Zooming in on Micro-Cap Microbix
Antigens, Quality Assessment Products, and the Kinlytic Opportunity
Hello and welcome back, y’all!
It’s a pleasure having you onboard. Thank you for joining and for coming back!
It has been a while since our last encounter. I have spent some time re-evaluating my exposure to the back-to-its-wild-west-roots US of A, which just lost its last triple A. Crazy times!
I came across this little-known Canadian life sciences company while I was checking out Kraken and I made a note to myself to dig into it.
Release the Kraken!
The most amazing thing about the deep sea is that we still know so little about it. We've only explored about 5% of Earth's oceans.
Microbix Biosystems is making strides in diagnostics through innovations in antigens, quality assessment products (QAPs), and the planned relaunch of Kinlytic. With significant growth potential and a focus on strategic execution, the company presents an interesting investment opportunity. While risks like market volatility and customer concentration persist, the upside remains promising.
The Company
Microbix Biosystems (C$49M) was founded in 1988 and is headquartered in Mississauga, Canada. It manufactures a wide range of critical biological materials and medical devices for the global diagnostics industry.
The business that would become Microbix was initially started over 35 years ago by William J. Gastle, a skilled virologist. Its predecessor companies included Animal Health Laboratories, incorporated in 1978, which changed its name to Microbix Biosystems in 1984, and Autocrown Corporation Limited. The current entity was amalgamated in October 1990.
The first products were types of growth media used in cell-culturing (making cells at home outside their natural environment so they could grow and multiply), sold to public health laboratories and research-oriented customers across Ontario. This was followed by regional lab customers asking Microbix to perform bacteriological, cellular, and viral culturing work for them.
Microbix made a bit of a name for itself and international manufacturers of diagnostic tests approached it to grow such organisms on an industrial scale, then purify and inactivate them to become antigens, the biological ingredients used in immunoassay tests (that detect and measure the presence of certain molecules in a blood sample, e.g. COVID tests, drug tests, pregnancy tests, etc.). The test-ingredients business remained Microbix's only major source of revenues for many years and forms the foundation of their deep expertise in infectious disease diagnostics.
In 2008, the company purchased a building to serve as the site for expanded production of its Antigen products. This facility is located at 265 Watline Avenue in Mississauga, Ontario. It has held infectious diseases biological licenses, initially from the Canadian Food Inspection Agency and later from the Public Health Agency of Canada.
Microbix has been active in acquiring and developing new products and technologies. In 2005, the company acquired rights to the precursor technology to a cell-sorting technology, which led to the development of LumiSort - an advanced, proprietary sperm sexing technology, designed primarily for the bovine artificial insemination market. I am not at all versed in farm life, but some time ago I read about chicken sexing. It was in a value investing blog, of course, about the largest chicken egg company in Europe - Ukrainian Avangardco (13.3M laying hens). In any case, the end goal of both chicken and bovine sexing is profit maximization by controlling the ratio of males to females. The latter lay the eggs and produce the milk, obviously.
In 2008, Microbix acquired the assets and rights for the thrombolytic drug Kinlytic (urokinase) - a critical drug for dissolving blood clots. This acquisition is key to the Microbix thesis, so I will dedicate the body of this article to it. For now, I will just say that at the time urokinase had a proven clinical track record and had achieved peak annual sales of over $300M. The company saw significant potential in the growing market for catheter clearance, where central venous catheters frequently become blocked and require effective thrombolytic agents. The acquisition allowed Microbix to transition from a diagnostics supplier to a fully integrated biopharmaceutical company with an established revenue base and the potential to expand into new geographies.
In 2016, an internally developed bioreactor production process increased manufacturing efficiency.
The QAPs segment has been growing steadily and became a reported segment in 2018. COVID proved a massive tailwind with the Province of Ontario becoming a huge client in 2021-22.
Recently, the company has been modernizing and scaling up its manufacturing process for producing antigens - going from roller bottles to bioreactors.
Roller bottles are traditional, small-scale vessels used for growing cells. They require significant manual handling, take up more space, and have limited capacity.
Bioreactors, on the other hand, are advanced, automated systems that tightly control the environment for cell growth, allowing for much larger-scale, more efficient, and consistent production.
It is expected that this transition will lead to:
Increased capacity - Bioreactors can produce far greater quantities of antigens in less space and with fewer resources than roller bottles.
