Enzo Biochem Inc (ENZ) 2008 Q1 法說會逐字稿

Good morning and welcome to the Enzo Biochem Inc. first-quarter 2008 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 the 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 statements 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 and good morning. Thank you all for joining us for our fiscal 2008 first-quarter conference call. Joining me today is Drew Crescenzo, our Senior Vice President of Finance and Dr. Carl Balezentis, who is the President of Enzo Life Sciences.

Yesterday we issued a press release describing our earnings for the quarter. I trust you have had an opportunity to review it. Let me first touch on some of the highlights of the quarter.

From an operating standpoint it was very strong, continuing the trends from the fourth quarter. Our revenues rose by over 86% to almost $19.5 million, a record quarter for our Company on revenue over the last five years with both sales and royalty income up sharply. Life sciences revenue rose more than 400% and clinical laboratory revenues were up more than 40%. Our gross profit was nearly $9.9 million and this was up from $6.3 million last year.

Despite increases in SG&A expenses of over $1.9 million, our net loss was improved slightly over last year and it is important to note that this is despite the fact that we recorded a $2 million gain on the settlement of litigation with Sigma during the year-ago period. In addition, we continue to recognize fair value inventory adjustments in connection with our Axxora acquisition which adversely affected our pretax income by approximately $600,000.

Our financial performance is reflective of the result of the strategic plan that we have laid out for our operating subsidiaries and spoken about in previous calls, namely that we are building infrastructure in order to increase our product and service offerings, to broaden our geographic reach and ultimately have as much control over our own customer base as possible.

We have laid the groundwork for the next phase of growth in our operating subsidiaries utilizing our strong balance sheet. And as we aggressively look to build internal product development, add additional companies and external product lines where appropriate to our operations, all this will broaden the scope of our product lines as well as our market reach.

Our emphasis on divisional organic growth is also being supplemented via a program to generate value from our intellectual property estate via licensing and partnering where applicable. We are engaged in this activity at this time as we are seeing a further consolidation within the research and clinical diagnostic areas.

The increasing recognition of the importance that molecular diagnostics and personalized medicine will have in the future of modern medical practice is driving a new order in the diagnostics space. The acquisition activity as well as the increasing value being attributed to companies in this area over the last 18 months is changing much of the landscape in this industry. This activity is taking place not only in the product supply area but also in the service area.

We at Enzo are fortunate that our core technology estate which is embodied in our intellectual property portfolio touches on key areas that are fundamental to the application and expansion of many of these new technological areas that could be central to the new generation of diagnostic capabilities. These new capabilities use information and data from a person's genetic profile to diagnose, to select a medical strategy, provide a therapy, or perhaps initiate preventive measures. In short, where possible to provide the appropriate drug at the appropriate dose to the appropriate patient at the appropriate time.

These new techniques are opening up the possibility of a new approach to drug development as well as unleashing the potential of significantly more effective diagnostics, therapeutics, and patient care. Enzo's position in this area was enhanced this past year with the issuance of new Enzo IP in the area of gene labeling techniques, micro array capabilities, novel die approaches and gene amplification techniques to just mention a few. Our goal in this area is to capitalize on our technological innovation both in-house as well as in conjunction with other parties to play a role in this newly developing, exciting and pioneering opportunity.

I would like Drew to give you a recap of the quarter's financial results and then we will discuss the divisional operations individually. Drew?

Thank you, Barry, and good morning. Initially I will discuss the consolidated fiscal 2008 first-quarter results then turned to the results of our three operating segments, Enzo Life Sciences, Enzo Clinical Labs and Enzo Therapeutics.

As Barry indicated, our operating results have shown advances over the prior year quarter. Our net loss was $1.2 million or $0.03 per share as compared to a net loss of the same amount, $1.2 million or $0.04 per share in the year-ago period. Important to note though that in the prior year we had a $2 million gain on the litigation settlement that Barry referred to. If we exclude such gain, our prior year net loss would have been $3.2 million or $0.10 per share as compared to the current period of $1.2 million.

