Enzo Biochem Inc (ENZ) 2005 Q2 法說會逐字稿

Good morning and welcome to the Enzo Biochem Incorporated first half and fiscal 2005 second quarter 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 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.

Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that could materially affect actual results. The company disclaims any obligations to update any forward-looking statement as a result of developments occurring after the date of this conference call.

Our speaker today is Barry Weiner, President. At this time, all participants have been placed in a listen-only mode and the floor will be opened for questions and comments following the presentation. I would now like to turn the floor other to your host. Mr. Weiner, the floor is yours.

Good morning, and thank you for joining us. With me is today Dr. Dean Engelhardt who is Executive Vice President, as well as Dave Goldberg, who is the Senior Vice President of Enzo Clinical Labs.

I'm going to begin my comments with a brief discussion of the company's second quarter results which were the subject of a press release yesterday. David will provide some insight into the operations of Enzo Clinical Labs for the quarter, I would then like to make some comments concerning our Life Sciences division as well as our therapeutics activities and Dr. Engelhardt will deliver some comments as well on the activities of Enzo Therapeutics which will include some details of our new trial that got underway that is targeting treatment for non-alcoholic steatohepatitis. At the end we will be happy then to take some questions and follow-up with hopefully some appropriate answers.

Let me first share with you some of the highlights of the second quarter. The quarter was very active and it was really quite a productive one. We made progress in implementing our strategic plan to build our core business base in both the Life Sciences as well as clinical laboratory companies.

We expanded our activities in both areas and I thought we made some very, very important progress in building our therapeutic base as well as bringing a variety of our clinical targets into clinical trial and moving those through this rather arduous pipeline I think in a very interesting way.

We recognize that our therapeutic product potential is the key value driver for our company and we are continuing to focus and channel significant corporate energy into the multiple product opportunities that we are, as a company, very fortunate to be able to pursue.

First, I'd like to look at a snapshot at some of the key issues that took place in the quarter. Overall, revenues were on target with our plan. On a sequential basis, Life Science revenues were up for the quarter about 800,000, or approximately 30 percent.

Comparing the numbers to the same period last year, this division was down about 600,000, but it must be noted that in that this current quarter we did not recognize any revenue from Roche Diagnostic Systems, one of our distributors, which is the result of ongoing litigation. And to keep it in perspective, you have to look that at the same quarter last year we recognized close to a million dollars from Roche Diagnostic Systems.

Enzo Clinical Labs showed both sequential and year-over-year improvement in operating income and revenues. Operationally this division went from a $1.1 million loss to a profit of over 800,000, a turnaround of nearly $2 million. Our plan of investment and expansion in that particular division is starting to pay off now.

New products are starting to emerge in our Life Sciences group. Our Life Sciences group has completed the final testing on our new kit for the analysis of Comparative Genome Hybridization and we'll roll the product out in a few weeks.

Additionally, we continue to make progress in our biological dye program and hope to see new products and new clinic analysis fields soon. This quarter was also an important quarter because it marked the first of our royalty payments from the Digene settlement which was completed in the last quarter.

On the therapeutics front we were extremely busy beginning a new Phase II trial to test the efficacy of our small molecule therapeutic EGS21, which is targeted for the treatment of non-alcohol steatohepatitis, or NASH, as well as receiving approval to begin yet another Phase II trial, this one to test the efficacy of EGS21 against hepatitis C, a virus associated [with] chronic active hepatitis.

Also, Enzo Therapeutics received a $1 million grant from the Israel U.S. Binational Industrial Research Foundation which is commonly known by its acronym, BIRD. The money is being put to use to further our clinical programs specifically the Phase II trial we launched for NASH.

Our treatment for management of Crohn's disease, Alequel, is moving forward well in its multi-armed Phase II clinical trial with enrollment continuing, and we are making progress in establishing a second investigative site for HGTV-43, our gene medicine for use in HIV-1 infections in order to move that trial faster.

And finally, the company did receive two very important patent applications as a result of our collaboration with our research partner, I should say we filed. We have not yet received them. We filed them this quarter.

This is a collaboration with the University of Connecticut in the area of the bone density formation. It's a very interesting area and Dr. Engelhardt will speak to this a little bit later.

