Enzo Biochem F1Q08 (Qtr End 10/31/07) Conference Call Transcript

| About: Enzo Biochem, (ENZ)

Enzo Biochem, Inc. (NYSE:ENZ)

F1Q08 (Qtr End 10/31/07)Conference Call

December 11, 2007 8:30 am ET


Barry Weiner - President and CFO

Drew Crescenzo - SVP of Finance

Carl Balezentis - President of EnzoLife Sciences


Jeff Frelick - Lazard CapitalMarkets

Anthony Swofford - ParamountCapital

Robert Smith - Spero-SmithInvestment

Jack Lasday - Citi


Good morning, and welcome to theEnzo Biochem, Inc. first quarter 2008 operating results conference call. Exceptfor historical information, the matters discussed on this conference call maybe considered forward-looking statements within the meaning of section 27-A ofthe Securities Act of 1933, as amended, and Section 21-E of the SecuritiesExchange Act of 1934, as amended.

Such statements includedeclarations regarding the intent, belief or current expectations of the companyand its management. Investors are cautioned that any such forward-lookingstatements are not guarantees of future performance and involve a number ofrisks and uncertainties that could materially affect actual results. The companydisclaims any obligations to update any forward-looking statement as a resultof developments occurring after the date of this conference call.

Our speaker today is BarryWeiner, President. (Operator Instructions). I would now like to turn the floorover to your host. Mr. Weiner, the floor is yours.

Barry Weiner

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

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

Yesterday, weissued a press release describing our earnings for the quarter. I trust you hadan opportunity to review it. Let me first touch on some of the highlights ofthe quarter.

From anoperating standpoint, it was very strong, continuing the trends from the fourthquarter. Our revenues rose by over 86%, to almost $19.5 million, a recordquarter for our company on revenue over the last five years, with both salesand royalty income up sharply. Life Sciences' revenues rose more than 400%, andClinical Laboratory revenues were up more than 40%.

Our grossprofit 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 wasimproved slightly over last year. And it is important to note that this isdespite the fact that we recorded a $2 million gain on the settlement of litigationduring the year ago period.

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

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

We have laid the groundwork forthe next phase of growth in our operating subsidiaries, utilizing our strongbalance sheet, and as we aggressively look to build internal productdevelopment, add additional companies and external product lines wereappropriate to our operations, all this will broaden the scope of our productlines as well as our market reach.

Our emphasis on divisionalorganic growth is also being supplemented from the program, to generate valuefrom our intellectual property estate where the licensing and partnering wereapplicable. We are engaged in this activity at this time, as we are seeing afurther consolidation within the research and clinical diagnostic areas. Theincreasing recognition of the importance of molecular diagnostics andpersonalized medicine will have in the future of modern medical practice isdriving a new order in the diagnostic space.

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

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

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

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

Enzo's position in this area wasenhanced this past year, with the issuance of new Enzo IP in the area of genelabeling techniques, microarray capabilities, novel dye approaches and geneamplification techniques, to just mention a few.

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

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

Drew Crescenzo

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

As Barry indicated, our operatingresults have shown advances over the prior year quarter. Our net loss was $1.2million, or $0.03 per share, as compared to a net loss of the same amount $1.2million, 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 litigationsettlement that Barry referred to--if we exclude such gain, our prior year netloss would have been $3.2 million, or $0.10 per share, as compared to thecurrent period of $1.2 million.

Net revenues for the fiscal firstquarter increased $9 million, or 86%, to approximately $19.4 million from ayear ago quarters revenue of $10.4 million. The results include $5.1 million inrevenues 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 LifeScience segment.

Clinical Lab revenues increased40% ,to $11.3 million in the 2008 period, as compared to $8 million in the yearago period. Our gross profit increased by $3.5 million and $9.9 million, in the2008 quarter, reflective of increases from the Axxora contribution, andincrease in tests performed in the clinical labs.

As in the previous quarter, thegross margin was negatively affected by the pre-tax fair value inventoryadjustment of $600,000, rising from the Axxora acquired inventory. We expectthis 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 anddevelopment cost declined, which is attributable to the timing of certainclinical trial activities and related cost, offset by increases contributedthrough Axxora.

