Barry W. Weiner - President, CFO, Principal Accounting Officer James M. O'Brien - EVP, Finance David C. Goldberg - VP, Corporate Development.

Unidentified Analyst - Craig-Hallum Norman Hale - Stifel.

Good morning, and welcome to the Enzo Biochem Inc. First Quarter 2017 Operating Results Conference Call. I will now read the company's Safe Harbor statement.

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, 2016. 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 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 its 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. 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 fiscal 2017 first quarter press results after the close yesterday; you may view it on our website.

As we noted in our press release, fiscal 2017 is off to a very good start and we expect to see the year progress nicely as we continue to complete development and file for approval of additional proprietary low cost, high performance molecular diagnostic products.

They are designed to capitalize on reimbursement pressures facing diagnostic labs within our industry today. Most notable in the quarter is the growth and increased demand for high margin diagnostic services especially at Enzo Clinical Laboratories.

However, it is really the totality of our company’s performance and how we are meeting the challenges of the market that is most significant. For a number of years now building upon our company’s long and fruitful research we have been focused on producing affordable, clinically relevant products and services.

Due to steadily shrinking reimbursements combined with the price maintenance of assays imposed by suppliers of the basic tools that are used throughout our industry by the specialty and the general clinical laboratories as well as researchers and the physicians, the ability of thousands of businesses to achieve adequate returns is getting increasingly more difficult.

Recognizing this indisputable fact of our industry as one that will only grow more critical, we at Enzo embarked on a development program to provide proprietary technology solutions and platforms that would not only be compatible with existing methodologies but also more flexible, sensitive, and less costly.

It has taken years of extensive planning, development, and work that this endeavor is truly starting to bear fruit and that is what I want to share with you today. The financial results of our fiscal first quarter which I will review certainly underscore that fact.

I should add that despite the considerable progress posted we believe we are still relatively speaking in the early stages of our program of building an extensive, far reaching product line that will benefit Enzo’s growth and profitability over the years ahead.

Consolidated revenues grew to $26.3 million, an increase of 1.1 million or 4% over the year ago quarter. Enzo Clinical Labs gross margins grew 100 basis points to 41% while consolidated gross margins increased to 46%. As we have stated previously increasing our gross margins is a core strategic goal and we are excited to see the improved results.

Operating expenses in total were flat year-over-year. SG&A was slightly higher 43.7% versus 40.6% and on a dollar basis up about $1.2 million. This reflected higher commissions and compensation as well as certain administrative costs related to greater molecular diagnostics business.

Legal expenses were down sharply roughly 77% less than last year’s comparative quarter. These are likely to increase as we draw closer to legal trials which I’ll detail a bit later. As a result operating income increased $900,000 year-over-year excluding a $6.8 million licensing agreement and legal settlement recorded in the prior year period.

The net loss for the quarter was $1.5 million or $0.03 per share diluted. On a non GAAP basis which adjusts for licensing and litigation settlements, the net loss improvement was $800,000 or 35% over the prior year. The non-GAAP loss per share of $0.03 is an important improvement of $0.02 from the prior year period.

Non-GAAP EBITDA also improved by 53% to a negative 573,000 versus a year ago. It’s noteworthy that the adjusted net loss per share of $0.03 in this recent quarter is lower than any quarter last year.

Clearly our objective is to achieve overall corporate profitability which we believe comes closer to being within reach as our revenue growth is maintained on its present course and as we continue to run our operating business in an efficient and synergistic manner.

On the segment level our clinical labs business reported revenues of 18.6 million, an increase of 1.5 million or 9%, another record this quarter. For some time now we have been experiencing increasing demand for molecular diagnostic services and our lab continues to attract new accounts.

Enzo's strength in women's health has played an important role in this excellent performance but so too has our new technology which is proving to be highly efficient. Gross margin improved this quarter to 41% up 100 basis points from 40% a year ago. Operating income was approximately $1 million up 31% year-over-year.

