Enzo Biochem Inc (ENZ) 2011 Q1 法說會逐字稿

Good morning and welcome to the Enzo Biochem Inc. first-quarter 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 insights, beliefs or current expectations of the Company and its management, including those related to cash flow, gross margins, revenues, and expenses are dependent on a number of factors that are outside the control of the Company, including inter alia; the markets for the Company's products and services; cost of goods and services; other expenses; government regulations; litigations and general business conditions; de-risk factors in the Company's Form 10-K for the fiscal year ended July 31, 2010. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that can 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.

During the conference call, the Company may refer to EBITDA, a non-GAAP measure. EBITDA is not and should not be considered an alternative to net loss, loss from operations or any other measure for determining operating performance. The Company has provided a reconciliation of the difference to GAAP on its website, www.enzo.com, and in the press release issued this morning.

Our speaker today is Barry Weiner, President. (Operator Instructions). I would now like to turn the floor over to your host. The floor is yours.

Thank you very much. Good morning and thank you for joining us. With me today is Drew Crescenzo, our VP of Finance; Dr. Kevin Krenitsky, President of our Clinical Laboratory; Andrew Whiteley, the Chief Operating Officer of Enzo Life Sciences; and David Goldberg, who is VP of our Corporate Development area.

Following my brief remarks, Drew will discuss our finances in detail, and we will open the floor to questions.

Earlier this morning we distributed a press release summarizing our financial performance for the quarter that ended October 31. As you can see, the strategic alignment of our resources both in terms of personnel and other expenses has had an immediate impact.

First and foremost, we reported positive earnings before taxes, depreciation and amortization for the first time in over five years. We look at this as a significant step towards the operational strengthening that we outlined recently, and we are very pleased that the management and employees of our Corporation were able to achieve this milestone in the first quarter after announcing these initiatives.

Moreover, we were able to reduce our net loss by about 38% year over year. During the remarks that I gave in mid-October, I noted that we had undertaken to materially transform Enzo with a view to heightening efficiency and improving results in a very tangible fashion. Specifically these efforts were directed at number one, reducing expenses; strengthening our organization; positioning the Company to take advantage of the health care industry's new and emerging paradigms; capitalizing on our strengths in Life Sciences, Clinical Labs and intellectual property; focusing our research and development towards higher value products; and improving cash flow.

I also noted at that time that we had set a goal to target positive cash flow from operations in 2011.

Our results this quarter have begun to reflect the impact of these initiatives. Looking at expenses, for example, our SG&A was reduced by over $0.5 million from last year, while research and development has been reduced by around $700,000.

We have been able to accomplish this at a time -- at the same time bringing on several key hires at the divisional level who we expect to strengthen our marketing and sales efforts, as well as strengthen our internal controls.

We have continued to drive our research and development efforts toward products and technologies that fit with the paradigms of rational drug design and molecular diagnostics. And we are gaining operational efficiencies as we capitalize on the synergies between our operating divisions.

Sequentially the results are even more dramatic, as they showed the immediate impact of our strategy. For example, at Enzo Clinical Labs, which also benefited from an important new contract with a leading healthcare provider, the division increased revenue 6% and saw operating losses reduced by 62%.

At Enzo Life Sciences, we reduced lower margin products from the product mix. We also strengthened and better integrated our scientific teams and focused on higher value products, over 100% gain in operating income from Q4 2010. Notably, too, despite higher re-agent costs associated with the greater volume in our labs, we brought down the cost of goods companywide by $2.5 million or 17%.

Overall and again, we are comparing results on a sequential basis. Operating expenses were 7% lower.

Also, the net loss for the quarter was down by 70% from the preceding July quarter on a like basis adjusted for the prior quarter's inclusion of inventory write-downs and one-time severance costs.

In addition, as Drew will make clear, the rate of cash usage has improved materially, in line with the goal of driving the Company toward becoming cash flow positive.

Let me underscore what we believe the future for Enzo will be. Over the past 20 years, medical science has accumulated an unprecedented amount of biological information so that the human body today is better understood than ever before. So, too, are the benefits of therapeutic. As a result through the use of diagnostic systems, it is becoming increasingly possible to predict responsiveness to therapeutic drugs and to monitor them for their effect over the long-term.

Essentially a new generation of understanding is emerging that is based on a concept which is called in the industry companion diagnostics where drugs will be both prescribed and monitored, using new forms of diagnostic techniques. It will be immensely helpful to patients, for practitioners and also for payers. Enzo due to its early focus on detecting genetic information dating back to the early 80s is very well positioned to contribute to the growth and enhancement of this market segment.