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

The provision for uncollectibleaccounts, which is principally related to the clinical labs as a percentage oflab revenue, is now 10%; a 1% improvement over the prior year quarter, andcomparable to the fourth quarter of fiscal 2007. This improvement contributedto the clinical labs’ improved operating profit.

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

Our invested cash and cashequivalents 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 higherinvested balances attributed to the net proceed from the registered directofferings in the second quarter of fiscal 2007, offset by uses in cash for theAxxora acquisition and operating requirement. In the current period, our annualyield approximated 5%.

Lastly and important to note, wecontinue to not record of tax benefit up to the statutory effective rate forour pre-tax losses, which affects both the current period and the prior yearago 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 ofour segments. Enzo Life Science, as Barry indicated, had a strong quarter.Segment profits reached $1.1 million in the current period, as compared to $2.5million in the year ago period. It's important to know that last year’s resultbenefited from the previously mentioned $2 million Sigma settlement. Exclusiveof the gain in 2007, 2008 would have reflected an improvement of $0.6 millionin segment operating profits.

Continuing with Life Sciences, weexperienced increases in the royalty and licensee fee income, of $1 million--or79%--$2.3 million in the current period, which were attributed to increase inroyalties under the Digene arrangement, and the Abbott Molecular arrangement,which commenced in the third quarter of fiscal 2007.

Product shipments grew by $4.8million, or 437%, principally due to revenue increases attributed to Axxora.Gross margins increased by $2 million to $3.7 million, principally due toAxxora's contribution of $1 million, and gross margin increases affected by theincreased 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, froma profit of $0.3 million in the year ago quarter. Revenues in the currentperiod increased $3.2 million, to $11.3 million. The increase was a result ofincreased specimen volume associated with the United Healthcare managed carecontract that became effective in January 2007.

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

Other operating expenses beingSG&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 currentyear period, from 41% in the prior year period.

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

Enzo Therapeutics expense levelsare running at a consistent level of, approximately, $1 million a quarter withthe prior year. Barry?

Barry Weiner

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

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

Importantly, Enzo Life Sciencesnow contains the infrastructure that will allow us to actively and aggressivelypursue a wide range of opportunity, which could either increase our alreadybroad product line and/or provide Enzo with greater sales reach. We areactively working on one such transaction that should provide us with an evengreater European presence as an example.

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

Given the recent turbulence inthe capital markets, we are seeing a variety of more drafted integrationopportunities, as well. In addition, to improving our operating results forstrategic acquisitions, we are also focusing on two other objectives: improvingmargins, and using Enzo's strong IT and technology platforms to develop andenhance products.

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

In this quarter, the impact ofthese rules resulted in a reduction of Life Sciences margins. We anticipatethat given the current turnover rate of the acquired inventory that we willbegin to see improvement on this front within a quarter or so. Additionally, weare planning to satisfy the needs for certain products, we have been purchasingfrom 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. Wehave a dedicated team that is charged with this responsibility, and we plan tobegin to move products in-house soon, which should have a positive impact onoperating margins.

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

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

The core, Enzo, branded productsmanufactured in Farmingdale, are applicable for using micro-array analysis ingene 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 directsales reps--more than 50 distributors--and the Axxora platform, which is aunique electronic marketplace, which connects purchasing organizations andindividual scientists to our entire catalogue of high-quality products.

The Enzo brands have beenenjoying a very good reputation in the research market. Given the breadth ofour research activity, we have developed a variety of novel product approachesthat could allow entry into a number of new markets. As an example, Enzo andAxxora both have developed the expertise in the areas of apoptosis andinflammation--two important areas in the drug discovery field.

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

On a more global scale, we areattempting to monetize our IT and technology by entering into agreements withother companies. We are looking to utilize the structure similar to the otherrelationship and our negotiations when we will receive royalty in amultifaceted deal structure.

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

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

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

During the past quarter, we haveseen growth in the ordering of test in the fields of genomic analysis, forinfectious disease; molecular genetic assays; the matter of pathology, which isdirected towards blood cancers and immunohistochemistry; and the growth rate ofthese tests is outpacing the rate of many routine assays.

