Enzo Biochem Inc (ENZ) 2010 Q2 法說會逐字稿

Good morning and welcome to the Enzo Biochem, Inc second quarter 2010 operating results conference call.

Except for historical information the matters discussed on this conference call may be considered forward-looking statements within the meaning of section 27A of the Securities Act of 1933 as amended and section 21E of the Securities Exchange Act of 1934 as amended. Such statements include declarations regarding the intent, belief or current expectations of the Company and its management. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that could materially affect actual results. The Company disclaims any obligations to update any forward statement as a result of developments occuring after the date of this conference call. To comply with Regulation G, promulgated pursuant to the Sarbanes-Oxley Act, Enzo Biochem attests to this news release and will post to the Company's Investor Relations Web site any reconciliation of differences between non-GAAP financial information that may be required in connection with issuing the Company's quarterly financial results.

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

Thank you very much. Good morning and thank you for joining us. I am joined here at our corporate headquarters by members of our senior management team.

On Friday afternoon, we issued a press release detailing our second fiscal quarter results. In looking at this quarter, considering the state of the health care industry specifically, Enzo continues to make good progress. Our units have changed dramatically over the last 18 months as we integrate and reshape our Life Sciences company into an integrated global provider of specialized products and technologies to the biomedical community and reposition our clinical laboratory as a provider of unique and important tests based on molecular diagnostic techniques to help medical practitioners in treating their patients. We have also been driving this special synergy derived from the complimentary capabilities of our life sciences and clinical laboratories, to develop novel products through our research capabilities that utilize our extensive intellectual property portfolio, which can be validated and marketed through the lab as well as perhaps by others. We have also taken a stringent approach to our therapeutic opportunities and have been prudently exploring approaches to both monetize and develop them with measured financial outlay. The technologies and capabilities as well as the knowledge of the medical community are changing, evolving and progressing rapidly. It is interesting to note that a professor at a major medical institution recently commented to me that medical knowledge is doubling every five years, which is embodied in the new approaches to treating different diseases, as well as the improvement of life in general.

Much of this new focus is based on the understanding of genetic information, an area that has been the corner stone of Enzo's technological focus since our founding. In order to take full advantage of this dynamic period in medicine, and deal with the realities of the financial markets, it was clear that it was necessary to change and refocus the priorities of our Company. Change can be hard and it constituted a number of facets. It required a more focused concentration on our core strengths, it required some changes in management, and it required a level of investment beyond what has been normal for our corporation. We have been pleased with what we have accomplished towards this goal to date. Enzo Life Sciences is now a global developer, manufacturer and marketer of biomedical research products and systems with a platform for growth. Enzo Clinical Labs has already taken steps and is continuing to expand its testing mix into the esoteric markets along with increasing its geographical footprint. In both units, we have built strong management teams with experience and depth to meet the challenges of the future, and to move these companies to their next level of growth.

For the quarter, financial results showed good gains on a division by division operational level. Although our bottom line was heavily impacted by costs associated with the settlement with a formal officer and director and expenses related to his proxy action. With this issue behind us we are now able to move forward without distraction and focus on the execution of our strategic growth plans. Specifically for the quarter, operating revenues increased 11% and for the first half were more than 15% greater than a year ago. Gross profit had a solid 36% increase, and for the six months was up 49%. Importantly, gross margin also improved by 24%. On a divisional basis, the numbers also showed progress. Enzo Labs revenues were up 11% year over year for the quarter and 23% for the six months with solid double digit gains in gross profit in both periods, including a 48% increase for the year to date. Somewhat higher SG&A at labs for the quarter, the result largely of adding new people to our marketing program and others in the expanded lab facility was more than offset from benefits from our new billing and collection initiatives which enabled us to reduce the provision for uncollectible accounts. The net result was reductions in operating losses at the clinical lab for both periods.

