Enzo Biochem Inc (ENZ) 2007 Q3 法說會逐字稿

Good morning and welcome to the Enzo Biochem Inc. third quarter 2007 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 obligation to say 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 on 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 over to your host. Mr. Weiner, the floor is yours.

Thank you. Good morning, everyone. We are going to deliver our 2007 third quarter conference call this morning. I want to thank you for joining us. And with me, are a number of members of the Enzo senior management team. I am going to touch on some of the highlights of the past quarter, but along with Dr. Carl Balezentis, who is with us today, who is the President of Enzo life sciences; spend a portion of our time discussing our last two announcements, which we believe set the stage for the future of this division.

Over the past month, Enzo life sciences has concluded a number of key initiatives that have been in development for some time. Also, with us is Dr. Gary Cupit, who is President of Enzo Therapeutics. He will give an update on our clinical trial activities and then we'll open up the floor for questions. Before I turn the call over to Drew Crescenzo, our Senior VP of Finance, who will present the third quarter and nine month results, I would like to share with you some initial comments on the developments of the past several months.

During this quarter, we enhanced our capital position with a private placement that brought total funds raised to approximately $60 million. This brought our cash position at quarter's end to about $120 million. In addition to substantially increasing our cash position, this private placement served to add further to our institutional shareholder base, which currently is in excess of approximately 44%. Additionally, we were pleased with the conclusion of a cross-licensing and supply agreement with Abbott, which provides Enzo with multiple benefits.

First, it is another example of the recognition of our extent of intellectual properties state in the field of molecular diagnostics. Second, we will be recognizing ongoing revenues from royalties on sales of products, as well as by supplying components to Abbott. And finally, we gained access to additional pat patents that will help us in our product development activities as we move forward in the future.

Significant, too, was the completion of our acquisition of Axxora Life Sciences and its merger into Enzo Life Sciences, which will result in the life sciences division beginning to have the critical mass necessary to bring this division to a new level. Not only will the combined Company be on track for about $25 million in revenues but the fact that we are retaining highly experienced and I believe successful management groups from Axxora, we will benefit significantly. And this will allow us to build this division even faster.

We now have a new management group in place that we believe will integrate smoothly into the life sciences operations, adding depth, experience, and to help us in the immediate and future growth of this business. In therapeutics, we announced this quarter that we had enrolled the first patient in our HIV-1 clinical trial at the University of California in San Francisco. And also reported on our progress on a treatment for Crohn's disease during a key presentation at a prestigious medical conference last month.

Turning to legal matters for a moment. As we announced in the first quarter, Enzo was awarded an interference and named senior party against two patents held by Princeton University and one by Chiron, which since was license to do Bayer HealthCare, for its technology used in labeling DNA that is the foundation for a number of products in the molecular diagnostics field. In this past quarter, a judgment was entered in our favor regarding the Princeton patents. The actions against Chiron and Bayer are still ongoing. It is important to note that we have been named the senior party in these actions as well, a position that historically would tend to favor us.

We also were awarded two new patents in the fields of nucleic acid detection and visualization that can have applicability to the field of molecular diagnostics. This further strengthening our position as an inventer in the field and adding even further to our broad and deep intellectual property portfolio, which is the foundation upon which we have built much of our Corporation. Given all of these activities of the past few months, I am delighted to say that Enzo is better positioned financially and technologically today than we have ever been.

I would now like to turn the call over to Drew Crescenzo, who will detail our financials for the quarter.

Thank you, Barry, good morning. I will first discuss the consolidated fiscal 2007 third quarter results. Then turn to the results of our three operating segments, Enzo life sciences, Enzo clinical labs and Enzo therapeutics. Finally, I will close my remarks with a summary of the results for the nine months ended April 30, 2007. Net revenues for the fiscal third quarter increased $4.3 million or 45% to approximately $14 million from a year ago's quarterly revenue of $9.6 million. This quarter's revenues revenues are the highest for the past 18 quarters by the Company.

