Enzo Biochem Inc (ENZ) 2008 Q4 法說會逐字稿

Good morning and welcome to the Enzo Biochem, Inc. fourth-quarter and year end 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 Section 27A 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 on a listen-only mode and the floor will be opened for questions following the presentation. I would now like to turn the floor over to your host. Mr. Weiner, the floor is yours.

Thank you for joining us this morning for our fiscal 2008 end of the year conference call. I'm joined today in our New York offices by several members of our senior management team, including Doctors Carl Balezentis and Christine Fischetti as well as Misters Drew Crescenzo and David Goldberg.

The results for the fourth fiscal quarter and full year were released last evening and I trust most of you have seen them. The press release has been posted on our website for anyone who has not yet seen it. Before I review what was one of the most significant years of progress in our history I would like to set out a few pertinent thoughts regarding the financial markets and their impact on our industry.

Clearly we are in a period of unprecedented volatility and as such many companies, ours included, are trading at or near multi-year lows. Unlike many of these companies however, Enzo's decision to undertake a conservative measured approach to research, development, acquisitions and, perhaps most important today, capital preservation, has positioned us extremely well in these turbulent times.

According to an industry study released this month, 70% of more than approximately 300 biopharma companies have less than two years of cash remaining. Enzo's free cash and cash equivalents, as of July 31 for example, is in excess of $78 million, even after our recent acquisitions using cash of Axxora and Biomol, which have enabled us to significantly advance our Life Sciences positions in markets around the world.

Unlike many companies we also have no debt and have never been in the position of having to mortgage our future in order to have a present. Because of this we are able to move nimbly and quickly if and when opportunity presents itself. This has never been more evident than over the past year when we have consummated three key Life Sciences acquisitions. We've also built out and equipped a new facility and made important enhancements to our informational technology systems that have helped in the integration process of these companies and also helped in managing the growth we have experienced in Enzo Labs. We also have added materially to our management, particularly among our subsidiaries, with individuals who are highly skilled and experienced.

The additions in people, products, markets and customers over the past year have truly been impressive. As we look back on the past fiscal year we can see the results of our strategy and execution. Sales for the year were at record levels; in large measure it was a result of the acquisitions.

It is noteworthy that with our expanded marketing programs and staff we also grew Axxora organically through emphasis on higher margin products and greater focus on market opportunities which all resulted in additional sales of approximately $2.6 million. Our royalty and licensing fee income also continued to advance, the result of our extensive intellectual property estate and its continuing benefits in the agreements we have reached to date.

And while, as you might expect, that with increased sales comes increased costs, we were able to reduce our overhead relative to revenue. Our selling, general and administrative expenses, SG&A, represented just 44% of fiscal 2008 revenues as compared to 50% a year ago. Moreover, the expansion of our Life Sciences business has had a profound impact on the profile of the Company's financials, whereas previously our laboratory business just two years ago accounted for about 80% of revenues, its share in fiscal 2008 was just 54%.

We also have seen improvement in gross profit, which for Enzo last year rose to $37.5 million versus $29.7 million a year ago. To be sure on a dollar basis, fourth-quarter gross profit was essentially flat with the prior year, but this reflects heavily the purchase accounting that must be employed under GAAP accounting rules and which this past year approximated $2 million including in excess of $700,000 in the fourth quarter. Mr. Crescenzo will discuss this in detail shortly.

The purchase accounting effect for Axxora has pretty much run its course, but it will continue to impact Biomol reporting results through the third quarter of fiscal 2009. I might add that these charges are non-cash items which means that cash flow is unaffected.

Our results for the year and the quarter also reflected reduced legal-related expenses, slightly reduced R&D expenditures due to timing of clinical programs and the affirmation benefits from lower provisions for uncollected receivables. Our net loss for the year was $10.7 million, that compared with the prior year's net loss of $13.3 million which was after gains totaling $2.7 million from a settlement on the legal dispute with Sigma and a one-time payment from PerkinElmer. So on a like for like basis the improvement for the year was much greater.

