Enzo Biochem, Inc. (NYSE:ENZ)
F4Q07 Earnings Call
October 16, 2007
Barry Weiner - President
Drew Crescenzo - SVP of Finance
Robert Gould - Private Investor
Otis Bradley - Gilford Securities
Philip Plinger - Private Investor
Operator: Good morning and welcome to the Enzo Biochem Inc.Fourth Quarter and Fiscal 2007 Operating Results Conference Call.
Except for historical information, the matters discussed onthis conference call may be considered forward-looking statements within themeaning of section 27-A of the Securities Act of 1933, as amended, and Section21-E of the Securities Exchange Act of 1934, as amended. Such statementsinclude declarations regarding the intent, belief or current expectations ofthe Company and its management. Investors are cautioned that any suchforward-looking statements are not guarantees of future performance and involvea number of risks and uncertainties that could materially affect actualresults.
The Company disclaims any obligations to update anyforward-looking statement as a result of developments occurring after the dateof this conference call.
Our speaker today is Barry Weiner, President.
At this time, all participants have been placed on alisten-only mode and the floor will be opened for questions and commentsfollowing 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 for ourfiscal 2007 fourth quarter and year-end conference call.
I would like to begin the call with some general commentsabout the recently completed quarter and year and I will touch on some of theaccomplishments made by each of our operating divisions. I would then call --turn the call over to Drew Crescenzo, our Senior Vice President of Finance, whowill discuss the financial results for 2007. Finally, I will turn my remarks toa discussion of Enzo's strategic direction. The past year has demonstrated theimplementation and execution of new directions, which we believe will set acourse for future value, and at the end, we will open up the call forquestions.
The fourth quarter of fiscal 2007 was an eventful one. Froman operating viewpoint, as the press release issued yesterday indicated, it wasa very good three months. We continued to make important progress in ouroperating divisions.
Enzo Life Sciences is moving solidly ahead following theacquisition of Axxora as its results showing initial benefits from expandedproduct offerings and its entrance into new markets.
Enzo Clinical Labs has substantially increased its revenuesas a result of its third-party contracts, and Enzo Therapeutics is vigorouslypursuing its preclinical and clinical studies for various treatments. And asshown by presentations recently at the Digestive Disease Week Conference, theAmerican Association for the Study of Liver Diseases, and the recent presentationon dealing with periodontal bone loss, which was presented at the AmericanSociety of Bone and Mineral Research shows, our scientific team continues tomake progress and gain peer recognition in a number of different areas.
We believe that these activities are the beginning of beingrecognized by the investment community in a much more substantial way as amajor investment firm recently initiated coverage of us as well.
The quarter's results were led by dramatic changes in ourLife Sciences division. The integration of the Axxora acquisition hastransformed the organization from not only a strong technological andintellectual property entity, but to one that now also has a broad-basedmarketing and distribution capability. Axxora now provides the critical mass tomore fully capitalize on the myriad of product development and marketingopportunities that Enzo's long history has afforded us.
Enzo Life Sciences has emerged as a company with fourdistinct brands: Enzo, ALEXIS, Apotech and Axxora, each with its own identityworking in cooperation with one another to maximize growth and cross-sellingopportunities.
The core Enzo branded products, which have enjoyed a veryprominent position in the genomic markets for years, will now receive broaderexposure through the Axxora platform. The Axxora platform is an electronicmarketplace, instantly connecting customers and prospects from around the worldto a central source for thousands of products that are used in a wide varietyof research and clinical applications.
Augmenting the platform is a worldwide sales and distributornetwork that affords substantially increased customer contact, therebyenhancing our visibility in the marketplace. Expanding our capabilities are ourtwo distinct manufacturing units that enjoy the prominence in their respectivefields.
First is ALEXIS Biochemicals, which is located in Lausanne,Switzerland. This is near Basel. It is a well-respected producer ofresearch-grade chemicals that are sold to the life sciences market.
Apotech, headquartered near Geneva, is a leadingmanufacturer of recombinant proteins and antibodies as well as a producer ofkits and research diagnostics in such areas as cancer research, neuroscienceand metabolic pathways, just to name a few.
Today, Enzo Life Sciences is an organization with a catalogof over 5,000 products produced in-house at various locations around the world,and it is backed by both a direct sales organization and a network of over 40distributors located worldwide.