Due to the extensive growth and healthcare capabilities, the expenses dedicated to the tools that are available that could help control these costs are of high interest. For example, the ability to be able to perform a test that will tell a physician whether an individual might respond to a certain chemotherapeutic approach or might not is of extremely high importance.

These tools and techniques, specifically the molecular diagnostic marketplace where we are committing major resources today, are now coming into their own. We believe molecular diagnostics represent a market that is growing much faster than traditional clinical diagnostic marketplaces are. The clinical diagnostic market is estimated to be greater than $22 billion in annual revenues, and these include a broad range of tests from the prosaic to the esoteric.

Moreover, the molecular diagnostic segment of the market alone is anticipated to be a very material portion of the totality of this market. At the same time, we are seeing a trend towards the development of companion diagnostics in the pharmaceutical industry. What this means is that many drugs will not progress through the approval process without an accompanying diagnostic product that will help determine if an individual will respond to the therapy and also inform the practitioner whether the side effects could be material if any.

We see this as an opportunity to direct our efforts on products and services that serve this new emerging reality. As we have transformed Enzo, building on our historical capabilities, we believe that the Company has the ability and the talent to achieve basic research in product development in partnership with pharmaceutical companies right to FDA clearance. Looking at it another way, we are equipped within our clinical laboratory with full-service capability to handle prototype design, preclinical development and clinical trials.

The recent expansion in our physical plants that we have undertaken in Farmingdale was designed just to do that as was the decision to reach out and build a senior staff of highly experienced and knowledgeable pathologists to assure our in-house capabilities.

Our Life Sciences expertise dovetails perfectly with the path we are on. Our ability to formulate Life Science products that will meet these new modes of interpretation and application, as well as the ability to seamlessly employ and integrate the activities of the Clinical Labs and Life Sciences, should materially enhance position.

In recent years we have acquired four important Life Sciences companies that have, in addition to providing us with unprecedented global marketing capabilities, added notable dimension to Enzo's product offerings at a time perhaps more so than ever before when research is paramount.

This past year we have integrated their activities, including R&D, marketing, manufacturing and support, and we have consolidated for far greater effectiveness what had previously been four distinct information systems into one corporate-wide and very cohesive IT group. And we have engaged in extensive product rationalization so that our Life Science product flow is now on value-added products and systems.

Meanwhile, I am pleased to report that our clinical trial for Optiquel, our oral therapeutic for the treatment of chronic noninfectious uveitis, is now firmly underway at the National Institute of Health's National Eye Institute. The patients have been enrolled, and treatment has begun. As a result of our cooperative research and development agreement with the National Eye Institute, which is part of NIH, our partner will bear much of the cost of this trial.

I would like to just turn the conversation over to Drew to briefly give us a more definitive financial review of the quarter.

Thank you. I want to take this opportunity to expand on both Barry's comments and this morning's earnings release for the fiscal first quarter. Further, I will provide some commentary on our sequential results, some that Barry already touched on, which are reflective of the early outcomes of our strategic program.

Total revenues for the first quarter of fiscal 2011 increased to $25.7 million from $25.2 million a year ago, benefiting from the 12% increased growth at Clinical Labs attributed to the increase in market share and the new payer contract. We recorded slightly lower revenues at Life Sciences, resulting from their planned program to emphasize higher margin products. Royalty and license fee income was lower year over year by $200,000.

Net loss for the quarter was $1.1 million or $0.03 per diluted share as compared to $1.8 million or $0.05 per diluted share, representing a 38% decrease.

Sequentially our net loss improved by $2.6 million after normalizing the prior quarter for the inventory and severance costs that we experienced as a result of the implementation of our strategy. EBITDA, which is earnings before interest, depreciation and amortization, as Barry alluded to, was positive for the quarter, totaling $23,000, an improvement of $2.9 million sequentially and $900,000 year over year. We continue to not record any tax benefits generated from our losses.

Perhaps just as significant, the cash used in operations improved $1 million year over year, partially due to the lower net loss offset by increases in accounts receivable at the lab attributed to the higher revenues and at Life Sciences simply due to the timing of collections, which are expected to normalize.

Inventory also increased primarily due to the planned changes in stocking levels at Enzo Life Sciences.

