Harbert Repeatedly Demonstrates a Profound Lack
of Understanding of Enzo’s Business and Sector
Falsely Asserts Enzo Has Failed to Make
Substantial Changes
Mischaracterizes True Nature of Dialogue
Regarding its Nominees
Misleadingly Attacks Executive Compensation and
Benefits
Harbert Cherry-Picks Peer Group to Make Misleading TSR Argument
Enzo
Nominees Are Superior to Harbert’s Nominees
The Board of Directors of Enzo Biochem, Inc. (NYSE:ENZ), an
integrated diagnostics and life sciences company focusing on
delivering and applying advanced technology capabilities to produce
affordable, reliable and fully-automated platforms and related
products and services that enable its customers to meet their
clinical needs, today responded to a series of misleading and
inaccurate statements in an investor presentation and press release
filed by activist investor Harbert Discovery Fund (“Harbert”)
regarding the Company’s significant accomplishments. The Board
believes that Harbert’s campaign of disinformation is designed to
divert attention from its inferior slate of underqualified nominees
and weak arguments bereft of any true understanding of Enzo’s
business or market. With Harbert steadfastly seeking to change 40%
of the Board (which would result in only a single independent
director remaining with more than a few weeks of experience on our
Board), it is critical that the Company set the record straight so
shareholders can make a fully informed decision at the upcoming
Annual Shareholder meeting.
Harbert Repeatedly Demonstrates A Lack
of Understanding of Enzo’s Business and Industry
Sector
With alarming frequency, Harbert’s assertions demonstrate a lack
of understanding of the nature of Enzo’s business, the complexity
of its uniquely integrated model and the industry-wide headwinds
created by today’s challenging reimbursement environment. Most
importantly, Harbert fails to comprehend the compelling business
case behind Enzo’s strategic plan and the significant long-term
value it is designed to create.
- Harbert states that Enzo should “evaluate the Clinical Services
division profitability on a test-by-test basis” and “allocate
resources to the most profitable tests.” This uninformed and
counterproductive strategy would put the Company at significant
risk. Customers of Enzo require a full menu of diagnostic tests.
Cherry-picking in order to sell only the most profitable tests
would drive customers to our competitors, irreparably harming our
business. It is precisely these types of unsophisticated criticisms
from Harbert that we find most worrisome. While at first blush, the
notion of selling only the most profitable products may look
logical on an Excel spreadsheet, the practical reality is that such
a strategy would harm Enzo’s business.
- Harbert devotes pages and pages in communications with
investors complaining about the pace of commercialization of our
ground-breaking and cost-effective Ampiprobe technology, pulling
quotes out of context that mischaracterize the development goals
Enzo has articulated to shareholders. Again, typical of their
uninformed suggestions and limited understanding of the industry,
Harbert consistently confuses statements referencing an initial
test with those referencing the fully automated platform. The fact
is that Enzo is right on target with its commercial development
timeline for Ampiprobe technology and transformation of this
technology to a fully integrated, automated platform which requires
significant investment in time and resources. As investors in the
healthcare sector know well, platforms of Ampiprobe’s complexity
and capability typically require commercialization timelines of
8-10 years. Since Harbert admitted to not knowing anything about
the laboratory and diagnostic businesses, it still baffles us that
they did not ask to spend time with our scientists or product
roadmap teams. If Harbert had engaged in a substantive discussion
with us about our business they would have realized the significant
progress Enzo has made, including a 16-fold expansion in the number
of analytes on the Ampiprobe platform. We are targeting submission
of components of the molecular platform to the FDA in the next
calendar year.
- Harbert proposes an aggressive sales approach for the
labs-to-labs operation that illustrates a profound misunderstanding
of how the business is conducted. Blanketing the country with a
costly direct sales force would be extremely inefficient and
ineffective in our segment, result in a waste of money and
resources and be harmful to shareholder value. The only
cost-effective approach is a targeted specialized sales force
focusing on medium-sized independent and hospital-based labs.
- Harbert’s inability to grasp our business is demonstrated by
its stated plan to sell off Enzo’s Intellectual Property (IP.) This
flies in the face of decades of successful innovation that has
generated $1.3 billion of revenue derived from IP
commercialization. Additionally, Enzo’s valuable IP is a living
asset that has been the lifeblood of Enzo’s business and innovation
for decades. Not housing this IP within Enzo would strip material
synergies out of our business model, significantly increase our
cost of innovation and fundamentally curtail our freedom of
operations.
Harbert Cherry-Picks Peer Group to Make
Misleading TSR Argument, Failing to Acknowledge Enzo’s Direct Peers
and Account for Impact of PAMA Reimbursement Cuts
One of the most egregious claims made repeatedly by Harbert is
that Enzo has substantially underperformed against its peer group.
