Call Start: 08:30
Call End: 09:18
Enzo Biochem, Inc. (NYSE:ENZ)
Q3 2014 Earnings Conference Call
June 10, 2014 08:30 AM ET
Barry Weiner - Co Founder, President, CFO, Principal Accounting Officer, Treasurer and Director
David Goldberg - VP of Corporate Development and Interim General Manager of Enzo Clinical Labs
James O'Brien - SVP - Finance
Bill Bonello - Craig-Hallum
Jack Wallace - Sidoti & Company
Good morning, and welcome to the Enzo Biochem, Inc. Third Quarter 2014 Operating Results Conference Call. I will now read the company's Safe Harbor statement. Except for historical information, the matters discussed in this news release may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended.
Such statements include declarations regarding the intent, belief or current expectations of the company and its management, including those related to cash flow, gross margins, revenues and expenses are dependent on a number of factors outside of the control of the company, including, inter alia, the markets for the company's products and services, cost of goods and services, other expenses, government regulations, litigations and general business conditions. See Risk Factors and the company's Form 10-K for the fiscal year ended July 31, 2013.
Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that could materially affect actual results. The company disclaims any obligations to update any forward-looking statement as a result of developments occurring after the date of this press release.
During this conference call, the company may refer to EBITDA, a non-GAAP measure. EBITDA is not and should not be considered an alternative to net loss, loss from operations or any other measure for determining operating performance. The company has provided a reconciliation of the difference to GAAP on its website, www.enzo.com and in the press release issued last night.
Our speaker today is Barry Weiner, President. At this time all participants have been placed on a listen-only mode and the floor will be opened for your questions and comments following the presentation.
I would now like to turn the floor over to your host. Mr. Weiner, the floor is yours.
Thank you. Good morning and thank you for joining us. With me today is Jim O'Brien, who we recently announced, joined us as our new Senior Vice President of Finance and David Goldberg our Vice President of Corporate Development.
Our press release regarding the fiscal third quarter operating results was distributed last night and has been uploaded to our website as well. Enzo's operational performance was strong across the board this quarter, both Enzo Clinical Labs and Enzo Life Sciences saw growth in revenue sequentially with the second fiscal quarter and over the prior year.
As we will discuss in more detail shortly, we saw both service volume increase in the lab and increased product sales in life sciences, which reflected the strong demand in the market for Enzo’s products. In addition we are positioning the company for further expansion in growth based on advancements in our research and development programs as well as new service and product introductions to meet this evolving and growing global healthcare marketplace.
This is dramatically evident in today’s market for molecular diagnostics. This is the fastest growing segment of the clinical market today. It is occurring at a time when clinical labs reimbursement is being reduced and in all likelihood will continue to do so.
It is also coupled with the trend of increasing demand for these types of services. This eroding reimbursement situation is presenting extreme economic challenges to the clinical lab industry as a whole.
If you followed Enzo for any length of time, you would know that our company has had a long track record of developing and providing novel approaches to complex problems. Since our early days when we first introduced the technology for visualizing DNA without the use of radioactive isotopes, we have been at the leading edge of clinical advances.
Today in order to counter the shrinking reimbursement situation I spoke of just a second ago, we are focused on capitalizing on our development capabilities by introducing platforms and products that will meet this newly arising special diagnostic need within our industry in a very cost efficient manner.
Our infrastructure which has been built and refined over the last number of years has provided us with a very strong set of capabilities from discovery and development to validation, production and marketing to contribute in a major way to how molecular diagnostic assays will be developed and be introduced into the marketplace.
We have in place a uniquely integrated research product platform capability encompassing life sciences development and clinical lab expertise, coupled with our highly regarded service capability at the lab, to develop and gain access for new technologies, it is a highly promising and unique blueprint for our ability to create value and we have made substantial progress on this front.
If you consider the dynamics of the clinical testing market, you can appreciate that there is a growing tension between the laboratories and the diagnostic suppliers. In fact it’s interesting that an executive of one of the major IDD companies just last month, went under record to say that despite the reductions in reimbursements that its customers are seeing, he sees no need to reduce its prices at this current time.