Let me share some more specifics on our numbers. Gross margin improved 17% to $13.5 million or 53% gross profit margin compared to the fiscal 2010 fourth quarter of $11.5 million, and we also had a slight improvement year over year. The research and development expenses were $1.8 million, 28% lower than both a year ago and in the July 2010 quarter, principally due to the successful integration of functions and realignment of the workforce at Life Sciences.

Our selling, general and administrative expenses decreased $0.5 million to $11 million and as a percentage of revenues were down 3% from a year ago and 1% from the prior quarter. Our legal expenses were essentially flat after factoring in that in the prior year. We received insurance reimbursements of approximately $500,000.

Provision for uncollectible accounts, which primarily relates to the lab, increased $200,000 over the year ago period due to our change in payer mix, which is expected to normalize in the months ahead. As a percentage of revenues, the provision for uncollectible accounts was 8.7%, up slightly from the year ago period. Sequentially the prior quarter was 11.6% as a percentage of revenues, a noted increase in the first quarter.

Overall operating expenses, which includes R&D, SG&A, legal and our uncollectible accounts, declined 4% from last year's first quarter and 7% from the preceding July period.

Operating loss, which is a key measurement of our operating segments, decreased 42% to $1.1 million from the corresponding year ago period. The Company's financial position remains strong with working capital of $42.1 million. As of October 31, 2010, cash and cash equivalents, plus our short-term investments, which are in U.S. Treasury bills, totaled $31.6 million.

Important to note, at October 30, 2010, our cash, cash equivalents and short-term investment levels were actually $300,000 higher than they were at July 31.

With respect to the operations at our segments, Enzo Clinical Labs revenues increased 12.4% and represented gains of 12% over the prior year and 6% over the July quarter. Gross margins improved to $0.5 million and to $1.1 million year over year and sequentially. And our SG&A year over year reflects slightly higher expenses as a result of higher benefit costs relating mostly to our health insurance. The operating loss at the lab improved sequentially to $900,000 from $2.3 million and was comparable to the prior year.

At Enzo Life Sciences, profitability for the quarter improved both year over year and sequentially. Operating income amounted to $3 million compared to $2.1 million a year ago and $1.6 million in the preceding fourth quarter after adjusting for the inventory and the severance costs. Revenues at Life Sciences were $13.3 million in the fiscal first quarter compared with $14.1 million a year ago and $13.2 million in the preceding three months. Despite slightly lower revenues, gross margins improved to 65% in the October quarter compared to 64% a year ago and 59% in the July quarter.

Barry?

Thank you, Drew. In addition to the financial performance, from a strategic operations standpoint, we made some significant progress this last quarter. As we described to investors on our last call, Enzo Life Sciences completed the two-year process of restructuring of the Enzo Life Sciences business from its acquired companies, ALEXIS Biochemicals, BIOMOL International and Assay Designs.

During the first quarter, the newly strengthened management team of Enzo Life Sciences has worked to complete the integration actions. As was anticipated in our last call, our sales volume in Q1 was affected by the ongoing rationalization of low margin distributed product businesses that is no longer in our portfolio. Overall, compared to last year, revenues declined slightly on exchange rates and about 4% due to rationalized products previously which were distributed on behalf of other companies, and this impacted the Enzo Life Sciences topline for the quarter. The reduction of sales of certain products will continue over the rest of the financial year as rationalized product revenue is replaced by core Enzo product sales, which will be sold through our direct channels to markets and perhaps a set of more focused distributors in other international marketplaces.

In Europe, as part of our integration plan, we have already successfully transitioned important businesses from distributors to our local offices in the UK, Germany, France, Benelux and Switzerland. This was achieved despite the rationalization of specific distribution business, which we just mentioned.

Overall by the end of next quarter, we expect further increases in our European direct sales activity without increasing headcount, thereby improving our overall efficiency in this business. We continue to aggressively roll out our new products for use in Life Sciences research with a particular focus on functional testing and drug development and predictive toxicology testing of new drug candidates.

This quarter our broad cellular analysis portfolio was enhanced with new proprietary products, including assays for autophagy, acrosomal response and multidrug resistance.

In addition, we have just made available for general sale a new immunoassay for a key analyte called Survival Motor Neuron or SMN. Recently the Spinal Muscular Entropy Foundation worked with Enzo Life Sciences as its lead partner in the development and distribution of a newly developed assay kit designed to measure Survival Motor Neuron protein. This is the critical protein that is deficient in spinal muscular atrophy. We are delighted to now make this assay available worldwide to researchers looking for a cure for this genetic killer of infants and toddlers.

