Barry Weiner - President, Chief Financial Officer, Principal Accounting Officer and Director James O'Brien - Executive Vice President, Finance David Goldberg - General Manager, Enzo Clinical Labs and Vice President, Corporate Development.

Bill Bonello - Craig-Hallum Pat Gallagher - Laidlaw & Company Norman Hale - Stifel.

Good morning, and welcome to the Enzo Biochem Inc. Third Quarter 2016 Operating Results Conference Call. I will now read the company's Safe Harbor statements.

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 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, cost of goods and services, other expenses, government regulations, litigations and general business conditions.

See risk factors in the Company's Form 10-K for the fiscal year ended July 31, 2015. 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 obligation to update any forward-looking statement as a result of developments occurring after the date of this conference call. During this conference call, the Company may refer to EBITDA, a non-GAAP measure.

EBITDA is not and should not be considered an alternative to net loss, loss from operations or any other measure for determining operating performance. The Company has provided a reconciliation of the difference to GAAP on its website, www.enzo.com and in the press release issued last night. Our speaker today is Barry Weiner, President.

At this time, all participants have been placed on a listen-only mode and the floor will be opened for your questions and comments following the presentation. I would now like to turn the floor over to your host. Mr. Weiner, the floor is yours..

Thank you. Again, good morning and thank you for joining us today. On the call with me is Jim O'Brien, our Executive Vice President of Finance; and David Goldberg, our Vice President of Corporate Development. We issued our 2016 third quarter press release this morning and I hope you have had a chance to take a look at it.

The third quarter of fiscal 2016 has been marked by strong results, our continued evolution to a single integrated company that is heavily embedded in technology-driven diagnostic products and services. It’s very evident in all aspects of our operations.

We’ve made excellent progress in adding to our portfolio of New York State Department of Health Approved tests. This was evidenced by our latest announcement which came out yesterday and we continue to broaden our reach into the women’s health market.

We offer unique and very timely solution to the healthcare marketplace and we continue to be recognized for our intellectual property estate which is evidenced by the additional patent settlement which have taken place in the past quarter. We see a special opportunity in front of us to offer innovative unique solutions to the healthcare marketplace.

Our accomplishments this past quarter reflect our continued commitment to develop and market low cost, high performing and easily adaptable products and services to the diagnostic services industry.

Enzo is at the forefront of developing diagnostic and research solutions and we have received approvals and are focused on a pipeline of technology-driven products that impact not only the fastest growing segment in the clinical services field, but the one with the highest marginal cost as well, which is the molecular diagnostics space.

As we progress with the advancement of our pipeline, we believe our strategy and these products will allow Enzo to potentially reshape the delivery of diagnostic services. Before commenting on our approach, however, I’d like to briefly review the quarter’s results with you. Revenues were up double-digits by 10% to $26.4 million.

Clinical Lab revenue was $18.2 million, an increase of 16% over the prior year period. The Clinical Lab results continue to illustrate our strength in the women’s health segment and the growing market share of the New York region where new account acquisition continues.

The lab revenue increase reflects its growing focus on higher margin molecular testing services. At the same time, the margin expansion at the lab is also assisted by continually adding in-house developed technologies and products to our menu of assays.

Our women’s health emphasis continues to manifest itself not only in the widening of our services menu, but it’s reflected in the announcement we made yesterday concerning our latest diagnostic approach in test.

The approval received from the New York State Department of Health of our third molecular test and AmpiProbe test for Candida was a significant development in our pipeline activity. Life science products revenues were $8 million as customer order volume increased 22% over the second fiscal quarter.

As we continue to morph for our products division from a research-based focus to a molecular diagnostics one, we are de-emphasizing our lower margin academically oriented life science products and we are shifting our manufacturing and marketing focus towards higher value clinically oriented products.

As the flow of diagnostic products from a research and development grows more robust, we will see concurrent increases in the focus of our integrated marketing and services team towards clinical laboratory customers. Our royalty decline quarter-over-quarter is directly attributable to a reduction in the U.S.

sales of covered products from our licensees. Along with higher revenues, variable costs inevitably also rise, especially for reagents as well as reference service expenses. Nonetheless, we held cost of goods on a percent of revenue basis on par with a year ago.