We have shown growth across our business units over the year despite the environment and we are cautiously optimistic that we will continue to demonstrate positive trends. The clinical reference laboratory business remains highly competitive, a factor that affected its fourth quarter. We will be refocusing our marketing efforts over the coming year to deal with the changing market environment. Meanwhile, our efforts to heighten efficiency in the manner with which we deal with billing and receivables continues to pay dividends as reflected in the steady reduced receivable allowances for which we've had to reserve.

Our fourth-quarter loss held steady at approximately $3.3 million after the acquisition accounting rules affect and also reflected reduced interest income. All in all our results are tracking well. Drew will give you some of the particulars on the financial outcomes of the different divisions in the Company and then I will return for comments on the various divisions. Drew?

Thank you, Barry. Good morning. Before I address our operating results for the fiscal 2008 year and the fourth quarter, I would like to expand on Barry's comments on the current financial position of our company in light of the recent credit crisis and financial sector volatility.

Currently we have approximately $78 million in cash and cash equivalents, virtually the same as we had at July 31. Our investment policy, which remains unchanged for the past three years and is approved by our Board of Directors, limits investments to short-term, highly liquid and risk-averse instruments. We currently have investments in money market accounts and US government-backed instruments.

Moreover, as of July 31 our working capital stood at over $92 million. As such we believe that our current cash and cash equivalents are sufficient for our foreseeable liquidity and capital resource requirements. Let me turn to the discussion of the results of fiscal 2008 as well as the segment operating results for Life Sciences and Clinical Labs.

Important to note is that the fiscal 2008 includes the full-year results of Axxora as compared to the two months in 2007 and for Biomol the results of operations from May 8, 2008, the date of acquisition, to July 31. Fiscal 2008 results were significantly stronger than the prior year. We reported a narrower loss of $10.7 million or $0.29 per share as compared to the prior year of $13.3 million loss or a loss per share of $0.38. 2008 included a $1.6 million after-tax non-cash accounting charge for inventory fair value adjustments arising from our inventory acquired from Axxora and Biomol as compared to a $500,000 charge in the prior year.

You should note that if we exclude the benefits in fiscal 2007 of a $2.7 million patent settlement with Sigma and the one-time payment from a former distributor of our products, PerkinElmer, the 2008 operating income would have improved by $5.3 million or 40% over 2007.

Looking at revenues in 2008, they reached $77.8 million, an increase of $24.9 million or 47% over 2007. This increase can be attributed to advances in product revenues of $21.4 million due to revenue contributions for the full year from Axxora and approximately $2.7 million in revenues from our May 8 acquisition of Biomol.

Royalty and license fee income increased by $1.8 million or 31% over 2007 due to favorable increases in reported royalty revenue from Qiagen and also higher license fees from Abbott Molecular attributed to higher rates and a full-year impact of the agreement. Enzo Clinical Labs' revenues experienced growth of 4% to $42 million for the 2008 year.

Our course of product revenues attributed to Life Sciences increased $19.2 million due to the increase in revenues previously mentioned. In addition, the cost of products were negatively affected by the pretax non-cash accounting charge of $2 million. The previously mentioned amount was the after-tax charge of $1.6 million. We expect to be impacted by this non-cash accounting charge into 2009. We expect it to be -- estimate it to be approximately $1.6 million.

Clinical Lab cost of services increased 16% due to investments in infrastructure necessitated to meet future potential demand for services. In particular the increases, among others, were for personnel. Our gross margin increased by 27% to $37.6 million inclusive of the $2 million inventory fair value charge.

Turning to our operating cost -- selling, general and administrative cost increased 31% or $8.1 million principally due to the effect of the acquisitions. In 2008 SG&A as a percentage of revenue declined to 44% as compared to 50% in 2007, despite the impacts of adding the Axxora and Biomol. Research and development costs were $8.6 million or 8% lower in 2007. The small decline is due to the timing of certain clinical trial activities at Enzo Therapeutics. We expect during 2009 that R&D will increase as we realize the full-year benefit of Biomol activities. Barry will expand further on the activities in the therapeutic segment.

The fiscal 2008 provision for uncollectible accounts, which is principally related to Clinical Labs, decreased by $900,000 to $3.7 million due to improved billing efficiencies. Our legal costs, which are directly related to the timing of costs for ongoing litigation and costs to maintain our patent estate, decreased in 2008 by $5.6 million as compared to $10.2 million in 2007.

