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Executives

Barry Weiner - President and CFO

Drew Crescenzo - SVP of Finance

Carl Balezentis - President of Enzo Life Sciences

Analysts

Jeff Frelick - Lazard Capital Markets

Anthony Swofford - Paramount Capital

Robert Smith - Spero-Smith Investment

Jack Lasday - Citi

Enzo Biochem, Inc. (ENZ) F1Q08 (Qtr End 10/31/07) Conference Call December 11, 2007 8:30 AM ET

Operator

Good morning, and welcome to the Enzo Biochem, Inc. first quarter 2008 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. (Operator Instructions). I would now like to turn the floor over to your host. Mr. Weiner, the floor is yours.

Barry Weiner

Thank you, and good morning. Thank you all for joining us for our fiscal 2008 first quarter conference call.

Joining me today is Drew Crescenzo, our Senior Vice President of Finance, and Dr. Carl Balezentis, who is the President of Enzo Life Sciences.

Yesterday, we issued a press release describing our earnings for the quarter. I trust you had an opportunity to review it. Let me first touch on some of the highlights of the quarter.

From an operating standpoint, it was very strong, continuing the trends from the fourth quarter. Our revenues rose by over 86%, to almost $19.5 million, a record quarter for our company on revenue over the last five years, with both sales and royalty income up sharply. Life Sciences' revenues rose more than 400%, and Clinical Laboratory revenues were up more than 40%.

Our gross profit was nearly $9.9 million, and this was up from $6.3 million last year. Despite increases in SG&A expenses of over $1.9 million, our net loss was improved slightly over last year. And it is important to note that this is despite the fact that we recorded a $2 million gain on the settlement of litigation during the year ago period.

In addition, we continue to recognize fair value inventory adjustments in connection with our Axxora acquisition, which inversely affected pretax income by approximately $600,000.

Our financial performance is reflective of the result of the strategic plan that we have laid out for our operating subsidiaries, and spoken about in pervious calls; namely, that we are building infrastructure in order to increase our product and service offerings, to broaden our geographic reach, and ultimately, have as much control over our own customer base as possible.

We have laid the groundwork for the next phase of growth in our operating subsidiaries, utilizing our strong balance sheet, and as we aggressively look to build internal product development, add additional companies and external product lines were appropriate to our operations, all this will broaden the scope of our product lines as well as our market reach.

Our emphasis on divisional organic growth is also being supplemented from the program, to generate value from our intellectual property estate where the licensing and partnering were applicable. We are engaged in this activity at this time, as we are seeing a further consolidation within the research and clinical diagnostic areas. The increasing recognition of the importance of molecular diagnostics and personalized medicine will have in the future of modern medical practice is driving a new order in the diagnostic space.

The acquisition activity, as well as the increasing value being attributed to companies in this area over the last 18 months, is changing much of the landscape in this industry. This activity is taking place not only in the product supply area, but also in the service area.

We, at Enzo, are fortunate that our core technology estate, which is embodied in our intellectual property portfolio, touches on key areas that are fundamental to the application and expansion of many of these new technological areas that could be central to the new generation of diagnostic capabilities.

These new capabilities use information and data from a person's genetic profile to diagnose, to select a medical strategy, provide a therapy, or perhaps, initiate preventive measures.

In short, we are possible to provide the appropriate drug at the appropriate dose to the appropriate patient at the appropriate time. These new techniques are opening up the possibility of a new approach to drug development, as well as unleashing the potential of significantly more effective diagnostic, therapeutic and patient care.

Enzo's position in this area was enhanced this past year, with the issuance of new Enzo IP in the area of gene labeling techniques, microarray capabilities, novel dye approaches and gene amplification techniques, to just mention a few.

Our goal in this area is to capitalize on our technological inflation both in-house, as well as, in conjunction with, other parties to play a role in this newly developing, exciting, and pioneering opportunity.

I'd like Drew to give you a recap of the quarter's financial results; and then, we will discuss the divisional operations individually. Drew?

Drew Crescenzo

Thank you, Barry, and good morning. Initially, I will discuss the consolidated fiscal 2008 first quarter results, then turn to the results of our three operating segments: Enzo Life Sciences, Enzo Clinical Labs, and Enzo Therapeutics.

