Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Misleadingly Attacks
Executive Compensation and Benefits
Harbert Cherry-Picks
Peer Group to Make Misleading TSR Argument
Enzo Nominees
Are Superior to Harbert’s Nominees
NEW YORK – January 13, 2020 – 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.
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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.
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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.
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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.
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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.
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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:
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Laboratory
Corp of America Holdings (NYSE:LH)
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1 P. 15 of Harbert’s investor presentation
filed with the SEC on January 8, 2020.
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Myriad
Genetics, Inc. (Nasdaq:MYGN)
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OPKO
Health Inc. (Nasdaq:OPK)
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Quest
Diagnostics (NYSE:DGX)
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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:
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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.
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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.
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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.
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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:
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.