Enzo Life Sciences benefiting from the Assay Designs acquisition and organic growth, also showed improvements in revenues in the three and six month periods by 11% and 10% respectively. SG&A here was likewise higher, reflecting expenses associated with Assay Designs. Life Sciences operating profit for the quarter increased as well and the resulting six month total was $2.3 million, a gain of 86%. This past quarter was extremely eventful for our operating divisions as they continue to execute on their strategic plans. Enzo Clinical Labs today announced its third molecular diagnostic partnership, this one with MultiGEN Inc. of San Diego. Dr. Krenitsky will provide some details on this innovative deal in a few minutes, but in principle, Enzo again will gain exclusive access to state of the art medical technology assays, in the fields of women's health and hematology. Similarly, early in the quarter we announced a marketing partnership with Ikonisys Inc., which provided Enzo with exclusive access to cervical cancer screening tests, based upon proprietary cytogenetics technology that may augment both traditional pap smears and HPV testing. Enzo labs also announced yet another key addition to its management team, with the hiring of Dr. Robert Boorstein as its new medical director. Dr. Boorstein has an impressive background having earned both an MD and PHD from Harvard and has extensive experience building and directing clinical laboratories. Moreover, Dr. Boorstein will service part of our integrated corporate scientific team, that includes members from across the division. This effort has already led to the initiation of several research projects utilizing the technology resources of Enzo Life Sciences and potentially applying them to the clinical lab entity.

Additionally, Enzo Labs has continued to expand its in-house test menu as we have added a number of specialized tests allowing us to enhance our esoteric focus of this division. Operationally, the clinical labs segment also has performed well, with an 11% increase in revenues, $10.6 million for the quarter. Gross profit nearly doubled and the division's net loss declines by over $300,000. At Enzo Life Sciences, results for the quarter are reflected of the continued execution of our growth strategy. Enzo Life Sciences showed top line improvement of 11%, gross margin increased more than 50%, and net income approximated $400,000. For the six months, net income was up more than 70% to $2.5 million from the year ago period. Additionally, we recently enhanced our European operations by augmenting our overseas management team. We have also added several key senior people as we continue to build Enzo Life Sciences into a global entity. We are still in the process of completing the task of integrating four distinctive operations under a single umbrella. We are very pleased with what has been accomplished in term of presenting our life sciences products, as coming from a single entity and not a separate group of companies. Hence our marketing efforts are yielding what we anticipate will be lasting, solid results.

Going forward, while we continue to evaluate potentially accretive targets, we will continue to place our focus on improving operational efficiencies, both on the gross profit, and the expense lines, as we also continue the consolidation process. Opportunities to add to our operation via acquisitions continue to present themselves. However, we are being very judicious as to what we add to our mix, in terms of assuring maximum synergy in how we deploy cash. As an example of how we are managing our cash, our therapeutics unit is making the final preparations 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 of the NIH. Under the cooperative research and development agreement that we executed earlier this fiscal year, the majority of trial expenses will not be borne by Enzo, yet we will retain the commercial rights to the product.

Late in February, we made a significant announcement, concerning a favorable decision reached by the United States patent and trademark office, regarding a patent interference that was declared concerning branch DNA technology. The patent office judges found that Enzo is the rightful inventer of this technology. While it remains to be seen if there will be an appeal, this patent once issued, could have two important components to it. First, although the original filing goes back to 1983, we will be granted a full 17 years going forward from the date that that patent issues. Second, our patent application as issued will contain additional scope in the allowed claims beyond the one in the interference action. Our plan upon the exhaustion of any potential appeals is to build both internally and with potential partners of business around this technology, that has been utilized for a number of years, to help visualize small amounts of biological material including DNA. The changes and additions we have in our implementing at Enzo, both operationally and physically allow us to more fully exploit the potential value that we believe this patent could provide. We are very pleased with this decision today, and are excited about the potential to expand the utility of this technology.

I would like to turn the comments over to Andrew Crescenzo, our Senior VP of Finance for some comments on our financial performance and then we will move toward with some comments regarding the operational divisions. Drew?

Thank you, Barry, and good morning. I want to take this opportunity to expand on Barry's comments, on Friday's earnings announcement for our fiscal January 31 quarter, a period which produced record second quarter revenues and gross profits. These operating results are attributed to the ongoing transformation of Enzo into both a developer and provider of value-added esoteric clinical tests as well as unique and higher margin research products and systems. I am going to spend the next few minutes providing some insight into several of the unusual financial items that were reported in this quarter.

Our net loss for the quarter was $10.3 million or $0.27 -- .

Ladies and gentlemen, please hold, the conference will resume momentarily. Thank you for your patience.