Net revenues for the fiscal first quarter increased $9 million or 86% to approximately $19.4 million from a year ago quarter's revenue of $10.4 million. The results include $5.1 million in revenues relating to the Axxora Life Sciences which was acquired in May 2007 and increases in royalty and license fee income of $1 million all in the life science segment.

Clinical Lab revenues increased 40% to $11.3 million in the 2008 period as compared to $8 million in the year-ago period. Our gross profit increased by $3.5 million to $9.9 million in the 2008 quarter reflective of increases from the Axxora contribution, an increase in tests performed in the Clinical Labs. As in the previous quarter, the gross margin was negatively affected by the pretax fair value inventory adjustment of $600,000 arising from the Axxora acquired inventory. We expect this adjustment to impact our margins through the second quarter of fiscal 2008 and thereafter, we expect to see improvements in our margins.

During the 2008 period, research and development costs declined which is attributable to the timing of certain clinical trial activities and related costs, affected by -- offset by increases contributed to Axxora.

Selling, general, administrative expenses increased by 34% to $7.4 million from a year ago $5.5 million. Axxora impacted the increase by $1.5 million. Important to note, SG&A as a percentage of revenues has declined to 38% from 53% in the year-ago period and 41% as a percentage of revenue in the fiscal fourth quarter of 2007.

The provision for uncollectible accounts which is principally related to the Clinical Labs as a percentage of lab revenue is now 10%, a 1% improvement over the prior year quarter and comparable to the fourth quarter of fiscal 2007. This improvement contributed to the Clinical Labs improved operating profit.

Legal expenses which fluctuate based on the level of activity, increased $0.3 million to $2.4 million in the current period as compared to $2.1 million in the year-ago period and $3.1 million in the fiscal 2007 fourth quarter. We continue to protect our intellectual property estate and incur costs on ongoing litigation matters.

Our invested cash and cash equivalents earned interest of $1.5 million in the 2008 period as compared to $0.9 million in the year-ago period. The increase is reflective of higher invested balances attributed to the net proceeds from the registered direct offerings in the second quarter of fiscal 2007, offset by uses in cash for the Axxora acquisition and operating requirements. In the current period, our annual yield approximated 5%.

Lastly and important to note, we continue to not record the tax benefit up to the statutory effective rate for our pretax losses which affects both the current period and the prior year-ago period results.

Our balance sheet remains strong. As of October 31, 2007, we had cash and cash equivalents of nearly $104 million and working capital of over $113 million. Stockholders equity was approximately $141 million and we continue to be debt free.

Let me now turn to the results of our segments. Enzo Life Science, as Barry indicated, had a strong quarter. Segment profits reached $1.1 million in the current period as compared to $2.5 million in the year-ago period. Important to note that last year's results benefited from the previously mentioned $2 million Sigma settlement. Exclusive of the gain in 2007, the 2008 would have reflected an improvement of $0.6 million in segment operating profits.

Continuing with Life Sciences. We experienced increases in royalty and license fee income of $1 million or 79% to $2.3 million in the current period which were attributed to increase in royalties under the Digene arrangement and the Abbott molecular arrangement which commenced in the third quarter of fiscal 2007. Product shipments grew by $4.8 million or 437% principally due to revenue increases attributed to Axxora. Gross margins increased by $2 million to $3.7 million principally due to the Axxora's contribution of $1 million and gross margin increases affected by the increased royalty and license fee income.

SG&A expenses increased by $1.4 million to 1.9 million, all related to Axxora. R&D expenses inclusive of Axxora were r $0.8 million and comparable to the year-ago period.

Looking at Enzo Clinical Labs, segment profit improved by $1.1 million to approximately $1.4 million from a profit of $0.3 million in the year-ago quarter. Revenues in the current period increased $3.2 million to $11.3 million. The increase was a result of increased specimen volume associated with the United Healthcare managed care contract that became effective in January 2007.

