Enzo Biochem Inc (ENZ) 2018 Q4 法說會逐字稿

Good morning, and welcome to the Enzo Biochem Inc. Fourth Quarter 2018 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 expectation 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 market 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, 2018. 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 its 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.

Thank you. Good morning, and thank you for joining us today. On the call with me is Jim O’Brien, our Executive Vice President of Finance.

We distributed our press release detailing our fourth quarter and year-end results last night after the market closed. I hope you've had a chance to review it.

The past year was an especially eventful one for Enzo as we made significant progress in the design, production and validation of our unique products and platforms to address the 2 primary critical issues facing the laboratory industry. These are declining reimbursements from government and commercial insurance payers and unreasonably high operating costs, specifically, that of the cost of goods that are associated with diagnostic companies closed system platforms.

To address the acceleration of the tightening reimbursement trends we are seeing, we have stepped up our investment to drive the validation of our novel platforms, specifically in the molecular diagnostic in the immunohistochemistry area.

This year saw a number of accomplishments as we moved to introducing a novel approach to the clinical lab industry in driving to reduce laboratory costs by centralizing high-valued test production.

I'd like to comment on a number of specific events and activities that are of consequence.

First, we are pleased to report on the approval of an additional 3 new analytes to broaden our women's health panel to now 16 different disease identifications, making it one of the most comprehensive in the industry.

The new tests target Ureaplasma, which contribute to urethritis among a variety of other medical conditions. We also have received approval for 3 immunohistochemistry biomarker Detection Kits to track the progression of various cancers. These approvals are key to extending our number of low-cost, high-volume tests to clinical labs across the country.

Importantly, we saw a significant advancement of our New Molecular Platform that will supply high throughput processing for our molecular tests. This platform will offer a complete solution for labs to perform lower-cost molecular testing as well as increase the capacity and throughput which drives efficiency. The platform is now being validated in our laboratory.

High throughput capacity is fundamental for large labs who wish to run these types of tests in-house and also critically important to Enzo, which we believe will be servicing volumes from labs across the country.

This new platform provides major economies and flexibility to process samples from different collection devices to develop new lab developed tests and FDA-Approved Assays for both existing and novel diagnostic targets, and to eliminate the need for multiple closed systems in labs as well as providing a highly efficient alternative to use Enzo cost-effective services on a reference basis.

We entered into an agreement to purchase a new 36,000-square foot facility adjacent to our Farmingdale campus, to enhance our ability to produce under GMP and distribute our open architecture diagnostic platforms as well as to provide expansion space to broaden our related clinical services.

The facility will also provide manufacturing capability for our therapeutic programs, specifically our sphingosine kinase 1 program, a compound being explored for the treatment of immune mediated-disease in cancer.

We recently were named an in-network laboratory provider for 3 additional insurance providers. These additional contracts are expected to add to Enzo's national reach of testing services to millions of covered lives across the United States. Also in a recent development relating to our legal activity, the New York federal case against Hoffmann-La Roche is now proceeding with a trial date set for early April 2019.

Finally, we have been developing cost-effective approaches on various platforms, not only in molecular but in the area of anatomical pathology, immunohistochemistry and flow cytometry. These various platforms and business opportunities that are under development provide for multiple unique opportunities to partner and joint venture to exploit the commercialization capability that they present, and dialogue is now currently underway to try to move these products in a more expeditious way.

We will speak specifically regarding the numbers for the year-end and fourth quarter further in the call. But I would like to bring to your attention some specific financial comments.

Fiscal 2018 operating revenues showed a 3% year-over-year decline, yet core testing volume grew year-over-year, reflecting the challenge of decreasing reimbursement to the industry. Key factors in our lower revenue were the effect of an account loss reported in the prior quarter, reduced reimbursement rates infecting the entire industry in adverse weather.

Our consolidated margin was 42% versus 45%. We also incurred significant increases in our legal expenses during the year, largely related to the Hoffmann-La Roche case, which was pending for quite a long time in the Federal Court in New York, and now is scheduled for trial in early April. The expenses associated with this case moving along for -- account for almost 50% of the year-end's net loss.

We ended the year in a very strong cash position in excess of $60 million and notably, only used $2.7 million of cash in operations for 2018. The cash used in investing activities principally were about $1.7 million.