Turning to the specifics of the numbers, we reported revenues for the quarter which ended January 31, of $11.2 million, slightly above the same period a year ago, and about $900,000 above the preceding first quarter of this year. On a year-over-year comparison, one has to take into consideration that due to the ongoing litigation, this current quarter that we did not book any revenues from our distributor Roche as I mentioned earlier, and it should be noted that they are still selling products.

For the six months, revenue was basically at par with the prior year at 21.5 million versus $21.3 million.

Overall, Enzo Biochem showed a net loss for the quarter of a little over 500,000 or $0.02 a share which is fully diluted, versus a loss last year of 1.5 million, or $0.05 a share fully diluted.

For the six months, we showed net income of 6.5 million, or $0.20 per share fully diluted, versus a net loss last year of 1.8 million, or $0.06 a share fully diluted. Our net income was obviously helped by our settlement with Digene Corporation which was announced last quarter.

Research and development expenses trended down slightly to $2 million as opposed to $2.3 million last year. This is due to the timing of our clinical trials. We expect that we will increase our research and development activities during the course of the year to accelerate the development of many of our clinical programs.

Legal expenses were also down over 600,000 from last year same quarter due to the resolution of the Digene case and the timing of our other litigations.

SG&A was up to 4.7 million versus 3.7 million in the second quarter of fiscal 2004. This reflects the continuing direct sales initiatives we are implementing at both Life Sciences and Clinical Labs, as well as the upgrades and further installations to our Enzo direct physician computer systems at Enzo Labs.

We also are experiencing higher accounting and related expenses as is every public corporation due to the implementation of the Sarbanes-Oxley Rule 404 provisions. Gross profit for the quarter was around 7.8 million while gross margins were about 70 percent. This is comparable to last year's figures.

As has been the case for a number of years, we continue to have an extremely strong balance sheet which allows us to continue to invest across our business lines. Cash, equivalents, and marketable securities as of January 31 were over 81 million, and working capital was nearly $100 million.

Shareholders equity exceeded 110 million, and the company remains debt-free. Also, we are cash flow positive for the six-month period.

I'd like to turn to a discussion of each of the divisions. I'd like to ask David Goldberg to give us some brief comments about the progress of Enzo Clinical Labs.

Thank you very much, Barry, and thanks to all of you who have joined us for this call this morning.

Enzo Clinical Labs for the quarter posted strong numbers despite the continued downward trends in third-party reimbursements. As Barry indicated, the investments we have made in this operation over the past year are starting to pay off.

For the quarter Enzo Clinical Labs revenue was up nearly 13 percent to 8 million, and for the six months has grown by over 1.2 million to more than 15.8 million. More importantly, this top line growth has been accompanied by even greater bottom line, such as the net income produced by the labs for the quarter grew at 860,000 from a net loss last year of 1.1 million, a nearly $2 million turnaround.

Gross profit for quarter topped 5.1 million versus 4.5 million last year, and gross margins remained at about 64 percent. Enzo Labs experienced a reduction in the provision for uncollectible accounts receivable of approximately 2 million to just under 1.2 million this quarter, primarily due to a change in the payor mix we observed which is related to the geographic expansion of the lab.

This expansion has resulted in a mix of business that is more profitable and provides us with a better collection rate. This reduction is also due to the continuing focus we have made on obtaining complete and accurate billing information.

On the information technology front we have installed over 250 Enzo Direct computer systems in our clients' offices since we introduced the product a little more than a year ago. We have also substantially increased use of a new two-dimensional barcoding system that I mentioned in the previous call.

This enhancement speeds up the capture of important patient demographic information critical in the processing of the sample. This in turn helps us more quickly identify those invoices that are missing some key elements that are required for to us submit to third parties and in addition to obtain such information in a timely manner.

We are also able to identify and eliminate those accounts that contain an unprofitable mix of payors, and these enhancements also allow us to continue to bill effectively for the services that we provide. The updated version of Enzo Direct is being installed now and by the end of the quarter should be in all of our patient service centers thereby improving service for those individuals who come into one of our nearly 20 locations in the New York and New Jersey area to have their blood sample taken by our professional staff.

