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Enzo Biochem, Inc. (NYSE:ENZ)

F4Q07 Earnings Call

October 16, 2007

Executives

Barry Weiner - President

Drew Crescenzo - SVP of Finance

Analyst

Robert Gould - Private Investor

Otis Bradley - Gilford Securities

Philip Plinger - Private Investor

Operator

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 on this conference call may be considered forward-looking statements within the meaning of section 27-A of the Securities Act of 1933, as amended, and Section 21-E 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. 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 conference call.

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 questions and comments following the presentation.

I would now like to turn the floor over to your host, Mr. Weiner. The floor is yours.

Barry Weiner

Thank you. Good morning and thank you for joining us for our fiscal 2007 fourth quarter and year-end conference call.

I would like to begin the call with some general comments about the recently completed quarter and year and I will touch on some of the accomplishments made by each of our operating divisions. I would then call -- turn the call over to Drew Crescenzo, our Senior Vice President of Finance, who will discuss the financial results for 2007. Finally, I will turn my remarks to a discussion of Enzo's strategic direction. The past year has demonstrated the implementation and execution of new directions, which we believe will set a course for future value, and at the end, we will open up the call for questions.

The fourth quarter of fiscal 2007 was an eventful one. From an operating viewpoint, as the press release issued yesterday indicated, it was a very good three months. We continued to make important progress in our operating divisions.

Enzo Life Sciences is moving solidly ahead following the acquisition of Axxora as its results showing initial benefits from expanded product offerings and its entrance into new markets.

Enzo Clinical Labs has substantially increased its revenues as a result of its third-party contracts, and Enzo Therapeutics is vigorously pursuing its preclinical and clinical studies for various treatments. And as shown by presentations recently at the Digestive Disease Week Conference, the American Association for the Study of Liver Diseases, and the recent presentation on dealing with periodontal bone loss, which was presented at the American Society of Bone and Mineral Research shows, our scientific team continues to make progress and gain peer recognition in a number of different areas.

We believe that these activities are the beginning of being recognized by the investment community in a much more substantial way as a major investment firm recently initiated coverage of us as well.

The quarter's results were led by dramatic changes in our Life Sciences division. The integration of the Axxora acquisition has transformed the organization from not only a strong technological and intellectual property entity, but to one that now also has a broad-based marketing and distribution capability. Axxora now provides the critical mass to more fully capitalize on the myriad of product development and marketing opportunities that Enzo's long history has afforded us.

Enzo Life Sciences has emerged as a company with four distinct brands: Enzo, ALEXIS, Apotech and Axxora, each with its own identity working in cooperation with one another to maximize growth and cross-selling opportunities.

The core Enzo branded products, which have enjoyed a very prominent position in the genomic markets for years, will now receive broader exposure through the Axxora platform. The Axxora platform is an electronic marketplace, instantly connecting customers and prospects from around the world to a central source for thousands of products that are used in a wide variety of research and clinical applications.

Augmenting the platform is a worldwide sales and distributor network that affords substantially increased customer contact, thereby enhancing our visibility in the marketplace. Expanding our capabilities are our two distinct manufacturing units that enjoy the prominence in their respective fields.

First is ALEXIS Biochemicals, which is located in Lausanne, Switzerland. This is near Basel. It is a well-respected producer of research-grade chemicals that are sold to the life sciences market.

Apotech, headquartered near Geneva, is a leading manufacturer of recombinant proteins and antibodies as well as a producer of kits and research diagnostics in such areas as cancer research, neuroscience and metabolic pathways, just to name a few.

Today, Enzo Life Sciences is an organization with a catalog of 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 40 distributors located worldwide.

Moreover, the Company augments these products with more than 20,000 additional ones that are sourced from other manufacturers to produce an extremely comprehensive line of products. Key to the future growth of Enzo Life Sciences has been the addition of a number of key managers to the organization.

We have assembled a team of experienced professionals with a demonstrated record of success in the industry. Their presence has allowed for the integration of Axxora to proceed even better than we could have anticipated, and later, I will discuss some of the new staffing appointments as well as future strategies in the Life Sciences division.

I would like to turn to comments on some of the extensive legal activity that has also taken placed during the past year. It has been a year filled with both multiple achievements on the patent front as well as a disappointing decision, hopefully a temporary one, in one case.