As Barry indicated, our operating results have shown advances over the prior year quarter. Our net loss was $1.2 million, or $0.03 per share, as compared to a net loss of the same amount $1.2 million, or $0.04 per share, in the year ago period. And a point to note, though, that in the prior year we had a $2 million gain on the litigation settlement that Barry referred to--if we exclude such gain, our prior year net loss would have been $3.2 million, or $0.10 per share, as compared to the current period of $1.2 million.

Net revenues for the fiscal first quarter increased $9 million, or 86%, to approximately $19.4 million from a year ago quarters revenue of $10.4 million. The results include $5.1 million in revenues relating to the Axxora Life Sciences, which was acquired in May 2007, and increases in royalty and license fee income of $1 million, all in the Life Science segment.

Clinical Lab revenues increased 40% ,to $11.3 million in the 2008 period, as compared to $8 million in the year ago period. Our gross profit increased by $3.5 million and $9.9 million, in the 2008 quarter, reflective of increases from the Axxora contribution, and increase in tests performed in the clinical labs.

As in the previous quarter, the gross margin was negatively affected by the pre-tax fair value inventory adjustment of $600,000, rising from the Axxora acquired inventory. We expect this adjustment to impact on margins through the second quarter of fiscal 2008; and thereafter, we expect to see improvements in our margins.

During 2008 period, research and development cost declined, which is attributable to the timing of certain clinical trial activities and related cost, offset by increases contributed through Axxora.

Selling, general and administrative expenses increased by 34%, to $7.4 million, from a year ago $5.5 million. Axxora impacted the increase by $1.5 million; important to note SG&A, as a percentage of revenue, it has declined to 38%, from 53% in the year ago period, and 41%, as a percentage of revenue, in the fiscal fourth quarter of 2007.

The provision for uncollectible accounts, which is principally related to the clinical labs as a percentage of lab revenue, is now 10%; a 1% improvement over the prior year quarter, and comparable to the fourth quarter of fiscal 2007. This improvement contributed to the clinical labs’ improved operating profit.

Legal expenses, which fluctuate based on the level of activity, increased $0.3 million to $2.4 million in the current period, as compared to $2.1 million in the year ago period, and $3.1 million in the fiscal 2007 fourth quarter. We continue to protect our intellectual property estate, and incur cost on ongoing litigation matters.

Our invested cash and cash equivalents earned interest of $1.5 million in the 2008 period, as compared to $0.9 million in the year ago period. The increase is reflective of higher invested balances attributed to the net proceed from the registered direct offerings in the second quarter of fiscal 2007, offset by uses in cash for the Axxora acquisition and operating requirement. In the current period, our annual yield approximated 5%.

Lastly and important to note, we continue to not record of tax benefit up to the statutory effective rate for our pre-tax losses, which affects both the current period and the prior year ago period results.

Our balance sheet remains strong. As of October 31, 2007, we had cash and cash equivalents of nearly $104 million, and working capital of over $113 million. Stockholders equity was approximately $141 million, and then, we continue to be debt free.

Let me now turn to the results of our segments. Enzo Life Science, as Barry indicated, had a strong quarter. Segment profits reached $1.1 million in the current period, as compared to $2.5 million in the year ago period. It's important to know that last year’s result benefited from the previously mentioned $2 million Sigma settlement. Exclusive of the gain in 2007, 2008 would have reflected an improvement of $0.6 million in segment operating profits.

Continuing with Life Sciences, we experienced increases in the royalty and licensee fee income, of $1 million--or 79%--$2.3 million in the current period, which were attributed to increase in royalties under the Digene arrangement, and the Abbott Molecular arrangement, which commenced in the third quarter of fiscal 2007.

Product shipments grew by $4.8 million, or 437%, principally due to revenue increases attributed to Axxora. Gross margins increased by $2 million to $3.7 million, principally due to Axxora's contribution of $1 million, and gross margin increases affected by the increased royalty and licensee fee income.

SG&A expenses increased by $1.4 million, to $1.5 million, all related to Axxora. R&D expenses, inclusive of Axxora, were $0.8 million, and comparable to the year ago period.

