Recent Reimbursement Cuts Emphasize Value of
Enzo’s Strategy
Enzo Biochem, Inc. (NYSE:ENZ), an integrated diagnostics and
therapeutics company, today reported operating results for the
first fiscal quarter ended October 31, 2018, in addition to
providing an update on the company’s development of lower cost
products, platforms and services for the diagnostics and
therapeutics markets.
Recent Developments
- Optimizing diagnostic processes towards
FDA clinical trials on Enzo’s proprietary and affordable open
system platform capable of high throughput to meet the needs of
clinical laboratories of all sizes. Enzo’s platform includes
automation-compatible reagent systems and associated products for
sample collection and processing to further drive costs down for
diagnostic testing. Enzo’s programs also include manufacturing and
assembly of all components required for each step in the diagnostic
process for integration into an open platform. Focusing on
molecular diagnostics, immunohistochemistry and ELISA platforms
which consist of a significant percentage of the cost of goods for
clinical laboratories. The Company’s programs encompass all steps
from research and development to manufacturing, translation,
clinical trials, to FDA approval.
- To address the tightening reimbursement
paradigm, Enzo is expanding its approach to centralize lab to lab
reference services providing margin improvement, expanding its
specialized testing menu to the Company’s clientele, developing
opportunities with institutional clients, and expanding its
geographical reach. To support Enzo’s strategic approach, it
recently obtained a license from the State of Connecticut allowing
Enzo to open a new free standing clinical laboratory in the state.
The new facility expands Enzo’s geographical reach, allowing it to
expand its Lab-to-Lab reference services in the Northeast. It will
also enable Enzo to open additional patient service centers in
collaboration with commercial insurance providers to address this
large patient population need. Enzo is already designated an
in-network provider for three health insurance providers in New
England.
- Impact of diagnostic reimbursements
pressures on clinical laboratories is now more widely evident
throughout the industry, irrespective of laboratory testing volume.
Enzo’s early recognition of the industry challenges has driven the
development of the Company’s innovative, expanding line of cost
effective, highly efficient platforms and reagents, as well as
establishment of a nationally available reference laboratory
incorporating these advances.
- Reported on publication in recent
Journal of Lipid Research of a preclinical study by scientific
collaborators involving a company-developed proprietary Sphingosine
Kinase 1 inhibitor drug candidate effective in reversing resistance
to the breast cancer drug tamoxifen, potentially a first line
treatment for estrogen receptor-positive breast cancer patients.
With more than 50% of patients who initially respond to tamoxifen
ultimately failing therapy due to development of resistance, these
results suggest that SK1-I may have potential in the treatment of
tamoxifen-resistant breast cancers. Enzo research results, as well
as those of its collaborators, show that SK1-1 may address
significantly unmet medical needs in the treatment of multiple
oncology indications and immune-related disorders, warranting
further development anticipated in the coming year.
- Continuing to build one of the most
comprehensive intellectual property estates in the industry with
recently awarded patent for optimizing real time nucleic acid
detection processes.
- Completed purchase of previously
announced additional 36,000-square foot commercial facility in
Farmingdale, NY, adjacent to the Company’s current Long Island
campus. A renovation underway will add needed infrastructure to
produce and distribute Enzo’s expanding low cost, open architecture
diagnostic platform products and broaden related services,
including automation-compatible reagent systems and associated
products for sample collection and processing through to analysis.
This new facility will also include GMP manufacturing
capabilities.
Barry Weiner, President,
Comments:
“In the few weeks since we last reported on fiscal 2018 results
and commented on how we viewed the inevitable consequences of PAMA
reimbursement reductions, estimated by some to be at least $2
billion industry wide, we are seeing industry wide impact today.
With these developments, Enzo’s strategy to provide low-cost,
efficient and high capacity diagnostic solutions has become even
more important and critical for an industry being challenged to
maintain high quality services, while being paid less for work
performed. Our investment and focus on development of cost
effective products should assist in the improvement of our
financial performance in the future.
“Also, we believe that it will prove to be a beneficial solution
for a large number of independent and hospital labs adversely
affected by lower reimbursement rates. For some time, Enzo has
recognized the inevitable negative impact of both Medicare
reimbursement reductions, along with more stringent policies of
private payors, and the inflexible high pricing of products
associated with closed end diagnostic systems. Our unique operating
structure, coupled with innovative product development make Enzo
uniquely positioned to provide unique laboratory solutions for our
industry.
“In this environment, our strategy to build upon our deep
knowledge and experience to develop an extensive line of products
and services that are inexpensive, highly efficient and utilizing
open ended architecture is now also a commercially available
alternative as a service.
“Enzo is moving quickly to capitalize on opportunities that lie
ahead. We continue to expand our comprehensive menu of tests for
the market. Our commercialization efforts are well underway, which
we believe will address the economic challenges we see throughout
the industry and to create future value for our shareholders. The
industry challenges play to our strengths as a developer and
provider of unique platforms and reagents. In addition, due to our
expanded Farmingdale campus, our ability to provide clinical
laboratories anywhere in the U.S. with reference diagnostic
services utilizing our tools will prove highly attractive and
economical, as well as rewarding, for them and for Enzo.”