Gross profit improved 9% to $11.4 million with gross profit as a percentage of revenues remaining tightly in line. We’ve also been adding some staff in select areas, especially as we engage individuals with a more specialized knowledge we need in the development area and also as we gear up for increased marketing of both our products and services.

Consequently, SG&A increased slightly, but I am pleased to note that as a percentage of revenues, it was down 100 basis points. The net loss per fully diluted share was $0.05 compared to a net loss of 6% in the prior year period.

On a non-GAAP basis, the net loss per share fully diluted was $0.04 compared to $0.07 per fully diluted shares in the prior year period as well. Life sciences experienced an uptick in order flow and reported an increase in product sales year-over-year with steady gross margins and positive cash flows.

In line with our strategic plan, life sciences has undergone and is still undergoing an extensive revamping, emphasizing sales of higher margin products while focusing greater efforts on development of our new diagnostic assays and the platforms that are associated with them.

This segment is gearing up its production capabilities as product approvals are granted, so that we can readily provide new and additional products. With that, revenues increased to $8 million from last year’s $7.9 million with both gross margin and gross profit remaining steady year-over-year. Operating income was $900,000.

Year-to-date results continued to pace ahead of prior year. Total revenues are about 6% ahead and despite higher cost gross margins increased 6%. Year-to-date legal settlements net amounted to $18.5 million. Overall, year-to-date results showed a net profit of $9.2 million or $0.20 per fully diluted share.

This represents a $19.8 million improvement over the year ago’s net loss which per fully diluted share equals $0.24 per share. Year-to-date EBITDA, a total of $12.4 million, a $20 million year-over-year improvement. Notable too, is our strong liquidity position.

As of April 30, 2016, our current ratios stood at about 2.5 to 1, this reflecting current assets in excess of $55 million. Of that amount, cash and cash equivalents totaled $32.4 million.

The recently announced legal settlement with Life Technologies which will be recorded in the fourth fiscal quarter, put cash and their equivalents at present at over $50 million as of today.

Cash flow has remained solid despite some CapEx expenditures for adding molecular diagnostic manufacturing at life sciences and testing capabilities at the clinical laboratory. Cash flow from operations for the nine months ended April 30, 2016 was $17 million.

During the current quarter, we also paid down approximately $1 million of our outstanding credit line which now stands at just $2 million. Overall, the third fiscal quarter of 2016 continued our pattern of strong operating results that underscores the positive direction on which we’ve embarked.

Both operating segments continue to be profitable, generate positive cash flow from operations and are executing on Enzo’s long-term business plan and corporate strategy.

The quarter’s results again reflect the progress we have made to-date to meet the needs of the demanding and fast-moving medical markets and especially the increasing benefits realized from our ongoing strategic program integrating life sciences and clinical laboratories.

On the legal front, following the May 2016 with a settlement with Life Technologies for about $35 million, seven of the original 11 patent suites filed in Delaware now remain pending.

Other litigation includes proceedings in New York Federal District Court against Roche and an unrelated to the recent Delaware settlement, our pending appeal of the Life Technologies case before the Federal Circuit in New Haven.

These actions entered into over the years to defend our patent estate have enhanced our cash position and also our ability to carry forward with our strategy to develop and build our position in marketing our multiple technology platforms and the related assays.

No less so, it also reinforces the validity and the importance of our intellectual property estate as we proceed forward to build our products and platforms in this new promising age of molecular technologies. Allow me at this time to provide some comments and why we think our strategy is so timely and important.

From a global perspective, the multi-billion dollar molecular diagnostics industry finds itself at an interesting crossroad. The business has been growing rapidly, so-called, routine testing, simple blood works and urinalysis for example can now be done readily even in many physicians’ offices.

The heavy lifting part involving genetic testing is more complicated requiring state-of-the-art technology available to relatively few laboratories and it is costly and difficult to process. It’s not unusual for labs, especially the smaller to medium-size independent labs to send these specimens to those specialized labs on a reference basis.

At the same time, diagnostics has become a key ingredient in determining health problems and monitoring treatment, its relative cost to healthcare in general is low.

