Enzo Biochem Inc (ENZ) 2016 Q4 法說會逐字稿

Good morning and welcome to the Enzo Biochem Inc. fourth-quarter 2016 operating results conference call. I will now read the Company's Safe Harbor statement. Except for historical information, the matters discussed in this news release 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, including those related to cash flow, gross margin, revenues, and expenses are dependent on the number of factors outside of 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. See risk factors in the Company's Form 10-K for the fiscal year ended July 31, 2016.

Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that could materially affect actual results. The Company disclaims any obligation to update any forward-looking statement as a result of developments occurring after the date of this conference call.

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. (Operator Instructions)

I would now like to turn the floor over to your host. Mr. Weiner, the floor is yours.

Good morning and thank you for joining us today. On the call with me is Jim O'Brien, our Executive Vice President of Finance, and David Goldberg, our VP of Corporate Development.

We issued our fiscal 2016 fourth-quarter and full-year results press release after the close yesterday. You can take a look at it on our website, enzo.com.

Today's call is a very special call in that we wrapped up an excellent fourth fiscal quarter and year end for 2016. We did this on all fronts. And we ended it on a particularly strong note, setting the stage for what we anticipate will be further gains in the new fiscal year. I will go into detail shortly, but briefly, here are some of the high points I want to share with you as to what we accomplished in fiscal 2016.

We had solid revenue growth and final quarter, with strong marginal improvements. Our consolidated revenues were over $26.6 million for the fourth quarter and $102.8 million for the year. Consolidated gross margins were 100 basis points better in the fourth quarter this year than over prior-year period, and gross margins were solid year over year, despite a decline in third-party royalties.

We saw another 5% growth in the fourth quarter at Enzo Clinical Labs and double-digit growth of 12% for the fiscal year, as the segment continues to achieve solid growth in women's genetic health marketplace.

Both clinical labs and life sciences operating segments continue to be profitable and generate positive cash flow. In fact, on a consolidated basis, if non-GAAP adjusted EBITDA were to exclude legal litigation expenses, Enzo would have positive cash flow returns for the full year.

Along with the improved operating performance of our businesses and aided by legal settlements and licensing agreements, net income for the quarter was $36.1 million and $45.3 million for the full fiscal year. Gross legal settlements and license agreements were over $82 million in fiscal 2016, illustrating the value of Enzo's intellectual property estate.

This year, we saw three new product approvals by New York State along with a strong product development pipeline, underscoring our growth opportunities as a supplier of advanced low-cost molecular diagnostics for reimbursement-constrained independent clinical laboratories. Enzo Clinical Labs is growing market share in the women's health market and also expanding general operations beyond the current regional New York area.

Our cash position is over $67.8 million, with working capital of over $70.8 million. Cash flow provided by operations in the fourth quarter and year ended July 31, 2016, was $36.1 million and $53.1 million, respectively. The legal settlements and licenses and the operating performance of business segments here are providing the financial strength that will enable us to execute on our business strategy.

All these gains have resulted because of our integrated structure, which is unlike any in our industry and one which we believe would be very difficult for others to duplicate. It starts with an extremely comprehensive patent estate built up over several decades.

This asset provides us with broad freedom to operate, allowing us to be self-reliant from discovery right through to product development, development validation, and launch. It also allows us to produce products at lower costs than most molecular diagnostic companies, as our products are free from the royalty stacks that plague most of our industry. This also provides our Company with enormous flexibility and technical insight that measurably enhances our development programs.

In addition, we have uniquely and strategically woven an integrated ability that combines the product development, production, and global marketing capabilities of our life sciences division with the practical real-world testing and utilization of our clinical laboratory. This combination has given us a commanding position as both a reference lab and provider of molecular diagnostic tests.

Together, our Group plans to offer independent labs throughout the country and overseas, an opportunistic return to meaningful profit margins in this day of shrinking reimbursements, with savings of 30% to 50% or greater from the market prices. And our structure has proven important in our ability to gain regulatory approval for our laboratory-developed tests from New York State, which can be marketed nationwide.