In addition, we have replaced virtually all of our older field lab computer systems [in advance] of new Health Information Portability and Accountability Act, or HIPAA guidelines. And these go into effect in April.

Operationally, we have nearly completed the on site testing and installation of several of our new key laboratory instruments. We expect that we will experience improved turnaround times on many of our most frequently ordered tests, a critical component as we continue our geographic expansion further out from our main location.

Moreover, these instruments have the ability to allow us to add additional tests that we currently send out to other laboratories thereby potentially reducing our reference costs even further. As an example, due to the growth we have experienced in our request for human papilloma virus testing we will be automating this procedure so that we can more effectively and efficiently run larger batches.

On the quality control quality assurance front we recently were the subject of a comprehensive laboratory inspection performed by the College of American Pathologists. I'm very pleased to report to you that our laboratory once again earned an accreditation with distinction from this prestigious organization and that will carry us through to early 2007.

Barry? Thank you, David.

We are very pleased with the direction the lab has taken this quarter and we look forward to continued progress in this division.

With regards to Enzo Life Sciences, I'm pleased to report continued progress as we move towards our strategic goals. As I said earlier, Enzo Life Sciences showed a sequential revenue gain of over 30 percent this quarter, up to 3.3 million from 2.5 million in the first quarter.

Year-over-year however, revenues were down and again, as I pointed out, this was predominantly due to the dispute with Roche that I mentioned earlier. Gross margins continued at a high level this quarter exceeding 82 percent while gross profit for the division was $2.7 million.

Enzo's field sales force continues to penetrate a number of key domestic customers. In addition, we are seeing strength in our overseas revenues as we continue to focus our efforts internationally.

Sales in the Pacific Rim, as well as Western Europe have been growing sequentially. We will be continuing to focus globally and the new Web site that we recently launched and that I will talk about in a minute, we believe will be an asset in this effort.

On the product front, we are now wrapping up the final beta testing of our system for the study of Comparative Genome Hybridization, or CGH. Our kit will be the first of its kind to contain all the reagents needed to analyze the differences between normal genes and those of tumor cells, which is an invaluable tool in the genetic analysis of cancer.

We are taking advantage of the company's expertise in labeling DNA to provide researchers with a fully integrated system that has gone through rigorous quality control. Enzo will formally launch this product at the American Association of Cancer Research meetings in April which will be followed up by the Human Genome Genetics meeting a couple of weeks later.

We are also progressing in the development of biological dyes which are used to indicate the amount of DNA present during an amplification process. Such techniques are used today in the study of gene expression or the measurement of bacterial or viral load and would be a complimentary line to our bioarray amplification and labeling systems.

We were also quite busy during the quarter with the launch of our new enhanced Enzo Life Sciences Web site. This improvement now allows us to process orders from anywhere in the world via a secure portal which cuts down on the transaction costs associated with the orders, specifically overseas orders.

Additionally, the site allows us easy navigation for the myriad of technical information that Enzo Life Sciences provides to our customers. We have promoted the Web site in leading biotechnology Web-based publications and have noticed an uptick in the visits to the site as well as the number of clicks within the site itself.

From a management standpoint, the site also allows us to better secured communication with our field sales force in terms of lead management which should lead to us more efficient prospect follow-ups. This leads me into an area that I would like to spend a couple minutes on, and that's the strategic initiatives that we are developing at Life Sciences.

I've already mentioned our shift to direct sales and to geographically-based distributors to cover those areas where a local presence makes economic sense. We are still in the process of expanding our sales and marking staff.

We have a good team assembled so far that can cover a good percentage of the country but we still need additional professionals to achieve our plan and we are currently recruiting them. The sales and marketing group has targeted those high-volume institutions, both pharmaceutical companies and major research centers, that are heavily involved in the study of gene expression in order to have them order the products they need for the visualization of that expression of DNA that they are working on.

Many of these organizations are already familiar with our technology, having purchased our products from distributors in the past, and we are endeavoring to convert those institutions into direct Enzo customers.