During the past year or so, Enzo was granted several key patents relating to fundamental areas of DNA labeling, amplification and microarray technology. We were also named the senior party in two interference actions, one relating to a technology called branch DNA, a method used in molecular diagnostics to enhance signal, and thereby increased sensitivity; and another related to the key technology of gel sequencing. This is the method most often used today in genetic sequencing.

These interferences are moving forward. In the branch DNA action, 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 next month.

With regards to our ongoing litigations, most of you know that last month, we received an unfavorable ruling in our patent infringement suit against Applera Corporation that caused what we feel was a disproportionate overreaction in the marketplace. Our lead counsel in the action is of the opinion that this ruling should be overturned upon appeal, and the appeal process has already been initiated.

This decision, as we have stated, has no impact on our ongoing operations nor will it deter us from continuing to enforce our intellectual property rights. It is also important to keep in mind that this action was solely related to the infringement of three Enzo patents recognized throughout the industry for many years and that had expired in 2004.

Other litigation that we're involved with in the Eastern District Court of New York involves multiple defendants and goes to issues not only 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, timing in such issues is hard to predict.

Turning briefly to our other operating divisions, we enjoyed significant growth in our Clinical Labs division as we began to see the impact of our expanded relationship with United Healthcare that took effect in January.

As you can see from our press release, and Drew will comment on 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 in gross profit and brought net income for the quarter to over $1.5 million. Despite the continuing downward pressure on reimbursements, the laboratory was able to show an increase in revenue generated per specimen, and this is a reflection of the increasing emphasis on esoteric testing that I will discuss later on.

At Enzo Therapeutics, we are continuing to move forward in our numerous clinical programs. We announced further results on Alequel, our Crohn's Disease therapeutic at the prestigious Digestive Disease Weak meeting this spring. We continue to perform toxicology studies and have developed a manufacturing protocol for the B27PD, our candidate compound for the treatment of uveitis.

We initiated patient treatment of our HGTV43, our gene therapy medicine for HIV-1 infection, and we are progressing on a Phase II study for the treatment of NASH, non-alcohol steatohepatitis, using a small molecule that may also have some potential as an adjuvant to other therapies.

On the preclinical front, we've presented an abstract on one of our potential lead compounds for the treatment of bone disorders recently and we continue to fill our developmental pipeline.

In all, it was a year of progress where we have transformed the Life Sciences division into a stronger operational entity. We've expanded the capabilities and breadth of our clinical laboratory and advanced products through the clinical process.

Moreover, we have significantly improved our balance sheet to afford us the ability to pursue these goals, and we have enhanced our physical 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 over to Drew, who will review the financials for the quarter and the year. Drew?

Drew Crescenzo

Thank you, Barry, and good morning. I am first going to share with you our fiscal fourth-quarter results, then turn to our operating results of Enzo Life Sciences and Enzo Clinical Labs. I will close my comments with a summary of the year-end results. Highlights of our results are included in our press release that was issued yesterday.

As Barry indicated, our operating results have shown significant improvements over the prior-year’s quarter with our net loss decreasing 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 year ago quarter. Our increased revenues were directly impacted by increase in royalty and license fee income of $1.2 million, which were attributed to higher royalties from Digene and the licensing fee income from the Abbott molecular agreement.

Also, increases in clinical lab revenues of $3.7 million, or 46%, and $3.3 million in Axxora product revenues for the two-month ended July 31, 2007 contributed to our revenue growth. Our gross profit increased to $9.2 million, compared to $5.4 million in the year ago period.

The gross profit was, though, negatively impacted by the fair value accounting for the Axxora inventory that was sold. We expect that the fair value inventory adjustment will affect the margins until the remaining inventory is sold over the next two quarters.

Our quarterly operating expenses were impacted by our continued increase in legal fees. Our legal fees increased $1 million over the prior year ago quarter. These expenses are used to pay ongoing costs associated with 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 at the Clinical Labs. With respect to our other operating expenses, excluding the impact of Axxora, our fourth quarter R&D was comparable and our SG&A, selling, general and administrative expenses, had no significant increases, and in fact declined as a percentage of quarter-over-quarter revenues.

Fiscal fourth quarter results reflect higher interest income of approximately $500,000 attributed to increased invested balances. We continue 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 of over $114 million. During the fiscal year, our cash flows from financing were approximately $57 million from the completion of two registered direct offerings.

