Enzo Biochem Inc (ENZ) 2002 Q3 法說會逐字稿

Good morning and welcome to the Enzo Biochem Incorporated third quarter 2002 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 27A of the Security Act of 1933. As amended, and section 21E of the Security Exchange Act of 1934. Such statements include declarations including the intent, belief or current expectations of the company and management. Investors are cautioned 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 obligation to update any forward-looking statements as a result of developments occurring after the date of this conference call. Our speaker today is Barry Weiner, president. All participants have been placed on a listen-only mode. I will now turn the floor over to the host Barry Weiner. Mr. Weiner, the floor is yours.

Thank you. Good morning and thank you for joining us on this teleconference call this morning. As the moderator just told you, we are reporting on our third quarter 2002 results for the three months and nine months. I hope that you have seen the press release we issued early this morning or the 10-Q filed on Friday. As you can tell, we had an excellent third quarter. Although our results through the first half are quite satisfactory, the third quarter lifted our operating results for the year to date ahead of a year ago, making up for the short fall in the second quarter. We are very pleased with the strength of our activities and I would hope you are, too. I will discuss our third quarter financial statement and then I will provide an overview and update of our corporate activities. For the third fiscal quarter, net income was up almost 37 percent, that is it increased from 1.9 million in the third quarter last year, to 2.6 million in the third quarter that ended April 30th of the current year. Despite a greater than 21 percent increase in R and D for the quarter, fully diluted earnings per shares rose to 9 cents, 50 percent improvement over a year ago. Total operating revenue increased 8 percent to $15 million. As a result, at the end of the first nine months this year net income amounted to $5.2 million, up from $5.1 million. Earnings per share fully diluted were ahead to 18 cents from 17 cents in the first nine months in the corresponding year ago period. Total operating revenues amounted to $40.2, which was up from $38.6 million in last year's first nine months. Revenues have been increasing annually in the past few years. I think there are few biotech companies that can make that statement or match the record. What is also notable, of course, is that growth in earnings has kept pace. In fiscal 1998, our net income was 3.4 million. In the first nine months of this fiscal year, we were 53 percent ahead of that level. Cash flow has been positive, this during a time when R and D has increased steadily, reflecting increasing involvement in a number of potentially important projects, both in life sciences and therapeutics. We ended the April quarter with increase in working capital over the prior year to 91.1 million, with cash and cash equivalence totaling 63.5 million. Our cash position exceeds $67 million. Again, unlike most biotech companies, which are users of cash, Enzo's cash position has continued to increase. I also want to point out that in this year's third quarter and nine-month periods, the total cost of operations, expenses as percentage of total operating revenues declined from the respected corresponding year ago periods. Again, despite increasing results and lots of activity within the company, we continue to keep our overhead very much in line. What is truly interesting regarding the third quarter is that for the first time in Enzo's history, revenues from Life Sciences division exceeded revenues from Clinical Labs services group. This is a reflection of the motto we laid out sometime ago as we went about building the company. We are very proud of this accomplishment. Now, with strong cash flow emerging from the life sciences division we can invest and build this division and can now also invest and refocus in our Clinical Labs to position it to be a leader in the next generation of medical diagnostic testing. Enzo Life Sciences is having a superb year. Research products grew by 70 percent to 8.2 million. For the nine months they were up almost 49 percent. What is sparking the results is a strong demand for labeling and detection reagents from the genomics and sequencing markets. This strong demand is continuing in the fourth quarter thus far, chiefly from our established products. Demand for our products have increased significantly. As a result, we believe the life science revenue in the fourth quarter could be the largest ever. We recently launched our new GeneBeam labeling system at a recent institute conference. This product will allow expansion of Enzo product line into a new area of efficient gene discovery. It is targeted to the medical research market. We have high hopes for the GeneBeam line, yet to be reflected in our results. The effect of the overall strong demand in life sciences is evident in operating results. Operating profit margins at Enzo Life Sciences and Theraputics - for reporting purposes we treat them at one unit, increased to 63.2 percent for the third fiscal quarter. Operating profits at Life Sciences and Therapeutics for the third quarter amounted to $5.2 million as compared to 3.2 million a year ago, a 125 percent increase for nine months. Operating profits amounted to 10.4 million, as compared to 5.7 million for the nine month period and 82.2 percent increase. Nine month operating profit margins were 56.9 percent, compared to 46.3 percent This performance represents both the increasing efficiency and attractive margins we are able to obtain with these products and we are very very pleased with the growth of this unit this period. We see a significant opportunity in the life science market. It is a very fragmented market and we are exploring in various new segments to enhance the growth of this division. Our existing labeling and detection systems for the micro array markets are becoming the standard in the industry. We are seeing