Microbix Biosystems Inc. (MBX) Earnings Call Transcript

Good morning. Thanks for joining us with our first webinar of the year kicking things off again, Microbix giving us an update on the year-end and Q4 results, that's fiscal Q4, fiscal year-end. With me today are Cameron Groome, CEO; Ken Hughes, COO; and Jim Currie, CFO. They're going to give a little bit of an overview on the quarter and year-end, and then we'll jump into some Q&A. As always, even though we're not working off a presentation, this session will contain forward-looking statements. If you'd like to know more about those, you can find them on the presentation on the website, which was updated this morning, so feel free to check that out. And as I mentioned, there will be questions, so feel free to input your questions to the Q&A box or you could e-mail them to me. With all of that out of the way, I'd like to introduce Cameron Groome, CEO. Hi, Cameron.

Good morning, Deborah. Good morning, everyone. Thank you all for joining us, and I'll in turn, introduce Jim Currie, our Chief Financial Officer; and Ken Hughes, our Chief Operating Officer, who are also on the call today with us. So, great, I guess, Deborah, I'll launch in. I mean, this is to discuss, principally, our results for Q4 and the full year of 20 -- fiscal 2023, that's the quarter and year ended September 30, 2023, which capped off what I would call a year that was both challenging and fulfilling. We successfully adapted to post pandemic conditions. We had a number of important new customers and products. We signed a fully funded redevelopment deal for our biological drug, Kinlytic Urokinase and we maintained our financial strength. However, we did see a pause in our sales growth in 2023 due to a lack of new orders for our DxTM viral transport medium, which we've been selling EUR 5 million for the previous 2 years and net of other new revenue and expenses led us to a small net loss for the full year of fiscal 2023. But again, in light of the changes that we've been undertaking and the investments we're making to support the longer-term growth of the business, I think we're satisfied with that result in light of the challenges that we faced through the year. I might ask Jim now to speak a little bit about the top line gross margins, net earnings influences in the year and just touch on Q4 and the full fiscal year, if you don't mind, Jim. Jim we will have to get you off of mute, it will be more compelling if you do.

I haven't even noticed that. Thank you, Cameron.

No worries.

I apologize. Yes, I'll start off with fiscal '24. As Cameron indicated...

2023, you mean.

2023, yes, I'm already into 2024 that I'm starting Q1. So I apologize. Yes, 2023 was a challenging and interesting year. Let's just say, I think from my perspective, we were down versus prior year. predominantly due to the fact that we had -- the lack of DxTM revenues, and that was about $5 million to our top line differential from fiscal 2022. So that had a large impact, both on the top line and on our bottom line for the year. We also had some impact during the year and at year-end related to our Kinlytic transaction, which concluded with sequel in May. So we saw some revenue recognized in the, I guess, the third quarter related to that transaction. And at year-end, we also saw the reversal of the impairment of the Kinlytic asset for just over CAD 3 million occur. That impacted not our top line but did impact our net earnings for the year. As far as the rest of our business though, I think once you took out the impact of DxTM and Kinlytic, the rest of our business actually grew 8% during fiscal 2023, which was a good sign. We saw growth from both the QAPs business as well as our antigens business, which is starting to recover from where it was back before the pandemic. That was a good sign during the year. From a margin perspective, it was a weaker year for margins than it was in the prior year. And again, it more relates to product mix. We didn't have the VTM business, the DxTM business that had fairly strong margins. We also -- the mix of products within the antigen business was different and affected our margins for the year. And also, we had a write-off. Not only did we not have the revenues from DxTM in the margins, we also had to close to a $1 million write-off of inventory related to DxTM during the year. So all in all, when you look at our bottom line, the net income was pretty much breakeven. But that was impacted very strongly by the reversal of the impairment of the Kinlytic asset and that offset some of the losses that we had from our core businesses during the year and, again, some of the write-downs that we had related to DxTM impacted that as well. For the fourth quarter, we saw a fairly level result in the top line year-over-year. We had what I would call -- we have a quarter where all the stars aligned in terms of what we actually sold from a product mix standpoint. And we've had a few of those over the years. This was not one of them in Q4. Unfortunately, stars didn't align with the product mix. We had some fairly significant sales of one of our lower margin antigen products in the fourth quarter, and that had a significant impact. We've also got increased -- continued increased costs, both from labor, but also our materials and our supply chain costs that are impacting us. We also had some batch failures occur in the fourth quarter. And an increased procurement level of supplies for our quality control and manufacturing team during the quarter. Now all of that was -- again, offset by the reversal of the impairment of the Kinlytic asset and actually produced a net income during the quarter and again, brought us to fairly close to breakeven a year from a net income standpoint. So again, it was a very mixed bag during 2023, I would say. Our timing with Kinlytic was good and strong, and we continue to -- we will continue to see the impact from that transaction in fiscal '24 and obviously, beyond fiscal [ '24 in July ]. So again, challenging and interesting year in 2023, but we are looking forward to a stronger 2024, both from a top line and bottom line perspective. Cameron?