We used cash of $17 million to acquire Axxora. Our stockholders equity was approximately $142 million, and Enzo continues to be debt free. Our current cash and cash equivalents are in excess of $100 million.

Let me now turn to Enzo Life Sciences and Enzo Clinical Labs. At Enzo Life Sciences, pre-tax operating income improved by $1 million over the prior year, went from a loss of $400,000 to a $500,000 profit this year.

Revenues for the 2007 quarter increased to $6 million as compared to $1.7 million in the year ago period. Our royalty and licensing fee income grew by $1.2 million to $2.1 million due to licensing income received under the Abbott agreement and increases in royalties under the Digene agreement.

Lastly, our product revenues increased by $3.1 million attributed to the contributions from the Axxora acquisition for the two-month period. Although our gross profit increased by $1.8 million, it was negatively impacted by approximately $700,000 for the fair value adjustment of the acquired Axxora inventory that was sold.

Operating expenses, representing R&D and SG&A exclusive of Axxora, had increased marginally over the prior-year quarter.

Looking at Clinical Labs, the pre-tax operating profit improved to $1.6 million, representing an improvement of $1.5 million over the last year's quarter. Revenues increased $3.7 million, or 46%, to $11.9 million.

The increase was the result of greater specimen volume associated with the expanding expanded United Healthcare agreement, which was effective in January 2007. Additionally, we are seeing further benefits to our specimen volume relating to test refers by physicians associated with United Healthcare.

Our gross profit increased by $2 million, primarily due to the higher specimen volume, offset by increases in routine and esoteric testing costs. SG&A expenses were comparable to the prior period, and as a percentage of revenue, improved to 31% from 45%. Our provision for uncollectibles increased by $500,000 due to the increased revenue.

I would like to now turn your attention to the fiscal 2007 full year results. Our approved operating results at Clinical Labs and Life Sciences contributed to a reduction in the fiscal 2007 loss from the prior year. Our loss in the prior year was $15.7 million. In the current year, it’s been 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 Life Sciences. Our gross profit totaled $29.7 million, as compared to $23.5 million a year ago.

Turning to our expenses, our R&D expenses increased 19% due to increased clinical trial activities throughout the year. Our provision for uncollectibles increased $1 million, primarily due to the higher revenues at the Clinical Labs. SG&A expenses as a percentage of revenue improved to 50% from 62.7% in the prior year. Finally, our interest income increased approximately $2 million as a result of the higher invested balances.

I would like to comment on the highlights of the year-over-year relating to the pre-tax operating results for Life Sciences and Clinical Labs, specifically. Regarding Life Sciences, for the fiscal year, our pre-tax operating results improved by $4.2 million from a loss of $0.2 million in the prior year.

Revenues were up 58% and gross profit increased 35% to $7.4 million inclusive of the impact of the inventory adjustment resulting from recording the acquisition of Axxora. Operating expenses, specifically SG&A and R&D exclusive of Axxora, were comparable to the prior year. Additionally, Life Sciences recorded other income of $2 million relating to legal settlement with Sigma Aldrich and a $700,000 amount as a partial payment from a prior distributor.

Turning now to the Clinical Labs full year results. For the full 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% and gross profit increased by 23% to $22 million for the year. SG&A expenses were held and they were comparable to the prior year, and as a result, they improved to a percentage of revenue of 36% from a previous 45%. Barry?

Barry Weiner

Thank you, Drew. As I said earlier, I would like to comment on some of the strategic initiatives we have undertaken at Enzo and how the past year’s activities have positioned us to carry these forward.

Beginning with our Life Sciences Group, we have now moved the Life Sciences marketing capabilities from solely a distribution model to one that now provides us with the ability to have direct contact with our customers to the greatest degree possible. At the same time, we have been able to increase the reach of the products and technologies we have built at Enzo over the years.

Enzo Life Sciences is now an organization that has the critical mass and the infrastructure to provide both the product development and marketing necessary to compete as a more comprehensive supplier in the Life Sciences field. The integration of Axxora into Enzo, as noted, has progressed very well, and in fact Axxora's sales level is currently tracking higher than at the point of acquisition.