Such a dynamic makes it nearly impossible for most clinical labs, despite increasing demand for their services to ever hope to improve their margins. We believe that we have both a short term and long term solution for this challenge and at its core it lies in the ability to provide potentially disruptive technologies to labs to allow them to validate their own assays in the short-term, while FDA clearance is being sought as opposed to relying on suppliers that may not be willing to work with them and across remediation strategy. We have the IP depth to allow us freedom of operation in this field for labs that have the infrastructure and capability, to go through their own validation processes, circumventing the IP landscape that docks the molecular diagnostic space which can be a mind-field.
Also we were able to provide the capability to manufacture consistent high-quality molecular-based reagents for these critical components. To address these challenges in the industry we have developed a solution that in reality represents a comprehensive shift in the traditional business approach to the market. It is based on the proprietary technology and platforms developed at Enzo. It is underpinned by one of the broadest and deepest intellectual property portfolios in the industry which does provide us with the freedom to operate. These platforms which I will detail after we review our quarterly financials, have led to an extensive pipeline of molecular-based products that we believe can offer performance at least equal to or better than existing technologies, and most importantly provide these at a greatly reduced cost.
Our solution will also provide clinical labs with optionality that is they can obtain high-quality reagents produced under tight regulatory control and validate their own assays on any number of open platforms or they can utilize the services of our clinical lab, and refer such test out to us at rates below what many others are currently charging. In either case, clinical labs should have the opportunity to participate and return marginal income from the fastest-growing segment of our market.
With that as an introduction I'd like to turn the discussion to the financial results for the quarter.
As we reported last night, net revenues for the April 2014 quarter were $24 million versus the prior year of $22.6 million. This is up $1.4 million or 6%. Services revenues at Clinical Labs were $14.5 million versus $13.4 million, up $1.2 million or 9% from 2013. This is due to increases in our molecular and higher-value test volumes. Revenues would have been at least $600,000 higher, if not for the impact of the severe winter weather that almost everyone in our industry experienced. Product and royalty revenues at Life Sciences were $9.4 million versus $9.2 million, an increase of 200,000 or 2%, as we continue to see the impact of our focused marketing efforts in the areas of genomics and drug discovery, and this has been offset by lower royalty income revenue.
Overall, gross margins expanded by 15% with double-digit growth seen across the board. Margin improvement on services was again due to the increases in our higher-value assays, while our more favorable product mix contributed to the gain at Life Sciences. As previously announced in April this year, Enzo recorded a $5.1 million settlement from Affymetrix in our New York case. It is important to note that this settlement does not include the litigation currently pending in the district of Delaware or any of the claims assorted there.
Also during the third fiscal quarter Enzo reached a preliminary agreement under principal terms of the settlement with the U.S. Department of Justice to resolve a matter which began in 2012 covering the period back to 2004 around the processes in the collection of diagnostic codes. As a result the company has recorded a reserve in the third quarter, of $2 million; it is our expectation that once the final agreement is signed, the reserve will be paid over a five year period. Both legal settlements are presented on the statement of operations under the caption of legal settlements net.
Other operating expenses for the quarter excluding the impact of litigation settlements and associated legal fees were $13.1 million versus the prior year of $14.7 million. This is down $1.6 million, or 11%. It is the result of the enterprise-wide reductions in SG&A, lower R&D spending, and improvements in the allowance for uncollectibles at Clinical Labs.
The net loss improved by $5.3 million or 92%, while the EBITDA improved by a similar amount. Excluding the impact of the legal settlements and associated legal fee structuring charges, the third quarter non-GAAP net loss would have been $2.1 million and the adjusted EBITDA would be negative $1 million, both substantially improved from a year ago.
Turning to the year-to-date results. The net revenues for the year were $71 million versus the prior year of $70.4 million. This is an increase of about $600,000 or 1%. Clinical Labs was $43.3 million versus $41.9 million. That’s up 1.4 million or approximately 3%, in spite of the weather-related issues. The Life Science revenues were $27.8 million versus 28.6 million; this is down about 800,000 or 3%. Of that reduction 600,000 or nearly 75% was due to reduced royalty income that we’ve realized from our licensee in this fiscal year.
