Enzo Biochem, Inc. (NYSE:ENZ), an integrated diagnostics and
therapeutics company, today reported results for the fiscal
quarter and first half ended January 31, 2019 along with providing
more detail on its investments in the development of novel
diagnostic system and centralized clinical services.
Recent Developments
- The Company is rapidly implementing its
strategic plan to build a comprehensive menu of reagents, automated
systems, and related consumables on several independent platforms
and systems. This effort started with research and development
activity, which was initiated several years ago, adaptation and
validation of products to automated systems and has extended into
GMP manufacturing. These automated systems are in the process of
clinical trial for submission to obtain LDT, CE Mark and FDA
approvals where appropriate. Enzo’s business development efforts
are ongoing with potential partners that would accelerate market
access and penetration to provide much needed margin relief to
small and midsize clinical and hospital laboratories.
- To accelerate and accommodate the
manufacturing and commercial needs of all of its components of
automated platforms and systems, the Company closed on its
acquisition of a 36,000-square-foot commercial facility in
Farmingdale, NY, and architectural design and construction
development is underway. In connection with the acquisition of the
new facility, the Company has Town of Babylon Industrial
Development Agency (IDA) commitments that will provide Enzo with
significant multi-year tax abatements and additional incentives
with respect to its entire Farmingdale campus. The investment will
enhance the infrastructure of the Company’s Long Island campus
aimed at facilitating production and distribution of Enzo’s
expanded high value and lower cost, open diagnostic platforms
- The Company extended its product and
platform development strategy to address rapidly declining
reimbursement and high cost of goods affecting all clinical and
hospital outreach laboratories. Development work is on track to
expand the Company’s menu of high volume and high value tests to be
used in connection with Enzo’s proprietary and affordable open
system platforms capable of high throughput to improve the
financial results of clinical laboratories. The systems are
targeted to make available highly efficient and lower cost
solutions for diagnostic testing, with a focus on molecular
diagnostics, immunohistochemistry and ELISA platforms.
- Progress continues in transforming Enzo
Clinical Labs to an efficient centralized service provider to other
laboratories as a new market for Enzo. The Company is adopting
Enzo’s platforms and products to be able to offer services for a
high value menu of tests to other clinical laboratories (not only
to patients and physicians) at prices that will provide marginal
return to the customer laboratory. Enzo has invested in the
clinical laboratory in its translational capabilities, validation
capabilities and its performance of Enzo test platforms. Enzo has
expanded on marketing and sales activities to address the market
opportunities which includes a broad range of diagnostic testing
including FISH, immunohistochemistry, and molecular
diagnostics.
- The clinical laboratory market dynamics
of lower reimbursement and high operating costs imposes a
challenging future to the clinical laboratory industry. These
market conditions present Enzo with an opportunity to address the
industry needs in the form of reference services at a lower cost
and provide products and systems at a lower cost than
competitors.
- Enzo’s progress towards achieving this
strategic goal is the result of Enzo’s vertically integrated
operating structure to provide both for products and services, and
its extensive intellectual property estate, the Company is better
positioned in the industry than most to address these needs. The
Company has stepped up its investment activities to capitalize on
its unique capabilities to address these industry challenges by
offering highly efficient and lower cost systems that address
valuable components of diagnostic testing. Enzo also continues to
invest to grow our core business to drive efficiencies and growth
in revenue per test and to improve gross margins. The Company
continues to aggressively grow its business around its strategic
plan by making investments in all aspects of product development,
validation, clinical trial and sales and marketing to reach new
markets for Enzo’s platforms and products and reference services.
Over the last several quarters Enzo estimates that it has invested
approximately ten percent of costs in these areas.
- Continuous efforts are being made to
improve efficiencies in operations while expanding marketing and
sales to drive revenue growth, while taking costs out of core
operations. During the quarter, the Company realigned client facing
groups such as client services and other support functions to
eliminate costs while maintaining high quality services. In
addition, Enzo continues to recruit new senior sales professionals
to further penetrate U.S. market, including the Northeast
markets.
- Enzo is nearing completion of GMP
manufacturing operations to support future LDT, CE Mark and FDA
diagnostic submissions. The Company anticipates regulatory
submissions on a number of products and platforms. In addition, the
Company continues to invest in capital projects that support
business growth.