Our net loss was $3.8 million or $0.10 per basic and diluted share, as compared with a net loss of $3.4 million or $0.11 per share in the year ago period. The results were directly impact by a 38% increase in our research and development costs, related to the increased clinical trial activities at Enzo therapeutics, which will be later discussed by Dr. Cupit. A $1.3 million increase in legal expenses over the prior year ago quarter for the ongoing costs associated with our patent protection program and ongoing litigation matters. An increased provision for uncollectible accounts receivable, partially resulting from the greater revenues at the clinical labs.

Selling, general and administrative expenses were comparable to the prior year. Fiscal third quarter results also included benefits from higher interest income of $700,000, attributed to the increased invested balances resulting from our successful private placements earlier this year. Lastly, and important to note, we have not recorded any tax benefits from our pretax loss, as compared to the tax benefit recorded in the year ago period, which is an effective rate of 9%, which represented a $0.01 per share benefit in the prior year.

We have not recorded any tax benefits due to the ongoing to our present losses we've incurred and our inability to record any tax assets. Our balance sheet remains strong. As of April 30, we had cash and cash equivalents of $120 million and working capital of over $129 million. Stockholders' equity was approximately $145 million and Enzo continues to be debt free.

Let me now turn to the segment operating results. At Enzo life sciences, segment profit increased by over 300% to $400,000 in the fiscal 2007 quarter. Revenues, including royalty income for the 2007 quarter, increased by 28% to $2.4 million, as compared to $1.9 million in the year ago 2006 quarter.

Royalty income grew 116% to $1.5 million, due to the initial royalties received under the Abbott molecular licensing agreement and increases in royalties from the Digene agreement. Offsetting the royalty income growth was a decline in product sales due to fewer units sold in the continuing highly competitive genomic research marketplace. Overall, life sciences costs and expenses were comparable.

Looking at Enzo clinical labs, this segment's profits improved by $1.2 million to approximately $1.4 million, from a profit of only $200,000 in the year ago quarter. Our revenues in this segment increased $3 million to $11.5 million, another record for this segment. The increase was a result of increased specimen volume associated with the enhanced United Healthcare agreement, which became effective January 1, 2007.

Our gross profit positively increased by $1.9 million, primarily due to the higher specimen volume, offset by increased routine and esoteric testing costs associated with the increased volume. Other operating expenses including selling, general and administrative were comparable to the prior year. Selling, general and administrative expenses, as a percentage of revenue, declined to 31% of revenue from 47% in the prior year quarter.

The provision for uncollectible accounts receivable increased over the prior year, partially due to these increased revenues. It should be noted that as a percentage of revenues, the percentage for uncollectible accounts is 12% for fiscal 2007 to date, which is comparable to the prior year-to-date. Enzo therapeutics operating loss increased by $900,000 to $1.9 million, primarily due to the increased clinical trial activities.

I will now comment on the year-to-date or the nine month results. For the nine months, our revenues increased by 17% to $35 million primarily attributed to gains at Enzo clinical labs of $4.8 million or 20%. Gross profit, including royalty income of $3.8 million, totaled $20 million, as compared to $18.1 million in the year ago nine month period. Increased interest income of $1.4 million, resulting from the higher invested balances; to $7,000 payment from a former distributor recorded in the second quarter; the fiscal 2007 first quarter gain from the settlement from Sigma-Aldrich; plus higher royalty income all contributed to a reduction of the fiscal 2007 nine month loss to $9.9 million or $0.29 per share, as compared to $11.2 million or $0.35 per share in the prior period. Barry.

Thank you, Drew. I would like to call upon Carl to give us some comments on Enzo life sciences. It has been a particularly busy quarter for Carl. Carl?

Thank you, Barry. Good morning. Drew has already reviewed the financial information in some detail, so what I will focus on are the two recent announcements that Barry discussed earlier. First, I will discuss the acquisition of Axxora Life Sciences Incorporated. As we have presented previously on numerous occasions, a key strategic initiative for the life sciences division is acquisitions. We established a set of criteria to screen candidate companies that would complement Enzo's strengths and weaknesses and provide a stable infrastructure for sustained growth.