Moreover, the Company augments these products with more than20,000 additional ones that are sourced from other manufacturers to produce anextremely comprehensive line of products. Key to the future growth of Enzo LifeSciences has been the addition of a number of key managers to the organization.
We have assembled a team of experienced professionals with ademonstrated record of success in the industry. Their presence has allowed forthe integration of Axxora to proceed even better than we could haveanticipated, and later, I will discuss some of the new staffing appointments aswell as future strategies in the Life Sciences division.
I would like to turn to comments on some of the extensivelegal activity that has also taken placed during the past year. It has been ayear filled with both multiple achievements on the patent front as well as adisappointing decision, hopefully a temporary one, in one case.
During the past year or so, Enzo was granted several keypatents relating to fundamental areas of DNA labeling, amplification andmicroarray technology. We were also named the senior party in two interferenceactions, one relating to a technology called branch DNA, a method used inmolecular diagnostics to enhance signal, and thereby increased sensitivity; andanother related to the key technology of gel sequencing. This is the methodmost often used today in genetic sequencing.
These interferences are moving forward. In the branch DNAaction, one of the junior parties already conceded priority of invention to us,and in the gel sequencing action, we are looking forward to oral arguments nextmonth.
With regards to our ongoing litigations, most of you knowthat last month, we received an unfavorable ruling in our patent infringementsuit against Applera Corporation that caused what we feel was adisproportionate overreaction in the marketplace. Our lead counsel in theaction is of the opinion that this ruling should be overturned upon appeal, andthe appeal process has already been initiated.
This decision, as we have stated, has no impact on ourongoing operations nor will it deter us from continuing to enforce ourintellectual property rights. It is also important to keep in mind that thisaction was solely related to the infringement of three Enzo patents recognizedthroughout the industry for many years and that had expired in 2004.
Other litigation that we're involved with in the EasternDistrict Court of New York involves multiple defendants and goes to issues notonly of infringement of multiple patents, but of contract violations as well.These actions are expected to go to trial in 2008, but as you are aware, timingin such issues is hard to predict.
Turning briefly to our other operating divisions, we enjoyedsignificant growth in our Clinical Labs division as we began to see the impactof our expanded relationship with United Healthcare that took effect inJanuary.
As you can see from our press release, and Drew will commenton it shortly, Enzo Lab revenues for the quarter grew by 46%, and for the year,were up over 26%. In addition, Enzo Lab experienced corresponding increases ingross profit and brought net income for the quarter to over $1.5 million.Despite the continuing downward pressure on reimbursements, the laboratory wasable to show an increase in revenue generated per specimen, and this is areflection of the increasing emphasis on esoteric testing that I will discusslater on.
At Enzo Therapeutics, we are continuing to move forward inour numerous clinical programs. We announced further results on Alequel, ourCrohn's Disease therapeutic at the prestigious Digestive Disease Weak meetingthis spring. We continue to perform toxicology studies and have developed amanufacturing protocol for the B27PD, our candidate compound for the treatmentof uveitis.
We initiated patient treatment of our HGTV43, our genetherapy medicine for HIV-1 infection, and we are progressing on a Phase IIstudy for the treatment of NASH, non-alcohol steatohepatitis, using a smallmolecule that may also have some potential as an adjuvant to other therapies.
On the preclinical front, we've presented an abstract on oneof our potential lead compounds for the treatment of bone disorders recentlyand we continue to fill our developmental pipeline.
In all, it was a year of progress where we have transformedthe Life Sciences division into a stronger operational entity. We've expandedthe capabilities and breadth of our clinical laboratory and advanced productsthrough the clinical process.
Moreover, we have significantly improved our balance sheetto afford us the ability to pursue these goals, and we have enhanced ourphysical plant with the construction of the new Life Sciences facility,allowing expansion at all three divisions.
With this as a backdrop, I would like to turn the call overto Drew, who will review the financials for the quarter and the year. Drew?
Thank you, Barry, and good morning. I am first going toshare with you our fiscal fourth-quarter results, then turn to our operatingresults of Enzo Life Sciences and Enzo Clinical Labs. I will close my commentswith a summary of the year-end results. Highlights of our results are includedin our press release that was issued yesterday.
