Microbix is undervalued, says Industrial Alliance Securities

Industrial Alliance Securities analyst Chelsea Stellick on Monday launched coverage of Microbix Biosystems (Microbix Biosystems Stock Quote, Chart, News TSX:MBX) with a “Speculative Buy” rating and $0.50 target price, saying as a leading global supplier of biological products, Microbix should benefit from the growing demand for quality control in diagnostics.

Mississauga-based Microbix develops proprietary biological and technology solutions, specifically antigens, immunoassays and lab quality assessment products and the company also owns the global rights to clot-busting drug Kinlytic urokinase with existing approvals from the US FDA and Health Canada.

Microbix has a long history (30+ years) in infectious diseases, with over 100 leading international diagnotic companies currently buying from its library of royalty-free bacteria, host cells and viruses, which it grows, purifies and inactivates to make for key ingredients for immunoassays necessary for the presence of human antibodies.

Currently, 95 per cent of Microbix’s sales are exports to clients in the Americas, Europe and Asia-Pacific, while 90 per cent of its total sales come from its antigens, which have a CAGR of about 15 per cent.

Stellick says the worldwide focus on COVID-19 and the search for a vaccine to the coronavirus will undoubtably put more interest on Microbix and its products.

“MBX is poised to gain global attention as a result of the COVID-19 pandemic where increased testing and the need for quality control will increase the demand for MBX’s expertise to develop controls to test for the SARS-CoV-2 virus,” Stellick said.

As the analyst related in her report, the global diagnostics market was worth about US$53 billion in 2017 and is expected to grow to almost $80 billion by 2024, while the current pandemic is focusing attention like never before on diagnostic testing.

“As technology continues to improve in diagnostics that streamline testing in mass quantities, the demand for tests will increase. The benefit for Microbix is twofold: 1) increased testing results in increased demand of testing ingredients – antigens; and 2) increased testing will result in an increased need for quality control and utilization of Microbix’s QAPs [quality assessment products],” Stellick said.

The analyst has forecasted fiscal 2020 revenue and EBITDA of $13.2 million and $1.7 million, respectively, and fiscal 2021 revenue and EBITDA of $14.8 million and $2.5 million, respectively.

Stellick’s $0.50 target represented a projected 12-month return of 63.9 per cent at the time of publication.

“We see ample upside in MBX given its growth strategy in the antigen business layered with larger-scale projects that would be extremely profitable for the Company. We see this upside in: 1) antigen sales growth in Asia-Pacific; 2) increased demand for quality control in diagnostic testing, specifically in HPV, 3) increased demand for test controls as COVID-19 testing ramps up, and 4) growth potential once a partner is secured for Kinlytic urokinase,” Stellick wrote.

MBX’s share price had an up-and-down 2019, while the stock has shot up since mid-March this year, putting it up 28 per cent year-to-date.