Enzo Biochem, Inc.
Q1 2014 Earnings Call Transcript

Published: 11 Dec 2013

[Operator:]

Good morning, and welcome to the Enzo Biochem Inc. First Quarter 2014 Operating Results Conference Call. I will now read the company's Safe Harbor statement. Except for historical information, the matters discussed in this news release may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements include declarations regarding the intent, belief or current expectations of the company and its management, including those related to cash flow, gross margin, revenues and expenses, are dependent on a number of factors outside of the company -- outside of the control of the company, including, inter alia, the markets for the company's products and services, costs of goods and services, other expenses, government regulations, litigation and general business conditions. See Risk Factors and the company's Form 10-K for the fiscal year ended July 31, 2013. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that could cause actual results to differ materially. The company disclaims any obligations to update any forward-looking statement as a result of developments occurring after the date of this press release. During this conference call, the company may refer to EBITDA, a non-GAAP measure. EBITDA is not and should not be considered an alternative to net loss, loss from operations or any other measure for determining operating performance. The company has provided a reconciliation of the difference to GAAP on its website, www.enzo.com, and in the press release issued last night. Our speaker today is Barry Weiner, President. [Operator Instructions] I would now like to turn the floor over to your host. Mr. Weiner, the floor is yours.

[Barry W. Weiner:]

Good morning, and thank you for joining us. With me this morning are several members of our senior management team

[Operator:]

[Operator Instructions] Your first question comes from the line of Jack Wallace of Sidoti.

[Jack Wallace:]

Can you just talk maybe a little bit about some of the timing associated with some of the impacts coming from your recently announced partnerships, as well as when some of the AmpiProbe panels may hit the market?

[Barry W. Weiner:]

Certainly. We have begun to offer a variety of new diagnostic tests at the Clinical Laboratory, which today are generating volume in return for us. As a matter of fact, some of the increase in the accounts receivable in the past quarter I spoke to, which was resulted in our cash utilization, was due to an offset of timing based on the introduction of a number of new molecular tests for which the billing cycle has not caught up with the performance of the tests themselves. These tests include not only the Sequenom test but a number of tests involving prenatal genetic evaluations, as well as a number of other tests that can afford, we think, some material returns to the laboratory. In terms of the timing for the introduction of our new diagnostic systems, we have been aggressively working over the last year in our AmpiProbe system to bring forth, the first being a women's health panel, which we believe will be a very well-received product line. This particular panel was determined as a result of our structure being very directed to the women's health market at the Clinical Laboratory. Over the year, we have been developing specific probes. We've been formatting. We are preparing for submissions for LDT approval. And so there is a process, and we hope, during the next 12 months, to start to see some of these products start to flow out into the marketplace. So I think this next year will be a very interesting one. We have a lot of new technological developments at the Clinical Laboratory, which are being embodied in new types of tests, which are high-margin. Our sales force is extremely excited to be able to provide some of these novel options and alternatives to their service provision group. And at the same time, we see the beginning of the execution of this new system, which we think will be a low-cost molecular testing approach, getting into the market to be able to assist laboratories to improve their margins in the provision of molecular testing.

[Jack Wallace:]

That's helpful. And also, if I may add -- ask here is, are you going to see the revenue benefits first hit in the Lab? Or are these going to be on LDT sales to the Life Sciences group?

[Barry W. Weiner:]

The first hits will be at the laboratory. We are -- what we are doing is using our own systems to improve our own margins internally. We are developing LDTs that will be processed through the Clinical Laboratory. And that is actually part of the really interesting value of our integrated structure is that we can take these systems and tests that have been developed at Life Sciences and run them through our translational group into the Clinical Laboratory, helping us, number one, to reduce our own cost structure, improve our margins, validate and develop the data for LDT approval to a broader marketplace and ultimately develop the database that will move these tests to CE Mark and FDA approval.

[Jack Wallace:]

Yes. And if we could also talk maybe a little bit about what kind of cost-cutting realization you have left. You mentioned the consolidated operations in the E.U. How much more costs can you take out of the system?