Our net loss for the quarter was $10.3 million or $0.27 per diluted share as compared to the year ago period's loss of $7.7 million or $0.20 per diluted share. These results were substantially impacted by the activities surrounding the litigation and eventual settlement we reached with a former officer and director of our Company. As the table in Friday's press release indicates we have also presented our operating results on EBITDA basis. With an additional adjustment for the aforementioned litigation settlement, we feel given the unusual nature of the quarter adjusted EBITDA presentation will provide more accurate picture of our operations that on a purely GAAP basis.

Enzo incurred expense for the settlement of the ex-officer's legal actions of $3.7 million. EBITDA as adjusted improved $1.6 million or 23% from a $6.9 million loss last year. Moreover, as a result of the ex-officer's proxy actions, we incurred an additional $700,000 worth of expenses. Combined these expenses total $4.4 million or nearly $0.12 per share, representing nearly 43% of the reported loss in the second quarter. Additionally we have continued to invest in our businesses. Our Research and Development expenses increased by over $100,000 over the prior year quarter. More specifically, R&D expenditures due to the increased activity in product and systems development at Enzo Life Sciences actually rose by more than $400,000. In addition, we have taken a very pragmatic approach to our therapeutics expenditures which in the past quarter were reduced by over $300,000.

In the second quarter, we also made further investments into our infrastructure. Our capital expenditures so far this fiscal year have exceeded $2 million as we continue to invest in the Company's future growth, and expansion. First -- finally -- and important to consider, we continue to not record any financial -- future tax benefits on our loss because of the uncertainties related to future taxable income. Given our effective US tax rate of 34%, this would have had an additional benefit to Enzo of more than $3.4 million or over $0.09 per share. For the six months, despite the aforementioned expenses, our results reflected solid improvement over the year ago period. Total revenue increased 15% to $48.4 million and the Company showed nearly a $2 million improvement in the bottom line as we reported a loss of $12.1 million or $0.32 per share, compared to the year ago period, six months net loss of $14 million or $0.38 per share. Gross profit increased 49% to $24.2 million, and overall gross margin improved to 50%, from 39% in the year ago period.

Let me conclude my remarks with a brief look at Enzo's liquidity. Our financial condition remains strong. As of January 31st, 2010, we had cash and cash equivalents and short term investments of more than $43 million. Our working capital was in excess of $49 million and stockholder's equity was over $105 million.

Barry?

Thank you, Drew. We apologize, it appears there was a little break in the tieline here for a few seconds or minutes, I hope all of you have maintained your connection with us. It appears the weather here in New York has been beyond comfortable and we are trying to deal with all the conditions as best as we can. I would like to turn over to Dr. Carl Balezentis who will comment on some of the activities of Enzo Life Sciences. Carl?

Good morning. During the second quarter, we saw significant progress toward finalizing our integration activities and building the necessary infrastructure to support our business on a worldwide basis. For the second quarter, ELS revenue grew by 13%. This growth is comprised of 27% acquisition growth, and a favorable foreign exchange impact of 4%, due to a weaker US dollar. This was partially offset by the conclusion of a high volume, low margin contract in our Axxora division. Axxora is our distribution business. It is through this entity that we carry the products of more than 40 other manufacturers which compliment the offerings of our ELS branded products. ELS core sales which includes the Enzo, ALEXIS, BIOMOL and Assay Designs brands of our in house manufactured products for the quarter showed improvement over prior year on a pro forma basis with net revenues of $7.8 million which represented a 27% increase over Q2 2009.

Integration activities in the quarter resulted in the ability to finally offer all of our in house manufactured products through the single Enzo Life Sciences channel. This began on February 1st with the inclusion of the Assay Designs products in our database and on our Web site. Concurrently, we are able to convert the Assay Design site to our standard ERP -- our enterprise resource planning system -- allowing for the first time all of our entities on a single unified platform. Assay Designs was acquired last March and the initial plans were to introduce these products through the ELS channel in August of this year. We felt it was absolutely important to accelerate the test time table by six months in order to move through the integration activities as quick as possible. The conclusion of these activities is significant in that we can increasingly focus our attention and resources on initiatives which will result in improvements to the top and bottom lines. We are also poised to announce shortly, yet another alliance with a Life Sciences company. This agreement will be in the area of genetic profiling, specifically for various types of cancers, and will provide us with an opportunity to more fully exploit our IP and technology estate to provide novel products for this exciting field. Moreover, in the near term, we may be able to provide Enzo Clinical Labs with content for them to develop their own laboratory developed assays with identification of such cancers. Thereby, providing added value to this agreement.