Gross profit increased by $1.6 million primarily due to the higher volume and higher reimbursement for the esoteric testing offset by increased routine and esoteric testing costs associated with the increased volume. Other operating expenses being SG&A, increased $0.3 million to $3.6 million in the prior year quarter. SG&A expenses as a percentage of revenue improved to 32% in the current year period from 41% in the prior year period.

The provision for uncollectible accounts improved 1% as a percentage of revenues over the year-ago period. This improvement contributed approximately $100,000 to the current year operating results. Enzo Therapeutics expense levels are running at a consistent level of approximately $1 million a quarter with the prior year. Barry?

Thank you, Drew. At Enzo Life Sciences, given that this quarter reflected the first full quarter of Axxora, we showed more than a fourfold product sales increase. Not only were our product sales up dramatically, our royalty income which consists of payments as was mentioned from Digene which is now QIAGEN, they were acquired by QIAGEN recently and Abbott, nearly doubled over last year. And probably more importantly if you exclude the one-time gain we booked last year as a result of the settlement of our litigation with Sigma, we would have more than doubled the division's operating profit quarter over quarter.

Importantly Enzo Life Sciences now contains the infrastructure that will allow us to actively and aggressively pursue a wide range of opportunities which could either increase our already broad product line and/or provide Enzo with greater sales reach. We are actively working on one such transaction that should provide us with an even greater European presence as an example.

The management team we have built at Enzo Life Sciences is highly experienced in a number of key areas today and we believe is now able to support a very seriously growing organization. The experience we have gained through the success thus far (technical difficulty) integration gives us strong reason to believe that future transactions could be consummated quickly and efficiently. Given the recent turbulence in the capital markets, we are seeing a variety of more attractive integration opportunities as well.

In addition to improving operating results through strategic acquisitions, we are also focusing on two other objectives, improving margins and using Enzo's strong IP and technology platforms to develop and enhance products.

As we indicated in the earnings release, Life Sciences gross margins were partially reduced due to the fact that we need to use fair purchase accounting rules to cover the inventory we acquired from Axxora at closing. In this quarter, the impact of these rules resulted in a reduction of Life Sciences margins. We anticipate that given the current turnover rate of the acquired inventory, that we will begin to see improvement on this front within a quarter or so.

Additionally we are planning to satisfy the needs for certain products we have been purchasing from external sources with in-house manufacturing. With this is an ongoing process. We now both -- we have both the management and the staff in place to move this forward. We have a dedicated team that is charged with this responsibility and we plan to begin to move products in-house soon which should have a positive impact on operating margins.

Enzo's strong IP and technology platforms will allow us not only to begin this process of shifting to more in-house manufacturing but we look to add value to our products as we apply the expertise we have accumulated in the nucleic acid market to the protein market as well. Enzo now sells more than 25,000 products and has manufacturing plants in three different facilities, Alexis, which is located in Lausanne, Switzerland, manufacturers our fine chemicals and other research reagents; Apotech, outside of Basel, manufactures products that specialize in recombinant proteins and antibodies in the areas of cancer research, neuroscience and metabolic pathways.

The core Enzo branded products manufactured in Farmingdale are applicable for use in micro array analysis and gene modification. You look at this as a package and we currently manufacture in-house more than 5000 of these products and market them through direct sales reps, more than 50 distributors, and the Axxora platform which is a unique electronic marketplace which connects purchasing organizations and individual scientists to our entire catalog of high quality products.

The Enzo brands have enjoyed a very good reputation in the research market. Given the breadth of our research activities, we have developed a variety of novel product approaches that could allow entry into a number of new markets. As an example, Enzo and Axxora both have developed the expertise in the areas of apoptosis and inflammation, two important areas in the drug discovery field. By utilizing this expertise developed over the years and now unavailable under one corporate umbrella, Enzo is now positioned to move into the development of augmented products in these areas which we believe can open them up for sales to both biotech and pharma customers. This would represent a new market opportunity for us.