Did you want to touch on the ERP go-live, Jim, and I just know that has been a big push through closing of the year as well.

Yes. Thanks for that, Cameron. Talking about challenging. The -- we went live with a NetSuite on August 1. And its timing was interesting from a year-end and audit perspective, let's just say. So -- but it was a very strong implementation. We had a good support from a consulting standpoint. The team internally worked hard with the implementation. And it went by my previous experiences with ERP implementations very well. And even from an audit perspective and having to audit both our existing previous systems and our current system, NetSuite, while it was challenging, I think I can see the light ahead for, again, the audit for 2024 being simpler and easier from a system standpoint than it was in 2023. So a lot of hard work put together by all areas, not just finance but manufacturing, QA, QC as well.

Thanks, Jim. And maybe that's a good segue over, Ken, to you and starting with the eQMS that we've been implementing at the same time as the ERP and maybe just remind everyone what that is.

Yes, absolutely. And from an operational perspective, largely, we really continue to execute and do what we said we're going to do, which is to build out capacity to support the growth going forward. On the ERP side, the IT department, the new IT department was pretty functional in that regard, too. And a comment on that would be going through the first year-end with the new NetSuite ERP, enterprise resource planning software. We just facilitate the next one. And the truth of the matter is, by going digital, we're going to support the growth in the company going forward which leads into a discussion with the electronic quality management system, which went live at about the same time as the ERP. Again, we're adding new functionalities and have added new functionalities as we move forward. It's operating very well right now, starting to integrate the ERP, the functionality from the eQMS, the electronic quality management system to allow us to support efficiencies in growth of the business. So that's really been a very successful initiative in 2023 and in 2024. We're going to continue to add capabilities right now, as we were growing, we have an electronic system and a legacy [ PFS ] system in parallel as we continue to evolve through and implement more and more less paper, more electronics, more growth and more support and higher-end activities for all staff and margins that go with that. So that's been a really successful implementation. Other stuff with regards to operations, we've had a very successful year in implementing quality systems with regards to the in vivo diagnostic realizations on our QAPs products to allow us to sell medical devices in this area into Europe. We were audited by our notified body, the regulators in Europe in August, and the group will be enterprise, then we passed the flying colors. I mean, we operate a very integrated quality management system already, ISO 13485, ISO 9001, we take the whole business very seriously. And they were impressed with our use of our new eQMS in this regard as well. So we expect to be able to access the European markets fulsomely through 2024, and we have a lot of stuff already going on in the U.S. and Canada as well. And previous legacy medical devices already being sold into Europe. So that's not going to preclude any growth in the next year and facilitate growth beyond that.

This is a little inside baseball for people in the industry, but there's a big heightening of requirements, regulatory requirements in Europe moving from the in vitro diagnostic directives, which is a [indiscernible] standard to the in vitro diagnostic regulations, IVDR much tighter standard and Microbix is chinning up to that bar to make sure that we continue to have full access in the European markets going forward. So very critical for all global customers, of course.