We have recently added esoterictests in the fields of genetic predisposition to blood clotting factors, specializedcancer markers and test for H. pylori infection, which can result in variousgastric diseases.

Moreover, we continue to maintainefficiencies in our billing operations, as well as our provision foruncollectible accounts receivable, actually throughout, as a percentage ofrevenue contributing to the operating profit increase.

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

In the last call, we discussedthe significant upgrade to our laboratory information system, which not onlyprovides us with increased capacity, but also has resulted in faster resultreporting and enhanced features to our clients, such as improved electronicinterface capabilities, which allow us to more seamlessly merge our resultsinto patients' charts. This is critical. For state clinical laboratories, it'smuch more than run blood and urine samples. They have become true informationproviders and the investments and improvements that we have made over the yearsin a sophisticated physician connectivity system position as well to meet thedemands of this growing industry.

Let me quickly turn to our legalmatters for a moment. We continue to expand significant resources on legalexpenses which we view as an important investment in securing our intellectualproperties. On November 29, oral arguments were held at the Board of PatentAppeals and Interferences at the USPTO concerning certain patent ability issuesaffecting a players' patent, and our allowed patent application in the field ofnucleic acid gel sequencing.

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

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 thepatents involved in this case have already expired. And we believe we have aformidable reason to believe we will prevail in this appeal.

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

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

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

At this point, enrollment hasbeen 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 themanufacturing protocol in order to continue these advance studies.

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

Turning to Optquel, the name thatwe have selected for our candidate drug for the treatment of uveitis, thetoxicology studies have been completed and no inherent toxicity has been noted.Optquel is the only oral specific immunomodulator designed to block theprogression of autoimmune uveitis. We are awaiting the finalwritten 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 trialis underway. We are working with our advisory panels, which consist ofprominent Opthamologist and uveitis specialist with fine tunes in clinicalprotocol and select appropriate sites for this trial.

Currenttreatment regimens for uveitis include steroids and immunosuppressive drug, andour trial designs is planned to be steroids bearing. This means that it has thepotential to decrease substantially or eliminate the associated side effectslinked with long-term steroid use.

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

In addition, research suggestthat autoimmune uveitis is under diagnosed and underrecognized as many patients are treated by community Opthamologist prior tobeing referred specialist.

As we developthe protocol for our next phase of clinical trials in the US, we are simultaneously exploringan adaptive clinical trial design, which pending regulatory approval wouldallow us to move quickly into the Phase III trial should the results provesignificantly positive.

With both ofthese therapies, you should note that have been able to achieve the results wehave so far with moderate expenditures. Obviously, as we expand our trials, wewill need to increase our expenses. But given our current capital structure andthe design of the trials we are developing, we believe that we have more thansufficient resources to take both of these compounds to the next level, wherewe believe their value in a potential partnering range would be significantlyenhanced.

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

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

At the recent AASLD meeting lastmonth, we presented data from some of the research on liver disease including apaper dealing with the potential biomarker for NASH. These data suggest thatchanges in the makeup of T-cell membrane could be used to diagnose thisdisease, and therefore potentially reduce the need for more invasive proceduressuch as liver biopsy.

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

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

I am going to conclude my formalremarks to allow sufficient time for questions, but in conclusion, I would liketo reiterate that Enzo today we are now turning the investments we have madeover the many years into bottom line results. We have attained a dynamicgrowing position in the Life Sciences market with the infrastructure to driveboth the revenue and profit that we are optimistic to achieve. Our clinicalreference laboratory has been expanded to handle increased workloads andcontinues to work towards the addition of more high margin esoteric tests.

We have a highly promisingproprietary therapeutic lineup, which has a pipeline of potential therapeuticsthat target difficult to treat metabolic and immunological disorders designed forimproved safety and efficacy over currently available options. Underpinning allof this is a very strong, highly liquid debt-free balance sheet and acomprehensive intellectual property and technology estate.

We have invested heavily indefending our patent portfolio as can be seen by our legal expenses, we willcontinue to do so. This investment has proven to generate financial returns forour company and we believe that it will generate even further value. We believethat we are positioned the company is well positioned now to move to the futureand that the investment community should begin to recognize these results.

