Microbix Biosystems (TSE:MBX) management said its fiscal second quarter fell short of expectations as lower sales into China and timing-related weakness in its quality assessment products weighed on revenue, though executives emphasized that the company is maintaining capacity for larger diagnostic supply opportunities and advancing its Kinlytic program.
On an update call moderated by Deborah Honig, president of Adelaide Capital Markets, Chief Executive Cameron Groome described the quarter as “not a particularly pretty” one, saying revenue was “well below” the company’s engineered breakeven point of about CAD 5.5 million per quarter. He said a net loss was therefore not unexpected, although Microbix continues to control costs.
China Sales Remain Below Prior Run Rate
Chief Financial Officer Jim Currie said the first half of last year was a record period for Microbix, excluding Kinlytic license fees, and that much of that performance was driven by distribution into China. The reduction in China-related revenue, about CAD 2 million per quarter, has had a “significant impact” on the business, he said.
Currie said that excluding Chinese distribution, Microbix grew the rest of its business by 13% in the second quarter.
In response to investor questions, Groome said Microbix generated about CAD 7 million in China sales in fiscal 2024 and had been running at more than CAD 8 million annualized through the first half of fiscal 2025 before demand fell abruptly. Prior to the surge, annual sales to Chinese distributors were typically in the CAD 2 million to CAD 4 million range, Currie said.
Groome attributed the decline to a sharp slowdown in respiratory disease incidence in China, including “walking pneumonia” or “white lung,” along with restrictions on patients receiving repeat tests at multiple hospitals or clinics and broader cost-control pressure. He said he believes lower disease incidence has been the larger factor, while also noting consolidation among Chinese test manufacturers.
Microbix has begun seeing orders from China again in the third quarter, management said, but at a lower level. Groome said the company had budgeted a little more than CAD 1 million of China revenue for the year and is currently below that run rate. He said the “new normal” for China demand remains uncertain.
QAPs Weakness Largely Tied to Timing
Management said the company’s QAPs revenue decline in the second quarter reflected customer timing rather than a loss of demand. Currie said one of Microbix’s largest proficiency testing customers runs three events per year, which fall into the company’s first, third and fourth quarters, but not the second quarter. Those events can generate CAD 1 million to CAD 1.3 million each, he said.
Currie said QAPs revenue, which was about CAD 0.6 million in the quarter versus a previously referenced level of about CAD 1.6 million, is expected to “bounce back” in the third and fourth quarters.
Groome said Microbix is pursuing QAPs opportunities across several use cases, including onboard kits for approved assays, validation at new clinical sites, retraining, routine quality management and external quality assessment schemes. He said some opportunities are six-figure projects, while larger programs can reach seven figures or, in some cases, eight figures over time.
However, Groome said the company would not disclose specific commercial opportunities until they are secured by contract or begin producing material revenue. He said larger projects often begin with development revenue, followed by validation lots and pre-launch stocking before reaching full commercial sales.
Margins Pressured by Lower Volumes
Currie said gross margins are below the company’s target, which he described as being in the “60-ish” percent range. He said lower volumes have forced Microbix to absorb fixed manufacturing costs across a smaller revenue base, increasing cost of sales.
Microbix ended the quarter with CAD 8.1 million in cash, Currie said. He estimated cash burn at about CAD 1 million during the quarter and said that level could persist over the next few quarters. Groome clarified that the burn figure includes capital investments, financing activities, debt repayment and share buybacks.
Currie said Microbix has begun repaying interest-free FedDev loans that supported the company’s growth, with repayment scheduled over five years. He also said the company is deferring “nice to have” capital spending while continuing necessary investments. Under its normal course issuer bid, Microbix bought about 1.5 million shares for CAD 361,000 during the quarter, he said.
Operations Built for Scale
Chief Operating Officer Ken Hughes said Microbix has expanded its operational capabilities from classical virology and pathology into synthetic and recombinant capabilities. He said the company has also built semi-automated and automated processes to support scalability.
Hughes said Microbix continues to use operational excellence initiatives to improve yields, reduce costs and support margins, while expanding its QAPs portfolio and antigen capabilities. He also pointed to improvements in the company’s electronic quality management system and enterprise resource planning software.
Groome and Hughes said major diagnostic companies are regularly conducting multi-day quality system audits of Microbix as they evaluate the company as a supply chain partner. Groome said Microbix is being considered for opportunities that would have been “unthinkable a few years ago,” though he cautioned that this does not guarantee the company will win the business.
Kinlytic Timeline Reiterated
Hughes said the Kinlytic program is moving forward with partner Sequel, with scale-up and validation of drug substance manufacturing underway and work beginning with a drug product contract development and manufacturing organization. He said the timeline has not changed, with submissions expected in 2027 and market-building activity in 2028.
In response to a question about whether revenue had shifted from 2027 to 2028, Groome said the company has previously discussed a filing in the second half of 2027, followed by FDA review and a potential product launch in 2028. Hughes said revenue could occur in 2027, but approval is targeted for the back end of that year and broader market-building is expected in 2028.
Hughes said the current focus is the catheter management indication, where the amount of active ingredient required is much lower than in larger systemic indications such as pulmonary embolism. He said Sequel has expressed interest in all indications and jurisdictions, but the catheter clearance market is the starting point.
Groome said Microbix remains focused on rebuilding diagnostic revenue while advancing Kinlytic on a fully funded basis. He said the company’s balance sheet remains strong enough to execute through the current period of weaker quarterly results.
About Microbix Biosystems (TSE:MBX)
Microbix develops proprietary biological technology solutions for human health and well-being, with about 90 skilled employees and sales growing from a base of over $1 million per month. It makes a wide range of critical biological materials for the global diagnostics industry, notably antigens for immunoassays and its laboratory quality assessment products that support clinical lab proficiency testing, assay development and validation, or clinical lab workflows.