In addition to an extremely comprehensive product line, Enzo Life Sciences has assembled a strong management team to build on this foundation. This month, we added both a Chief Scientific Officer and a Vice President of Marketing to our team in Farmingdale. We believe that these key hires will help us to capitalize on both the Axxora platform and the product development capabilities of ALEXIS and Apotech to more fully enhance the Enzo branded product line.

Moreover, these experienced individuals will have at their disposal a worldwide network of direct sales reps, sales offices and strategic distributors working to improve the awareness of these core products and technologies. With the infrastructure now in place, the key hires made, we are now turning our efforts to maximizing the return on our investment. There are several approaches that we are working on to achieve this goal.

First, we are now focusing on improving margins. As Drew indicated, the Life Sciences gross margins were reduced due to the fact that we need to use fair purchase accounting rules to cover the inventory we acquired from Axxora at closing. This will affect our reported numbers for the next two quarters, but as we turn that inventory over, margins will improve.

In addition, the combination of three distinct manufacturing facilities, plus the scientific expertise of our staff will allow us to move some of the Axxora products currently purchased from outside suppliers to in-house manufacturing in order to improve not only gross margins, but also to provide the opportunities for product enhancement. We have assembled a team of senior managers across each of the Life Sciences units with this goal in mind.

Another benefit of the enhanced infrastructure is the ability to enter into various types of transactions with other life sciences companies. We are looking at a number of potential acquisitions of both companies and product lines, which we feel could be folded nicely into our operation. In this manner, we would be able to selectively enhance our broad product line with complementary products. We believe that combining both organic growth with an aggressive acquisition strategy can accelerate our business activities in the area. Our enhanced capital structure will also aid in this endeavor.

During the past fiscal year, we demonstrated the strength of our technology and patent estate with the signing of a cross-license and supply agreement with Abbott Molecular that will allow us to enter into the growing cytogenetics field. Having an industry-leading company such as Abbott recognize both our intellectual property and product efforts not only provides us with increased revenue in the form of product sales and royalties, it also provides the framework for other similar deals which would provide income to Enzo, as well as access to additional technology.

We are currently in discussion with several potential partners for these types of transactions. At Enzo Clinical Labs, we have seen the positive effects of the United Healthcare contract in terms of the increased revenues and profits. We are pleased that United selected us for inclusion in their network and we have taken steps to improve and expand the lab operations to be able to sustain this growth.

It is estimated that the commercial clinical reference laboratory industry now totals more than $17 billion per year in annual revenues. Driving the growth in this industry are several factors, including increasing age and lifespan of the population, as well as the recognition of the value of lab tests.

It is estimated that lab tests' results account for more than 70% of all diagnostic decisions made by physicians. Moreover, there is a shift toward esoteric testing, especially in the genomics field, and there is an increasing emphasis on electronic reporting capability.

For Enzo Labs to continue to grow, we are working to embrace these issues. Earlier this year, we added several professionals to our Pathology Group so that we can now more rapidly move the lab towards the field of molecular pathology. We have added a number of sophisticated panels to our menu in which our specialized pathology team analyze biopsies at the molecular level in order to provide a more detailed diagnosis that is valuable to the physician in the management of their patients.

We are continuing to add to this menu and have also built the infrastructure to include any tests that emerge from Enzo Life Sciences' product development efforts. We have also made a significant upgrade to our laboratory information system, which not only provides us with increased capacity, but also has resulted in faster reporting and enhanced features for our clients, such as improved electronic interface capabilities, which allow us to more seamlessly merge our results into patient charts.

In a few months, we will be rolling out a new module to support our molecular pathology effort that will provide, among other features, a digital image of tumor cell study so that the ordering physician can have access to increased diagnostic detail. We are also looking at strategic acquisitions here as well. As with Life Sciences, the strong capital position we're in allows us to pursue such opportunities, if we believe there is a strategic fit.

I would like to turn to a discussion of some of our therapeutic activity now. First, let me discuss Alequel, our proprietary therapeutic for the treatment of Crohn's disease. In May of this year, we reported data from two double-blind placebo-controlled Phase II studies that showed that Alequel induced clinical remission and improved quality of life at a 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. The data we presented at the DDW Conference was obtained from a sample of 49 patients. A third study is currently ongoing and we have enrolled more than two-thirds of the patients in this particular study.