Enzo Life Sciences revenues of 7.7 million was off about 4% from a year ago, given some challenges in order timing and the negative impact of foreign currency particularly the Swiss Franc. Despite lower revenues this segment continues to improve its operational efficiencies and is evidenced by the increase in gross margins of over 2% to 57%.

Operating income approximated $800,000 equal to a year ago, this excludes the legal settlements recorded during that period. What is also notable is our strong liquid balance sheet with over 67 million in cash and approximately 70 million working capital. Consolidated cash flows used in operations was only 344,000 in the current quarter.

After the quarter closed we satisfied our outstanding loan balance and apart from lease obligations we are now virtually debt free. Our strength is both financial and operational.

The integration of Enzo Life Sciences and Enzo Clinical Labs is providing us with a unique capability of being able to develop processes, test them, and provide them in a real time laboratory.

Add to that our extensive patent [ph] which enables Enzo to operate without having to depend on or pay others for rights to technology which makes our company independently strong and capable of pursuing our goal of developing products and platforms that are particularly valuable and more important and medically relevant.

Our AmpiProbe real-time amplification and detection technology platform to cite one example is leading to the development of an entire line of nucleic acid clinical diagnostic products. These roll out of laboratories to offer an extensive menu of services at a cost that would enable them to enjoy acceptable margins.

We received approval last year for our AmpiProbe HCV Assay that addresses a growing market in the identification and quantification of Hepatitis C virus in patient specimens. Also improved was the Candidiasis AmpiProbe based assay, our second test aimed at the women's health market.

These and others including the PLAQPRO Lp-PLA2 activity assay, a test that can identify a marker associated with the potential for coronary heart disease and our just recently introduced new PolyView Plus line of products to provide pathologist with a better tool for interpretation of tumor biopsies are indicative of our intensive and development capabilities that are bearing fruit.

We are pleased to report that PolyView which featured in a key paper just published which postulated that products from other manufacturers maybe causative agents and producing false positive results in patient specimens. Such results can lead to incorrect and potentially deleterious treatments.

The use of products such as ours may reduce or even eliminate this most serious problem. Moreover the caper makes the case for the use of open diagnostic systems which in addition to providing potential economic benefit to labs can actually allow experts to customize their workflow to ensure the most effective outcomes.

Looking ahead we also have underdevelopment assays for the quantification of Hepatitis B virus and HIV as well as additional products on our proprietary FlowScript platform in such fields as immunology and cancer.

We are also working on a full spectrum of tests based on our AmpiProbe platform designed to identify a number of infectious diseases related to women's health. One of the fastest growing segments of the molecular testing market, which in turn is the fastest growing segment of the diagnostics market as a whole.

The common thread connecting all of these products is that they are easily adaptable to open laboratory systems providing our customers with flexibility to offer such tests while reducing their cost of goods.

What we anticipate will be an accelerating rate of new product introductions and the recognition of New York Health Regulatory authorities of our company's capabilities and quality guide so their approvals are forthcoming and the acceptance of our products among clinicians is certain to grow. We are very excited and very optimistic.

I’d like to add just a few comments before I close regarding our legal activity.

Currently there is one case that is yet to be assigned a trial date in New York Federal Court for the Southern District and in Wilmington, Delaware as we indicated in our press release, the Federal Court has set dates for expedited arguments in trials for October, November, and December of 2017 involving Gen-Probe, Hologic, Roche, and Becton Dickinson respectively.

Obviously no one can predict the outcome of any trial. We are nonetheless pleased that this process is moving forward with the first trial set within the next nine months. We look forward to presenting our cases to the courts considering a similar number of which have already been resolved by settlements.

On that note I would like to turn the floor over to questions. .

Thank you. [Operator Instructions]. Your first question comes from the line of Oscar [ph] with Craig-Halum. .

Thanks, good morning guys. Congratulations on what looks like a really, really good start to the year. Want to start with the lab on a couple of fronts here.

