Barry Weiner - President, CFO, Principal Accounting Officer Jim O'Brien - EVP, Finance.

Mitchell Kapoor - Rodman & Renshaw Norman Hale - Stifel.

Good afternoon, and welcome to the Enzo Biochem, Inc. Second 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 afternoon and thank you for joining us today. We apologize for the short notice for rescheduling this call but we thought it would be necessary giving that pending storm that is predicted to generate up to 20 inches of snow in the northeast tonight and tomorrow.

On the call with me is Jim O'Brien, our Executive Vice President of Finance, a little while ago we issued our fiscal 2017 second quarter results press release you can view it on our website. As usual I will comment on our accomplishments toward achieving our strategic objectives in this conversation.

These include the status of our product pipeline development and expansion of our business in current environment within the molecular diagnostics service industry where Enzo has set its sights on providing the highest quality, affordably priced and easily adaptable solutions. We will then be pleased to open the floor to your questions.

In January I spent several days in San Francisco visiting with a couple of dozen analysts and portfolio managers that were in town for the JPMorgan Healthcare Conference. These one on one meetings provided Enzo with a chance to continue to introduce our business strategy to market participants, potential partners and interested shareholders.

It also provided us with important feedback from the investment community. I was really pleased that the reaction received from our presentation was very favourable.

Our message was as it has been for some time that in our present healthcare market there has been one constant namely that reimbursements continue to decline and that the cost of diagnostics particularly in the fast growing molecular diagnostics field remains fixed and uneconomical.

The result as we have all recognized has been a continuing and debilitating margin squeeze and lack of profitability. This is especially the case for thousands of independent labs that serve millions of patients annually and that insurance companies have come to rely on.

In a very real sense the high cost of products could upset the laboratory industry where continued investment in technology, infrastructure and solutions are critical even worse it may well force many to seek alternative business solutions that result would the grossly impact physicians and hospitals that rely on high quality local laboratory service to make critical diagnosis decisions for patients.

Enzo strategy is centered on this very issue of reducing costs and assuring quality diagnostic results. Accordingly we are deeply engaged in developing a wide range of highly efficient and affordable molecular diagnostic assays and reagents along with new platforms on which they can be utilized for use in the clinical laboratory marketplace.

We are also moving to become a nationwide reference laboratory, processing tests for those independent labs who find this approach more efficacious.

I'd like to stress one important feature of our approach that is it is built around delivering a robust line of products and services that could provide medically relevant cost effective solutions that are easily adaptable to the existing workflow of clinical laboratories.

Enzo solutions could save clinical laboratories between 30% and 50% on selective products or reference services costs thereby improving operating margin significantly. Here are the facts, demand for molecular diagnostics is rapidly increasing.

In order to compete against national academic or hospital laboratories independent laboratories must offer cost efficient, highly reliable molecular testing solutions in the $7 billion annual market.

Reimbursements are in a long term decline and clinical labs have already sharply reduced labor and other expenses and they are unable to make further reductions in their operations without controlling the cost of goods thereby improving their gross margin.

You may recall from an earlier conference call that I have noted that to effectively provide a wide range of laboratory solutions a company today must be capable of navigating numerous steps that must be taken in order for them to bring products to market.

It starts importantly with the need for extensive and comprehensive intellectual property protection that can provide freedom to operate a base that few if any companies possess then it requires innovation and testing capabilities along with those needed for validation and manufacturing as well as sales and distribution.

Even if they have each of these capabilities the fact is that each step along the way adds to the cost of developing solutions that then bump up against lower reimbursement. At the end even if product developers have all the necessary capabilities and many do not it's difficult for most companies to develop competitive medically relevant products.

At least they feel largely to industry giants that have already deployed high cost products across the market. Enzo by contrast is truly qualified to counter this trend because we uniquely possess all the attributes I just mentioned that are necessary to compete and succeed.

