Enzo Biochem Inc (ENZ) 2010 Q1 法說會逐字稿

Good morning, and welcome to the Enzo Biochem, Inc. first-quarter 2010 operating results conference call. Except for historical information, the matters discussed on this conference 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 update any forward-looking statement as a result of developments occurring after the date of this conference call.

Our speaker today is a Barry Weiner, President. At this time all participants have been placed in a listen-only mode and the floor will be open 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.

Good morning and thank you for joining us for our fiscal 2010 first-quarter conference call. I'm joined today in our corporate headquarters by members of our senior management team including Dr. Carl Balezentis, Dr. Kevin Krenitsky, Dr. Christine Fischette, Drew Crescenzo, and remotely Mr. David Goldberg.

Before I ask Drew to comment on our financials and Carl and Kevin to respectively address the operations of their divisions, I'd like to make a few comments about the quarter so far. We will then open up the call at the end for questions.

As we indicated in yesterday's press release, the year has gotten off to a really excellent start and it is clear we are moving in the right direction strategically. Operating revenues were a record for the quarter of $25.2 million, that's a 19% increase year over year and for the first time in the Company's history it put us on a pace to eclipse a $100 million revenue mark.

Gross profits were approximately 63%, and this also was a record of $13.3 million. Enzo Life Sciences enjoyed an 8% revenue gain while gross profit was up 79%. This result is reflective of our program to market higher margin life science products, a strategy that is now beginning to pay off for us.

The Clinical Lab business responded well to tighten management controls and it also enjoyed a nice uptick in diagnostic tests being run through our labs. Revenues were ahead by over one-third, gross profit more than doubled and the net loss at Enzo Labs has dropped off by about $2.6 million to just $960,000 for the quarter.

Recent announcements regarding the new molecular diagnostic partnerships that the Lab has entered into underscore the implementation of our plans to enter into more esoteric testing. We expect these to be attractive to our clients' additions by giving the new tools which what they can better serve their patients and to enhance our margins as well, and also to distinguish Enzo Clinical Labs in what we consider to be a very highly competitive marketplace.

As Drew will report, our cash flow reflects heavily on our capital investment, especially in connection with the expansion and upgrading of our main Farmingdale facilities. Cost control is a high-priority item for us and we are tightening up on our expenses even as we continue to expand our businesses both here and abroad.

In a market where capital is quite constrained we remain highly liquid with over $46 million in cash and cash equivalents. Opportunities to add to our activities via acquisitions continue to abound. But we are being very judicious as to what we add to our mix of businesses in terms of assuring maximum synergy in how we deploy our cash and in achieving full integration of our units, particularly the life sciences where we affected four significant acquisitions in about two years.

Therapeutic is also moving ahead as we prepare for the initiation of a double-blind placebo-controlled clinical trial of Optiquel, our study drug for the treatment of autoimmune uveitis that will be conducted at the National Eye Institute. Additionally, we have presented other drug candidates within our oral immune regulation platform at recent prestigious industry events. Our emphasis here continues to be on developing partnerships and/or joint ventures and we continue in dialogue with both large and specialty pharma companies.

I mentioned earlier our new marketing agreements, one involving a proprietary blood test for colorectal cancer and the other a supplemental test for cervical cancer where the initial diagnosis left some doubt as to its implications. Dr. Krenitsky will get into a more clinical discussion of each of these. Their significance lies in the fact that Enzo Clinical Labs is now a highly desirable partner for these and other companies having unique molecular diagnostic assays.

Apart from being situated in a very important and diverse market, Enzo also carries New York State accreditation as a reference laboratory and that is significant for attracting companies having diagnostic products whose efficacy they are seeking to establish. Because of what Enzo has now become we find ourselves in an enviable position of being sought out as a partner of choice for such companies. As such we are evaluating multiple new tests to enhance our product portfolio and to distinguish us as a leading participant in the molecular and companion diagnostic marketplace.

We have demonstrated a high proficiency for being affective users of capital, especially in the realm of research and development where we continue to invest capital while also keeping expenditures well within bounds and developing what we believe are potentially valuable products. Under Kevin, our Clinical Labs has been put on a strong business footing and by the increased volume we are experiencing clearly we are now gaining broader realization of recognition.

We have attracted an extraordinarily strong management team of recognized and experienced professionals who are driving the Lab and we are very excited as to what we expect them to accomplish as they transition the business forward. At Enzo Life Sciences, Dr. Balezentis has likewise brought together under a single umbrella an international consortium of companies with diverse but allied products.