array market of $500 million, which we are surfing with our reagents. This market has the potential to grow with a 90 percent compound annual growth rate, according to many industry reports. It is a vibrant market, a market in which we are attempting to establish ourselves as the principle providers of reagents and setting the standards for anyone that uses these micro arrays in the market play. Enzo intellectual property covers a broad scope of the market necessary for the industry segment, specifically we cover nonradioactive labeling methods, library amplification, hybridization and detection in transparent systems a diverse class of dyes used in detection of the systems just to name a few. Our market share of the labeling and detection systems start to grow, we are working to expand these product lines in a number of areas to establish ourselves as the key supplier to the industry. The evolution of our life science capabilities into clinical diagnostic systems is making progress. Currently our program is focusing on three main product development platforms. One, is targeted toward the pathology market place that utilizing hybridization techniques in pathology specimens. This is a unit targeted for pathologists to be able to look at a specimen and to read and to see the biological activity, the gene activity within the cell with the naked eye. A Second platform is for doing DNA diagnosis of infectious diseases in a hi-through put environment such as a central laboratory. Today, we are running clinical specimens on prototype machine at our laboratories side by side with the conventional approach. We are pleased with the performance of this unit. The third platform is an application of the central lab system I just discussed in a smaller unit that can be utilized in a stat lab or point of care location, such as emergency room or physician's office. This is being designed to process single specimens, instead of large batches as in a clinical laboratory so that one can come into an emergency room or physician's office and within a short or quick turnaround time, get accurate detailed diagnosis. The goal of our approach is to transform culture-based diagnosis, systems that were developed by Louie Pasture, which can take days and weeks to get answers and make it a realtime diagnostic in which a definite answer can be determined in an hour. This would be a tremendous asset in medical care and avoid unnecessary hospitalization and allow physicians to treat patients with appropriate medication and reduce costs associated with treatment, significantly. The area we are focusing on, DNA identification of infectious diseases is the fastest growing segment of this $20 billion invitro diagnostic market, agreeing at a rate three to four times the annual growth rate. We find ourselves in the unique position here because of our commanding intellectual property, our unique technology and expansive probe library. We have done doing this for 20 years and have amast a wealth of technology and capability that is staggering within the industry. There is a high interest from third parties in our approach and our products. We are in discussion, we are evaluating and being deliberate and we will bring the products to market in the appropriate fashion. Moving to Enzo clinical laboratories, third quarter revenues fell as we reported to 6.8 million from 9.9 million. It accounted for most of the decline for the nine months. The lower revenues reflect principally, as noted in the second quarter conference call, unprofitable contract we entered into last year, and was cancel indeed January of this year. The cancellation of that contract and the strategic shift of our business to higher margin testing has affected a return to profitability this quarter. We, as well, are seeing improvement in cash flow at the laboratory. We are making every effort to see these trends continue. We have instituted a more vigorous marketing effort and at the same time, to enhance operating results we have ongoing cost containment program. Most important, we have renewed focus on higher value testing and added several new specialized testing capabilities that truly distinguish our reference laboratory, one of which we noted in the press release is test for alphafetal protein, a prenatal test for neurotube defects and chromosomal abnormalities. Enzo clinical labs remain profitable this quarter and we anticipate in the first quarter starting in August we should start to see margins normalizing again. Let me turn to the activities at Enzo Therapeutics. I know it holds a high degree of interest. We are doing very well there, as well. During the past quarter, we were granted new patent. Number 6358685B1. This patent gives Enzo broad coverage for editing gene defects invitro. This includes the correction of many in born areas of metabolism. You may recall we hold a primary patent on the technology and this latest patent is an extension of that area of interest. Gene editing technology may offer potential approaches for treating diseases based upon mutation of a specific gene sequence within a cell. Diseases such as sickle cell anemia could be treated with this technique, which involves correcting the defect without interfering with cellular function. We have started preliminary work involving this new technology. It is very early in the game. We believe it is an incredibly promising approach. More immediately, I am pleased to report that the Phase I involving our oral immune regulation for Crohn's Disease is now well underway at the Hadassah hospital in Jerusalem. Crohn's Disease is a debilitating illness that affects younger people and the treatment is extension of the considerable work Enzo and our investigating physicians have been working on with regard to the overall utilization of our proprietary approaches to oral immune regulation. This trial is fully subscribed at this point in time. We are gathering data and look forward to being able to report the results in the year future. In that connection, I would also like to announce the completion of the Phase I of EHD18 treatment for Hepatitis C. We are finalizing