We are attending a number of upcoming industry trade meetings as indicated in our Web site, and we've also beefed up our efforts by the addition of the first of our applications specialists who will be working to support our field representatives doing workshops and product demonstrations as well as providing technical field support for our customers. We believe that providing such a backup will enhance our direct sales efforts as our customers and potential customers know that Enzo will give them the support they need as they utilize our products.

We are also in the midst of a program to expand the types of labeled nucleotides, so called DNA building blocks, that we offer. Enzo is committed to exploiting the strong reputation that we have built in this area and we hope to announce future product launches in the upcoming calls.

We are also committed to increasing our presence in some of our non-core areas. One initiative in particular is the enhancement and expansion of our line of products used in the fields of immunopathology and In Situ Hybridization.

The main application of these technologies is the detection of potential cancerous cells or infectious agents in biopsy specimens. Enzo Life Sciences offers a number of key products for this market segment and we are renewing our efforts to expand our catalog here, both in the scope of products offered as well as their formats.

As we roll out our CGH system, we will be calling on many of the same customers who use In Situ and immunopathology and with a wider line of products we believe we can make inroads on both fronts.

Strategically, we are looking at different options to build and expand our business. We would not rule out joint ventures or acquisitions to build the core business that we are involved in.

I would like to comment briefly also on the status of our work in the diagnostics area, specifically the progress that has been made with our proprietary amplification system which we call Inchworm. Over the last year we have been attempting to better differentiate and accelerate the capabilities of our system as we explore the strategic opportunities to best commercialize this product.

There has been an excellent progress in utilizing the dyes we have been developing for sale through our Life Sciences group in our system to enhance its sensitivity in the real-time detection of DNA. The system is the subject of two patents that have been issued and a number of patents that are still pending.

We feel the potential of this proprietary system goes beyond the research purposes that are commonly used today for gene application and also will apply in the area of patient monitoring and diagnosis of infectious agents. We are exploring the application of this technology together with other of the company's technologies for the application in patient profiling for drug responsiveness, a growing interest in the field of pharmacogenetics.

We are seeing an increasing awareness of our technology in the industry and we are exploring a variety of approaches to commercialize this technology.

Before turning our discussion to our therapeutics program I would like to comment on a specific litigation issue.

First, the Roche and Affymetrix matter is in discovery and a markman hearing has been set for June. This hearing also has implications in the Amersham, Perkin-Elmer, Applera cases as well.

As a point of information, a markman hearing is set by the court to define the scope of the patent claims that are associated with the case. We are diligently proceeding with this process and we look forward to its resolution, which could have broad implications on our core Life Sciences and diagnostic businesses.

Now I'd like to turn to our therapeutics activity. As we indicated in yesterday's release, Enzo Therapeutics is aggressively pursuing its drug development programs. Many of our shareholders have expressed questions concerning the status of our projects and I hope we can share with you some of our strategic thoughts.

As we have indicated in the past, we believe our therapeutic activity will be the value driver of our corporation. Not to diminish the promise of our other business activities, which we see delivering what might be classified as a linear stream of returns to our shareholders, we see the potential, or the ultimate success of our therapeutic options that's having the potential of delivering a geometric stream of returns.

As a company, we have focused on platform technologies that have the potential, after proof of principle, to generate multiple product options and targets. Our process has been methodical and concerted with an approach to mitigate failure of product in later stage testing.

We have focused on pioneering technologies to treat conditions with few options available and which tend to carry significant side effects. Many of our technologies are extremely pioneering in their direction.

Strategically our portfolio of technologies could be categorized as in a class of personalized medicines. It's interesting to note that we are now bringing into our portfolio a traditional approach to pharmaceutical development based on compound screening techniques that are quite novel, generating interesting pharmaceutical targets, I'm relating specifically to our work in the bone density area that Dean will speak about.

Earlier this year we completed a safety trial of our proprietary small drug medicine, EGS21, that we believe may play a role in the potentiation of the immune system. This trial met its end points, and based on the data and presentations we made at the American Association for the Study of Liver Diseases conference, we are expanding our studies of this compound both individually and in combination with other therapeutics. Let me try to detail these programs.

Our Crohn's disease program has expanded dramatically this past quarter. We are proceeding with an expanded multiarm Phase II study focusing on Alequel, our immune regulation therapeutic.

