Enzo Biochem Inc (ENZ) 2013 Q3 法說會逐字稿

Good morning, and welcome to the Enzo Biochem Incorporated third-quarter 2013 operating results conference call. I'll now read the Company's Safe Harbor Statement.

Except for historical information, the matters discussed on this conference call may be considered forward-looking statements within the meaning of Section 27-A of the Securities Act of 1933, as amended, and Section 21-E of the Securities Exchange Act of 1934, as amended. Such statements include declarations regarding the intent, belief of 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 outside of the control of the Company, including inter alia, the markets for the Company's products and services, costs of goods and services, other expenses, government regulations, litigation and general business conditions. See Risk Factors in the Company's Form 10-K for the Fiscal Year Ended July 31, 2011. Investors are cautioned that any such forward-looking statements are not guarantees of future performance, and involve a number of risks and uncertainties that could materially affect actual results. The Company disclaims any obligations to update any forward-looking statement as a result of developments occurring after the date of this conference call.

During this 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 last night.

Our speaker today is Barry Weiner, President. At this time, all participants have been placed on a listen-only mode, and the floor will be opened for your questions and comments following the presentation. I would now like to turn the floor over to your host. Mr. Weiner, the floor is yours.

Thank you, and good morning. With me today are several members of our management team -- Mr. Andrew Crescenzo and Mr. David Goldberg. I would first like to discuss our results for the third quarter, and the factors affecting them, and then before opening the call to questions, I will get into the progress we have made on a number of fronts and the developments we are working on which we believe hold significant opportunity.

As indicated in the press release issued last night after the market closed, the third quarter and indeed the year so far has been subject to a number of cross currents. However, despite these factors, we posted improvements sequentially. Our expectation is that the fourth quarter, as we now look at things, will show further progress. Enzo's results are reflective of a business in transition as we have completed a number of initiatives in both operating divisions that we believe position us for improved financial results going forward. Moreover, we also believe that the progress we have made on a number of fronts, including the announcement we made this morning prior to the call, will provide you with further insight into our go-forward strategy in which we plan to put greater emphasis on building businesses backed by our strong patent estate and technology, and supported with our operational infrastructure.

Let me get into some of the quarter details by first discussing the operational results and the reasoning behind them. Our third-quarter results showed modest improvements over second quarter. Revenue and operating results improved sequentially, coming in at $22.6 million for the quarter compared to $22.2 million in the previous quarter. Gross profit was higher on a sequential basis, following increased margins at both Enzo Life Sciences and Enzo Clinical Labs.

Our quarterly results were impacted by a delay in the introduction of a number of higher-margin diagnostic assays. This was due to delays in their scheduled state-required inspections at the clinical laboratory. We have now rolled out a number of new esoteric tests that I will shortly discuss, however, their impact on revenue in the third quarter was not significant. We have begun to generate meaningful revenue from their sales in this current quarter. Clinical Labs was also negatively impacted from lower reimbursement rates, the effect of sequestration on our Medicare revenue, and reduced billing days in the 2013 period.

Enzo's results were also impacted by higher legal expenses, which were associated with the preparation for the New York trials scheduled this Fall. We are also moving forward with a number of other legal actions that were brought in Delaware. These are being handled on a contingency basis.

Overall, operating costs were around the same for both Q2 and Q3 at $14.6 million. This included an approximately $300,000 additional expense over the prior period for legal expenses. Our SG&A and R&D costs were roughly the same, increasing about $0.5 million.

The net loss for the quarter came to $5.8 million, slightly up from last quarter. The EBITDA loss, a non-GAAP measure, was $4.6 million, down $100,000 from the previous quarter. As of June 10, our cash and cash equivalents were about $10 million, and so we are preparing our activities very aggressively to move our divisions towards a profitable stance after experiencing the cross currents I just mentioned earlier in my conversation.