Our interest income was $3.7 million in 2008, a decrease of 47% over 2007 due to lower invested balances mostly due to $16 million in cash used for acquisitions and the effect of lower interest rates. Our average return on investment was 2.2% in 2008 as compared to almost 5% in 2007. Our effective rate was a 2.2% benefit in 2008 which arose from the deferred tax benefits relating to utilizing acquired inventory. We continue to not record the full tax benefit from our pretax operating losses.

At July 31, 2008 we had US net operating loss carry forwards of approximately $30 million expiring between 2011 and 2028. Our ability to utilize these NOLs is dependent on generating sufficient taxable income prior to the expiration date. Let me now turn to the Life Science and Clinical Lab segment operating results.

For the fiscal year the Life Science segment operating income improved to $3.4 million, up from $1.3 million in 2007, exclusive of the previously discussed $2.7 million in other income recorded. Product revenues and royalty and license fee income were $35.7 million as compared to $12.5 million in 2007. The increase in product revenues of $21.4 million as well as the increase in gross margin of $9.2 million were mostly attributed to the acquisitions. Operating expenses, specifically SG&A and R&D, increased $7.1 million due to Biomol and Axxora.

Looking at Clinical Labs -- for the new full-year revenues increased to $42.1 million or 4% from the previous year of $40.4 million. Pretax operating income was $2 million as compared to $3.3 million in 2007. Higher cost to provide services and increase revenue from lower reimbursement payers decreased the gross margin by 5% to $21 million.

SG&A expenses increased by 8% mainly attributed to an increase in personnel. The provision for uncollectible accounts, as Barry mentioned, declined by $1 million and as a percentage of revenue improved to 9% as compared to 12% in the 2007 year.

Let me now turn to the fourth-quarter results. As Barry indicated, our 2008 fourth-quarter net loss of $3.3 million and the net loss per share of $0.09 per share was comparable to the prior year-ago period. Net revenues for the fiscal fourth quarter increased 18% to $21.2 million as compared to $17.9 million in the year-ago period. Increased product revenues of $5.2 million attributed to the full quarter results from Axxora and $2.7 million from the acquisition of Biomol in May '08 were offset by decreases in Clinical Lab revenues of $2 million.

Royalty and license fee income increased by 5% to $2.2 million. Gross profit increased to $9.2 million figure; the gross profit was negatively affected by the quarter's $700,000 pretax fair value accounting charge. Our quarterly operating expenses, which include SG&A, R&D and legal expenses, changed as follows -- SG&A increased by $1.8 million, principally due to the effect of the acquisitions; R&D was comparable to the prior quarter; legal expenses were lower by $2 million. Legal expenses, as you know, are directly impacted by the timing of our actions.

Our provision for uncollectible accounts declined by $600,000 in the quarter due to improvements previously commented on and has increased to [7.8]% of Lab revenues from 10% in the prior year. Fiscal fourth-quarter results reflect lower interest income of $1 million over the prior year. Let me close by discussing the Enzo Life Sciences, Enzo Clinical Labs fourth-quarter segment results.

At Enzo Life Sciences pretax operating income improved to $1.1 million from the prior year $500,000. Product revenues for the 2008 quarter increased to $9.2 million or 132% as compared to $4 million in the year ago quarter, attributed to the sales contributions from Axxora and Biomol. Royalty and license fee income grew by 5% to $2.2 million. Although our gross profit increased by $2.4 million it was negatively affected by the previously mentioned $700,000 pretax accounting charge for inventory sold. Operating expenses representing R&D and SG&A, inclusive of Axxora and Biomol, have increased $1.9 million over the prior year quarter.

Looking at the Clinical Labs, fourth-quarter revenues declined to $9.8 million from $11.9 million in the prior year quarter due to competitive pricing increases in billings -- HMOs that have lower reimbursement rates. Higher operating costs and lower revenues contributed to a decline of $2.4 million in gross margin. SG&A expenses were comparable to the prior quarter and as a percentage of revenues.

The provision for uncollectible accounts receivables decreased $600,000 over the prior year quarter due to improved billings and collection procedures. Overall Clinical Labs reported an operating loss of $400,000 as compared to operating income of $1.6 million in the year ago quarter. Barry?