On a more global scale, we are attempting to monetize our IP and technology by entering into agreements with other companies. We are looking to utilize a structure similar to the Abbott relationship in our negotiations wherein we would receive royalties in a multifaceted deal structure.

As we look back on the quarter completed at Enzo Life Sciences, we have now completed the integration of the sales and marketing functions and have now put all of the Enzo products into the electronic marketplace. We have been increasing the efficiencies of the combined organization and today we are looking to drive revenue growth and return on investment.

Our goal is to continue to broaden our product range, to leverage existing products into new markets and to continue to enhance our international presence. We believe that we are well positioned to successfully achieve these goals.

Turning to Enzo Clinical Labs, at the labs we continue to see the impact of the managed care contracts which have contributed to an increase in revenues of nearly 40% quarter over quarter. Operating income for Clinical Labs was up more than fourfold over last year to over $1.4 million.

During the past quarter, we have seen growth in the ordering of tests in the fields of genomic analysis for infectious diseases, molecular genetic assays, hematopathology which is directed towards blood cancers and immunohistochemistry. And the growth rate of these tests is outpacing the rate of many routine assays. We have recently added esoteric tests in the fields of genetic predisposition to blood clotting factors, specialized cancer markers and tests for H. pylori infection which can result in various gastric diseases.

Moreover, we continue to maintain efficiencies in our billing operations as well as our provision for uncollectible accounts receivable actually dropped as a percentage of revenue contributing to the operating profit increase. In addition, we continue to broaden our reach as we plan to open two additional patient service center facilities in Central New Jersey.

In the last call, we discussed a significant upgrade to our laboratory information system which not only provides us with increased capacity but also has resulted in faster result reporting and enhanced features for our clients such as improved electronic interface capabilities which allow us to more seamlessly merge our results into patients' charts. This is critical for today clinical laboratories do much more than run blood and urine samples. They have become true information providers and the investments and improvements that we have made over the years in a sophisticated physician connectivity system position us well to meet the demands of this growing industry.

Let me quickly turn to our legal matters for a moment. We continue to expend significant resources on legal expenses which we view as an important investment in securing our intellectual property. On November 29, oral arguments were held at the Board of Patent Appeals and Interferences at the US PTO concerning certain patentability issues affecting Applera's patent and our allowed patent application in the field of nucleic acid gel sequencing. Since these are closed hearings, there is not much I can comment on except that we believe we are well positioned on this issue.

As the senior party in this action, we are looking toward the successful conclusion of this process so that the interference can proceed into its next phase which is called the priority phase. In this phase, the Board will determine who first invented this technology. You should note that historically the party that has been declared as senior party prevails in these cases in perhaps two-thirds to three-quarters of the cases.

In our other action involving Applera, we have filed a notice of appeal and are moving forward relating to the case that was adjudicated a month ago. We believe there is significant potential upside and no downside risk as the patents involved in this case have already expired and we believe we have a formidable reason to believe that we will prevail in this appeal.

Finally in our other cases, the litigations that we are involved with in the Southern District Court of New York involve multiple defendants and go to issues not only of infringement but contract violations as well. These litigations are expected to go to trial sometime next year but as always in matters of the court, predictions of specific timing can be difficult.

Looking toward Enzo Therapeutics, we have continued this quarter to move forward in our numerous clinical trial programs which I would like to briefly review here. First I would like to mention that Dr. Gary Cupit, who joined us about a year ago to head Therapeutics, has decided to pursue an opportunity with a venture capital firm and develop a new company. He remains as a consultant and we wish him the best of luck. We will be naming his successor shortly.

Let me discuss first Alequel, our proprietary therapeutic for the treatment of Crohn's disease. As you may know, Alequel is an autologous protein preparation that is administered orally to patients over a period of about 15 weeks. We announced interim results for our Phase II clinical trials in May wherein we saw that Alequel had a positive effect on ameliorating Crohn symptoms with no treatment related side effects observed.