Looking at Enzo Clinical Labs, segment profits improved by $1.1 million to, approximately, $1.4 million, from a profit of $0.3 million in the year ago quarter. Revenues in the current period increased $3.2 million, to $11.3 million. The increase was a result of increased specimen volume associated with the United Healthcare managed care contract that became effective in January 2007.

Gross profits increased by $1.6 million, primarily due to the higher volume and higher reimbursement for the esoteric testing, offset by increased routine, and esoteric testing costs associated with the increased volume.

Other operating expenses being SG&A increased $0.3 million, to $3.6 million in the prior year quarter. SG&A expenses, as a percentage of revenue, improved to 32% in the current year period, from 41% in the prior year period.

The provision for uncollectible accounts improved 1%, as a percentage of revenues over the year ago period. This improvement contributed, approximately, $100,000 for the current year operating results.

Enzo Therapeutics expense levels are running at a consistent level of, approximately, $1 million a quarter with the prior year. Barry?

Barry Weiner

Thank you, Drew. At Enzo Life Sciences, given that this quarter reflected the first four quarter of Axxora, we showed more than a four-fold product sales increase. Not only were our product sales up dramatically, our royalty income, which consists of payments as was mentioned from Digene, which is now QIAGEN. They were acquired by QIAGEN, recently, and Abbott nearly doubled over last year.

Probably more importantly, if you exclude the one-time gain we booked last year as a result of the settlement of our litigation with Sigma, we would have more than double the division's operating profit quarter-over-quarter.

Importantly, Enzo Life Sciences now contains the infrastructure that will allow us to actively and aggressively pursue a wide range of opportunity, which could either increase our already broad product line and/or provide Enzo with greater sales reach. We are actively working on one such transaction that should provide us with an even greater European presence as an example.

The management team we have built at Enzo Life Sciences is highly experienced in a number of key areas today and we believe is now able to support, a very seriously growing organization. The experience we have gained, through the success thus of the Axxora integration is the strong reason to believe, that future transactions could be consummated quickly and efficiently.

Given the recent turbulence in the capital markets, we are seeing a variety of more drafted integration opportunities, as well. In addition, to improving our operating results for strategic acquisitions, we are also focusing on two other objectives: improving margins, and using Enzo's strong IT and technology platforms to develop and enhance products.

As we indicated in the earnings release, Life Sciences gross margins were partially reduced, due to the fact that we need to use fair purchase accounting rules to cover the inventory we acquired from Axxora at closing.

In this quarter, the impact of these rules resulted in a reduction of Life Sciences margins. We anticipate that given the current turnover rate of the acquired inventory that we will begin to see improvement on this front within a quarter or so. Additionally, we are planning to satisfy the needs for certain products, we have been purchasing from external sources with in-house manufacturers.

With this as an ongoing process, we have both the management and the staff in place to move this forward. We have a dedicated team that is charged with this responsibility, and we plan to begin to move products in-house soon, which should have a positive impact on operating margins.

Enzo's strong IT and technology platforms will allow us, not only to begin this process of shifting to more in-house manufacturing, but we look to add value to our products, as we apply the expertise we have accumulated in the [nucleic acid] market to the protein market, as well.

Enzo now sells more than 25,000 products, and has manufacturing plants in three different facilities. ALEXIS, which is located in Lausanne, Switzerland, manufactures our refine chemicals and other research reagents. Apotech, outside of Basel, manufactures product that specialize in recombinant proteins and antibodies in the areas of cancer research, neuroscience and metabolic pathways.

The core, Enzo, branded products manufactured in Farmingdale, are applicable for using micro-array analysis in gene modification. We look at this as a package, and we currently manufacture, in-house, more than 5,000 of these products and market them through direct sales reps--more than 50 distributors--and the Axxora platform, which is a unique electronic marketplace, which connects purchasing organizations and individual scientists to our entire catalogue of high-quality products.

The Enzo brands have been enjoying a very good reputation in the research market. Given the breadth of our research activity, we have developed a variety of novel product approaches that could allow entry into a number of new markets. As an example, Enzo and Axxora both have developed the expertise in the areas of apoptosis and inflammation--two important areas in the drug discovery field.