The growth on the top line was very, very good in the quarter, reaccelerated nicely, I would like to get a couple of the drivers there and sort of see if we can bifurcate a little bit where the growth is coming from, how much of it is further penetration of existing customers as you are expanding menu versus how much of it is new customer acquisition, and I guess attendant to the new customer acquisition sort of give us an idea of where that new customer activity comes from, is it you going out and more actively marketing your services, how much of it is just word of mouth and folks being more aware of what you are capable of?.

It’s a combination of a number of the points that you put forth. First and foremost we are aggressively presenting our capabilities and services to the market and we’ve had a successful program to attract new accounts and this becomes a self fulfilling activity via the word of mouth of being able to perform an exemplary service for given physicians.

Our reputation as a women’s health specialty laboratory certainly is driving the realization and recognition of Enzo within our regional community. Today we service the majority of women’s health IVF centers in the New York market and to appreciate New York is probably the highest value clinical diagnostics market in the United States.

And we have a dominant share and a growing share in the area of specialty invitro fertilization services. And that is certainly a factor that is driving the growth within the client acquisition area. At the same time we are witnessing a consolidation that is taking place within our industry.

A consolidation of which we are in some respects a beneficiary.

The challenges of the market that I spoke to, that are relative to the cost structure of reimbursement for many laboratories is forcing labs to reevaluate their position, it is forcing labs to look at consolidating methodologies to survive within this marketplace, it is resulting in a loss of service provision to our physician base, and we are capturing that.

And interestingly that is the challenge that we are focusing the strategy of the company to help solve not only in our area but across the country.

And I think what we have begun to do is to initiate a program which I have stated prior is the goal of this company to become a provider of low cost molecular testing services and products across the country appealing to laboratories that we are seeing in our own region but extrapolated on a nationwide basis experiencing extreme economic challenges today.

So our growth is from a number of facets. One is certainly the acquisition of new business. The second is from the dynamics within the marketplace. And the third is because our technology platforms have been expanding.

And I think the types of services and the quality of services that we are beginning to provide is providing a very significant menu as well as a significant capabilities and service approach whether it is via the IT connectivity or it is in the generalized logistical service that we provide to our physician accounts.

So overall it has been in many ways a perfect storm of activity that we believe can drive our laboratory to reach some very significant new heights and goals. .

Thank you, that is a lot of color. And actually I think it is a good segway to my next question, you alluded to a couple of the pieces in here.

You obviously have the strong regional presence but you are increasingly articulating a desire to move into the national market and I guess I am sort of curious as to what are the challenges or what are the mechanisms you are going at utilizing to go into the national market on a grander basis, what are the challenges that are attendant to that as well?.

Our strategy is to expand our business as both a reference provider as well as a support for molecular testing within the clinical laboratory marketplace nationwide. Challenges are obviously regulatory. We are trying to meet those challenges.

Today we are licensed in I would say close to 46 states in the United States and we hope to have all the rest within the next quarter or two. We are engaging insurance providers around the country because there are different providers that we will need to engage and bring onboard.

We are fortunate in that and we are an integrated company meaning our Life Sciences business has dovetailed into the strategy of performing this referenced expansion. And you have to appreciate today we are selling our products to clinical labs globally. Our largest clients are clinical labs in many product lines.

So we have access to the end user and these customers are the customers that would most benefit from the extensions of our low cost product as well as the extension of our service capabilities to allow them to expand their menu and to run tests in a methodology that would provide them with a margin.

So in many ways the challenges for us are also the value propositions from which we can build from and address. Today we are engaged not only in assisting our peers in products that will help them to be more economical but we are providing them with some unique capabilities and unique products which gives them a competitive edge within their market.

So I think the key to this whole strategy is the value proposition and the uniqueness of Enzo as an integrated entity.

An entity that is fully vertically integrated and we really don’t see labs that have that unique vertical integration that is able to develop, manufacture, and provide reagent products as well as provide the alternate service provision if a party does not wish to adopt a given product line in-house.

So I think we have tried to build a model which is unique, which is special. I think we have done that and we have done it with quality assets.