But Harbert’s comparison of Enzo’s performance to that of its
“peers” relies on an inappropriate set of indices and proxy peers.
In Harbert’s own recent presentation, Harbert clearly acknowledges
that PAMA reimbursement cuts are the key factor in driving our
stock price performance over the past two years.1 Yet the
comparison benchmarks cited by Harbert are all broad- based sets of
companies that have little in common with Enzo’s business, and the
“proxy peer group” are companies selected by Enzo’s compensation
consultant that are used purely for compensation purposes and
similarly have varied business drivers.
Instead, a more relevant comparison would include Enzo’s
publicly-traded core labs peers that were directly impacted by
PAMA, such as:
- Laboratory Corp of America Holdings (NYSE:LH)
- Myriad Genetics, Inc. (Nasdaq:MYGN)
- OPKO Health Inc. (Nasdaq:OPK)
- Quest Diagnostics (NYSE:DGX)
When compared against this set of companies, for the five years
ending with Harbert’s initial Schedule 13D filing, Enzo’s TSR of
-32.2% is in line with Myriad’s (-32.3%) and exceeds OPKO’s
(-84.3%). The final PAMA ruling becoming effective was an event
that affected these companies’ stock price performance in similar
ways. LabCorp and Quest were less affected by PAMA over this time
period and therefore have not experienced the same stock price
pressure. This is because they are both substantially larger than
Enzo by any measure and were able to enter into long-term pricing
contracts with customers that mitigated the short-term effect of
PAMA on reimbursements. Additionally, LabCorp was able to diversify
through its acquisition of Covance into a contract research
organization to temper lab reimbursement challenges. These options
were simply not available to smaller labs players like Enzo.
It is worth highlighting that Enzo significantly outperformed
its peers (not only the above-referenced core lab peers, but also
the very “peers” that Harbert misleadingly chooses as its
benchmarks) for a considerable (2+ year) period leading up to the
PAMA final ruling becoming effective. And even over the course of
the past twelve months, Enzo has experienced periods of
outperformance relative to these companies.
To be clear, no one at Enzo is satisfied with our recent stock
performance, least of all our Board and management team which
collectively own approximately 10% of the Company. But to portray
our performance out of context by benchmarking us against a
misleading “peer” group and ignoring the fact that Enzo has
outperformed peers for sustained periods underscores Harbert’s
basic approach of this proxy fight: distort the facts and omit
simple truths.
Harbert Falsely Asserts Enzo Has Failed
to Make Substantial Governance Improvements
In addition to an already robust investor relations effort, four
years ago Enzo instituted a governance program to ensure that the
Board was being responsive to investor perspectives. In
consultation with Enzo’s shareholders, the Company has taken bold
and important steps over the last four years to improve Enzo’s
Board, governance and compensation program. Instead of crediting
the Company with these changes, Harbert seeks to divert attention
from this meaningful progress and highlights a single related party
transaction from 30 years ago, selectively quotes anonymous
Glassdoor rants and recycles allegations from a 10-year-old dispute
with one of the co-founders that was successfully resolved in our
favor.
However, the fact is that over the last four years:
- Enzo has refreshed 40% of the Board, beginning with the
appointment of Dr. Bruce Hanna, Ph.D., three years ago and most
recently, Rebecca Fischer. The appointment of Ms. Fischer, the CFO
of one of the largest public hospitals in the United States, was a
direct result of a robust director search that commenced in early
2019. Both of these additions of highly qualified independent
Directors are part of Enzo’s ongoing commitment to Board
composition, refreshment and diversity. As a result of these
appointments, the average tenure of Enzo’s independent directors is
now three years.
- Enzo has engaged in a regular and productive dialogue on
compensation matters. As a result of this engagement, Enzo modified
the structure of its executive compensation to include a greater
emphasis on performance vested equity in direct response to
feedback received during these engagements. These changes increase
the alignment between pay and performance at Enzo, and have been
supported by shareholders and proxy advisory firms. Astonishingly
despite this public support, Enzo’s compensation plan remains a
target of Harbert without legitimate justification.
- Enzo has made several other enhancements to its governance
structure, including proposing a majority voting standard for
director elections, rotating its lead independent director and
committee chairs, enhancing the responsibilities of the lead
independent director and adopting a board diversity policy.
Harbert Mischaracterizes True Nature of
Dialogue Regarding its Nominees
In contrast to Enzo’s thoughtful focus on Board, governance and
compensation matters over the past four years, it cannot be
overstated that Harbert’s nominees still have not met with us,
shared their views on the Company with us, or otherwise allowed us
to conduct the standard due diligence required of every director
candidate.