- On February 5, 2019, the Company
entered into a legal settlement agreement in a New York case
resulting in a payment to the Company of $21 million. The agreement
does not affect other infringement proceedings underway against the
defendant in federal district court in Wilmington, Delaware.
Barry Weiner, President,
Comments
“We continue to focus relentlessly on our strategic program to
provide lower cost, highly efficient and effective platforms and
reagents to offset today’s reimbursement challenges facing
independent and institutional clinical diagnostic laboratories. Our
financial results thus far this year, and for the second fiscal
quarter we are reporting today, have been directly impacted by
lower reimbursement from governmental and commercial payors and a
notable shift away from high margin esoteric molecular diagnostics
testing to lower cost routine core tests. On balance, volume of
accessions have remained constant but price per accession has
decreased impacting both revenues and profitability.
“Enzo’s position as the leading independent clinical laboratory
serving the important metropolitan New York-New Jersey-Connecticut
market, which we now have extended into the New England states and
as far south as Pennsylvania, remains intact. Enzo’s growing
advanced testing menu, and especially our comprehensive women’s
health panel using AMPIPROBE® multiplex real-time PCR assays
featuring detection of infectious disease tests for a total of 16
organisms from a single vaginal swab specimen, continues to put our
expertise at the forefront of quality, cost effective, high
performance diagnostic technology.
“The challenges from reduced diagnostic reimbursements, which
have been instituted without regard to the serious harm it has done
to independent and hospital clinical labs profit margins, is a
development Enzo foresaw early on in embarking on our strategic
program. Moreover, private healthcare insurers are implementing
tightened standards for approving tests and determining medical
necessity is further evidence of more critical adverse
reimbursement policies. All this has made Enzo’s developmental
program to provide testing platforms and reagents easily adaptable
to existing open systems more valuable. Our program to establish
Enzo as a nationwide reference laboratory providing overnight
services utilizing our technology also is aimed at shoring up
independent operating margins for those for whom investing in new
platforms is uneconomic.
“Our efforts currently are directed at developing a well-rounded
offering of wide-ranging tests for approval by both the FDA and New
York State Department of Health. In the meantime, while Enzo
continues to be financially strong and highly liquid, our operating
results are reflective of the cross currents now affecting the
diagnostic laboratory industry. Despite the revenue shortfall, we
are diligently working to invest behind our strategic program while
we also focus on expense reductions and even more heightened
efficiencies. When completed, our advanced Farmingdale campus will
be important in that regard and we plan to continue to invest in
our strategic plan. We also are taking steps to aggressively expand
marketing and sales to reach a wider customer base, to maintain the
high service standards for which we are known, and to control those
aspects of our business that are within our reach to achieve
improved results. We are confident that our efforts to do so and
achieve our goals on the development front will pay off.”
Second Quarter Operating
Results
- Total revenues were $19.3 million,
compared to $26.1 million in the prior year, a decrease of $6.8
million. Clinical services revenues were $12.0 million, compared to
$18.7 million in the prior year, a decrease of $6.7 million,
largely due to reduced insurance reimbursement payments that were
reimbursed at higher rates in the prior year, increased competition
and testing denials and changes to medical and procedural
requirements for genetic testing by payors. In addition, the
Company recorded over $1.2 million of reserves offsetting revenues
due to slow paying commercial payers and claims made by a
commercial payor for overpayments Enzo received in prior periods.
Total diagnostic testing volume, measured by the number of
accessions, decreased 3% year over year, again due to lower
high-value testing, partially offset by an increase in esoteric
testing, including Enzo’s AMPIPROBE® woman’s health panel which has
increased in volume each quarter since its launch last fiscal year.
Product and royalty revenue was $7.3 million compared to $7.4
million in the prior year. The decrease year over year was the
result of the elimination of product royalties due to expiration of
the agreement in April 2018 offset by higher product volume in the
U.S. market.
- Clinical services revenues for the
three months ended January 31, 2018, the prior year period, have
been restated to reflect adoption of new revenue recognition rules
on a full retrospective basis. Under the new rules, Enzo reports
uncollectible balances associated with patient responsibility as a
reduction in net revenues; historically these amounts were
separately classified in operating expenses as a provision for
uncollectible accounts receivable, and amount to $0.6 million and
$0.8 million in the three months ended January 31, 2019 and 2018,
respectively.