First we have a vast and highly important patent estate built on our 40 plus years of extensive pioneering activities in genetic labelling and detection.

Second, we have the know-how and Integrated Life Sciences Lab structure that enables our company to develop and test solutions and third we have the distribution capabilities to deliver high quality affordable diagnostic products to the clinical diagnostic community.

Thus far we have introduced and obtained New York State Health Department approval for several highly significant diagnostics. These include our flow script human papillomavirus, E6, E7 assay, our AmpiProbe HCV Hepatitis C virus and Candida assays and our PLAQPR Lp-PLA assay as an addition to our cardiac testing panel, others are on the way.

Currently our development laboratory at our life sciences unit together with the practical ability to real time tester output at our clinical laboratory has enabled us to process a host of new versatile molecular assays which we expect to introduce this year and beyond.

These range from an extensive line-up of women's health infectious agents to those for the identification of other pathogens. Most important our products are uniformly highly effective typically more so than what is currently available but also significantly less expensive.

The result is high performance molecular diagnostic products that can yield savings for clinical labs as noted before of 30% to 50% with a goal of improving margins for clinical labs as well as enabling them to broaden their testing menu options.

The strategy is also paying off internally for Enzo as our January quarter results underscore our execution and performance. Total Revenues were $26.3 million, an increase of 7% percent over the prior year period.

Clinical lab revenues grew to 18.8 million or roughly 8% marking the fifth straight quarter of growth reflecting the increased importance of higher margin molecular diagnostic test particularly as related to women's health.

Clinical labs increased gross margins 100 basis points and posted a 53% increase in operating profit compared to a year ago excluding non-reoccurring items. Life Sciences products sales were 7 million, an increase of 6% over a year ago as the business continues to prepare for launching several key products later this year.

Both operating units are profitable and generated positive cash flow that provides capital for investment in the development of new products and services.

GAAP net loss was 1.1 million or $0.02 per share compared to GAAP net income of 6.8 million or $0.15 in the prior year period, this is principally due to the licensing and legal settlements of 11.7 million in the 2016 period.

Non-GAAP net loss was a modest 1.1 million or $0.02 per share compared to a non-GAAP net loss of 3.3 million or $0.07 per share in the prior year period reflecting significantly improved operating performance and moving closer to overall profitability.

During the quarter as previously reported we eliminated $2 million in bank debt so that apart from our lease obligations Enzo was once again debt free.

Our balance sheet is strong and liquid with cash and cash equivalents in excess of 62 million and working capital greater than $69 million, a comfortable cushion with which to pursue our strategic goals.

Looking at our segment results, Enzo clinical labs again posted its fifth straight quarter of revenue growth heavily reflecting increased higher margin molecular diagnostic testing, revenues for the quarter of 18.8 million, an increase of nearly 8% year-over-year.

Gross profit was 7.8 million with gross margins of 41%^ this is up 100 basis points from the prior year. Operating income totalled 1.2 million compared with 800,000 last year excluding the aforementioned year ago legal settlements.

Especially worth noting is that higher margin tests particularly in the women's health category are contributing materially to improve results at the labs with revenue per session [ph] or per diagnostic throughput up around 11%.

For its part Enzo Life Sciences also experienced stronger orders both domestically and internationally with the result that product sales increased 6% to 7 million, gross profit increased to 3.9 million with gross margins up 53%.

Clearly our objective is to obtain consolidated profitability and we expect to do so as we continue to execute on our growth strategy. As you can see from our results this far this year Enzo is progressing smoothly. On the legal front we have seven cases now pending in Delaware and one other involving Roche, New York all in federal court.

We also are awaiting a decision on our appeal to the court of appeals in the Federal Circuit regarding our patent infringement case in Connecticut.

As for operations, we expect this year to obtain approval for a series of new molecular tests from the New York state department of health, our view of the outlook is underscored by our program to expand our Long Island, New York manufacturing plant with a significant production space that will be built in accordance with good manufacturing practice standards in addition to being ISO compliant and certified.