Improved yields - Bioreactors offer better control over growth conditions, which leads to higher yields and more reliable product quality.
Better economics - Running multiple bioreactors in parallel improves gross margins, as the same staff can oversee larger production volumes, reducing unit costs.
Flexibility - Bioreactors allow Microbix to quickly adjust production to meet changing demand.
Business Segments
Microbix's business is based on decades of experience manufacturing high-quality viral and bacterial antigens. Over recent years, the company has successfully expanded its offerings, particularly with the growth of its QAPs business, transforming into a fully-fledged medical devices firm. They serve over 100 customers worldwide, primarily multinational diagnostics companies and laboratory accreditation organizations.
Microbix's business is organized into three main segments:
Antigens (~70% of revenue): This involves manufacturing a wide range of critical biological materials, specifically purified and inactivated bacteria and viruses (or components), known as antigens. These antigens are used as ingredients in the immunoassay format of medical tests to assess exposure to, or immunity from, pathogens. Microbix is a leading supplier of natural pathogen-derived antigens to many multinational producers of immunoassays. This business segment has been Microbix's primary source of revenues for many years and underpins their deep expertise in infectious disease diagnostics. While Antigen sales are resuming a growth trajectory, their proportion of total company sales is expected to decline over time due to faster-growing sales in other categories.
Quality Assessment Products (QAPs) (~30% of revenues): This segment focuses on creating and manufacturing medical devices that help ensure the accuracy of diagnostic tests. QAPs are inactivated and stabilized samples of a pathogen or an analogue designed to resemble patient samples. They are used to support various activities in clinical laboratories, including proficiency testing, test development, instrument validation, technician training, and quality management of patient test workflows. QAPs are considered a high-value end-use of Microbix's biological expertise, and this segment is expected to be its fastest-growing revenue source for the foreseeable future. Microbix has successfully transitioned into a producer of a catalogue of fully regulated medical devices, including QAPs, allowing access to new markets and customers at potentially better margins.
Kinlytic (Urokinase)
Timeline
As mentioned briefly in the company overview, Microbix acquired all rights to the original biological drug from ImaRx Therapeutics in 2008.
Urokinase is an enzyme produced by the kidneys. Tissue cultures of human kidney cells are used to produce the drug, used to dissolve blood clots.
Initially launched as Abbokinase in 1978, the drug reached peak worldwide sales of $300M. It was suspended in 1999 due to manufacturing process issues only to be relaunched in 2003.
Abbott sold Abbokinase to ImaRx in 2006, who only sold some of the inventory acquired in the transaction before running into financial problems and selling the rights to Microbix for $2.5M two years later. By the time any remaining inventory was either sold or nearing expiration.
Microbix's intent was to carry on manufacturing urokinase, but to do this it needed regulatory approval for both the facility and the process. For biologics, the FDA’s approval is not just for the drug itself, but also for the exact facility and manufacturing process used to make it. This is because biologics are complex molecules whose safety, purity, and potency can be affected by even small changes in production conditions.
Microbix estimated it would need about $15 million to begin producing, marketing, and distributing new urokinase. However, Microbix is a small company. It didn't have the capital to fund these activities independently. The initial plan was to scale up production at its Skyway production facility in Toronto with revenues from product sales. When this didn't work out, it sought external partners. This proved difficult.
Unsuccessful Partnerships
In 2009, Microbix announced a marketing and supply agreement with Riso Pharma that granted exclusive rights to market Kinlytic throughout the Middle East and guaranteed purchases of not less than 50,000 Kinlytic vials over 3 years. The expectation was for sales to start in 2010, but they never did.
In 2012, Microbix licensed Kinlytic to Zydus Cadila, which agreed to handle regulatory filings and manufacturing at its Indian facility. However, Zydus terminated the partnership in late 2013, citing shifted strategic priorities. This abrupt exit left Microbix without the capital or infrastructure to proceed independently, delaying the project further.
After Zydus terminated the license in December 2013, Microbix entered into confidentiality agreements with several parties interested in bringing Kinlytic back to market. Despite ongoing discussions, no new licensing or development partner was secured for several years. Microbix continued to seek a partner who could provide the necessary funding and manufacturing capabilities for a US relaunch.