Before reviewing the progress we've made to bring our commercial plan to fruition, I would like to provide you with an update on the clinical diagnostics industry as we see it. And the factors that are changing the landscape, which we believe will drive the unique approach that we are pursuing.

As we've discussed for the past year, the recent new PAMA reimbursement schedule, which occurred in the beginning of 2018 and will continue over the next 2 years, is adversely affecting all commercial clinical laboratories regardless of size or geographic market. We are already seeing its effects, underscoring the opportunity for Enzo with greater urgency, which we are determined to meet.

PAMA is only one piece of the reimbursement challenge facing clinical laboratories. Commercial insurance payers are beginning to negotiate new arrangements with laboratories at a pace much faster than we initially thought they would.

In the last year alone there have been rapid and swift changes among insurance payers in their medical policy, contracting and access.

Insurance companies are now questioning the medical necessity of testing and denying claims accordingly. These policy changes have put enormous pressure on laboratories that had been simply acting in good faith on behalf of physicians and patients.

What laboratories have come to learn too is that these medical policy changes from insurance payers are not well-communicated to the market, specifically physicians and patients. These changes create an information vacuum, not fully understood by doctors and their patients and often time result in billing issues and unexpected patient financial responsibilities for the ordered tests. Normal payment patterns once predictable have been stretched, and internal payment processing costs have risen.

Second, the number of insurance payers are reevaluating contracting strategies from open in-network status more broadly to outsourcing to laboratory benefit managers, to name just one example.

Most recently, insurers are notifying in-network laboratories of their intent to renegotiate contractual payment rates on diagnostic tests and outcome following CMS payment rate reductions instituted by PAMA last year.

While laboratories are all too familiar with these types of changes, which have taken place gradually over the past year. The pace and wide range of change occurring currently among payers is unprecedented.

The industry today is also facing a shifting customer base, where independent physician practices are disappearing into institutional practices owned or controlled by hospital systems or other large institutional groups.

This is a result of lower medical payments and higher overhead, encountered in running a medical practice. These industry conditions are resulting in a turbulent marketplace that is forcing a change in medical practice environment and requires radical change to address the cost structure in healthcare delivery.

With these recent developments and the background of the current industry dynamics, we believe radical change in the industry is needed to address these critical challenges presenting a unique opportunity for Enzo.

Because of these challenging economic issues, the market potential for Enzo's cost-efficient, high-performing and easily adaptable technology solution is growing. We are well positioned to capitalize on these market trends, having developed highly efficient and cost-effective tests in molecular diagnostics, atomical pathology, immunoassays and genomics. What -- what's more is that Enzo products and services extend beyond test sample processing. We see a significant opportunity for a variety of consumables with economical cost structures such as in the area of sample collection devices and purification products, which are adaptable into existing workflows.

We embarked, just a few years ago, to make available affordable reagents on widely available automated platforms utilizing our proprietary technologies. Our development of innovative diagnostic platforms and assays designed to bring independent labs meaningful cost savings, improved service to physician customers, assure the comfort needs of patients and overall help to -- importantly, to build value is a vision which is now in reach.

Our approach involved relying on our proprietary technologies, developing superior critical assays that offer unusually high sensitivity specificity, reproducibility and accuracy while being capable of running multiple tests from a single specimen. Importantly, all at a cost that would be 30% to 50% less than the current market.

I'd like to turn to our strategic plan and the steps we are taking to achieve our growth targets.

First, as we've noted previously, our vertically integrated operating structure allows us to move quickly, and we are building internal teams around sales and marketing efforts. These activities include but are not limited to the recruitment and hiring of new professionals, addressing the market analysis and changes, training programs, are all within the goal of streamlining the sales cycle from customer identification to contracting. We have pared down our product portfolio, streamlined our operations, invested in technology, and reorganized to gain efficiency and free up needed capacity to facilitate our growth.

During the quarter, an agreement to purchase a new commercial facility with nearly 36,000 square feet in Farmingdale, New York was entered into. The building is adjacent to the company's current Long Island campus and enhances the infrastructure needed to produce and distribute Enzo's low-cost diagnostic platform products and related services.

Enzo's platform development includes automation compatible reagent systems and associated products for sample collection and processing through to analysis.

The purchase of this facility for $6 million extends Enzo's Farmingdale New York campus to nearly 101,000 square feet, complementing the company's existing sites in Michigan, Switzerland, France and Belgium.

It will provide good manufacturing practices and ISO compliant manufacturing to support FDA-approved products and logistics for Enzo's diagnostics and life sciences business.