Thank you, Drew. Let me return to the discussion of our strategy which we believe will serve us well during this period of economic uncertainty. I'd like to start with a description of what we've accomplished this year and how it will set the base for us to move forward.

At Life Sciences we now have a growing presence in the research products marketplace both through acquisitions and also through our strong internal product development teams. The integration of the three acquisitions made in 2007 and 2008 has proceeded seamlessly and we have emerged with a highly focused management team blending various sets of skills and experiences which we believe can drive innovation in products and technologies, can assimilate current and future acquired entities very well and deliver increasingly efficient operations.

Under our current leadership Enzo Life Sciences is executing several strategic alternatives. First and foremost has been the growth in sales revenues. The division's goal in 2006, as we have stated in the past, was to build this division to a $50 million run rate in annual sales by the end of 2009 and, as you can see from our fourth-quarter numbers, we are well on our way towards this objective.

Second, Enzo Life Sciences has developed an infrastructure that is needed not only to integrate these acquisitions but to build them organically as well. With multiple manufacturing sites and a newly strengthened research and development product team we have the capability to deliver outstanding products that are targeted to be first in class.

Enzo now manufactures or in licenses over 8,000 products covering numerous life science research applications. This provides us with the foundation to build the Enzo Life Sciences brand into a major player in specific high-growth areas within the cell biology, cellular biochemistry and genetics markets. We also plan to invest prudently in research and development areas where our intellectual property and technology expertise can allow us market access in novel high-growth niche areas which we feel may be growing faster than others. Such areas include functional cellular analysis, functional proteomics and genomics.

Recently we have begun to launch new cell based assays for use in various stages of drug discovery as well as expanding our proprietary family of dies for live cell analysis. Moreover, our strong financial position will allow us to make the investments into capital equipment and facilities should we deem it necessary.

The current environment in both the financial markets as well as in the development of molecular diagnostics has also provided Enzo with another opportunity for growth. There are literally dozens of companies that have developed unique gene-based assays that may have relevance in such areas as predicting the re-occurrence of a specific type of cancer or how a given patient may react to a specific chemotherapeutic regimen.

Since we have built a CLIA certified New York State licensed laboratory and have over 20 years of experience in managing and growing it we have emerged as an ideal partner to potentially help commercialize and exploit these exciting technologies and tools. Moreover, our expanded Life Sciences group can work with these companies on assay design and validation and our comprehensive intellectual property estate could provide us with the freedom to operate that some of these entities may not have. This can help to continue our plan to transform Enzo labs into a highly sought after provider of esoteric laboratory services, while still maintaining a strong presence in the desirable New York metropolitan area marketplace.

Turning to the intellectual property legal front, we are still awaiting decisions on both of the patent interference actions in which we are the senior party. These involve patentability issues concerning nucleic acid gel sequencing, as well as DNA amplification technologies.

The appeal process involving the decision in the New Haven Court relating to Applera continues underway. We remain optimistic that a significant result is achievable in these cases. As for other cases before the federal court in New York City, we are hopeful that the trials will get underway in the near future. This litigation involves multiple defendants and goes to issues of contract violations in addition to infringement.

Our litigation expenses for the quarter were lower than a year ago, but this reflects only timing issues and no less intensity on our part to see these matters to a successful conclusion.

Let me turn to a brief discussion of our therapeutics program. It is important to keep in mind that Enzo, unlike most biopharmaceutical companies, has been able to build its broad and deep pipeline with a very conservative level of investment. This is because we have purposely sought out programs that would require only limited funds to determine activity in small proof-of-concept clinical trials.

We've also hedged ourselves by developing multiple candidates in multiple therapeutic areas from each of our platforms rather than one by one technology concepts that in many cases are the bane of many small biopharma companies today. Our experience has allowed us to expedite these programs in such a way that we can manage our expenses effectively.

Our focus for therapeutics is to concentrate on the clinical advancement of two products, Optiquel, our candidate for the treatment of autoimmune uveitis which has completed its Phase I open label uncontrolled trial in Europe; and Alequel, our proprietary autologous treatment for Crohn's disease which is nearing completion in a Phase II double-blind placebo-controlled study. For Optiquel our goal is to complete all of the preclinical pharmacokinetic, toxicologic and manufacturing studies required by the FDA and file an IND with the FDA in order to initiate a clinical study in the US by early 2009.