And because we have such an excellent eQMS anyway, the stretch is not too falling well within the capabilities as evidenced by the quality of the audit and how we're moving forward with our technical files, which are more involved in IVDD, the directives, but well within our capabilities.

Now Ken, Jim spoke a little bit about the DxTM and the fact we've not had recurring revenues from that in 2023. I think maybe as we're touching on a little bit about where we're going with our capabilities on filling, capping, labeling custom reagents and so forth and how that continues to advance.

Right. Everybody knows that we have got a lot of funding from external sources, grant funding and interest-free loan funding to implement capabilities to do that. And as a result of that, we've built facilities and currently have a capacity of even about 100,000 vials a week in this regard. That's a very flexible situation that we've been deploying at the QAPs as well as creating other products in the DxTM-related space, elution buffer, sample buffers, things of that nature. In parallel, finally, a more fully automated system is going to be delivered and installed this very quarter at Microbix which will take away a lot of the drudgery of the semi-manual situation, make it highly automated and will increase capacity further from there. There are a lot of opportunities in these types of elution media, sample media going forward and we're pursuing them with all sorts of vigor. Of course, it would be very nice if Ontario order another 1 million units of VTM, but that's not required for us to build forward with -- we're already making sales in this regarding. We're developing new products like sample dilution buffer or different tests going forward. So that capability and capacity is flexible and is being expanded as we said we would. And we're putting together the necessary quality control because the new product lines require development and body control as well, which leads me, I guess, to my final operational point. But again, 66% funded by government. We are building a new QC/R&D and manufacturing lab in Building 3, which we acquired in the last couple of years, to basically allow the testing and development capacity to fill this pipeline but also increase efficiencies in our antigen development business, which I'm sure we're going to come on to soon and move on from there. So from operational perspective, it's been a pretty good year. We've built capacity. We've successfully implemented ERP and eQMS capabilities have expanded and there are new opportunities were very well ready to address. And that I would say that that would -- that's how I look at the operational component of 2023.

Thanks, Ken. That's a great run through. I'll spend a few minutes now just speaking on some of the alliances that we've announced more recently. Since our Q3 webinar in mid-August, we've actually disclosed 5 new corporate alliances. The first one in October relates to the HPV screening program of the Republic of Ireland. People will recall that earlier in the year, we did global troubleshooting of the Becton Dickinson system workflow, their core system in Prince Edward Island, first jurisdiction in Canada go live with molecular testing for HPV for cervical cancer screening. And there's actually a reference to the PEI go live in a national post article on the 31st, no mention of Microbix, but maybe we'll change that. And then we were baked into the national screening program in the Netherlands earlier in the year. But in Ireland in October is interesting because it's on the Roche cobas system is what they're using. So again, another major international company system baking in Microbix controls for its workflow. We then announced in November an alliance with Ulisse Biomed on another HPV extended genotyping assay the clients. So furthering our reach in that emerging segment, which is very large. Then we announced an alliance with U.S.-based BioGX in early December, supporting benchtop point-of-care testing, syndromic test portfolio that that organization is advancing with Seegene USA on the 14th of December, for lab-based multiplex PCR test support. So again, further alliances. And of course, in September, we were able to make a dual disclosure, both to reference a $1 million order of QAPs from a customer, the alliance customer we disclosed in August 2022 and with their consent, we're able to reveal their identity that in fact, it is the company QuidelOrtho that we were working with and continue to work with on their Savanna Point-of-Care testing, PCR multiplex test instrument, big mouth full air, but bear with me. And certainly if you review QuidelOrtho's past disclosures, they were hoping to get that instrument in its initial assays approved in late 2022. And as with all things regulatory time lines can get pushed back, but we're very pleased that on December 20 of 2023, QuidelOrtho was able to disclose that they have gotten 510(k) approvals of Savanna for the instrument itself and for the first assay on that instrument. A fourplex genital ulcers test [ sample ] Herpes Simplex 1 and 2, Varicella-Zoster and Treponema pallidum or syphilis better known as -- and that is the first of 8 disclosed assays. And if anybody wants to go into it, there is a disclosed presentation from QuidelOrtho's December 2022 Investor Day presentation where they speak to 8 assays, the first 8 assays on Savanna and I'm pleased with Microbix is supporting development on all 8 of those assays. So one can imagine the number of instruments that they hope to place and the number of tests that they hope to sell to run on those instrument placements and the math starts to become very favorable for Microbix. And speaking of favorable math, I'll just also point to a news release that was issued this morning, and this is a different segment of the QAPs business, the proficiency testing and external quality assessment side of our business. These are the sales to the agencies that do the testing and accreditation of clinical laboratories. And we were pleased to announce for the first time we shipped a single set of orders to CAD 1 million. So again, starting to get 1 million order batches from test makers notably QuidelOrtho in September and shipping million-dollar orders to lab accreditation customers, such as we announced this morning. So the ambitions that we've talked about for a while with QAPs now is to be realized, and we certainly have a positive outlook for the balance of 2024 and beyond in that segment of our business as well as the antigen side, which has come back very smartly. And on Kinlytic, and maybe with that, I can ask Ken, who's been point on Kinlytic and just to provide a bit of a some of the positive developments that have transpired there.