[Barry W. Weiner:]

We look at costs every day. This is a part of this environment in which we operate. We attempt to be as efficient as we can. As I mentioned, we took out of our cost structure a little over $5 million in 2013. In the first quarter of the year, we implemented processes, which we believe will take another close to $1 million out of our cost structure, which will start to hit us in the next quarter or so. So it's an ongoing process, but we do see close to another $1 million coming out.

[Jack Wallace:]

Great. And then last here and then I'll hop back in the queue. Do we have a timeline or an update on when you might hear back from the judge in regards to the additional damages from the Life Technology payments?

[Barry W. Weiner:]

We are awaiting that decision. It has been a very long time in coming, as we all are aware. There's really very little control. It will emerge when it emerges, but it is long overdue. That is really all I can say.

[Operator:]

Your next question comes from the line of Paul Nouri of Noble Equity Funds.

[Paul Nouri:]

Obviously, we've seen a couple of warnings out of Bio-Reference and Labcorp. Can you talk about whether those are unique to them kind of in regards to what their expectations were and what you see going forward for your own line?

[David C. Goldberg:]

Paul, it's David Goldberg. Yes, so I have seen those warnings. And we are all experiencing, as I'm sure you know since you follow the industry, cuts really across the board in reimbursement, not only from Medicare but, as well, some of the commercial payors. And these have been fairly well documented. The -- what we have tried to do at -- and so, obviously, from a routine testing standpoint, we're all facing that. What we've been doing over the past couple of quarters and hopefully moving forward, is shifting our emphasis to more and more of the molecular and esoteric testing. And that hopefully will result in higher-value tests that come in, producing higher margins. So I think that's the way that the laboratories will grow. And dovetailing onto it, Barry said before, the other piece of this is being able to produce more and more unique diagnostics with your own developmental capabilities. And what sets Enzo Biochem apart from other regional laboratories is the fact that we have the Enzo Life Sciences group literally on the same campus with us. And that allows us to look at a number of different projects that can reduce our operating costs, reduce and improve our margins as we move towards these more esoteric tests. So we're all certainly seeing the reimbursements being cut, and the way -- and that's how we're dealing with it.

[Barry W. Weiner:]

This is Barry, Paul. I think this -- your question very appropriately dovetails into the future of the clinical diagnostics business. As we look to the reimbursement trends, and we all have to anticipate that reimbursement will be coming down, not going up in this industry, we recognize, more importantly than ever, the need to be able to provide tools to this industry so that the industry can execute its business model and, at the same time, be able to survive and have margins that will be sufficient for their shareholders and owners. We believe that the system that we are working on and have been diligently processing may be an answer for that particular problem in the molecular testing area. And that is why it is so exciting. We believe we can provide a solution that will allow laboratories to provide advanced molecular testing at a significant reduction to the conventional approach being utilized today. It's a system that will be transparent to the current -- using utilization out there today. And we believe it is an extremely important asset for Enzo and one that could be transformative in terms of changing the strategic direction of our Life Sciences focus to more of a diagnostic focus and, at the same time, addressing these very, very critical needs of margin improvement for the Clinical Lab world.

[Paul Nouri:]

So I guess, yes, kind of looking at the AmpiProbe asset, I guess it's first, you're developing it, and LDT makes sense. I assume that's the primary asset that you're thinking about spinning off or doing a joint venture with because in order to bring it to the market and bring it to FDA, it's going to require a lot more money. Or am I in the wrong direction?

[Barry W. Weiner:]

No, you're not in the wrong direction. But the AmpiProbe technology is a broad-based technology. As I mentioned in my comments, it has applicability not only in human diagnostics. It has very strong applicability in the veterinary aspects of diagnostics and bioprocessing. It is actually particularly interesting in the bioprocessing field because of its unique sensitivity. It is very exquisitely sensitive to picking up as little as one particle in a specimen. And because of that, for biological warfare issues, for certain types of infections where you don't have margin of multiplicity of disease state, this particular assay is very, very elegant. So to your question at point, there are many approaches in applications for the core technology. Human diagnostic is one, and within human diagnostic, we even have breakdowns by segment. We spoke of our focus being women's health as the initial platform. There are platforms that can be envisioned for GI, for upper respiratory, to give you an example. And these are all very unique products. We also spoke -- I spoke earlier about the work we did in the area of IPF. We are working to develop a diagnostic for IPF right now. When you consider the uniqueness and the special nature of that test and the informatics that it can provide, and you couple that within an upper respiratory panel that will include other upper respiratory analytes utilizing the AmpiProbe system, you can envision a more comprehensive diagnostic tool at a much lower cost basis for providers. So the answer to your question is yes, we're looking at multiple optionality, whether it's with strategic partners as well as other forms of business opportunities, to be able to exploit these. It is our goal to capitalize on this asset in a timely fashion. We think -- we feel that it's very appropriate for where the market is today, and we feel the technology base is very, very strong.