To update you, all FDA required toxicology studies have been completed satisfactorily and reports are in draft or final form. Our preclinical pharmacokinetic study to determine the extent of absorption is nearly completed. With regard to drug manufacturing, we have generated the data to meet FDA requirements for the active ingredient. Additionally, we have begun to assemble the IND and plan to use the electronic gateway at the FDA which will soon be a requirement for all FDA submissions.

For Alequel, our autologous individualized therapy for Crohn's disease, our double-blind placebo-controlled study is on track for completion before year end. Pending confirmation of that previous data that showed that Alequel is beneficial and has a satisfactory safety profile, we plan to also file an IND for this product as well.

In light of the financing realities impacting the current biopharma marketplace we are evaluating our pipeline of other products to determine the most pragmatic approach to obtain value or to reduce operating expenditures associated with some of these programs. This may result in partnering, joint venturing or even suspending ongoing activities in certain areas. These decisions will be based on risk/reward scenarios as we evaluate the market opportunities against economic considerations.

At the same time we are still capitalizing on our core developmental strengths and looking at novel approaches to treating disease. An example of this is the exciting work that we have been doing preclinically in the area of the Wnt signaling pathway, an area of research which is presently at the forefront of discovery at a number of major pharmaceutical and biotech companies.

The Wnt pathways describe the complex network of proteins most well-known for their role in embryogenesis and cancer, but also involve normal physiological processes in human adults. We have identified key targets on macromolecular structures that we believe are promising in certain areas of exploration. Our scientists have identified active sites on these macromolecules via proprietary virtual computational screening methodologies and through an [interim] process have identified small molecules that interact directly with those sites.

Enzo's scientists have synthesized these new chemical entities and tested these small novel molecular weight compounds. They have screened them in biochemical and cell-based assays and have selected viable candidates to test in standard preclinical pharmacological models. Based on this work we have found a number of compounds that are active in standard animal models of disease that are high profile areas such as bone pathology, osteonecrosis of the joint, diabetes and others.

Enzo Therapeutics is currently expanding its efforts in these programs and will further explore their therapeutic potential in more complex animal modeling systems and a variety of animal models for other therapeutic areas. We do plan to continue to advance these drug candidates to identify their specific mode of action. Our goal here is to produce proprietary compounds in high-profile areas that can be advanced into the clinic either by us or by a potential licensee.

We are very pleased about this line of research and we see this platform or this technology base as a pipeline generator, a solid foundation for continued growth of Enzo Therapeutics. Summarizing our therapeutics plan, we will develop our drug candidates with a view to our licensing, partnering or commercializing specialized niche products in the US pending data that confirm efficacy, safety and, especially in the current environment, cost-benefit.

Overall these are very challenging times for many companies. We are fortunate to have the financial capabilities to take advantage of unique opportunities as they appear in the market. We continue to look at the value proposition of our company and explore approaches for value optimization which present themselves due to the integrated structure of our three operating units. We have shown growth across our business units over the year despite the environment and we are optimistic we can continue to demonstrate positive trends.

Currently we have revenue-generating businesses, a robust intellectual property and technology estate, over $78 million in free cash, and the flexibility to pursue alternative business strategies to strengthen our focus and core operations. On that I would like to turn the floor over to questions.

(Operator Instructions). Jeff Frelick, Lazard.

Good morning, everybody. First question either for Barry or Drew. Can you give us a sense of the organic growth for Enzo for fiscal year '08?

The organic growth in life science is a little over 10%. And we mentioned the growth and the labs is about 4%. That's all organic.

Okay. And then with respect maybe, Drew, just while we're there, SG&A as a percent of sales declined in the quarter. Should that continue or do you have other plans on spending there?

I would say that depending on the impact of the Biomol going forward I would think that it would probably remain consistent.

Okay. And what about the uncollectibles? Okay, so given obviously your investments in that area, should this continue also to improve or does it kind of reach a plateau? How should we think of the uncollectibles?

We've had some steady declines over the year and we expect that it's probably plateauing at the current rate now.

We've worked very hard to bring those numbers down and we've had some fairly good success over the last year.

Okay.