At the same time, our focused litigation program to protect our valuable patent estate is paying off handsomely. With a solid growing cash position, operations that continue to generate cash-positive flow, and virtually no debt, our strong financials are providing us an important capability to pursue our goals and deliver investor value.

As for the financials, the year was excellent. Consolidated revenues rose to $102.8 million; that's up 5% from the prior year. Double-digit growth at Enzo Clinical Labs was highly instrumental in that performance.

Gross margin for the year increased 6%, with gross profit amounting to a solid 44% for both years, despite a decline in third-party royalties. With our concentrated development effort, which is critical to our future success, R&D, though up 5% year over year, held steady at 3% of revenues. SG&A, likewise, was up 6%, including a particular one-time expense, but it also held firm at 42% of revenues for both years.

Legal expenses declined by 27% to $2.4 million due to pretrial expert testimony and other related expenses that have already occurred. We will have more on the legal front later.

Meanwhile, we reported $57.3 million in legal settlements net in 2016, which helped materially to drive net income of $45.3 million or $0.97 per share fully diluted. In the prior year, with net legal settlements of $11.5 million, we had a net loss of $2.3 million, for an important improvement of over $47 million year over year.

On a non-GAAP basis, adjusted for this fiscal year's proxy costs and various legal issues as well as tax effects, the net loss was $9.2 million or $0.20 on a diluted-share basis, sharply down from the fiscal 2015 net loss on a similar adjusted basis of $13.5 million or $0.30 per share on a diluted basis. That's $4.3 million difference.

Likewise, non-GAAP EBITDA improved to a negative $5 million from a $9.4 million negative. It is important to note: if non-GAAP adjusted EBITDA were to exclude legal litigation expenses, Enzo would have positive cash returns for the full year. Our non-GAAP results underscore the achievement and the progress that we have made to execute on our business strategy and deliver successful results.

Mentioned earlier, we ended the year on a strong note, with fourth-quarter revenues up 4% to $26.6 million. Gross margin increased 7% to $12.1 million, and gross profit advanced 100 basis points to 45%.

As it has all year, the provision for uncollectible expenses for the three-month period was very satisfactory. And on a year-over basis, remained at 3% of revenues despite growth. This is the result of our focused billing and collection procedures, which have kept this key item in check.

The quarter also saw legal expenses decline by more than half, to about $700,000. As most of you know, it was an exceptional quarter for legal settlement and licensing proceeds, which net totaled almost $39 million as compared to proceeds of $11.3 million a year ago that was realized in fiscal 2015's final period.

The fourth-quarter results include the Life Technologies and Illumina settlements, which were previously announced. And like similar arrangements, these included fully paid-up licenses on Enzo's patented technologies. The result: net income totaled $36.1 million for the fiscal 2016's fourth quarter.

Net income equaled $0.77 per diluted share. A year earlier, net income was $18.4 million or $0.18 per diluted share. The non-GAAP quarterly net losses improved 27% to $0.04 on a diluted-share basis, while the non-GAAP adjusted EBITDA loss improved as well, by 53%.

On a segment basis, both the clinical labs and life sciences performed extremely well and are positioned for future expansion as an integrated operation. Life sciences continues to be challenged by a highly competitive environment, along with the fact that research funding, especially in academia, continues to be weak industrywide.

However, we have applied tight controls, and as we previously have discussed, are concentrating our selling efforts as well as inventory and higher-margin products. Our commercial and clinical sales and marketing efforts are working to penetrate key accounts and developing valuable leads in advancing Enzo's products and services. The results of these efforts should be visible over the next year.

As for clinical labs, business has been growing well, the result of increasing revenues from proprietary tests and the continued focus on higher-margin molecular testing. At the same time, costs are being well managed. The result is that for the year, revenues grew 12% to $70.9 million, with resulting gross margins of 40%, 200 basis points better than last year.

