Microbix Biosystems Inc. (MBX:CA) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call revealed a mixed performance. The loss of major clients negatively impacted financial performance, but sales in other categories grew. The Q&A highlighted positive steps in product development and AI integration, but uncertainties in China and VTM sales in Ontario persist. The lack of a clear timeline for new client revenue and cybersecurity concerns also weigh on the sentiment. Overall, the mixed signals result in a neutral outlook for the stock price.
Key Financial Performance
Revenue Revenues were down 27% year-over-year. A significant portion of this decline was due to the absence of Kinlytic revenues, which were $4.1 million last year but none this year. Additionally, there was an abrupt slowdown in sales to China and the cancellation of a major client project. Excluding these factors, revenues in other areas increased by 12%.
Gross Margin Gross margin decreased to 53% from 61% year-over-year. The decline was primarily due to the absence of Kinlytic revenues, which had very little cost of sales last year. However, improvements in process and yield in the antigens business helped stabilize margins.
Operating Expenses (OpEx) Operating expenses increased by 4% year-over-year. This was driven by lower investment income due to declining interest rates, increased spending on trade shows, and higher R&D expenses, particularly in the QAPs area.
Cash Balance The company maintained a strong cash balance of over $12 million at the end of the fiscal year. This was despite sizable investments in capital equipment and facilities.
Recurring Revenues and Royalties Recurring revenues and royalties decreased from $21.3 million to $18.6 million year-over-year. This decline was attributed to the loss of two major clients. However, sales in other categories and customers grew.
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Operating Highlights
New Products: Microbix announced the onboarding of full recombinant antigen capabilities, adding to their native antigen capabilities. They launched new products such as H5N1 and H3N2 for respiratory illness and supported cervical cancer screening in multiple countries through collaboration with the Australian Center for the Prevention of Cervical Cancer. They also launched the QUANTDx reference materials product line, which has significant revenue potential.
Market Expansion: Microbix expanded its market reach by supporting cervical cancer screening in the Indo-Pacific region and collaborating with Seegene for cervical cancer screening in Mexico. They also strengthened supply chains with an exclusive agreement with the Bulgarian National Center for Infectious and Parasitic Diseases.
Operational Efficiencies: Microbix improved batch yields and reduced batch failure rates, leading to cost reductions and margin improvements. They implemented aspects of an electronic quality management system connected to their ERP system to increase efficiencies. Automation initiatives in manufacturing and QC were also highlighted.
Strategic Shifts: Microbix is focusing on building back revenue with new clients and projects after losing two major clients. They are targeting a recovery in fiscal 2026, with plans to regain quarterly profitability by Q4 2026. They also renewed their share buyback program and emphasized their strong financial position with over $12 million in cash and additional credit facilities.
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Risk or Challenges
Sales Slowdown in China: An abrupt slowdown of sales into China due to reduced respiratory disease this past season, which decreased the need for tests and test ingredients.
Client Program Termination: A major client abruptly terminated a multi-hundred-million-dollar instrument development program, significantly impacting Q3 and Q4 revenues.
Revenue Decline: Overall revenues were down 27% for the year, with no Kinlytic revenues compared to $4.1 million in the previous year.
Margin Reduction: Gross margins decreased from 61% to 53%, partly due to the absence of high-margin Kinlytic revenues.
Operational Costs: Operating expenses increased by 4%, driven by lower investment income, increased R&D spending, and trade show investments.
Dependency on Key Clients: The loss of two major clients highlighted the company's vulnerability to dependency on a few key customers.
Economic Uncertainty: General economic conditions and reduced demand in certain markets, such as China, pose ongoing risks.
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Guidance & Outlook
Revenue Recovery: The company expects to recover from the revenue setback experienced in fiscal 2025, with a targeted growth of approximately 30% from the quarterly low point of $3.5 million in Q3 2025. This recovery is anticipated to lead to quarterly profitability by Q4 fiscal 2026.
Revenue Projections for Fiscal 2026: If revenues were flat across fiscal 2026, they would total $14 million. However, the company expects revenues to be substantially higher based on signed projects and current outlook.
Financial Resources: The company has sufficient financial resources to execute its plans, with over $12 million in cash as of September 30, 2025, and access to up to $24 million in additional funds through undrawn mortgage facilities and lines of credit.
Operational Efficiency: Operational improvements, including increased batch yields, reduced costs, and automation initiatives, are expected to support business growth and enhance margins in fiscal 2026.