Axxora was an ideal candidate for us, in that they're a solid company financially with upside potential, they carry an attractive product portfolio, they have a strong European and global distribution capability and have an internationally experienced management team. Enzo complements these strengths with a strong intellectual property portfolio, technological expertise, manufacturing capacity, and a dedicated U.S. sales force.

The key goals of the acquisition and subsequent integration going forward, are; One, that we maintain the current revenue rate and ensure that we do not disrupt the current business. Two, that we significantly grow the revenues. And three, that we increase the gross margins. A key consideration of the acquisition was the retention of all of the Axxora management. In order to meet the goals I just mentioned, it is critical to maintain a stable infrastructure that will not only support the projected annual revenues of approximately $25 million but also provide a stable backbone for future strategic acquisitions and growth as well.

Axxora's seasoned management has worked in the field of life sciences research reagents and have many years of experience in the areas of business development, marketing and sales, product development, and finance and accounting to name a few. Their background experience will ensure that the integration will continue smoothly without any disruption to the current business. In regard to Axxora's product portfolio and distribution capabilities, the company markets over 5,000 products under its Alexis brand alone, many of which are manufactured in-house.

The product offering is diversified in the life science research market between innovative fast growing product lines and broad, general use reagents. With a network of fully owned subsidiaries, branch offices and distributors, Axxora operates with a solid understanding of local markets and a well functioning distribution system across the globe. Enzo will be able to capitalize on this network, providing more efficient outlets for the marketing and sale of Enzo brand products.

While many of Axxora's products are manufactured in-house, many are also contract manufactured by outside entities. The combined manufacturing capabilities of both companies should result in improved margins, as well as provide the ability to introduce new products as a much faster rate and in greater numbers. Finally, we are exploring ways to leverage Enzo's intellectual property, estate and technological expertise to enhance Axxora's products. Axxora's diverse product portfolio, which includes a number of primary product lines from immunology to transcription factors, provides new opportunities for Enzo's proprietary labeling and detection technologies.

Very briefly now, I'd like to turn my attention to the other recent announcement in the life sciences division; that of the cross-licensing and supply agreements with Abbott molecular. This represents the result of a second key strategic initiative to leverage Enzo's intellectual property to establish collaborations with major life science companies.

The agreements provide for three things. First, it gives Enzo access to certain Abbott patents in the field of cytogenetics and array comparative genome hybridization, thus allowing Enzo to market and sell products in the field of molecular diagnostics. Second, Enzo provided to Abbott limited access to patents in the area of labeling detection, as they apply to Abbott's FISH platform. And third, it provides for the supply for specific Enzo products to Abbott for use in FISH or fluorescence in situ hybridization and array CGH.

In conclusion, we continue to execute our plan and our aggressively pursuing additional acquisition opportunities, which will allow to us apply our intellectual property and expertise to a broader product offering and accelerate our time to market for new products. We continue to look for opportunities to leverage Enzo's IT to develop additional collaborative relationships with major life science companies, which will bring revenue to the Company in the form of royalties or product sales. And finally, we are well into the integration of the Enzo and Axxora companies, as we strive to become a significant player in the life science marketplace. Barry.

Thank you, Carl. The Axxora acquisition is a major event for the life sciences division. It is bringing an entirely new dimension of activity, a new dimension of scope and opportunity and we're all very, very excited about it. I would like to spend a minute or two just updating on you the activities of Enzo clinical labs before turning the comments over to Dr. Cupit. As Drew alluded to, the results this quarter were favorably impacted by the newly expanded contract we secured with United Healthcare Oxford, which became effective on January 1 of this year.

As has been stated before, this contract maybe a bellwether in the clinical laboratory industry, in that, we're seeing a shift in the market from exclusive national contracts to a more hybrid model where payers contract with national laboratories and then augment their network with top regional providers. We were pleased to be included in this list. As we continued to service an increasing number of patients, we continue our geographic expansion at the laboratory. We now serve virtually all of New Jersey and we're pushing further north in New York state.