The facility will allow for production of a variety of molecular assays, these include PCR based and gene expression assays as well as immunohistochemistry agents and insight through hybridization reagents.

More specifically we will be manufacturing within its confines our pathogen HPV and insight through hybridization probe and our AmpiProbe molecular assays for bacterial infection detection and viral load analysis. Meanwhile we are adhering to our strategy which is proving increasingly and highly successful.

We are applying decades of experience and practical knowledge in providing disruptive platforms, assays and reagents that eliminate barriers to profitability for independent labs.

The combination of our life sciences unit and our research and developmental capabilities joined with the practical hands on experience of our clinical laboratory has given us an important edge.

In addition to which I must add highly experienced leadership today within our organization is providing insightful practical direction in understanding the problems and developing the solutions for which we are increasingly being recognized.

As a result we obviously are highly encouraged both with the direction we are taking and the opportunities we see ahead. I want to thank you for joining us and I'd like to open the floor for questions now..

[Operator Instructions]. Your first question comes from [indiscernible] of Craig-Hallum..

I like we ask this question every quarter and we have to ask you because the lab growth has been good so many quarters in a row.

It would seem you're clearly gaining market share in the clinical lab business, I'm just you know sort of curious to get a refresher on what the key drivers of that are and then maybe relatedly to that there have been you know a couple of reasonably sizable acquisitions by you know the large lab players in your region you know one in New York, one in Connecticut I'm wondering if you see those as threats or if anything more so potentially opportunity.

Thanks..

I think I'll start with the latter half of your question. We see the transition of smaller labs into larger hands as an opportunity. We today dominate our market in the largest demographic and highly valued market for clinical lab services in the United States.

We are today being recognized as one of the foremost women's health laboratories in our market.

It's interesting to note that our presence in women's health has been gaining a very strong recognition in terms of our servicing of women's IVF centers of which we dominate I would say close to four or five of the largest within our region today as being on service. The growth in the lab is coming from a number of factors.

Number one we are gaining client base because we are a service business and it is an important prerequisite that we provide what we believe to be the best service of the laboratories in our region.

As such we're gaining market share in our physician base, we are starting to expand out as the market is changing to gain relationships with institutional providers of healthcare whether they be large physicians groups, whether they will be hospital based laboratory systems which we are now in the process of expanding our reach into.

So we see a gain in market share both on expansion of our market. I should note that in the last quarter we have started to expand up into Connecticut and are starting to register accounts in Connecticut. So we are moving our geographic presence wider.

We have also begun the marketing of our services to laboratories across the country and this is a key variable for our strategy as we begin to provide low cost testing solutions as a reference service as well as product entry for clinical labs and we have been successful in getting what I would believe to be the first of our national reach efforts in bringing in laboratories that will be utilizing us as there reference laboratory.

We also think that the consolidation you referred to is symptomatic of the problem that we are attempting to address, a lot of consolidation you've seen -- you have seen acquisition of hospital based outreach laboratories by large laboratories that it's because the hospitals in their own mind-set I believe do not think they can provide the level of service that is necessary for many of the practitioners for which are involved in their network and as a result they are going outside and we hope to be a beneficiary of that.

We are also seeing the acquisition of laboratories by some of the larger players here and for us that's a good thing because it minimizes the playing field in terms of numbers of parties and quite bluntly I believe we can provide a better level of service than any of the large national laboratories.

So it's all driving our business model and as we begin to introduce a broader spectrum of products I think this will continue forward.

Just one last comment to your question in terms of our women's health offerings I believe our reputation as a high level provider of women's health diagnostics specifically in the prenatal and OBGYN area is becoming very highly recognized in our market.

We hope to be able to expand on that with new product offerings and ultimately move this laboratory into a posture of being a nationally recognized low-cost reference laboratory as well as a very strong regional laboratory..

