Q3 2020 Enzo Biochem Inc Earnings Call

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20 operating results conference call on that read the Companys Safe Harbor statements, except for historical information to matters discussed in this news release, maybe considered forward looking statements within the meaning of section 27, eight other Securities Act of 19 through.

I did and section 21.

The Securities Exchange Act of 1924 as amended.

Such statements include declarations regarding the intent belief or current expectations on the company and its management.

Excluding those related to cash flow gross margin revenues and expenses, which are dependent on a number of factors outside of the control the company, including the markets for the company's products and services cost of goods and services other expenses government regulation litigation.

And other business conditions.

Please see risk factors in the company's form 10-K for this fiscal year ended July 31st 29.

Vectors are cautioned that any such forward looking statements are not guarantees of future performance and evolve and number of risks and uncertainties that could materially affect actual results.

The company disclaims any obligations to update any forward looking statements as a result of developments occurring after the date of this conference call.

During this conference call the company may refer to [noise].

He be I, TB and non-GAAP measure.

He is not and should not be considered an alternative to net income lost income 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 Dot dot com and and its press release issued this afternoon. Our speakers today are.

Barry Weiner, President and David bench, Chief Financial Officer, I would now like to turn the floor of what's your host Ms. Wiener Sir the floor is yours.

Thank you good afternoon, and thank you for joining US today, we issued our third quarter results. After the market close today and I hope you've had a chance to look at them.

First and foremost we hope everyone is safe and healthy during this unprecedented time.

Since the emergence of Copel 19, the safety of our employees has been up most important we've taken measures to safeguard or employees, while maintaining full operations. So we can continue to advance the important work we are doing.

First let me provide you with some context as you can imagine our third quarter presented many challenges and it's the same time opportunities as we already global company with headquarters in New York City, the epicenter or the novel Corona virus in the United States with a principal production and clinical laboratory.

Activities in nearby Farmingdale, New York.

At the onset of our pandemic, we needed to quickly secure our staff with the majority of our employees required on the front lines, maintaining the critical testing capabilities to serve the needs of our market.

We experienced many challenges consistent with others in the marketplace, including supply issues related to personal protective equipment swabs tubes and reagents.

With challenge and perseverance, we have overcome the bulk of our supply hurdles.

Well, we impose safety standards.

Our dedicated staff was motivated to show up at work as a central workers, even as the authorities were staying stay home to the general public.

We transitioned to many of our employees to remote working environment.

We are capable to do such and we overcame short staffed issues I mean, some employees were hills and unable to were worked for periods of time.

Our staff rose to the occasion and did an extraordinary job.

Thanks to their unrelenting efforts, we have been able to continue operating expand our testing development of needed novel approaches to covert 19 testing without experiencing any interruptions.

Our clinical diagnostics lab was especially impacted in March virtually the entire health and business structure. This come country were shut down.

Patients were ordered to stay home doctors' offices were closed an elective procedures were cancelled.

This environment hamper nearly all healthcare companies, whether they'd be bio science companies laboratories, and health were health networks alike.

I'm pleased to report that we'd Enzo determinant lead pushed dawn and are moving forward with as we see it five key positive elements emerging from this pandemic.

First there was a new found appreciation for clinical laboratories, and the diagnostics industry at large.

Second our vertical integration and open platform business model invested in over the past three years, it's opportunistic in justified in allowed us to rapidly addressed the nationwide testing challenge.

Third we launched and missed a rapidly changing turbulent environment and extensive novel multifaceted covert 19 platform for both molecular and anti body testing.

Fourth we are now rapidly scaling capacity to increase volume and fifth we are meeting demand.

Allow me to go through each of these points in a bid or further debt.

There was a new found appreciation for clinical laboratories, and the diagnostic industry as large this pandemic has shed light on desmith perceptions of the diagnostic industry and the fast restructuring needed to address the challenges of diagnostic testing.