We are also reviewing the tests in-house that we currently have, as well as those we send out to other reference laboratories, since the recent increase in specimen count may now make it more economically feasible to bring in-house some of these novel or esoteric assays. This will potentially reduce outside referenced laboratory expenses and improve our margins. Additionally, we are continuing our program of expanding the menu of esoteric tests we offer, particularly in molecular pathology, an area we see as at growing at perhaps twice the rate of routine lab tests that we perform. And as Enzo life sciences has now begun to occupy its new headquarters, the ability to increase in-house capabilities, both in molecular and other areas will grow for the laboratory.

This last quarter for the lab has truly been a cathartic one. We've seen a shift in the structure and the way we are dealing with our clients in the field. We feel the future for the lab is quite promising. I would like to now turn the call over to Dr. Cupit who will bring you up to date on some of the activities in the therapeutic area.

Thank you, Barry. I would like to take you through a brief overview of the progress on four clinical development programs and then update you on our preclinical discovery program. As you can see by our increased expenditures, this has been a very active quarter for Enzo therapeutics. First, let me talk a little bit about the HIV program. Earlier this quarter, we announced the latest developments in our gene therapy program. As the clinical team at the University of California at San Francisco completed treatment of the first subject in a Phase I/II study. While we're very excited at this key milestone, we continue with the ongoing patient enrollment process.

You should note, that the team conducting this trial is the same group of researchers that conducted the Phase I studies. We presented these encouraging results in the Phase I trials at the International AIDS Conference last August. These results included long-term survival of the anti-HIV engineered cells in several of the patients.

The primary end points for the current trial are the safety of the overall procedure and the extent to which the engineered cell population in grafts and proliferates or simplistically, reproduces to produce circulating CD4+ immune cells. We're also measuring the relationship between the number of antisense RNA containing CD4 cells, the HIV-1 viral load and the CD4+ cell count for six months. We look forward to reporting results as soon as they become available.

Continuing our discussion on personalized medicine, I would like to move to Aleqel for Crohn's disease. This treatment uses an oral administration of colonic proteins extracted from the patient's own colon to down regulate or interrupt the runaway of autoimmune response. Last month, we were honored to have presented the results of an earlier trial that had been accepted for presentation at the Digested Disease Week or DDW Meeting in Washington, D.C. This is the largest gastrointestinal meeting in the United States.

During our presentation, we stated that Alequel may be an effective treatment for moderate to severe Crohn's disease. Since the interim data from two placebo controlled Phase II studies show that this investigational approach induced good clinical remission and improved patient's quality of life compared to placebo. During these studies, our investigators randomized 49 subjects with moderate to severe Crohn's disease.

In one trial, subjects received a regimen of three weekly doses for 15 weeks of either active treatment or placebo. In the other, all subjects received placebo for three weeks, which we call a run-in period, and then 12 weeks of either active treatment or placebo. 40 subjects were evaluated for an additional six weeks after the treatment period.

The rates of remission of the disease and the response to Alequel nearly doubled for evaluable subjects treated with Alequel compared to placebo. Enzo is continually -- is currently continuing to enroll patients in this study in the hopes of generating greater statistical significance to the results we've reported thus far. It is important to note that the treatment was not only well tolerated, but there were no treatment related adverse events reported. Based on these positive results, we are preparing for a U.S. based study of Alequel, which we look to commence shortly after the new year.

To support these activities, we have formed a gastrointestinal or GI Advisory Board, which consists of medical experts in pharmacology, biostaticians and gastroenterologists, among other fields of expertise. We are encouraged with the progress of Alequel. After viewing the new product pipeline of potential Crohn's therapies, we perceive that our performance characteristics to be comparable or better than a number of them, without any debilitating side effects, which often accompany Crohn's treatments.

Let me talk for a minute about our other gastrointestinal program. It focuses on Enzo's proprietary EGS21 immunomodulatory drug candidate. Again, this stays along the lines of our immunology platform. Braced on our preclinical and animal models systems in colitis, fatty liver and other indications, EGS21 acts on NKT cells to down modulate the immune response back towards a normal state. We are currently reviewing the data generated at Hadassah Medical Center to evaluate the next steps in this program. At the same time, we are encouraged with the data in other trials of this compound.