Absolutely. Kinlytic is our long-held biopharmaceutical drug thrombolytic, which breaks down blood clots and the first iteration we're looking at is already approved indication of unblocking blocked biomedical catheters in patients. So we had this product for a while, but you'll be aware, of course, that we partnered with a group called Sequel out of the U.K., with very well financed niche biopharmaceutical company. We've been working closely with another sense. This is to bring back, it's not a new product, it's the bring back a product, which has 20-plus years of clinical safety and it's well worth stating ahead of time that there's absolutely no chance of clinical failure with this product. This is simply a site transfer implementation, upgrade of a process to contemporary standards and then relaunch. So we actually haven't talked to the FDA since 2017 about this when we first hooked up with Sequel. And we -- that's when went back to -- we spent the summer putting together redo of that communication, which was very well received back then with some upgrades to contemporary standards and went back to the FDA in September. And the response from the FDA was extremely supportive of our strategy for bringing this vital product back. The consequence of that was that we got the second milestone payment to initiate the process from our partners, which was USD 2 million, which has also been announced. And right now, we're moving forward, and that obviously has an impact on revenue, of course. But now we're moving forward in view and working with a number of highly adept contract manufacturing and development organizations to install the process through the process upgrades, potentially do clinical costs, if necessary, it may not be necessarily based on our consultation with the FDA and then relaunch this product initially into the U.S., then globally and then for bigger indications around the world. This is a very exciting initiative. It's going extremely well, and I'm really having a lot of fun with it. And the collaborating team is superb.

Great relationship, and we're very appreciable of our partner, Sequel and their backers as well. for the just very constructive relationship, everybody is quite excited about it. And of course, they're making investment of a number of tens of millions of dollars into the program to bring this together. So again, it would have been too heavy a lift financially for Microbix to do on our own, given Canadian access to capital. So very good partners to work with here.

[indiscernible] my excitement, I called them Sequent, not Sequel. And I know I do know the difference, but we've worked with companies with both of those names. I've been very -- very closely with Sequel and it's been going extremely well.

Very good. No, thank you, and we'll certainly be working on next steps in terms of project is milestone disclosures, of course, as our partner is private, their [ druthers ] would be just see nothing and pop up one day with an FDA approval in sales. We'll have to disclose it a little more along the way. But that will be a subject of ongoing discussion, what we disclose and when to keep Microbix shareholders properly priced. Well, with that and Kinlytic, we believe, certainly, it adds immense value for Microbix shareholders as we unwind the net present value of royalties that we're likely to see going forward and sales-driven milestone payments, it's quite a dramatic addition to the value that we continue to build in our core business, so good on both fronts there. And speaking of building value, sorry, Ken, I was going to transition over to Jim, but go ahead. I was just -- while we don't provide sort of formal financial guidance, we do quite a budgeting exercise internally looking at the outlook of our business, and sometimes we even do hit the mark with our projections. Other times external events can impact those. But Jim, without sort of straying into the formal guidance area, maybe you can just give a broad outlook on what we're seeing going into fiscal '24. And as we just are in the process of wrapping up our Q1.