I mean I think when you look at what Enzo clinical labs has been able to do in our region and really emerge as one of the top valued laboratories and I don’t mean economically valued I mean valued by its customer base within our region that reputation carries and we will hopefully carry that reputation as well as the quality of the products that are emerging from our life sciences into the national nationwide market.

.

Excellent, one more question and I promise I will cede the floor. So I thought the lab gross margin number was really a standout here in the quarter. I think it was a record I believe and I think last quarter was the record before that. Wondering if we can kind of parse through the drivers on that side of things.

I know that the continued shift to the molecular and higher value testing has been a factor but I am curious as to how much is being contributed from the fact that you have lower cost of goods from internally developed regions and those sorts of things as well because I know that that’s a factor and an increasing factor.

So I wondered if we can sort of again kind of parse through the contributors there and maybe just even get an idea of where you think the lab gross margin can go over X period of time as well? Thank you..

Hi, it is Jim O'Brien, let me give it a try. So you’re right that the shift in genetics is clearly having an impact on our margins. And also using reagents that Enzo develops at a low cost are having an impact as well. I expect that to continue to accelerate in the Enzo P&L as you see more and more approvals coming out of New York State.

So the benefit that you’re seeing in the lab results we’re actually marketing to other laboratories as a reference service or as products. So the benefits of our strategy are being realized internally in our P&L.

I don’t have the exact numbers on but the impact is or don’t want to forecast where the margin will get to but I think if you read the results and understand what our business strategy is you can tell that the direction that we are heading into with the increase our gross margin and that will absolutely provide more profitability to lab and also our customers.

.

Very good. Thank you, nice work guys. .

Thank you. .

Your next question comes from the line of Norman Hale with Stifel. .

First let me congratulate you guys on two fronts, good progress on the fundamentals of the company and number two the stock has been tremendous off late, hopefully you guys are glad to see that too.

Anyway I have a question first, let's skip over to your therapeutics area on the optical key [ph] what’s the latest progress there?.

That program is undergoing a data dissection in valuation right now. We are awaiting the results of that but at the same time we are exploring the extension of that into other areas. I know the NIH is also looking at possibly utilizing that product in a novel methodology. We’re working with them.

It’s in a process, I can’t really say too much more about it. I think there will be more clarity emerging after the first of the year.

It is an extremely opportunistic scenario at this point in time for us because it can lead us into a value of utilization on our therapeutic front which we haven’t really promoted very much but I think could take a presence. And I think after the first of the year there will be some more clarity where this may emerge. .

When you say other areas, you’re still referring to eye type diseases is that correct?.

Yes, that’s correct. .

Okay. I wasn’t quite sure on that. Okay, great. That’s kind of a hidden jewel of the company in my opinion that doesn’t get lot of discussion but the opportunity here is big, so anyway..

We are fully aware of that. We spent -- the last year and a half has had a very, very focused view on right directions for our core businesses in the services and products perspective. You can see over the performance that has taken place this past year. We have been able to get our businesses extremely well positioned.

We’ve moved to almost a cash flow neutral position. We’ve secured our balance sheet and have given us a nice comfortable balance sheet.

And I think at this point in time with some positive results we may be able to exploit our therapeutic assets and we certainly agree that they are a jewel, it’s a matter of focus and economics, and I think we’re reaching a point where our integrated services and products entity is now on a very firm and well balanced strategic execution.

And we are going to look at the therapeutics as well now. .

I am repeating myself but the opportunity there is significant. Okay, let’s move on.

When you guys published this company strategy in order to view back in November of 2015 the product that is for the HPV viral load you just have the year 2017 as your target, are we looking time wise -- we looking first half 2017 or where you guys see that in terms of…?.

I think that’s a fairly good estimate. .

Okay and then the same question relative to the HIV viral load?.

That might be towards the latter half. .

Okay, alright and then as far as when this was written again this is November 2015, the cancer AB panel was in development at that point, what’s the status there?.

