Barry Weiner - President, Chief Financial Officer and Principal Accounting Officer Jim O'Brien - Executive Vice President, Finance.

Per Ostlund - Craig-Hallum Capital Jeff Silver - Corrado Financial Group Alan Denzer - Private Investor.

Good morning and welcome to the Enzo Biochem Inc. First Quarter 2019 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 maybe considered forward-looking statements within the meanings 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 market 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, 2018. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that could materially affect actual results.

The company disclaims any 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 differences 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 in a listen-only mode and the floor will be open for your questions and comments following the presentation. I would now like to turn the floor over to your host, Mr. Weiner. Sir, the floor is yours..

1) the validation through clinical trials of Enzo’s fully automated high throughput instrumentation, including sample collection and sample processing and reagent systems both for New York State and the FDA, completion of the build-out of the GMP manufacturing facilities, the approval of additional assays to expand Enzo’s test menu, the expansion of our sales, marketing, logistics and IT efforts to grow national reference laboratory accounts and partnerships and collaborations with potential strategic and institutional partners to enhance commercialization and market penetration of Enzo’s high technology platforms and products.

Our strong financial position and our equally vigorous product development and marketing programs leave us optimistic regarding the outlook. Finally, I would like to highlight developments on our therapeutics program, something we have not commented on extensively.

A recent issue of the Journal of Lipid Research reported on a collaborative scientist study involving the company-developed proprietary Sphingosine Kinase 1 inhibitor drug candidate, which is effective in reversing resistance to the breast cancer drug, tamoxifen, a first line treatment for estrogen-receptor positive breast cancer patients.

With more than 50% of patients who initially respond to tamoxifen ultimately failing therapy due to the development of resistance, these results suggest that the SK-1 may have potential in the treatment of tamoxifen-resistant breast cancers.

Enzo research results as well as those of our collaborators show that SK-1 may also address other significant unmet medical needs in the treatment of particular oncology indications and immune-related disorders thus warranting further development, which is anticipated in the coming year.

Our goal here, since clinical testing in commercial development, are obviously huge undertakings, this should engage in a cooperative agreement joint venture or licensing transaction as examples to achieve maximum value and benefits.

This would apply also to several other therapeutic projects in our pipeline that we may have worked on and continued to develop.

What we hope is evident is that we at Enzo are forward-looking actively progressing our strategic plans and staying focused to realize important value for our shareholders and over the next year or so we intend to do so in an aggressive fashion. Thank you very much. And now, I will turn the call over to questions..

Thank you. The floor is now open for questions. [Operator Instructions] Our first question comes from the line of Per Ostlund of Craig-Hallum Capital..

Thanks. Good morning, Barry and Jim..

Good morning..

You have talked this quarter and I would say last quarter probably most extensively about the volatility and the rapidity of change in the payer environment. I am curious if any measure, if it’s too early to say that any measure of stability has begun to emerge.

And I guess maybe related to that with the rapidity of change in the payer environment of late, has that also driven a rapidity or an acceleration of receptivity on the part of labs that you are talking about your lab-to-lab strategy in your expanded product and service offering?.

We believe that the volatility in reimbursement will continue within our industry. We are seeing a lot of movement in fluctuation with the payers trying to develop protocols and payment schedules that will match with what is going on with the Medicare reimbursement rates.

I anticipate we will see volatility over the next few quarters and it will continue to impact labs. I believe the impact of this reimbursement instability hit the industry much more severely and with much more rapidity that then many laboratories anticipated.

Our dialogue with our peer companies throughout the country, which has been ongoing for the last 1.5 years as we have begun to explore and explain our program strategy and the opportunities that we hope to be presenting to the industry, I think has sat more effectively now that the environment has become so turbulent.

I think many labs out there do not anticipate the speed with which these reimbursement cuts would take place or the severity that they would present to the industry.

As a result, it certainly has opened the opportunity for us in our educational programs to have a more extensive approach and contact with laboratories, I think the seriousness with which labs are listening to the proposals that we are putting forward is becoming more readily accepted. I think it will drive our programs more effectively.

So even though our laboratory is subject to the same economic challenges of every lab in this industry I believe our product programs and our strategy of centralization of clinical lab testing and the utility of low cost testing platforms that are open in nature will be driven more efficiently and effectively in the future..