At this point enrollment has been virtually completed for these trials that are being run in Israel. This trial will end up with about 75 to 80 patients. We are actively now involved in the process of bringing the study of Alequel to the United States. Currently we are engaged in setting up additional sites that are defining and are defining the manufacturing protocols in order to continue these advanced studies. Based on the encouraging interim data from the May report, we are looking forward to the next stage of the clinical programs which should begin sometime next year.

Turning to Optquel, the name that we have selected for our candidate drug for the treatment of uveitis, the toxicology studies have been completed and no apparent toxicity has been noted. Optquel is the only oral specific immuno modulator designed to block the progression of autoimmune uveitis. We are awaiting the final written reports which will be part of the IND submission we will make to the FDA.

Meanwhile manufacturing of quantities of the drug needed for the next phase of the trials is underway. We are working with our advisory panels which consist of prominent ophthalmologists and uveitis specialists to fine tune the clinical protocol and select appropriate sites for this trial. Current treatment regimens for uveitis include steroids and immunosuppressive drugs and our trial design is planned to be steroid sparing. This means that it has the potential to decrease substantially or eliminate the associated side effects linked with long-term steroid use.

Uveitis is thought to be the leading cause of blindness in the U.S. only after diabetes and macular degeneration. It is estimated that there are approximately 300,000 individuals in this country with the disease, perhaps an additional 38,000 diagnosed annually. In addition, research suggests that autoimmune uveitis is underdiagnosed and underrecognized as many patients are treated by community ophthalmologists prior to being referred to specialists.

As we develop the protocols for our next phase of clinical trials in the U.S., we are simultaneously exploring an adaptive clinical trial design which pending regulatory approval would allow us to move quickly into a Phase III trial should the results prove significantly positive. With both of these therapies you should note that we have been able to achieve the results we have so far with moderate expenditures. Obviously as we expand our trials, we will need to increase our expenses but given our current capital structure and the design of the trials we are developing, we believe that we have more than sufficient resources to take both of these compounds to the next level wherein we believe their value in a potential partnering arrangement would be significantly enhanced.

Let me turn to HGTV43, our study drug for the treatment of HIV-1. As you know in the beginning of the year, we did enroll our first patient. We have been following that patient and have been pleased with the progress and we are optimistic about this trial and hope to move it forward as we progress into the future.

In our Phase II double-blind clinical trial for NASH in which we are studying the effects of EGS21, our immunomodulatory small molecule, we are currently in the middle stages of the trial and awaiting the final results which we have said will be available sometime next year.

At the recent AASLD meeting last month, we presented data from some of the research on liver disease including a paper dealing with the potential biomarker for NASH. These data suggest that changes in the makeup of T-cell membranes could be used to diagnose this disease and therefore potentially reduce the need for more invasive procedures such as liver biopsies. Studies on this aspect of NASH are ongoing and may serve as a biomarker for the disease thereby potentially reducing the need for more invasive procedures such as liver biopsy to make a definitive diagnosis.

NASH is often underdiagnosed until the later stages of the disease when it is more severe and harder to treat. You should note that NASH and its associated metabolic syndrome, one of the leading causes of liver disease in the United States and is thought to be present in 20% of obese individuals and perhaps 2.5% of the general population.

Finally we are also continuing our efforts in order to define a partner for our hepatitis B and bone disorders projects. These are ongoing efforts.

I am going to conclude my formal remarks to allow sufficient time for questions but in conclusion, I would like to reiterate that Enzo, at Enzo today, we are now turning the investments we have made over the many years into bottom-line results. We have obtained a dynamic growing position in the life sciences market with the infrastructure to drive both the revenue and profit that we are optimistic to achieve it. Our clinical reference laboratory has been expanded to handle increased workloads and continues to work towards the addition of more high-margin esoteric tests.