Revenue from the Clinical Labs segment amounted to $13.4 million, roughly the same as the January 2013 quarter. Our operating loss declined to $2.1 million from $2.4 million. We were able to show this sequential improvement despite the lower reimbursement rates I just alluded to, and the fact that a number of new services were delayed from being offered during this period due to the timing of the key inspections. Enzo Life Sciences generated revenue of $9.2 million, up from $8.9 million in the January 2013 quarter, as we continued our focus on higher-value products and systems at Enzo Life Sciences. We believe that by selectively investing in our key product platforms, and increasing our focus in our merchandising efforts, we are developing and implementing a campaign that will broaden our marketing efforts, attracting a much wider customer base.

Finally, as we announced earlier, we have entered into a financing arrangement with Healthcare Finance Group, wherein we have a secured revolving line of credit of $8 million, which can be extended to $12 million. It will help to build our working capital, and assist in our execution of the strategic plans that I will discuss later in the call.

We are working to drive both our operational businesses to profitability, as I mentioned. They are a strong foundation to support the proprietary growth of the platforms being developed that we believe could make a significant contribution in healthcare management. The healthcare environment is undergoing major changes, as you are all aware, from both a practices and reimbursement perspective. These changes, though disruptive, provide opportunities for value generation. Our significant technology base, developed over the last number of years, is uniquely positioned to provide the solutions to better and more efficiently address these changing needs.

As well as focusing on strengthening our operational businesses, we also have invested significant resources in protecting and monetizing our extensive intellectual property estate. Over the years, we have generated hundreds of millions of dollars of revenues as a result of our proprietary technology platforms and products. Our technology platforms have served as a key driver in opening up modern-day molecular processes that have benefited healthcare and scientific exploration. To this day, our gene-labeling technologies and capabilities are still a fundamental basis used industry-wide.

The potential returns from the use of Enzo technologies throughout the Life Sciences industry could exponentially drive values for our Company. This is exemplified with the recently adjudicated Connecticut case involving Life Technologies. As we have discussed previously, Life Technologies was found by a federal jury to have infringed our patents covering pioneering and pivotal technologies relating to compounds used in DNA-sequencing systems to read the genetic code. The applications for inventions based on our technology are diverse, ranging from detecting pathogens in human diseases such as cancer, to decoding and analyzing the human genome. The jury awarded us over $48 million in direct infringement penalties. We are awaiting the final certification of the decision, which we expect to include interest charges, that our legal team believes can add a number of millions of dollars to the final award.

Furthermore, we are seeking an additional award related to the jury's findings that Life Technologies sequencing instruments indirectly induced its customers to infringe our patent via the sales of these instruments. The sales of such instruments during that time period under which the patents were enforceable has been estimated to be about $770 million.

Concerning our actions in the New York cases, a trial date has been set for November 4 for the first of these cases. We have every reason to believe that the Life Technologies decision would have a positive impact on these cases, since a jury found that a key patent that is the cornerstone of these cases was indeed valid. These cases deal not only with our patent estate, but also with matters of breach of contract as well. The defendants here include Roche, Affymetrix, General Electric, Life Technologies and Perkin Elmer, among others.

Finally, let me briefly mention the actions we have brought in Delaware against a number of key players in the Life Sciences and diagnostics industry. These cases are being handled on a contingency basis by a leading law firm, and include patent-infringement actions filed against Hologic, Abbott and Illumina, among others. Because they are on a contingency basis, our expenses in connection with these cases are minimal.

Looking at our operations, the last year has resulted in some very interesting developments. We have been working on a number of exciting new products and technologies which we believe will contribute to the improvement of our operating results in the current year and beyond. At the clinical laboratory, we have now rolled out several new tests that we believe will contribute positively to future operations. These high-margin Esoteric Assays that are being marketed to our current services clientele are very interesting in their novelness and their uniqueness in helping to allow the practitioner to better serve his patient. Most of these Assays are in and around women's health. This is a key market segment for Enzo.

First, is E-tect, our new Assay for measuring the overexpression of two key oncogenes, E6 and E7. These may be a harbinger of the integration of HPV into the patient's cells. Run off of standard liquid base cytology specimen, E-tect can allow our client gynecologists to more effectively manage their patients' follow-ups, since HPV integration may be an indication of a higher risk of progression towards cervical cancer than in patients where the virus has not integrated.