Sure, Cameron. Certainly, and as I indicated in my previous comments that we're looking forward to 2024, certainly, our antigen business continues to grow even, I would say, beyond what our expectations would have been a year ago, we're starting to see some growth finally coming out of our Asian distributor and that's starting to get some real legs on it. Our antigen manufacturing is going as fast as they can. And we're adding equipment and making investments in facilities to help support the growth that we're seeing from the antigen business as well as our QAPs business. And we're starting to -- we expect to see the resumption of the targeted growth that we had for the QAPs business during our fiscal '24. You'll also see announcements related to Kinlytic. I guess it was back in November related to that transaction, which will have financial impact both in Q1 as well as fiscal 2024. So we're -- I think we're looking for record sales in 2024 and a positive bottom line. As I said, we're continuing to make investments in a number of different areas, not just equipment, but again, continuing on beyond our eQMS and broader investment in our ERP solution as well as we add modules to help support the growth of the business and start to move towards our overall strategic target of $100 million in sales and having the operations to support that $100 million sales.

Yes. I think it's worth mentioning is our 2024. We're certainly not turning down any reason to request for equipment and personnel from our team and continue to build capacity and capabilities. And, you know, luck favors the prepared as the same goes. So the more we are able to respond to requests for support from our customers, the more we can deliver value for shareholders. So that really goes hand-in-hand. And one of the things we've also resumed recently, Jim, maybe you can talk about is our Normal Course Issuer Bid or share buyback program.

Sure. we have reinitiated the NCIB. I believe it was December 8, when we reinitiated it. We've started buying back shares. We continue to believe that we're strongly undervalued. And we believe that the NCIB is an appropriate measure for that. It also provides us with -- it tends to net-off against some of the -- and an anti-dilutive in case the things that we do from an auction's perspective. I want to note the fact we've got -- we may see some insider sales happening in the spring, we do have a large -- good set of auctions from 2019 that expire in mid- to late February. So we will definitely see some transactions exercises of options and potentially some sales from what was happening at that point in time. But again, we've got the NCIB in place as well, which should hopefully offset and net -- make it anti-dilutive of our share count. So I think we're putting the right things in place for our shareholders as well.

Yes. Yes. I think, Jim, this is important to highlight part of our compensation plan is getting encouraging managers and above to develop a financial stake in the company through long-term stock option participation and the Normal Course Issuer Bid or share buyback plan is intended to more than offset any number of options that's issued in a given year, so that we are reducing the overall count of shares outstanding, rather increasing and doing that in a way that does not deplete the cash resources of the company because we're net -- a net generator of cash. So it does put us in a good position. But as anyone will recall, the revenue Canada demands, it's a share of any option gains upfront. So those managers are putting up not just the cash to exercise the options, but the cash to pay revenue in Canada. So there's got to be some offsetting sales expected even as all of us continue to put more money at risk and into the company, demonstrating our support and commitment. So just worth mentioning is that going forward that everybody understands that reality. And interestingly, the SEDI insider reporting doesn't always highlight that managers have exercised options and increased their stake as readily as they do share sales. So if anybody sees something pop up as insider sales reach out to us and we'll be able to tell you just how much people have increased their stake in a corresponding manner on a net basis. So worth highlighting that. With that, just a couple of other things I'll mention just before we move to questions. One, I just want to say, one of the things that certainly happened this year was the passing of our founder, Bill Gastle, and it's worth taking a moment just to reiterate just how much Bill's contributions continue to resonate through the organization from a scientific and from a cultural point of view, it takes enormous guts to start a business and start a biotech business literally in the basement of your home and build it over many years. It's just an immense accomplishment legacy, and we just want to recognize that Bill -- and just reiterate that we miss him and continue to honor them with what we do. And speaking of that, I also just want to call out just the wonderful staff we have. They've been just doing a tremendous job working hard and working smart to deliver these sorts of results that we're now seeing and we're going to see better and better results coming. I have no doubt but we've had full teams in here over the holidays, for example, working through to make sure deliveries made it up the door and handling international customs issues. All sorts of work that's gone on uninterrupted here, and we just can't overemphasize the appreciation we have for all the great people that are on deck here at Microbix. So thank you, everybody. And also, we couldn't do it without the ongoing support of shareholders, such as everyone that's on the call today. So thank you very much for entrusting us with some of your capital we take the responsibility very, very seriously as I hope you can tell. So with that, thank you, Happy New Year, and let's have at it with some questions.