- Consolidated gross margins were 24%
compared with 40% in the prior year. Clinical services gross
margins were 8% compared to 37% a year ago. Gross margins in the
current year were negatively impacted by lower reimbursement
revenue from Clinical Services, as noted above. Products gross
margin was 49% compared to 46% in the prior year period.
- Operating expenses totaled $28.2
million, compared to $29.2 million a year ago, a decrease of $1
million or 3%. Total legal expenses were $1.1 million compared to
$1.7 million in the prior year. Selling and general administrative
expenses (SG&A) as well as research and development (R&D)
expenses were slightly higher year over year in support of the
Company’s growth strategies.
- The GAAP and non-GAAP net loss was $8.4
million or $0.18 per share compared to a GAAP net loss of $0.9
million or $0.02 per share and a non-GAAP net loss of $2.0 million
or $0.04 per share a year ago. EBITDA and adjusted EBITDA was a
loss of $7.9 million compared to a loss of $1.4 million, a year
ago.
Total cash, cash equivalents and restricted cash at January 31,
2019 were $42.7 million compared to $60.0 million at July 31, 2018.
This amount does not include the net proceeds of the $21 million
settlement paid in February as a result of the legal settlement
noted above. Cash used in operations was $8.6 million during the
second quarter of fiscal 2019 and cash used in investing
activities, principally due to the purchase of our new facility and
capital expenditures, was $6.0 million. Working capital at January
31, 2019 was over $47.0 million.
First Half Operating
Results
Total revenues were $40.6 million compared to $53.0 million in
the prior year, a decline of $12.4 million or 23% lower than prior
year. Gross profit totaled $11.6 million, compared to $22.0 million
a year ago, with gross margins of 29% and 41%, respectively.
SG&A of $22.5 million decreased $0.5 million. Legal expenses
increased to $2.4 million, from $2.1 million a year ago. The GAAP
and Non-GAAP net loss totaled $14.4 million, or $0.30 per share,
compared to $1.5 million and $2.6 million or $0.03 and $0.06 per
share, respectively. EBITDA and adjusted EBITDA was a loss of $13.4
million compared to losses of $1.4 million, a year ago.
Conference Call
The Company will conduct a conference call Tuesday, March 12,
2019 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 2037608.
Interested parties may also listen over the Internet
at: http://tinyurl.com/y6ojnfqw
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 26, 2019. The replay of the
conference call can be accessed by dialing (855)-859-2056.
International callers can dial (404) 537-3406), and when prompted,
used the same PIN number 2037608.
Adjusted Financial
Measures
To comply with Regulation G promulgated pursuant to the
Sarbanes-Oxley Act, Enzo Biochem attached to this news release and
will post to the Company's investor relations web site
(www.enzo.com) any reconciliation of differences between GAAP and
Adjusted financial information that may be required in connection
with issuing the Company's quarterly financial results.
The Company uses EBITDA as a measure of performance to
demonstrate earnings exclusive of interest, taxes, depreciation and
amortization. Adjustments to EBITDA are for items of a
non-recurring nature and are reconciled on the table provided. The
Company manages its business based on its operating cash flows. The
Company, in its daily management of its business affairs and
analysis of its monthly, quarterly and annual performance, makes
its decisions based on cash flows, not on the amortization of
assets obtained through historical activities. The Company, in
managing its current and future affairs, cannot affect the
amortization of the intangible assets to any material degree, and
therefore uses EBITDA as its primary management guide. Since an
outside investor may base its evaluation of the Company's
performance based on the Company's net loss not its cash flows,
there is a limitation to the EBITDA measurement. EBITDA is not, and
should not be considered, an alternative to net loss, loss from
operations, or any other measure for determining operating
performance of liquidity, as determined under accounting principles
generally accepted in the United States (GAAP). The most directly
comparable GAAP reference in the Company's case is the removal of
interest, taxes, depreciation and amortization.
We refer you to the tables attached to this press release which
includes reconciliation tables of GAAP to Adjusted net income
(loss) and EBITDA to Adjusted EBITDA.