I think you can see that's noticeable in our cash position. As you can see, our cash position is constant over the quarter which is a demonstration of that affect.

And there no -- at this point no plans for further investment? You're kind of where you need to be at this point?

With respect to the Clinical Lab receivables?

Yes, yes.

We just implemented a new billing system which we expect will continue to help with our efficiencies and keep us at the levels that we've achieved over the last quarter.

Okay. And then you commented on competitive pricing in the clinical Lab business. Was this across the board, all tests? Or was this visible in certain tests? Can you give us a little more color there?

The competitive pricing has had to do with the shift to more managed care providers. And as we are expanding our geographical reach we have been expanding our universe of managed care and third-party payers, the result being is that we have accepted certain contractual relationships with these providers which could reduce somewhat the margin return for the specimens coming within their group.

Okay. What about unit volume for the Clinical Lab business for the full year? Up, down, flat? Can you characterize that?

Unit volume was up slightly for the year.

Okay. If we move on to Life Sciences -- gross margins were flat in the quarter. Obviously you have, I think, a lot of leverage opportunity in that business. Can you give us a sense of timing? When do we really see some meaningful expansion and where can they go from these levels?

Well, we're working currently on a lot of the integration activities which will lead to that kind of (technical difficulty). It also depends on our product mix. I think focusing on a gross margin is a little bit deceiving; we really want to focus on the operating profit is where we really focus our attention. And it will certainly improve.

You should see improved margins -- we expect for the course and coming because of our activities and relatively soon. But if we get a product mix that breaks down our gross margins somewhat, our operating profit is where we really focus our attention as well.

Carl, which of the acquisitions do you think gives you the (inaudible) to drive that?

Biomol, because of their manufacturing capabilities. So we're currently in the process of really kind of driving our self manufactured products to that entity. That will bring our gross margins up.

Okay. And Barry, future acquisitions, how should we think of those? Accretive, more content focused or distribution focused?

Two things, I think they're going to be strategic and product focused and certainly we always insist that they're accretive.

Okay.

I should mention that we are actively exploring new opportunities. The marketplace has actually afforded us what I would suspect is a broader pool of opportunities at a perhaps more reasonable valuation structure than a year ago as a result of what's happening economically. So I think the fact that we have sufficient cash capabilities has put us into a positive and a good position in this area.

Okay. All right, thanks. I'll jump back in the queue.

Anthony [Pazel], [Baring] Circle Capital.

Good morning and congratulations on the progress on building out the medical tools business and I wanted to ask some questions. Recently Myriad Genetics seemed to, by serendipity, be refocused on their diagnostics business. And during that transition, when their Alzheimer's disease drug failed to meet its endpoint, wound up getting a lot more attention from the investors because of its focus on that one particular core area.

The same thing could be said in diagnostics looking at Sequenom that has a diagnostic platform for detecting fetal RNA in maternal blood which has been a driver for it. Enzo traditionally has had strengths in both medical tools, devices and in diagnostics with (technical difficulty) intellectual property there. The therapeutics also are of lots of value, however, therapeutic [binary] events are often deemed by many to be the best on technology, albeit the more mature the Phase II data that you have the less riskier the better.

My question is in your -- the plan to build out medical tools and then ultimately diagnostics, are there any new diagnostic testing that's coming on in the diagnostic platform? There's been a lot of acquisitions in the Medical Tools and Labs business. Is there any additional testing that's coming online that will increase or enhance both the (technical difficulty)?

I'm sorry, I missed the last part of your question. Hello? Hello?

Your line is open.

I think we lost the question. Can you move on to the next question, please?

(Operator Instructions). Robert [Smith], [Center for Performance].

Good morning. (multiple speakers) Performance Investment. Several of my questions have already been answered. What is the relevancy of Enzo's IP to the new generation of gene sequencing platform technologies?

Our technology -- we have multiple patents covering many different aspects of the next generation sequencing approaches. It's a difficult question to answer specifically because it's such a broad area of activity; there is so much technology and intellectual property in the area. We have IP that could touch on the heart and soul of certain parties out there and there are parties out there that have multiple tiered patent approaches that potentially could allow them the ability to operate with freedom as well.