The year-to-date net loss improved by 8.3 million or 55% while the EBITDA also improved by a similar amount mostly due to the improved operating results I just mentioned in the legal settlement recorded in the third quarter. Excluding the impact of legal settlements and associated legal fees and restructuring charges all of which were recorded in the third quarter, the year-to-date non-GAAP net loss would have been 8.4 million and non-GAAP EBITDA would have been a negative 5.2 million, again both sharply improved over the year ago respective results.
We refer you to the tables attached to the press release which includes the reconciliation tables of GAAP to non-GAAP net income or loss and EBITDA to adjusted EBITDA. With respect to our liquidity and capital resources our balance sheet has strengthened reflecting the benefits from the legal settlement, operations and investing activities, cash on hand as of April 2014 approached 15 million and working capital was about 16.1 million.
This enables Enzo to continue to invest in growing the business and product development and to further expand our products and service offering. Our revolving credit line balance was 3 million essentially unchanged from the prior quarter, and overall we expect performance to continue to improve over the remaining part of our fiscal year.
Before I turn to provide a little more color on the operating results, I'd like to provide you with an update on our other legal matters. As you may be aware our patent estate has generated significant value for us over the years. This was exemplified by federal jury finding last year against Life Technology and providing us with an award of over 61 million in direct infringement penalties and interest payments.
As expected after the judge formally upheld the jury verdict and set the interest rates Life Tech filed an appeal to this decision. We’re hopeful that this matter will be resolved during this calendar year or at the latest early next year. With respect to the actions in our remaining New York cases, we have a trial day set for action against PerkinElmer at the end of the month, and Roche should be scheduled in the coming months.
Finally our other cases in the Delaware court against multiple parties are now moving through the discovery phase with trial dates expected within the next year or so.
Turning back to our molecular diagnostic strategies, which is the core of our strategic direction. Let me update you a little bit about our lead platform technology. AmpiProbe is a nucleic acid amplification and detection platform that could allow more efficient delivery of gene based diagnostic testing. It’s been designed to allow multiple testing from a single specimen, which can materially alter the price structure for doing these types of tests.
And thus part of the solution to the challenges that face the clinical lab industry in general. Our goal in the development of products and services using this technology is to reduce the price of performing such tests to below the current costs of purchasing the reagents alone. This potentially could allow a number of small to medium size labs and let alone the larger labs with our hospital based who're independent to be able to survive and generate marginal income against the dynamics of the revenue reinvestment marketplace. They can do this by either developing molecular test based on our own technology themselves or by being able to refer these test to our own laboratory at a much reduced price from conventional testing methodologies in charge.
In either case they will be able to define and generate an improvement in their marginal income. This bifurcated approach to the market may allow Enzo to capitalize far more quickly on the successful development of products based on this technology and is possible only due to the unique integrated nature of our infrastructure. To note our cross functional translational diagnostics teams are developing an impressive pipeline of potential products based on this technology. And these include comprehensive panels for both infectious and sexually transmitted diseases related to women’s health, general infectious disease and those potentially related to cancer, both diagnostic and prognostic.
While it is always difficult to predict when these products will emerge from the regulatory process, it is our belief that the first of these offerings will hit the market in early calendar 2015.
Before concluding let me make just one more comment on AmpiProbe. This platform may have other utility aside from being the underlying technology in our human clinical diagnostic assays. We believe that there may be application for AmpiProbe in such areas as veterinarian medicine, bio-processing, food safety and biodefense.
On a different front we are also progressing with products based on other Enzo platform technologies. For example, we are developing cell-based assays that will go to the same validation process as our AmbiProbe products. Our vast experience in the development of homogeneous assays that are the foundation of a key diagnostic technology still needs today, may lead to the development of more sensitive gene expression tests that have a wide range of uses in the diagnostic space. We will provide more details on this platform as it proceeds to the development and regulatory pathways in the future. Additionally, we anticipate another addition to our women’s health portfolio in the near future, one that will provide pathologist with the ability to more precisely discriminate biopsy specimens with indeterminate results.
