Good afternoon, and welcome to the Enzo Biochem Inc. Fiscal First Quarter 2020 Operating Results Conference Call. I will now read the company's Safe Harbor statement.

Except for historical information, the matters discussed in the news release maybe considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934 as amended.

Such statements include declarations regarding the intent, belief or current expectations of the company and its management, including those related to cash flow, gross margins, revenues, and expenses, which are dependent on a number of factors outside of the control of the company, including inter alia, the markets for the company's products and services, cost of goods and services, other expenses, government regulations, litigation, and general business conditions.

See Risk Factors in the company's Form 10-K for the fiscal year ended July 31, 2019. 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 income or loss, income or loss from operations or any other measure for determining operating performance. The company has provided a reconciliation of the difference to GAAP on its Web site, www.enzo.com, and in its press release issued this afternoon.

I would like to inform you that the company, its directors, and certain of its executive officers are participants in the solicitation of proxies from the company's shareholder in connection with the 2019 Annual Meeting.

The company has filed and is mailing to shareholders a definitive proxy statement and accompanying proxy card with the SEC in connection with the solicitation of its proxies with the 2019 Annual Meeting.

Shareholders of the company are strongly encouraged to read the proxy statement, the accompanying proxy card, and all other documents filed with the SEC carefully and in their entirety as they contain important information.

These documents can be found on the SEC's Web site at www.sec.gov or the company's Web site at www.enzo.com/corporate/investor-information. We will not be commenting on the 2019 Annual Meeting or Harbert Discovery Fund on this column. 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 open 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..

Thank you. Good afternoon and thank you for joining us today. We distributed our first quarter results after the market closed this afternoon, and I hope you've had a chance to take a look at them.

Before we get into a discussion of the financial and operational results for the fiscal quarter, I thought I would take a few minutes to talk about our position in the marketplace, progress against our three-prong plan, and several important developments and initiatives designed to unlock value and advance the company's stated goal of establishing a compelling new paradigm for a modern day diagnostics company, which includes both advances in sophisticated technologies and innovation, as well as addressing the cost reality of today's industry dynamics.

The company has never been better positioned to achieve this goal. We are excited today to announce that as part of the company's continued focus on actively managing our business portfolio to create value for shareholders, the company is considering various avenues to unlock value in its therapeutic subsidiary.

Enzo Therapeutics designs and develops enabling therapeutic platforms based on oral immune modulation and regulation of specific signaling pathways that are implicated in a variety of cancers and immune mediated disorders.

The company is at a crossroads to enhance the development programs, targeting treatments for a broad range of indications such as Crohn's disease, NASH, which is Non-Alcoholic Steatohepatitis, and various cancers.

While the company remains committed to the strategic path of Enzo Therapeutics, the Board of Directors made the determination that given the significant capital requirements necessary at this point to fully recognize the therapeutic subsidiary’s value, and address the opportunities for further validation to drive commercialization, it would consider various alternatives.

The alternatives under consideration, include a spin-off, sale, joint venture, or licensing of its intellectual property. Our legal and finance teams along with our investment bankers are working diligently on this initiative, and we will look forward to updating our shareholders on the next steps as they emerge.

In June, we shared with our shareholders a three-prong short and medium-term strategy designed to drive profitable growth, more effectively manage our operations, and build-off our substantial legacy of innovation, manufacturing, platform development, and intellectual property.

We're pleased to report that Enzo was making progress against each of these objectives. As we announced earlier today, we have formalized three lab-to-lab relationships, and are actively negotiating terms for additional relationships with small to mid-sized clinical labs.

We know that as a lower cost and vertically integrated manufacturer and service provider of molecular testing, we have the wherewithal to serve as a central capability for the laboratory community, which desperately needs to manage their businesses under pressure in a continued declining reimbursement rate marketplace.

We are gratified by the reaction from these labs who see the value in our offering and in the creation of this new model. Also working with our investment banker Lazard we are engaged in several discussions with strategic partners for our diagnostics businesses. We hope to be able to disclose an update in the near-term.