As an important side note, in connection with the acquisition of this new facility, the company has Town of Babylon Industrial Development Agency commitments that will provide Enzo with significant multiyear tax abatements and additional incentives with respect to its entire Farmingdale campus.

I'd like to make one final comment on our internal efforts to achieve our growth targets. Our employees are working hard to implement plans into achieved growth goals in the evolution of our business strategy. Reorganizing operations, redesigning business processes, implementing new technologies and building teams are challenging efforts. We are transforming Enzo Life Sciences from a research products based company to a clinical developer and marketer of high-valued, lower-cost diagnostic solutions. These efforts have been validated with the approval of our AmpiProbe panel, to name just one example, which is now fully operational in Enzo Clinical Labs.

Enzo Clinical Labs is morphing from a legacy regional service company to a national full-service reference lab with affordable solutions to address diagnostic cost structure.

This legacy business component is representative of hundreds of laboratories all with the same challenges, which can benefit by utilizing our low-cost products and solutions to weather these turbulent economic times in the industry.

Unlike other clinical laboratories today, we believe our fully integrated structure provides a solution to address some of the most complex economic health issues. Specifically, we believe the key is our ability to operate as a vertically integrated provider of high-value, lower-cost diagnostic products and services to laboratories around the country.

Our second approach to our commercial plan is to supplement our internal efforts with a focused business development program to partner, collaborate and combine with companies in the diagnostic testing market. In the past 6 months, these efforts have accelerated greatly, and steps to implement our growth strategy with business development activities has narrowed and how to best maximize Enzo's growth in its return on invested capital. We think working with others in the industry could accelerate Enzo's reach into the laboratory diagnostic market.

We see the path of consolidating testing volumes as a rapid means to deploy Enzo solutions, whereby excess testing capacity in the laboratory industry is removed and consolidated centrally.

In addition, it creates immediate market access for our low-cost products and services. Within our own facilities, we can scale operations less costly than operating multiple locations. We are certain that consolidation of laboratory testing volume will achieve operational efficiency in this highly fragmented industry.

As a result, combining test volumes, consolidating operations and expanding laboratory test menus, Enzo will be able to reduce operating costs not only for ourselves but others as well.

By seeking partnerships and collaborations particularly with regional laboratories that are too small to achieve economies of scale makes sense for the laboratory industry. Laboratory assets are undervalued and the combination with Enzo will capture more value if such assets remain separate. For a segment with an industry-wide organic growth of only 1% to 2% a year, combining in centralized diagnostic testing volumes is critical to gain market presence in operational mass.

We believe this strategy works if laboratory partners as a group can realize substantial savings or drive higher revenues than individual businesses on their own can do. This strategy is not merely about geographical reach it's about capturing value.

I'd like to turn to our financial results for the fourth quarter in the fiscal year ended July 31, 2018.

Before getting into the details, I would like to point out that our quarterly results saw service revenue and gross margin adversely impacted by, #1, a previously reported account loss, and #2, the decline in lower reimbursement payments that took place in the past year.

We are also seeing shifts in test mix away from high-value genetic testing that took place in the prior year.

That said, Enzo showed resiliency in the quarter, replacing to a large extent the lost volume by expanding our coverage area, increasing services to insurance networks and successfully launching test products such as AmpiProbe at lower cost, thereby improving gross margins.

Total revenues in the quarter amounted to $24.5 million compared to $28.2 million in the prior year period due to a decrease in service revenue in the aforementioned factors.

Service revenue totaled $16.8 million versus $20.4 million in the prior year. Total diagnostic testing volume, measured by the number of accessions reported, decreased 3% year-over-year, however, it increased 3% sequentially compared to the third fiscal quarter of 2018.

Product revenue was slightly ahead of the prior year at $7.6 million as sales increased in Europe and stabilized in the United States.

Gross margins in the quarter were 40% compared to 44% in the prior year period. And total operating expenses were $15.4 million compared to $13 million, an increase of $2.4 million.

Legal expenses, worth $1.3 million and accounted for $900,000 of the increase in operating expenses, along with an increase in allowance for doubtful accounts of $900,000 and marketing and sales related expenses of $600,000 in advance of launching new sales initiatives.

The increase in legal expenses were principally related to the New York litigation with Hoffmann-La Roche, where Enzo is the plaintiff and the trial is now set for early April.