I also, at this point like to provide some color on the latest partnership we entered into recently. These partnerships are key components of our strategy as we advance the development of our platform technologies. Last week, we announced a collaboration with Innate Pharma to support a novel application of Enzo’s ProteoStat products for antibody-drug conjugate design. ADCs as they are called are monoclonal antibodies that are engineered to go unnoticed to deliver cytotoxic drugs to cells expressing certain antigen targets.
Cancer therapy has become the most prevalent application area of these ADCs and there are about 30 currently in clinical trials. Successful development that requires optimization of several elements which include the antibody, the potency of the drug, the stability of the linker, the site of the conjugation and the stoichiometry of the resulting adducts. It’s rather technical but we believe that the future of cancer therapeutics could have a very strong value add from these types of products. We believe that the results of this collaboration could potentially lead to further adoption of the key products that we are selling that is aiding this in the drug discovery market.
Additionally, we were pleased to announce earlier this month that Enzo was granted a patent that was related to the construct of an artificial vector that was capable of delivering greater efficiency, in targeting specific cells in the application of gene therapy and gene transfer technology in general. The invention provides an alternative to the direct delivery of nucleic acids or DNA, an approach with a number of limitations. These include the low efficiency of transferring the DNA, the reduced stability and the lack of cell specificity.
Our technology provides a number of compositions that are useful for effecting change in biological function and processes within the cells. It provides for targeting specific cells or specific cell receptors localizing to specific sites within the cells and augmenting interaction between Enzo’s novel vector and targeted cells; and as such, may have potential in therapeutic application. As you have read from the recent ASCO meeting, the utility of delivering novel genetic constructs into cells for the treatment of cancer is gaining a higher visibility and more acceptability as we are seeing the utility of these types of products being applied into these such as melanoma just one.
Before turning the call back to the operator for questions, I would like to reiterate that it continues to be a very exciting and very-very dynamic time at Enzo. We anticipate that through the remainder of 2014 and into 2015 that Enzo's operational performance will continue to improve. Our product development efforts are accelerating towards new approvals and introductions in the marketplace that will further reach into the global healthcare marketplace. We believe that the third quarter’s results follow the trend of the past two quarters and point to the positive direction we have outlined for our company. The aggressive streamlining of the company that took place over the last 24 months is now showing positive economic results.
The Novell product platforms we have been working on are now positioned to address a growing economic challenge in the market. We continue to look for effective least dilutive ways to monetize many of the transformational technologies we have developed, and as such we continue to explore joint ventures and other forms of partnerships as a way to help advance technology and benefit all of us as shareholders.
Our strategic objectives are to enhance our business and assure greater recognition for Enzo and its many assets along with our determination to achieve full value for the company. We are continuing to move forward on a number of fronts and as we move forward we hope to realize the lofty goals that we have set for ourselves.
At this point, I would like to turn the call over to questions from anyone in the group.
(Operator Instructions). Our first question comes from the line of Bill Bonello with Craig-Hallum.
Bill Bonello - Craig-Hallum
Good morning guys. Thanks for all that color. Just a couple of follow-ups, without getting into specific partnerships can you give us any more color on the types of partnerships that you’re discussing, for AmpiProbe for instance are these partnerships contemplated within clinical diagnostics in other segments, are they related to product development, marketing, laboratory partners all of the above?
You know the technology has a very robust utility. And the issue of economics has become a driver throughout all the industry needs for diagnostic formats, as such we feel very fortunate that these technology appears to satisfy the economical needs of a low cost testing system and yet provide an exquisite sensitivity which is of importance in certain sectors of the market.
We today are in dialogue with a multiplicity of partners across a number of disciplinary areas, as an example. Obviously, the clinical lab market is foremost and highest priority for us because of the closeness to our own business operation. We are exploring a multitude both in the U.S. and abroad of potential relationships to partner in the development of AmpiProbe in the human health sector. We are also exploring options with tools and device manufactures. We are not an equipment maker by definition. There is application potential for equipment with this technology. We have designed it so that it could be utilized on routine existing platforms in laboratories to save capital expense for parties. But at the same time there are some designated options and opportunities that could be realized and that is another area of exploration.