It's important to note that in each acquisition we have worked to retain key individuals responsible for their company's success and tied performance goals into our agreements. We are very pleased with what we have accomplished in the short term of merging and consolidating our acquisitions into cohesive operations. On that note I'm going to ask Drew to share some comments and color on the financials for the quarter. Drew?

Thank you, Barry, and good morning. I want to take this opportunity to expand on both Barry's comments and last nights earnings announcement for our fiscal 2010 first quarter, which reported total operating revenues increased 19% year over year to a record $25.2 million; gross profit advanced 63% to a record of $13.3 million; royalty and licensing fee income increased 14%; organic core product sales growth at Enzo Life Sciences topped 26%. Enzo Clinical Labs posted a 36% gain in revenues and improved gross profit and sharply reduced loss. And finally, our net loss was reduced by more than 70%.

These results are attributed to the planned transformation of Enzo and the normalization of our margin percentages attributed to product revenues and service revenue growth. Let me give some color to the financials.

We reported a 19% revenue growth or $4.1 million over the year ago period. This gain is reflective of both organic growth in both our segment at the Company as well as increased royalty and fee income and gains due to the recent acquisition of Assay Designs, partially offset by a decline in the low-margin high-volume life-sciences distribution business. Carl and Kevin will expand on these advances in a few minutes.

The net loss for the quarter was $1.8 million versus $6.4 million last year. On a fully diluted per share basis this represents a loss of $0.05 per share versus a loss of $0.17 per share, a $0.12 per share improvement.

Starting this quarter we have begun to report EBITDA results, a widely used non-GAAP measurement. On an EBITDA basis the quarter improved by nearly $5 million to a loss of $960,000 compared to an EBITDA loss of $5.9 million in the 2009 fiscal first quarter. Worthy of note, on a sequential basis EBITDA improved by $3.4 million from the fiscal 2009 fourth quarter.

The improvement in operating income was due to a number of factors, most notably the 63% increase in gross profit to $13.3 million from $8.2 million in the prior year period. Gross profit margins advanced to 53% from 39% principally due to more favorable mix in product sales at Life Sciences, and further at Enzo Labs the normalization of contractual expenses due to a nonrecurring adjustment of $2.2 million that was in the 2008 period, a decrease in our provision for uncollectible accounts of $1 million due to efficiencies in the operations and billing.

Our R&D costs, which are key to our future growth, increased by $400,000 reflective of an increase in the life science activities. We continue to carefully monitor our cash spent at Therapeutics, as Barry previously mentioned.

Operating expenses, being primarily selling, general and administrative expenses, increased $2.4 million or 26% primarily due to $2 million of increases at Life Sciences of which $1.1 million was attributed to the bringing on of Assay Designs. The remaining increases incurred at the other segments were in payroll and professional fee areas.

Our legal costs decreased in the current period by $900,000 or 79% to approximately $300,000 due to the timing of expenses and reimbursements associated with the ongoing legal matters relating to both litigation and patent prosecution. Interest income in the current period decreased by $400,000 to less than $10,000 due to sharply reduced interest rates and also lower investment balances.

Let me turn to some highlights of the individual operating segment. The Life Sciences segment income before taxes improved to $2 million for the 2009 period, a 77% increase over the year-ago period. Product revenues increased by 8% or $800,000 in the 2009 period primarily due to a 26% or $1 million increase in organic growth from our core products and $2.7 million in revenue contribution from Assay Designs. These increases replace lower margin distribution, product revenues of $2.9 million.

Royalty and fee income increased $400,000 from the Qiagen and Abbott arrangements. The segment's gross margin of $9 million was a $3 million increase from the 2009 period. Segment gross profit margins increased to 64% from 47% primarily due to the previously mentioned favorable product mix as well as lower inventory fair value adjustments and the realignment of certain personnel into the SG&A area. The segment's other operating expenses, including selling, general, administrative, legal, research and development, increased by approximately $2.5 million over the 2009 period primarily due to the inclusion of Assay Designs.

Turning to the Clinical Labs. The clinical laboratory operating loss before taxes improved to $800,000 compared to a loss of $3.4 million in the 2008 period. Revenue from laboratory services increased in the 2009 period by $2.9 million due to an increased service volume and the nonrecurring contractual adjustment from 2008. The gross profit of $4.3 million represented an improvement of 39% and on a sequential basis gross margins were 300 basis points higher than the preceding quarter of fiscal 2009. The 2009 increase was impacted by the previously mentioned nonrecurring charge in 2008 and higher service volume in 2009 offset by a slight increase in the cost of laboratory services.