We have a highly promising proprietary therapeutic lineup which has a pipeline of potential therapeutics that target difficult to treat metabolic and immunological disorders designed for improved safety and efficacy over currently available options. Underpinning all of this is a very strong, highly liquid, debt-free balance sheet and a comprehensive intellectual property and technology estate.

We have invested heavily in defending our patent portfolio as can be seen by our legal expenses. We will continue to do so. This investment has proven to generate financial returns for our Company and we believe that it will generate even further value. We believe that we are positioned and the Company is well positioned now to move to the future and that the investment community should begin to recognize these results.

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

(OPERATOR INSTRUCTIONS). Jeff Frelick, Lazard Capital Markets.

Good morning, folks. Barry, given the managed-care contracts and the esoteric offering that you are seeing really benefit in the Clinical Labs business, can you quantify just the test volume growth now in this quarter?

It is a difficult issue to quantify, partially because the mix of the business is changing and evolving. We are definitely seeing a rise in our esoteric testing volume as a percentage of total volume. We tend not to release specific specimen count numbers for confidentiality purposes but I can relate to you that we are seeing without question an enhanced growth in the proprietary of the esoteric testing group of tests.

Okay. And then with -- you talked a little bit about the gross margins as Axxora manufacturing will be I guess transitioned over to Enzo I think you said you were doing about 5000 tests now that you are manufacturing. Where does that number go to over the -- maybe help us understand is that over the next year, the next year and a half?

Maybe I am going to ask Dr. Carl Balezentis to respond to that.

There are several things to keep in mind there. First of all, Axxora also distributes for approximately 40 companies so --. And that is a lower margin product line and that kind of brings it down. But then of the products that we manufacture, really the goal over the next year and that is the calendar year 2009 is to really focus on margin enhancement and improvement. Specifically what that number will be we don't know but it should improve significantly. In that as well, we are starting to develop a number of products which will have much higher gross margin in general.

And so we should see a significant and I would say really quarter-over-quarter next year, you should see a significant improvement.

Just as a point of reference, we took about an 11% hit on the inventory in margin at the Life Sciences this past quarter because of the accounting. You would have to factor that in going forward as we utilize that those products that are affected by that rule. And looking forward as we move forward, it will be a slow incremental improvement. I mean our margins now in that area are about -- if you look at them fully in without the accounting effect is in the mid 30s and we certainly hope to push those up into the 40 plus range.

Okay. And then if I might ask one more or two more questions? On the royalty side, Barry, is pretty solid this quarter and a little bit better than we were looking for. I guess as much as you can say, is there additional activity in this area, other discussions with folks kind of sitting down with you guys at the table and looking to access some IP?

Yes. We have had extensive activity this quarter in a number of different areas. As I mentioned in my comments, we were very fortunate this year to have a wealth of new intellectual property issued covering some very significant segments of the genomics and life sciences markets. This new group of intellectual property issuance is contributing to I would suggest an enhanced portfolio in totality and has captured I suspect a lot of interest by other parties in the field.

We are in negotiations. This is a very important area for Enzo because we are looking at it from a couple of perspectives. We have multiple parties that potentially could have sort of minor or modest types of licensing relationships and you have other parties that are looking for much more extensive relationships and there is a balancing act trying to define how we can optimize the total values of these packages.

So we are definitely excited about this and we are looking forward to new opportunities emerging from this activity.

Okay and just my last question. With respect to the Axxora acquisition, has it met your expectations or where there some surprises as this has been integrated whether it is you or Carl answering that?

I will let Carl deal with that.

It has clearly exceeded our expectations. If you remember the purchase price I think for above in terms of revenue where we expected from them, integration has gone extremely well. I have been through a number of acquisitions and companies and this is the best that I have ever been through and it has to do with the quality of the management that we acquired. Everybody has worked together, and no hidden agendas, things like that that often happen with some acquisitions.