It is estimated that about $0.03 of every dollar spent on healthcare is – but also is spent on diagnostic utility, but also as reimbursements continue to fall, declining as a percentage, the overall medical expense continue to rise. This is especially true in the diagnostics field where little to no vertical integration has occurred.

There are added costs to be absorbed throughout each step of the development to commercialization process.

As the product moves from discovery through platform to product development, to validation and manufacturing, and finally service provision, as the situation exist today, clinical labs cannot pass continually rising costs on to patients or payers making their very existence more and more problematical.

Let me further expand on that and a few other relative points. As I noted earlier, the diagnostic lab community is multi-faceted, but the challenges it faces result from the upward march of technology and associated costs.

These are costs that are associated with the assays, the reagents, the platforms and these costs are imposed overall on labs with the products that they acquire. This especially affects the many smaller independent labs, as well as medial center units, especially at a time when reimbursements are steadily declining.

We believe that the vertically integrated structure that we have built here at Enzo can be a part of the answer to these problems, because we have internally developed capabilities ranging from innovation to platform development to manufacture, distribution and marketing of both products and services, we are able to provide solutions that are high performing, generally clinically relevant data will be available at a 30% to 50% savings to the market.

For many clinical labs, the cost of offering some of these tests whether run internally or referenced to other laboratories, often exceeds the reimbursement they receive. Before taking into account, any other cost and expenses associated with the offering of these services.

As we continue to execute on our strategic plan, Enzo is able to provide what maybe a lifeline to clinical labs, because of how we have built and shaped our business over the years, we are now able to provide these labs with the ability to provide technology-driven diagnostic services to their client base at a cost that allows them not only to survive today, but into the future where owners’ reimbursement reductions await.

As we increase the menu of such services, which are designed, developed produced and validated under a single corporate entity, we not only can assist these labs to overcome the inherent efficiencies in their delivery of their services, but also assure growing margins at Enzo. We believe we are in a very advantageous position now.

First, our history shows, we have been an innovator in this industry for decades, our IP have stated valuable since it provides us with technology that is royalty free, it thus provides us with the incomparable freedom to operate from a development viewpoint, while also posing a barrier to entry for others.

We’ve built an integrated life sciences clinical lab structure that enables us to develop and move assays in test seamlessly from development to testing to commercialization. Few if any companies possess this unique capability.

What is also important is that our integrated life science clinical lab model has enabled us to produce assays at a very favorable cost, especially as related to current and projected reimbursement levels. Simply put, our cost structure should provide increased profitability to Enzo and a marginal return for our customers, the independent labs.

It provides us with an ability to deliver high-performance, easily adaptable products and services at good margins. We have the ability to process our own test results for our constituent physicians and clinics at a highly attractive cost relative to reimbursement.

We also increasingly hope to provide independent labs nation-wise and even globally with an ability to properly and effectively process their specimens to our labs in a highly efficient cost and effective manner. The Candidiasis test just conditionally approved by the Health Department of New York is a good case and point.

AmpiProbe can de-assist as a multiplex assay designed to identify the presence of five and the most common species of Candidiasis from a single vaginal swab. Industry estimates puts the number of tests performed for the identification of Candidiasis at over $10 million per year in the U.S. alone.

It is also estimated that over 70% of women will develop the Candidiasis infection during their reproductive lifetimes. I might note that it will be that this particular product will be the subject of a presentation at CAP16 entitled Advancing Diagnostic Medicine.

This is the Annual Meeting of the nation’s pathologists scheduled for September in Las Vegas. What is significant is that the approval was granted just three months after its submission. You might recall that prior approvals took a good deal longer.

Candidiasis nonetheless was the third approval of an assay for our platforms to have been received in the past year or so. We hope that we’ll be a harbinger of relatively fast regulatory approval of future assays now in our pipeline.

Since we believe we have now demonstrated our capabilities and care in the development and testing of these diagnostics for effective use.

Candidiasis’ approval follows a similar approval granted to Enzo last November by the New York State Department of Health of AmpiProbe HCV Hepatitis C virus for the quantitative detection of this particular organism. Prior to that, Enzo’s FlowScript HPV assay was also approved.