By utilizing this expertise, developed over the years and now available under one corporate umbrella, Enzo is now positioned to move into the development of augmented products in these areas, which we believe can open them up for sales to both biotech and pharma customers. This will represent a new market opportunity for us.

On a more global scale, we are attempting to monetize our IT and technology by entering into agreements with other companies. We are looking to utilize the structure similar to the other relationship and our negotiations when we will receive royalty in a multifaceted deal structure.

As we look back on the quarter completed, Enzo Life Sciences, we have now completed the integration of the sales and marketing functions and have now put all of the Enzo products into the electronic marketplace.

We have been increasing the efficiencies of the combined organization and today, we are looking to drive revenue growth and return on investments. Our goal is continue to broaden our product range, to leverage existing products into new markets and to continue to enhance our international presence. We believe that we are well positioned to successfully achieve these goals.

Turning to Enzo Clinical Labs. At the labs, we continue to see the impact of the managed care contract, which have contributed to an increase in revenues of nearly 40%, quarter-over-quarter. Operating income for clinical labs was up more than fourfold over last year, to over $1.4 million.

During the past quarter, we have seen growth in the ordering of test in the fields of genomic analysis, for infectious disease; molecular genetic assays; the matter of pathology, which is directed towards blood cancers and immunohistochemistry; and the growth rate of these tests is outpacing the rate of many routine assays.

We have recently added esoteric tests in the fields of genetic predisposition to blood clotting factors, specialized cancer markers and test for H. pylori infection, which can result in various gastric diseases.

Moreover, we continue to maintain efficiencies in our billing operations, as well as our provision for uncollectible accounts receivable, actually throughout, as a percentage of revenue contributing to the operating profit increase.

In addition, we continue to broaden our reach as we plan to open two additional patient service center facilities in Central New Jersey.

In the last call, we discussed the significant upgrade to our laboratory information system, which not only provides us with increased capacity, but also has resulted in faster result reporting and enhanced features to our clients, such as improved electronic interface capabilities, which allow us to more seamlessly merge our results into patients' charts. This is critical. For state clinical laboratories, it's much more than run blood and urine samples. They have become true information providers and the investments and improvements that we have made over the years in a sophisticated physician connectivity system position as well to meet the demands of this growing industry.

Let me quickly turn to our legal matters for a moment. We continue to expand significant resources on legal expenses which we view as an important investment in securing our intellectual properties. On November 29, oral arguments were held at the Board of Patent Appeals and Interferences at the USPTO concerning certain patent ability issues affecting a players' patent, and our allowed patent application in the field of nucleic acid gel sequencing.

Since these are closed hearings, there is not much I can comment on, except that we believe we are well-positioned on this issue. As the senior party in this action, we are looking toward to the successful conclusion of this process, so that the interference can proceed into its next phase, which is called the priority phase. In this phase, the Board will determine who first invented this technology. You should note that, historically, the party that has been declared as senior party prevails in these cases, and perhaps, two-thirds to three-quarters of the cases.

In our other action involving Applera, we have filed a Notice of Appeal, and are moving forward relating to the case that was adjudicated a month ago. We believe there is significant potential upside, and no downside, risk as the patents involved in this case have already expired. And we believe we have a formidable reason to believe we will prevail in this appeal.

Finally, in our other cases, the litigations that we are involved with in the Southern District Court of New York involve multiple defendants, and those issues not only of infringement, but contract violations, as well. These litigations are expected to go to trial sometime next year, but as all views and matters of the court, predictions of specific timing can be difficult.

Looking forward to Enzo Therapeutics. We have continued, this quarter, to move forward in our numerous clinical trial programs, which I'd like to briefly review here. First, I'd like to mention that Dr. Gary Cupit, who joined us about a year ago to help therapeutics, has decided to pursue an opportunity with the venture capital firm and develop a new company. He remains as a consultant, and we wish him the best of luck. We will be naming his successor, shortly.

Let me discuss first, Alequel, our proprietary therapeutics for the treatment of Crohn's disease. As you may know, Alequel is an autologous protein preparation that's administered orally to patients over a period of about 15 weeks. We announced interim results for our Phase II clinical trials in May, wherein we saw that Alequel had a positive effect on ameliorating Crohn's symptoms, with no treatment-related side effects observed.