Operating income more than doubled to $1.2 million. We believe many opportunities for growth in the clinical lab exist, including our reference services business outside of the New York Metropolitan area, strategic account management, some of which has already occurred this fiscal year, and broadening our relationships with insurance providers as an in-network partner.

Fourth-quarter lab revenues increased 5%, with gross margin improving 7%, and the gross profit percentage improving 100 basis points to 40%. Operating income was up 60%, to $800,000.

Fourth-quarter life science product revenues, given the continued flux in the market, were constant with the prior year, at $8.1 million, with gross profit amounting to $4.4 million, a 6% increase, and gross margin advancing 300 basis points to 55%. Excluding legal settlements, net operating income at life sciences was ahead 58% year over year to $1 million.

For the year, life science product revenues were off $1.4 million, again chiefly in line with our concentration on fewer products with greater returns. Gross margin consequently was off slightly, but gross profit increased 100 basis points to 53%, while operating income was equal to a year ago. Royalty and fee income fell to $1.5 million from $2.5 million a year earlier, the result of declining sales of related products by our licensee.

At the close of the year, our balance sheet was exceptionally strong. Cash and cash equivalents amounted to $67.8 million. Total assets were approximately $112 million. As strong as the year was financially, what perhaps these figures do not show is the inherent strength in our growing portfolio of new platforms and diagnostic assays, especially in the realm of molecular diagnostics.

We have this past year received approvals for new products that should be accorded good acceptance, given their unique scientific properties and the fact that they compete with products that cost considerably more. Our estimates are that by utilizing our products, both those already approved and those in the pipeline, other clinical labs can save materially on their cost of goods.

This is perhaps more important now than ever, given the fact that reimbursements continue to trend down and that the costs of tests by most other suppliers continue to increase as a percentage of revenues. The result is that independent labs are finding themselves between a rock and a hard place, literally, with dwindling or nonexistent profit margins.

In addition to utilizing these new products in-house, our approach is to offer these products either for sale outright and/or performed by our clinical lab on a reference basis. Under either scenario, these labs should see consequential savings.

As we move forward with more and more approved products, we anticipate increased recognition and acceptance. Our current efforts are aimed at marketing products and services, once approved, paving the way for increased recognition and utilization of our product line. Given the economics of our systems, labs should be compelled to evaluate and integrate our product lines into their workflow.

The lineup of product approvals by the New York State Department of Health in just this past year has been important. I might add also the fact that we are seeing less lead time in gaining approvals now that there has been what I would suggest is perhaps a greater understanding of our methodologies as well as an overall development in testing standard appreciation.

So here is what we have accomplished on the product approval just this past year. Last November, we received a first approval for a technology based on our AmpiProbe platform, encompassing high sensitivity, real-time nucleic amplification assays. Our AmpiProbe HCV assay can address a key and growing market in the identification and quantification of hepatitis C virus in patient specimens.

Incidentally, our scientists demonstrated at the last annual meeting of the prestigious American Society of Clinical Pathology the superior thresholds of sensitivity for our HCV assay. The limit of detection, a standard yardstick, showed a significant improvement in analytic sensitivity than the leading commercially available HCV viral load assays.

Also approved was the Candidiasis AmpiProbe assay, which was our second test aimed at the women's health market. I might add that products for diagnosing various women's health issues have been an important target for Enzo. It is reflected in the results of our clinical lab, though we have yet to fully display the full extent of our product lineup in this area. We have in development currently a number of additional tests related to women's health for which we anticipate gaining approval in the months ahead.

More recently, we announced last month we received conditional approval for our PLAQPRO Lp-PLA2 Assay. This is designed to identify lipoprotein-associated phospholipase A2, a marker associated with the potential for coronary heart disease, especially in women.

You may be aware the detection as well as the treatment, we might add, of heart disease among women has been somewhat behind that of men. And so this is an important new product in the growing arsenal to correct that deficiency, which should help improve matters all around.

We also rolled out a line of products aimed at the pathology market, designed to allow for a more precise interpretation of tumor biopsies. The first publication on this important product line is due out shortly. And we believe that these products could potentially reduce both false positives and false negatives that are sometimes seen in difficult-to-identify tumor specimens.