Let me talk for a minute about uveitis. Uveitis is an inflammation of the interior of the eye that is one of the leading causes of blindness in the United States. There is no known cure and there is a need for better treatments than the current topical or oral steroids. In fact, as a side bar, the competing product in the market right now is a steroid. Enzo is developing an immunomodulatory peptide drug, B27PD, that in clinical and a pilot Phase I study decreased inflammation and in some patients improved visual acuity.

We have recruited and conducted meetings with an eight member Opthalmology Advisory Board to help with our B27PD autoimmune uveitis program. This is a group of experts drawn from institutions across the United States, plus the investigators in Munich who discovered the B27 peptide and conducted the officiation initiated Phase I study. In preparation for Phase II, we have initiated further toxicology testing of the study drug, which is progressing well.

We also went to Europe to meet with the European Medicine's Evaluation Agency or the EMEA, which is the European equivalent of the FDA. This meeting was regarding our plans for Phase II and to introduce them to the concept of a Phase II/III adaptive trial. This is a trial that can shorten timelines and provide faster feedback. Based on the feedback from this regulatory group, we are preparing for these adaptive trials to begin after the first of the year after discussing our plans with the FDA.

Let's also talk about our preclinical program for a second. Beyond Enzo's clinical pipeline that we currently have in the clinic, we are making progress on our preclinical Wnt protein discovery program. As we have stated before, Wnt is a protein fairly important in the gene signaling involved in the development of several important tissues, including bone.

We have identified a promising small molecule, that in preclinical models stimulates increased bone mass. A research collaboration is ongoing with scientists at St. Jude Children's Research Center and Yale University and Enzo therapeutics. And we are expanding our discovery laboratory in Farmingdale to facilitate further basic research.

Now, as many of you may be interested in our business development activities, I will focus on those. These were in full swing this past quarter, as members of the team had numerous meetings with potential partners concerning possible licensing and joint venture arrangements. We are starting to gain visibility as we attend some of the larger conferences and we will continue to work diligently to create the best deal scenario possible for Enzo. Barry.

Thank you, Gary. I would like to conclude with a few remarks on the value proposition at Enzo. The last few months have been exceedingly busy and productive ones, which are culminating with the Axxora acquisition, the Abbott agreements, the issuance of new patents, the treatment of our first HIV trial, the Crohn's data presentation and the substantial business increases at Enzo clinical labs. The greatest value driver of all, at Enzo, however, may be the extensive intellectual property state that we have amassed over the years. It is this portfolio of patents that underpins much of what we do here. And as we move towards possible resolution of some of our legal actions, we are aggressively pursuing all options in front of us.

This quarter, we incurred the highest quarterly legal expenses in our history. We view this as an investment in obtaining value and protecting this important asset of the Company. As the key litigations progress, we anticipate there will be a continued intense effort on this front.

As the events of this past quarter and the quarters behind it reflect, Enzo continues to achieve important recognition for our years of research and technological development. As personalized medicine and pharmacogenomics become more and more the fabric of healthcare, Enzo is in a most enviable position. Not only have have we been recognized for our achievements and are working towards monetizing this both on the diagnostic and therapeutic fronts, but our IT provides us with a path to further technological advances.

We've built an impressive technology and patent portfolio and the events we discussed today position us to capture future growth and opportunities as we move forward. At this time, I would be happy to open up the floor for questions.

Thank you. (OPERATOR INSTRUCTIONS) Our first question is coming from Otis Bradley of Gilford Securities.

Dr. Cupit mentioned that the Phase II/III trials on both the Alequel and uveitis would begin shortly after the turn of the new year. Was he talking about fiscal year or the calendar year?

Calendar year.

And secondly, would you expect your $3 million of legal expenses to go up over the next couple of quarters?

The last quarter was a particularly intensive one for us, in that the discovery phase of a number of these litigation was pursued and actually has come to conclusion. I can't comment specifically, but I would anticipate that our legal expenses would moderate in these quarters.

Which case came to the conclusion?

We are coming to the -- there are further steps in a few of the cases, but the discovery for the Applera case is coming to a close, and we are in the final throngs of efforts in the Roche Affymetrix case as well.

Thank you.

Thank you. Our next question is coming from John Sullivan of Leerink Swann.

