Microbix Presents at MicroCap Leadership Summit 2021

[Music] okay our first presenter today is microbics and you know microbes biosystems was founded more than 30 years ago to provide viral antigens to the global diagnostics industry in 2017 after many years of kind of low growth and the board appointed cameron groom the ceo of the company and groom leveraged microbic's expertise in its highly regulated industry to develop two new higher margin product lines in just a few years microbics has transformed from a low growth money losing company to a fast growing highly profitable and more diversified corporation we're honored to have cameron groom ceo of microbics with us today you know as a reminder once again if you have questions during this presentation click the q a button at the bottom of the screen we'll get to them after his presentation cameron thanks for being here the floor is yours well thank you very much ian that's that's a great intro and and really sets up for um what we're doing at microbics we've been as as you've said involved in the field of infectious diseases for over 30 years now starting with the company being founded by a virologist whose father was a country doctor working with public health laboratories across the province of ontario and he started the business making growth media for those labs to culture up different bacterial strains and and viruses circulating in the community and as they found he was very good at making the growth media some of them said hey why can you do some of the culturing for us and the company began in the business of growing up bacterial and viral cultures and then that in turn flagged different diagnostics companies who require highly purified and inactivated bacteria and viruses to manufacture certain kinds of tests to approach the company as an ingredients a test ingredients manufacturer and that's where the company stayed with the different departures and adventures for a number of years and ultimately what we've been doing in the past few years is exactly what you've described transforming the company from just being a maker of ingredients where our name would never appear on the label of a leading company's test to making products ourselves that are branded innovative and proprietary and in fact are medical devices and we'll talk about what those devices are their relevance to the industry and where they're um providing a lot of value added and supporting the you know the the growth rates um you know 80 percent uh plus revenue growth that we're experiencing this year and will sustain going forward so i'm going to pull up our our presentation deck with with that intro and i will uh share slides on uh on that basis so very much as i mentioned microbics is specialized in the field of infectious diseases and you know prior to the covet pandemic you know i would have peers ask me you know cameron why are you involved in infectious diseases why aren't you doing something you know sexy like orphan drugs or you know oncology and my response was always we live in a biological world and these organisms whether it's emerging viruses such as covet whether it's antibiotic and antimicrobial resistance that's emerging or even resistance to to antivirals and antifungals this remains a very important part of public health and we're honored to be involved in it certainly supporting public health response to the pandemic but equally in working much more broadly now you can tell we have very good lawyers or very bad ones because we have a very short safe harbor statement but i'll just reference it and it does cover the essentials um so where we are today we work we're based out of ontario canada not too far from the pearson international airport which is a wonderful global transshipment point it's one of the best transportation hubs in north america and we ship to many customers in north america europe uh asia and in fact in other markets uh increasingly as well and the three product categories that are all revenue generating that i'll focus on today are quality assessment products these are more commonly referred to as controls but that's a particular regulated subset of category and what these do is help to ensure the accuracy of tests and certainly with covid we've heard a lot more about the very negative consequences that happen if you have false negative results in other words if you miss actual covet cases or false positive results if you call somebody as having a disease they don't have you know banning them from the workforce community lockdowns and so forth and we're all about preventing those errors and helping the diagnostic oem manufacturers and the clinical labs and the lab accreditation agencies which all define in helping that and this is a big and important growth area for us that we're selling directly and via a network of distributors that we build we're also leveraging our expertise i mentioned that the company began in manufacturing growth media and we've continued to make tens of thousands of liters of very complex media for cell culturing to support our virology business every year bacterial culture media as well so we had very good expertise to start making the viral transport medium this is the vials of stuff that you see the nasopharyngeal swab snapped off and put into and that's to stabilize the sample so it can be tested not in minutes or hours but in hours or days at the clinical labs this quality media with a secure supply has been has been a shortage everywhere and we uh approached our province and said you know we believe you're going to have issues would you like us to help they said hell yes even provided us a grant of 1.45 million to move forward with that program and we received