The GAAP and non-GAAP net loss was $5.8 million compared to a breakeven a year ago. The GAAP and non-GAAP net loss per share was $0.12 and compared with -- to a 5% year-ago number.

There were no non-GAAP adjustments in the current and prior year. EBITDA was a loss of $5.3 million compared to EBITDA of $900,000 a year ago.

Total cash and cash equivalents as of July 31 were $60 million compared to $64 million at July 31, 2017.

Cash used in operations was $2.7 million during the fiscal 2018 period and cash used for investing activities, principally capital expenditures, was $1.9 million, a very judicious use of cash throughout the year.

Operating segments continued to be cash flow positive, and working capital as of July 31, 2017, was over $63 million, the company has no debt.

A quick review of the fiscal year results. Total revenues were $104.7 million compared with $107.8 million in the prior year, a decrease of $3.1 million or 3%.

Clinical service revenues were $74.8 million compared to $77.4 million in the prior year, a decrease of $2.6 million or 3% due to lower insurance reimbursement payments and shifts in text -- test mix to lower esoteric testing versus high genetic testing in the prior year.

Total diagnostic testing volume measured by the number of sessions reported increased 4% year-over-year.

Clinical products and royalty revenue was $29.9 million compared to $30.4 million in the prior year, and the decline in year-over-year results from lower product royalties from an agreement that expired in April 2018.

Consolidated gross margins were 42% compared with 45% in the prior year. Clinical service gross margins were 39% compared to 41% a year ago. Gross margins in the current year were negatively impacted by lower revenue from clinical services as noted above. Clinical products and royalties gross margin was 52% compared to 54% in the prior year.

Our operating expenses totaled $56.5 million. This was up 10% compared to the $51.4 million number a year ago. The increase reflected legal fee expenses in anticipation of our patent infringement and contract trial coming up, where Enzo is the plaintiff going forward.

Total legal expenses were $5.1 million compared to $1.7 million in the prior year, a significant increase.

Selling and general administrative expenses, as well as research and development expenses, were slightly higher year-over-year in support of the company’s growth strategies. As a percentage of revenue, SG&A was 42% compared to 41% in the prior year, and R&D expenses were essentially flat year-over-year.

The GAAP and non-GAAP net loss was $10.3 million and $11.4 million respectively compared to $2.5 million a year ago.

The GAAP net loss per share was $0.22 compared to $0.05 a year ago, and the non-GAAP net loss per share was $0.24.

There were no non-GAAP adjustments in the prior year, and EBITDA was a loss of $9.1 million compared to earnings of $700,000 a year ago.

In conclusion, the company expects the commercialization from the developments of its strategic initiatives will begin over the next year, at which time it anticipates returning to revenue and margin growth.

The significant implementation steps include, first, validation through clinical trials of Enzo's fully automated, high-throughput instrumentation, including sample collection and sample processing and reagent systems, both for New York State and FDA.

It also includes the completion of the build out of our GMP manufacturing capabilities. Also the approval of additional assays to expand Enzo's test menu. And the expansion of our sales and marketing, logistics and IT efforts to grow national reference laboratory service accounts. Most importantly, it is also dependent on partnerships and collaborations with potential strategic partners both institutional and industry-wide to enhance commercialization and market penetration of Enzo's high-technology platforms and products.

Our internally developed, fully automated, open architecture platform now capable of processing high throughput and compatible with existing sample collection devices is a dynamic and innovative solution for the market.

We believe savings of 30% to 50% are possible utilizing this system, off what typically current costs are. In a shrinking reimbursement environment, these results are obviously very meaningful. The platform can process as many as 280 samples in an 8-hour shift, which is easily double what is currently available for many pieces of equipment on the market. Moreover, there is no sacrifice on quality in terms of accessing and delivering clinical necessary results.

The open aspect of our new platform cannot be overestimated. It offers a paradigm shift from the closed system platforms due to its open access feature, flexibility and comparability with a full clinical window workflow.

It is, in short, the only automated clinically compatible open platform that operates with multiple reagents and sample types.

As a result, it allows for cost savings and LDT development while remaining compatible with FDA-approved products.

Clearly, despite 2018 being a challenging year economically, Enzo remains in excellent financial condition and more important, is firmly moving forward with confidence.

While this is a known -- while the environment and economic challenges are known to Enzo and other companies in the industry, it is also providing a unique and high-value growth opportunity for us.