At this point, enrollment has been virtually completed for these trials, that are being run in Israel. This trial will end up with about 75-80 patients. We are actively, now, involved in the process of bringing the study of Alequel to the United States. Currently, we are engaged in setting up additional sites that are defining the manufacturing protocol in order to continue these advance studies.

Based on the encouraging interim data from the May report, we are looking forward to the next stage of the clinical programs, which should begin sometime next year.

Turning to Optquel, the name that we have selected for our candidate drug for the treatment of uveitis, the toxicology studies have been completed and no inherent toxicity has been noted. Optquel is the only oral specific immunomodulator designed to block the progression of autoimmune uveitis. We are awaiting the final written reports which will be part of the IND submission, we will make to the FDA.

Meanwhile, manufacturing of quantities of the drug needed for the next phase of the trial is underway. We are working with our advisory panels, which consist of prominent Opthamologist and uveitis specialist with fine tunes in clinical protocol and select appropriate sites for this trial.

Current treatment regimens for uveitis include steroids and immunosuppressive drug, and our trial designs is planned to be steroids bearing. This means that it has the potential to decrease substantially or eliminate the associated side effects linked with long-term steroid use.

Uveitis is thought to be the leading cause of blindness in US, only after diabetes and macular degeneration. It's estimated that there are approximately 300,000 individuals in this country with the disease perhaps an additional 38,000 diagnosed annually.

In addition, research suggest that autoimmune uveitis is under diagnosed and under recognized as many patients are treated by community Opthamologist prior to being referred specialist.

As we develop the protocol for our next phase of clinical trials in the US, we are simultaneously exploring an adaptive clinical trial design, which pending regulatory approval would allow us to move quickly into the Phase III trial should the results prove significantly positive.

With both of these therapies, you should note that 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, where we believe their value in a potential partnering range would be significantly enhanced.

Let me turn to HGTV43, our study drug for the treatment of HIV-1. As you know, in the beginning of the year, we did enroll our first patient, we have been following that patient and have been pleased with the progress and we are optimistic about this trail and hope to move it forward as we progress into the future.

In our Phase II double-blind clinical trial for NASH, in which we are studying the effect of EGS21, our immunomodulatory small molecule, we're currently in the middle stages of the trial and awaiting the final results which we have said will be available sometime next year.

At the recent AASLD meeting last month, we presented data from some of the research on liver disease including a paper dealing with the potential biomarker for NASH. These data suggest that changes in the makeup of T-cell membrane could be used to diagnose this disease, and therefore potentially reduce the need for more invasive procedures such as liver biopsy.

Studies on this aspect of NASH are ongoing or make service of biomarker for the disease, thereby potentially reducing the need for more invasive procedures, such as liver biopsy, to make a definitive diagnosis. NASH is often under diagnosed into the later stages of the disease when it is more severe and harder to treat. You should note that NASH and its associated metabolic syndrome is one of the leading causes of liver disease in the United States and is thought to be present in 20% of obese individual and perhaps 2.5% of the general population.

Finally, we are also continuing our efforts in order to define a partner for our hepatitis B and bone disorders projects these are ongoing efforts.

I am going to conclude my formal remarks to allow sufficient time for questions, but in conclusion, I would like to reiterate that Enzo today we are now turning the investments we have made over the many years into bottom line results. We have attained a dynamic growing position in the Life Sciences market with the infrastructure to drive both the revenue and profit that we are optimistic to achieve. Our clinical reference laboratory has been expanded to handle increased workloads and continues to work towards the addition of more high margin esoteric tests.

We have a highly promising proprietary therapeutic lineup, which has a pipeline of potential therapeutics that target difficult to treat metabolic and immunological disorders designed for improved safety and efficacy over currently available options. Underpinning all of this is a very strong, highly liquid debt-free balance sheet and a comprehensive intellectual property and technology estate.

We have invested heavily in defending our patent portfolio as can be seen by our legal expenses, 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 are positioned the company is well positioned now to move to the future and that the investment community should begin to recognize these results.

I would like to turn it over to questions from the attendants right now.

Question-and-Answer Session

Operator

(Operator Instructions) Thank you, our first question is coming from Jeff Frelick with Lazard Capital Markets. Please go ahead.

