On March 5, 2020 Enzo Biochem, Inc. (NYSE:ENZ), an integrated diagnostics company focusing on delivering and applying advanced technology to produce affordable, reliable diagnostic products and services, reported results for the fiscal second quarter ended January 31, 2020 (Press release, Enzo Biochem, MAR 5, 2020, View Source [SID1234555226]).

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The Company reported both operational and financial progress against its stated objective to provide a cost-effective, comprehensive menu of molecular diagnostic products and services.

On February 11, 2020, Enzo announced it received New York State approval for its CT/NG/TV tests using liquid-based cytology sample collection on its proprietary GenFlex platform. GenFlex is a sample-to-result molecular diagnostic platform that includes sample collection, sample processing, amplification and detection (utilizing AMPIPROBE technology). Compared favorably to all other proprietary platforms dominating the diagnostic testing market, Enzo’s GenFlex platform offers 30-50% cost-savings over current closed systems. GenFlex addresses the $450 million annualized global diagnostic market for the detection of chlamydia trachomatis (CT), neisseria gonorrhoeae (NG), and trichomonas vaginalis (TV) as well as the $1.3 billion Women’s Health market. Extensions of the GenFlex platform, which Enzo is currently developing, could eventually address the entire $7 billion molecular diagnostic market.

The Company’s laboratory services segment recognized top-line growth of 4% year-over-year to $12.5 million in the second quarter. The lab segment experienced growing accession counts sequentially and year-over-year with more than 813,000 accessions in the last twelve months period. Days Sales Outstanding in the laboratory segment improved to 43 days in the second quarter, a 23 day improvement from 66 days in the previous year’s period. Furthermore, gross margins expanded 1,000 basis points to 18.1% in the second quarter.

The products segment remained profitable despite continued investment in product development. The division’s order value (average order size by dollar amount at which its products are sold) experienced its third straight quarter of sequential growth. This trend has continued into the first month of the third quarter. The product segment has experienced its fourth consecutive quarter of gross margins above 50% despite fluctuations in product mix and order timing. Overall, operating results from the two segments improved by $1.7 million through the initiation of cost cutting and growth initiatives.

Enzo continues to make solid progress in its previously announced program to realize more than $10 million in annualized cost savings. Benefits are already being realized, and full implementation is anticipated by the end of this year.

Highlights for the Quarter

•New Commercial Platform: Enzo received New York State Department of Health approval for its CT/NG/TV tests using liquid-based cytology sample collection on its proprietary GenFlex platform. GenFlex is a commercially available sample-to-result molecular diagnostic platform that includes sample collection, sample processing, amplification and detection. The GenFlex open system delivers high-throughput, high capacity, workflow efficiency and flexibility at a much greater level of affordability than existing systems. This is the latest successful development in Enzo’s strategic plan to provide a cost-effective, comprehensive menu of molecular diagnostic products and services.
•Therapeutics Progress: Enzo continues to explore various avenues to unlock value in Enzo Therapeutics, a biopharmaceutical subsidiary of Enzo Biochem. Alternatives under consideration include a possible spin-off, sale, joint venture or licensing of its intellectual property. Also, underscoring Therapeutics’ depth of opportunity, subsequent to the quarter end Enzo reported the publication of a Study Detailing a Promising Activity of Drug Candidate SK1-I in a Model of Lupus.
•Board / Management Additions: During the second quarter, Rebecca Fischer, CFO of Bellevue Hospital, was appointed as a new independent Director and David Bench was appointed as the Chief Financial Officer of Enzo. Subsequent to the quarter end, Fabian Blank and Peter Clemens IV were also added as directors.
•Patent Portfolio: The Company has built a substantial portfolio of intellectual property assets, comprised of 463 issued patents worldwide and over 75 pending patent applications, along with extensive enabling technologies and platforms. Enzo is currently evaluating its robust intellectual property portfolio and will continue to aggressively defend its patents.

Elazar Rabbani, PhD., Chairman and Chief Executive Officer, Commented:

"Enzo showed strong progress against many of our important growth initiatives during the second quarter. With the arduous proxy contest behind us, we welcome our new Directors to our

Board and look forward to working collaboratively to capitalize on our distinct and highly promising market position in the molecular diagnostics marketplace as well as our immunoassay, immunohistochemistry and cytology offerings. New York State approval of our proprietary GenFlex molecular diagnostics platform provides additional validation of our program as we focus on the next phase of commercialization of these products and services and we are preparing to engage with the FDA to secure the final stage of approval. This milestone achievement highlights our continued ability to deliver high performance, open, flexible, adaptable and cost-effective products, devices and services to a diagnostic industry that continues to be impacted by regulatory price cuts and sustained high product costs.