“In light of the significant reimbursement changes that have
impacted Enzo and other clinical laboratories in this quarter, Enzo
has taken a number of steps to adjust its operations to this new
paradigm. These actions include tightening billing and client
services practices, expanding our reference laboratory services
menu of tests, and hiring sales professionals in new geographical
regions. Most importantly, our vertically integrated structure
allows Enzo to move quickly to position our broader lab to lab
reference service. “
First Quarter Operating
Results
- Total revenues were $21.3 million,
compared to $26.9 million in the prior year, a decrease of $5.6
million. Clinical services revenues were $14.3 million, compared to
$19.5 million in the prior year, a decrease of $5.2 million,
largely due to reduced insurance reimbursement payments and mix of
testing, which were reimbursed at higher than average rates, in the
prior year. Total diagnostic testing volume, measured by the number
of accessions, decreased 5% 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 $7.0 million compared to $7.3
million in the prior year. The decline year over year was the
result of elimination of product royalties due to expiration of the
agreement in April 2018.
- Clinical services revenues for the
three months ended October 31, 2017 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 uncollectable accounts
receivable, and amount to $0.6 million and $0.8 million in the
three months ended October 31, 2018 and 2017, respectively.
- Consolidated gross margins were 33%
compared with 42.6% in the prior year. Clinical services gross
margins were 23.3% compared to 38.4% a year ago. Gross margins in
the current year were negatively impacted by lower reimbursement
revenue from Clinical Services, as noted above. Clinical products
gross margin was 53% compared to 52% in the prior year period.
- Operating expenses totaled $13.0
million, up 8% compared to $12.0 million a year ago. The increase
reflected legal fee expenses in anticipation of a patent
infringement and contract related trial, where Enzo is plaintiff,
slated to occur next calendar year. Total legal expenses were $1.3
million compared to $0.4 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 $6.0
million compared to $0.6 million a year ago. The GAAP and non-GAAP
net loss per share was $0.13, compared to $0.01 a year ago. EBITDA
was a loss of $5.5 million compared to $0.1 million a year
ago.
Total cash and cash equivalents at October 31, 2018 were $52.8
million compared to $60.0 million at July 31, 2018. Cash used in
operations was $6.2 million during the first quarter of fiscal 2019
and cash used for investing activities, principally capital
expenditures, was $1.0 million. Working capital at October 31, 2018
was over $57.3 million.
Conference Call
The Company will conduct a conference call Tuesday, December 11,
2018 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 3927608.
Interested parties may also listen over the Internet at:
https://tinyurl.com/ybstv2tp
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 December 25, 2018. 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 3927608.
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
Selected
operations data:
October 31 (unaudited)
2018
2017
Total revenues $ 21,260 $ 26,876 Gross
profit $ 7,021 $ 11,445 Gross profit %
33.0 % 42.6 % Loss before income taxes (5,981 ) (640
) Benefit for income taxes - - Net loss $
(5,981 )
$ (640 ) Basic and diluted net income (loss) per share
($0.13 ) ($0.01 ) Weighted average shares
outstanding - basic and diluted 47,186 46,914
Selected balance
sheet data:
10/31/2018 (unaudited) 7/31/2018 (unaudited)
Cash and cash equivalents $ 52,777 $ 60,041 Working capital
$ 57,315 $ 63,014 Stockholders' equity $ 75,670 $ 81,121
Total assets $ 94,183 $ 101,660
The following table presents a reconciliation
of reported net income (loss) and basic and diluted net income
(loss) per share to non-GAAP net income (loss) and basic and
diluted net income (loss) per share for the three months ended
October 31, 2018 and 2017:
ENZO BIOCHEM, INC. Non-GAAP
Reconciliation Table (Unaudited, in thousands, except per share
data)
Three months ended October 31
2018
2017
Reported GAAP net loss $ (5,981 ) $ (640 ) Adjusted for:
Legal settlements, net - - Legal fees associated with settlements -
- Separation payments - - Non-GAAP net loss $ (5,981
) $ (640 ) Weighted Shares Outstanding Basic and
diluted 47,186 46,914 Basic and diluted earnings per share
Basic and diluted net income (loss) per share GAAP ($0.13 ) ($0.01
) Basic and diluted net income (loss) per share non-GAAP
($0.13 ) ($0.01 )
The following table presents a reconciliation
of reported net income (loss) for the three months ended October
31, 2018 and 2017, respectively to EBITDA and Adjusted EBITDA:
ENZO BIOCHEM, INC. EBITDA &
Adjusted EBITDA Reconciliation Table (Unaudited, in thousands)
Three months ended October 31
2018
2017
GAAP net loss $ (5,981 ) $ (640 ) Plus (minus): Depreciation
and amortization 766 749 Interest income (274 ) (157 ) Benefit for
income taxes - - EBITDA $ (5,489 ) $
(48 ) Adjusted for: Legal settlements, net - - Legal fees
associated with settlements - - Separation payments -
- Adjusted EBITDA $ (5,489 ) $ (48 )
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version on businesswire.com: https://www.businesswire.com/news/home/20181210005790/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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