[Paul Nouri:]

Okay. And then hopping over to the Sequenom relationship, can you talk a bit about, I guess, specifically, what markets you're working on them with? And then also, I assume you have the exclusive lab for selling it, but do they -- are they riding along with you kind of to market the test? Or do they go see doctors separately?

[David C. Goldberg:]

Paul, it's David Goldberg again. The deal we have with Sequenom is actually quite unique. It's both a marketing and -- it's marketing and distribution deal with Sequenom. We are not the exclusive provider of Sequenom services, but we are the only laboratory that they are actually doing sort of active marketing with. And what they are doing is they are utilizing our very strong penetration in the New York Metropolitan area, really the whole area of New Jersey, suburban Philly, New York, Long Island, New York City, Long Island and up into Rockland and Westchester Counties. And they are working with our team, with our sales and marketing team to call on both Enzo clients as well as clients that aren't with Enzo. So it's really a -- it's a win-win situation. As they have gone out to market separately, they have their own sales force, we provide the ability for distribution, for processing. We have over 30 patient service centers for those physicians that wish to just send their patients directly to one of our centers. They're all equipped to process those specimens. There's a little bit of unique handling that goes along with them. So really, it's a deal where we're both working and dovetailing on each other's relationships. So it is unique in that sense. But again, there are other -- it is not an exclusive deal in the sense that there are other NIPT tests that we can provide to our physicians if they want as well. So we're not totally locked into them.

[Operator:]

[Operator Instructions] Your next question comes from the line of Raj Maheshwari of Charlestown Capital.

[Raj Maheshwari:]

Yes. I had a question, and perhaps this was discussed at some point in the past, but I cannot seem to find any kind of record about it. What is the status of the ColonSentry test that you had launched a few years ago?

[Barry W. Weiner:]

Can you repeat that, Raj?

[Raj Maheshwari:]

Yes. What is the status of the ColonSentry test you had launched a few years ago?

[Barry W. Weiner:]

Well, it's available still. We're looking into the reimbursement issues that are associated with it. The ColonSentry test was classified as an MAAA code test in -- earlier this year, which has made the reimbursement difficult. We have worked with the team at GeneNews to try and improve the reimbursement. But right now, we're really focusing our efforts much more onto the women's health area, and you can see the results sequentially have been positive in that way.

[Raj Maheshwari:]

So basically, should I just eliminate any kind of ColonSentry revenues for the next 20 -- 14 -- call it, 12 to 24 months?

[Barry W. Weiner:]

I don't think they'll be material.

[Raj Maheshwari:]

And is your plan to continue to devote marketing resources and dollars to it? Or your plan just to kind of lay low and let it just die [indiscernible]?

[Barry W. Weiner:]

Yes, Raj, we will -- we're not going to dedicate a huge amount of marketing resources now, but certainly, if the reimbursement environment gets better, we've proven that we can be successful in launching this and other products. And we're just going to see how reimbursement goes. We're not sure what will happen in 2014 with the MAAA. There's been no definitive commentary yet, but we will continue to monitor the reimbursement environment going forward, and we'll see.

[Raj Maheshwari:]

Just my one final question. I'll end on [indiscernible]. Do you have an idea of how much money you think you've spent on it already? Is there a ballpark number you can share with us?

[Barry W. Weiner:]

No.

[Operator:]

There appear to be no further questions at this time. Mr. Weiner, are there any additional or closing remarks?

[Barry W. Weiner:]

Well, thank you for participating with us this morning. We look forward to the next quarter to be able to report back to you. We anticipate a very interesting quarter as so many events I spoke to about this morning will start to materialize. Have a good holiday. Thank you.

[Operator:]

A replay of this broadcast will be available until Thursday, December 26, at 12