In the 2009 period SG&A increased by approximately $600,000 primarily due to increases in payroll and other operating expenses, somewhat due to the increase in volume. As previously mentioned, the provision for uncollectible accounts (technical difficulty) at the Lab decreased by approximately $1 million as compared to the 2009 period.

Turning now to our liquidity. Our financial condition remains strong. As Barry had indicated earlier, Enzo remains debt-free. As of October 31 we had cash and cash equivalents and short-term investments in excess of $46 million. During the quarter our cash and cash equivalents declined by approximately $900,000 mostly to fund the loss.

Reductions in short-term investments of $3.8 million were used primarily to fund capital expenditure of $1.1 million and changes in operating assets and liabilities. Our working capital at October 31, 2009 was over $59 million and our stockholders equity was over $117 million. Barry.

Thank you, Drew. As you can see from the financial report, the Company had a very strong first quarter where we started to see the efficiencies of the consolidation taking effect in the Life Sciences division and also the transformation of our Clinical Lab into more of a higher-margin more esoteric driven entity. To expand on that I'd like Dr. Balezentis -- who will give us some insight into the Life Sciences activities.

Thank you, Barry. I'd like to spend the bulk of my time this morning shedding some light on the structure of the division and, more specifically, how that relates to the financial results we reported for the first quarter. I believe this is important in order to gain an appreciation for what we consider exceptional results due to our ongoing strategic efforts over the last few years to significantly transform the Life Sciences division through internal development, acquisitions and collaborative partnerships.

On the two previous calls I spent a considerable amount of time detailing our efforts to build infrastructure to support our leading global Life Sciences company. I have also elaborated on our efforts to integrate and consolidate our business to increase our operating efficiencies resulting in increased gross margins and operating profit. These programs are on track and will continue through the end of the fiscal year.

Turning my attention to the division, in the first-quarter financials it is important to realize that we now effectively operate as two independent business units within the Life Sciences division. The first business unit we consider our internal core business which consists of our in-house manufactured Life Sciences products. These include greater than 12,000 biochemicals, peptides, proteins, antibodies, assay kits and custom services and include the product brands of ALEXIS, BIOMOL, Enzo and the recently acquired Assay Designs.

The second business unit consists of our purely distribution business that was acquired along with the ALEXIS products over two years ago and exclusively sold under the Axxora brand through the e-commerce website, Axxora.com. Over 30,000 products are currently offered to this channel and none of the products are produced in-house by Axxora business units.

As part of our integration and corporate branding strategies we decided to run Axxora as an autonomous business unit allowing us to focus efforts to increase the operating efficiencies resulting in improved margins and operating profit, as well as be able to effectively recruit strategic niche original manufacturers to provide sustained growth and profit for the future.

Returning now to the reported consolidated financials for the division, in the context of the business units we can better address the questions as to the nature and source of the results. For the entire ELS division, as was indicated earlier, we reported an increase in product revenue of 8% over the prior year quarter, substantially above the current industry average of 3% to 4%.

However, what we believe is more indicative of the performance of this division is that with respect to the core in-house manufactured business, excluding Assay Designs which we recently acquired in March, or in other words the ALEXIS, BIOMOL and Enzo brands that we have focused the bulk of our efforts on over the past several quarters, we realized an increase over the prior year quarter of over $1 million or 26% organic growth in that portion of our business.

Assay Designs, which we consider acquisition growth, contributed an additional $2.7 million increase. This was offset by a decrease in revenue in our Axxora distribution business unit of $[2.9] million low margin business, most of which was from a single customer at a profit margin that was unacceptable to us.

Looking at the product gross margins, we reported an increase for the ELS division to 54.3% as compared to 31.5% in the prior year quarter. In our core in-house manufactured business unit, which includes again the ALEXIS, BIOMOL, Enzo and Assay Designs brands, we've realized gross margins of 59.4%.

Our Axxora business unit had a gross margin for the quarter of 41.6% as compared to a gross margin of 21.7% in the prior year quarter. The take-home message here is that we are seeing strong growth in our core business not just as a result of acquisitions but due to good organic growth as well.