We are very excited about the future. We believe that next year will be a year of extreme accomplishment and transition for our company.

We thank you for your time. Now we'll open the call for questions.

(Operator Instructions) Our first question comes from the line of Per Ostlund of Craig-Hallum.

I want to start out with your commentary related to pay or pushback and sort of what sounds like an acceleration of that pushback and maybe some of the turbulence on the reimbursement front. It does seem like you did a pretty good job of filling in the volume gap from the customer that you referred to. I think most of us are pretty keenly aware that reimbursement is sort of an ongoing pressure point, but it does seem like it's accelerated recently. Is there a way to quantify, because I'm sure that there is a certain amount of conservatism baked into how you recognize revenue in the quarter? Is there a way to quantify what -- maybe what type of an adjustment that you talked to kind of arrive at that $16.8 million on the clinical lab side? I know last quarter there was $0.5 million called out related to an AR adjustment with a specific customer. Just wondering, if there is a way that we can frame this to kind of go from 3% down volume to what revenue declined in the lab and sort of the component pieces there?

Per, it's Jim O'Brien. Unfortunately not. When we review our receivable and activity by payer, we take into account all the factors that go into the historical payments, our test mix and communication we have with them. So there is not a -- one single answer to that question. It's done on a payer-by-payer basis, given the financial classes that we have. I will tell you that as we noted in the script, it has become certainly more pervasive. We've got very recent activity with all the payers in terms of reviewing fee schedules and the like. Those discussions are ongoing. We've had some very, very compelling and very, very positive discussions, while also being challenged quite a bit. So in our view, those will continue into fiscal '19, and we'll reflect back really the results of operation each quarter.

Okay. So it is something where -- and I think that that's probably a logical conclusion from your prepared remarks as well, but it sounds like it's the kind of thing that we're probably likely to see continue for a couple of quarters until there is some sort of shake out. They're going to push back until they feel like they can't push back anymore or until they -- until you've had more or less a chance to get back to all of them to kind of refine and make clear the value proposition that you're providing. Is that the right way to think about it? Or...

I think that's the way that we're looking at it. As I said before, we've got very good and strong, long history with payers. Nothing has been finalized. We continue our meetings and discussion with them and expect it'll continue to shake out over the next year as we mentioned before.

Okay. So then maybe that dovetails into my next question. And because I think in terms of the overarching strategy to be a provider of lower cost products and services, I would think that if you're getting hit with these sorts of discussions, I would have to think that virtually every lab but especially those labs that are your size or smaller are facing this pressure even more acutely. So can you talk a little bit about the early returns from the economic case you're making to labs across the country? I know you've talked about taking in samples from labs, I think, in Arizona and Texas and perhaps other places. Is that economic case? How is it resonating? What are the gating factors to getting more of that lab-to-lab service business or product business? Is it menu? Is it -- what are the things that are going to really help you guys step on the accelerator from that standpoint?

The dialogue that is ongoing is one that addresses economics. And correctly, every lab is subject to the industry issues that we have spoken about. I think the receptivity to the concept of lower cost testing is one that is welcomed by labs across the country because it is a universally required need. I think when one looks at the sales cycle to achieve this, it is a longer sales cycle because there is an educational process or component that is associated with the marketing activity. We are seeing receptivity. We are seeing interest. Interestingly, we are also seeing interest from not only, what I would call, the small and medium laboratories that constitute a great number of, let's say, the 7,500 labs across the country, but we're seeing interest levels from larger labs because economics affect larger labs as well as they affect smaller labs. We are also seeing interest from institutional or hospital-based laboratories, which tend, at this point in time, to be better reimbursed than the independent labs. But I believe everyone sort of understands the writing on the wall and economics trickle-down. And in this case, I believe, even the higher reimbursed institutions believe that at a point in time they too will be subject to these intense pressures. So we're seeing a reality and an opportunity. We believe the concepts that we are putting forward make inherent financial sense in this market where logistics and digital communication is becoming quite routine. It truly makes no sense for so many independent processors of the same products to participate in the industry. But it is a change of practice, it is a change of thought process. In some respects, it requires a rewinding of the management's capabilities and training of what they believe has been conventionally the program. But at the end of the day, we believe that it may provide one of the only solutions to provide these low-cost solutions.