The FlowScript assay was based on a proprietary technology that allows multiplexing analysis of cellular function in a single assay via the simultaneous examination of each and every cell in a given sample.

It is now being used increasingly to assist physicians in better evaluating to progression of abnormal pap smears towards cervical cancer in our laboratory.

We now have in various stages of development, at least the 11 different test for women’s health, a number of which we expect to rollout over the next year or so that will employ our AmpiProbe technology.

With them, one can draw all of these tests from just one specimen avoiding discomfort to the patient and the need for multiple draws to extract them for analysis.

Besides the women’s health line, we also expect to rollout a line of products designed to pathologists in distinguishing the characteristics of various tumors from biopsy specimens using technology developed by Enzo scientists.

Also, to extend our market reach and assist our product rollout, we have underway a comprehensive program involving meetings with key opinion leaders, customers and advisors in the molecular diagnostics community. This is providing us with feedback giving confidence to us that our strategic approach is on the right track.

In addition, we are consulting with insurance companies as to how we can better partner on reducing overall testing costs. Needless to say, declining reimbursements are the ban of the diagnostics industry and a continuing issue for the medical profession as medical practitioners are to continue diagnosing treating and monitoring patients.

I hope this overview provides you with a sound idea as to why we view the outlook so favorably and exciting. Overall, it has been a very good quarter where we continue to make progress with our core business units, as well as progress towards the goal of providing low cost clinical products and services to the diagnostics industry.

On that conclusion, I’d like to turn the call over for questions..

[Operator Instructions] Thank you. Our first question is coming from Bill Bonello of Craig-Hallum..

Congratulations on another good quarter.

You kind of hinted at some of these things on your – in your description of the strategy and where you are going, but I want to press a little deeper, just in terms of the sustainability of the double-digit lab growth, I mean, the organic growth, when will we start to maybe anniversary any of the big ideas wins and to what extent do you think that you can offset that, that anniversarying of wins with the addition of other new accounts either in women’s health or other specialty areas?.

The lab revenue growth has been a combination of increased account acquisition, more focused targeting of clientele that utilize higher volume tests, specifically in the molecular diagnostics area. We are seeing a unique dynamic within our industry, particularly within our market area.

As you may be aware the New York regional market is one of the highest value clinical diagnostic markets in the United States.

I suspect, we have one of the largest number of high level specialty practitioners in the United States that demand a very high level of service and a very comprehensive profile of product offerings which today we are increasing and beginning to offer to these physician groups in a very, very comprehensive way.

The market is also been subject to a consolidation. We have seen a number of our peer companies be acquired by large multinational entities or national entities. We see the uniqueness of our presence being solidified.

We today have accounts and groups that are coming to us for service and abandoning some of the larger national laboratories because of this capability of service provision that we are able to deliver. Now, with that as a preface, we are witnessing a very strong trend in our revenue growth.

It’s difficult to say how long one can maintain double-digit growth. But at this point, we have a market in which we have not penetrated to its fullest by any extent. We are relatively small in the market considering our presence and we think that presents us with strong opportunity.

Our plan is basically to continue to introduce unique tests that will generate additional revenue and opportunity for us that is opportunity with our existing customers as well as give us a profile for attracting new customers.

We also have a plan and we are currently in the beginning of executing on it to expand our reach nation-wide as a low-cost provider of molecular testing services. So that will open up an entirely new market segment which we hope will drive that growth rate and maintain it as we move into the future.

So, I think the elements of growth are present in our regional strategy. It is also an opportunity from our national strategy. So it’s difficult to say we still have great – our sales team is extremely excited. They’ve been doing extremely well.

We are making strong penetration into the market and we believe that growth rate should continue in the near future..

So, I mean, would it be safe to say that as you look out over the next couple of years, you’d be disappointed if we didn’t have high single-digits to low double-digits organic growth?.

Yes..

Okay. And then, just on AmpiProbe, two questions. Can you explain what conditional means, conditional approval? And then a follow-up question on that..

Yes, Bill, it’s David Goldberg. Good morning. Conditional approval is given to clinical labs such as ours that are in, what we call very good standing with the State of New York. So, they review the submission packet and based upon our prior submissions and our prior inspections they grant us approval on a conditional basis.