New Product Launches: The company plans to launch its first recombinant protein product imminently, with a pipeline of additional products to follow.
Kinlytic Program: The Kinlytic program is advancing towards filing a supplemental BLA with the FDA, with potential updates expected in the first half of calendar 2026. This program has significant revenue potential through royalties, milestone payments, and one-time sales.
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Shareholder Return Plan
Share Buyback Program: The company has renewed its normal course issuer bid, which is the technical name for a share buyback program. They are able to proceed at a higher level of daily purchases for the renewal than was available in fiscal 2025.
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Key Q&A
Q:Can you provide a detailed update on Kinlytic, including timelines and catalysts?
A:Kenneth Hughes explained that the company is working with Sequel to update production processes to contemporary standards as per FDA's request. They are scaling up processes with two CDMOs for drug substance and drug product. They plan to update the FDA early in the new year and expect filings in 2026 or 2027. The work has gone well, and the relationship with Sequel is excellent. The product is already approved, and the focus is on new manufacturing processes.
Q:Is there a substantial amount of antigen intended for China in the inventories that is at risk of being written down?
A:James Currie stated that there is no risk of write-down as antigens do not expire and are stored at minus 80 degrees, giving them an effectively infinite shelf life. The inventory increase was due to the sudden shutdown of the China distributor and converting raw materials into finished goods.
Q:Do you see any signs of recovery in China with the respiratory disease season expected to be stronger this year?
A:Cameron Groome mentioned that most China sales are related to diagnosing pneumonia following viral infections. They have some reorders budgeted for fiscal 2026 but at a lower number. There are no current plans to build more products than the current inventory.
Q:Are your China distributors shut down permanently?
A:Cameron Groome clarified that the distributors are not shut down permanently. There has been a decline in customer orders, but the market and distributors remain active.
Q:Why were royalties up this quarter compared to recent quarters?
A:James Currie explained that the increase was due to stronger rabies vaccine royalties, which are reported annually. The royalties on antigens sold to other parties remained consistent.
Q:How will AI affect your business, and are you benefiting from advances in AI?
A:Kenneth Hughes stated that AI is being deployed in data analytics, documentation development, and operational efficiencies. They are cautious about protecting proprietary information and are integrating AI tools under confidentiality provisions. AI is also used in sequence construct design and data analytics.
Q:Do you expect a client or clients to be as big in revenue as the major client that terminated the program this year?
A:Cameron Groome mentioned that they are working with many large diagnostics companies, and some programs could potentially be as large or larger than the canceled program. However, predicting commercial launch timelines is challenging.
Q:What is the replacement value of Microbix, and how should investors think about it?
A:Cameron Groome and Kenneth Hughes emphasized the company's proprietary expertise, seed banks, and years of experience, estimating the replacement value to be well over $100 million. They highlighted the difficulty of replicating Microbix's capabilities.
Q:Do you expect your cash level to remain stable, and how will it affect the NCIB?
A:Cameron Groome stated that cash levels will reduce slightly in fiscal 2026 as they move towards profitability but will remain healthy. They plan to spend about $1 million on the NCIB, potentially buying back 20,000 shares a day.
Q:Is there any update on the cybersecurity incident and what was stolen?
A:Cameron Groome explained that a legacy server was penetrated, but operations were not disrupted. Some employee information was exfiltrated, and credit monitoring was provided. They continue to upgrade and harden systems.
Q:Any progress on VTM sales in Ontario with the new provincial focus on 'buy Ontario'?
A:Kenneth Hughes mentioned that while they hear about 'buy Ontario,' they have not seen tangible results. They continue to engage with procurement authorities and showcase their global leadership in the area.
Q:Do you foresee any improvement in timelines for BLA approval or return to market for Kinlytic?
A:Kenneth Hughes and Cameron Groome stated that interactions with the FDA have been positive and constructive. Regulators are aware of the market dynamics, including the monopoly situation, and are expected to facilitate the process.
Q:Which KPIs and catalysts should we keep an eye on in Q1 fiscal '26 and beyond?
A:Cameron Groome highlighted objectives like securing new programs with multinational diagnostics companies, growing the PT and EQA provider business, and increasing retail-level sales to labs. Operational efficiencies and cost reductions are also key focuses.
Q:Review of Unclear Management Responses
A:Management appeared to avoid giving a direct answer regarding the progress on VTM sales in Ontario, citing a lack of tangible results despite ongoing engagement with procurement authorities.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
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ATHA Report
Frequently Asked Questions
Where does this earnings call transcript come from?
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