Okay. Thank you for all of that color.

I think you answered a vast preponderance of my next question actually in the process there too very, but maybe just to tidy up the question a little bit you know as you're talking about rolling out more nationally you know sort of what are you see from the folks across the country in terms of whether there's any resistance , is there a need to have sort of more products in the bag so to speak to be able to better service some of those folks or more comprehensively service them or are they you know close to kind of coming on board as it is and then related to that how do you envision the prospects for a national payer contract as well..

Our marketing presentation to other laboratories is an economic presentation. Our cost structure is such that we are capable of providing both services and products at a far more reduced price specifically in the molecular diagnostics space than is currently available.

In many laboratories across the country and there are about 7500 labs independent labs around the United States today, many of these labs are not able not only to provide an extensive menu of these higher margin molecular tests because of both the complexity, the cost, the licensure etcetera that they are missing out on the largest part of the profit opportunity within the sector.

We believe we can open that door for them and when you look at the marketing presentation it's pretty simple, it's one can acquire our products and run a test by themselves or refer their test to us which is in this day of IT sophistication and rapid logistics not a complicated structure something that is done every day, get a return that they cannot get by referencing to one of the large laboratories or by bringing the products with in-house as within the current pricing structure.

So we're offering them an economic solution and I think when you ask how does it play within the marketplace you know it's a fairly simple question whether one accepts or adopts it is another question but the real question is do you want to provide a service or product and make money or do you want to provide a service and product and lose money or not provide the proper service or product at all and so I think we're getting a very strong interest level.

I was very pleased to see this quarter the first of interest by certain labs around the country and the real challenge for us and the real opportunity is to get a critical mass of products approved that we can begin to offer in a targeted area and that is going to be the Women's Health Line which we hope will come out sometimes by the end of the summer..

One more question for me for now, gross margin was very, very good here again in the quarter especially in the lab and I'm assuming that mix is probably the key driver there again.

First and foremost is that the case and then I guess sort of a follow up to that would be you know with a few quarters of that 40% plus gross margin under your belt in the lab is that, do you see that as pretty durable even in light of reimbursement being a challenge because you're increasing -- you're getting increasingly beneficial mix or how do you think about that?.

It's Jim, I'll take that question. The lab is doing very, very well, we're very efficient in the lab and assuming that the mix stays as it is.

You've seen in the last couple of quarters I would expect the margins to hold in the lab to the levels we are now and then once we get more of the products rolled out and expand our reference services business based upon what we expect to see you'd see higher margins going out further.

So to answer your question I think its steady where we are given the mix that we're at and we will continue to focus on margin improvement..

[Operator Instructions]. Your next question comes from Mitchell Kapoor of Rodman & Renshaw..

My first question is do you expect to see revenues continue to grow at about the same rate for 2017?.

We're aggressively expanding our account base not only in our current region but as Barry mentioned we're beginning to expand well at New York International.

So our expectation internally that is that we continue to grow but and we expect to but I think the rate will depend upon how successful we are with expanding our business base and gain new accounts. We've got no reason to believe that we shouldn't continue to grow but the rate will be subject to our kind of [ph] acquisition..

Also I would comment it will also depend on the rate of approval of our new product pipeline as you know the real thrust in our marketing effort will be driven by -- the new introduction of our new products which will which need to be approved particularly from New York State in terms to be able to provide services to our laboratories and also as we get ready to introduce some of these products through our Life Sciences Division.

So it is also dependent on the rate of approvals that we will get and we've been working very aggressively to do that.

There is another key element here particularly at the laboratory and that’s the level of reimbursement that is being discussed and you know at many different levels whether it's at the federal level are also with the independent payers who continuously try to cut down on their reimbursement models as we're all aware.

I mean if you look at the challenge of the industry today it's a reimbursement challenge and it's a model we continue to fight. We've been able to overcome that because of the nature of our product mix and also the growth of our demographic reach and so it's somewhat depends on many different elements.