Secondly, we are beginning to see the fruits of our efforts to transform our distribution business into a stronger operation focused on growth and profitability. Clearly we are beginning to reap the benefits of the transformative events that have occurred at Enzo Life Sciences over the past few years.

With the integration, consolidation, and infrastructure programs well underway we are now able to refocus our efforts toward business development activities such as the recently announced co-marketing agreement with BioTek Instruments to provide cost-effective high-performance instrumentation in reagents for the live cell analysis market. This collaboration was highlighted in an article in the November issue of Drug Discovery news.

At the Society For Neurosciences meeting a few weeks ago in Chicago, Enzo unveiled a new line of products that were well received by attendees at the world's largest trade event in this field. Last month our Chief Scientific Officer made a plenary presentation at the inaugural Molecular Probe Development and Drug Discovery conference on the advances we have made in the field of live cell imaging which is a natural line extension from our preeminent position in nucleic acid enabling.

Additionally, we presented the results of our BioTek collaboration at the Society for Free Radical conference in San Francisco. Free radicals, as many of you probably know, are very much in the news today because of their association with the aging process and other diseases.

Finally, because of the recent enhancements across all three of the Enzo divisions we are now in a better position to utilize our R&D resources in a collaborative manner. The lead scientists and their teams across the divisions are better able to take full advantage of the synergistic opportunities that our extensive IP technology estate affords us as we move towards developing more products and services for the pharma and molecular diagnostics marketplaces.

Going forward we will continue to increase our focus on partnering with leading life science companies in evaluating strategic accretive acquisition opportunities. Combined with our growing IP portfolio we are uniquely positioned to become a global leader in the life sciences reagent space. Barry?

Thank you, Carl. The life sciences division truly had an extraordinarily terrific quarter and we are just very, very pleased with the performance to date so far and where the trends are going in this operation. I'd like to ask Dr. Krenitsky to give us some insight into the developments at the Clinical Labs as well now. Please, Doctor.

Thank you, Barry, and good morning. During the first quarter we saw significant progress of our overall strategic plan in addition to continuing and in some cases finalizing our operational improvements. We have completed the initial phase of implementing our molecular diagnostic expansion strategy which resulted in our first announcement of a key marketing and development partnership with Canadian-based molecular diagnostic company, GeneNews.

In addition, just yesterday we announced a unique exclusive marketing agreement with Ikonisys which further validates our transformation into the molecular diagnostics space by leveraging our extensive marketing capabilities in the world's number one esoteric testing region. We have also continued our sales force expansion with three additional hires including an esoteric sales specialist from a leading national laboratory who has more than 25 years experience which will greatly help spearhead our expansion into new markets armed with an expanded test menu.

The Q1 net revenue was $11.1 million which is a 36% increase over Q1 of the previous year. In addition, our gross profit margin improved 1,400 basis points over last year. Drew alluded to some of the nonrecurring items that occurred in last year's quarter, but in addition I want to discuss some of the enhancements our teams implemented at Enzo Labs.

We have completed a very significant infrastructure improvement at our main facility in Farmingdale which included, among other enhancements, the addition of more than 5,000 square feet of brand-new laboratory space specially earmarked for esoteric and molecular testing. There are two benefits that we can see from this.

First, the new labs give us the ability to expand our menu of higher-margin esoteric tests as we continue to execute on the strategic plan we have spoke about repeatedly in this area. Additionally, the new lab space gives us the ability to bring in house tests that previously we had to send out to reference labs, providing us with improved margins and improved turnaround times as well.

We have completely redesigned the sample processing area which has already paid dividends that can be seen via improved operational efficiencies. Our new laboratory managers have also improved workflow and have adjusted staffing to more closely coincide with the arrival of specimens at the main lab thereby improving efficiency.

Finally, we have began to see the impact of our improvements with regards to our payers who are now beginning to award us new contracts containing carveouts for our ever increasing menu of esoteric testing offerings.

Carveouts, for those of you who may not be familiar with them, are riders to payer agreements that specify reimbursements for given tests that, because of the complexity or the skill set of the laboratory performing them, are above the blanket reimbursement schedule that most agreements have. We are diligently working to increase these carveouts and have implemented a multipronged approach that we are confident will yield more positive results.

We have also begun implementation of a new laboratory information management system which will greatly enhance our throughput capabilities to allow us to handle the increased volumes we are now beginning to realize. In addition, this system will allow us for the first time to manage and monitor new test validation and prospective trials, critical components as we move towards increasing Enzo's menu of laboratory developed tests or LDT's.