and evaluating the data. Based on preliminary data, the Phase I test has met all end-points with regard to safety and toxicity and so forth. The next step, step, once we completed the study of data is dose escalation study, which we hope to get underway very soon. Plans for our multinational double blind Phase II trial EHT899 are moving forward smoothly now. This is our product for the treatment of Hepatitis B. Having to select and negotiate agreements with physicians and medical units and multiple countries and to assure consistency in the application of our medicine, while arranging the enrollment of the proper subjects and the follow-through investigations to make sure we are getting accurate and consistent data is a challenging undertaking. However, we are making good progress and we would hope we finally can get things underway as discussions - and they are more than discussions, are getting close to the point where things are coming together. We look forward to initiating the studies in multiple countries. It is our belief there will be three sites up and coming in the near future, as well. I might interject here occasionally we hear concerns that a number of trials are taking place in Israel and given the difficulty in the area, we asked if it was prudent to sustain that trial effort. The answer is without question, yes. We have enjoyed a long and productive and extremely friendly relationship with Hadassah Hospital and its staff. It is one of the finest medical institutions in the world. It treats people regardless of national origin. The staff is highly professional and highly esteemed. Their commitment to humanity and the work we have undertaken will benefit people throughout the world. It is an admirable effort. It should be noted Hadassah is used for clinical trials by companies around the world and it is regarded as the foremost medical center in the world. We have been please wide how we have worked and what we have been able to obtain in the medical center to date. Let's turn to HGTV43 our gene medicine for HIV-1 infected individuals. Last week, Dr. Dean Engelhardt appeared at the meeting of the American Society for Gene Therapy. His presentation was well attended and generated much interest among physicians and scientists who were there. He reported our ongoing studies to date of the five patients we continue to follow years after their initial treatment with HGTV43 are proprietary self vector all show continued anti-HIV-1 expression. They have tolerated the treatment well. None has thus far progressed to AIDS. Given the fact that more and more people suffering from AIDS are becoming more resistant to anti-viral cocktails our approach is promising. We have a number of steps to take before it is conclusive. Dr. Engelhardt pointed out that only one individual treated with HGTV43 have reported AIDS defining infection. It raised questions from shareholders when we noted this matter in our press release and it should not have. The fact is there are several dozen different so-called AIDS defining infections and none by itself is indicative regarding the onset of AIDS. It is our obligation to report any possible event during a given clinical trial. In this particular instance, it is interesting to note, one subject complained of certain symptoms suggestive - I use the word suggestive - of upper respiratory infection. Evaluation failed to verify any such condition. He was treated with medication and reported the symptoms resolved. He is doing well. Despite the isolated instance, all five so far continue to do well. We will continue to report on them at appropriate intervals. What is important to stress, after two years, our gene medicine continues to function. No one else has come close to these results, which is why we are so enthusiastic regarding its possibilities. The data has been very good and we at Enzo truly are the first to register this kind of an event. We have been asked frequently about the timing of the next phase of this clinical program. The fact is that we are proceeding expeditiously, however, what has changed is the industry environment. Because of various events and because this is pioneering work in the truest sense of the word, there is abundance of caution on the part of everyone, particularly the regulators. The rules are in effect being established as we go along. The overarching objective is to assure the safety and well being of the subjects involved in the tests is good and to bring out a gene medicine that will be beneficial. The fact is that trials involving gene medicines in the industry have been reduced in part because of the hurdles and the high in many firms that have become so intense and have been challenging so many different firms who have to deal with them. Looking at it another way, in the year 2000, we estimate there were approximately 95 gene therapy trials underway. Last year there were about a quarter of that number. We suspect there may be fewer today. The reason is simply it takes more time, effort to pursue these applications. Obviously we at Enzo have not been immune to astringent regulatory steps. It has taken time, but we are making good progress. With regard to the protocols at Cornell. We were required to go before the Advisory Committee, something that probably would not have happened in a different environment. It is important to note, that we have cleared all committees, particularly the reck, which voted to unanimously move forward. We have gone through the most stringent regulatory reviews and been able to move through with acceptability. Additionally, we have also been required to scale up production to meet the needs of multiple trial sites, increasing the amount of product to be manufactured, thus requiring a new manufacturing to meet these needs. This was a nontrivial task and necessitated developing a new master file for submission to the F.D.A., a huge undertaking in the best of circumstances and even more so in the case of the gene medicine. The fact is that procedures are continually being established at each step along the way and we have had to develop new assays and technical