The other key strategic initiatives at Enzo Life Sciences is the integration of research and development programs with Enzo Clinical Labs, which provides us with a measurable developmental advantage. Notably at Enzo Clinical Labs, we formularly submitted ColonSentry, our unique blood-based colorectal cancer prescreening risk assessment test, to the state of New York's Department of Health in November, and we are awaiting initial responses.

In early anticipation of a 2011 test release, we have started our pre-marketing and rollout strategy that includes initial marketing to our current client base, as well as the consumer awareness campaign. Initial feedback from physicians and patients has been excellent.

In addition, we have been marketing the oncoFish cervical test now for almost one year, and the response continues to be strong with steady rising volumes.

In addition to these established programs, we are in discussion with several additional partners that have unique novel molecular diagnostic tests that we can expect to partner with in 2011. These would allow Enzo new exclusive tests that are in high valued disease states and would serve our client base well.

We anticipate this partnering track and the novel testing content it delivers to serve as a viable machine to drive revenues above and beyond our organic growth plan.

Speaking of revenue growth, as Drew indicated, Enzo Clinical Labs showed an 11.5% year-over-year increase to $12.4 million in Q1. This was achieved despite a period where many labs lost market share or showed low single-digit growth.

In addition to this organic growth and the aforementioned new test content from partnerships, we are also bringing in-house several tests that have now reached substantive volumes to justify internalization. We are executing a strategy that includes a continued move towards new higher value, higher margin tests. This will serve Enzo in several ways in 2011 and beyond.

First, these proprietary high value tests may help to insulate us from external factors such as payer contract realignment. Second, as we have said, this test mix can drive higher overall margins, and finally, an enhanced unique esoteric test menu will continue to drive synergy within the Life Sciences division, opening the door to more internal test development in companion diagnostic services.

Finally, we are continuing to seek and combine the synergies that exist between Enzo Life Sciences and Clinical Labs. Combining the R&D capabilities, discovery and assay design skills of Life Sciences with the commercial test development, regulatory approval skills and existing client sounding board of Enzo Clinical Labs, Enzo is extremely well-positioned to be a significant player in the emerging companion diagnostics market.

The market in recent weeks seems to echo our view to the value of clinical laboratories. Valuations are at record highs because labs provide unparalleled access to the marketplace and an early entry point to both niche and general healthcare providers. Clinical Labs contain a wealth of information not only due to outcomes but due to access of clinical specimens, which both diagnostic and pharmaceutical companies view as key.

As many of you may know, the healthcare industry has and is undergoing change. Greater emphasis today is on cost reduction, along with more targeted diagnosis and treatments. The changes sweeping across the Pharma market are supporting the creation of a new generation of diagnostics, impacting not only what drugs or treatments will be successful but more specifically, which patients will benefit. Personalized medicine is resulting in tighter relationships between drug, diagnostics and service providers.

For Enzo this is an opportunity to capitalize on the Company's integrated capabilities. These include our ability to bring forth new Life Science products, which we are doing internally and via acquisition and partnerships, and also in providing services.

We believe we are well positioned and are very much in sync with the market, and we expect that these efforts will prove to be increasingly valuable in the years ahead.

The investments made over the past couple of years in building what we believe is a world-class, integrated specialized Life Sciences organization with products, technology, IT capabilities and the unique distribution platform has been instrumental in shaping our Company for growth.

We have by our measured investments provided Enzo with optionality across numerous market segments, and the streamlining that we have implemented has already strengthened our financial position for growth. We are very excited about where we are going.

With that, I would like to turn the call over to questions and the operator, please.

(Operator Instructions). [Egon Machumowicz], Rodman & Renshaw.

Congratulations on a strong quarter. Maybe we could start with Enzo Life Sciences.

So, as you mentioned, there is a planned rationalization of the product mix. So going forward could you give us a sense as to whether we should expect some sort of lumpiness in the revenues, or are we more or less on track now?

And, in addition, the margins are looking very good at 65% in this current quarter, the one you just reported that is. What is the sense there as far as how much more those could improve as you continue to rationalize the product?

We see a steady outcome over the next three quarters with the business. Last year we did rationalize a number of companies that we were distributing products for, and this has resulted in some reductions in topline sales over the recent immediate past. That will continue for the next three quarters as those deals essentially wind their way out of the results quarter on quarter.