As we look ahead to 2017, we have under development assays for the quantification of hepatitis B virus in HIV as well as additional products based on our proprietary FlowScript platform in such fields as immunology and cancer. And as I just mentioned, we are also working on a full spectrum of tests designed to identify a number of infectious diseases related to women's health, one of the fastest-growing segments of the molecular testing market.

On the legal front, our case against Life Technologies in federal court in Connecticut is under appeal. Our New York federal court case against Roche Diagnostic and its subsidiary is also still in process. And 6 of 11 cases of patent infringement brought in Delaware federal court remain to be resolved. Last week, we filed an additional action in Delaware against Hologic, which is separate from those currently pending.

In sum, we are embarked on a exciting growth cycle and we are well positioned financially and operationally to realize that potential. The year has been one of incredible achievement for us both internally and externally. We appreciate your support, and we thank you for joining us this morning.

And I would like to now open the floor for questions.

(Operator Instructions) Bill Bonello, Craig-Hallum.

Wondering if you could just touch a little bit more on how you are thinking about expansion opportunities. I know we've talked about this in the past, but ways that you can reach out to the market beyond the New York Metropolitan area, particularly as maybe a national reference lab. How you might go about doing that: time frame, capital needed, etc.

Fine. We spoke within the context of the call about the integrated structure that Enzo is nurturing and putting into place. We are unique in that we have both the integrated elements of product development, of IP, of platform development in cohesion with the services part of our business, the clinical laboratory.

Right now, many of the major customers of our life sciences business are clinical laboratories around the world. We are a marketer and seller of reagents and compounds that are utilized in the development of tests and processes by many of these clinical labs. Many of the largest are of our largest customers. We have access to labs globally.

And the product lines that are being developed, the low-cost molecular testing as well as the other product platforms such as FlowScript are targeted specifically at this customer group. So we have a existing sales operation globally that [have] ready targets and markets to the customers through which we wish to expand our reference services.

And looking at the clinical laboratory market today, we see the stress of margin constraint. We see the cost of goods for kits not being reduced commensurately with the reimbursement declines that are being provided by the insurance providers and Medicare. There needs to be a solution.

Our strategic approach is to offer a bifurcated services product solution to our customers, specifically the clinical lab customers, of which already exist within our marketing system. Allow them to acquire low-cost systems and systems that will provide them marginal return, where today they are not getting marginal return on tests run internally.

Or, if they do not have the critical demand, the scale, or the infrastructure to perform tests, to allow them to reference their work to our clinical lab, for which we will provide services at a cost structure that will be less than the cost of running the test themselves.

And I think that structure is one that is unique within the marketplace because it offers a full solution. And Enzo Clinical Labs, as a New York State [cleacapt], as you are aware, has the ability to reach out to a great majority of the marketplace. The few states that are not covered have already been submitted for coverage. We've gotten a number of them already. So we will have the full reach, hopefully within the very near term, of being able to accept specimens from every state in the United States.

So our marketing strategy is one of both product and service, low-cost provision of test results to allow labs to both expand the menu to their clients if they don't currently perform certain tests, to be able to pick and choose, to be able to provide the service or reference it out at a cost which gives them profitable margin return. And so that is really the strategy, very simply.

Okay, thank you. That is very helpful. And then just curious -- I know that was hard to peg, but if you can give us any flavor of where you feel like you are with some of the remaining legal cases that are outstanding?

It's very difficult to handicap litigation timing. I think this past year has been a very successful year in terms of coming to conclusion -- I would say very successful conclusion -- with a number of our parties that we are in litigation with. We have cases that cover broad approaches with many different parties out there.

I think what we have established this past year is the viability, the validity. We have, as you recall, now received agreements that involve licenses on every one of the three patents that we have asserted in the Delaware cases. I think it's an important issue to note that every time we receive a license, it's a validation of the integrity of the patent.