Finally with the majority of our integration activities behind us we look forward to focusing our full attention to any revenue generating activities such as novel product development and introduction. And through collaborative business agreements which leverage our fast patent state and core capabilities. We also are focusing on gross margin and profitability improvements through increased efficiencies and consolidation activities. In this vein, the developments concerning the patent applications for branch G&A that Barry discussed a few minutes ago could provide us with substantial leverage as we continue to develop novel products in the life sciences field.

Barry?

Thank you, Carl. The quarter has really been a very very active quarter for our life sciences group and the progress that is being made is really quite, quite pleasing. I would like to ask Dr. Krenitsky who can comment on a few issues that have taken place at the labs, specifically today's announcement on MultiGEN. Kevin?

Thank you, Barry, and good morning. During the second quarter with we saw continued progress of our overall strategic plan in addition to finalizing our operational improvement. We have completed the initial phase of implementing our molecular diagnostic expansion strategy which has resulted in a number of new test offerings in several high growth areas. In addition, we have been marketing the Ikonisys oncoFISH cervical test now for several months and the response has been excellent, with steadily rising volumes. Another molecular diagnostic alliance we announced last quarter with [Gnews] is also progressing well. Initial validation experiments have been promising and we are on target to release this test later in 2010. Because this test is a novel, potentially first to market, blood test for colorectal cancer pre-screening stratification, we are engaged in extensive market research and beginning our targeted marketing plan. We have applied for license in Florida, California, and Maryland as we expect to eventually service a wider geographical area with some of these novel esoteric tests. In this vein in a few minutes I will provide some insight on the deal we announced earlier today with MultiGEN.

Earlier this month, we announced the hiring of new medical director, and Dr. Robert Boorstein. Dr. Boorstein is a board certified MD pathologist who also holds a PHD in pharmacology. His addition effectively finalizes our senior management team and allows us to concentrate growth in several additional high margin areas such as anatomic pathology as well as other esoteric services. Since Dr. Boorstein arrival we have already engaged in promising discussions with providers of AP services and have outlined early deal structures. Our plan is to mimic in the AP arena what we have done in the esoteric non-pathology space, namely to build our existing infrastructure where possible, as well as partner with established companies or even consider acquisitions if they make sense. These areas along with blood based esoteric testing are the prime drivers of improved margins and revenue per session in the laboratory industry today. Moreover, Dr. Boorstein's background in pharmacology will be an invaluable aid not only as we begin to move our strategy forward into rapidly expanding field of companion diagnostics, but we expect him to be an asset to Enzo Therapeutics as well. On the sales and marketing front we have also continued our sales force expansion with two additional hires, each with more than ten years of experience with one of the national laboratories. These two professionals are located geographically very very close to our main facility, meaning that when their non-compete agreements expire, they will have a tremendous opportunity to convert a large percentage of their business to Enzo.

The Q2 net revenue at labs was $10.6 million which is at $1.1 million or 11% increase over Q2 2009. In addition our accession volume as well as the revenue per session increased, indicating that we are in fact continuing to move Enzo Clinical Labs toward higher revenue esoteric assays. It is our opinion that growth would have been higher save for some unfortunate brutal weather that we encountered in our service area in the past two months. This clearly had an impact on patient encounters in both January and February. We have also made significant strides with our payors on the reimbursement front. One of the major national insurance companies granted us an across the board increase effective this month, and we are in numerous discussions with others regarding carve outs on many esoteric tests. There is an additional benefit to our ever increasing menu of esoteric tests. Not only are we now in a position to seek these carve out payments on a test by test basis but these tests add great value to our desire to contract with additional third party payors who thus far have contracted primarily with the national labs.

Our reimbursement team is diligently working to expand our insurance mix which in turn can lead to additional pull through business. An example of some of the new tests that Dr. Chellani, our Vice President for Scientific Affairs and his team have recently added include Factor II for Thrombophilia, H1N1 influenza, HIV viral load, HCV and HBB viral loads, HSV 1 and 2, parvovirus B19 which diagnoses fifth's diseases in children and tissue transglutaminase or TTG -- this is an enzymatic assay for the identification of celiac disease. These tests offers us immediate opportunities for improved revenues as well as certain marketing advantages.