"Enzo’s strength in technology and product development is illustrated by GenFlex’s rapid development over the past four years as it offers important cost-savings over current closed systems. GenFlex particularly addresses the $450 million annualized global CT/NG/TV diagnostic market as well as the $1.3 billion Women’s Health market. Extensions of the GenFlex platform, currently under development, are aimed at addressing the entire $7 billion molecular diagnostic market.

"At the same time, we are also making positive strides in our extensive cost reduction program at the labs while continuing to invest and grow the higher margin and growth segments of our business that will help assure our objective of building Enzo’s value."

Second Quarter Operating Results

·Total second quarter revenue amounted to $19.4 million, compared to $19.3 million in the year ago period, up slightly year over year despite sharply lower industry-wide PAMA reimbursement rates.
·Clinical Services revenue for the second quarter amounted to $12.5 million compared to $12.0 million in the previous year period, an increase of 4%. Volume increases in core and other non-genetic testing services contributed to the revenue gain. Total diagnostic testing volume measured by the number of accessions increased 7% in the period. However, the Protecting Access to Medicare Act ("PAMA") continues to negatively impact reimbursements from Medicare and third-party payers. Gross profit margin at Clinical Services was 18% in the most recent quarter compared to 8% in the 2019 period. This margin expansion was attributable to reductions in outside reference testing expense and headcount efficiencies, partially offset by increased reagent costs resulting largely from higher accession volume.
·Life Science revenue for the second quarter was $6.9 million compared to $7.3 million in the previous year’s second quarter. The decrease of 6% is primarily due to lower product sales volume in the U.S. market based on the timing of orders. The gross profit margin on products was 52% in the 2020 period and 50% in the 2019 period due to the mix of products sold.
·Consolidated gross profit was $5.8 million versus $4.6 million in the previous year’s quarter. Gross margins for the quarter were 30% compared with 24% a year ago.

·Research and development expenses were $1.0 million in the 2020 period and $0.8 million in the 2019 period, an increase of 28%. The increase is entirely attributed to the Clinical Services division for lab developed tests based on our proprietary GenFlex platform.
·Selling, general and administrative expenses declined to $10.7 million during the 2020 period from $11.5 million during the 2019 period, and as a percentage of revenue amounted to 55% versus 60% a year ago. The Clinical Services expense declined $0.3 million, primarily due to the initial results of the aforementioned cost savings program. The Life Sciences Products expense decreased $0.5 million primarily due to reductions in operating expenses and related costs.
·Legal and related expenses were approximately $2.0 million during the 2020 period compared to $1.1 million in the 2019 period, an increase of $0.9 million. During the 2020 period, the Company incurred $1.8 million for proxy costs relating to the February 2020 annual shareholders meeting.
·GAAP net loss was ($7.7) million, or ($0.16) per diluted share, an improvement of 9% compared with a year ago quarter net loss of ($8.4) million, or ($0.18) per diluted share. The non-GAAP net loss, adjusted primarily for proxy related costs, was ($5.8) million, compared to ($8.4 million) a year ago, an improvement of $2.6 million. On a per share basis, the non-GAAP loss equaled ($0.12), compared with ($0.18) a year ago. Adjusted EBITDA loss in the quarter and a year ago approximated ($5.3) million and ($7.9) million reflecting a $2.6 million improvement.

First Half Operating Results

Total revenue for the first half of fiscal year 2020 was $39.6 million compared to $40.6 million in the prior year, a decline of 2%. Gross profit totaled $11.5 million, compared to $11.7 million a year ago, with gross margins of 29% in each of the periods. Sales, General and Administrative Expenses decreased to $21.8 million from $22.5 million or 55% of revenue for both periods. Research & Development increased to $2.1 million, or 36% in the period. Legal expenses amounted to $3.8 million versus $2.4 million in the prior year period. The GAAP net loss totaled $15.3 million, or ($0.32) per share compared to a net loss of $14.4 million, or ($0.30) per share in the previous period. Adjusted EBITDA was a loss of $11.8 million compared to a loss of $13.4 million a year ago.

At quarter-end, cash, cash equivalent and restricted cash totaled $52 million, and working capital amounted to $48 million. As of March 2, 2020, the company had 47.6 million shares outstanding.

Conference Call

The Company will conduct a conference call Friday, March 6, 2020 at 8:30 AM ET. The call can be accessed by dialing (888) 459-5609. International callers can dial (973) 321-1024. Please reference PIN number 4496317.

Interested parties may also listen over the Internet at: View Source

To listen to the live call, individuals should go to the website at least 15 minutes early to register, download and install any necessary audio software. Any pop up blocker installed on your PC should be disabled while accessing the webcast. A rebroadcast of the call will be available starting approximately two hours after the conference call ends, through March 20, 2020. The replay of the conference call can be accessed by dialing (855) 859-2056. International callers can dial (404) 537-3406 and, when prompted, use the same PIN number 4496317.