That makes sense.

Maybe dovetailing off of that, Barry, as you look at it today, what do you see as the primary gating factors I guess to the lab-to-lab strategy? Is it expanding menu, is it expanding sales force or do you feel like you are in good shape there? Is it regulatory what are – or is it just simple awareness, how do you sort of rank order the things that – or the boxes that you need to check to really see that the strategy accelerate?.

It’s a complex program and it has multi-facets to it. Certainly, the educational process, which is a longer term sales cycle in general, because you need to educate people to change their current practices, is one step. Secondly, it is menu.

We have been working diligently to expand the menu into a critical number of tests as you are aware, our women’s health panel has been approved. We are working towards conclusion of the viral load panel, which we hope to have in hand in the very near future.

We also are looking at other platforms to help contribute and these are in the areas of immunohistochemistry as well as ELISA technologies. We see the need throughout the clinical lab in different areas and we have been approaching them with different solutions.

The regulatory component is without question another process that is underway and is a critical factor. We have been working to now build systems that not only will be approved for a New York state approval, but also for an FDA approval and that is very important in the totality of this process and we are moving forward in that.

Part of the reason, we acquired the additional facility on our campus and we are building out GMP facilities is that we are driving all of our products towards the FDA approval process and that does take time. But I think it’s a critical component to have a competitive capability in the market.

Also, I think when you look at this educational process, you have to remember that historically clinical labs have viewed reference testing as a cost center for them typically when one references test to other labs, the economics are not favorable for the laboratory.

We are now going out in attempting to educate these laboratories that referencing in centralized testing is a cost efficiency and more in that a critical paradigm for sustainability in our industry. And so this is all part of the process. There are many steps. It’s not simple.

It includes multiple platforms, multiple processes, but we are actively moving forward. I think we have a very strong start right now. I think the industry trends are only helping to drive that now. We are seeing the receptivity and I think that has been very encouraging for us..

Very good.

I want to ask you about the Connecticut lab you are opening essentially I am curious maybe you can talk through factors like timing of when it’s going to open CapEx requirements related to it, the strategic importance of it? And then maybe a last question related to that just because you referred to it in your prepared remarks, Barry, if there as much – potentially as much excess capacity as there is out there in the lab industry, were there any opportunities that you had potentially evaluated from an acquisition standpoint if Connecticut was an important market to enter to go that route versus building off?.

The Connecticut facility is now licensed and operational. The facility was opened to address the expansion needs not only through Connecticut, but up into Massachusetts and Vermont and the other – and Rhode Island as well. We needed to be able to have a facility that could deal with logistics of specimens flowing from these areas.

We needed the facility to be able to obtain inclusion in a number of regional payers that predicate having a localized lab to be allowed into their payer network. We also felt that this facility would brought in our ability to provide more rapid turnaround for certain types of tests in the regions that we are expanding into.

So, there are many reasons for the clinical laboratory in Connecticut. In terms of the decision to acquire versus open a new lab, interestingly the type of facility that we have opened on a capital investment base was not extremely onerous to us. It made more economic sense to building new versus to acquire.

We did look at potential acquisitions in the area. We did not see anything that we thought was cost effective. And as a result we took the route to build our own and opened our own facility, which I think will payoff in return on investment quite nicely for us.

We also have specific payer contracts in these areas currently that were predicated on this type of facility. So, it will expand our network and our reach and our capability to be able to provide more rapid service to this clientele..

Okay, that makes sense. And then just one last question for me at the end of your remarks, Barry, you mentioned the therapeutics program with SK-1 and it certainly sounds like the initial indications are very promising.

As far as next steps go, what should we be thinking about there, is it xeongraft studies in publications related to that, other publications potentially or is it possible that we would see a partnership or collaboration agreement even before that?.

Our therapeutic activities have been somewhat quietly executed within Enzo. We have a number of programs that we have been proceeding on in a very cost efficient and selected way. This particular program is showing extremely high value from the early studies that have been executed on. We have to remember that the SK-1 molecule.

It’s almost a platform molecule, which means it works in a pathway that has multiple potential applications. The paper that was published on the tamoxifen resistance is only one of the potential interesting applications that this particular pathway impacts. There are others.

And I think you will see the early stage investigation or application of this pathway in a number of other potential medical indications. At the same time, it is a molecule which is of high interest industrially at this point in time.