It is in process. I mean we have quite a few [end like] targets in process right now. They are all in various different stages and those are part of the products that are being focused on. The cancer panel will be a later panel.

Our first approach has been the women’s health panel because obviously that dovetails very much in the strategy in terms of our nationwide reach strategy.

We have been focusing it very extensively on the AmpiProbe products that are contained within our platforms that we are developing and I think the cancer panel is a very important one but it will follow the viral loads and the women’s health. .

Okay, since you guys have dramatically improved your balance sheet, your cash position and now you are obviously on a very solid footing financially, are you on some of the R&D that you are working on are you guys ramping up in terms of adding additional people or doing things that can move forward in a faster manner, the R&D efforts of the company?.

Yes, I mean strategically we are selectively firming up areas that can expedite both the development and introduction of our product lines and it’s even beyond R&D, it goes into marketing and sales as well. .

Okay, good.

This is the key to the growth of the company, know expediting every one of these products that you’re working and I know it because you know it’s the New York regulators that you are dealing with but is there an expectation that let’s say in the first quarter of 2017 that we might hear something about some additional approvals on some of the new diagnostic price that you submitted for approval?.

I hope so, I can’t guarantee anything but I certainly hope so. .

Okay, good, excellent.

Switching over to Europe, you guys have -- have you submitted anything in Europe as far as getting approval for some of the diagnostic products?.

No, our focus has been in the United States initially. .

Okay, alright.

Is it possible that in 2017 you might shift over, try to initiate something over in the European marketplace?.

That is certainly a possibility. .

Okay.

Is Europe similar to the United States in terms of feeling cost pressures?.

Europe has been a participant in the cost pressures long before the United States. The methodology of clinical laboratories in Europe is somewhat different than the United States and the acceptability of products that are internally developed and provide a low cost solution has been a recognized and embraced policy in Europe for quite a long time.

So it is a very viable market for our product lines as well. .

Okay and on the partnership front, without giving any specific details are you guys having discussions with other companies relative to a potential partnerships?.

Yes, on multiple fronts. I mean we actually are partners with many companies. Today in product introductions we represent many companies in our marketplace and we have continuous dialog with parties to help expand our base of activity. It is a core function within our business..

Good.

And final question, with the cost pressures that some of these laboratories are feeling, are there -- have you received any communications from a laboratory that would be willing to sell a lab to your company at what you guys would consider to be an attractive price?.

No, the market is such that there are labs that are looking for solutions to the economic constraints that they are facing. And obviously you can sell your lab, you can merge your lab. We’re hoping to provide them with an option to be able to survive by circumventing that drastic process.

But yes, we are looking at many new paradigms and I think what is facing this industry as a whole is that one must look for new approaches to deal with the economic environment and the challenges of providing services on a more economic basis if you look at it as such. So we are -- we certainly are looking at lots of strategies.

I mean the whole national rollout strategy that we have been speaking about encompasses the utilization of Enzo Corp Science product services to be able to provide a solution to laboratories around the country and there are many forms that solution can take place ranging from a simple negotiated reference agreement to a partnership or consortium perspective in driving a more global or national solution.

So we are exploring many opportunities we think that are extremely good opportunities for us. The problem is very well recognized, we witness it throughout the industry and we think that we have devised an approach that is coupled with the assets to be able to really make an impact in an area that is experiencing a lot of pressure. .

Got it, okay. That’s all I got. Thank you very much. .

Thank you. .

Sir there appears to be no further questions at this time. I will now turn the call back to Mr. Weiner.

Thank you, we appreciate you joining us this morning. We look forward to our second quarter which will be reported in March. Our annual meeting will be taking place in January. We believe the company is now extremely focused and delivering on a very well thought out strategy and we will be pleased to report the progress at the next call. Thank you. .

A replay of this broadcast will be available until Friday, December 23rd at 12 midnight. You may access this replay by dialing 1-800-585-8367, the pin number is 30122052. This replay is also available over the internet at.www.onzo.com. This concludes today's teleconference, you may now disconnect your lines at this time and have a wonderful day..