did you read it Not very deep badMESSAGE TO SHAREHOLDERS
During the Second Quarter a number of key steps
towards establishing and funding the Joint Venture in
China to build an influenza vaccine plant were taken.
We finalized the creation and organization of our
influenza vaccine subsidiary, Crucible International
Biotechnologies Corp.This is the operational entity
for product technology transfer into partner facilities
in China as well as other jurisdictions.We appointed
Chris Baron as the CEO of the Joint Venture Company
in China and Dr. Jacques Francois Martin as
Chairman of the Board of Directors of the Joint
Venture Company. Both are international vaccine
industry veterans and have the experience needed to
deliver the facility, product and regulatory approvals.
Together with Crucible, this international
management team advanced the engineering design
of the new manufacturing facility, and investigated
options for the all important vaccine product dossier
including discussions for an existing commercial
product which would be installed in the new facility.
The ultimate goal remains to establish a facility that
manufactures product under international quality
specifications, benefitting fromVIRUSMAX
technology, and can gain regulatory approval in
China for domestic sales, and inWestern countries
for export sales. As Phase I financing was
completed, meetings were held during the second
quarter with private equity investors interested in
financing the completion of the 20 million-dose
facility. Crucible has received strong interest, which is
now leading to onsite discussions with our partner.
Crucible banking is being facilitated by one of China’s
largest State Owned banks, the Industrial and
Commercial bank of Canada (ICBC), with accounts
opened in Hong Kong and Canada through which
funds would transit into China and back to Canada.
Very recently, subsequent to the Quarter, we were
advised that Hunan Province wanted to change certain
terms and conditions of the originally signed Joint
Venture Agreement that raises the risk on the project
for shareholders in our opinion. Microbix and Crucible
management are working to bridge the gap with
Hunan and discussions are ongoing with the
Government of Hunan Province and China’s Central
Government. Because of this development, and until
these negotiations are completed the Phase I
investors’ funds remain in escrow.
The recent proof of concept announcement confirms
Management’s confidence that LumiSort has reached a
new level of technical certainty that the project will
come to fruition.This enables Microbix to proceed
with financing the construction of instrument
prototypes, which is now underway.The design of the
novel flow cell invention is a paradigm change in
cytometry instrumentation that is the basic scientific
platform into which the flow cell is being integrated.
With an order of magnitude increase in flow rate
compared to the current state of the art, and an
improved quality of sperm resulting from this new
flow cell, LumiSort is expected to deliver a much
higher level of fertility rates for sexed semen to
livestock producers.The livestock reproduction market
size has been reconfirmed to be substantial. An
additional benefit to shareholders in this development
is that no regulatory process is required to launch the
product into the sexed semen market, which is
expected in the second half of 2012.
The discussions with potential partners for
Urokinase are continuing.The companies involved are
all capable of financing the project and have the
marketing capability to realize the broad commercial
opportunity from multiple applications for Urokinase.
The industry activity and interest reflects the changed
climate for licensing and acquisition of approved
pharmaceutical products.
Recently the FDA declared their position on
biosimilars, generic versions of branded biologics
which Kinlytic™ is. Reviewing biosimilar programs
will be "comparably complex, technically
demanding, and resource-intensive" as a brand drug.
This makes a generic version of Urokinase much
more difficult to develop.
Revenue from the Core business in the Second
Quarter was more in line with the stronger level of
performance that was expected for the year in spite of
the strengthening Canadian dollar. All major
customers are expected to maintain their demand
through the second half of fiscal 201 1 however the
Virology business will be down compared to 2010 due
to the First Quarter results and more normal sales
levels for the remainder of fiscal 201 1. Sales are
expected to grow in fiscal 2012.
Excluding expenses related to Crucible, which are
consolidated into Microbix’ results in the Second
Quarter financial statements, the Operating loss was
under $ 200,000, which is less than a typical single
sales order from our major customers.This should be
encouraging to shareholders as we are close to
breakeven and reflects that a small increase in
business would bring us to profitability.This comes as
a result of improving our efficiencies atWatline and by
managing expenses, in spite of the strengthening
Canadian currency, which has dampened revenues.
WILLIAM J. GASTLE
CHAIRMAN AND CEO