Our margins, second part of your question, again, we are looking for some small incremental improvement over the rest of the year, not dramatic. We see that the business as a whole will be founded on the direct business that we have got, and I think that the margins are on track, and we feel very comfortable about where they are right now.

Okay, thank you very much. And then Barry, turning back to the clinical laboratories, maybe we could speak a bit about ColonSentry. Congratulations on getting that submitted to the agency. Could you give us a sense as to the regulatory timelines now? Will there be a back-and-forth dialogue with New York State, or will you just be essentially waiting for the results from them as far as a decision? And once there is a decision, assuming it is positive, would you be more or less ready to launch the product immediately?

This is Kevin Krenitsky. So to answer that question, yes. Obviously, as Barry mentioned, we submitted it to New York State. We speak to New York State frequently at Clinical Labs because we are New York State lab-located within New York State. Four times a week is not unusual for us to speak with them.

We would expect to hear back initial feedback within the next three months. And, as you stated, it likely at that point involved some sort of back-and-forth dialogue. And although it is difficult to predict when the approval could come, we certainly are targeting 2011 for that launch. And yes, in fact, as soon as that approval occurs, we will be ready to hit the ground and commercialize the test as we have already done significant marketing work, market assessment, pre-marketing in a tiered fashion.

And then on the last point you mentioned regarding the initial marketing and the rollout, what sort of specific feedback are you receiving from the physicians, and also are you speaking with patients, too, or just the doctors?

We are speaking to both, clearly physicians and patients as well, and as I mentioned, the feedback has been excellent, almost overwhelming in fact.

Most physicians that we -- we have seen a significant increase in clients over the last year. Many of those clients have eagerly asked us when the tests will be available. They are interested in using it themselves, meaning the physicians. That is always a good sign.

Typically if they are willing to use the test for themselves and their families, they are certainly willing to use it and prescribe it to their patients. And yes, I get calls from patients several times a week that have heard about the tests through our partner in Canada and are asking when the approval will be. So I think that it has been a very positive experience with regards to initial response from clients and physicians.

That sounds good. And Kevin, could you just give us a quick update on the new hires? I know there are several that are in the pipeline. I know some of them maybe have come off their non-competes, but not all of them. Can you just give us an update there as to the status?

Yes, we have two individuals who are off the noncompete. We have three more that will be coming off during the remainder of the fiscal year. So the good news behind that is we had a relatively strong period of topline revenue growth, as Drew and Barry had mentioned year over year, about 12%, and a significant -- in fact, the lion's share of that growth was driven by new business. And that is something that to us is encouraging. Because when you have sales reps that are still bound by restrictive covenants that can go out and put new business on, we obviously expect that to increase when, in fact, they come off their non-competes.

Okay. So all of them will be off by approximately when, the middle of this year or --?

I believe the last one is in May.

Okay. Got it. And are there any updates as far as the status of the license applications in some other states? I believe there is Maryland, Maine, California, are among the current applications.

Yes, we are very close with those. We expect to have those certainly even potentially by the end of this quarter or during this Q2.

Okay. Thank you. Barry, turning it back to you, could you give us a sense as to the larger plans in terms of possible new tests that you are in-licensing or possibly additional acquisitions? I know there were a number of topics mentioned in the past, ranging from internal medicine to autoimmune disorders and anatomic pathology. Could you just potentially give us a sense as to what sort of tests you are interested in and when they may be coming into Enzo?

We are looking at a number of new opportunities. Fortunately because of the resources that we have in-house, the ability to be able to not only validate a test as you might suggest through the Clinical Labs but enhance its development, we are looking at -- there are many opportunities that are being brought to us right now. I think the challenge for us is to be cautious and to be discerning in where we move forward and with whom we move forward and not to take on too much so that we cannot bring forth exactly what we want to bring forth.

So there are many different opportunities that we have been assessing. Perhaps I will let Kevin just comment on some of the areas that we are looking at more intensively.

Yes, I think Barry made a good point. The number of opportunities out there right now for us are actually greater than one could or should take on. And it is partly a result of the amount of throughput we have from an R&D and lab standpoint. We are obviously running a lot of tests and bringing up a lot of new tests fairly rapidly.

I will say we are in discussions with some very unique companies for other unique opportunities, particularly in the area of oncology and women's health, which are two areas that we excelled in over the past. The idea there being that we have a very strong current client base, and when we do bring these tests to market, we can immediately commercialize that directly to our client base, and then, of course, look for opportunities for further expansion and distribution beyond that.