All I could suggest to you is that we have a very, very large IP estate. It covers many different aspects from labeling to amplification techniques to different die systems that potentially could be utilized in any of these approaches and we have to look at them on a one-on-one basis. So I think in response, we do touch on areas of potential utility but it would depend on the given specific methodology that's being employed.

Is the marketplace moving away from you so to speak with the new generation of technologies?

No, not necessarily at all. I mean, our activity tends to focus on specific aspects of utilization within a given approach. And what I mean by that, it may deal with the specific labeling systems that would be utilized with a technology whether it's old or new. These are basic core areas of utility. So I wouldn't say it's necessarily moving away. I think we have activity and participation in many different aspects here.

So if you prevail in the legal end do you feel the possibilities are really profound or major to go forward?

We have a number of legal activities out there at this point in time, some of them cover work that goes to the past, some of it covers work that will move into the future.

I'm more interested in the future.

I understand that. We do have intellectual property that touches on utility of certain components of next-generation sequencing. We are working to exploit that today and the fruits that we bear will prove that out.

If I could jump in, this is Carl Balezentis. The current sequencing method will not be displaced completely by the next-generation sequencing. It will still remain the workforce. There are many applications that the current sequencing platform will continue to perform that the next generation does not. A lot of that is more focused on the whole genome mapping or sequencing, things like that. So it will continue.

My final question is about Crohn's, so if you get favorable data can you give us some timeline as far as how we unfold going forward?

Yes, we expect to have that data completed and analyzed by the end of the year. The patients are on track and we'll have a very clear view of the results by the end of the year. Following that, assuming that the data is as positive as it was in the past, then we will meet with the FDA and determine the regulatory pathway of what is necessary to file an IND with the FDA and we should be doing that early next year.

As you know, this is an autologous individualized therapy, it's not a simple pill that people are more accustomed to hearing about. And therefore the regulatory process, we think, will be much more complicated, but we are ready to explore that with the FDA.

How long would you suspect to move to a Phase III?

I think there's no way that we could actually determine that without really hearing from the FDA. The FDA, as you know, is very clear on their requirements. All I can say is that we would be filing the IND next year and that we will hear from the FDA what kinds of other studies they need before we go into an actual Phase III.

Thank you.

It would be things like method validation, etc. So that has to be determined by FDA.

Thanks very much.

Anthony Pazel, Baring Circle Capital.

I'm sorry, I was on my other line and somehow I was cut off. But I don't know what portion of my question I was cut off at. It was simply in the diagnostics division. Are there any additional tests coming out of the intellectual property either in genetic testing or in oncology testing that will enhance the revenue on a case-by-case basis or on a volume basis, any efforts in the diagnostics that complement what you've done already in the labs and tool space? And then the other -- in terms of focus seems to serve Myriad Genetics well and seems to have served Sequenom well and is the focus sort of a possible avenue for the future?

We are actually developing and exploring with others multiple novel technology capabilities in the area of molecular and genetic-based diagnostics. We have an unusual capability, which I commented on in my statement before that we have a CLIA certified New York State laboratory that houses itself right next door to a life sciences research and development group that can accelerate or turbocharge the developments of many companies today who are developing these products.

Having the distribution capability of the New York State lab is a very, very valuable tool, one that we are looking to capitalize on because it can give us immediate distribution to one of the most avant guard and I would say aggressive marketing communities in the medical area in the United States.

As you have seen, many companies who are developing some of these molecular tests are attempting to get into the market to provide services directly by acquiring labs or establishing labs. We're fortunate to have one of the largest independent labs in the State of New York to be able to process this through; and at the same time have a staff and a capability that not only is technically capable, but also can add value to certain parties because of our intellectual property estate to give these tests novel proprietary aspects.

And we are exploring that very aggressively right now. Our goal here is to transform this clinical laboratory into a state-of-the-art molecular diagnostic testing facility and one which we will be able to be provide tests not only developed by ourselves but by others on an exclusive or semi-exclusive basis to the medical community not only in the New York regional area but the entire United States.

Thank you.

Jeff Frelick, Lazard.

Barry, can you just review with us the three US patents that you were awarded this year and are there any pending patent filings?