In the non-human health area, there is potential dialog in the bio processing area. This technology holds interesting application for food detection, food packaging detection and as well as processing clarity in pharma and other areas. It also has particularly strong interest because of the exquisite sensitivity. Sensitivity that, we’ve capitalized on as an economic driver, meaning being able to deliver a low cost human health solution but at the same time that sensitivity is applicability in the bio-defense area. And we are in dialog with parties to produce exquisitely sensitive bio-health detection options. So it’s rather broad based, it’s a very broad platform but we feel it has a great opportunity.
Bill Bonello - Craig-Hallum
And then just as a follow-up to that can you kind of tell us what steps you’re taking to ensure that you’re capturing maximum value from your IP then, it’s very exciting to see all these people interested at the same time we see you, in a lot of ongoing litigation today and so how are you setting yourself up that you’re actually getting the maximum benefit from your own IP?
Obviously in our industry you have to protect your IP that is one of the core assets of any company’s value proposition. We have filed extensive patent coverage applications around the AmpiProbe system and its aligned products. I think one in deduced from our history it’s an area that we do very well and we’ve been relatively successful in.
That being said, we as a company are not capable to develop all of the potential applications associative with this platform. And thus we are looking at various types of relationships which could range from specific royalty based relationships to providers of reagent supply types of relationships with given parties. To get this technology into the market, I think it would be in our interest and I think it would be in the interest of the healthcare community as a whole to get this technology out and useable, as quickly as possible. And to do that, I believe we will have to be flexible and more willing to partner with parties than perhaps we’ve been in the past.
Bill Bonello - Craig-Hallum
That’s very helpful. And then just -- also sticking with AmpiProbe, one line we expect to be seeing in terms of external validations in the technology as the year progresses?
There, we have seeded this platform in a number of academic labs as well as commercial labs. We are aware of publications in development which hopefully will be merging into the scientific community over the next six months or so.
Bill Bonello - Craig-Hallum
Excellent. And then if I may, just aside from sort of the AmpiProbe based products, can you just give us some sense on the potential introduction of other new products in the near-term, not stuff you’re developing but other new products that you might just, new assays in the lab, new products in life sciences et cetera. What's sort of the outlook were continuing to expand your portfolio there over the near-term?
Hi Bill, it’s David Goldberg. We will be introducing a couple of products in the lab very, very shortly; one is related to is another addition to a women’s health portfolio. Actually it’s developed internally at Enzo Life Sciences and it will be a pathology based assay for looking at indeterminant biopsy results and we hope to announce that very, very soon and that will be a nice addition to our continuing growing women’s health portfolio, that’s the one that comes to mind.
Bill Bonello - Craig-Hallum
Excellent. And then just if I can, one final question just as you position yourself more as a reference lab than is just a sort of routine clinical lab, what kind of steps if any are you taking to sort of build out infrastructure to reach beyond the New York metro area.
Well that’s exactly what we are doing. What we’re finding is that we built up our infrastructure within the translational diagnostic group to help us get assays validated both ones that we might develop internally with our own technology and some that we may get from partners. So we have been able to expand that group very nicely also keeping obviously a very close eye on costs.
And we have engaged other laboratories right now in discussion because as Barry indicated this is a market dynamic that you see across the entire laboratory industry. And the initial response has been very good, people are very interested in sitting down and discussing the kinds of things that we can do, we have a very experienced sales and marketing group and the advantage that we have also built is because we are really an integrated company, really Enzo is -- you can think of Enzo even though we have different divisions, we really are an integrated company.
We have expertise both nationally and internationally as well as regionally in sales and marketing on both products and services. So with our groups working together we think that we can really offer up not just a product a service but actual solutions for other laboratories that are certainly facing the reimbursement crunch that we’ve talked about quite substantially.
I mean just to further that thought a little bit, the clinical lab over the last 1.5 year to two years has gone through a very, very important and I would say strategic evolution. We have been morphing the laboratory on one level from a routine provider of test to a center for excellence from molecular testing and that required infrastructure change, human capital change, it required IT change. And as you’re probably aware as an New York State laboratory we have the ability de facto to process specimens from a majority of the states in the United States. Those that do not recognize the New York State licensor which is only a handful, we will obtain specific licensor from.