We have also introduced HPV genotyping as a service that can run in concert with the HPV screen. Previously, if a doctor wanted to identify the specific type of human papillomavirus that was potentially present in a specimen, it would have required an additional processing step, and the specimen then sent to an outside laboratory, which increases the turnaround time for the physician, and the cost to us. Enzo is now able to perform this Assay at the same time and off the same specimen as the HPV screen, thus increasing our level of service, and reducing the need for potentially obtaining an additional specimen.

We have also introduced a series of comprehensive prenatal genetic panels to our obstetrics clientele, which will allow us to have all the needed Assays run off of a single tube rather than the multiplicity of tubes that had been required previously. These panels include tests such as Tay-Sachs, Fanconi's anemia, Blooms disease, Gaucher's, fragile X, and spinal muscular atrophy, to name a few. When adding these genetics and enhanced HPV offerings I just discussed to our growing menu of women's health products and infectious disease panels, we believe that Enzo has among the most comprehensive menus for women's health-centric tests in the industry.

For our general medicine clients, we introduced at the beginning of the current quarter a fourth-generation test for HIV screening. We are one of the first labs in the New York metropolitan area to offer this Assay, which is now recommended by the New York State Department of Health in their latest HIV screening algorithm. As a result, we expect to experience more favorable reimbursement on this procedure, and improve our service, as confirmations can now be run right in our own main laboratory.

Also, we have been focusing on improving cost inefficiencies at labs, which should impact the current and future quarters. Among these reductions are in pricing on several key reagents that we commonly use in the laboratory, as well as more favorable pricing for a number of Assays we currently refer to other laboratories. This should have a positive impact on the fourth-quarter cost line.

At Life Sciences, we continue to see the benefits of the ongoing cost and expense reductions we have been implementing over the past year. We expect that reductions in both G&A and R&D at this Division will be at or greater than those in the third quarter, and are estimated to total over $1 million in this upcoming quarter. This realignment of resources allows us to dedicate a larger percentage of our expense to our Sales and Marketing initiatives.

Among projects being launched during this quarter are targeted programs that are based on the growing Immunohistochemistry market. We have recently introduced the suite of products that we believe will provide our customers with one of the most comprehensive menus of both primary antibodies and colorimetric detection options for a wide variety of applications. In addition, we have also rolled out programs that target our cancer research and epigenetics customers with action plans featuring some of the highest margin products.

I would like to take a few moments at this point to talk about our business development strategy in general. The new environment demands not only greater efficiency and reduced costs, but also a new array of diagnostic tools as we see the healthcare industry increasingly shift its attention to prevention and personalized medicine. Advances in genetic analysis and therapies with greater, more personal specificity are becoming the norm, and their increasing success is evident in the rising age and well-being of our population. Enzo has developed a number of key technologies which are underpinned by a broad and deep patent estate, that have far-reaching uses not only in molecular diagnostics, but in such areas as Veterinary Medicine, bioprocessings, food safety, biodefense, just to name a few.

In order to focus our activities into key market segments, we are now developing strategic business plans that may result in the formation of new ventures that could obtain funding from either financial or strategic partners. These enterprises will be supported by the infrastructure that Enzo has built over the years, having such key elements as global sales and distribution, the ability to develop and market in-house-developed Assays, manufacturing experience across a wide range of product types, access to key opinion leaders and clinical specimens, and regulatory expertise, just to name a few. It is our desire to utilize this infrastructure as an asset in support of core technologies, such as AmpiProbe, and our focus on targeting these technologies towards specific markets. We are extremely excited about the prospect for AmpiProbe.

Over the years, we have developed technological platforms and products that have opened up new scientific and diagnostic markets, as exemplified with our breakthrough gene-labeling systems, and platforms such as hybrid capture, which is the basis for the largest selling HPV test in the market. Our AmpiProbe technology is a new opportunity that could allow a more efficient delivery of gene-based diagnostic testing. It has been designed to allow multiple testing from a single specimen, which can alter the price structure for doing these types of tests, a concept perfectly in line where healthcare reimbursement is moving today. We believe the approach is more efficient and easier to use than current methods.