We are also continuing implementation of our new laboratory information management system which will greatly enhance our throughput capabilities and allow us to handle the increased volumes we are now beginning to realize. We are on target to go live with this system at the end of the fiscal year. This system will allow us for the first time to manage and monitor new test validation as well as perspective trials which are critical components as we move towards increasing Enzo's menu of lab developed tests or LDTs. We also expect to enjoy greatly improved reporting metrics to meet the needs of our R&D initiatives in the clinical diagnostic space.

Finally as I alluded to earlier, we are very pleased to announce the signing of our third molecular diagnostics partnership agreement, this one with MultiGen Diagnostics of San Diego. This agreement gives Enzo the exclusive rights to market two very important assays in our main service area. The first is a panel for the identification of various genetic pre-dispositions to blood clotting disorders. Additionally, we have the exclusive rights to MultiGEN's anti-natal panel of multiplex infectious disease identifications. This can be very important tool for OB/GYN physicians as they will now be able to screen their patients for a series of infectious diseases such as group B strep, gonorrhea , chlamydia , herpes and others, all from a single specimen, utilizing multiplex DNA sequencing techniques. This simplifies the process for both doctor and patient and can cut turnaround time down for results of these tests which are often performed on pregnant women by more than half. As we are doing with [Colon Century], we are beginning to process rotating New York State Department of Health approvals for these exciting tests and hope to offer them late this

Thank you, Kevin. I would like to conclude our remarks this morning with some brief comments, relative to our business strategy.

Our strategy has several aspects to it. First to build and gain market share through superior product and service offerings in both Life Sciences and the Clinical Lab. Second, to add capabilities on both units to our own proprietary offerings in Life Science, and acquisitions when they make economic and market sense and at Enzo Clinical Labs to higher margin diagnostic test such as molecular diagnostics or via licensing agreements, such as those we have entered into for the proprietary colorectal cancer test as well as the cervical screening along with controlled expansion of our market territory. This dual edge policy is increasingly paying off.

Third, while we gear up for the proof of concept clinical study for Optiquel, which will be conducted in cooperation with the National Eye Institute we are also investigating avenues to more fully benefit from our work in treating Crohn's disease and other gastrointestinal disorders. Our therapeutic focus has been on developing treatment regimens for diseases and conditions in which current treatment options are ineffective, costly, or involve unwarranted side effects. Fourth, we are intent on more fully exploiting our path to the state. The recent favorable interference decision against Bayer Diagnostics is a dramatic example of our determinedly pursuing an invention we believe rightly was Enzo's. We are optimistic that assuming the issuance of this patent that it will have the significant opportunity for the Company. Fifth, we are intent on maintaining financial soundness. Enzo has managed it's financial fears in a conservative responsible manner. We have no debt and our liquidity gives us an important edge in a business where too many biotech companies are running out of capital in which to pursue their activities thus presenting us with opportunities.

This quarter has represented a turning point for our Company from which we can now move forward to pursue our objectives in building value, represented via growth in revenues in our Life Sciences and Clinical Lab groups. We are focused on improving margins, reducing costs, and overhead to improve our bottom line and expand our business base.

On that, I would like to turn the call over to the operator and we will be pleased to entertain questions.

Thank you. (Operator Instructions). Your first question comes from Ren Benjamin of Rodman.

Good morning, and thanks for taking the questions.

Good morning.

I guess starting off we have several tests that have now been brought into the clinical labs division -- and you mentioned there are several steps that are required before they can be marketed. Can you talk to us a little bit about those steps, what is required, and provide a little more clarity into the timing. I think Kevin mentioned with the newer tests -- these MultiGEN tests -- that it could be later this year, and is it more third quarter, or is it at the end of the year? And then also, can you just comment on the potential revenues to the Company from these products? Just start off.

Sure. Thank you. I think it is important to note that of the three the testing brought on we are already marketing the oncoFISH cervical test by Ikonisys. That has been going extremely well, the reason for that is that the test is being run at Ikonisys which has New York State Department of Health approval. So, essentially, that test has been marketed since December 1st, and as I mentioned we have steadily rising volumes -- that's already paying dividend for us, and I frankly expect that will impact us financially beginning next quarter.