And then, what will happen is, upon a regularly scheduled inspection, which is never exactly – told exactly what day they are coming, they will actually come in, they will do as part of the general overall inspection and inspect the AmpiProbe operation and then presumably, if all goes as we expect, they will change the conditional to a permanent approval.

But, you should know that in any approval that is granted by New York State is always subject to keeping everything up to speed, up to - up to their very, very high standards. And so, it has no impact on us in terms of the ability to market the test at all.

It’s simply a procedure that they grant to certain laboratories and we are very happy to have it..

Perfect. Okay, that’s helpful.

And then, in terms of – Barry talked about the number of tests in various stages of development for women’s health with AmpiProbe, I think you said 11, can you give us a sense how many of those tests that’s already been submitted to the New York Department of Health? And then, maybe when we could start to see some of this test move the needle from a revenue standpoint?.

I mean, we have quite a few tests that are in the developmental pipeline. All of these tests are in different stages of the development process. We don’t release specifically the numbers that we have in any particular stage. We are validating many of these internally.

Right now our goal is by year end to get a certain number of them, a significant number of them through this process and we are optimistic we will do that. We’ve been making very good progress internally. And we are very pleased with it as to the developmental pipeline. Many of these have already – they’ve been developed.

The probes have been designed and integrated into the platforms. They are in various stages of validation now. So, I think we are in a fairly good shape to hopefully see a comprehensive product sometime by year end or soon thereafter.

And what I mean by comprehensive product is a panel that can potentially generate revenue growth for us as a company of some size..

Okay, excellent.

And then it’s after you have that panel that we maybe would see revenue, I know, we’d see revenue before that, but we’d see sort of revenue that moves the needle?.

Yes, I would hope that to happen..

Okay. And then, just a question on the gross margin, obviously, up nicely year-over-year in the lab business, but down a little bit sequentially despite a pretty healthy sequential growth in revenue. Can you just talk to what’s happening there? A - James O'Brien Bill, it’s Jim O'Brien. Nothing really abnormal.

We’ve got some additional reagent cost bringing some more people into our production facility in Farmingdale. Nothing out of the ordinary. We continue to see margins close to 40%. So, I wouldn’t say, I wouldn’t read anything into this quarter’s results..

That’s okay.

So, I mean, would you expect them to go back up from here or?.

We continuously focus on increasing our gross margin. We’ve done that successfully over in the last number of quarters. I would expect that trend to consider and to continue. So I do expect to go back up, but, still a very healthy margin for what we have done and given our mix of business, it’s an industry leader.

So, we will continue to focus on that as a key metric for driving results in the clinical lab..

Makes sense. And then if I can just, two last questions. Cash burn in the quarter, it looks like it was about $3 million, maybe at least from an operating standpoint.

Is that sort of a reasonable expectation going forward, ex settlements?.

I think if you look at the cash being generated from the lab and also from life sciences which are both positive, I think $3 million is a good number to use, Bill, but I would caution you that the variability in that number would be based on the activity that we have on the legal front in terms of case work.

So, depending upon where our legal expenses in the quarter would drive that number up or down..

Great.

And then, my last question I promise, you’ve got a huge junk of cash on the books, obviously, some of that you’ve talked about for – some of your development activities and beating up sales, but other to lots – any to lot of share repurchase et cetera?.

We set a goal to get a capitalization that would give us the capability to strongly promote our business plan which is what we are doing today. We are looking forward and I cannot make prediction as to what will happen. But we are optimistic as to our capital structure increasing over time as perhaps more settlements emerge.

Always, this is a situational issue that we would have to look at, at on an at moments basis here, but certainly, nothing is off the table in terms of looking at utility for excess cash whether that would be in the form of a share buyback, a dividend or an acquisition. I mean, we have lots of different opportunities in front of us.

But I will say, we are very sensitive to our shareholders and the long-term shareholders that have been with us in terms of the future value - in terms of sharing the future value of Enzo..

Great. Thank you so much for putting up with all those questions..

Thank you..

Our next question comes from the line of Pat Gallagher of Laidlaw..