This trial will examine the effect of various dose levels of the drug Alequel alone plus measure its impact in concert with EGS21, as well as against a placebo. The final arm of the study will measure the effect of EGS21 alone. In this way, we hope to gather a large amount of relevant clinical information before we plan a Phase III study.

Barry, can I interrupt?

We are doing, we are testing both EGS21 and Alequel in the same clinical trial. Both have reached a Phase II status. The Alequel has actually completed a double-blind randomized Phase II trial and we're continuing forward on that alone in a dose escalation format to make sure we have the correct dose that we can then fix and move on to a Phase III trial.

The EGS21, which is a single lipid, has been tested extensively in animal models and has gone through a safety trial.

In animal models when used alone EGS21 is very effective in the management of the analog of Crohn's disease, experimental allergic colitis. And therefore this trial can be considered a double-blind trial testing two individual drug candidates, Alequel and EGS21, which have both been shown to work well in animal model systems and we have enough safety data to move forward.

In addition, EGS21, which is an immune potentiator may work by a separate and complimentary mechanism to Alequel, and therefore in setting up a design of the trial we saw no reason not to include enough patients receiving both medication in the course of the trial to see if there's any complimentarity in the reaction to these drug candidates.

So this is really testing three things at once, Alequel in a double blind, we're continuing to move forward. EGS21 we're moving into a Phase II format and we're putting the two drug candidates together to see if there's a complimentarity in the reaction.

The Alequel trial is in progress and enrollment of subjects has been proceeding quite well. The timing of the study will depend on the enrollment rate of the subjects and as I mentioned, we are making nice progress there.

In addition, we recently initiated a new Phase II study of EGS21 for the treatment of non-alcoholic steatohepatitis. It is sometimes called NASH, or fatty liver disease. And subjects are currently being enrolled in that trial.

Again, this is a disease condition that is emerging, it's a subject of intense interest in the GI community. It turns out that many of us will have accumulations of fat in our liver. We'll have fatty liver which is weakly correlated with being slightly overweight and it's weakly correlated with age, although virtually anyone can get fatty liver.

Some fraction of those people, perhaps 10 percent of those people, progress into an inflammatory disorder, which is hepatitis. It's as though you have a virus infection but there's no virus involved as yet been identified.

This is called NASH, or non-alcoholic steatohepatitis. This is a disease that can be as episodic and can be progressive and can lead eventually in a very small number of these patients to liver failure. So this is a very important medical presentation.

Again, our animal model systems clearly demonstrated to us that the animal equivalent of immune attack on the liver, the steatohepatitis, could be managed by our EGS21, our single lipid drug candidate. And based on that and based on the safety trial we are now moving forward into an evaluation, a first Phase II which will allow us to evaluate not only safety of the product, but various measures of efficacy.

One of the measures of efficacy, by the way, is glucose tolerance. That is to say, many subjects with NASH also present with symptoms of Type II diabetes, and this will also be evaluated.

This study will be partially funded by the $1 million grant from the Israel U.S. Binational Industrial Research and Development Foundation that we received earlier this year.

We also have received approval to initiate a Phase II clinical trial examining the effects of EGS21 for the treatment of hepatitis C virus associated chronic hepatitis, a disease that also affects millions worldwide. Based on the Phase I results, we feel that this compound may have advantages over our other hepatitis C treatment candidate, EHC18, Enzo's immune regulation medicine. And so we will proceed with the Phase II study of using EGS21 first to assess its potential.

This, I would remind you, and this is the publications emanating from Enzo and our collaborators, that the original discovery of EGS21, the single lipid, occurred in a correlation amongst patients with Gaucher's disease.

When patients with Gaucher's disease who also had hepatitis C were treated with the drug that allows the correction, the phenotypic correction of the Gaucher's syndrome, these patients experienced, occasionally experienced a serious flare in the hepatitis HCV-associated hepatitis. And it was based on that that we decided to move into a clinical, a more careful clinical evaluation of this drug candidate.

On another front, Enzo has received approval to begin a Phase I trial to evaluate the use of oral immune regulation for the management of individual suffering from rheumatoid arthritis, who've been treated with Remicade and who have developed antibodies against Remicade. This trial has been approved and we are now awaiting the initiation of that trial.