With regard to the other two tests which will be the Gnews Colon Century test -- the colorectal cancer assay and the MultiGEN test, the steps are somewhat straightforward. Initially we have to validate or reproduce results in house, essentially taking information, and creating that test in our own laboratory -- so that it becomes an LDT, a laboratory developed test. This can take anywhere from one to several months. I can say that the initial validation of the Gnews technical and century test is going extremely well, and the intralab validation results, between our lab and Gnews have been exceptional. So, we -- the next step of course is to take this information and essentially apply to the New York State Department of Health for approval of this test. So we are on track for this test and we do expect to release this test later in this calendar year.

Likewise, the steps for the MultiGEN panels, the two which I spoke of are essentially exactly the same. Those tests also will -- we expect to release later in calendar 2010. The reason there's slightly less complexity to these tests and the fact that these tests actually are approved, for sale, as laboratory developed tests in the state of California by their parent provider, MultiGEN -- it will be a slightly reduced time frame, and as a result of that, the release of the colon century test and the MultiGEN panels may effectively be at the same time, even though obviously the MultiGEN deal lagged behind the Gnews deal by several months. I hope that answers your question.

Hopefully you can expand Kevin, revenue potential wise -- as soon as one starts speculating about molecular diagnostics, investors without any particular guidance can think of quite absurd numbers. Can you help focus on what revenue potential we could -- we should be thinking about with these products? I understand that with the MultiGEN it's exclusive, and clearly, it is already being marketed in California, can you give us a sense as to maybe how sales are going there and what you expect here, or if you expect sales to be much better here. Just what do you think peak revenues could be?

Sure. I think that the markets that we have focused in on tests, that really compliment -- for the most part, compliment our existing client base. Essentially we have a very large share of the client base in women's health in this region, the MultiGEN test as well as the Ikonisys test clearly fit into our current marketing base. We felt as a result of the uniqueness, if you will, of the Gnews test, that it was clearly worth bringing up.

The market size is obviously significant. With regards to colorectal cancer, pre-screening stratification, it is a very significant market. While it is difficult at this point to predict what the penetration into that market will be, and if we eventually take that test outside of our region, we expect that test to generate significant revenues. I think that likewise, the MultiGEN test, and we also have some data on the Ikonisys test which has been going extremely well, we believe that this test could significantly impact our next 12 months by several million dollars.

Okay. And from a competitor point of view, can you help us understand where let's say something like the MultiGEN test or the colon century tests fit in? Are there already competitors out there, or labs out there that are using similar types of panels from other companies, is this completely unique, or the first of its kind, can you help put that into context?

The key, for example with everything we do is we try to do something that is definitely unique. With MultiGEN the issue is that it is a unique multiplex DNA sequencing technology. So the key issue here is that while these tests and the final results of these tests are currently being run, this gives us the ability to run and look at multiple pathogens in the case of the anti-natal panel or multiple genetic mutations in the case of the Thrombophilia panel, which running only one assay. We can essentially do what before took five or six tests to accomplish, we can accomplish this with a single specimen and a single run of sequencing because it's multiplex.

So what you get are number one highly accurate results, because you are essentially looking at the actual genetic sequence of the pathogen or the mutation. If you have DNA -- the right DNA -- you can't get a more sensitive test than that. In addition to that you are cutting down your costs by a factor of five or six. So yes that is extremely unique and there's no one in New York that is currently running a test like that. Likewise, obviously, the colorectal cancer test, the Gnews test, is extremely unique and has a possibility of being first to market as a blood-based test for colorectal cancer pre-screening stratification.

Okay. You guys mentioned the addition of additional personnel -- in particular new sales personnel to the Company. Can you talk to us a little bit about, what's the rational for it, what helps you make a decision as to whether or not to hire a particular salesperson -- clearly the person's book or book value is, is very important. Can you talk us through the quality and caliper of the patients -- of the salespeople you have hired -- and when they should impact your top and bottom line?

Sure. Of course, and the rational ultimately is the drive top line growth, and ultimately achieve improved and impressive bottom line results as well. So, that is clearly the key. The rational behind it or perhaps if, perhaps more -- a better word than rational is -- how do you screen or how do you determine what size of a sales force you need, and exactly what are the characteristics of individual sales people that you bring over. And really, we look for a few things.