And our interest is to look to sophisticated partners that can help to expedite the development of this particular molecule in specific areas and so that will be one area that I would look towards. I think in terms of the actual development program, these were preclinical studies.

They will be moving into animal models and obviously depending on the results that come forward, we will continue to push forward on it, because we believe that the molecule in of itself has some very, very interesting dynamics in terms of controlling these unique pathways. So, it’s a very, very exciting compound and we will be pursuing it.

I think there are multiple steps whether we take those alone or with partners remains to be seen. I think it is an extremely strong value for Enzo.

I think at the same time, we are also looking at this particular compound in light of some of the other therapeutic activity that we have been working on over the past few years in terms of evaluating the ultimate resolution of many of our therapeutic endeavors, I think from our shareholders’ point of view, we have not spent extensive capital, but at the same time, we have been able to develop compounds which are assets towards value that we hope in the near future will start to generate value for us as a company..

Excellent. Thank you, Barry. Appreciate it..

Thank you..

[Operator Instructions] Our next question comes from Jeff Silver of Corrado Financial Group..

Yes, hi, Barry. I have a question – I want to refocus a little bit on this transition between to the new reimbursement regime. It seems as though the transition has not gone quite as planned, because the decline in the most recent quarter in the lab business has been pretty severe.

And I just want to understand why with another 10% reimbursement cut coming in 2019 and yet not the one in 2020. You said towards the end of your remarks that you expected to return to growth, I think in the next 12 months, I am assuming that would be from a significant lower base level of revenues.

And I know you have been talking about why that could be the case, but it seems like I am just trying to sit together, the sharp decline we saw in the recent quarter and yet another two reimbursement cuts and your optimism in terms of timing of returning to growth, can you maybe just sort of address that?.

We are. We do believe that the next – over the next two to three quarters you will see volatility in the reimbursement area for clinical laboratories. There is a lot of uncertainty out there. We are optimistic over the next year steps will be put into place to drive not only the extension of our services business, but also our products business.

It’s a very difficult environment to handicap right now, because so many of the payers out there are in flux and many are trying to renegotiate contracts. We have a number of processes in place which we hope will move the product opportunities, the centralization of services opportunities into the market.

It’s very hard to predict specifically, but our cost structure utilizing our own products is significantly more advantageous than what exists in the market today. So, we are able to understand and get a handle on our own cost of goods.

Just looking at what we have been able to do with our own AmpiProbe system, we are seeing that we are able to drive our own margins in the molecular space and we are hopeful that, that will continue not only in the molecular space but as we bring on stream our other products within the other areas in immunohistochemistry and ELISA areas that we will continue to drive margin.

So I think when I refer to growth, it isn’t completely only revenue growth it’s growth in improving the margins in bringing online centralized laboratory processing capabilities. I think it has a much broader concept that we have to take into consideration.

Whenever, there is challenge like this in the market, there is unusual opportunity and we are uniquely situated right now to capture that opportunity..

I guess, just – I mean, as you look at the imminent 10% decline in reimbursement, I’m assuming that you have factored that into your – at least for internal projections in 2019, and it sounds as though you’re reasonably optimistic given that analysis relative to what happened in 2018.

I guess, I’m just trying to square this to make sure, because it does seem like the recent quarter certainly the recent quarter was a surprise in terms of the decline in the lab business?.

Jeff, hi, this is Jim O’Brien. Just to comment on that, again, I think I don’t want to underestimate the case in which change is occurring in the industry. In just the most recent weeks we’ve been in multiple dialogs with a number of commercial payers, where new fee schedules are being discussed and negotiated. Those are very difficult discussions.

We talk quite a bit about the value that Enzo puts forth, the menus that we have, our growth opportunities. As Barry noted on the call, we’re far beyond that of a laboratory. And as we transition the business into a molecular diagnostic manufacturer, you’ll see that shift in our business and shift in our focus over the next year.

So I think there are multiple opportunities for Enzo to shift the focus to lab-to-lab strategies, reference services, and be less dependent upon a reimbursement schedule from a government and prior payer that’s just we’ll take some time to make sure that, that transition occurs..

Jeff, I would like also to address the question of the last quarter. In the last quarter, the impact that was most dramatic took place precipitously and was not predictable. And what I mean by that, certain payers moved more quickly than I think many labs anticipated in trying to readjust their reimbursement rates.