As I understand it, according to my reading of the literature, as many as 50 percent of the patients receiving the drug Remicade in the management of rheumatoid arthritis eventually develop a resistance to this drug and this resistance is immune mediated and we are moving ahead with an evaluation of our oral immune regulation to test whether using our procedure, which may eliminate the immune response against Remicade, we may also therefore eliminate or prevent the onset of the resistance to Remicade.

Interesting approach to treating a problem which is emerging rather extensively right now.

I would like to note that the Phase I/II test for HGTV-43, our gene therapy investigative treatment for HIV-1, is soon to be initiated at the University of California in San Francisco. UCSF was the site of our Phase I trial for this medicine. We've added this site in addition to our Cornell Weil site in order to expedite this trial.

Every institution has its own profile, its own methodology. We have initiated this study at Cornell almost a year ago and we have not been satisfied with the progress of this trial in moving it forward.

We are still optimistic it will move in this direction but to expedite this trial we are now expanding it out and we are making a push. We are very committed to this product and we are anxious to get this trial up and running.

As you are aware this is very pioneering product. It is a product that is being approached with extreme diligence as well as caution.

Recently the FDA raised issues concerning gene therapy in a area for X-SCIDS or immunodeficiency disease, which is different from what we are doing. But it is an area of heightened sensitivity and we feel that we must move forward aggressively in this area and as a result we have begun the process at UCSF as well.

My understanding of the issue with the X-SCIDS babies and the issue was that some of these babies, a minority of these babies are bubble babies, are immune deficient, in the course of and probably as a result of the gene transfer procedure developed a white blood cancer of one form or another and one of the patients is currently responding, the other two, one of them is early in treatment and the other is not responding to treatment.

The vector used in this particular clinical trial, the material that transferred the genes to the blood stem cells of these X-SCIDS babies contain the fully functional promoters and enhancers in a part of the vector that are implicated in the onset of these white blood cell cancers. These promoters and enhancers, two separate genetic elements, have been systematically eliminated from the vector that Enzo is using.

We feel this is a safety issue. Of course, the proof is in the pudding. You cannot predict what will happen when you use these vectors repeatedly but to the best of our knowledge, these vectors have no other promoters or enhancers that are functional except for the ones making our anti-HIV anti-sensory gene.

So I believe we have a superior design in our gene transfer and it is hoped this will lead to a safe gene transfer procedure moving forward.

A brief comment status of our hepatitis B product. It is now in the logistical planning stage as we evaluate the manufacturing processes for which we've been diligently working on for the last eight or nine months. We are defining our clinical trial design and we are exploring partnering options in that particular area.

In addition, the company has a number of new compounds in preclinical development that could provide therapy for treating bone disorders including osteoporosis, bone loss, fractures and abnormalities, diseases and other applications. This is a new area of development, one which we are extremely excited about, one which we think could have broad implications into the future because it is a change of paradigm in many ways as to the types of pharmaceutical approaches that we have been embarking on.

This work is done in collaboration with scientists at the University of Connecticut and St. Jude's Hospital. We have come across a method for determining the exact site in which two proteins will bind together and in fact we can make a sufficiently accurate description of that binding site that we can develop medicines with a minimum of screening that will bind to an, bind to one of the proteins and interfere with the protein and protein interaction.

Now, bone mass, bone density, is very much regulated by protein-protein interactions. If two specific proteins interact, if two specific proteins interact strongly, bone mass diminishes. If these same two proteins don't interact strongly, bone mass increases, and we have developed a candidate drug that will interfere with the binding of these two elements.

Therefore, if one, for example, has bone thinning, which is associated with age, especially in women, but, of course, with all people, men and women, if one has bone mass thinning, it's reasonable to expect that the use of this material will increase bone mass and therefore serve to intervene with the onset of osteoporosis, or osteopenia.

This is useful not only for these particular presentations, but the same drug candidate has strong potential to deal with fracture healing, which again requires simply the laying down of new bone.