The first panel being developed under this platform is a comprehensive women's health panel. We believe this approach will allow us to develop ventures that would attract partners who we believe can provide the financing impetus and the marketing support to move these projects forward in a rapid manner. Without the need to build any additional infrastructure, we feel we can develop and execute on a number of opportunities to service the various specific market opportunities that this technology platform affords. Additionally, our broad and deep patent estate will provide these ventures with both the freedom to operate, as well as the creation of barriers for entry from others.

Before turning the call over to the operator for questions, I'd like to provide a brief update on our therapeutics activities. We continue to progress in our clinical trial of Optiquel, our study drug for the treatment of non-infectious uveitis, which is based on our platform technology in and around immune modulation. This is a study being conducted under a cooperative research and development agreement, or CRADA, with the National Institutes of Health of the National Eye Institute. Uveitis is a serious inflammatory condition in which the body's immune system attacks parts of the eye, and that causes vision loss. Uveitis treatments historically have involved various drugs that suppress the immune system, but these medicines sometimes do not work, and they sometimes cause relatively serious side effects. There is a need for a treatment for this disease.

Optiquel is an experimental medication that is being tested against uveitis. It contains a small protein fragment. It's called the B27PD fragment, which is similar to proteins in parts of the eye being attacked by the immune system. Taking B27PD by mouth may induce an effect in which the immune system is taught to recognize and not attack normal parts of the body. Our study is enrolling and treating patients, and depending on the speed of enrollment, we hope to have results in 2014. Should the trial reach or exceed its primary and/or secondary endpoints, we believe that we will have a number of options that could be derived from what should be yet another valuable asset. Moreover, with the NIH, we recently announced the filing of a key patent that we believe may cover a number of therapeutic modalities in and around eye diseases that could lead to an expansion of our CRADA to cover such afflictions as age-related macular degeneration, the leading cause of blindness in the United States.

Before turning the call back for questions, let me say that it has been both a challenging and yet exciting time for our Company. We are not satisfied with our stock price. However, we anticipate potential events over the course of this year that should help to create value. These include potential resolutions surrounding extensive net of IP-related legal actions, which in the aggregate touch on existing markets in the billions of dollars.

Additionally, we believe that the upcoming litigations over the balance of the year will further focus attention on the value of our intellectual property, and generate many opportunities to validate this IP and generate revenue either in the form of licensing or monetary awards from the courts. As I mentioned earlier, many of these cases are being handled on a contingency basis, and by a law firm with an impressive track record for securing substantial monetary awards. So, it is not only Enzo alone that has a strong belief in a favorable outcome.

We also believe that value will be recognized as we begin to commercialize products and services generated from our key diagnostic technology platforms. Increasing our focus towards the creation of businesses in and around specific applications while utilizing our existing infrastructure and core competencies can help to accelerate value recognition for our Company.

Finally, as we begin to see improved operating results, especially as many of the high-margin Esoteric tests that we spoke about which have been rolled out during this quarter begin to generate revenue, we believe that this may be reflected in an improved realization of our stock price. While the Clinical Labs business has been quite challenging for the entire industry, we believe revenue and profits from these new tests may more than offset the headwinds the industry has been experiencing. Our Life Sciences business should continue to be profitable as we begin to see the results of our focused marketing efforts.

Finally, we look to continue for the most effective ways -- the least dilutive ways to monetize many of our transformational technologies that have been developed. We continue to explore joint venture spin-offs and other forms of partnerships as a way to raise capital to help advance these technologies, which will benefit shareholders. We believe that success in any of these areas will serve as a value-creating event.

I would like now to turn the call over for questions.

(Operator Instructions)

Your first question comes from the line of Paul Nouri of Noble Equity Fund.

Hi good morning.

Good morning.

In the 10-Q concerning the Clinical Labs side, it's mentioned that payment policy from one payer of $0.4 million reduced revenues by $0.4 million. Can you talk about exactly what that means?