a first material order of 4.25 million in april that we're now concluding the shipment of that first order and we'll be seeing we believe subsequent orders and then of course there's our supplying antigens for test manufacture prior to covet again you know very few people knew what an antigen was relatively speaking but these are the proteins that your bo your body can recognize via antibodies and there are certain tests where you're looking for what is the titer of antibodies or the level of antibodies in someone's blood to define whether they've been exposed whether they have immunity and those are very essential tests and we support more than 100 companies globally with infectious disease test manufacture by providing our antigens so with the combination of these three areas we are very much demonstrating and continue to be primed for strong sales growth we're seeing a very uh much increased pace of product development where these are branded proprietary and innovative products we're seeing and demonstrating expansion of gross margins we've increased them by 20 of the last couple of years where we've moved as ian referenced from a loss to different material losses to material profits and we're driving share price appreciation although we're still dramatically undervalued compared to peers so these are the things that i'll i'll speak to in the remaining time and go through slides management team you can look at bios that won't dwell on them mine consists of an embarrassingly long number of years working in life sciences in starting as a sell-side equity research analyst where i did that successfully for a decade followed by six years as a managing director the major canadian bank-owned investment dealer and then moving into life sciences operations starting in a vice presidential role and then moving into ceo roles we've got a great team working with me i won't dwell on all their bios but to say that there are levels beneath this initial slide that are just as talented wonderful executives we have a remarkable bench strength for a company of our size which is about a hundred employees currently we also have a great board of directors that takes governance very seriously our independent chairman is martin marino who comes out of merck generics group and apotex um peter bletcher prolific entrepreneur and and medical doctors specialized in the pain control and emergency medicine mark cochran recently retired as executive director of johns hopkins which is certainly well known to all of us von embro-panelloni audit committee chair who has great experience in in life sciences with bayer nova farm is my predecessor as ceo anthony jovinat so some of you may know from his very successful exit of 840 odd million dollars on a neurological company that successfully developed and fda registered at parkinson's therapy and joe renner who is uh co-founder and chairman of zytus pharmaceuticals which is a very successful generics company about number four i believe in terms of prescriptions filled in the united states so again serious people running a serious company in terms of our cap table we have a market cap that's been bouncing between 70 and 80 million canadian enterprise value is approximately the same and we do have due to the long history of the company we do have a substantial number of warrants outstanding from prior financings a number of which will be expiring in october so now may not be a bad entry point uh for the shares um good i should just mention reasonable liquidity too we're working um we are listed on toronto on the tsx big board symbol mbx and we've upgraded our listing to the otcqx level and we're working with as well as um ian and mike we're working with torrey hills capital uh to build our visibility in the united states out of california and we work with adelaide capital on investor relations in canada for some time the three categories i've mentioned are all exciting but we'll spend i think most time on our controls businesses that is the one that has uh the more most logarithmic potential and this is providing these test controls so we'll go into what those are and then we'll spend a little bit of time on vtm and antigens as well to round it off so what is a control exactly well when you're running tests let's say for covid but it can just as equally be for flu or chlamydia for that matter when you're running tests in a medical setting if a lab is doing a hundred or a thousand tests in a day the question becomes how do you have certainty that nothing went wrong through the day that the technician didn't get tired in starting making started making procedural errors that the reagents that you're using haven't spoiled or the test cartridges you know gone bad or some manufacturing issue that the instrument that you're running on hasn't drifted out of calibration or have some blocked port or software issue well those consequences can be catastrophic and they can be particularly so if you don't catch them and they persist for a long time you could have many missed positive diagnoses and if we look at that in the context of covid that can be sending a nurse back into a hospital or nursing home you know long-term care home with a positive case of covet literally killing people or you could be giving false positive diagnoses leading to schools or businesses or even communities to be shut down with the economic and uh and mental health consequences of that so the best way to avoid that is to have controls and these are known positive and known negative samples that look to attest exactly like that positive or negative patient sample and that's what we create so microbics is using all of the expertise that we've developed over 30 years growing