Jeff Frelick - Lazard Capital Markets

Thank you, good morning folks.

Barry Weiner

Good morning.

Jeff Frelick - Lazard Capital Markets

Hey, Barry, given the managed care contracts and the esoteric offering that you are seeing really benefiting the Clinical Labs business. Can quantify just the test volume growth now in this quarter?

Barry Weiner

It's a difficult issue to quantify, partially, because the mix of the business is changing and evolving. We are definitely seeing a rise in our esoteric testing volume, as a percentage of total volume. We tend not to release specific specimen account numbers for confidentiality purposes, but I can relate to you that we are seeing without question an enhanced growth in the proprietary of the esoteric testing group of tests.

Jeff Frelick - Lazard Capital Markets

Okay. And then you had talked a little bit about the gross margins as Axxora manufacturing will be, I guess, transitioned over to Enzo. I think it should be around 5,000, just another in manufacturing. Where does that number go to over, maybe you can help us understand is that over the next year or next year and a half?

Barry Weiner

Maybe I am going to ask Dr. Balezentis to respond to that.

Carl Balezentis

Okay. There's several things to keep in mind there, first of all, Axxora also distributes for approximately 40 companies, and that's a lower margin product line, and that kind of brings it down. But then, of the products that we manufacture, really the goal over the next year--and that's calendar year 2009--is to really focus on margin enhancement and improvement. Specifically, what that number will be, we don’t know. But it should improve significantly in that, as well we are starting to develop a number of products, which will have much higher gross margin, in general, and so we should see significant-and I would say, really, quarter-over-quarter next year, you should see a significant improvement.

Barry Weiner

Just as a point of reference, we took about an 11% hit in margin at the Life Sciences this past quarter, because of the accounting. You would have to factor that in going forward as we utilize those products that are affected by that rule. And looking forward to move forward it will be a slow incremental improvement. Our margins now in that area are about -- if you look at them fully in, without the accounting effect, is the mid 30's, and we certainly hope to push those up into the 40-plus range.

Jeff Frelick - Lazard Capital Markets

Okay. Well then, if I might ask one more or two more questions. On the royalty side, Barry, it’s pretty solid this quarter, and a little bit better than we were looking for. I guess, as much as you can say, is there additional activity in this area, other discussions with folks, kind of sitting down with you guys at the table and looking to access some IT?

Barry Weiner

Yes. We've had extensive activity this quarter in a number of different areas. As I mentioned in my comments, we were very fortunate this year to have a wealth of new intellectual property issues covering some very significant segments of the genomic and life sciences markets.

This new group of intellectual property issuance is contributing to, I would suggest, an enhanced portfolio in totality, and has captured, I suspect, a lot of interest by other parties in the field. We are in negotiations; this is a very important area for Enzo, because we are looking at it from a couple of perspectives. We have multiple parties that, potentially, could have sort of minor or modest types of licensing relationships; and you have other parties that are looking for much more extensive relationships, and it is a balancing act trying to define how we can optimize the total values of these packages.

So, we are definitely excited about this and we are looking forward to new opportunities emerging from this activity.

Jeff Frelick - Lazard Capital Markets

Okay. And this is my last question. With respect to the Axxora acquisition, has it met your expectations? Or whether there are some surprises and this has been integrated--why don't you or Carl answer me that?

Drew Crescenzo

I'll let Carl deal with that.

Carl Balezentis

It has clearly exceeded our expectations, if you remember the purchase price. I think for above in terms of revenue where we expected from them. Integration has gone extremely well, I have been through a number of acquisitions in companies and this is the best that I’ve ever been through and has to do with the quality of the management that we acquired, everybody has worked together. In agendas and things like that often happen with some acquisitions, so it's gone extremely well and I think that we haven't lost any customers, we are very focused on sales and marketing, I think it shows you can kind of run out the numbers so to speak of revenue, but it's clearly exceeded what we thought and we are extremely pleased with it.

Barry Weiner

I can comment from senior management perspective the acquisition has really been integrated in a seamless manner. I think Carl and his team have done a terrific job, and I think what is being built will be a platform from which this company can truly make a mark in the industry, and to be very competitive, as well as significant player in this space.

Jeff Frelick - Lazard Capital Markets

Okay. I'll jump back in the queue.