The cases that are in front of us concern major parties that have major penetration in the market. So we believe many of these parties have infringement levels of scale here. We are pursuing the path to resolution, whether it be through an agreed-upon resolution or a litigation or trial, aggressively. The majority of these cases are in Delaware, which is noted for expedited processing of these tests.

So we are following the path. It's difficult to put a time frame on any of these cases. But I think over the next year, significant progress should be made.

Okay, great. Thank you very much.

Pat Gallagher, Laidlaw.

Congrats on another great quarter. Just a couple of follow-up questions. Are you actively trying to get the message out currently on the new technology? And when do you think that starts to have an impact?

And maybe you can just also touch on the impact you think AmpiProbe will have in your own lab, in terms of roughly what it will do to margins over time? And then finally, maybe we can just chat a little bit about the potential you think PLAQPRO has. Thank you.

Our sales teams are actively starting to solicit and contact labs around the country. We are in dialogue with multiple parties now over the application as well as the opportunity of our platforms.

Remember, the product sell here is an economic sell for the most part. Technology is certainly elegant and exquisite, but the real impetus for labs to listen to our sales effort is one of economics. And that's a compelling component of a sales mix.

So we are out there and we are talking to people; we're seating people. We are working to build relationships. We are talking to providers to see if we can engage interest in low-cost testing approaches on a more grand scale.

So we are touching all of the bases that we have in the sense to pre-market and get the understanding and the knowledge of these systems out there in advance of what I would consider to be the critical mass of tests emerging, which will happen sometime, I believe, over the next year.

In terms of the cost at the laboratory, remember, we have no royalty drag on this particular cost structure. We manufacture these internally, so our cost of goods is extraordinarily dramatic from purchasing these products externally. The margin is quite high on these particular tests because they are all internally developed and internally manufactured.

The products that we are driving towards are products that have the highest growth opportunity within the market. The molecular space is growing about 10% or 11% range annually. It's most frequently noted in the literature as the highest-growing segment, and that's why we have targeted it. We also have been targeting what we consider to be the largest volume tests within that sector.

We are not looking for the exotic career tests, we are looking for the high-volume tests that drive the heart of the molecular testing universe. That's why we focused on hep C. In my comments, I talked about hepatitis B and HIV. Those will constitute a viral load panel, which we -- when all approved, will be able to be offered at a very, very economic price point to our competitors, and also internally drive our own cost structure.

The margins on these types of tests for internal improvement are somewhat close to double what the routine margin would be for running a clinical diagnostic. So it's very, very high. So we feel that this approach will not only be of value on a universal level to labs around the country, but it will certainly drive our cost structure from the cost of goods perspective down rather dramatically in the areas where we produce test. So it will help us on two fronts.

I'm sorry if I missed any of your question.

No; that's super helpful. Thank you. The only other thing I had was chatting perhaps a bit about what you think the potential of PLAQPRO is. Because it seems like a pretty exciting technology.

PLAQPRO is a tech -- it's a test which actually is being used in the marketplace today. Its exposure, I think, needs to be accelerated. We are working to do that. It's difficult for me to put an actual number because the test was just approved. We're working on getting our marketing presentation more in line. We certainly will be using it in our own lab on an extensive level.

And again, recall, we have a very large women's health practice in our laboratory. So this test fits in perfectly with the direction of the clinical lab as it is today. And we will be offering it to other labs. The market is in the millions. It will depend on the extent of marketing effort we put behind it. And we are looking to make a considerable effort.

Terrific. Thank you, Barry.

Norm Hale, Stifel.

Good progress on a variety of fronts here, guys. I'm primarily looking at your assays. Obviously, this year -- well, starting last year and going through this year, you had some product approvals. And I know you've already submitted some additional assays for approval.

If you could give me -- and this is just a guess, because I know you guys can't predict when the regulatory authorities are going to give you approval. But if you could guide me in terms of what products, what assays you think will be approved by, say, the middle of 2017?

Again, it's very hard for me to speculate the process or the timing of this. I can tell you what our development program is targeting: we are targeting women's health analytes. The women's health panel is a panel that will constitute approximately 14 different analytes.

