trends in medicine that are not going away that we're helping turn into a reality by really getting into the nuts and bolts of this stuff to make sure that it works properly. And that's why we're acquiring more and more customers and being called to develop a wider range of products and thereby build our sales. So certainly, the outlook for Microbix is extremely positive in the diagnostics side of our business, and it is extremely positive in therapeutics side of our business as well, and we remain committed to a profitable growth model.
Well, thank you all for your time today. Thanks to everyone who participated. If anyone would like or on one call or have any additional questions, feel free to reach out. I can get that. They're set up for you or answered for you. And yes, I just appreciate everyone taking the time. Cameron, Jim and Ken, congrats on a great quarter. It's rare to see somebody put up 50% of the previous year's revenue numbers in 1 quarter. So you're well on your way to a good fiscal 2024, so congrats.
Thank you very much everyone. Really appreciate your support, Jim, Ken and all of you shareholders, thank you so much for your time and for entrusting us with a portion of your capital. We do take it seriously. Thank you all. And Happy Valentine's Day.