Particularly in our line of business, which is subject to
stringent standards from regulators and from our contractual
counterparties, we must have the ability to fully vet any new
candidates added to our Board. Harbert instructed their nominees to
both ignore our invitation to meet and decline to fill out our
standard director’s questionnaire that has been completed by our
new appointee Rebecca Fischer. In an effort to advance our dialogue
with Harbert, we waived our request for their nominees to fill out
this questionnaire prior to meeting with them. However, Harbert
still refused to make its nominees available.
This stonewalling of our standard Nominating/Governance
Committee process not only calls into question Harbert’s irrational
behavior but also makes clear to us that their nominees are not
independent and in fact appear to serve at the “beck and call” of
Harbert, a fund which in discussions with us has tellingly admitted
to having no background in our sector and no knowledge of our
business.
Harbert’s Falsely Attacks Executive
Compensation and Benefits
Incredibly, more than one-third of the slides in Harbert’s
presentation reference compensation of Enzo management. Yet for all
of Harbert’s misguided attempts to portray compensation as bloated,
the fact is that Enzo’s CEO compensation is among the lowest of its
proxy peer group and the compensation program has received the
support of investors and proxy advisory firms.
To set the record straight for all shareholders, here are some
examples of how Harbert is playing fast and loose with the
facts:
- Harbert relies on a non-standard, misleading and inappropriate
metric (compensation as a percentage of market capitalization),
never once mentioning the actual annual compensation of our CEO
(which is the lowest of our proxy peers). In none of our robust
conversations with shareholders over the past four years was
compensation as a percentage of market capitalization suggested as
a reasonable metric. In fact, we have never seen it used in any
relevant manner.
- Harbert compares aggregate compensation for two executives over
a 15-year period to Enzo’s operating profit but excludes income
received from Enzo’s IP strategy when making this comparison (and
notes this fact only in the fine print). As our shareholders know
and understand, our IP is a core part of the business that has
thrived under effective and strategic stewardship by our management
team and Board, so ignoring this important revenue driver yet again
underscores Harbert’s specious understanding of our business
model.
- Harbert outrageously suggests a “complex web of related parties
and self-dealings” result in Enzo being a “lifestyle business” when
in fact they are referring to one real property lease entered into
30 years ago. Harbert ignores the fact that this transaction was
entered to assist the company during a financially challenging
period, that lease terms are at market rates based on an appraisal
by an independent third party and reviewed by the Board annually,
and that the details of this transaction have been fully disclosed
to shareholders for years. Moreover, even if these market-rate
lease payments were to be viewed as a form of compensation (which,
we emphasize, they should not be), total compensation to our CEO
would still be well below the peer median.
On the cost side, Harbert refuses to acknowledge the concept of
contingent legal payments. To manage cash wisely and limit
expenses, Enzo has engaged a top outside litigation firm to work
solely on a contingency basis. As a result, our outside counsel is
only paid out proceeds of a settlement. Over the last 10 years the
Company’s IP strategy has produced more than a three-fold return.
This is a smart, prudent and effective method of defending IP and
has been a very successful model for the Company.
Harbert’s Candidates Are Inferior to
Enzo’s Qualified and Experienced Nominees
Based on a review of their resumes (our sole basis for
evaluating them, given they refused to participate in a standard
interview process or complete our customary standard
questionnaire), it is clear that Harbert’s nominees both lack any
identifiable experience with a laboratory diagnostics or biotech
company like Enzo. Furthermore, it is worth pointing out that one
of these nominees resides in Germany with no connection to the US
diagnostic biotech industry while the other hails from the same
town as Harbert in Alabama. One of the nominees has never even
served on a public company Board, while the other’s sole public
directorship experience is on the Board of a public company based
in Georgia – the country, not the state. Their resumes are a far
cry from the deeply experienced candidates nominated and endorsed
by your Board.
The three Board members up for election at this year’s Annual
Meeting – Bruce Hanna, Ph.D., Barry Weiner and Rebecca Fischer –
have strong experience that is directly relevant to Enzo’s
business. Dr. Hanna and Mr. Weiner have been integrally involved in
the development of Enzo’s strategy, operational progress,
governance reforms and shareholder engagement and Ms. Fischer
brings decades of leading experience in the healthcare industry as
a buyer of industry services in the market where Enzo
participates.
- Rebecca Fischer was added to the Board in December 2019
following a robust search process that sought diversity, expertise
in women’s health, and experience in the insurance and
reimbursement dynamics. Ms. Fischer is currently the Chief
Financial Officer of Bellevue Hospital, the world-renowned flagship
institution for New York City Health and Hospitals (NYCH+H).