And there's several medical presentations. For example, HIV infection, which is also associated with osteoporosis, or more often with osteopenia, a slight decreasing of bone, which leads to a slight decrease of bone mass, these also are candidates for the treating with this drug.

I want to say something else. We have initiated a very active program in combinatorial chemistry. That is, the continued modification of drug candidates using synthetic organic chemistry in order to get drug candidates that have better safety and better efficacy profiles.

We are going through a serious research and development effort in combinatorial chemistry for the reagents that we have shown in animal models, this can lead to bone thickening, but in addition the single lipids that we're working with, we are dealing with analogs we are developing and intend to continue testing analogs of the single lipids which are currently being used in clinical evaluation for Crohn's disease and for steatohepatitis and will be used for HCV as soon as the trial is initiated.

Thank you Dean.

As you can see, the therapeutic activity has been extremely extensive this period of time. We have multiple products moving along the therapeutic pipeline. We are extremely excited about the program and we look forward to moving this through as quickly as we can.

At this time I think I'd like to open up the meeting for questions. I would turn it over to the operator.

Thank you. The floor is now open for questions. If you have a question or a comment, please press star one on your touch-tone phone. If at any point your question is answered you may remove yourself from the queue by pressing the pound key. Questions will be taken in the order they are received. We do ask that while you pose your question that you pick up your handset to provide optimum sound quality. Your first question is coming from Keith Markey with Value Line.

Hello. Thank you for taking my question. I had a couple. Well, why don't we start out with the operating results. I was wondering, what should we be looking for from your operations in the second half of this fiscal year, and can you give us a sense as to what you're looking for in fiscal 2006?

We are looking to improve our revenue flow in the Clinical Laboratories. As you have seen the last quarter showed an increase in revenue generation due to the improvement and extension of our sales force. We are looking for continued improvement in the Clinical Laboratory division.

In the Life Sciences division, we have implemented a number of programs. There has been a building phase in the Life Sciences division over the last nine months. We are still attempting to bring our sales group up to a full compliment. We still need a few more individuals to do that.

We are working very diligently to build our overseas distributing network to replace some of the distributors that were associated with the Affymetrix and Roche activities. We also have input, as I mentioned, in Life Sciences, an extensive new product development program of which you will see online flow of new products moving forward.

It is difficult for me to define specifically the financial parameters. I don't know if it will take another quarter or two to bring our sales group up to the level where we feel it will be sufficient but we are looking for continued growth in that marketplace.

Again, we are fighting the impetus of the Roche issue as well as the Affymetrix issue. Optimistically we will work to replace those numbers in the next period or two. So I, unfortunately I'm not giving you any specifics.

We tend not to give direct financial guidance, but I will give you a level of sense that we are working diligently to improve the sales volume and grow this business. We are putting into place what we think are the necessary components that will drive both sales in both Life Sciences and Clinical Laboratories.

Just from perhaps a general directional point of view, do you think that with the expanded clinical trials that you're doing in the therapeutics area that we should be looking for, well, you've already mentioned that R&D expenditures will be increasing, but should we, do you think that those higher R&D expenditures will be offset largely by the initiatives that you've just mentioned in the Clinical Labs and Life Sciences areas?

In the near-term we believe that is absolutely a possibility and that's what our strategic direction is all about. I mean the reason we have operating businesses unlike many our biotech companies is just for that reason, to be able to supply the cash flow to compensate for the research activities. We are looking for the growth in both Life Sciences and Clinical Labs in the near-term to be able to fund the growth of our Clinical Lab programs.

But that being said, as we move to further stage testing into the larger scale Phase III we will and we must make higher levels of expenditures. We do have a plan to be able to offset some of those expenditures. It may be done via partnering, it may be done via grant, it may be done via other options, specifically our litigation activities.

As you know, we've had a very extensive litigation program which you saw at least some of the fruits last quarter in the Digene settlement. Our litigation effort is a opportunity for us outside of protecting our intellectual property, it may provide us with cash flow which I think Digene has provided us with that particular settlement, but I think the opportunity into the future is extremely high and opportunistic that we may be able to generate value from that IP estate which would also paying and offset for our clinical trial programs.

Thank you. And then if I could ask two questions --

Could you speak up, please?