We're looking to expand our payer network there is significant dialogue on going to get into more large national networks that will give us a broader reach.

Sometimes getting into a network can actually reduce your reimbursement as you well know because out of network reimbursement tends to be higher but in the big picture we believe the volume driven approach will help us in terms of the totality of our marketing efforts.

So I mean there's lots of elements here, so far I think we've been navigating this rather uncertain road extremely well I think that is being represented in our results. I mean we mentioned that we've seen five consecutive quarters of growth in the lab.

Obviously we've been weathering the same conditions that other labs in our region as well as in the United States and you can see our performance tends to be at the top end of that mix and we hope to continue to achieve that..

Thanks so much for that, I really appreciate, that’s a lot to consider.

I just have one more, can you talk a little bit about Alequel and what is needed to move into the pivotal development stage?.

Alequel is the product that is completed actually two Phase 2B studies for the treatment of Crohn's disease.

It's interesting that you asked that question because we have been getting -- we have completed trial and we've been looking at the next steps in that process you know our focus has been more in the area of our diagnostic universe because we've had more of a strategic focus and in terms of the opportunities that we have in front of us on the laboratory side but Alequel is certainly part there and we've actually been in recent dialogue, we are getting interest for this product by those that have used it within the clinical studies and there are some dialogue how we may try to now accelerate the opportunity of Alequel and get it out there if not within the United States outside of the United States..

Your next question comes from Norman Hale of Stifel..

On what you were talking about earlier today relative to the [indiscernible] in a panel laboratories, it sounds to me like these guys are really, some of them I would say are probably in a very difficult situation where the numbers just don’t work and they are going to be forced to either shut their doors or to sell themselves to some of their bigger entity that are in better financial condition.

The products that you have that you guys are selling, I mean doesn’t this basically force these laboratories to adopt your products in that your products -- pricing situation is favourable. There is piece of margin for companies they have a decent cost structure.

So is that the whole mechanism of the pricing structure forcing people to use your product..

It's a very good question and the answer from our perspective should be yes. What we are attempting to do is to enter a marketplace with a radical new approach to diagnostics service production. I believe if you look across the market and I mentioned there are about 7500 independent clinical labs around the country.

Many of these labs have duplicative capabilities in terms of types of equipment tests that are run, there is an over capacity of capability in equipment and structure needed to support the ongoing growth within the clinical diagnostics market.

Our opinion here is that one does not need the duplicative infrastructure today in light of the sophistication of the IT capabilities, the data processing capabilities, the interfacing capability that exist as well as with the sophisticated logistics that are capable today.

So the need for infrastructure is really not necessary to the level within which it exists within the industry in totality and when one looks at a market place where reimbursement and overhead keeps increasing and reimbursement keeps shrinking one needs to take a zero sum approach to a solution for survival and we are hoping to provide that solution.

Now some of this takes a radical new thought that perhaps clinical labs around the country should focus more on marketing on logistics and partial processing of critical variants that need to be done and reference out to a more centralized source, the bulk of their work that can be run at a far more efficient and cost effective level assuming they are able to get the results in a timely, efficient way that is seamless to the physician market they serve.

This is actually being done every day. Today we get samples and ship specimens to California routinely. The capacities within our laboratory are quite significant when you think that the bulk of our regional business is handled between 10 at night and six in the morning.

We run one piece shift and partial shifts but we have two other shifts that have huge capacity. So there is infrastructure, there is capability, there is capacity and the economics are really what is driving the end thought process here.

So our solution to the marketplace it's not everybody should be doing everything but it's a service business and the labs should be servicing, becoming logistic centers and utilize the capacity, the sophistication of an entity such as Enzo who has a very sophisticated IT structure, marketing structure and capabilities in terms of menu of tests that we provide and look to generating bottom line profit not so much being the full service processor today that they may be and this thought process is indicative in many industries as we see the sophistication of IT capabilities.