Barry Weiner

Thank you.

Operator

Thank you. Our next question is coming from Anthony [Swofford] with Paramount Capital. Please go ahead.

Anthony Swofford - Paramount Capital

I have two key questions. One about the diagnostic web business, it seems that the LabCorp and the Quest servicing of the Aetna and the United Healthcare contracts has added increased revenue in this area, and it seems that one of the advantages, I just wanted to comment is, that the physicians who are sending lab testing specimens, who are both United Healthcare and Aetna providers, can access Enzo for a common drop in those areas, and from a practical sales perspective, that seems to be an area that could be leveraged.

And another question to Jeff's point. It seems to me that the Genzyme acquisition of IMPATH assets, where they acquired--FISH, immunohistochemistry, market testing for leukemia lymphoma, and more recently, EGFR and VEGF testing--that the intellectual property that Enzo currently holds would enable Enzo to increase a high-end case mix, where testing would be available for higher rates, or reimbursement for those particular test.

And I'm wondering, is Enzo investing in hiring pathologists, and sales, thereafter, are specific for those higher end testing, and is that a focus to improve the profitability even more of the diagnostic group?

Barry Weiner

Thank you. First to comment on the managed care contract--Enzo is fortunate in that. We both can provide services for United Healthcare clients, as well as Aetna clients, and for those on the call who may, or may not, under-appreciate that each of the large national labs with those contracts. So, for Enzo, it's a terrific benefit to be a one-stop shop for many physicians, who do not wish to put specimens--and that's what our question has been a strong selling point--for the laboratory, in attracting new clients health.

In terms of the movement into the more esoteric, or high margin testing areas, the areas referred to were the fluorescence in situ hybridizations areas, which are a cornerstone, in the testing for bloodborne cancers currently. That market has been dominated by the Abbott FISH system, or the (inaudible) FISH system--very strong, good product this past year. We cross licensed, our technology, as well as became a provider for the reagent, and we do get a royalty on the sale of that system.

But at the same time, it has provided us a capability to develop a system that we can market on our own. This past year we also in-licensed specific probes for Mercy Hospital in Kansas City--which we can add to this complex of products--the whole area of molecular diagnosis, if I come to my original comment, is one that we are focusing on, and one that we believe we can implement or utilizing our clinical laboratories as a strategic provider to give it an enhance presence in the market and also to increase it's value from our perspective of market capitalization.

Anthony Swofford - Paramount Capital

Okay. And then a follow-up question, concerning on Axxora? The platform is a global one, truly in Europe and Switzerland than the US, and they have a certain customer mix which includes academic centers and industry. What, currently, are the plans to enhance industry customers and maintain and enhance the academic customers, and is that sales mix something that requires additional assets to expand in that area and then how are you working on that?

Drew Crescenzo

I think that's a great question, and exactly what we're doing is, we are investing in the marketplace itself, you'll see that change in the next six to nine months to really enhance that, we are looking to leverage these products from the development stage on towards the pharma biotech and other things we have some plans to do that, as well. I think these are some of the real hidden gems and the synergies that are available there.

Certainly our customer base from Enzo was a little bit heavier towards the pharma, or the biotech things like that, so we will complement that, and we're trying to cross sell and do some things like that. And a lot of focus of our product development and as well will be towards leveraging some of the products that currently offered to more research setting from Axxora and leveraging those into the higher growth markets across in the biotech and pharma. And I think one of the great things as we continue to enhance our international global distribution, Axxora gave us the great foundation in Europe and with its distribution network throughout the world but we still have some opportunities there as well.

Anthony Swofford - Paramount Capital

Well. Congratulations, again and keep the growth and revenue recognition coming strong. Take care.

Operator

Thank you. Our next question is coming from Robert Smith with [Spero-Smith Investment]. Please go ahead.

Robert Smith - Spero-Smith Investment

Good morning, you mentioned advancing certain clinical programs in 2008, a long year so to speak. Could you refine that somewhat to give us better time lines?

Carl Balezentis

I will try my best. Basically the Alequel trial has, we're basically completely enrolled in the third arm of the Phase IIb study for Alequel in Israel. The data for that will be digested. It will take a few months to do that. At the time that that is taking place, we are complying our legal and regulatory submissions, we are identifying and looking to set up clinical trial sites. There is a whole big process that is taking place and we are currently engaged in.