About Enzo Biochem
Enzo Biochem is a pioneer in molecular diagnostics, leading the
convergence of clinical laboratories, life sciences and
intellectual property through the development of unique diagnostic
platform technologies that provide numerous advantages over
previous standards. A global company, Enzo Biochem utilizes
cross-functional teams to develop and deploy products, systems and
services that meet the ever-changing and rapidly growing needs of
health care today and into the future. Underpinning Enzo Biochem’s
products and technologies is a broad and deep intellectual property
portfolio, with patent coverage across a number of key enabling
technologies.
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 margins, revenues, and
expenses which 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, 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
obligations to update any forward-looking statement as a result of
developments occurring after the date of this press release.
ENZO BIOCHEM, INC.
(in thousands, except per share data)
Three months
ended Six months ended
Selected
operations data:
January 31 January 31, (unaudited)
(unaudited)
2019
2018
2019
2018
Total revenues $ 19,327 $ 26,152 $ 40,587
$ 53,028 Gross profit $ 4,579 $ 10,545
$ 11,600 $ 21,990 Gross profit %
24 % 40 % 29 % 41 % Loss before income
taxes (8,408 ) (1,998 ) (14,389 ) (2,638 ) Benefit for
income taxes - 1,097 - 1,097 Net loss $
(8,408 ) $ (901 ) $ (14,389 ) (1,541 ) Basic and
diluted net income (loss) per share ($0.18 ) ($0.02 )
($0.30 ) ($0.03 ) Weighted average shares
outstanding - basic and diluted 47,199 46,941
47,197 46,806
Selected balance
sheet data:
1/31/2019 (unaudited)
7/31/2018 (unaudited)
Cash and cash equivalents (including restricted cash $750) $
42,728 $ 60,041 Working capital $ 47,044 $ 63,014
Stockholders' equity $ 67,497 $ 81,121 Total assets $ 89,120
$ 101,660
The following table presents a
reconciliation of reported net income (loss) and basic and diluted
netincome (loss) per share to non-GAAP net income (loss) and basic
and diluted net income (loss) per sharefor the three and six months
ended January 31, 2019 and 2018:
ENZO BIOCHEM, INC. Non-GAAP
Reconciliation Table (Unaudited, in thousands, except per share
data)
Three months ended Six months ended
January 31 January 31,
2019
2018
2019
2018
Reported GAAP net loss $ (8,408 ) $ (901 ) $ (14,389 ) $
(1,541 ) Adjusted for: Legal settlements, net - - - - Legal fees
associated with settlements - - - - Benefit for income taxes -
(1,097 ) - (1,097 ) Non-GAAP net loss $
(8,408 ) $ (1,998 ) $ (14,389 ) $ (2,638 ) Weighted
Shares Outstanding Basic and diluted 47,199 46,941 47,197 46,806
Basic and diluted earnings per share Basic and diluted net
income (loss) per share GAAP ($0.18 ) ($0.02 ) ($0.30 ) ($0.03 )
Basic and diluted net income (loss) per share non-GAAP
($0.18 ) ($0.04 ) ($0.30 ) ($0.06 )
The following table presents a
reconciliation of reported net income (loss) for the three and six
months endedJanuary 31, 2019 and 2018, respectively to EBITDA and
Adjusted EBITDA:
ENZO BIOCHEM, INC. EBITDA &
Adjusted EBITDA Reconciliation Table (Unaudited, in thousands)
Three months ended Six months ended January
31 January 31,
2019
2018
2019
2018
GAAP net loss $ (8,408 ) $ (901 ) $ (14,389 ) $ (1,541 )
Plus (minus): Depreciation and amortization 768 786 1,534 1,535
Interest income (227 ) (185 ) (501 ) (342 ) Benefit for income
taxes - (1,097 ) - (1,097
) EBITDA $ (7,867 ) $ (1,397 ) $ (13,356 ) $ (1,445 )
Adjusted for: Legal settlements, net - - - - Legal fees associated
with settlements - - - - Separation payments -
- - - Adjusted EBITDA $ (7,867 )
$ (1,397 ) $ (13,356 ) $ (1,445 )
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190311005805/en/
For: Enzo Biochem, Inc.Steve Anreder,
212-532-3232steven.anreder@anreder.comorMichael Wachs, CEOcast,
Inc., 212-732-4300mwachs@ceocast.com
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