As Barry indicated, our operating results have shownsignificant improvements over the prior-year’s quarter with our net lossdecreasing to $3.3 million, or $0.09 per share, as compared to the net loss of$4.5 million, or $0.14 per share in the year-ago period.
Our net revenues for the fiscal quarter increased $8 million,or 81%, to approximately $18 million from our previous $9.9 million in the yearago quarter. Our increased revenues were directly impacted by increase inroyalty and license fee income of $1.2 million, which were attributed to higherroyalties from Digene and the licensing fee income from the Abbott molecularagreement.
Also, increases in clinical lab revenues of $3.7 million, or46%, and $3.3 million in Axxora product revenues for the two-month ended July31, 2007 contributed to our revenue growth. Our gross profit increased to $9.2million, compared to $5.4 million in the year ago period.
The gross profit was, though, negatively impacted by thefair value accounting for the Axxora inventory that was sold. We expect thatthe fair value inventory adjustment will affect the margins until the remaininginventory is sold over the next two quarters.
Our quarterly operating expenses were impacted by ourcontinued increase in legal fees. Our legal fees increased $1 million over theprior year ago quarter. These expenses are used to pay ongoing costs associatedwith our patent protection program and other litigation matters.
Also, our provision for uncollectible accounts increased$500,000 over the prior year primarily resulting from the increased revenues atthe Clinical Labs. With respect to our other operating expenses, excluding theimpact of Axxora, our fourth quarter R&D was comparable and our SG&A,selling, general and administrative expenses, had no significant increases, andin fact declined as a percentage of quarter-over-quarter revenues.
Fiscal fourth quarter results reflect higher interest incomeof approximately $500,000 attributed to increased invested balances. Wecontinue to not record any tax benefits on our current pre-tax losses.
Our financial position remains strong. As of July 31, 2007,we had cash and cash equivalents of over $105 million and working capital ofover $114 million. During the fiscal year, our cash flows from financing wereapproximately $57 million from the completion of two registered directofferings.
We used cash of $17 million to acquire Axxora. Ourstockholders equity was approximately $142 million, and Enzo continues to bedebt free. Our current cash and cash equivalents are in excess of $100 million.
Let me now turn to Enzo Life Sciences and Enzo ClinicalLabs. At Enzo Life Sciences, pre-tax operating income improved by $1 millionover the prior year, went from a loss of $400,000 to a $500,000 profit thisyear.
Revenues for the 2007 quarter increased to $6 million ascompared to $1.7 million in the year ago period. Our royalty and licensing feeincome grew by $1.2 million to $2.1 million due to licensing income receivedunder the Abbott agreement and increases in royalties under the Digeneagreement.
Lastly, our product revenues increased by $3.1 millionattributed to the contributions from the Axxora acquisition for the two-monthperiod. Although our gross profit increased by $1.8 million, it was negativelyimpacted by approximately $700,000 for the fair value adjustment of theacquired Axxora inventory that was sold.
Operating expenses, representing R&D and SG&Aexclusive of Axxora, had increased marginally over the prior-year quarter.
Looking at Clinical Labs, the pre-tax operating profitimproved to $1.6 million, representing an improvement of $1.5 million over thelast year's quarter. Revenues increased $3.7 million, or 46%, to $11.9 million.
The increase was the result of greater specimen volumeassociated with the expanding expanded United Healthcare agreement, which waseffective in January 2007. Additionally, we are seeing further benefits to ourspecimen volume relating to test refers by physicians associated with UnitedHealthcare.
Our gross profit increased by $2 million, primarily due tothe higher specimen volume, offset by increases in routine and esoteric testingcosts. SG&A expenses were comparable to the prior period, and as apercentage of revenue, improved to 31% from 45%. Our provision foruncollectibles increased by $500,000 due to the increased revenue.
I would like to now turn your attention to the fiscal 2007full year results. Our approved operating results at Clinical Labs and LifeSciences contributed to a reduction in the fiscal 2007 loss from the prioryear. Our loss in the prior year was $15.7 million. In the current year, it’sbeen reduced to $13.3 million, or $0.38 per share.