Sure. Let's start with VTM. I've got a couple of questions. So regarding VTM. There have been some comments in the AIF and investor presentations about redirecting capacity for custom reagents for international test makers. Can you provide any additional details?

I'd rather not go too deep in, but right now, we are working with some customers that may want different reagents from us in parallel to other products that we sell, and those are being piloted right now and those volumes could become quite material. It certainly has been a disappointment. We're not going to throw stones in any of our customers, but it's been a bit peculiar in terms of the procurement practices that have gone on. But we're making the best of that. And certainly, we're not going to let any resources remain idle for any longer. One moment longer than needed.

One of our operational expertise is building modular systems, which can be applied to more local opportunities. So we've directed some of the DxTM related capacity into QAPs. Other capacity that can be directed into the opportunities that Kevin just talked about. So we build modular labs, we build modular processes and we cross-train people. So we don't expect anything to be lying idle, except because we're so busy on something else. There's lots of opportunities to deploy everything we do, and we think that way all the time.

And any other additional updates on VTM that you could offer?

No. There are some matters ongoing, and certainly, we were not -- we've knocked down tools either on government procurement or on private industry. But at this stage, I'd say we have a better record at predicting the actions of private industry that we do predicting the actions of government.

Moving on to the antigens, I have a few different questions there. Excuse me, I have lost this one now. Can you please comment on the increased batch failures on the antigens, which you highlighted in the Q4 2023 commentary. Was that the same problem you faced in Q1 2023? And has your production process changed?

Well, one of the things we've done in our production is we've actually moved over a very skilled engineering group from R&D into manufacturing. You'll see that it reflected in our cost base instead of being an R&D cost, it will come out of gross margins. But we have a very good engineering group that's really looking at enforcing a high level of rigor on all manufacturing and that can be on both raw materials qualification and practices. And the batch failures have really been a combination of both. We've certainly had some occasions where raw material was contaminated and has caused a string of batch failures also had a few, what I would call, unforced errors where breaches of sterility or practice of cost as a batch and some of that can occur with staff turnover as well. So we're really looking at dialing in success rate, dialing in yield per batch and dialing in batch activity. And getting really the best intercept of those 3 variables so that we have -- we can have some pretty good increases in delivered yields of product. But again, sometimes when you get a failure, it isn't just one batch that goes down, you can have a string of that down for the same or similar reason. And it impacts you across a quarter or sometimes 2 quarters.

Should we expect more batch failures as you try to scale up production?

I hope we're going to see less as our team applies rigor and we have more experienced hands on deck but we'll certainly -- we'll certainly be pushing in that direction. Ken, any comment you'd want to make on that?

I mean most of our products aren't having batch failures, but there's a couple of particularly complex ones that have been challenging. We did indeed strategically increase the engineering capability of the manufacturing group to specifically address these matters and they're doing that. But we are operating a sterile process and to Cameron's point. So actually get an infection and a raw material, it's nothing to do with you. And you don't find that until a few batches go down, but you do find it, and you learn from it. So we're basically eliminating errors, we're eliminating raw material risks systematically, so we do want to expect them to recur. But they are complex systems, and they are sterile. And so they are [indiscernible] on occasion of a contamination because things happen. But we fully expect the percentage proportion of batch failures in these complex processes to go down as we continue to expand because we're literally knocking off problems one by one. That's what engineering groups do.