In the labs business, and to be clear, we are talking about a new model of diagnostic testing. We continue to take steps to reduce operational costs, while also investing in high growth areas.

We have validated a number of diverse products and multiple platforms that reduce costs significantly, and these have been granted approval in New York for a broad menu of diagnostic tests, and we have demonstrated we can achieve our primary goal of a 30% to 50% reduction in costs.

Our Molecular Diagnostics Women's Health Panel has now been fully instituted in our lab. It is run over 100,000 samples, and is generating high margins on these tests. This utilization of our independently-developed test is a meaningful development resulting in better returns for these products in our lab, as well as for others in the industry.

There is a great opportunity in front of us, but to achieve these milestones, it will require a careful balance of investment and innovation in science and manufacturing, while reducing operating costs in a difficult environment of continued declines in reimbursements, which affect our profitability.

As we said in our earnings release, in the first quarter, we made investments in new billing systems, new personnel, we've opened up new patient service centers, and we've onboarded new payers, while at the same time implementing a series of initiatives to reduce the routine expenses in our labs by about $10 million in the coming year.

On another front to broaden our depth of our management team, we also announced today the appointment of David Bench as Chief Financial Officer.

David is an experienced executive in the diagnostics laboratory industry, the healthcare technology industry with a long career in day-to-day financial management, oversight, advisory work, and investment banking. Mr.

Bench joins us from ELLKAY, where he was the Chief Financial Officer of this healthcare information technology company that services diagnostic laboratories, electronic medical record providers, payors, health and hospital systems, and ambulatory practices. Prior to his tenure at ELLKAY, Mr.

Bench served as President of DBC Group, an advisory and consulting firm working with emerging public companies, and he was an investment banker at Arete Wealth Management, covering the telecommunications media and technology industries. Mr.

Bench started his career in the investment banking division of Lazard, and subsequently was Vice President of Research at Arnhold and S. Bleichroeder. He will take over my role as Chief Financial Officer at Enzo.

I will retain my position as President in the company and as a Director, and will now be able to spend more time focusing on the day-to-day operations, and perhaps more importantly, on the exciting growth initiatives in front of the company today.

Before we get into the quarter's financials, it is worth noting that our results were impacted by several non-routine charges this quarter.

In the quarter, $800,000 in cash was withheld by a provider in an ongoing dispute where we are hopeful for a favorable resolution, and another $600,000 was spent in legal expenses related to the pending proxy contest of the company. I would like now to turn to review of the financials for the quarter.

Total operating revenues for the quarter amounted to $20.2 million, compared to $21.3 million in the prior year, and this is a 5% year-over-year decline, yet clinical accession volume was up 4%. Product segment revenues increased to $7.4 million from $6.9 million, a 7% year-over-year gain, reflecting increased U.S.

volume and greater sales of diagnostic products as compared to research products. Clinical lab service revenues amounted to $12.8 million, compared to $14.3 million a year ago.

This decrease reflects lower reimbursement rates with $1.4 million of the decline due to reduced genetics testing reimbursements, and insurance company-related changes in medical and procedural requirements.

Legal and related expenses amounted to $1.7 million, compared to $1.3 million with the fiscal 2020 first quarter including a charge of $800,000 related to a dispute over prior fiscal year reimbursements by a third-party payor that Enzo is contesting. Overall, the cost of revenues were up slightly due to the previously-cited factors.

R&D expenditures increased to $1.1 million from $700,000. This is up 45%, reflecting investments in new assays, and LDTs. Total operating costs increased $1.2 million or 4.3%, including approximately the $1.4 million I commented on, that are unusual expenses.

At clinical services, cost of revenues remained flat at approximately $11 million with a higher volume of lower margin testing that was offset by cost reductions. Product cost of revenues increased by about $200,000 to $3.5 million, largely due to higher volume. The consolidated margin was 28% versus 33% a year ago.

Clinical service and product margins were 14% and 52%, respectively, compared to 23% and 53%, respectively a year ago. The product segment operating income doubled to $600,000 from $300,000. The operating loss in clinical services amounted to $4.8 million.