So it has gone extremely well and I think we haven't lost any customers; we haven't -- we've really focused on sales and marketing. I think it shows you can kind of run out the numbers so to speak or the revenue but it has clearly exceeded what we thought and we are extremely pleased with it.

I can comment from a senior management perspective, the acquisition has really been integrated in a seamless manner. I think Carl and his team have done a terrific job and I think what is being built will be a platform from which this Company can truly make a mark in the industry and to be a competitive as well as significant player in this space.

Okay. I will jump back in the queue.

[Anthony Paffle], Paramount Capital.

I have two questions, two key questions. One about the diagnostic lab business; it seems that the Lab Corp. and the quest servicing of the Aetna and the United Healthcare contracts has added to increased revenue in this area. And it seems that one of the advantages -- I just wanted to comment is that the physicians who are sending lab testing specimens who are both United Healthcare and Aetna providers can access Enzo for a common drop in those areas. And from a practical sales perspective, that seems to be an area that could be leveraged.

And another question to Jeff's point, it seems to me that the Genzyme acquisition of [Impasse] assets where they acquired FISH immunohistochemistry marker testing for leukemia lymphoma and more recently EGFR and VEGF testing, that the intellectual property that Enzo currently holds would enable Enzo to increase the high-end case mix where you have testing would be available for higher rates of reimbursement for those particular tests.

And I'm wondering is Enzo investing in hiring pathologists and sales staff that are specific for those higher end testing and is that a focus to improve the profitability even more of the diagnostic group?

Thank you. The first comment on the managed care contracts, Enzo is fortunate in that we both can provide services for United Healthcare clients as well as Aetna clients and for those on the call who may not may or may not underappreciate that, each of the large national labs split those contracts. So for Enzo, it is a terrific benefit to be a one-stop shop for many physicians who do not wish to split specimens and that is without question has been a strong selling point for the laboratory in attracting new clientele.

In terms of the movement into the more esoteric or high-margin testing areas, the areas referred to were the fluorescent in situ hybridization areas which are a cornerstone in the testing for blood-borne cancers currently. That market has been dominated by the Abbott FISH system, or it's the old Vysis FISH system, very strong, good product this past year. We crossed licensed our technologies as well as became a provider for the reagents and we do get a royalty on the sale of that system.

But at the same time, it has provided us the capability to develop a system that we can market on our own. This past year we also in-licensed specific probes from Mercy Hospital in Kansas City which we can add to this complex of products. The whole area of molecular diagnosis as I commented in my original comments, is one that we are focusing on and one that we believe we can implement utilizing our clinical laboratory as a strategic provider to give it an enhanced presence in the market and also to increase its value from a perspective of market capitalization.

Okay. And then a follow-up question and concerning Axxora, the platform is a global one truly in Europe and Switzerland and the U.S. and they have a certain customer mix which includes academic centers and industry. What currently are the plans to enhance industry customers and maintain and enhance the academic customers? And is that sales mix something that requires additional assets to expand in that area? And then how are you working on that?

I think that is a great question and exactly what we are doing is we are investing in the market place itself. You will see that change in the next six to nine months. To really enhance that, we are looking to leverage these products from you know the development stage on through toward pharma biotech and other things and we have some plans to do that as well.

I think these are some of the real hidden gems and the synergies that are available there. Certainly our customer base from Enzo was a little bit heavier toward the pharma, the biotech, things like that so we complement that and we are trying to cross sell and do some things like that. And a lot of focus of our product development then as well will be toward leveraging some of the products that currently are offered to the more research setting from Axxora and leveraging those into the higher market, our growth markets across in the biotech and pharma.

And I think one of the great things is we continue to enhance our international global distribution. Axxora gave us a great foundation in Europe and with its distribution network throughout the world, but we still have some opportunities there as well.

Well, congratulations again and keep the growth and revenue recognition coming strong. Take care.

Robert Smith, Center for Performance Investing.