We look, hopefully, to have the initiation of this trial sometimes towards the middle to the end of next year. I think that would be a realistic timeframe and one that we feel could meet with a reasonable standard of opportunity for us. In terms of the Optquel, we are in the process of completing the manufacturing of the materials of the drug that will be utilized in this particular trial.

We have begun to put together the regulatory filings that will be required. Again, it is a process where we have a rather sophisticated panel of experts that is working with us to define the protocols, and to assist us in the implementation of this particular program to the regulatory agency. Our clinical sites also have been identified and we are in the process of evaluating the best process to expedite this particular trial.

Again, the timeframe for this could be approximately the same thing. Obviously, we are here to push these as quickly as we can. We have to be realistic. We can't cut any corners. I think it's very important to do it right, and to do it right the first time. And so far, we have been deliberate in the execution of all of our clinical programs.

I think the good news is, that we haven't really wasted money, we haven't expended money frivolously, and the results we have achieved for the dollars that we have expended, I believe, really surpasses many companies in our industry.

I think the game plan now is to move these things into the clinics, so we can move towards the in stage trials and again these trials are not long trials. We are talking 15-week trial designs for both these products, approximately, so that we could hopefully have something up in running and have some data coming through within the next year or year plus timeframe as we move forward.

Robert Smith - Spero-Smith Investment

And secondly, perhaps I missed it. Did you state the R&D figures for the quarter?

Barry Weiner

Yes, we did. We expended about $900,000 in R&D associated with therapeutics only. That's correct.

Robert Smith - Spero-Smith Investment

Okay. Thank you. Good luck.

Barry Weiner

Thank you.

Operator

(Operator Instructions). Our next question is coming from Jack Lasday of Citi. Please go ahead.

Jack Lasday - Citi

Good morning. Gentlemen, over the years interim and diagnostic they were to be important parts of the revenues and cash flow. We've heard on calls like this that Enzo is waiting for patents and associated approvals which would then led to believe that those have come through. Can you give us an update on something that appeared to have been very important, that we are not hearing much about, please?

Barry Weiner

The technology you are referring to is our linear non-cycling amplification approach, which interestingly the patents came forth this past year, it is intertwined with much of our intellectual properties. As a matter of fact, I think it's one of the legs of what I consider the four pillars of Enzo's core in IT in the field of genomics, which could be viewed as gene labeling, sequencing arrays and genetic labeling.

So I think the amplification is a core piece of this whole mosaic. It is intertwined in many respects with many of the other technologies it is the subject or integrated parts of our discussion. It is highly probable that any relationship we engage in with the interim will be in a relationship that will be integrated beyond just this amplification technology.

What I am referring to on that, it is not necessarily though it could be a technology we would license individually, it would be coupled with other Enzo intellectual property and packaged in a way that would give critical mass to a whole series or union of capabilities that would allow a company to participate in this new molecular medicine space with a genomic platform that would be somewhat unnecessarily impeded by other intellectual property.

So, it is and is still a very important aspect, it is a technology that is, one that is highly of interest to parties out there, because it is competitive with PCR technology and it affords an alternative route to PCR and is one that we believe will have a place in the future of modern molecular medicine.

Jack Lasday - Citi

Well, is it fair to say then, that at this point there is nothing impeding your progress to move forward other than negotiating some kind of a deal?

Barry Weiner

I would agree with that statement, yes.

Jack Lasday - Citi

Okay, thank you very much.

Operator

Thank you. Sir, there appears to be no further questions at this time. I'll turn the floor back over to you.

Barry Weiner

Thank you very much. We appreciate your time and your questions. We are in a very, very interesting and I think important trajectory right now. We look forward to reporting to you at our annual meeting, which is on January 24th. And after that the next quarter, which will take place in March.

Thank you for joining us.

Operator

Thank you. A replay of this broadcast will be available until Tuesday, December 25th at 12:00 midnight. You may access this replay by dialing 1-800-642-1687. The PIN number is 26951925. 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 F1Q08 (Qtr End 10/31/07) Conference Call Transcript
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