This resulted in issues with timely fulfillment of the orders?

It occasionally has necessitated delay in order fulfillment. We try to maintain our schedules as best we can with customers. But again, these are complex biologicals -- complex biological systems, in fact, as well as products. So this is not untypical. We've seen this. In fact, with the thrombolytic industry globally where there's been persistent manufacturing issues in the competitor to Kinlytic. So we're not -- this is not an issue that is unique to Microbix. I think anybody who is looking at manufacturer of biological products does see occasional issues emerge. What we're doing is really focusing down to, as Ken identified, eliminate, progressively eliminate sources of potential system failure and increase our reliability. Yes, go ahead, Jim.

No, no, I was just going to say that at the same time, we'll also be investing in inventory as well.

Great point.

And having inventory on hand in case of these situations as they occur. So we do not have any impact on our customer deliveries.

And right now, with upswing in orders that everything we make is sold. So we want to build those inventories to one event, which may have nothing to do with us, but it's raw material can impinge on that as the orders go up, which what I can tell you is we're building capacity and running at full speed and eliminating problems one by one [indiscernible].

As the saying goes, hindsight is 2020. And when the antigen business had slowed down dramatically during COVID, during the height of the pandemic, we were requesting our customers' visibility on when their demand might resume and they said we have no idea. So we carried a reasonable amount of inventory and then slow down production, that inventory got scooped up faster than anyone expected them or us coming out of this, and we've been working very hard to keep on top of demand since that time. So it's a high-class problem and we're addressing it.

It's only associated with a couple of products in the antigen space. I mean, we've got a lot of antigen products that being sold.

Yes.

Just going back to utilization. What is your utilization of total capacity available in the antigen business at the moment? And do you plan to invest there to expand production capacity?

We're continuing -- it's a bit of a multifactorial question because it's not just churning out 1 widget. We're making about 30 different products. So it really it comes into a scheduling and workflow issues of what your capacity is. To address the question square on, though, we are continuing to make investments in the antigen business and doing whatever we need to do to continue to meet growth in customer demand.

And the lots we are building in Building 3 will support development and testing in the antigen business. It will also liberate a tile in Building 1 which will house in part the long-awaited BSL-3 suite in the antigen area. And that will build a lot of capacity, a lot of capability to address new antigen and related product lines. So yes, we are continuing to build capacity to make sure that we can support the opportunities as they come to us, Which of course will.

And have you experienced cancellations from clients due to any other production issues?

No.

And then I think this is my final antigen question, and we can move on. What margin should we expect in antigens going forward if you account for batch failure?

There's quite a bit of variation across the product line in antigens. So again, it varies considerably quarter-to-quarter. I think we would see fluctuations depending on mix, you could have orders coming in with plus or minus 10% on margins. So it's quite a bit of swing, depending on mix.

Yes. I think as Cameron outlined, there is a big swing. I mean we've got some products in the low 30s. We've got some products in the 90s. So it really depends, as I said, you can get a series of products that get sold that are all in the 80% to 90% range, and you have a really strong quarter, and then you can have a real bulk in the lower end that can impact the opposite way. It's a difficult one to predict on a monthly and quarterly basis. But over the year, I think we [indiscernible].

And the other thing is these margins aren't fixed. Some of the ones that Jim has indicated, they have rich margins, pressures downwards and some of the ones with core margins, we're doing our best to improve the engineering to get those. So I think we'll see the dispersion of those margins perhaps move towards the center -- closer to our average margin that we've seen over multiple quarters.

Okay. And then a follow-up question was what's a reasonable range to expect going forward on a core basis?

I would say, and certainly, we'll be fighting to keep our margins in the 50s on a gross basis. And if we can keep those in the mid- to high 50s, I think we'll be pretty satisfied with that.

Okay. I think we've beaten the antigen horse to death. Moving on to QAPs. So QAP momentum is building, but has fallen short of projections for some time now, what is your level of confidence in QAP revenue nearly doubling this year?