We anticipate enrollment to be completed by year-end. This data will be available sometime next year. The number of patients in all three trials is expected to be -- to total between 75 and 80.

Simultaneously, we are planning to begin a multi-center clinical trial of Alequel in the United States. We are investigating conducting this trial as a Phase II-III adapted design in order to accelerate the study and maximize the data obtained. We have formed an advisory board of key opinion leaders in the field and are currently finalizing the protocol and reviewing potential sites at which to conduct this trial.

In conjunction with the clinical trials, we have found in our research that certain parameters or biomarkers might be indicative of individuals who would be more responsive to the drug. We are continuing to evaluate and develop these biomarkers. We have also filed a number of patent applications in order to secure Enzo's intellectual property rights in this area.

Importantly, in examining the pipeline of current and potential Crohn's therapies, we perceive that Alequel's performance characteristics to date are comparable or better than many of those being developed elsewhere, but without the debilitating side effects that often accompany Crohn's treatment regimens.

It's estimated that there are approximately 0.5 million individuals that are affected with Crohn's in the U.S. alone, and at least that many in the rest of the world, worldwide. So we're looking forward to this product with high expectation.

Turning to B27PD, our candidate drug for the treatment of uveitis -- as I stated earlier, we are currently in the midst of toxicology studies, which should be completed in the next month or two. We have already developed a manufacturing protocol for this peptide-based therapeutic, and as with Alequel, we have engaged a number of key opinion leaders to serve on our clinical advisory board.

The encouraging results from the pilot study have given us optimism as we proceed forward with clinical trials in the United States, which we hope to commence in 2008. In the pilot study, patients were given a compound three times a week for 12 weeks and positive effects were noted in terms of reduced inflammation and inhibition of uveitis progression. In addition, there was 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 in the U.S., after diabetes and macular degeneration. It's estimated that 300,000 individuals in this country have the disease and it is responsible for some five million visits to eye clinics per year. In addition, studies have shown that the incidence of the disease among those 65 years and older is higher than once was thought, and with the over 65 population in this country expected to double over the next 22 years, there will be an increasing need for effective treatments.

Current treatment regimens include steroid-based medicines and immunosuppressive therapies, which have the potential for inducing a number of deleterious side effects. In the U.S., we're exploring an adaptive clinical trial design, which would allow us to move quickly into a Phase III trial should the results prove significantly positive.

With both Alequel and B27PD, you should note that we have been 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, but given our current capital structure and the design of the trials we are developing, we believe that we have more than sufficient resources to take both of these compounds to the next level.

I would like to make some short comments on our other therapeutic activity; first, HGTV43, our study drug for the treatment of HIV-1 infection. As you know, in the beginning of this year, we enrolled our first patient. We have been pleased with his progress to date and we continue to monitor and evaluate this particular individual and this trial. We are looking forward to seeing where this goes because it is such an exciting and pioneering concept.

Second, regarding EGS21, our immunomodulatory small molecule we're in the middle -- of which we are in the middle stages of a Phase II double-blind clinical trial for NASH -- nonalcoholic steatohepatitis. Since this is a 40-week trial, data will not be available until sometime in the middle of next year. NASH and its associated metabolic syndrome is one of the leading 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 also intensified our effort at partnering some of our products. EHT899, our treatment for HBV, human hepatitis B infection, is one product that we are looking at this point to partner out. While the Phase II data, which we have reported previously was encouraging, we feel that it makes prudent sense to partner this. There were two main reasons. First, although we are well capitalized, we realize that a Phase III trial for this treatment would be very expensive, and given our robust pipeline, we feel that both Crohn's and uveitis would have a faster path to commercialization.

Second, because hepatitis B virus is primarily a disease of less developed countries, it's critically important to have the ability to manufacture and distribute this drug into these areas with the lowest possible cost.

We are also exploring partnering opportunities in a number of different areas, specifically in our bone disorders projects. In conclusion, we have currently attained a dynamic and growing position in the life sciences market with the infrastructure to drive both revenue and profit. Our clinical laboratory has been expanded to handle increased workloads and is working towards 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 to treat metabolic and immunological disorders designed to improve safety and efficacy over currently available options and underpinning all of this is a strong, highly liquid debt-free balance sheet and a comprehensive intellectual property and technology estate.