Today we have approval of the Candida series, which is about four of those analytes -- or five, actually. We are looking to the approval of a bunch of additional assays, including chlamydia, gonorrhea, as well as a whole variety of bacterial identification assays that will be included within this platform.

So in terms of timing, it's difficult. We hope to have them within the next six months or eight months. It depends how quickly the regulatory agencies approve all of these. But we are looking for a complete panel of 14 sometime within the year.

On the other side, we also have work that is being done on the viral load panel, as I mentioned. And we are looking at hepatitis B and HIV. We have a fertility assay, which is also a very interesting and important assay, which is being worked on.

So we have a fairly broad variety, as you can see from my comments, very much targeted toward women's health. We believe that's a big market. If you look at the totality of the women's health market, particularly the tests that I delineated, you are looking at a market opportunity that could approach close to $800 million to $1 billion in size. So it's very focused and very targeted, and we hope to see all this within the next year.

Excellent. Another question -- when your salespeople are calling these laboratories throughout the country, and as you pointed out earlier, there's an economic benefit of using our product line, your product line, what sort of pushback to the salespeople typically get? To me, it should be pretty obvious that they are going to save money and they got a good product. So what sort of objections do the salespeople typically encounter?

Well, this process is just beginning. But I think the typical challenge is to get people to change their behavior, to change their routine, to accept something new within their workflow. And obviously, we are making an economic sale here. So one is compelled to listen if you have a business that is marginally, if not profitable at all.

And the other thing is, for us, the larger the menu that we can provide labs, the more receptive they will be to a change of process within their labs. And that process may be a change of a reference lab, a change of reverting from internally running a test to sending it out. So the more that we can provide our customers, the more receptivity I think we will have because the economics will be more compelling to them.

And I think what we will be doing, which is really a very interesting aspect of the reference work, we will be turning reference testing for a given clinical lab from a cost center, a loss to labs, to a profit center for the lab. So it's a very strategic shift in thought process on change, which is very positive. It's a very strong selling statement for us.

But in the medical establishment, change takes time. It's a conservative population. We are optimistic that the selling proposition of value/cost will help to expedite that process.

And does PAMA -- does that go into effect in 2018?

Well, PAMA will come into effect in 2018. We are fortunately very well positioned to deal with PAMA, mainly Medicare. Because our focus in the clinical lab has been very strongly positioned around women's health, the utility of Medicare in the population is not very high. So Medicare represents a relatively low percentage of the work that we do.

So we do not believe that PAMA will have a tremendous effect on our clinical laboratory. And if anything, it is what will give us the impetus with other labs to be able to go in and to be able to drive more profitability in the cost structure for these labs as they continually see their margins getting cut.

And as you are aware, we are in an environment where we are seeing continuously reducing reimbursement and cost structures being fixed. So we believe that's an opportunity for us, not a negative.

Well, I would agree. Do you -- just make an, shall we call it, a best guess. The laboratories, this business environment is going to get tougher and tougher, obviously, when PAMA comes into effect and reimbursements are further reduced. It looks to me like the labs that don't change their cost structure are basically just going to go out of business. Do you agree with that?

Well, we are seeing the transition within the market today. You are looking at a very significant consolidation of laboratories within the marketplace today. Look, it's an environment which is very, very difficult. You just have to look around.

And again, you have different types of labs within our market. Some are independent labs, others are academically driven clinical labs in hospital systems. And so we have different types of labs. And there are also different types of reimbursement associated with these different types of labs.

Our target is the independent labs as well as any lab, I mean, but the independent labs are the most needy right now because they are the ones that are going to take the biggest brunt of all these reimbursement hits. So we think that as the market tightens and gets tighter and consolidation takes place, our offerings will stand out as very much a necessity and appreciated and required product opportunity for these different companies.