This is up from a year ago operating loss of $2.8 million, reflecting primarily reduced revenues and higher R&D expenses. The GAAP net loss totaled $7.6 million or $0.16 per share, compared to a net loss of $6 million or $0.13 a share the year earlier.

Adjusted for unusual expenses totaling approximately $1.4 million, the fiscal 2020 non-GAAP net loss per share equaled last year's $0.13 per share, during which there were no unusual expenses. EBITDA, a non-GAAP calculation, amounted to a negative $7.1 million, compared to a negative EBITDA of $5.5 million a year ago.

Adjusted first quarter '20 EBITDA was a loss of $5.7 million. After adoption of new accounting standards for leases, which resulted in the recognition of $4.6 million of current operating lease liabilities in the current period, and changes in other operating assets and liabilities, the working capital as of October 31, 2019, totaled $54.3 million.

And finally, cash used in operations for the quarter was $2.1 million. On that note, I would be happy to take questions..

[Operator Instructions] Thank you. Our first question is coming from Richard Miller with La Bella Miller Properties..

Hi, Barry. I've been a shareholder for over 20 years, and so far, all I have to show for are the losses. I originally bought this stock because of Enzo's therapeutic programs. The more I heard about Enzo's expanding list of therapeutic targets, the more excited I became.

I want to ask questions today because I am confused about Enzo's current therapeutic programs, and I want for myself and other shareholders to understand what Enzo was doing in the therapeutics area..

So, two years and nine months later, we hear that you're coming up with four different alternatives as to what you might do at some point in the future with your therapeutics program.

I'm just wondering if you can give Enzo's shareholders a flavor as to what that program actually is, and give shareholders some level of comfort that after all these years and some of these programs have been in existence for over a decade why we should feel confident that now Enzo will in fact be doing something with this, what I thought was a very valuable part of the company?.

Okay. Thank you, Richard. It's actually a very good question. The Alequel you refer to, did complete two phase 2B studies.

There was a long period of data digestion, and the issue for the company was to invest significantly to move into a Phase 3 study or to utilize various approaches to be able to bring it into a commercialization mode without investing tens of millions of dollars, which might be required to bring it into a program in the United States.

I would like to say something else about Alequel, because the time issue that you speak about has to do with the evolution of what is taking place within the industry in the transition from chemical and biological medicines to more personalized medicines. I'm sure you've heard that word referenced many times.

At the point of time, I believe we were a forerunner in the development of a personalized medicine. This is a medicine which is created from biopsy specimens taken from a colonoscopy and individualized for each person that it is administered to. Pharmaceutical companies have evolved now with the emergence of personalized medicines.

You see the advent of CAR-T technologies, which now are used to treat certain types of cancers by extracting certain cells from individuals, transforming them and putting them back.

The process that was a -- I won't call it a hindrance, but a educational process in Alequel resulted from the evolution of pharma to now become comfortable with tests that are more individualized and personalized.

I think we are seeing that take place within our industry, it has resulted in a resurgence in interest now in this type of capability and process, we are actively exploiting that, we have a program which is now being put into place where this type of testing will be able to be more broadly administered internationally, and that is part of the process that we are developing and exploring, and are planning to put into what we think will be a very interesting therapeutic entity that we’ll be able to exploit not only that particular immune modulation technology, but also technologies we’re developing that are targeting certain pathways for cancers that we believe may have extremely valuable therapeutic effect.

Dealing in the therapeutic space is a very different paradigm than what we have been doing in the diagnostic space, we realize that, and we are now moving forward to exploit that opportunity in a more large scale methodology, with the ability to fund and drive that type of technology in an accurate and effective way, and you could see that in the announcements that we made in today's press release.

I hope that gives you some clarity..

Sir, there appears to be no further questions at this time..

Thank you very much for participating in the call. We look forward to sharing with you the developments as they arise. We are looking forward to an active quarter, and we will regain, and recoup with you in March. Thank you..

A replay of this broadcast will be available until Friday, December 27 at 12 midnight. You may access this replay by dialing 1855-859-2056. The pin number is 2019859. 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..