So we have been prepping, defining and changing the infrastructure of the lab to allow it to meet this strategic shift that we have been targeting now for the last 18 months to 24 months. When these products are available, when we will begin to provide services not only to our own regional market and again for us our own systems will be in a tremendous improvement on our cost of goods. So we will see improvement in the lab just from the integration of our own systems, let alone the repositioning of the lab as a reference service to other labs across the United States.
We see terrific opportunity. So this has been a stage process, we are making very good progress. And so we are positioning to become a national provider as reference services.
Our next question comes from the line of Jack Wallace with Sidoti.
Jack Wallace - Sidoti & Company
Couple of questions about the lab here first, you saw the volume growth in the quarter sequentially and year-over-year and you mentioned also some mixed shifts, some higher I guess margin molecular tests. We saw revenue up about 5% sequentially yet the gross margin was a bit flat, can you give us a little color as to why we didn’t see a little bit more gross margin improvement there?
Yes, Jack, David Goldberg here. The major reason was the severe winter weather, the early part of the quarter, if you certainly remember was very, very difficult for us and if out of the estimated 600,000 or so revenue hit that we estimated, a good chunk of that would have dropped to the gross profit line, because as you know you have a lot of fixed cost in the laboratory business. And we believe a good portion of that would have hit the -- would have had a positive impact on the gross margin, that’s the major reason. We believe that going forward the margins will actually improve, given where we see ourselves in the fourth quarter.
Jack Wallace - Sidoti & Company
Great. Thanks and that was leading to my question was how much of that was coming in the next quarter or so and it looks like you’ll see a nice little catch up over the next two or three quarters, before we realize that 600,000 amount is that about right?
We like to think a good chunk of that yes.
Jack Wallace - Sidoti & Company
And can you talk a little bit about the market reception of some of the newer test added in the last six months, the company as a whole, you’ve been focusing on becoming more a molecular diagnostic leader and the released test of were finally able to get approved after the latest associated with hurricane Sandy. How have you seen the end market reception of these tests?
Market's being very positive, I think because it really is a matter of delivering value. In addition to that we focused most of our efforts as you probably know in and around the women’s health area and related areas. And because of that we’ve had a very good uptake in a lot of these higher margin tests and I think what’s happening now is our client base is looking to us for new and additional test and that’s what we hope to bring out over the next few months, in and around women’s health but obviously with chances to expand beyond that.
You know it’s interesting as a clinical lab people tend to view you as just a provider of outcomes -- clinical outcomes to physicians. The reality is the relationship ends to tends to have with much of its physician because of its sort of scale and boutique image. It's one of an entity that is an educator to doctors as well as a provider of outcomes. The unique aspect of having our life sciences entity back supporting the clinical lab gives us a little bit different view in the eyes of our physicians. We do serve the greater New York region which is probably the highest value clinical lab market in the United States, it tends to have probably the highest concentration of academically driven medical practices in the United States and as such, our clientele tend to be very busy, very sophisticated, great cutting edge physicians.
As a result they look at the lab as not only a provider of outcomes which is certainly the first and foremost need from the clinical laboratory as an educative source in terms of trends, opportunities, new products, new technologies and how they can be applied to benefit their practice. And I think that is somewhat differentiating for us as a clinical lab to be able to be recognized as a developer of unique technologies and most of our clients understand that we are a major contributor to the industry as well as the provider of outcomes. And they look to us in our sales force to help them in keeping current keeping an edge and where things are and how to better provide diagnostic services. So I think that unique model and it is somewhat unique in our industry, will serve this well as we begin to provide other types of test, particularly our AmpiProbe system into the marketplace.
Jack Wallace - Sidoti & Company
So is it the goal of the company then and particularly in the geographic regions you serve now and eventually other parts of the country, to essentially put a rope around the women’s health area and say we’re going to be the leader here, is that the idea where you want to go, particularly with rolling out test with the AmpiProbe technology?