Revenues increased by $13 million, or 33%, to $53 million,due to gains at the Clinical Labs of $8.5 million and $4.6 million at LifeSciences. Our gross profit totaled $29.7 million, as compared to $23.5 milliona year ago.
Turning to our expenses, our R&D expenses increased 19%due to increased clinical trial activities throughout the year. Our provisionfor uncollectibles increased $1 million, primarily due to the higher revenuesat the Clinical Labs. SG&A expenses as a percentage of revenue improved to50% from 62.7% in the prior year. Finally, our interest income increasedapproximately $2 million as a result of the higher invested balances.
I would like to comment on the highlights of theyear-over-year relating to the pre-tax operating results for Life Sciences andClinical Labs, specifically. Regarding Life Sciences, for the fiscal year, ourpre-tax operating results improved by $4.2 million from a loss of $0.2 millionin the prior year.
Revenues were up 58% and gross profit increased 35% to $7.4million inclusive of the impact of the inventory adjustment resulting fromrecording the acquisition of Axxora. Operating expenses, specifically SG&Aand R&D exclusive of Axxora, were comparable to the prior year.Additionally, Life Sciences recorded other income of $2 million relating tolegal settlement with Sigma Aldrich and a $700,000 amount as a partial paymentfrom a prior distributor.
Turning now to the Clinical Labs full year results. For thefull year, Clinical Labs pre-tax income grew to $3.3 million as compared to a$100,000 profit in the prior year. Revenues for the year increased by 27% andgross profit increased by 23% to $22 million for the year. SG&A expenseswere held and they were comparable to the prior year, and as a result, theyimproved to a percentage of revenue of 36% from a previous 45%. Barry?
Thank you, Drew. As I said earlier, I would like to commenton some of the strategic initiatives we have undertaken at Enzo and how thepast year’s activities have positioned us to carry these forward.
Beginning with our Life Sciences Group, we have now movedthe Life Sciences marketing capabilities from solely a distribution model toone that now provides us with the ability to have direct contact with ourcustomers to the greatest degree possible. At the same time, we have been ableto increase the reach of the products and technologies we have built at Enzoover the years.
Enzo Life Sciences is now an organization that has thecritical mass and the infrastructure to provide both the product developmentand marketing necessary to compete as a more comprehensive supplier in the LifeSciences field. The integration of Axxora into Enzo, as noted, has progressedvery well, and in fact Axxora's sales level is currently tracking higher thanat the point of acquisition.
In addition to an extremely comprehensive product line, EnzoLife Sciences has assembled a strong management team to build on thisfoundation. This month, we added both a Chief Scientific Officer and a VicePresident of Marketing to our team in Farmingdale. We believe that these keyhires will help us to capitalize on both the Axxora platform and the productdevelopment capabilities of ALEXIS and Apotech to more fully enhance the Enzobranded product line.
Moreover, these experienced individuals will have at theirdisposal a worldwide network of direct sales reps, sales offices and strategicdistributors working to improve the awareness of these core products andtechnologies. With the infrastructure now in place, the key hires made, we arenow turning our efforts to maximizing the return on our investment. There areseveral approaches that we are working on to achieve this goal.
First, we are now focusing on improving margins. As Drewindicated, the Life Sciences gross margins were reduced due to the fact that weneed to use fair purchase accounting rules to cover the inventory we acquiredfrom Axxora at closing. This will affect our reported numbers for the next twoquarters, but as we turn that inventory over, margins will improve.
In addition, the combination of three distinct manufacturingfacilities, plus the scientific expertise of our staff will allow us to move someof the Axxora products currently purchased from outside suppliers to in-housemanufacturing in order to improve not only gross margins, but also to providethe opportunities for product enhancement. We have assembled a team of seniormanagers across each of the Life Sciences units with this goal in mind.
Another benefit of the enhanced infrastructure is theability to enter into various types of transactions with other life sciencescompanies. We are looking at a number of potential acquisitions of bothcompanies and product lines, which we feel could be folded nicely into ouroperation. In this manner, we would be able to selectively enhance our broadproduct line with complementary products. We believe that combining bothorganic growth with an aggressive acquisition strategy can accelerate ourbusiness activities in the area. Our enhanced capital structure will also aidin this endeavor.