We also expect to enjoy improved reporting metrics to meet the needs of our R&D initiatives in clinical diagnostics. This will become evident as we roll out tests in the coming weeks in the areas of molecular infectious disease, molecular oncology, autoimmune disorders, genetics and others.

I would now like to turn my attention to our recent press release with GeneNews. As many of you know, we recently announced this as our first significant molecular diagnostic partnership. In this case Enzo has licensed the exclusive rights to develop, commercialize and market the ColonSentry test in our region.

ColonSentry is a unique first-in-class blood-based assay for colorectal cancer risk stratification. Colorectal cancer is currently the third deadliest cancer worldwide and while current gold standard diagnostics such as colonoscopy are very effective, significant compliance issues exist.

It is our hope that this unique risk stratification test will help improve compliance and increase the number of individuals who will undergo colonoscopy. With a greater than 90% five-year survival for cases caught early, we also believe that ColonSentry can greatly reduce the financial burden on the healthcare system by helping shift the detection curve to earlier stage lesions.

Our plan with ColonSentry is to complete the validation process through the very demanding standards of the New York State Department of Health. We have already begun the dialogue and have outlined the process we believe will be necessary to introduce this test sometime during the second half of 2010. Our new esoteric sales specialist is already putting together marketing collateral so we can hit the ground running once we receive the necessary approvals.

I am sure many of you saw the press release yesterday that I alluded to earlier with Ikonisys. In many ways this announcement is additional evidence of our strategy taking hold. This agreement gives Enzo the exclusive marketing rights to the oncoFISH cervical test in our region. Because of our strong marketing presence in the area of women's health we are now the only lab that can market this test which provides physicians and their patients access to novel cutting edge diagnostics in the realm of cervical cancer screening.

OncoFISH cervical uses a unique automated platform to measure chromosomal changes that add great value to the diagnosis and interpretation of certain suspicious lesions of the cervix. In turn this assists the position in determining which lesions are more likely to progress to invasive cancer.

Most of our current clients already use the Digene Qiagen HPV assay which uses Enzo's hybrid capture IP in their evaluation of cervical health. OncoFISH cervical will now provide an additional powerful tool to assist physicians in making the best possible choices for their patients. Because oncoFISH cervical already has regulatory approval we have begun to market this test to our clients which should provide an immediate positive economic impact to Enzo Clinical Labs.

Finally, we are nearing completion of several additional agreements that will allow Enzo to provide new esoteric tests in our region. In addition, we have begun a comprehensive investigation of Enzo's own extensive IP and technology estate to determine what can be effectively developed and commercialized into novel high-value clinical diagnostic tests. Barry.

Thank you, Carl. As both Carl and Kevin's comments point out, we are now successfully engaging in a strategy of both joint venture and co- development agreements with other parties at a level never before seen in our organization.

Since we embarked on a complete management transformation three or so years ago, we have been very, very successful in bringing onboard and attracting highly skilled and respected professionals in their fields which are really contributing to the growth of all of our organizations and we believe are capable to help unlock the potential that we have developed over the many years here and monetize it.

I'd like to make some remarks about our therapeutics venture. As you know, we have over the past few quarters begun to position our therapeutic programs more in line with an eye towards partnering and/or joint development. The realities of the marketplace are such that the vast majority of biotech companies never live to see great profitability and some 25% or more are faced with the prospect of less than 12 months of cash.

We have always been a judicious utilizer of our cash and, as such, we concentrated our therapeutic programs and niche specialized areas where clinical trials can be conducted in the most efficient manner. The results of this positioning are now becoming tangible as evidenced by the agreement we announced this quarter with the National Institutes of Health. Not only do we have one of the world's leaders in the field of autoimmune uveitis as our principal investigator taking the lead on this program, but we also can benefit from the resources of NIH and the benefit of the Cooperative Research and Development agreement as well.

We also have unparalleled activity on the commercial front. As I indicated to you earlier, this fall for the first time we were invited to present our immune modulation platform at two industry events whose main focus is on showcasing exciting technology for partnering.

We also reported favorable results for EGS21, our candidate drug for the treatment of non-alcoholic steatohepatitis at the American Association for the Study of Liver Diseases' meeting in Boston. And our preclinical development program for medicines based on the [win] signaling [straphoid] is progressing well.

Overall, a very active program towards which we're looking towards monetization and further commercial development. On that note I would like to turn the formal comments over to ask for questions, if any exist. I would ask the moderator to prompt us, please.