Okay. That makes sense. Barry, you mentioned the education process and the elongated sales cycle, which does make sense. From a sales force perspective, are you where you want to be or expect to be? Or are there still some holes for you to fill in there geographically?

No, we are -- we have been aggressively attempting to fill out our sales marketing and commercialization team. We have added a number of people over the last 5 months. We believe that we are still aggressively moving to enhance those teams to be able to fulfill the full capabilities of this program.

Okay, very good. Question on the instrumentation and the new platform. And just wondering if you can give us a little bit of color on the regulatory pathway, both New York State, FDA. What should we be looking for? What are the main goalposts, I guess, that we should be looking at there? And when do you expect to be in the market more actively with the new instrumentation?

The new instrumentation, which is now being validated at the clinical services facility provides high-throughput capability for the testing products. This has been very important and is an added need to provide high volume capacity for us at Enzo. And interestingly, from our dialogue with large providers, it has been an important aspect of driving interest in the system because the throughput capability directly moves to the efficiency of the system. What we're looking towards is a validation period, which will take a number of months, we hope, within this calendar year, to be able to have this system-validated and validated utilizing the extended menu of products that we have in hand and are developing as we move forward. Remember, the system is -- will be validated under New York State, and ultimately, we will be moving it into an FDA validation, which is just an extension of the New York State testing process.

Okay. One last question for me, and then I let somebody else hop in. Wanted to talk about therapeutics simply in part because we just -- I don't think it comes up a lot, but I think that especially with the purchase of the new facility, it seems that you might be signaling potentially a little bit more active stance there. So I'm wondering maybe you alluded to the kinase inhibitor program, maybe you can give us an update a little bit there on kind of where that's at in the development process, if there are other milestones ahead, what else is kind of in the pipeline? And then maybe as much as anything, just because I think it has been comparatively the -- a sleepier component, and because it's not discussed a lot, sleepier component of the strategy, how -- is there a way that we can start to think about how we might value that in terms of a component of Enzo at large? Because seemingly there is something there, I think, you certainly believe that there is something there. How might we arrive at what these programs are actually worth?

You are correct in commenting on the potential value of the therapeutic assets. As you are aware, our focus has been, over the last few years, very intensively in the area of bringing forward our diagnostic strategy and not being diverted into the opportunities in the therapeutic area. We have quietly been devoting our energy and the energy of a number of collaborators in pursuing a number of therapeutic capabilities, utilizing a number of different compounds. The one compound that we have brought to the attention in this particular release, and as we have spoken about in the past is a compound, which is a sphingosine phosphate kinase inhibitor. It is a product, which has significant clinical evaluation at the research level. There are many publications, which have been put out, delineating the utility and the opportunity of this particular compound. We have been exploring this for a number of years now. I think we have reached the stage where we believe it merits carrying this product forward to explore its utility in humans. The targets will involve immune-mediated targets as well as cancers. It is a pathway that inhibits cellular replication or activity and one that we are quite excited about. Our goals here are to bring this into a potential partnership with certain parties out there. We are in dialogue in that area at this point in time. It is a product that will require human clinical trials, obviously. We have not engaged in human trials. We've had extensive modeling of this that has been done. So I think the first milestone will be in potential partnerships and relationships surrounding this. It will be in the movement of this product into advanced testing to determine its safety profile, its profile as an efficacious compound to do what we hope it will do. But it addresses a very, very large market and a market that currently has an unmet need in certain types of cancers. So we're very excited about it. The commercial value of it, if successful, is extremely significant. As we are all aware, the market potential for cancer-related compounds is quite high. We believe the efforts behind this and efforts behind some of our other therapeutic programs, some of which, as you are aware, have already been through human studies are quite valuable. And I believe not well understood by the marketplace, partially that is our need to focus on the strategy that we've been focusing on in the diagnostics area. But I can envision at a point in time assuming these assets maintain their viability, the value of them being offered to our shareholders in various possible formats, either in partnerships, joint ventures or in acquisition of -- or sale of these compounds to third parties. We are exploring the different modes of value and opportunity, and we hope to pursue this and obtain more clarity over the next year.

Sir, there appear to be no further questions at this time.

Thank you very much for joining us. We look forward to speaking with you in December, which will be our December quarter. We hope to have additional information on the progress that's been made to date. Thank you very much.

A replay of this broadcast will be available until Tuesday, October 30 at 12 midnight. You may access this replay by dialing 1 (855) 859-2056. The PIN number is 6096026. 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.