organisms how to inactivate them without destroying them augmenting them sometimes using leading edge biological tools formulating them formatting them and we've even struck an alliance you'll see behind me the the swab of a company called copan italia that is provides the best sampling swaps in the world and they've even permitted us to co-brand with them it's a little bit like having coca-cola permit you to use their brand for our controls because of our expertise how to stabilize those so their room temperature stable for long periods and then of course having all the quality systems including the iso 1345 medical devices accreditation and medical devices establishment license for canada fda establishment registration therapeutic goods administration in australia and whatnot so we have this line of products including kovid and we'll talk a little bit about what we have there but far from limited to it we have over 70 different control products now that we have available and these go into three different markets and the first of which is principally white label at a lower price and these are to the groups that do the accreditation of labs and test their test their proficiency and give them their accreditations to test on behalf of governments and be reimbursed by insurance companies as well and this work that we do with these organizations gives us tremendous input and expertise on how to develop our products because these groups will go in and they'll give up three times a year in the u.s they give a box for example 20 different respiratory pathogens that are all coded and the labs have to tell what each of them are and get them all correct in order to get their accreditation renewed if they don't get them all right there's an investigation as to why and they can lose their ability to function so we gain all the intelligence on what a sample has to look like to work not just on one company's instrument or test but on all of them so for example our covid molecular test controls that we've developed have been shown to work across more than fifty five zero different companies covet tests so we don't have to be concerned particularly whether you know which company becomes most successful in the market we're not trying to be one of the top three or four that dominates market share we want to be working with all of them and so we can literally go down the alphabet and and demonstrate compatibility for everybody's tests with our controls and we have controls for covert molecular tests we have controls for covidantogen tests we have controls for culvin serology tests that are all broadly applicable or what we call commutable across different companies tests we also work in this area with the diagnostic oems and we work with them for the purposes of providing controls and our controls can either be cited by those companies for example abbott and becton dickinson both site our covet controls molecular and antigen respectively as good ways to onboard new instrument installations for id now and for abbott and veritor for back to dickinson both are in there they've issued technical notes to that effect but some companies even go further and they directly purchase our controls to provide them to customers a box of a starter kit if you will to train the technicians and validate that the instruments working properly in their lab setting and we're also working with companies where we'll actually become the manufacturer of controls that are will be included in their tests at a fixed ratio so a box of 30 to 50 test cartridges will include two to four microbics controls a couple of positives and a couple of negatives for example at a fixed ratio so those are contractual ongoing revenues and then the third category is also the most regulated and this is where i've spoken of the book of test runs at a clinical lab where diligent lab will start the day with a known positive and known negative sample to make sure everything's working properly they'll run their tests through the day then they will end the day with a known positive and known negative from a third party such as microbics to have greater confidence that all the tests in the middle were accurate and we're doing this work and uh building that up with a network of uh distributors in in the united states western europe scandinavia uh central europe and uh even africa and south america and this is building up quite rapidly for us relatively new we've been doing working with the pt groups uh on that white label basis more in line with our ingredients business since 2008 but we really only started working with the diagnostic oems in 2018-19 and working with the clinical labs in 2020 so this is very new for us and building very quickly where we generated considerable sales growth in 2021 with effectively tripling our sales of this category and i expect will double or triple them again in fiscal 2022. so very strong very promising vtm i've mentioned i'm just going to run through quickly because i know we want to leave adequate time for questions but viral transport medium we've identified our skill sets and are now manufacturing uh hundreds of thousands of units even into the moving uh now to the over million mark and you can see each one of these files uh have a market value of four to six dollars so this is a very uh good business for us and moving forward and delighted to be able to help in the context of the pandemic and coming out of the pandemic as all this diagnostic capacity gets redeployed more broadly still going to need vtm and going to need our broader catalog of controls so that's very much what we're doing there antigens this is where we started and still remains a very important component of our business