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

Question-and-Answer Session


(Operator Instructions) Thankyou, our first question is coming from Jeff Frelick with Lazard CapitalMarkets. 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 managedcare contracts and the esoteric offering that you are seeing really benefitingthe Clinical Labs business. Can quantify just the test volume growth now inthis quarter?

Barry Weiner

It's a difficult issue toquantify, partially, because the mix of the business is changing and evolving.We are definitely seeing a rise in our esoteric testing volume, as a percentageof total volume. We tend not to release specific specimen account numbers forconfidentiality purposes, but I can relate to you that we are seeing withoutquestion an enhanced growth in the proprietary of the esoteric testing group oftests.

Jeff Frelick - Lazard Capital Markets

Okay. And then you had talked alittle 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 inmanufacturing. Where does that number go to over, maybe you can help usunderstand 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 tokeep in mind there, first of all, Axxora also distributes for approximately 40companies, and that's a lower margin product line, and that kind of brings itdown. But then, of the products that we manufacture, really the goal over thenext year--and that's calendar year 2009--is to really focus on marginenhancement and improvement. Specifically, what that number will be, we don’tknow. But it should improve significantly in that, as well we are starting todevelop a number of products, which will have much higher gross margin, ingeneral, and so we should see significant-and I would say, really, quarter-over-quarternext year, you should see a significant improvement.

Barry Weiner

Just as a point of reference, wetook about an 11% hit in margin at the Life Sciences this past quarter, becauseof the accounting. You would have to factor that in going forward as we utilizethose products that are affected by that rule. And looking forward to moveforward it will be a slow incremental improvement. Our margins now in that areaare about -- if you look at them fully in, without the accounting effect, isthe 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 askone more or two more questions. On the royalty side, Barry, it’s pretty solidthis quarter, and a little bit better than we were looking for. I guess, asmuch as you can say, is there additional activity in this area, otherdiscussions with folks, kind of sitting down with you guys at the table andlooking to access some IT?

Barry Weiner

Yes. We've had extensive activitythis quarter in a number of different areas. As I mentioned in my comments, wewere very fortunate this year to have a wealth of new intellectual propertyissues covering some very significant segments of the genomic and life sciencesmarkets.

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

So, we are definitely excitedabout this and we are looking forward to new opportunities emerging from thisactivity.

Jeff Frelick - Lazard Capital Markets

Okay. And this is my lastquestion. 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 youor Carl answer me that?

Drew Crescenzo

I'll let Carl deal with that.

Carl Balezentis

It has clearly exceeded ourexpectations, if you remember the purchase price. I think for above in terms ofrevenue where we expected from them. Integration has gone extremely well, Ihave been through a number of acquisitions in companies and this is the bestthat I’ve ever been through and has to do with the quality of the managementthat we acquired, everybody has worked together. In agendas and things likethat often happen with some acquisitions, so it's gone extremely well and I thinkthat 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 seniormanagement perspective the acquisition has really been integrated in a seamlessmanner. I think Carl and his team have done a terrific job, and I think what isbeing built will be a platform from which this company can truly make a mark inthe industry, and to be very competitive, as well as significant player in thisspace.

Jeff Frelick - Lazard Capital Markets

Okay. I'll jump back in thequeue.

Barry Weiner

Thank you.


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

Anthony Swofford - Paramount Capital

I have two key questions. Oneabout the diagnostic web business, it seems that the LabCorp and the Quest servicingof the Aetna and the United Healthcare contracts has added increased revenue inthis area, and it seems that one of the advantages, I just wanted to commentis, that the physicians who are sending lab testing specimens, who are both UnitedHealthcare and Aetna providers, can access Enzo for a common drop in thoseareas, and from a practical sales perspective, that seems to be an area thatcould be leveraged.

And another question to Jeff'spoint. It seems to me that the Genzyme acquisition of IMPATH assets, where theyacquired--FISH, immunohistochemistry, market testing for leukemia lymphoma, andmore recently, EGFR and VEGF testing--that the intellectual property that Enzocurrently holds would enable Enzo to increase a high-end case mix, wheretesting would be available for higher rates, or reimbursement for thoseparticular test.