During the past fiscal year, we demonstrated the strength ofour technology and patent estate with the signing of a cross-license and supplyagreement with Abbott Molecular that will allow us to enter into the growingcytogenetics field. Having an industry-leading company such as Abbott recognizeboth our intellectual property and product efforts not only provides us withincreased revenue in the form of product sales and royalties, it also providesthe framework for other similar deals which would provide income to Enzo, aswell as access to additional technology.
We are currently in discussion with several potentialpartners for these types of transactions. At Enzo Clinical Labs, we have seenthe positive effects of the United Healthcare contract in terms of theincreased revenues and profits. We are pleased that United selected us forinclusion in their network and we have taken steps to improve and expand thelab operations to be able to sustain this growth.
It is estimated that the commercial clinical referencelaboratory industry now totals more than $17 billion per year in annualrevenues. Driving the growth in this industry are several factors, includingincreasing age and lifespan of the population, as well as the recognition ofthe value of lab tests.
It is estimated that lab tests' results account for morethan 70% of all diagnostic decisions made by physicians. Moreover, there is ashift toward esoteric testing, especially in the genomics field, and there isan increasing emphasis on electronic reporting capability.
For Enzo Labs to continue to grow, we are working to embracethese issues. Earlier this year, we added several professionals to ourPathology Group so that we can now more rapidly move the lab towards the fieldof molecular pathology. We have added a number of sophisticated panels to ourmenu in which our specialized pathology team analyze biopsies at the molecularlevel in order to provide a more detailed diagnosis that is valuable to thephysician in the management of their patients.
We are continuing to add to this menu and have also builtthe infrastructure to include any tests that emerge from Enzo Life Sciences'product development efforts. We have also made a significant upgrade to ourlaboratory information system, which not only provides us with increasedcapacity, but also has resulted in faster reporting and enhanced features forour clients, such as improved electronic interface capabilities, which allow usto more seamlessly merge our results into patient charts.
In a few months, we will be rolling out a new module tosupport our molecular pathology effort that will provide, among other features,a digital image of tumor cell study so that the ordering physician can haveaccess to increased diagnostic detail. We are also looking at strategicacquisitions here as well. As with Life Sciences, the strong capital positionwe're in allows us to pursue such opportunities, if we believe there is astrategic fit.
I would like to turn to a discussion of some of ourtherapeutic activity now. First, let me discuss Alequel, our proprietarytherapeutic for the treatment of Crohn's disease. In May of this year, wereported data from two double-blind placebo-controlled Phase II studies thatshowed that Alequel induced clinical remission and improved quality of life ata rate nearly double that of placebo.
Alequel is a proprietary autologous protein preparation,which is administered orally to patients over a period of about 15 weeks. Thedata we presented at the DDW Conference was obtained from a sample of 49patients. A third study is currently ongoing and we have enrolled more thantwo-thirds of the patients in this particular study.
We anticipate enrollment to be completed by year-end. Thisdata will be available sometime next year. The number of patients in all threetrials is expected to be -- to total between 75 and 80.
Simultaneously, we are planning to begin a multi-centerclinical trial of Alequel in the United States. We are investigating conductingthis trial as a Phase II-III adapted design in order to accelerate the studyand maximize the data obtained. We have formed an advisory board of key opinionleaders in the field and are currently finalizing the protocol and reviewingpotential sites at which to conduct this trial.
In conjunction with the clinical trials, we have found inour research that certain parameters or biomarkers might be indicative ofindividuals who would be more responsive to the drug. We are continuing toevaluate and develop these biomarkers. We have also filed a number of patentapplications in order to secure Enzo's intellectual property rights in thisarea.
Importantly, in examining the pipeline of current andpotential Crohn's therapies, we perceive that Alequel's performancecharacteristics to date are comparable or better than many of those beingdeveloped elsewhere, but without the debilitating side effects that oftenaccompany Crohn's treatment regimens.
It's estimated that there are approximately 0.5 millionindividuals that are affected with Crohn's in the U.S. alone, and at least thatmany in the rest of the world, worldwide. So we're looking forward to thisproduct with high expectation.
Turning to B27PD, our candidate drug for the treatment ofuveitis -- as I stated earlier, we are currently in the midst of toxicologystudies, which should be completed in the next month or two. We have alreadydeveloped a manufacturing protocol for this peptide-based therapeutic, and aswith Alequel, we have engaged a number of key opinion leaders to serve on ourclinical advisory board.