this is the ingredients business where we're providing the antigens to make serology or immunoassay tests where you're looking to see if a patient has had past exposure to a pathogen or to assess their level of immunity to a pathogen for those purposes these sorts of amino acids can't be replaced with pcr-based tests because you're not looking for viral genetic material you're looking for antibodies from the patient and will remain a very important component of our business even though as a proportion of our revenues it's come down dramatically it was 90 of our revenues even a couple of years ago and it's now down to under 50 percent principally because of the growth of the other components of our business so we we have very sophisticated operation we have three buildings now totaling 35 000 square feet that are adjacent to one another we're approaching 100 employees and really positioning our systems for automation uh has been a big issue for us we're automating now our vtm production we're automating our our controls our caps production and we've taken steps in our antigen business to dramatically improve margins on that side and that is been driving very strong sales growth you can see from a revenue perspective the bar for fiscal 2021 our nine month revenues have exceeded our prior year 12 month revenues and similarly the dollars of growth's margin that we're making available the ebitda and the net earnings are very strong our q3 of 2021 fiscal we reported sales of 5.5 million net earnings of 1.5 million so we're actually trading it a forward p e that looks to be under 10 times if we achieve some of the numbers we're targeting and interestingly this was run by an analyst quite recently we seem to be trading at a dramatic discount from uh pure companies on a enterprise value to ebitda and enterprise value to revenue basis this will be available on our website and for your review so in terms of highlights we have strong annual sales growth i'm expecting will approach will certainly exceed 18 million in revenues for our fiscal year ended september 30th and that compares to 10.5 million in revenues the prior year we've improved gross margin considerably when i came in gross margins we're in the high 30s our q3 recorded a gross margin of 63 percent we are generating cash we have a we closed q3 with 8 million in the bank and an undrawn line of credit that is up to another 2 million so we're well capitalized do what we need to do we've demonstrated record sales in q1 record sales in q2 and record sales in q3 so we're on a pretty nice track we're are building out to expand we're looking to right now we're doing in terms of swab based controls we're at somewhere around 24 to 30 times the rate of sales of that new product categories we did in 2020 and we're setting up for a further 10-fold volume expansion of sales of those product categories so a lot going on and uh all directed to driving value and we also have if you want to take a deeper dive we have the rights to an fda approved biologic drug but nowhere to make it it's a big project uh and too big for us to take on on our p l it's about 20 million dollars to bring that back but we'll undertake that by partnering and if we do partner it successfully that will be a 200 million plus dollar a year product and we're looking to retain a third to a half of the project economics from that so it's really an option value that you're not paying for with regards to microbics's inherent value so with that i'll uh i'll go off screen share and we can we can address questions that that may have been posed thanks cameron i'd like to remind the participants that if you have a question click on the q a button at the bottom and enter your question uh the first question regards kovid um what in three parts what what proportion of your current growth is driven by covid um how has covet impacted you in general and how do you see things evolving beyond covet great questions um this significant chunk of our sales now are related to covid we're selling a good number of controls for covid although not just limited to covid in in the respiratory space for example we sell controls for flu a flu b and rsv testing as as well as a number of other respiratory pathogens but a lot of the industry capacity effectively all of the industry capacity was grabbed to do covet testing and this has meant that a lot of other disease conditions are being given short shrift either for lack of testing capacity to do them or that the patients are just staying away from more regular medical care for fear of getting coveted and that's had some impacts as well in our antigens business our sales of antigens have actually come down from about 12 million a year to closer to 9 million a year because of the breadth of our product offering everything but respiratory has has come off and you see that on some of the numbers of lab testing companies uh have been impacted now coming out of the pandemic is going to be fascinating because we have seen a massive expansion of the overall capacity of the diagnostics industry and diagnostics are the best in well with vaccines they're the best value for dollars spent in the health care industry but they were for the health care system but was kind of the poor step child and we had we've had increasing ability to do sophisticated diagnostics uh but the argument was always well who's gonna who's gonna spend the money to put that all that capacity in place to do this sophisticated testing well now it's there so when covin finally ebbs i'm expecting that we're going to see for example multiplex testing so if you show up with a respiratory ailment you're in distress it's not just going to be you know well we don't know