Bellevue has over 900 licensed beds and an operating budget of more
than $950 million. She began her career at Bellevue as Associate
Director in 2003, became Associate Executive Director in 2011 and
was promoted to Deputy CFO in 2016. She was promoted to CFO in
2017. She received her undergraduate degree cum laude from Cornell
University and her Master of Public Administration in Health Policy
and Management from New York University, where she was a recipient
of the Robert F. Wagner, Jr. Fellowship. In her role as CFO of
Bellevue, Ms. Fischer is responsible for managing a team of
financial managers and 400 other professionals. Her team oversees
budgeting, revenue enhancement, utilization, financial reporting,
cash management productivity improvement and affiliate relations
with the NYU School of Medicine. She is also a key advisor to the
hospital’s CEO and other members of the C-level team on strategic
planning and resource allocation. In both her strategic and
day-to-day responsibilities, Ms. Fischer is directly involved in
guiding Bellevue and its leaders through complex government and
private reimbursement practices. At Bellevue and throughout the
HHC, she is viewed as a subject matter expert on optimal ways for
hospitals to deliver the highest quality care at a time of enormous
technological change and financial pressure.
- Bruce Hanna, Ph.D. has been a director of the Company since
2017 and is deeply qualified to remain on the Board. Until the
appointment of Rebecca Fischer in late 2019, Dr. Hanna was Enzo’s
most recently added independent director. His appointment followed
a thoughtful and robust search process that specifically sought
experience in diagnostics and clinical innovation. He is currently
the chairman of the Board’s Nominating/Governance Committee and a
member of the Audit and Compensation committees. Dr. Hanna’s
extensive scientific experience adds meaningful value and
perspective to Enzo’s Board. He is currently a Clinical Professor
of Pathology and Clinical Professor of Microbiology at the New York
University School of Medicine, Adjunct Professor of Science at New
York University College of Dentistry, and Adjunct Professor of
Biology, Long Island University. Dr. Hanna has been a leading
scientist and educator in the fields of pathology and microbiology,
having completed a 32-year career at NYU Langone Medical Center, in
addition to his ownership in the Village Lab, a NYC tropical
diseases laboratory. He is the author of approximately 100 research
papers, book chapters and presentations at international symposia
on Clinical Laboratory Medicine.
- Barry Weiner is the Company’s President and is also a founder
of Enzo Biochem. And as a significant, long-term shareholder of
Enzo, Mr. Weiner’s interests are fully aligned with those of our
investors. He has served as the Company’s President since 1996, and
previously held the positions of Chief Financial Officer, Principal
Accounting Officer and Executive Vice President. Mr. Weiner is an
active member of the New York Biotechnology Association. Mr. Weiner
has played a key role in not only executing the strategy of the
company designed to unlock shareholder value but also in developing
its proud legacy of innovation, funding the company’s growth
without dilution of shareholders, managing a transparent and open
investor relations program and instituting governance reforms. Mr.
Weiner manages the three operating businesses at Enzo, each of
which are unique and differentiated in their focus and goals,
bringing strategic and hands-on leadership and an in-depth
knowledge and vision.
We urge shareholders to see through Harbert’s uninformed attacks
and misleading statements and to vote the WHITE proxy card “FOR” the election of Enzo’s
director nominees: Dr. Bruce Hanna, Ph.D., Barry Weiner and Rebecca
Fischer.
Important Additional Information and
Where to Find It
Enzo Biochem, Inc. (the “Company”) has filed and mailed to
shareholders a definitive proxy statement and proxy supplement on
Schedule 14A and accompanying WHITE proxy card with the Securities and
Exchange Commission (the “SEC”) in connection with the solicitation
of proxies from the Company’s shareholders with respect to its 2019
Annual Meeting of Shareholders. Shareholders are strongly
encouraged to read the Company’s proxy statement, proxy supplement,
accompanying WHITE proxy card
and all other documents filed with the SEC carefully and in their
entirety as they contain important information.
Certain Information Regarding
Participants to the Solicitation
The Company, its directors and certain of its executive officers
are participants in the solicitation of proxies from shareholders
in connection with the Company’s 2019 Annual Meeting of
Shareholders. Information regarding the direct and indirect
interests, by security holdings or otherwise of the Company’s
participants is set forth in the Company’s definitive proxy
statement and proxy supplement for the 2019 Annual Meeting of
Shareholders filed with the SEC on December 5, 2019 and December
31, 2019, respectively. The Company’s definitive proxy statement
and proxy supplement can be found on the SEC’s website at
www.sec.gov or the Company’s website
at http://www.enzo.com/corporate/investor-information.
Forward-Looking
Statements
Except for historical information, the matters discussed in this
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 release.
1 P. 15 of Harbert’s investor presentation filed with the SEC on
January 8, 2020.
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Elliot Sloane ESPR LLC 917-291-0833 Elliot.espr@gmail.com
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