Microbix Biosystems Inc. on Path Toward Cash Flow Positive

March 20, 2012 -- Microbix Biosystems (TSX:MBX) is in the process of completing financing and licensing arrangements in its three pipeline businesses, with the goal of putting them on their own financial footing and making Microbix cash flow positive as it exits fiscal 2012 on Sept. 30.

Phil Casselli

“We are making good progress towards closing partnerships that will offload the costs of our pipeline activities,” Phil Casselli, president of Microbix, says in an interview with BioTuesdays.com, referring to the overhead the company is now carrying for its LumiSort livestock semen sexing technology, its VIRUSMAX influenza vaccine business and its Kinlytic-urokinase thrombolytic agent.

Backing up the costs of the pipeline is a profitable virology business that develops, manufactures and distributes infectious disease antigens for the medical diagnostic and vaccine research industries. The company, which was established in 1988, has commercialized over 60 products derived from infectious pathogens cultured and processed at its facilities.

To turn around the bottom line by the end of the year, Microbix plans to:

- Raise around $14 million for a wholly-owned, private company in order to complete development of the LumiSort technology; and

- Relocate a flu vaccine manufacturing plant after an accord in China was terminated; and

- Conclude a partnership agreement with India’s Zydus Cadila to market Kinlytic.

Mr. Casselli says LumiSort represents a significant opportunity for Microbix, together with VIRUSMAX and Kinlytic.

LumiSort represents the next generation in semen sexing technology for livestock. It is designed to improve the yield and quality of sexed semen while increasing the speed of sex-sorting by an order of magnitude over methods used in the livestock industry today.

Mr. Casselli explains that dairy farmers will be willing to pay a premium for bull semen sexed to produce a genetically stronger herd of milking cows that will give birth to superior cows in future generations. “You get the correct sex of offspring from the best mothers,” he points out.

The current method of semen sexing uses instruments that subject livestock sperm cells to rapid pressure changes, electrical charges and high velocity impacts, which ultimately affect fertility rates, he contends. As a result, it is estimated that only 5% of the artificial insemination market uses sexed semen now.

“LumiSort will overcome these limitations,” Mr. Casselli contends. “For this reason, we anticipate that LumiSort sexed semen will have much higher fertility rates than the currently available products and could become the market leader within three years of launch.”

In a statement, Eric Danzeisen, co-founder of Sierra Desert Breeders, said it partnered with Microbix because of its confidence that this new technology is going to surpass the outdated sexing techniques currently available and will help Sierra grow into a global supplier.

“Because high quality sexed semen is the number one factor in growing our business, we’re enthusiastic in our anticipation of the advances LumiSort will bring to the industry,” he added.

Last month, the U.S. Patent & Trademark Office denied a request from Inguran LLC, the parent of Sexing Technologies, which holds 100% of the market for sexed semen, to reexamine fundamental claims in Microbix’ patent for its LumiSort technology.

“The incumbent company challenged our patent, confirming its value,” Mr. Casselli states.

Microbix already has signed term sheet agreements with 10 of the 40 global companies that sell sexed semen in what is known as “straws,” who represent about 40 million straws a year.

“Our deal will give us $1 per straw as a technology fee for every straw they sell and a 15% royalty on the selling price of each straw, which will be another $3 or so for us,” Mr. Casselli says.

“Semen on its own is a $1.5 billion a year business globally, which could double if all of the straws of semen sold today convert to sex semen,” he predicts. “We expect LumiSort will capture a significant share of this expanded market within five years.”

Microbix plans to launch LumiSort in 18 to 24 months, after raising $14 million this year. A leading insemination company has purchased a stake in Microbix’ LumiSort technology.

Mr. Casselli says that by 2050, the earth’s population will reach nine billion people and the planet will have to produce 100% more animal protein. “There simply isn’t enough land available for that, so the bulk of the additional animal protein will have to come from technology. And sex semen is a wonderful technology to get us there.”

Building on its expertise in virology and protein biochemistry, Microbix’ VIRUSMAX technology is a rapid technique for increasing, by at least twofold, the yield of multiple strains of influenza virus from the allantoic fluid of embryonic chicken eggs.

Mr. Casselli explains that the company’s initial foray to license the technology for a flu vaccine plant in China unfortunately fell through due to the partner’s desire to renegotiate fundamental terms of the original signed agreement.

However, while in China, Microbix’ operating vehicle, Crucible International Biotechnologies, completed preliminary engineering of a proposed manufacturing facility that it can relocate to another country.

And an advisory board that includes former executives of Sanofi Pasteur, the vaccine division of Sanofi Aventis, and of GlaxoSmithKline, a leading vaccine maker, also was retained.

Mr. Casselli says Crucible is now involved in “serious discussions” with other countries and is optimistic a deal could be announced before September.

The plan is to build a plant to manufacture 20 million doses of seasonal flu or pandemic vaccine initially and have the facility scalable to a total capacity of 100 million doses. The country partner would provide land and services, guarantee minimum purchases of 75% of production over seven years and obtain an equity stake in the joint venture. Construction is anticipated to take about four years.

In return for licensing the VIRUSMAX technology, Crucible would receive a 5% royalty from the joint venture on vaccine sales. It would also provide management expertise and resources for plant construction and start-up.

In January, Microbix inked a letter of intent with India’s Zydus Cadila to market its urokinase drug, Kinlytic, for the treatment of pulmonary embolism and catheter clearance. Microbix has retained rights to non-thrombolytic indications, including oncology and ophthalmology.

Urokinase was developed by Abbott Laboratories and approved by the FDA in 1978 to clear blockages in arteries supplying blood to the lungs. Until 1998, the drug was also the standard of care for clearing blockages in catheters used for dialysis. Abbott withdrew the drug from the market for three years, from 1999 to 2002, for reasons unrelated to product performance. At the time, Abbott’s urokinase sales were $300 million a year and growing.

In 2008, Microbix acquired the Abbott’s urokinase assets from ImaRx Biotherapeutics and began work to rebuild the franchise, including manufacturing infrastructure, raw materials and technical expertise. “Only Abbott and Microbix have ever made urokinase,” Mr. Casselli points out, adding that the “technical barriers are high and there is no generic competition.”

Under the accord, Microbix would receive milestone payments, royalty income and a guaranteed manufacturing margin to make the drug for Zydus. Microbix hopes to finalize the agreement in the next few months, which could mean a market launch in two-and-a-half years.

“This is a great way for Zydus to expand its biologics portfolio with a product that is proven to work and has a strong safety profile,” Mr. Casselli says.

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