what it is send you home we now have the capacity to do multiplex testing and tell you is it covet is it flu is it a virus is it a bacteria what is it and start to drive better treatment as a result and similarly with bacterial infections not just identifying what organism is but having the capacity to identify whether it is resistant to certain antibiotics and direct therapy much more effectively and rapidly and that's stuff we're working on today with leading diagnostics companies and i'm very excited to be a part of what i think is going to be a golden age for diagnostics coming out of coming out of covet i hope that addresses that mike yeah it does um one other thing that might be related to that is somebody asked what drove the revenue decline year over year in 2020 was that pandemic related that was very much pandemic related what we were seeing was a slowdown in sales of non-respiratory antigens we were in fact positioned to launch some very clinically important controls and uh for human papillomavirus infections of 500 million plus market that's being held back in its growth by a lack of a comprehensive suite of controls for all of the types of hpv that drive human cancer so we were set for whole countries to convert to use of our controls when covet emerged and all of that test all of those screening programs were put on hold because of kovit so as some of those snap back we're going to see broad a broadening of the source of our revenues but that definitely hurt us in 2020 is microbics involved in pcr testing yes absolutely we don't manufacture our own tests we manufacture the controls for a whole number of pcr tests and we have we have literally a farm of different companies pcr instruments in our labs where we work to ensure the broad applicability or commutability of our of our controls across different companies tests and in fact a number of those instruments have been given to us by companies with whom we're working so we we don't kiss and tell per se but if you go down the alphabet there are very few diagnostics companies that we're not engaged with on some level today so what are the barriers to entry in your controls business that allow microbics to maintain its high margins in the long term great question you've got to have access to [Music] the organisms or you've got to have very good experience you've got to have access to organisms and the ability to manipulate them to be able to do this work there are perhaps half a dozen companies in the world that are very good at making controls we're we believe leapfrogging the capabilities by virtue of creating multiplex controls controls that are formatted onto swabs in room temperature stable for long periods and creating controls for organisms that are multi-drug resistant and not easily worked with or cultured so we've created even our own ip and offline the mic i can certainly provide reference to some of the uh patent work we've done that's broken into the national phase enabling us to make and control um or maintain market control i should say of controls of the unimagined complexity what do you feel is your sustainable competitive advantage um i would say skill a combination of skills trade secrets and intellectual property and frankly and frankly relationships this is a business where you know this is an incredibly important element for labs and diagnostics companies and there has to be trust involved in anyone you're working with and we we have a 30-year track record in this business i would imagine that business is probably pretty sticky is that true or very much so you know for our antigens business it's a process of years for somebody to switch antigens in a approved test and for our controls business people once they have validated that something works the incentive to keep on validating additional uh suppliers or to switch suppliers just isn't there unless there's a huge price differential and that just isn't going to be on in the long term are there other areas of the diagnostics industry where you could leverage your expertise to develop and launch new high margin products very much so we could could and can develop controls for different aspects such as liquid biopsy in in oncology for genetic diseases there's a number of areas where we could certainly look at and pursue right now our plate is more than full in infectious diseases and we're gearing to be able to launch a new important infectious disease control every couple of months is what we're gearing up to be able to uh to have the capacity to do as we keep building our team and our resources that's where we'll look and say where are new needs emerging in the industry that we can also address do some of your customers have their own development programs and controls or does that not make sense for them some of them do and and manufacture their own controls some of those controls are relatively poor they're just for example a probe sequence or or a primer sequence rather than a full process control which is something we're very conscious that we want to provide controls that control as many steps of the testing process as possible so yes some companies do manufacture their own controls there are aspects though in the in the clinical laboratory where you you you don't want the company auditing its own books and you require the use of third-party controls so where validated third-party controls are are read into the regulation and that's an area that it benefits us as well or a regulation that benefits us cameron thanks for your time today we appreciate you telling us more about the company

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Id: hDxoIM54w6U

Length: 36min 58sec (2218 seconds)

Published: Tue Sep 28 2021