The encouraging results from the pilot study have given usoptimism as we proceed forward with clinical trials in the United States, whichwe hope to commence in 2008. In the pilot study, patients were given a compoundthree times a week for 12 weeks and positive effects were noted in terms ofreduced inflammation and inhibition of uveitis progression. In addition, therewas no tachyphylaxis or treatment-related side effects in any of the patients,most of which were followed for a five-year post-treatment cycle.
Uveitis is thought to be the leading cause of blindness inthe U.S., after diabetes and macular degeneration. It's estimated that 300,000individuals in this country have the disease and it is responsible for somefive million visits to eye clinics per year. In addition, studies have shownthat the incidence of the disease among those 65 years and older is higher thanonce was thought, and with the over 65 population in this country expected todouble over the next 22 years, there will be an increasing need for effectivetreatments.
Current treatment regimens include steroid-based medicinesand immunosuppressive therapies, which have the potential for inducing a numberof deleterious side effects. In the U.S., we're exploring an adaptive clinicaltrial design, which would allow us to move quickly into a Phase III trialshould the results prove significantly positive.
With both Alequel and B27PD, you should note that we havebeen able to achieve the results we have so far with moderate expenditures.Obviously, as we expand our trials, we will need to increase our expenses, butgiven our current capital structure and the design of the trials we aredeveloping, we believe that we have more than sufficient resources to take bothof these compounds to the next level.
I would like to make some short comments on our othertherapeutic activity; first, HGTV43, our study drug for the treatment of HIV-1infection. As you know, in the beginning of this year, we enrolled our firstpatient. We have been pleased with his progress to date and we continue tomonitor and evaluate this particular individual and this trial. We are lookingforward to seeing where this goes because it is such an exciting and pioneeringconcept.
Second, regarding EGS21, our immunomodulatory small moleculewe're in the middle -- of which we are in the middle stages of a Phase IIdouble-blind clinical trial for NASH -- nonalcoholic steatohepatitis. Sincethis is a 40-week trial, data will not be available until sometime in themiddle of next year. NASH and its associated metabolic syndrome is one of theleading causes of liver disease in the U.S. and is thought to be present in 20%of obese individuals and 2.5% of the general population.
Third, as part of our overall strategic plan, we have alsointensified our effort at partnering some of our products. EHT899, our treatmentfor HBV, human hepatitis B infection, is one product that we are looking atthis point to partner out. While the Phase II data, which we have reportedpreviously was encouraging, we feel that it makes prudent sense to partnerthis. There were two main reasons. First, although we are well capitalized, werealize that a Phase III trial for this treatment would be very expensive, andgiven our robust pipeline, we feel that both Crohn's and uveitis would have afaster path to commercialization.
Second, because hepatitis B virus is primarily a disease ofless developed countries, it's critically important to have the ability tomanufacture and distribute this drug into these areas with the lowest possiblecost.
We are also exploring partnering opportunities in a numberof different areas, specifically in our bone disorders projects. In conclusion,we have currently attained a dynamic and growing position in the life sciencesmarket with the infrastructure to drive both revenue and profit. Our clinicallaboratory has been expanded to handle increased workloads and is workingtowards the addition of more higher margin esoteric tests.
We have a highly promising proprietary therapeutic lineup,which has a pipeline full of potential therapeutics that target difficult totreat metabolic and immunological disorders designed to improve safety andefficacy over currently available options and underpinning all of this is astrong, highly liquid debt-free balance sheet and a comprehensive intellectualproperty and technology estate.
We have invested heavily in defending our patent portfolio,we will continue to do so. This investment has proven to generate financialreturns for our company and we believe that it will generate even furthervalue. We believe that we've positioned the company well for the near-term andbeyond and we are quite excited about its potential and our expectations areextremely high at this point in time.
I would like to open up the floor for questions now. Thankyou.
(Operator Instruction) Our first question is coming fromRobert Gould a private investor. Please go ahead.
Robert Gould - Private Investor
Yes, good morning. I have two questions concerning theclinical trials. The first involves HIV. The second Alequel and the uveitis.Regarding the HIV, only one patient has been done. The patient from otherstudies that has slowed things down, I gather had disseminated histoplasmosis-- that has absolutely nothing to do with anything.