We have invested heavily in defending our patent portfolio, we will continue to do so. This investment has proven to generate financial returns for our company and we believe that it will generate even further value. We believe that we've positioned the company well for the near-term and beyond and we are quite excited about its potential and our expectations are extremely high at this point in time.

I would like to open up the floor for questions now. Thank you.

Question-and-Answer Session

Operator

(Operator Instruction) Our first question is coming from Robert Gould a private investor. Please go ahead.

Robert Gould - Private Investor

Yes, good morning. I have two questions concerning the clinical trials. The first involves HIV. The second Alequel and the uveitis. Regarding the HIV, only one patient has been done. The patient from other studies 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 second patient? As regards the Alequel and the uveitis, at the annual meeting, it was stated that clinical trials would begin by the end of this calendar year. And now it's being pushed into the next calendar year. When in the next calendar year can we expect both the Alequel and the uveitis? Thank you.

Barry Weiner

First in the HIV. The HIV trial, as you're aware, is an extremely pioneering trial. The area of gene intervention in gene therapy is one that is under extremely high scrutiny by all of the regulatory agencies, as well as the in-house oversight committee at hospitals.

We decided to take a very cautious approach to this trial because it was the first time anything of this nature has been conducted. In light of the environment, in light of the concerns that many people have raised, whether they are legitimate or un -- other regulatory officials have raised, whether they are legitimate concerns or not, as an entity we decided to take a cautious approach and follow the first patient to make sure that the progress would be acceptable and we would meet our expectations.

So far, I'm pleased to say that we have not seen any unexpected 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 truly evaluate the aspects of this medical intervention, and we will be watching and seeing where this goes.

Obviously, we have to take a conservative, cautious approach. We are not in complete control of all of the aspects of the environment, as you stated. I think the issue that Dr. Gould (ph) was mentioning was the concern of a patient in another trial, which had an incident. It was a gene therapy trial, really having nothing to do with anything that we are doing in our trial.

But there was a potential adverse event there. We are basically looking towards moving this trial forward, but we will do it in a conservative basis. I think when you look at the overall pipeline of Enzo, we have to triage our product lines. As I mentioned to you, we are focusing extensively on the uveitis and the Alequel because we see those as products that potentially have near-term or close to near-term driving factors to move them towards the market.

We are also partnering out certain products, which we feel are beyond or not in our interest at this point in time to pursue forward because of the issues of our focus in the areas of Alequel and uveitis. In terms of the timing on the Alequel and uveitis, we are really subject in terms of timing to the speed of enrollment in the given trials.

When we project and our projections are guesstimates at times because it depends on the rapidity in which we enroll. Once we enroll patients, they have to go through the course of the trial. The Alequel trial is 15-week trial. We have been driving the numbers in this trial.

As I mentioned earlier, our goal here was to develop a trial design with about 80 patients in it, and there are three different cells in this particular trial. We are over two-thirds enrolled in the final cell. The enrollment has taken longer than we would have liked or expected and there's really nothing we can do about that. But the good news is, that we're coming to the conclusion of it. We hope to have -- not HIV, the Alequel trial initiated sometime.

And, again, I can't give you -- I can only give you guesstimates, which will depend on the data evaluation and generation. But sometime right after the -- approximately the middle, I would say -- early to middle of next year, will be the initiation of that trial, if all goes according to plan. Next question, please.

Operator

(Operator Instructions) Our next question is coming from Otis Bradley of Gilford Securities. Please go ahead.

Otis Bradley - Gilford Securities

Good morning.

Barry Weiner

Good morning.

Otis Bradley - Gilford Securities

That was a great quarter, congratulations.

Barry Weiner

Thank you.

Otis Bradley - Gilford Securities

I have three questions. One, the hepatitis B partnering has been talked about four years. Is there any hope that that something is coming to a conclusion?

Barry Weiner

I can't comment on conclusions. I can tell you, that process is definitely ongoing, though.

Otis Bradley - Gilford Securities

Secondly, what is happening with Inchworm?

Barry Weiner

Inchworm is actually very active. It is -- for those that may not be aware, the Inchworm that is being referred to is a non-cycling amplification approach that Enzo has developed, which is being utilized in a system for doing rapid DNA identification in a diagnostic setting.

The Inchworm is a very integrated part of our DNA portfolio of technologies and products. We are in discussion today with parties concerning that particular technology as it relates to diagnostic opportunities. The Inchworm is integrated very much into the other aspects of our intellectual property estate.