Over the past two years reimbursements were being dramatically reduced and the diagnostic sector was being marginalized. So point that has now come back to hurt this country.

Today, the value proposition of diagnostics is better understood and widely appreciated and seen is fundamental and critically necessary in being able to restore vitality to our people and nation.

Second.

Our vertical integration and open platform business model invested in over the past three years is opportunistic and justified and allows us to rapidly address the testing challenge.

Crucial supply issues that developed have shed light and justified our company's proprietary vertical integration to effectively navigate this environment and survive.

For the most part we own our supply chain and are using our own systems.

We are building on several years of development of the Gen Flex platform, which was launched pre co fit with our women's health panel and that has been effectively adapted in the current pandemic for Covidien 19 testing.

We manufacture our own reagents swabs utilize their own technological capabilities and have been applying them to address covidien 19 from multiple angles.

We are selling these kids in systems to other labs and customers as well is running the test using our unique products and platforms in our own clinical laboratory.

Third we have launched an extensive novel multifaceted coated 19 platform for both molecular and antibody testing.

We are offering our own proprietary internally developed molecular diagnostic tests to detect the coping 19 virus as well this is Syria logical diagnostic test for the novel Corona virus antibodies.

We are also working on re Purposing a drug candidate now in early testing for the treatment of Covidien 19.

We are no rapidly scaling capacity to increase volume.

And so life sciences offering a full range of covert 19 products, including sample collection molecular and anti body as well as instrumentation on a global basis, our internal manufacturing capability provides security of supply and stronger margins than test currently available.

From other commercial suppliers.

Enzo clinical labs is ramping testing volume to address the need to perform thousands of tests a week increasing from our initial weekly capacity of approximately 10000 covert 19, molecular twit tests as well as 10000, Allysa serological antibody tests.

Finally, we are meeting the demand we had been working with many entities ranging from academic and research institutions to commercial laboratories and government entities. This includes a recent RSP bill bid win with the state of Missouri as well as a contract with the state of New York to provide.

Covidien 19 testing to nursing homes, we fully expect to secure additional strategic relationships that may provide substantial additional revenue as we build capacity to meet demand.

And this last point.

We should be clear with regards to our investment in strategy.

Testing demand will remain with us for some time.

A recent state by state analysis from the Harvard Global Health Institute found that more than half of the U.S. States would need far more testing if they are considering safely lifting corona virus restrictions.

The analysis was based on each state daily testing totals during an average week in mid April.

Using data from the covert tracking project.

The research found that 31 states in the district of Columbia, we're not doing enough testing.

In states just within our historic marketing territory. It is estimated New York would have to perform over 100000 more test every day.

Jersey, 68000, and Massachusetts about 23000 per day.

There remains much to be done even once the successful vaccine is found.

I'm extremely proud of what we've accomplished over the last few months.

The seats have been really quite remarkable.

I want to thank our employees for their continued dedication and it really thank our long term shareholders, who have voiced their support for us throughout this pandemic.

At this time, let me turn the call over to David who will walk you through the financials for the quarter.

Thanks Barry.

During the review the financials for the third quarter.

Total revenue amounted to $16.9 million compared to $19.7 million than a year ago period, reflecting a significant impact from the Cobrand 19 pandemic related volume declines.

The offset by collection improvements in surfaces as well as grant income.

Clinical service revenue for the third quarter was $10.5 million compared to $11.8 million in the year ago period, a decrease of 11%.

Product revenue for the third quarter was $6.4 million compared to $7.9 million in the year ago period.

A decrease of 19%.

Average product order value increased sharply as compared to the second quarter of this year reflective of servicing higher value markets, such as genomics Elisa kits and antibodies.

Services segment was negatively impacted by the Coburn 19 pandemic during the door third quarter.

As we experienced a 28% reduction accessioned volume.

However, the trend that access or volume has been improving over recent weeks and is showing signs of ramping back up to pre cobot 19 levels.

Gross margin for the quarter with 26% compared to 27% in the year ago period.