After years of trying, Microbix narrowed its commercial focus to the catheter clearance indication, which was seen as the fastest-growing and lowest-risk market segment for Kinlytic. Long-term venous catheters are used to administer pharmaceuticals, nutrition, or dialysis, often needing to remain in place for extended periods. About 25% of such catheters become blocked with blood clots and, if not cleared, can require costly surgical replacement.
The company developed detailed plans for relaunch, including a budget validated by third-party contract manufacturers and a regulatory pathway confirmed with the FDA. These plans estimated that $18M and about 2-3 years would be needed to file a supplemental Biologics License Application (sBLA) for US market re-entry.
Sequel Pharma Agreement
In 2023, Microbix finally secured a partnership with Sequel Pharma, a US-based specialty pharma company. Sequel committed to fully fund the work required to validate manufacturing, complete regulatory submissions, and bring Kinlytic back to the US catheter clearance market. Sequel and Microbix have since executed agreements with leading contract manufacturers to resume production and are advancing toward an sBLA filing, with a target of re-entering the market by 2027.
On May 16, 2023, Microbix received an upfront payment of $2M under the agreement, followed by the first milestone payment of another $2M in November 2023, alongside confirmation of full project funding for Kinlytic’s return to the US market.
Microbix is eligible for over $30M of further potential milestone payments and sales-driven royalty payments upon re-approval and renewed sales.
Pre-commercialization Milestones
Before sales begin, Microbix will receive milestone payments for regulatory and development progress:
$2M upfront closing payment (May 2023)
$2M upon satisfactory FDA consultation (November 2023)
$1M upon US re-approval via sBLA (expected 2027)
Sales-driven Milestones
Contingent upon Kinlytic achieving predetermined revenue targets after market launch, additional $30M of milestone payments are expected in 2028 onwards. These payments will be in addition to ongoing royalties on net sales.
Microbix estimates $250M annual sales in the USA alone in year 10 post launch ($180M in year 5), but the plan is to sell globally, subject to meeting the regulatory requirements.
Latest Update from the Q1 Conference Call
So, then I'll switch to Kinlytic. ... Everything is on schedule. There's no change to the timeline. We're moving forward nicely with the international CDM, which is working on the drug substance, which is the purified product.
Sequel has just, in collaboration with Microbix identified the CDMO, the contract manufacturer, who will fill the finished product and package it, and that's just being paired right now and that's another multinational driving force company going forward.
...we obviously were doing catheter clearance right now, but we're not stopping there. And we're already talking about the next indications, the next jurisdictions, looking at stroke, looking at heart attacks, and things of that nature. Pulmonary embolism and deep vein thrombosis, the bigger indications to drive this franchise to multibillion dollar opportunities, and we have the technical capacity to do that. We have the technical capacity to upgrade all these processes to code temporary standards to maximize the margins associated with that.
On the chances of the sBLA re-approval:
Recall, of course, that Abbokinase, which is the original Kinlytic from Abbott Laboratories, was a standard of care in these indications for multiple decades.
So, there's absolutely no chance of clinical failure in this product. But what we're doing is showing it's sufficiently comparable to the previous product going, going forward and keeping there's a good chance we'll be able to do that only with analytical work.
Cathflo Activase
Abbokinase was the only FDA-approved thrombolytic for catheter clearance from its 1978 approval until 1999. At its peak, it reached $70M sales in the catheter clearance market and $270M in the broader thrombolytic market. However, Abbott faced manufacturing process issues and suspended production in 1999.
This created perfect conditions for Genentech to enter the market in 2001 with its Cathflo Activase - a tissue plasminogen activator (t-PA). The latter means that Cathflo is produced using recombinant DNA technology while Kinlytic uses cell culture (from human kidney cells). With no other alternative, it became the sole thrombolytic on the market. Current estimates put the CC market at $350M, growing at ~6.5% annually. Microbix plans to share the market with Cathflo, as shown on slides 9-10 of the presentation.
You can see that the timeline has shifted away from the 2019 expectations. Now, the launch is expected to be in 2027, but the expectations are the same.
What about Generics?
By now, you may be asking yourself if urokinase has been around for almost half a century now, what is stopping anyone from making it.
The absence of generic alternatives to urokinase stems from biologic complexity, manufacturing challenges, and regulatory barriers, rather than patent protection.