(Operator Instructions). Reni Benjamin, Rodman.

Good morning, Barry and team, and congratulations on a great quarter. Thanks for taking the questions. I guess very quickly, can you -- maybe we can start off just talking a little bit more about the cervical test. Have you guys done any beta testing on this? And if so, what's been the physician response? And also, can you talk a little bit about the specificity and sensitivity of the test?

Sure. We did, in fact. We did an extensive pilot program and the response was extremely favorable. In fact, during the pilot program we actually had to hold back from a number of physicians who wanted to implement the test at that time. So the beta testing and the great response we had from our OB/GYN physician base obviously led us to the deal.

With regards to the oncoFISH cervical test, its true value lies in extraordinarily high negative predictive value which is in the very high 90s. This essentially allows that the test to be used as a tool to not only stratify patients that are possibly likely to progress to more invasive lesions, but also to relieve anxiety in women who are given the diagnosis of either ASCUS or LSIL, which is a low grade intraepithelial lesion. So overall it's an extremely unique tool for the physicians and it's been received very favorably.

Can you give us a sense as to the revenues that one can expect from this test? Is it going to be accretive right away? Is it really just adding to the menu of services that you provide and so hopefully it will just result in more customers coming to Enzo and increased pull through? Just give us a sense of how this will impact the revenues.

Sure. It is accretive, it is accretive essentially from day one. And you make a good point about the value of not only the value it provides to our existing client base in the women's health arena, but the ability to acquire new clients enough to achieve the pull-through business -- pull-through business from those clients.

So in the -- is there any way to provide some sort of guidance as to how much revenues this could potentially generate for you guys? Is there a market potential that we could look at for this?

Yes, we believe we can clearly build this test up into the several million dollar range.

Okay. Can you give us a sense as to the turnaround time for the test? Is it once the sample comes into your labs how long does a test like this take?

It's only -- it's literally days -- yes, it's a few days. The unique value of this test and one of the reasons why it is such an opportune deal for both Enzo and Ikonisys is that we have a very large existing base of OB/GYN physicians. And this is a test that is reflexed off Pap smears. So while we perform a large number of Pap smears in house, this test when ordered is simply then sent to Ikonisys for the actual testing and then the interpretation is sent back to us and then to the physician.

Got it. Can you give us a sense as to what sort of tests might be coming down the pipeline? I mean, clearly this is an area that you guys want to get into, the molecular diagnostic and the esoteric testing market. You are clearly expanding very quickly. Can you give us up some sort of a sense -- is it going to be more women's health sort of tests? Are you looking at a wide variety of tests? And if you are what sort of tests are you looking at?

We're looking at tasks that bring -- frankly, bring the greatest value to Enzo. So we do have -- we are in a number of discussions for a lot of the reasons that we talked about on the call today. And clearly the first two tests that we mentioned are in the area of oncology -- one in women's health, the other in colorectal cancer, which is obviously one of the major cancers with regards to morbidity and mortality in the world.

So clearly anything that has that type of market potential are things that are going to grab our attention. I think the reality of what you will see are tests like these tests that are very good deals for us in areas where we already have good penetration into the market or the ability to reach out into new areas whether it's metabolic disorders, whether it's oncology, whatever the case might be.

In the ideal world, or if you could design this just perfectly, what would -- how many tests for fiscal year 2010 would you like to have on board?

Well, these tests represent unique tests inasmuch as they are partnerships with other companies. Keep in mind, we are bringing in new esoteric tests essentially on a weekly basis. So in terms of the number of new tests that we'll introduce that previously we did not perform will be somewhere in the area within 2010 somewhere close to 25 or 30 tests. Obviously only a smaller percentage of those will consist of tests that involve -- that we either in license from other companies like the GeneNews test or marketing arrangements like we have with Ikonisys.

Okay, great. There's just one final question. What's happening, or can you give us a sense from the Life Science division, what's happening in-house as far as developing some new molecular diagnostic tests?

Yes, we're currently in discussions with a company which we hope to conclude soon and we have a number of those that will fall out from that collaboration. So we're in the final stages hopefully; I don't want to talk about it because it could not happen, but it looks very promising. And so that would then -- and that has synergy, again as I discussed, across to the clinical lab and potential testing with them as well. So we hope to report that next time.

Perfect, guys. Thank you very much and congrats again.

Thank you.