methods and tools to meet these. With no pres dense to fall back on, this has been an enormous undertaking. Having said all of that, we are encouraged and in the midst of filing the final documentation for our protocols. It has been a long road. If we are successful with HGTV43, it will be well worth the difficulty, trouble and the wait. What I want to convey is there has been extreme progress. The time it has taken in no way related to anything to suggest there has been difficulties with the treatment. We retain every bit of enthusiasm as to the investigators working with it. I would like to comment on the two court cases involving Enzo you may have read about. They are before the court. We cannot say much. As we previously announced, our suit giant Genprobe and others will be charged with infringing on patent 4900659 was dismissed on summary judgment by the federal trial judge. The decision was affirmed by 2-1 vote in the circuit of appeals. We have petitioned for a hearing by the full Court of Appeals. Frankly, while that is a difficult road and not always successful, we are encouraged by the fact the court's ruling and how it interpreted the law and applied it has caused a great deal of discussion and generated a good deal of concern among the many members of the property bar and the companies they serve. A number of arecas or friends of the court brief have been filed urging rehearing. There is widespread concern concerning the impact of this decision and what it could have on not only thousands of other patents, but the U.S. biotechnology industry in the world. None of the arecas has discussed the merits of the suit, that is proper, they have raised important legal and other issues that could potentially get the case remanded or the discussion reversed. We would like to have our day at trial, which is yet to happen. As far as the Digene case, the court ruled that although Digene had filed a complaint against us first. It recognizes Enzo is the plaintiff in the matter of patent infringement. This case is in the early stages and it will be sometime before it is resolved. Let me stress, neither one of these cases has current financial impact on Enzo, outside perhaps legal fees. We were not realizing revenues from the patents involved in the case prior to actions and so our current results are not affected nor do they impact our patent estate, which remains a valuable asset and continues to propel current revenue growth. On another note, financial bookkeeping. As we said in today's press release, we have adopted issues 0025, a ruling on which the financial accounting standards boards emerging task force has reached a consensus which affects fiscal quarters beginning after December 2001. It deals with reporting revenues from certain non-exclusive distribution agreements on net basis. We have adopted this reporting procedure, reclassifying all related historical results. The change reflects new reporting presentation and does not alter the net income historically or in the future. I would like to note, how Enzo is moving to address the issues of corporate governance, which is doing so much lately. In January, the board adopted a new set of governance principles that are in many ways consistent with the governance principles set forth by the California pension fund, can had has been a bell weather promoting good corporate governance and recently by the New York Stock Exchange. We will add additional new directors to the board, soon, in order to have independent directors represent a clear majority of our directors. As well, we have redefined our board committees, which consist only of independent directors to oversee compensation and governance functions. Much of this was in place prior to principles, but now we have formalized the procedures. I mention this because it is important to appreciate and know that even as we pursue business objectives, we are pursuing to remain a very good model corporate citizen. The market has not treated many stocks kindly in the past few months, particularly the biotechnology segment. We have been pleased to note through the first quarter of this calendar year, as reported to the SEC, institutions were net buyers of Enzo common shares. Withholding in the aggregate as of 26 percent as of the last report. We have an active program of meeting with institutions, typically on one-to-one basis, which is time consuming, but it is important aspect of commitment to enhance the value of our company's shares. Also, we are putting the finishing touches on our new website. It will serve as shopping cart for Life Science products worldwide. I have recently reviewed the site and I am sure it will be a useful tool about the company. Our management team is very focused on building shareholders value. As you can tell from my remarks, Enzo is a unique biotechnology company. Other companies have had to turn to big pharmacists to assist them in ongoing activities. We have taken a different approach, frankly more independent. And we believe in the long-term we will return more value to the company and shareholders because of it. Moreover, we are not a one-product company, but to the contrary, Enzo has multiple technologies and multiple products both diagnostic and therapeutic. Many of which, will in turn return significantly to our company. I am pleased to be able to deliver today's report on performance and our ongoing activities. We appreciate your confidence and your support. I wish to thank you again, for listening to us today. Have a good day. We look forward to the year end. When we hope to report exciting news. Thank you.

Thank you. A replay of the broadcast will be available until June first - I am sorry, June 30th at 12 midnight. You may access the replay by dialing 877-519-for71. The pin number is 3332783. The international callers may dial 1973-341-3080. Use the same pin number. Once again, that replay will be available until June 30th at 12 midnight. This replay will also be available through world investor links website www.vcall.com. This concludes today's teleconference. You may disconnect at this time and have a wonderful day.