So we certainly expect in this fiscal year to announce at least one or perhaps two additional partnership for additional development, and that, of course, will then dovetail on the ColonSentry test and some of the other tests that we are already successfully selling.

Got it. And would these be tests that as like ColonSentry would be validated in-house or potentially would they not require that process? What is the sense there?

The novel content test that would be exclusive to Enzo would follow the in-house validation and development, or the LDT route, the laboratory developed test route. We're bringing a number of other assays in, as I think Barry mentioned, that are -- can be considered esoteric with regard to the fact that they are high value, high margin tested that we had been currently referencing out that our volumes have simply reached levels where the financials now justify bringing them in. But I consider those to be part of the routine business of optimizing the lab, whereas the novel partnerships bring us novel content and would follow the LDT route.

And with the potential for in-licensing additional high-value tests such as ColonSentry, the margins are looking much better than they were last quarter at almost 39%. Do you foresee that pushing into the 40s potentially? How do you see that moving?

I think it is ultimately when you look at the mix of tests that we run, we run a very large mix of tests, which I think is one of -- clearly one of the upshots of Enzo Clinical Labs, is that we really can offer a full service -- a full-service solution for clients out there. So while I would anticipate that bringing in these esoteric tests could potentially drive the margin up a bit, I would not expect it to move metastatically if you will.

Okay. And Drew, not to leave you out of the discussion, the R&D was nicely lower than we have seen in previous quarters, especially given the integration of certain R&D aspects with the Life Sciences business. Is this sort of an established run-rate of the $1.7 million to $1.8 million that we can expect going forward?

Let me pass the Enzo Life Sciences portion over to Andrew Whiteley. With respect to the other piece, which relates to our therapeutics, as we have indicated, the timing of the R&D really relates to the timing of how the clinical trial expenses come in. So in that respect, we are not sure how that will move, and it probably will not move too much.

Andrew, do you want to talk about Life Sciences?

Yes, in Life Sciences the R&D investments is dominated by the cost of the scientists that we employ to do the work in developing the dozens of new products that we launch every quarter. Indeed, we did as a result of the reduction in force back in July take our costs down to a steady-state. So we are not anticipating increasing that number for the rest of the financial year.

Got it. And then one final question if I may. On Optiquel the study is underway. Do you have any early read at the enrollments and when could we potentially see the first signs of data?

The enrollment is actually progressing well. We have been told -- I cannot -- I don't have a definitive number on the exact number in the trial at this point in time, but they have been entering people. We hope by the end of 2011 we should start to see something that we might be able to give us some direction and guidance on this particular trial.

This is David Goldberg. The trial design is a 26-week trial with 26-week follow-up, and the enrollment has begun. We do anticipate that we will have some data some time in the first half of 2012.

Perfect. Thank you very much, congratulations on the progress, and good luck in 2011.

Anton Pfaffle, Bearing Circle Capital.

Congratulations on the progress of generating EBITDA. Our question, what percentage of the Blue Cross Blue Shield contract which are now available to participate in was leveraged and improved results? And what -- it is a hard question to answer because I know that there are other labs that can still do the business, but what percentage of that remains to be realized or potentially realized?

And the second question would be the ramp-up in terms of sales, the new salespeople even if they are not yet off their noncompete, are they being used to leverage practices that are essentially part of that contract that they may not have visited before? And I would assume they are being put to good use. And what percent of their efforts are yet to be realized in terms of generating revenue, in terms of also any sense of -- I know you have not issued guidance, but the sense of what is happening in terms of the rest of the year? And should we see this as a stepwise progression quarter to quarter or just as the previous speaker said sort of like a lumpy, bumpy pattern, or should we see a nice steady improvement?

And lastly, are there more costs yet to be cut, and where do you think the margins could go in terms of the percent?

I could actually answer that if I could remember most. It was actually a long question, but a very good one. The percentage, if you look at our year-over-year top line revenues of roughly 12% increase, about 4% of that came from the addition of the new payer contract that Drew and Barry had mentioned, and 8% of that came from just organic news sales growth.

So certainly there is no question that the new sales professionals that we have hired are outselling, despite having restrictive covenants.

In addition to that, we have a salesforce that is mature on top of them that are also bringing on new business. We have set aggressive sales targets, and we are driving our sales teams to meet those targets, and they have responded. So roughly about 8%, as I mentioned, of that growth is due to new sales and about 4% due to the new payer contract.