So my question concerning the HIV is, why not a secondpatient? As regards the Alequel and the uveitis, at the annual meeting, it wasstated that clinical trials would begin by the end of this calendar year. Andnow it's being pushed into the next calendar year. When in the next calendaryear can we expect both the Alequel and the uveitis? Thank you.
First in the HIV. The HIV trial, as you're aware, is anextremely pioneering trial. The area of gene intervention in gene therapy isone that is under extremely high scrutiny by all of the regulatory agencies, aswell as the in-house oversight committee at hospitals.
We decided to take a very cautious approach to this trialbecause it was the first time anything of this nature has been conducted. Inlight of the environment, in light of the concerns that many people haveraised, whether they are legitimate or un -- other regulatory officials haveraised, whether they are legitimate concerns or not, as an entity we decided totake a cautious approach and follow the first patient to make sure that theprogress would be acceptable and we would meet our expectations.
So far, I'm pleased to say that we have not seen anyunexpected issues in our first patient and we have been very pleased with his progress.That being said, he is reaching the stage where we are beginning to trulyevaluate the aspects of this medical intervention, and we will be watching andseeing where this goes.
Obviously, we have to take a conservative, cautiousapproach. We are not in complete control of all of the aspects of theenvironment, as you stated. I think the issue that Dr. Gould (ph) wasmentioning was the concern of a patient in another trial, which had anincident. It was a gene therapy trial, really having nothing to do withanything that we are doing in our trial.
But there was a potential adverse event there. We arebasically looking towards moving this trial forward, but we will do it in aconservative basis. I think when you look at the overall pipeline of Enzo, wehave to triage our product lines. As I mentioned to you, we are focusingextensively on the uveitis and the Alequel because we see those as productsthat potentially have near-term or close to near-term driving factors to movethem towards the market.
We are also partnering out certain products, which we feelare beyond or not in our interest at this point in time to pursue forwardbecause of the issues of our focus in the areas of Alequel and uveitis. Interms of the timing on the Alequel and uveitis, we are really subject in termsof timing to the speed of enrollment in the given trials.
When we project and our projections are guesstimates attimes because it depends on the rapidity in which we enroll. Once we enrollpatients, they have to go through the course of the trial. The Alequel trial is15-week trial. We have been driving the numbers in this trial.
As I mentioned earlier, our goal here was to develop a trialdesign with about 80 patients in it, and there are three different cells inthis particular trial. We are over two-thirds enrolled in the final cell. Theenrollment has taken longer than we would have liked or expected and there'sreally nothing we can do about that. But the good news is, that we're coming tothe conclusion of it. We hope to have -- not HIV, the Alequel trial initiatedsometime.
And, again, I can't give you -- I can only give youguesstimates, which will depend on the data evaluation and generation. Butsometime right after the -- approximately the middle, I would say -- early tomiddle of next year, will be the initiation of that trial, if all goesaccording to plan. Next question, please.
(Operator Instructions) Our next question is coming fromOtis Bradley of Gilford Securities. Please go ahead.
Otis Bradley - Gilford Securities
Otis Bradley - Gilford Securities
That was a great quarter, congratulations.
Otis Bradley - Gilford Securities
I have three questions. One, the hepatitis B partnering hasbeen talked about four years. Is there any hope that that something is comingto a conclusion?
I can't comment on conclusions. I can tell you, that processis definitely ongoing, though.
Otis Bradley - Gilford Securities
Secondly, what is happening with Inchworm?
Inchworm is actually very active. It is -- for those thatmay not be aware, the Inchworm that is being referred to is a non-cyclingamplification approach that Enzo has developed, which is being utilized in asystem for doing rapid DNA identification in a diagnostic setting.
The Inchworm is a very integrated part of our DNA portfolioof technologies and products. We are in discussion today with partiesconcerning that particular technology as it relates to diagnosticopportunities. The Inchworm is integrated very much into the other aspects ofour intellectual property estate.
And I can’t comment too much on it, but I can comment thatwe are in active discussions with parties concerning that particulartechnology, as well as other technologies that intervene or crossover and areused within the Inchworm technologies, which fall under our intellectualproperty estate.