And I'm wondering, is Enzoinvesting in hiring pathologists, and sales, thereafter, are specific for thosehigher end testing, and is that a focus to improve the profitability even moreof the diagnostic group?

Barry Weiner

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

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

But at the same time, it hasprovided 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 KansasCity--which we can add to this complex of products--the whole area of moleculardiagnosis, 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 laboratoriesas a strategic provider to give it an enhance presence in the market and alsoto increase it's value from our perspective of market capitalization.

Anthony Swofford - Paramount Capital

Okay. And then a follow-upquestion, concerning on Axxora? The platform is a global one, truly in Europeand Switzerland than the US,and they have a certain customer mix which includes academic centers andindustry. What, currently, are the plans to enhance industry customers andmaintain and enhance the academic customers, and is that sales mix somethingthat requires additional assets to expand in that area and then how are youworking 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 towardsthe pharma biotech and other things we have some plans to do that, as well. Ithink these are some of the real hidden gems and the synergies that areavailable there.

Certainly our customer base fromEnzo was a little bit heavier towards the pharma, or the biotech things likethat, so we will complement that, and we're trying to cross sell and do somethings like that. And a lot of focus of our product development and as wellwill be towards leveraging some of the products that currently offered to moreresearch setting from Axxora and leveraging those into the higher growthmarkets across in the biotech and pharma. And I think one of the great thingsas we continue to enhance our international global distribution, Axxora gave usthe great foundation in Europe and with itsdistribution network throughout the world but we still have some opportunitiesthere as well.

Anthony Swofford - Paramount Capital

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


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

Robert Smith - Spero-Smith Investment

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

Carl Balezentis

I will try my best. Basically theAlequel trial has, we're basically completely enrolled in the third arm of thePhase IIb study for Alequel in Israel.The data for that will be digested. It will take a few months to do that. Atthe time that that is taking place, we are complying our legal and regulatorysubmissions, 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 engagedin.

We look, hopefully, to have theinitiation 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 meetwith a reasonable standard of opportunity for us. In terms of the Optquel, weare in the process of completing the manufacturing of the materials of the drugthat will be utilized in this particular trial.

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

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

I think the good news is, that wehaven't really wasted money, we haven't expended money frivolously, and theresults 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 tomove these things into the clinics, so we can move towards the in stage trialsand again these trials are not long trials. We are talking 15-week trialdesigns for both these products, approximately, so that we could hopefully havesomething up in running and have some data coming through within the next yearor year plus timeframe as we move forward.

Robert Smith - Spero-Smith Investment

And secondly, perhaps I missedit. 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 Instructions). Our nextquestion is coming from Jack Lasday of Citi. Please go ahead.

Jack Lasday - Citi

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

Barry Weiner

The technology you are referringto is our linear non-cycling amplification approach, which interestingly thepatents came forth this past year, it is intertwined with much of ourintellectual properties. As a matter of fact, I think it's one of the legs ofwhat 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 acore piece of this whole mosaic. It is intertwined in many respects with manyof the other technologies it is the subject or integrated parts of ourdiscussion. It is highly probable that any relationship we engage in with theinterim will be in a relationship that will be integrated beyond just thisamplification technology.

What I am referring to on that,it is not necessarily though it could be a technology we would licenseindividually, it would be coupled with other Enzo intellectual property andpackaged in a way that would give critical mass to a whole series or union ofcapabilities that would allow a company to participate in this new molecularmedicine space with a genomic platform that would be somewhat unnecessarilyimpeded by other intellectual property.

So, it is and is still a veryimportant aspect, it is a technology that is, one that is highly of interest toparties out there, because it is competitive with PCR technology and it affordsan alternative route to PCR and is one that we believe will have a place in thefuture of modern molecular medicine.

Jack Lasday - Citi

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

Barry Weiner

I would agree with thatstatement, yes.

Jack Lasday - Citi

Okay, thank you very much.


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

Barry Weiner

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

Thank you for joining us.


Thank you. A replay of thisbroadcast will be available until Tuesday, December 25th at 12:00 midnight. Youmay 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'steleconference. You may disconnect your lines at this time and have a wonderfulday.

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