Gross margin clinical services was 13% compared to 7% in the year ago period, and 18% in the second quarter.

And then service margin.

Had been improving before the covert 19 pandemic hit.

Decline sequentially in the third quarter due to reduced volume, while maintaining our fixed costs.

Despite volume decline.

Services margin improved year over year, primarily due to efficiencies and supplemental grants income.

Gross margin products was 48% compared to 57% in the ergo period.

Due to product mix and the coping 19 pandemic impact.

Research and development expenses increased 49% to $1.2 million from zero point $8 million in the year ago period.

This increase is mostly attributable to investments in our proprietary Joe influx platform.

Selling general and administrative expenses were substantially unchanged $11 million from the year ago period.

GAAP net loss was $9.9 million or 21 cents per share.

Adjusted EBITDA loss in the quarter in Europe.

For the go periods.

Were approximately $7.4 million and $6.1 billion respectively.

For the third quarter 2020 include a proxy related expenses and reduction in staffing expenses.

At quarter end cash and cash equivalents totaled $55 million the company added $10.6 million of capital in the third quarter to strengthen its balance sheet through various grants loans and advance payments as of April 32020.

The company had 47.9 million shares outstanding.

Our cost efficiency measures continue to yield results, we're making progress as a result of efficiency measures we have implemented.

Having thus far recognize more than $8 million towards our 10 million dollar annualized savings target.

Our strategic goal remains investing in key focus areas, including our proprietary lab developed tests.

This investment should have a significant positive impact on gross margin.

And in our estimation gross margin should improve by 500 to 1000 basis points in a post cope it environment.

With operating expense is expected to be relatively flat.

And so should have a clear path towards profitability from operations when revenue from core solutions and our covert 19 program scale up based on industry estimates.

I'd like to turn the call Ofer back over to Barry for closing.

Thank you David.

As one of the few companies to incorporate the biotech entity diagnostics Division and a CLIA certified clinical laboratory, we believe Enzo is well positioned as a vertically integrated company to address the coated 19 pandemic from multiple angles.

We have address challenges of the supply chain by manufacturing all of our critical reagents in house.

Our diagnostic equipment and kids are validated in our own lab prior and are currently available for sale to other labs and then users.

Two submissions with the FDA to address covert 19 detection and immunity with an extensive program roadmap, making us uniquely positioned to gain momentum within the broader molecular diagnostics market. Both in the cover Cohen covert 19, setting as well is in a post covert environment.

On that I would like to now turn the call over to questions.

If you'd like to ask a question. Please.

Pressing star one on your telephone keypad.

Using his speakerphone. Please make sure your mute function is turned off to allow your signal to reach.

Once again, please press star one ask the question.

Well take our first question from Anthony can.

Hi, gentlemen, thank you for taking.

My question.

I've a question about the the grant revenue could you.

Could you tell us.

How large that was in relation to the total.

Cash package that you put together for this quarter.

Yes, so I'm not sure if you're referring to the PPP loan or if you're referring to other grants that we received.

Well.

I understand that the loan will turn into the grant if you reach certain benchmarks correct, but if you can break it down into both that would be fantastic. You just mentioned grant revenue loans and grants sure happening what proportion.

Absolutely so approximately $7 million, we receive from the PPP.

Thats BA as PPP.

Loan, which as you mentioned should turn into a.

A forgiveness under certain conditions and in addition to the from HHS, we received $750000 in the first tranche.

Of the based on Medicare billing and that.

We do expect a second tranche to come in as well, we have not received that yet.

Fantastic I'm wondering.

You said that you.

You saw sales fall off and.

Now you have signs of them ramping back up.

When when did you see the bottoming I mean.

Importantly, when did you see it was it in.

Two weeks or was it a month ago.

Yes, so we saw that.

If you're talking of the clinical laboratory access from volume, we sell we saw that.

Bottoming out in the beginning of April.

And then.

Recovering over the following weeks in April our way through May.