Sure. If I could ask two questions related to your R&D program. Are you doing dose escalation trial with the EGS21 itself? And secondly, can you give us a little bit of information about the nature of the bone disease drug candidates that you're working on? Are they, for instance, orally, you know, administered, or some other mechanism?

The answer to your first question is we're not doing a dose escalation, we're doing an initial double-blind Phase I with a dose that is, Phase II, excuse me, with a dose that's been carefully calculated from the safety trials and the animal model trials. What was the second question?

Could you repeat the second question, please?

Sure. Can you tell us a little bit about nature of the compounds that you're investigating for bone disease?

No, I can't. Actually, that is to say I could, but I don't think we're going to release much information. They follow Lapinski's rules and they will be a legitimate seeder product if they move through the FDA.

Can you tell us what proteins they're inhibiting?

Yes, the proteins are LRP5 and DKK.

Okay. Thank you very much.

Next question, please.

Thank you. Once again to ask a question you may press star one on your touch-tone telephone at this time. Your next question is coming from Leonard Katz with D.H. Blair Investments.

Good morning. Could you give us some of your thoughts on some of the specific clinical milestones that we might expect to see this year?

Certainly. The Crohn's trial today amounts to four specific arms. As I commented during my presentation, we have begun two of those arms. We are progressing rather well with the initial arm, the Alequel arm.

We are accumulating data as we speak. The time frame for release of that data will depend upon the conclusion of each of these arms specifically.

The time frame will be a result of the successful enrollment period. So as we are clicking along here we will hopefully provide information to the public on the completion of each specific arm.

Our goals will be to release this information as it becomes available over the next, I mean, if you look at the duration of these different arms of the trial, we will see that we should have information flowing out over anywhere from the next few months through the end of the year. Our objective is to compile this data to be able to move forward with a Phase III or if we need to extend a Phase II to accumulate more data. We have to see where this flows in terms of the statistics but we hope to be able to accomplish that within this fiscal, or I should say, our, Enzo's fiscal year.

Looking at the terms of milestones, I think you will see the Alequel trial first. You will then see the EGS trial follow that one as well as the combination trial.

In terms of the EGS21 trial for NASH, that is a 20-week trial. We have begun enrolling patients. Again, the time frame of that could fall within the auspices of this calendar year as well. We have a full compliment moving forward as we speak in that particular area and we're very, very interested and we are moving aggressively with that.

In the HIV trial, this will depend on the rapidity of which we can start the trial at UCSF and also the ultimate, if it does move forward, Cornell trial which we are optimistic on. That particular trial is a six-month trial.

As soon as the first patient begins to enroll it will be six months from each patient subsequent to that. We are looking at approximately three to five patients per site, and hopefully that will get off the ground soon.

So in terms of clinical milestones we have specific milestones associated with these three sets of trials. In the Crohn's we have been exploring commercial partnerships and that is something which may emerge at any time. I can't give you any time specifics on that, but there is, it is a very interesting product with interesting applications in certain parts of the world.

I think there will be milestones that you may witness in terms of the initiation of a number of the other trials that we spoke about in this conference call. Again, we have a rather significant number of clinical activity moving at this point in time. I would not discount other activities such as patent issuances as well as potential partnerships in a variety of areas.

It's interesting that even in the area of the bone density work, we are exploring commercial opportunities even though it is at a very early stage of development in the clinical process, the significance of the approach which is emerging both to us as well as to many in the clinical community, is of high interest and satisfaction for us. And you may see some interesting news flow in that particular area as well.

I think that's fairly a summary of what I would anticipate as we move forward over the next three to five months.

Thank you.

Any others?

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

Thank you very much. We've been on the call a rather lengthy period of time. I would like to thank you for joining with us. As you can see, the period has been one of extensive involvement in our programs. We are working hard and we look forward to the next period to report to you on our progress. Thank you very much.

Thank you. A replay of this broadcast will be available until Tuesday, March 29, at 12:00 midnight. You may access this replay by dialing 1-877-519-4471. The pin number is 5802401. This replay is also available over the Internet at www.vcall.com. This concludes today's teleconference. You may disconnect your lines at this time and have a wonderful day.