There is some additional room that as we optimize our really prefixed mix of that new payer contract where we do expect to see some additional revenue coming in from that, it is really difficult to predict what that will be. And with regards to the overall picture, which I think you asked about, I'm optimistic that the growth that we have seen is something that we can certainly maintain over the course of 2011.

Robert Smith, Center for Performance Investing.

Congratulations on your progress during the quarter. Most of my questions have been answered. Just a follow-up would be, is there way that you can share with us what you view your current value of the patent estate and how you might begin to monetize it?

Certainly. We have a -- the patent estate is a living entity. And what I mean by that is that every year occasionally patents will expire, and certainly new patents are being issued. And this is an entity, which we have been focusing on to bring value. The value that has been obtained by product sales via our RIP or driven by IP-related relationships has probably been more extensive than most investors recognize. If you look back at our patent estate, we probably generated in excess of $250 million worth of revenues from products associated or covered by IP and driven by IP-related relationships. And that's going back over the last 15 or 20 years.

If you look at the most recent, which I would say the last six or seven years and look at the royalty income that we have generated from our IP, we have generated in excess of $50 million worth of income in the last five years alone from IP-related relationships. These patents, many of them still go forward for many, many years. We look to the extension of royalty income going forward just on existing current relationships upwards of seven or eight years. There more IP -- there are more patents that are being issued, which we believe will cover various areas. So we believe there is a really strong -- there has been an incredibly strong return from our IP estate.

On top of that, we have a number of IP-related litigations in motion, which carry potential returns for us as a Company. Some of them we believe potentially significant, which are being explored and developed.

Now that is sort of the monetary state as we have it today, but there is a another added value to the IP estate, and that is its utility. As we move forward in our business strategy, specifically in the molecular diagnostics area -- I'm excluding all the therapeutic patents and patents that might be related to tools that are or systems that are specifically Life Sciences related. But specifically molecular diagnostics, we were very early in the discovery process for looking at genetic information and detecting genetic information. And, as a result, we have multiple platforms which have been patented, some of which many of you have asked about over the years involving amplification of genes, involving visualization of analytes to give stronger detection capabilities for immunoassays and I can go on and on and on.

This portfolio of platforms that we have assembled and they cover multiple utility today are being applied to the specific analytes that are emerging in the molecular diagnostics market. And this is one of the key strengths of the cohesiveness of the Life Sciences IP in the Clinical Labs because, as Kevin mentioned, we can bring in these novel markers. We have proprietary platforms that we can make them unique and special with and make them again proprietary to us. So we can take some one else's platform. We can overlay it with a unique detection system that Enzo has a patent on, and we can drive a value center around that.

So the IP estate in and of itself is a very, very extensive and integrated asset to this Corporation. It has generated significant value, and we believe it will generate extensive value into the future as we move forward in our new product development.

David Goldberg here. Let me just add one further piece to what Barry said. Kevin indicated that we have a number of potential opportunities for partnering and in-licensing various unique molecular diagnostic assays. One reason that we have really become the partner of choice for these companies is the breadth and depth of our IP estate. These companies recognize the advances that we have made in some very significant areas in nucleic acid labeling and detection. And, as such, we believe that that estate gives us freedom to operate, which is yet another benefit of the estate, which may not show up necessarily in direct licensing dollars and cents, but allows us the ability to manufacture and develop a number of these assays with these partners which could have significant value.

Thanks very much for sharing that with us.

At this time there appear to be no further questions. I will turn the conference back to Mr. Barry Weiner for any closing remarks.

Thank you for joining with us. We look forward to seeing you at our annual shareholder meeting on January 14 if you are available. This quarter, as I mentioned, has been an extraordinarily strong transformational quarter for us. The management team here has been extremely pleased with the ability to execute on its plan to maintain the optionality of Enzo's programs. We have had a strong focus on the financial integrity of this company, and at the same time, we have been able to build and to extend our product and technology values as we move into the future.

Again, we look forward to reporting to you at the next quarter or seeing you at our annual meeting. Thank you for joining us.

A replay of this broadcast is available until Monday, December 27, at 12.00 midnight. You may access this replay by dialing 1-800-642-1687. The PIN number is 30085004. This replay is also available over the Internet at www.enzo.com.

This concludes today's teleconference. You may disconnect your lines at this time, and have a wonderful day.