The original urokinase patents expired long ago - in 1993. However, Microbix owns the proprietary manufacturing know-how in the form of validated cell banks and reference materials, specialized cell-culture and purification processes, and analytical methods to ensure product consistency.
Urokinase is a biologic, not a small-molecule drug, which makes it more difficult to produce. Even minor changes in cell lines, purification, or formulation can alter efficacy and safety. Biosimilars require extensive comparability studies (analytical, preclinical, clinical) to prove equivalence, unlike small-molecule generics. Development would be costly, too. It is not economically feasible with an established competitor (Cathflo) in place. The cost and time to develop a biosimilar or generic may outweigh potential returns, deterring investment.
In short, if anyone can enter the market, it is Microbix. As they say now, they have all the cards. They have the trade secrets. They have secured a pathway for reapproval with the FDA. Mind you, this doesn't make it a done deal. Far from it! Timelines have shifted and partnerships have fallen through in the past.
Financials
Microbix's base business (excluding Kinlytic) generated $6M in the latest quarter (up 50% YoY). Although the company is refocusing on the QAPs segment, Antigens continued to grow faster, because of new products and new geographies (Asia), while QAPs were impacted by the delayed ramp-up of QuidelOrtho's Savana platform.
Antigens revenue was $4.3M in Q1 and $13.8M in FY24. It has averaged a bit more than $10M over the past decade. Management is guiding comparable levels of revenue as Q1 for the remainder of the year.
The QAPs segment is expected to expand into new markets, including genetic testing and oncology.
FY25 gross margins are expected to be 55-60%, depending on the sales mix. EBITDA and EBIT are fluctuating with the business. The direction that management is charting is towards higher margin QAPs, which probably means EBITDA over 20% and EBIT over 15%.
There is $13M of cash on the balance sheet against total liabilities of $9.8M, of which $5.6M is long-term debt. The company is quite conservatively financed.
There are 142.3M shares outstanding. Potential dilution comes from 12.5M outstanding options and 17.4M of convertible debentures. This would bring the total number of shares to 172.2M, equal to 21% dilution.
Valuation
Microbix’s core diagnostics business - Antigens and QAPs - is projected to grow at 20–40% annually over the next decade, driven by:
Antigens: Transition to bioreactor production improving yields and margins.
QAPs: New product launches (e.g., H. pylori, REDx) and multi-year contracts with diagnostic manufacturers. New contracts are expected to drive 30–50% annual growth.
This translates into $70-180M sales by 2030. Assuming a 20-25% EBITDA margin and a 10x multiple, this part of the business could be worth anywhere starting from $140-280M in the 20% growth scenario to much more in the 40% scenario. The latter doesn't seem plausible with Antigens and QAPs alone.
Which brings us to Kinlytic. Its relaunch is, and has been, the big question mark ahead of the company for a whole now. If management delivers on the 2027 target date and sales ramp up according to expectations, Kinlytic can add $150M sales by 2030 and more than $250M 6 years later. At 10% royalty rate, this is an extra $15-25 going almost fully to the bottom line. A stable stream of royalties is easily worth a 30x multiple. Factoring in some operating costs, the Kinlytic side could be worth $300-600M, which coincidentally is 2x the value of the core business.
These valuation ranges are pretty wild, but such fluctuations are more the norm than the exception for $50M-market-cap companies. Microbix's history is full of wild swings. Its price has moved over 13x from bottom to top. Currently, it is trading around the mid-range for the past decade. However, this time around it looks like management is executing better.
Microbix is a small company and as such it is subject to the vicissitudes of the market much more than larger boats. Just last year, delayed orders by one customer caused a 32% decline in QAPs sales, laying bare the question of customer concentration. On top of this, the company is expanding in China. Needless to say, new ventures are risky.
The Kinlytic story has been dragging on for a very long time. This time it sounds like it has the FDA blessing and a solid partner to execute the plan with. Nevertheless, there is the question of timelines and competitor response.
Overall, Microbix is an interesting opportunity. In my honest opinion the downside is quite limited while the upside potential is huge. A lot of it depends on the execution of the plans management has laid down. The odds look good, but the situation definitely requires close attention. I will be keeping an eye on it.
If you are intested in bigger boats, you can take a look at my review of the big pharma companies.
The Big Pharma Edition
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