Otis Bradley - Gilford Securities
Okay. Third, there's been some news about Elan and anothercompany working in the Crohn's area. How much of a competitive threat do youconsider that?
The approach that we're using in Crohn's -- and actually, wehave two approaches in Crohn's -- but the one that appears at this point to bethe leading area of interest for us is the Alequel product, which is anautologous product. It's a personalized medicine, quite different than theother methods that are employed out there today.
There are really four pillars of treatment in Crohn'sdisease, steroids being the first, immune regulators, antibiotics and antibodytherapy. Our approach is an oral immune regulation approach. It's quitedifferent than any of the others and really is non-competing.
The key here, again, is the issue of side effect profile.And I think what one has to realize is that the product you're referring to isnot yet approved and the safety profile has yet to be evaluated on that ordiscussed. The key in our direction is a product -- is to produce a productthat limits the side effect profile. And basically, I mean, just going alsoback to that particular issue, the FDA has delayed the decision on Tysbariuntil sometime in January.
So we do not feel it's competitive. We feel it's part of the-- if it's approved, which would be wonderful in many respects, it's part ofthe amount of drugs that are utilized in this disease but really has no real itis completely different than anything that we are dealing with at this point intime.
Otis Bradley - Gilford Securities
Okay. I guess I had one last question. If you throw inanother month for Axxora, it looks to me though you finish at about $20million, very close to a $20 million run rate, or $80 million per year. Is $100million a reasonable expectation for this year?
We tend not to give estimates on where we're going. All Ican say is that, you have extrapolated the run rate accurately, and all I cansay is that we are looking to the first quarter to sustain the levels ofactivity, if not exceed it slightly, from where we are today.
Otis Bradley - Gilford Securities
Thank you. Our next question is coming from David Singer(ph), private investor. Please go ahead. David Singer, your line is live,please proceed with your question.
Do we have another question please?
We’ll move on to the next question. Our next question iscoming from Philip Plinger, a Private Investor. Please go ahead.
Philip Plinger - Private Investor
Good morning, Mr. Weiner. How are you today?
Thank you. Very good.
Philip Plinger - Private Investor
The reason I called and the reason I asked a question hereis, I've been a private investor for several years with the company. Andobviously, as well as, I'm sure with other people, when you briefly touched onthe patents that were thrown out of court, the stocks instead has lost about athird of its value.
And obviously, the company has a very nice positive cashflow and also a great pipeline. In your estimation, what was the reason forsuch a sell-off like that? And number two, how strongly do you feel that thisruling will be overturned in the favor of Enzo Biochem, because it is on theminds of several investors right now?
I would expect it would be on the mind of many investors. Imean, when the stock sold off in my opinion disproportionately to the issue ofthe ruling. We were, number one, very surprised at this ruling. And I won't getinto the details of the issues, but the judge invalidated these patents basedon two issues. One dealt with the issue of anticipation in prior art, and theother dealt with the issue of a certain word choices in the construction of thedescription.
Both those issues are issues that are heavily laden withfactual basis, and thus, theoretically should not put them in the purview of asummary judgment motion. That being said, the judiciary can do whatever theywish to do. It is the opinion of our counsel that the merits and the facts ofthis particular summary judgment ruling should be reversed on appeal. We feelstrongly about it. I would like to mention that we are still pursuingaggressively this particular case because we feel that we have been wronged onit and we feel that we will be corrected.
Our other cases are moving forward. It was an issue thatcaught us off-guard. I feel that the issue of the stock was grossly, grosslyoversold as a result of this particular incident, and we believe quite firmlyit will be rectified.
Thank you. At this time, I would like to turn the floor backover to Mr. Weiner for any further or closing remarks.
I would like to thank you for joining us this morning. Weare in a very, very dynamic period in the company. We look forward to our nextreport, which will be in early December, and we hope to be able to share withyou some of the additional progress that we have been making. Thank you again.
Thank you. A replay of this broadcast will be availableuntil Tuesday, October 30th at 12:00 midnight. You may access thisreplay by dialing 1-877-519-4471. The pin number is 9318768. This replay isalso available over the Internet at www.investorcalendar.com.This concludes today's teleconference. You may disconnect your lines at thistime and have a wonderful day.
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