Yes, Paul. Hi, it's David Goldberg here. Yes, there's actually a couple of different pieces with regards to the reductions in revenues. First and foremost, of course, is Medicare, which I think as you know had a national 2.95% cut in January of this year. And then, April 1 due to sequestration, there was an additional 2% cut which is still going on. In addition, there was a reduction in the contract prices that were paid by Aetna. And again, this has been -- we've seen this nationally, and they've actually reduced their prices as they narrowed their network. We are one of the laboratories that is still in the network. I think if you follow the industry you'll know that a number of laboratories were terminated last year, and we are still in the network. But, they have reduced their reimbursement.

It says revenue was reduced by $0.7 million due to reduced billing days? How many less billing days were there in this period?

Approximately 3, and there was also about 3, 3.5 I believe.

The gross margin is down pretty substantially year-over-year. Can we assume that the only real way that that ticks back up is if sales kind of go back up to where they were last year?

There's a couple of pieces to this, Paul. Number one, you are correct. Obviously, this is a high fixed-cost business as you know, and as such, we are looking to drive revenue. We have put in, as Barry indicated, several high margin tests that have been introduced -- actually introduced at the beginning of the quarter or in the middle of last quarter. And, we hope that those will have a positive impact on margins, and we've also been able to get some cost savings with some of our vendors as well as we've been able to renegotiate some of our vendor contracts. But, you're correct. It is a top line-driven business, and that is what we are focusing on.

This is Barry, Paul. Just to reemphasize some of David's comments. From my statements just before, you could see that there is an extensive new portfolio of products that we have been introducing. These products for the most part are much higher margins, specifically targeting Esoteric types of tests. We recognize quite fully that the need to drive revenues in a fixed overhead business is critical. The quarter was unusual in that we had many cross currents, as I mentioned, whether it was the Medicare and sequestration cuts, the realignment of the pricing from some of our suppliers and by providers. We believe very strongly, and we have history now for months already into the new quarter that traction is being obtained by these new tests. We are looking forward to the fourth quarter as seeing a growth in the revenue base of the laboratory which would put us more in line with our historical revenue run rates, and we also see return of higher margins as these tests start to kick in.

It was unfortunate that because of the storm, we were delayed in almost three months in an inspection that would have allowed us to have instituted some of these tests at the beginning of this third quarter which would have given us higher revenues and really had taken care of some of the bottom line issues that we have reported on. But, that being said, we are moving forward aggressively now. The products are all online and are selling and are performing well, so we're very optimistic where we're moving in our fourth quarter.

Do the tests give you a reason to go into doctors where you hadn't been going before? Or, initially are you going to attempt to penetrate the doctors that are currently you customers with these tests?

Paul, both of the above. Obviously, the value proposition that we make as a clinical laboratory is superior service. It is the way that we grow and maintain our business. So, we obviously will market these tests to our current client base. But, in addition to that, they are differentiators and they do allow us to market to new clients. And so, the answer to your question is that we are using it both ways.

Okay, thanks.

(Operator Instructions)

There appear to be no further questions at this time. I'm sorry. You now have a question from Michael King of Princeton Research.

It seems the administrative costs are very high for your Company relative to competitors in the same space. If you look at DTX, which is Quest or BRLI, they run like 20% to 25%. Yours run 40% to 45%. Can you explain that?

What is it you're -- can you be a little more specific on what administrative costs you're referring to?

Selling, general and administrative which is a category under P&L.

Quest and LabCorp are national laboratories with a much larger sales base than Enzo is. I'm really unable to focus specifically on which costs. We do run a fixed overhead business. There certainly are economies of scale associated with this business. I don't think you can really compare us to one of the national laboratories. They are $5 billion to $7 billion operations, and we are a $60 million operation. And, as a result, there's a whole different financial structure associated with us. I don't know if I'm really able -- answering your question adequately. But, I'm not at a -- I really don't know how far to take it to get any better response.

How about BioReference laboratories which is BRLI?