Our legacy market strength is women’s health, but the utility of the platform is such that its application will have a much broader reach. Women’s health is the first targeted area of the AmpiProbe system mainly because of the direction of our own clinical lab and the ability to use the lab to drive acceptance utility in understanding of the technology. You know as you’re aware the medical community is functionally a conservative market place. And as a result we need to establish the credentials of the system and we are able to do that by utilizing our own lab. And the women’s health gives us the sort of the biggest bang for the buck in the nearest timeframe. But that is not to discount. The application of this technology to the areas of our infectious diseases and cancers as well.
Jack Wallace - Sidoti & Company
Got you. Thank you. And then moving into the life science division quickly, were there any I guess specific products that are worth mentioning that led to the increase in revenue and gross margins back in the quarter?
No, not specifically Jack, just general increases in sales of the higher margin products that we have in the genomics and drug discovery area, which is where we've been focusing most of our marketing efforts. If you have been following us, you know Barry has indicated in the past that part of the transformation that we have gone through in Life Sciences after we made all these acquisitions a number of years ago and/or have basically completed a very long, and I think successful consolidation, is really the focusing of the marketing and sales and product development activities in those fields, and that’s what you are starting to see with these results.
Jack Wallace - Sidoti & Company
In the press release alluded to in the prepared remarks, the division seems to be performing a bit better than the macro environment, why was that in the quarter?
I think what we saw in the quarter was the effect of the actions that were put into place over the prior three quarters. As you are aware we're watching the performance in the prior quarters, we went through an extreme consolidation of a number of different operating units. We reduced headcounts, we tightened our product mix, we reduced the number of SKUs. We really drove a more focused business operation, at the same time we directed our product mix and our research and development efforts to the higher margin areas that are in drug discovery and in nucleic acid research. And I think that’s the effect you're starting to see. We are seeing a shift from large volume of products to a more focused high margin group of products, and we also saw international pickup these last quarters. So I think there were some bad waves of concern moving through Europe, last year. And I think that's settled down a bit now. So we’re starting to see all the elements come in to place.
Jack Wallace - Sidoti & Company
Got you. And then lastly here, you talked earlier on the call about bringing these products particularly [indiscernible] technology to market in the most accretive manner. And in the quarter you exercised, looks like you sold about 5.3 million through your ATM on the shelf there, that 20 million totals you are halfway through that now. The cancellation looks fairly good particularly with the money coming in from the IP litigation cases. Why sell the additional shares this quarter, particularly when you are cash flow positive as of business in the quarter.
Hi its Jim O’Brien, I’ll take that one. Effectively on cash on our balance sheet, as we accelerate our research and development activities as we continue to introduce our new products as we have spoken about today on the call. I think it's important for us to bring that on balance sheet with return in the quarter, say it is higher than we've done in the past, but given the strong demand for the stock as well as the ability to bring that on balance sheet knowing the spending that we’ve got coming up in the next couple of quarters was an important strategic move for the company during the quarter.
Also, I just would like to reiterate on that. We have been a very conservative company in managing our cash utilization. We have in front of us a very-very strong opportunity right now. We felt that during the quarter because of the strong demand for the stock, just supporting and building a slight cushion in our cash balance will be pragmatic and prudent. I think as we are now witnessing the legal cases coming to a head in many parts here, I think our cash position will improve even more dramatically than it has this past quarter, and I think the need in use for this type of vehicle probably will not be as great.
At this time we have no further questions. I would like to turn the floor back over to Mr. Weiner for any additional or closing remarks.
Just in conclusion, it’s been a very aggressive and strong quarter from a developmental aspect. Lots is materializing as we move into the fourth quarter, the final quarter of our year. I just want to reiterate that we’re looking for improved performance. We’re looking for product submissions for approval. And we’re looking for potential relationships and partnerships as well as IP resolutions to emerge by year-end. So on that note, I will wish you all well and we look forward to reporting to you our year-end right after Labor Day. Thank you.
A replay of this broadcast will be available until Tuesday, June 24 at 12 midnight. You may access this replay by dialing 1(800) 585-8367. The pin number is 53091172. This replay is also available over the internet at www.enzo.com. This concludes today's teleconference. You may disconnect your lines at this time and have a wonderful day.
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