We look at the automotive industry, today were self-driving cars may eliminate the need for car ownership where shared resources are an answer to cost efficiency and this is what we're proposing.

Now fortunately it's not just a concept but we have the platforms that can allow us with freedom to operate to provide these testing modalities at a much lower cost structure. So at the end of the day our presentation to other laboratories is simply what I just stated, an economic presentation, do what you do best, service market retain the client.

Do the types of testing that is of immediate urgency to your client base but refer out the bulk of your work which is the highest value cost and expand your menu so that you can become a competitor within a marketplace that is currently shrinking.

So I think it's a very disruptive perspective and it's a unique perspective on dealing with this market but we believe it may be one of the only solutions to the survival of many laboratories within our industry and I would refer you just to take a look at the anatomical pathology segment of the laboratory industry and see what's happened since the reimbursements have fallen and the cost structure running the tests has not come down to meet that.

You see so many different laboratories now merging or splitting up or basically going out of business. So we think we have a strong validated solution that can demonstrate results for other laboratories that is different, it's disruptive, it's perhaps somewhat unique but at the same time I think can help solve the problem..

And when you guys go out during your sales calls and you guys are out talking with some of these laboratories and you proposed just as you indicated to use your services and then they can concentrate on what they're good at.

Is it like a light bulb comes on these guys go, hey that makes sense or is this something it may take a little time to convince these people that this business model is a superior model to a dot..

Now you're talking about human nature. I think from our own market research we see the laboratory universe does recognize the extreme problem that is being faced and that is of continued cuts and reimbursement and the inability to reduce the cost structure commensurate with such.

So as I said the dialogue comes down to a simple presentation, do you want to reference these tests out and lose money or do you want to reference them out and make money or do you want to run them in-house and perhaps run the same risk of losing money in this process as well.

So you know human nature it is a change and with change there is always resistance but I think overall the economic paradigm should prevail..

Next question, you guys have very, very substantial cash position. I believe it was over 63 million and some additional working capital and with that amount of money and then hopefully before this year is complete maybe some of the legal settlements will move forward and that amount of capital will increase before the year is completed.

So are you guys -- when you're having your business meetings and you're trying to come up with your ideas, new ideas in terms of ways to increase profitability, grow your margins etcetera.

Have you guys identified some areas that you would like to put that money to work in?.

We are always looking at opportunities. I think we have a very strong business plan that we're executing on so our plate is fairly full and focused and where we are heading. Certainly we will be investing in growing that opportunity whether it be internal development or external acquisition. We will have to see it's too early to make a comment on this.

But this is a good problem and one which gives us the security and the capability to execute and to do what we need to do and to bring this concept to fruition and we're readily moving in that direction.

In terms of the future, in terms of other settlements as you referenced you know it's very difficult to project when or if you know these will come to fruition as you may be -- our trial dates have been set for October, November and December for a number of major cases that are in Delaware.

So I think the next six or seven, eight months will be very interesting ones and you know obviously we all wait to get to that trial stage and I believe we're going to get there within this year so that will also be an interesting opportunity for us..

Yes, absolutely. Hopefully some of these guys will wake up before you get the trial and decide to sell -- we'll see what happens there. Okay, final question, is there anything in terms of [indiscernible]..

Nothing that I can report at this point in time. I think you know there's been a change of administrations at the FDA which I suspect has slowed some of their processes down.

I was just made aware that they just appointed a new Commissioner, Scott Gottlieb, we happen to know and hopefully he will try to expedite some of the processes that have been there. We just have to wait and see how this is going to move forward..

At this time there appears to be no further questions..

Thank you very much for joining us. We look forward to speaking with you again in June when we will report our third fiscal quarter. Have a good day..

Thank you. A replay of this broadcast will be available until Friday, March 27 at 12 midnight. You may access this replay by dialing 1800-585-8367. The pin number is 82073178. 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..