This is Drew Crescenzo. Again, I'd like to point out that when we're referring to BRLI or Quest, that is just the clinical lab segment of the business. Our business includes our therapeutics group. It includes our life science group. All those items -- areas have SG&A costs. As we announced early in the fiscal year, we had completed a review of our G&A cost, and we were able to identify and implement a $6 million plan to reduce our costs. Through the third quarter, we have approximately accomplished 75% of that cost reduction, mostly in the area of SG&A and R&D, and as Barry Weiner added, we expect the final 25% of that planned cost reduction to occur in the fourth quarter. So, we do monitor our SG&A costs, and again, these costs are expanded over the entire -- our three segments.

Thanks.

Your next question comes from the line of Paul Nouri of Noble Equity Fund.

You talked a bit about getting into JVs, or spinning off JVs, and it actually sounds like a pretty good idea to me. Can you expand a little bit more into it as much as possible?

Yes. Because of the wealth of technological development at Enzo, for a Company our size, we have an extraordinarily prolific R&D output. This has been exemplified over the years. I talked about gene labeling. I talked about hybrid capture. I can give you a number of other key technology platforms that have been developed historically, and some are subject of many of the litigations that we have. These go to branch DNA which is used by the Siemens Versant line. It runs to certain types of technologies which are applicable to fluorescent in situ hybridization technologies which are used by many companies. So, we have a historical history of developing very meaningful contributing platform technologies. Some of which have yet to be developed or have been developed by others.

We made a strategic decision about 18 months to two years ago to internally focus our efforts to develop these platforms which have been very lucrative to many others in the industry. These platforms are applicable in many spaces. As an example, I spoke about AmpiProbe. AmpiProbe is a form of gene amplification technology which is applicable in many market segments. Human Health care is one. It is applicable in veterinary and bioprocessing. It has multiple spaces of utility. We have made a decision to build the AmpiProbe system in the Human Health area because it is an area that we are comfortable within. We have all of the resources. We have the infrastructure that is the combination of our Life Sciences and our clinical lab. We have an integrated structure, which gives us an enormous lead in commercialization of these products then start-up companies.

So, we made the strategic decision to build these units or operations around our technology platforms, having them based off of the infrastructure of Enzo. To accomplish this though, we need to be able to fund these operations specifically and adequately. Human Health is something within our own capacity at the moment, and we are investing behind it. We have a full product line in women's health coming out in AmpiProbe. We are working on it. We've made submissions to New York State under this platform, so it is far along in the process.

What we are looking to do is expand the utility of this platform in other areas that may not be in our core competencies, that meaning veterinary, bioprocessing, as well as a number of other areas. To do that, we are looking to set up separate independent units that will either be self-funded, that will be spun off or partnered, and as a strategy, we have multiple areas of technology. AmpiProbe is but one. We have many others.

We are selectively looking to exploit and partner and develop a number of these areas, and you will hear more about that over the next quarter or so. We think as a strategy we have a unique opportunity to extrapolate value from our technology, and as I mentioned in my comments earlier, all of these technologies are covered under an extensive intellectual property estate under which we can provide freedom to operate which is very critical in this segment of the industry because there are so many issues of IP-related interaction in the industry. We feel that we can provide a package that will be able to be developed and monetized either independently or with others, and we are exploring those routes actively today.

Have you hired an investment bank to help you reach out to companies? Or, are you kind of doing it on your own?

We have been in dialogue with a number of parties to do this. There is an investment bank that is in a dialogue with us. It is too premature to speak to that, but it is one of the potential avenues for which we will explore these products.

Okay, and when I look at Enzo Biochem and look at the product side and the clinical side, sometimes I struggle to understand where the synergies are coming from. It seems like independently these businesses would be worth more than the market is valuing them at today. Can you talk about maybe if the research that produces the Esoteric tests for the clinical side is coming from the product side or not? And then, what the value is of having these two businesses together?

Certainly. The structure that Enzo has built over the last three to four years is an integrated structure, and it is a structure that we believe makes perfect sense and aligns with the directions of developing and building and bringing products to market in this diagnostic space. I think it's -- you made a comment that the components have individual values. They do have individual values. There is no question about that. The value at the clinical laboratory is a growing value in this marketplace as we see the consolidation take place and as we see the need for channels of distribution for the new types of tests that are emerging in the area of predictive companion diagnostics and so forth.