And I can’t comment too much on it, but I can comment that we are in active discussions with parties concerning that particular technology, as well as other technologies that intervene or crossover and are used within the Inchworm technologies, which fall under our intellectual property estate.

Otis Bradley - Gilford Securities

Okay. Third, there's been some news about Elan and another company working in the Crohn's area. How much of a competitive threat do you consider that?

Barry Weiner

The approach that we're using in Crohn's -- and actually, we have two approaches in Crohn's -- but the one that appears at this point to be the leading area of interest for us is the Alequel product, which is an autologous product. It's a personalized medicine, quite different than the other methods that are employed out there today.

There are really four pillars of treatment in Crohn's disease, steroids being the first, immune regulators, antibiotics and antibody therapy. Our approach is an oral immune regulation approach. It's quite different 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 is not yet approved and the safety profile has yet to be evaluated on that or discussed. The key in our direction is a product -- is to produce a product that limits the side effect profile. And basically, I mean, just going also back to that particular issue, the FDA has delayed the decision on Tysbari until 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 of the amount of drugs that are utilized in this disease but really has no real it is completely different than anything that we are dealing with at this point in time.

Otis Bradley - Gilford Securities

Okay. I guess I had one last question. If you throw in another month for Axxora, it looks to me though you finish at about $20 million, very close to a $20 million run rate, or $80 million per year. Is $100 million a reasonable expectation for this year?

Barry Weiner

We tend not to give estimates on where we're going. All I can say is that, you have extrapolated the run rate accurately, and all I can say is that we are looking to the first quarter to sustain the levels of activity, if not exceed it slightly, from where we are today.

Otis Bradley - Gilford Securities

Thank you.

Operator

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.

Barry Weiner

Do we have another question please?

Operator

We’ll move on to the next question. Our next question is coming from Philip Plinger, a Private Investor. Please go ahead.

Philip Plinger - Private Investor

Good morning, Mr. Weiner. How are you today?

Barry Weiner

Thank you. Very good.

Philip Plinger - Private Investor

The reason I called and the reason I asked a question here is, I've been a private investor for several years with the company. And obviously, as well as, I'm sure with other people, when you briefly touched on the patents that were thrown out of court, the stocks instead has lost about a third of its value.

And obviously, the company has a very nice positive cash flow and also a great pipeline. In your estimation, what was the reason for such a sell-off like that? And number two, how strongly do you feel that this ruling will be overturned in the favor of Enzo Biochem, because it is on the minds of several investors right now?

Barry Weiner

I would expect it would be on the mind of many investors. I mean, when the stock sold off in my opinion disproportionately to the issue of the ruling. We were, number one, very surprised at this ruling. And I won't get into the details of the issues, but the judge invalidated these patents based on two issues. One dealt with the issue of anticipation in prior art, and the other dealt with the issue of a certain word choices in the construction of the description.

Both those issues are issues that are heavily laden with factual basis, and thus, theoretically should not put them in the purview of a summary judgment motion. That being said, the judiciary can do whatever they wish to do. It is the opinion of our counsel that the merits and the facts of this particular summary judgment ruling should be reversed on appeal. We feel strongly about it. I would like to mention that we are still pursuing aggressively this particular case because we feel that we have been wronged on it and we feel that we will be corrected.

Our other cases are moving forward. It was an issue that caught us off-guard. I feel that the issue of the stock was grossly, grossly oversold as a result of this particular incident, and we believe quite firmly it will be rectified.

Operator

Thank you. At this time, I would like to turn the floor back over to Mr. Weiner for any further or closing remarks.

Barry Weiner

I would like to thank you for joining us this morning. We are in a very, very dynamic period in the company. We look forward to our next report, which will be in early December, and we hope to be able to share with you some of the additional progress that we have been making. Thank you again.

Operator

Thank you. A replay of this broadcast will be available until Tuesday, October 30th at 12:00 midnight. You may access this replay by dialing 1-877-519-4471. The pin number is 9318768. This replay is also available over the Internet at www.investorcalendar.com. This concludes today's teleconference. You may disconnect your lines at this time and have a wonderful day.

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Source: Enzo Biochem F4Q07 (Qtr End 7/31/07) Earnings Call Transcript
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