Hi, guys, good morning. A couple of quick questions on Axxora. Can you just tell me was Axxora growing at the time that you bought it? It had approximately $16 million worth of revenues in '06, were those revenues growing?

Yes, they were.

And does -- can you give some sense of whether Axxora is developing its own products? Is there R&D spending that's significant at Axxora and would you be able to add that to your own life sciences R&D work?

They do have a limited R&D program. They have a lot of product ideas. They do develop their own products and I think this is one of the synergies is that we can then use our R&D group to really accelerate that product development.

Thanks very much.

Thank you. Our next question is coming from Robert Smith of Center For Performance.

Good morning. I would like to address think question to Dr. Cupit. Gary, you have been on board for something like nine months or so. I was wondering if you can share with us what your learning curve has been, so to speak, about looking at the Company's business? Your charge has been to move things along more rapidly and how would you share with us what you've seen?

Well, I think the whole purpose of the last nine months has been to get -- the first couple of months was get the lay of the land. But I have spent the last six months focusing all of our efforts on getting two clinical trials started in the U.S. And also getting our business development program a long way to get partners interested not only in potentially product acquisitions as we focus our pipeline but also the possibility of having a joint development venture, which would allow us to development our products in a more expeditious manner. So, I think we're on track.

We also are in the process now of looking at expanding our staff to meet those challenges as well. And I appreciate everybody's patience in the coming quarters about what we're going to be accomplishing. But I remain excited about the potential for our products and I think it is starting to be realized now. We -- the one area you can assess that in is in the eyes and actions of our investigators and our Advisory Board members when we pull them together and the feedback we get. We have not had any trouble attracting people to our advisory boards from the top echelons of medical practice.

What is the earliest you might be able to move to a Phase III in Crohn's and what would be the considerations that you would look at?

Well, I think that would be dependent upon the discussions we're going to have with the FDA. If we have a Phase II/III study with them, that would be one study that kicks off next year. If the FDA maintains its mantra of safety, that puts us in a particularly advantageous position because we have a very safe compound.

And when might be the earliest something you can say something about the HIV AIDS trial?

After we've completed enrollment. The patient currently is doing very well and that's all we can say about him.

Thank you.

Surely.

Thank you. Your next question is coming from [Vincent Hoban] of HNI Global Securities.

Since you brought it up, you mentioned that the Roche Affymetrix suit is nearing a conclusion or coming to a head. Can you clarify that and exactly what does that mean?

The discovery process is coming to an end of its period. After discovery, then it would go to the court for a trial day.

I see.

Thank you. Your next question is coming from John Sullivan of Leerink Swann.

Hi, guys, just a quick follow up here. Regarding your substantial intellectual property portfolio, can you comment on whether U.S. Supreme Court's recent ruling on so-called obviousness changes its value or changes your ability to defend it?

According to our legal counselors, the particular ruling you're referring to really does not impact much of the areas that we are engaged in at this point in time or the value that these particular patents present.

Thanks.

Thank you. Your next question is coming from [Charles Conroy,] private investor.

The recently executed strategic alliance with Abbott, does that recognize patents that are involved in the other litigations?

That particular litigation, if you saw the press release, covers certain patents only up to January 1, 2006. It does not cover any of the newly issued intellectual property subsequent to that period. So, it is a defined, limited relationship that covers a very specific group of patents and at the same time, does not go into the details or the coverages of newly issued intellectual property.

Also, I would like to complement you and the group of professionals you put together in rejuvenating the Company. And I, for one, think the Company is grossly undervalued. And for that reason, I would ask you, are there mechanisms in place to protect the shareholders if there was an inadequate hostile takeover attempt?

The Company has the traditional protections in place as a New York State Corporation for protecting itself from a bid of some sort if that were to come across the transom, some. But these are all very standard and traditional mechanisms, which most companies of our type have in place at this at this point in time.

Thank you.

Thank you.

Thank you. (OPERATOR INSTRUCTIONS) Your next question is coming from Otis Bradley of Gilford Securities.