What we believe -- and it's not what we believe alone. It's where we see the industry moving is that the structure that we today have in place of this integrated entity that can go from biomarker basic research to platforming to labeling technologies to kit manufacturing to be transferred to a unit that will be translational in taking research-related products that can be channeled through Life Sciences and putting them through as LDTs, or lab-developed tests, into the clinical market. And ultimately, FDA-approved products through the Life Sciences division is a very unique structure. It is a structure that many companies in our industry are looking to emulate, and I point you just to the transactions that have been executed over the last few years where you see Life Sciences companies adding in clinical service entities to help build their channel of distribution. You see a broad variety of acquirers out there which are not just the traditional consolidators such as LabCorp and Quest. You see a General Electric acquire a Clarient. You see a Novartis acquire a Genoptix. You see a Nestle acquire a Prometheus.

The issue here is the integrated value of the structure, and how it could potentially help to drive and build an expedited process for delivering product to the market. And, particularly product that is of a new nature. These new Molecular Systems require different types of approaches is one which is paramount. So, we believe the integrated value of the operations holds a huge potential and is a structure that so many in our industry are trying to build today. We see that on an every day basis.

As we are building our AmpiProbe technology, we see the value of having this clinical lab structure that offers us reach to key opinion leaders, reach to thousands of physicians on a daily basis, and whom we have personal intimate contact with. The ability to access information, to provide informatics that are driving the values and the directions of our development cycle within Life Sciences. So, all of this fits together. We have over the last two years built a very streamlined, very focused machine in both Life Sciences and clinical lab services which we think is synergistic and will drive ultimately to a much higher value for our Company as the products become developed, and we are well on the way to achieving that.

Okay, thanks a lot for the explanation. And then, a couple of just technical questions concerning the lab. The provision for uncollectible accounts went down which was nice. Is that sustainable?

The results that we reported in that area is the result of stronger collection efforts. We had some internal changes which we've put new policies and procedures through, and we look for that to be sustaining.

Okay, great. And then, can you talk about your effort to go into the Pennsylvania market? Whether that is successful? And, if it took -- if you had to take on additional fixed overhead to take that business on? Or, if you just kind of added putting a couple of cars out there every day?

Paul, the efforts in Pennsylvania -- they've been a small amount of fixed overhead that we've had to add. But, for the most part, it was a logical geographic expansion since we now cover -- I guess, the entire State of New Jersey. So, going over to the Philadelphia area was not a huge effort for us, and it has been paying some dividends for us.

Last question. Are there any commercial payers that still have to come -- or, are still going to come and knock down price? Or, has a lot of that been baked in?

Paul, it's hard to say. At this point, none that are on the horizon. But again, you just -- as you know, this is a very dynamic business. And so, it's hard to predict the future there, but we don't see anything in the immediate future here.

Do you expect any kind of net benefit from the Affordable Care Act? From the additional patients coming in? A lot of them, I guess, will be on Medicaid initially. But, maybe you could speak into the -- ?

It's hard to say. Certainly, there will be more people in the system. They hopefully will be covered by insurance. It will be Medicaid. Without knowing specifically what the actual reimbursements will be based upon how these healthcare exchanges are formed, it's hard to say. But, we certainly do think as an industry, we do believe that there will be some additional volume. But, with any of these programs, the proof will obviously be in the pudding.

All right, thanks.

My pleasure.

There appear to be no further questions. I will now turn the call to Barry Weiner for any additional or closing remarks.

Thank you. We appreciate your interest and participation. We do believe the measures we have taken both operationally and financially will allow us to proceed on an aggressive pathway. We are enthusiastic about the future, and we look forward to discussing our fourth quarter and full year in the fall. Have a good day, and thank you.

A replay of this broadcast will be available until Tuesday, June 25, at 12.00 midnight. You may access the replay by dialing 1-800-585-8367. The PIN number is 91660138. 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.