We look for number one, we look for excellence in terms of their prior sales achievements. So, you mentioned, the individuals who come over with very large books of business. We have been very lucky in the past year, in adding all of the salespeople that we have and that they all come with significant experience, and they come with very large books of business. We look for good geographical fit which is paramount to their future success. We look for individuals who have a track record of operating with the utmost integrity, and ethics because that is something that is a must have in our line of business. And ultimately, individuals who are bright and driven, who can understand the esoteric test that we are bringing in and can understand the concept of some of these molecular diagnostic assays and how to sale them -- which are a little bit more complex, than your average tests.

So, we are very lucky in that the group of individuals that we have attracted to Enzo over this past year, has -- they have met all of those criteria. And I believe that they're beginning to impact our top line revenues right now, and I'm confident that moving forward you will see improvement in our financial metrics across the board.

And you mentioned they all have six month non-competes I believe. When --.

Usually a year.

I'm sorry.

It is usually a year actually.

Okay.

Industry standard is a year for the most part.

And when do you expect these non-competes to be -- I guess to be lifted?

A year after we hire them.

No, no. I don't remember exactly when you guys hired them. So is it second half of this year.

We actually have one or two sales people that have come off non-competes already, and we -- thus we then have a number of individuals who will come off their non-competes in May. We have -- anywhere from May frankly to 12 months from now -- as we just actually hired another sales professional two and a half weeks ago. So, you can see that it is a rolling structure.

But I think that the key point is that they don't sit idle during those 12 months. If they meet all of the criteria I put forth they're going out and acquiring new business and growing new business, simply not in -- not new business that had anything to do with their old accounts. But they're true sales professions and if you were to look at the number of new accounts we have brought on in the last six months alone, it is very impressive.

That makes a lot of sense. You mentioned you are expanding or you would like to expand service centers -- I think during your prepared remarks you had mentioned Florida. We have from our notes that you are looking into Pennsylvania. Can you talk to us a little bit about the progress and what's required there to expand to those geographic areas.

Sure. We are currently, already in Pennsylvania. We have a number of high volume accounts in and around the Philadelphia and Philadelphia suburbs -- Bucks county. So the first thing of course that you have to do in any state is to achieve licensure in that state. It is usually not like the State of New York, it is not as difficult as achieving it in the State of New York, so that is a good thing. We have licensure in Pennsylvania, we're serving clients there, and the other states that I mentioned were Florida, Maryland, California.

Part of the reason for California is because of our alliance with MultiGEN that I announced today. It gives us the ability to assist them as a full service lab, in any business in California that wishes to use their test. But wishes to also send all of their lab work to a single provider we have offered our services so they can essentially market their tests in California yet use Enzo for any of the other tests, that that particular client needs, because we are a full service provider.

With regards to Florida and Maryland, there are some potential opportunity that is have arisen there for us, and we are seeking licensure in those states so we can pursue those opportunities. In addition to that we do have aspirations with the right esoteric test of taking it beyond our region. There's no reason why, one has to stick to a regional model with a courier network if you have the right tests, it can be shipped via FedEx or any other method and run with appropriate results delivered.

And the typing of the license for states like Florida and Maryland?

Yes, it is imminent.

Okay.

Weeks.

Okay. And then I guess one final question -- clearly, quite a few important events have taken place in 2009, many more to occur in 2010. What is the Company's view as to when the inflection point, if you will, will occur and an overall profitability for the firm could be achieved?

It is very difficult to make an exact prediction on that but I believe we are turning that corner as I mentioned in my comments this quarter. We hope over the next few months to show improving bottom line performance, and we are aggressively focusing on achieving that goal, I want to make it very clear that we are very intent on driving towards that goal. As you must be aware, our bottom line and profitability is directly a function of our R&D commitment and investment as well as our investment in the core of our operations on many different schools to expand them.

This past year we have invested more in our operations than we have in our corporate history, in terms of on a quarter by quarter basis. We are devoting and building our human capital base, our infrastructure. We are putting the pieces in to build an organization, that will be able to expand more quickly than we have in the past, and offer products and services in a more expansive level, than we have in the past. So, we are moving toward that target. And as I mentioned, we are balancing the investment that we make against the growth potential that we see in the future and we obviously -- I hope you can infer from our comments today are looking toward a very, optimistic and growing opportunity in all the of our segments at this point in time.