One more question. Since you're running at about a $70 million run rate including Axxora, is something in the $85 million to $100 million range a reasonable starting point guess for fiscal '08?

We tend not to give guidance as you know. I would hope there will be growth in the life sciences area. I cannot quantitate it until we get a better handle on the integration expenses, as well as the integration of our product lines into their pipeline but we're definitely looking for growth in the life sciences division.

Thank you. The next question is from Matthew Buten of Sapphire Capital.

A couple questions. One on Axxora. Was there anything, as relates to the acquisition sort of right above inventory or interCompany or anything along those lines, that would reduce the reported revenue for a period of time?

The acquisition of Axxora will be recorded under the accounting rules for fair value. And so for a short period of time, there will be some impact on the gross profit margins as a result of the fair value accounting of the inventory.

And what kind of impact do you think that will be?

It will depend upon the turnover rate but we're hoping that within the first four months that will be reflective of the revenues going forward, the run out of inventory.

No interCompany kind of issues with this?

No interCompany issues.

It was a pretty clean acquisition.

And then as it relates to the lab business, clearly, growing well in excess of the sort of single digit growth in the lab industry. How sustainable is this kind of growth and what should we be thinking sort of going forward?

Well, we are -- the last quarter was a particularly strong quarter as you saw from the numbers. The specimen flow has been steady over this period of time, so we have no reason not to believe that this will be a sustainable growth rate. I think there are other dynamics that are taking place within the industry. There are other major providers which are shifting currently and opening up access, of which we will be participating. So I think overall, we are looking for both sustainable growth and continuation of performance at the laboratory.

Okay. Great. Can you give us the pro forma fully diluted share count as if you were profitable? And what what's the pro forma cash?

I am sorry, can you explain that, what you're looking for there?

The fully diluted share count.

Again, for the quarter, our basic and diluted loss per share --.

That's not what I am asking. I am asking for the fully diluted number of shares.

The number of shares. I am sorry.

Yes.

For the quarter, it was 36.63 million shares.

No, that's the basic. Right? Because you're in a loss.

That's the diluted shares outstanding.

I don't think that's right. Maybe we can talk about that off line. And what's the pro forma cash?

The cash outstanding is $120 million.

Pro forma for Axxora?

You're saying post-Axxora.

Right, post-Axxora, the cash is about $103 million.

Great. Thank you.

Thank you. Your next question is coming from Vincent Hoban of HNI Global Securities.

Barry, I thought the Otis Bradley report that was written previously was terrific. Can we expect any additional coverage in the next quarter or two?

We have been in discussion with a number of analysts. I can't say what's going to come out or what isn't going to come out. I am optimistic in looking forward to additional coverage, though.

And I have one more question. There's still some shares that could be sold under that shelf registration. Do you have any plans of issuing additional shares at these levels?

At this point in time, we have no additional plan to say issue shares.

Thank you.

Any other questions?

Your next question is coming from Robert Smith of Center Performance. Robert, you may begin.

Yes. Can you hear me?

Yes, we can, Robert.

Okay. So, Gary, you said that you'd be able to say something after enrollment. Specifically, what do you mean by that? The comment about the one patient that has been treated, what did you mean by sort of everything has been going okay?

Well, the patient is doing fine. He -- as you know this trial includes radiation ablation, too, and these are active HIV patients. This was a very aggressive protocol, and we're encouraged by the response of the patient. What I mean by assessing it is that one patient doesn't tell you success or failure. He only tells you one patient. So, as we get multiple patients enrolled and remember the milestones are six months out, that we want to look at engraftment and state of the patient. So, it is still too early to predict.

And the enrollment would be, what, three?

No, five patients.

Five. Okay. Thank you.

Surely.

Thank you, sir. There appear to be no further questions at this time.

Thank you very much. We appreciate you joining us on the call. And we look forward to reporting to you in the next period. Thank you.

Thank you. A replay of this broadcast will be available until Tuesday, June 26 at 12 midnight. You may access this replay by dialing 1-877-519-4471. The pin number is 8880041. This replay is also available over the Internet at www.investorcalendar.com. This concludes today's teleconference. You may disconnect your lines at this time and you have a wonderful day.