Oh fantastic. So when you say that you see signs of that ramping back up to pre coconut levels, you mean that that is.

Quite literally Eminem and within.

Days or weeks.

Would that be accurate, yes, we're not providing guidance going forward, but.

We have enough data points to show that is trending in the correct direction.

Okay are you able to disclose how much.

What.

The volume of testing that you've done tore this is the cobot 19 in either category and how much you you're you're getting in and a total revenue for those.

We have not broken that out specifically, but since the inception of our co. The testing we have run.

I wasn't of tests.

And you said that it will be an ongoing program. We don't know how long that ongoing will go but do you expect that to become a significant portion of your.

See next quarter's revenues are you able to comment on that and maybe for the rest of the year.

Yes, so we expected to be material we can't.

I'll give you guidance in terms of how it's going to affect the year I don't think anybody has that guidance at this point.

But we do expect it would be material based on current volume.

We are seeing vinyl.

I'm, sorry, if I I'd, just add a little bit to that.

I mentioned in my comments that we have entered into.

Contracts with the state of Missouri with the state of New York, There are a number of others, which are in negotiation as we speak.

We believe that the need in the demand for coated 19 testing will be strong and continuous and we believe that this will continue even through the introduction of the vaccine and the timing post that.

I think this is something we're going to have to live with and I believe we as a laboratory because of our unique structure and capability.

We'll be able to.

Deliver.

Significant volumes of testing.

That will enhance and really.

Promote or add value to our core business, which is ongoing right now and growing.

Thank you for your question if you'd like to ask a question. Once again, please signal by pressing star one on your telephone keypad.

Once again, if you'd like to ask a question. Please signaled by pressing star one on your telephone keypad.

Just giving in a moment.

You know for questions.

Ticking.

A question from Jason.

Please go ahead.

That's going to the callable muscle weighs so please excuse me.

Thats already been asked but have a couple of quick questions first of all over the past information you put out we talked about strategic opportunities bigger benefit shareholders.

If you haven't heard to discuss their progress going to support.

Right.

In terms of we are in.

Dialogue with the number of different.

Parties concerning many of the different.

Aspects of our business, whether it's on the diagnostics front.

We have historically commented.

We have been exploring opportunities on the therapeutic front as well.

The co vivid.

Issue certainly.

Forced.

All companies to take a look inward.

In terms of their survival their strategic.

Plans moving forward. So I think during the last few months.

That has been the general nature of the industry, we did comment.

In a white paper into release about our development activity in the therapeutic area for SK, one product a product that is being in some respects re purpose in looked at as an immune modulator for Covidien section.

In patients.

That is just another enhancement of our therapeutic portfolio.

And so we are we are actively exploring but quite bluntly. The last few months have been in required a dedicated.

Exertion of effort to maintain our business number one to maintain our staffing and make them healthy and safe and to be able to enhance and build new products and we've done an unbelievable job in the last few months, bringing up both the molecular the antibody test looking at different.

Sample collection techniques submitting.

Protocols to the FDA and so forth.

So I think that area of activity did take somewhat of a pause as we all focused on this pandemic in how we can contribute and create value from it as well as perhaps just survive for many companies out there. So we are actively exploring that has not.

Disappeared, but I believe the last few months have caused a bit of a pause in everyone's activity on the strategic front.

Thank you for question. This marks the end of today's question and answer session I'd like to turn back the conference over to Mr. Wiener. Please go ahead Sir.

Thank you very much for joining us as I commented this has been.

A remarkable period for end zone as well as many other companies in the diagnostics marketplace. I believe we have contributed significantly with the introduction of novel and unique tests to this market I think for Enzo This will be.

A very important demarcation for our business in terms of our capability and abilities to be formally recognized and make a significant contribution to the overall well being of our population as well as enhancing the scope of our business.

And driving value for all of our shareholders. Thank you very much.

This concludes today's call. Thank you for participating you may now disconnect.

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