We have many pending patent filings out there today. We've always had a very long history of intellectual property development and prosecution. Today we have over 200 pending patents on top of the 200 issued patents. This past year there were a number of patent issuances in the area of gene labeling technology. One of them I believe was in the therapeutic area in terms of enhancements to our therapeutic programs. And there was a third one that has implications, again, in the molecular, diagnostic or in the life sciences area in terms of applying some novel techniques to employ or develop products in the area of life sciences.

This is an ongoing effort, one that we've invested in and one that has actually paid off for us over the years. I mean, if you consider over the last 15 or 20 years we've generated in excess of $250 million of revenue from product that has been covered by intellectual property developed at Enzo. I think we've had a fairly good track record. And I think when we look to the future, we do have a fair number of legal activities currently in place and we are trying very hard to develop business relationships around our intellectual properties.

And this past year, obviously, we were able to successfully conclude an understanding with Abbott and our Qiagen or Digene relationship is proving to financially prove itself quite valuable to us as well. So this is an ongoing activity and one that we have invested in for quite a while and it's proving itself out.

Thank you.

Jack [Lezdae], Citi Family Office.

Barry, over the years there have been many promising ideas that were not mentioned today. I'm wondering if you can give us any kind of a status or an update on things such as AIDS and the "Stealth" vector and the possibility of licensing that vector, hepatitis B, hepatitis C and lastly the very promising inch worm project.

Let me start with the last first. The DNA amplification technologies developed, which has been spoken on in the past, is a technology that is interwoven very much with some of our legal activities at this point in time. So I believe the ultimate resolution or replacement of that will probably emerge with the conclusion or potential resolution of some of our intellectual property litigations.

In terms of the other therapeutic areas that you referred to -- as I mentioned in my text, over this past year we have intensified and attempted to focus our therapeutic programs into a more directed cost-benefit approach. We are focusing very, very intensively on Alequel as well as on the Optiquel product. We do have an ongoing trial for HIV which we have been monitoring and watching closely.

We made the discerned decision to attempt to monetize your partner out a number of these products because economically we do not have the scale or size to be able to develop internally these projects, so the hepatitis B has been in a dialog for partnering for a bit of time. The issue with that is that it is predominantly a Third World issue. Indications for does disease are basically in China, Asia and Africa which requires a different type of channel of distribution, a different type of cost structure, so that is something that is being explored.

The vector is something which interestingly is actively being looked at by a number of parties today in the gene therapy area because I believe we have a very good vector that has demonstrated its ability to transduce cells very effectively and that is being looked at. The gene therapy field is one which is emerging as a very, very challenging field from the perspective of timing, in terms of regulatory issues.

I think we have to be circumspect and we have to be candid to ourselves in terms of the levels of investment we put behind some of these and we have to funnel the level of investment in a more focused areas to those products that we think we can have commercialization or economic realization in the nearer term.

So it's not as if we are abandoning anything, we are just looking at different modes or means to be able to structure our financial outlays in such a way that we feel we are responsible. As you can see from our discussion today, we have intensified our efforts to move the business very stringently in the area of life sciences tools. We are investing as well as promoting what we are doing in the clinical laboratory.

The therapeutics division has a different type of trajectory, it is potentially far more cash utilization needy in many ways. We are attempting to balance that and look at structures that we can utilize to give us financial self-sufficiency in these areas and basically shine a light on really the high-growth areas which are in the Life Sciences -- or I should say the near-term high-growth areas -- Life Sciences and Clinical Lab areas.

And lastly, the Applera case -- is it true that the Applera folks have filed for a summary judgment and are we waiting for the judge to rule on that as to whether or not you can then file your appeal?

I don't believe that's the accurate description of that. There were some technical issues in terms of the judge validating her decision that had to be realized. I don't believe there's any summary judgment issue involved there.

When will the judge -- this has been going on for quite some time, when do you anticipate or is there some amount of time that the judge has to make that decision?

No, there's no decision to be made. The decision has been made, it was just technically getting it executed.

And when do you anticipate that happening?

We anticipate getting all of the documents in line, it's happening as we speak. I don't believe there's a long time frame involved here at all.

Thank you.

If there are no other questions then I would like to conclude and thank you for joining with us on this call. We look forward to speaking with you at our next conference call which will be in the middle of December and that will be followed by our annual meeting in January.

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