Actually, consolidation of these laboratory facilities will make it easier for you guys. And if you have fewer sales calls to make, then it's going to be more efficient to sell a product. So --

Well, it's hard to see. There's a lot of labs out there. There are 7,500 independent labs around the country today. So there's a significant market to attack. But look, I think we have designed our corporate strategy to address the macroeconomic elements that are impacting our business, our industry, today. And they are specifically targeting the needs and to take advantage of the trends.

Okay. And obviously, the cash position of the Company is now very healthy and should improve, assuming we get a few more settlements here on some of the litigation. The money that is currently sitting in there, in your bank account or wherever you keep it -- as far as what that money is going to be used for going forward, are you going to be adding to your sales and marketing team with some of that capital?

We will be enhancing our teams across the board here to drive our business strategy, the product. At the end of the day, the value proposition is driving the product volume within the Company. And we are determined to do such. So we will be investing to that.

But I think it's interesting to note, if you look at the numbers I reported today, the Company fundamentally, excluding legal expenses, is cash flow neutral. And we hope that we will soon be cash flow positive on a much broader level as our revenues and businesses build.

We do have investment, but we have a very, very well-defined infrastructure in place already, which is incorporated into the cost structure of the Company. Granted, we need to expand that. We need to drive the sales activity at a much more aggressive and higher level to drive revenue growth. And we intend to do that, and we certainly will use capital to achieve that.

Okay. And some of this capital -- as far as your research, R&D costs are, shall we say, your -- the amount of money that you target to set aside to allocate to R&D. As sales ramp up further, is it your intention to add some additional capital into R&D division of the Company?

Yes -- simple answer.

Yes, exactly. And then just my last question. I know in many of the previous conference calls one of the things that has been kicked around is you guys doing some sort of joint venture with some other entity. Is there anything you can talk about on that front?

Establishing business relationships on many fronts is a key goal -- of the many goals that we have set forth for our team here. We are in dialogue with multiple parties.

We are fortunate that we have many platform technologies that appeal and touch on different segments of this particular marketplace. And we are looking to expand those platforms into areas where we may not have the interest or the time or the focus to expand utility of the platforms. And so we are in dialogue. And you could very well see the consummation of relationships with a number of parties out there in the near future.

Very good. Thank you very much.

Robert [Gould], [Gould] Capital.

I was wondering whether you might be able to comment on the status of the Optiquel.

Interesting question. We have not really said too much on that particular product. Optiquel, for those that might not know, is one of our therapeutic activities which has been engaged in a Phase 2b trial at the NIH. It's in the process of being followed up in terms of data understanding right now.

It is a product, a therapeutic, that is geared toward treating autoimmune uveitis, which is the third-leading cause of blindness in the United States, I believe, if not the world. It works from the perspective of downregulating immune response.

We have run an extensive Phase 2 trial under the auspices of the National Institutes of Health. They are now evaluating the potential of that particular product. Nothing has been publicly released as of yet, but we are looking forward to the expansion and the utility of that product into other areas of inflammatory eye disease treatment.

I think when definitive data and/or direction is consummated, we will report on it. But it is, without question, a very interesting and active approach for the treatment of inflammatory eye disease, of which macular degeneration falls within. So it's a little bit circuitous response. But it is an active project on our table.

Is there any sense of timing as to when they will be done with the analysis and there will be some commentary about that?

It's actively being pursued. I can't comment on a specific timing. Again, much of that timing is not within our control. It is being handled at the National Institutes of Health.

Great, thank you.

There appear to be no further questions at this time. I will now like to turn the call back over to Mr. Weiner for any additional or closing remarks.

Thank you again for being with us. As you have heard, it has been a very, very strong and productive year for us at Enzo. We believe the coming year will also be one of important transformation and value generation. We look forward to discussing further the results of the Company when we speak to you in December for our next quarterly call. Thank you very much for joining us.

Thank you. A replay of this broadcast will be available until Friday, October 28 at 12 midnight. You may access replay by dialing 1-800-585-8367. The pin number is 85947927. This replay is also available over the Internet at www.enzo.com. This concludes today's teleconference. You may now disconnect your lines at this time, and have a wonderful day.