Good morning. You mentioned advancing certain clinical programs in 2008; a long year so to speak. Could you refine that somewhat to give us better timelines?

I will try my best. Basically the Alequel trial has -- we are basically completely enrolled in the third arm of the Phase IIb study for Alequel in Israel. The data for that will be digested. It will take a few months to do that. At the time that that is taking place, we are compiling our legal and regulatory submissions. We are identifying and looking to set up clinical trial sites. There is a whole big process that is taking place and we are currently engaged in.

We look hopefully to have the initiation of this trial sometime toward the middle to the end of next year. I think that would be a realistic timeframe and one that we feel could meet with a reasonable standard of opportunity for us.

In terms of the Optquel, we are in the process of completing the manufacturing of the materials of the drug that will be utilized in this particular trial. We have begun to put together the regulatory filings that will be required. Again, it is a process where we have a rather sophisticated panel of experts that is working with us to define the protocols and to assist us in the implementation of this particular program through the regulatory agencies. Our clinical sites also have been identified and we are in the process of evaluating the best process to expedite this particular trial.

And again, the timeframe for this could be approximately the same thing. I mean obviously we are here to push these as quickly as we can. We have to be realistic. We can't cut any corners. I think it is very important to do it right and to do it right the first time. And so far, we have been deliberate in the execution of all of our clinical programs. I think the good news is that we haven't really wasted money, we haven't expended money frivolously and the results we have achieved for the dollars that we have expended, I believe really surpasses many companies in our industry.

I think the game plan now is to move these things into the clinic so we can move towards the end stage trials and again, these trials are not long trials. I mean you are talking 15-week trial designs for both these products approximately. So that we could hopefully have something up and running and have some data coming through within the next year or year plus a timeframe as we move forward.

And secondly, perhaps I missed it, but did you state the R&D figure for the quarter?

Yes, we did. We expended about $900,000 in R&D associated with therapeutics only. That's correct.

Thank you. Good luck.

Thank you.

(OPERATOR INSTRUCTIONS). Jack Lasday, Citi.

Good morning. Gentlemen, over the years, Inchworm and Diagnostic were to be important parts of the revenues and cash flow. We had heard on calls like this that Enzo was waiting for patents and associated approvals which we have been led to believe that those have come through. Can you give us an update on something that appeared to have been very important that we are not hearing much about, please?

The technology you are referring to is our linear non-cycling amplification approach which interestingly the patents came forth this past year. It is intertwined with much of our intellectual property. As a matter of fact, I think it is one of the legs of what I consider the four pillars of Enzo's core IP in the field of genomics which could be viewed as gene labeling, sequencing, arrays, and genetic labeling. So I think the amplification is a core piece of this whole mosaic.

It is intertwined in many respects with many of the other technologies. It is the subject of -- or an integrated part of our discussions. It is highly probable that any relationship we engage in with the interim will be in a relationship that will be integrated beyond just this amplification technology and what I am referring to on that is not necessarily though it could be a technology we would license individually. It would be coupled with other Enzo intellectual property and packaged in a way that would give critical mass to a whole series or unit of capabilities that would allow a company to participate in this new molecular medicine space with a genomic platform that would be somewhat unnecessarily impeded by other intellectual property.

So it is still a very important aspect. It is a technology that is one that is highly, highly of interest to parties out there because it is competitive with PCR technology and it affords an alternative route to PCR and is one that we believe will have a place in the future of modern molecular medicine.

Barry, is it fair to say then that at this point there is nothing impeding your progress to move forward other than negotiating some kind of a deal?

We are in the -- there is -- I would agree with that statement, yes.

Okay. Thank you very much.

Sir, there appear to be no further questions at this time. I will turn the floor back over to you.

Thank you very much. We appreciate your time and your questions. We are in a very, very interesting and I think important trajectory right now. We look forward to reporting to you at our annual meeting which is on January 24 and after that, the next quarter which will take place in March. Thank you for joining us.

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