But we are focused on the bottom line -- that is a high focus on all divisions, and we will see hopefully as we move through this year, how we can achieve that goal.

Excellent, guys, thank you very much. And good luck going forward.

Thank you.

Your next question comes from Patrick Ryan of Stifel Nicolaus.

Barry, you spoke some about the recent patent win and congratulations on that. I know has been a long haul for the Company. Can you comment -- you used the term "assuming" -- that the patent is issued. Except for an appeal that could delay that, is there anything else that we might want about as far as what else could possibly keep you from getting that patent. And if there isn't anything else, is there a time line there if there is no appeal when you might expect to have the patent in hand?

The comment of assuming is predicated on the appeal process. There is a formal process which the other party can attempt to appeal this. We are waiting. We have yet to see that activity. But it is a definite possibility. If it does not happen, we can look forward, I believe, to a patent being issued hopefully within the next six months, maybe earlier, depends on the procedural process within the patent office. If there is an appeal, it could take a bit longer. I can't comment on the time frame but hopefully not too much longer. But we feel very confident in this.

This was a long arduous process for us if you have been following it. I think the determination with which we have pursued this has been quite remarkable considering the time frame that we have had in term of when we filed this patent back in the early 80s. Many parties might not have been so doggedly persevering to get to this stage. We feel that it has been a source of vindication for us, the markets are significant in terms of the opportunities behind the technology. It is a business base that we feel that we can capitalize on, both with partners and licensing as well as our own internal development options.

You've heard a little bit from Kevin and Carl as to our own developmental activities. This fits perfectly within the structure of developing new tests, within developing new products for the research community, it is an established technology, and the important aspect here is that if and when this issues and we certainly hope and believe it will -- it will carry forward another 17 years. That's a very strong asset value that we will be accruing as we move forward. So we have pleased about it. But just going back, the short answer is hopefully within six months.

Do you have any internal products that have been sitting on the drawing board as it were that if that patent every came that these things are semi-ready to go? And the lead time to bringing a new proprietory product to the market would be relatively short -- or would I be misguided in any thinking that.

No you are not misguided at all. We have been thinking about this for many, many years. We actually used to sell the basic core technology in our catalog in the early 80s. This was a product we made and sold for many years. The application of it fits right on top of many of the developmental programs that are ongoing at Lab Sciences and Clinical Labs. We believe it can give us a differentiating aspect and one we can move to market with a relatively rapid pace.

One question on your product, Optiquel -- how many patients are going to be in this trial? Is it considered a dose escalation trial and therefore something we would more commonly cause a Phase I trial or what phase is this in?

It is actually a Phase II trial. It is more a proof of concept approach than a dose escalation approach.

Okay.

In term of number of patients, the number will probably range initially at the 40 plus range.

Okay. And if I could, back to the patent issue -- you've got several other major patent -- shall we say -- disputes. Is there anything else, that knowing your sense of timing of the patent office, which is always subject to change, are there any other major cases where we might hear something in the next six to nine months in this calendar year that due to the timing of how long they have been there, you can say -- yes we hope to hear something in this particular case which is of importance.

Yes, we are waiting decisions on the appeal of our New Haven courts on our DNA labeling technology case with Applera. We are also waiting the first phase of the interference proceeding over the gene sequencing case with Applera which is now Life Technologies as well. We anticipate them, they should be within any time at this point.

Okay, thank you Barry.

Thank you.

Ladies and gentlemen, we have reached the end of the allotted time for our Q&A question session today. I'll turn the conference back to Mr. Weiner for any closing remarks.

Thank you for listening to us this morning. We have been pleased to report on the progress of our second quarter. We look forward to the next quarter, and the fourth quarter to follow that. It has been an eventful time and we are extremely pleased and optimistic where we will be moving in the next six months and I look forward to speaking with you in June. Thank you again.

Ladies and gentlemen, that concludes the Enzo Biochem second quarter 2010 operating results conference call. A replay of this broadcast will be available until Monday, March 29th at 12:00 Midnight. You may access this replay by dialing 1-800-642-1687. The pin number is 61758421. This replay is also available over internet at [www.wsw.com/webcasts/cc/enz4]. This concludes today's teleconference. You may disconnect your lines and have a wonderful day.