[Robert Smith], [Center for Performance Investing].

Good morning, thanks for taking my call. Are you budgeting for moving into GAAP or non-GAAP profitability in the new fiscal year?

We'll continue to report our GAAP numbers. And additionally, we will report EBITDA because we have a significant amount of depreciation and amortization, amortization being derived from the four acquisitions that occurred over the last three years.

As you can see from the performance this quarter on a non-GAAP basis, we have slimmed the loss to a very, very approachable amount and it is certainly a goal and objective of the Company to turn that into a profitable piece of business in all businesses of this organization in the near term.

The near term being sometime during this fiscal year?

I really -- I'm reticent to give any direct guidance. But as you can see from the numbers, it is within the reach of feasibility and we are working to get there, I cannot assure you that that will happen or not.

Okay. Can you give us some kind of recent color on the Crohn's area?

We reported at the Crohn's meeting this fall where we reported the data from the last arm of the Crohn's trial. It met our endpoints, we were very pleased with it. We are currently exploring options to both partner that product as well as further develop it internally through certain collaborations. We're exploring mechanisms that may enhance the efficacy of that trial as well.

It should be noted that one of the parts of the CRADA with the National Eye Institute is a program to enhance delivery efficiency for the molecule which has applicability across multiple molecules, not just the one that is being utilized for autoimmune uveitis, it may have applicability in Crohn's as well. So there's a lot of interesting development taking place on that front.

Barry, there was a recent announcement from Gilead and GlaxoSmithKline about -- [related] to treat (technical difficulty) in Asian countries. Is there anything going on in that area with you guys?

We have -- I mean for -- well, you mean hepatitis C or (multiple speakers)?

B, hepatitis B.

As you know, we have a molecule which we have put through a Phase II trial for hepatitis B which we've been exploring. We've had dialogue with Asian parties in the past over that particular molecule and we do have an increase over it as well. It is not one of the lead compounds because of the economics associated with it. I mean, we as a company, because of our size, have to stratify and use with I would say extreme wisdom the way we allocate our funds towards the therapeutic modalities.

We this past year have been focusing down in driving the molecules that we feel have the highest interests for near-term commercialization in a more aggressive fashion than we have in the past. To do such we've had to sacrifice some of our other activities. I would tell you that the hepatitis B product is an interesting product, one which we have and it is alive.

It is not the highest target product on our list right now; we are focusing on the Optiquel, the [Aloquel] and the [Windt] products specifically. And we feel that we will be able to deliver returns in the near term on these products in the form of either economic relationships, joint ventures or partnerships. And that has really been the focus.

But if GSK and Gilead view this differently or economically might you re-examine this?

Well, as you know, there are a member of compounds for hepatitis B in the Asian countries. Certainly in the US there is very little market commercialization for that because most children actually get hepatitis B shots nowadays. Our adult situation, they don't necessarily inoculate adults, but certainly that can be.

So the bottom line is that the commercial potential in the US, which is certainly a high-margin area, is reduced for hepatitis B in the US. Now certainly, yes, it is an Asian market. And there's no question that there have been significant dollars associated with the hepatitis B products that are already on the market in the Asian group -- the Asian countries.

But we also noted there are significant issues with regard to patents and Chinese companies that don't respect patent laws. So that's certainly an area that we're not prepared to delve into. I think that in general what we have is good, but, as Barry said, we have projects that have much higher priority and which we think are much more amenable to partnering or some other kind of economic situation.

Thank you, good luck.

Thank you.

(Operator Instructions).

Thank you. If there are no more questions I'd like to thank you again for joining. I think, as you've heard from this call, there have been tremendous strides across all divisions in driving commercial value for our company and also its shareholders.

The events of this quarter, which show our realization of the improving trends in our financial performance are resultant from the extensive changes that were implemented in expanding and refocusing our management on performance driven goals and objectives, selecting and adopting strategies that are aligned with our Company's four competencies, and making material improvements in our infrastructure.

It has really been an extremely well executed quarter from our point of view, we're very pleased with the results and we look forward to the trends that we have set this quarter to continue to form the future of our company. Thank you very much and have a nice day.

A replay of this broadcast will be available until Friday, December 25 at 12 midnight. You may access this replay by dialing 1-800-642-1687, the pin number is 451-70-643. This replay is also available over the Internet at www.WSW.com/webcast/DC/ENZ4. This concludes today's teleconference. You may disconnect your lines at this time and have a wonderful day.