Good morning gentlemen and congratulations and those are great questions by the way. I enjoyed that thoroughly. So, good work on that front.

Hey, Barry, I was wondering if you might be able to chat a little bit more about some of the trends you are seeing with payers and how that might impact the competitive landscape?.

Jim will address that..

Sure, Pat. It’s a good question. With our new account activity, particular in the genetic field, we are working with a number of payers and we are finding that reimbursement rates are holding very nicely. However, we would see an uptick in the number of days it takes us to collect on our receivables.

So, for example, our DSOs while still, between 40 and 50 days, is continuing to increase a bit. We work with our payers regularly and some of the expense that you see in the lab this quarter relates to bringing on additional staff to make sure that we are prepared and we have the infrastructure to deal with in payers in health payers.

We are finding that payers are asking for more and more information to before reimbursement takes place. For example, they are asking for, not only letters of medical necessity, but they are asking for support behind why that claim for medical necessity was necessary.

All that turns into more time it takes us to collect on our receivables, which we are managing very, very well to do, but they do take time and the payer industry is evolving in terms of the requests that they have in terms of supporting a claim for reimbursement. So, we have to be ahead of that.

We are not reacting to it, but being proactive in working with them to make sure that we provide them what they need the first time to get claims paid quickly. So, we have seen a bit of an uptick in the DSO in the lab. But we are working with them in addressing changes that they have almost monthly in terms of what their requirements are..

That’s very helpful. Thank you..

Our next question comes from the line of Norman Hale of Stifel..

So, good morning. Good quarter.

Got a few questions here first, kind of jumping away from the conversation we’ve had so far, the prior call optical, which has sort of fallen under the radar is how I say, can you give us an update on how that product is progressing?.

Yes, it hasn’t really fallen under the radar. It’s still a very active topic here. We are awaiting final evaluation of the long-term study on optical, which is in process. But we are also looking at other options and exploring other options and opportunities with the National Institute of Health.

I think there will be more information about that to emerge in the next number of few months. I can’t really say very much about it at this point in time. But I would say that there is a strong possibility for future value to be seen from optical. I really, unfortunately cannot say too much more about that. But it is an active project..

Okay, that’s good enough.

And then, in time-wise dripping into the year 2017, and as you guys are still projecting both the HBV viral load product and the diagnostic and HIV viral load diagnostic, those are still scheduled for 2017 and if so, what part of the year of 2017 are we looking at?.

Again, from our estimation, it could be from the half to three quarters into the year..

Okay, very good.

My last question, the conditional approval that you guys just announced on Candidiasis, so does it appear that the regulatory authorities are now easier to work with in terms of getting these approvals that maybe they’ve – they have been understanding that you guys are a competent group of people and maybe some of the things that they looked at previously, now they can say these guys know what they are doing and go with a just a easier dialogue with them? Is that a fair assumption?.

I hope so. Basically, there was a fairly long evaluation of the platform. It was a novel platform. I think the parties to be had to get comfortable with the platform the it worked and be comfortable with the validation that we provided to them. Subsequent submissions are analyzed that will be run via this platform.

So that basic understanding is translating across and you could see what happened in the Candidiasis really, the Candidiasis product, basically it is run on the AmpiProbe platform.

It took three months versus much longer for the Hepatitis C and we are very optimistic that that trends will be accepted as we move forward and start to submit and get results from all these other analytes that we have been developing. It is a learning curve.

And hopefully, we’ve – we are at the side of the learning curve which will give us more expedited returns..

Terrific. Okay, that’s all I had. Thank you..

Thank you..

There appear to be no further questions at this time. I would like to turn the call back over to Mr. Weiner for any additional or closing remarks..

Thank you. It’s been a very strong quarter for us. We are making significant progress on fronts of product development and market reach in our clinical laboratory. We look forward to chatting with you for our year end call, which will take place in October and we hope to be able to update you on our progress at that time. Thank you..

Thank you. A replay of this broadcast will be available until Wednesday, June 22 at 12:00 midnight. You may access this replay by dialing 800-585-8367. The PIN number is 20839071. This replay is also available over the internet at www.enzo.com. This concludes today's teleconference. You may disconnect your lines at this time and have a wonderful day..