We have obviously known about the Medicare cuts for the last year or so and certainly factored them into our modeling and future revenue thought processes. The real challenge is coming from the commercial payers and we’re seeing a lot of, I would call it, erratic behavior on that front, which has created a lot of the challenges within the industry.

I think if you noticed in the last 3 or 4 weeks both major national laboratories had to revise guidance significantly as well. So it’s not an issue which is impacting Enzo. It’s an industry-based issue, and I think it’s going to take a few quarters for this to sort itself out.

We are moving forward aggressively on our product strategy, on our strategy for putting forth lower cost solutions for clinical laboratories. We believe that’s where the value proposition is for us.

We will weather the industry reimbursement issues, I mean, obviously, we – what we’re seeing from a volume base, we have been able to stay our volume, it’s the reimbursement issues, which we are trying to deal with and we will deal with them over the next 6 months or so..

Yes. Those comments are helpful. Thank you very much..

Thanks..

Thank you..

Our next question comes from the line of Alan Denzer, Private Investor..

Yes, hi, Barry..

Yes. Good morning..

I’ve listened to your calls many years. I’d been around since the days you went public with Drexel Burnham as an employee there for nearly 20 years. I was thrilled to be a part of your early emergence in the biotechnology field that’s quite interesting.

Over the years that the company has been able to survive, you’re definitely a survivor, despite the fact that you’ve never really reached any serious modicum of profitability other than capitalizing on your intellectual property portfolio and so I am always wondering where and how you are going to emerge some of the ashes of vicissitudes of your industry.

Hopefully, with the next injection of capital and of course, you can’t count on settlements carrying you to the promised land without actually coming up with a business plan that makes money for you.

o I guess what I’m hoping and maybe you could tell me your views on this, is whether or not the company can move on to reach its goals without having to further dilute the shares that are outstanding, I know you still have a offering that, that you could tap it anytime that you’ve filed with the SEC, and I don’t expect that you have to use that anytime soon.

But I’m just trying to get a feel, are you counting on some settlements or are you going to dilute if the business environment doesn’t get any better over the next year or year and a half? Thank you..

Thank you..

Thank you. I think over the years, Enzo has been probably one of the most efficient users of capital within the industry. I think if you were to look at the values that we have generated both in our intellectual property estate, our businesses, our products, we have been an incredibly efficient user of capital.

We have never really going out to the public markets in an extensive way since we went public in the early ‘80s. I think we’re quite unique in that area. We do have a very sufficient capital base at this point in time. We believe our programs are designed to be able to be executed within the means of those programs.

I can’t say for – opportunities might not present themselves at some point in time, but I think if you look at the history of our utility of capital and our raising of capital, I think it’s been pragmatic, I think it’s been shareholder sensitive in terms of dilution.

I mean, of a company that has been in the market for as many years as we have, we have really I think looked at the issue of shareholder dilution very, very sensitively.

And when you look at the biotech industry as a whole and you made a comment about the industry in your earlier – in your question, we as a entity I think have produced more value from our capital in terms of product to return than many companies that I’m aware of.

And I think if you look at the platforms that we have been – that we are putting forth right now and you compare the cost invested in the development of these platforms relative to other companies who’ve put out not necessarily similar but like-minded platform technologies, I think you will see the efficiency that we have generated.

For us at this point in time, we are engaged in an execution issue now that these platforms are pretty much developed to move them into the mainstream and move them into a strategic model that will drive value within the industry, which maybe somewhat unique than the conventional closed system models that are out there, I think that’s part of the educational process and I think we’re well on the way to do that.

So I appreciate your question. And I think when you look at our history, I think it answers some of the question that you asked and I think going forward you will see a similar behavior pattern.

Is there any other questions?.

There appear to be no further questions at this time..

Thank you very much. We appreciate your time on the call. We will look forward to speaking with you in March when we report on our next quarter. Thank you..

Thank you. A replay of this broadcast will be available until Monday, December 24 at 12 Midnight. You may access this replay by dialing 1855-859-2056. The PIN number is 3927608. This replay is also available over the Internet at www.enzo.com. This concludes today’s teleconference. You may now disconnect your lines at this time and have a wonderful day..