Enzo Biochem fiscal 2010 total revenues increase 8% to $97.1 million

Oct 15 2010

Enzo Biochem, Inc. (NYSE:ENZ) today reported results for the fiscal fourth quarter, consistent with our announcement on September 20, 2010, and for the year ended July 31, 2010.

"As we have previously stated," said Barry Weiner, President of Enzo, "we have this past year taken aggressive actions to streamline operations, reduce overhead and generate cost savings designed to position the Company to capitalize on its many strengths in diagnostics services and life sciences, as well as to enhance our financial capabilities and achieve positive cash flow. In the fourth fiscal quarter, we took substantial charges to support these actions. The improved operating results will start to be reflected beginning with the first quarter of fiscal 2011 now underway."

In the fourth quarter of fiscal 2010, compared to a year ago:

• Aided by gains at Enzo Clinical Labs, total revenues advanced to $24.9 million, up $0.4 million, or 1.7%.
• Gross profit declined $0.6 million to $10.2 million, which included a charge of approximately $1.3 million related to rationalization of low-margin products at Enzo Life Sciences. Without that charge, gross profit would have approximated $11.5 million, compared to $10.8 million a year ago. Gross profit margin, adjusted for the charge, would have equaled 46%, instead of 41%, as reported, as compared to a gross margin of 44% last year.
• Selling, general and administrative expenses (SG&A), as a percentage of revenues, improved to 45.1%, after adjusting for severance of $0.3 million, from 47.6%, reflecting continuing efforts to manage costs.

The reported net loss for the period of $5.5 million would have been approximately $1.8 million without the inventory charge and one-time severance costs of $0.5 million for the workforce realignment, or a $3.7 million net loss, as compared to a $4.9 million net loss in the corresponding year-ago period, after adjusting for an inventory purchase accounting charge of $0.4 million. On a fully diluted per share basis, the net loss amounted to $0.15 per share, of which $0.05 was due to the above charges, compared to $0.14 per share a year ago, of which $0.01 was due to the inventory adjustment.

Cash, cash equivalents and short-term investments approximated $34 million at July 31, 2010 and April 30, 2010. Cash used in operations decreased to $0.2 million in the fiscal fourth quarter from $2.7 million in the year ago period.

For the full year total revenues increased 8% to $97.1 million and gross profit, despite the fourth quarter inventory adjustment, was up 23%, to approximately $45.0 million, with the gross margin at 46%, compared with 41% a year earlier. Operating expenses, which exclude cost of goods and services, approximated $63.3 million and as a percentage of revenues, excluding the $3.7 million in litigation settlement and related legal costs, declined 200 basis points to 65%. This resulted in an operating loss of $22.1 million, a 6% improvement compared to the prior year's operating loss of $23.4 million. The year's net loss was reduced 6%, to $22.2 million, or a loss of $0.59 per diluted share, down from $23.6 million, or a loss of $0.63 per diluted share. EBITDA loss, as adjusted for the litigation settlement and legal costs, improved by $6.3 million to $14.3 million.

Segment Results

Enzo Clinical Labs posted a 3.4% increase in fourth quarter revenues, to $11.7 million, and an increase for the year of 12%, to $44.2 million. The revenue increase resulted from increased service volume, including higher priced testing, despite a slowdown in physician office visits due to the economy and lower Medicare reimbursement rates. Gross profit for the quarter amounted to $3.7 million, against $4.1 million a year ago, and for the year totaled $14.6 million, up from $13.3 million a year ago. The fiscal fourth quarter and the year were both impacted by higher expenses for reagents and other associated costs.

At Enzo Life Sciences, year-over-year product revenues increased 6%, to $43.1 million, and for the quarter amounted to $10.5 million, as compared to $10.6 million last year. Royalty and license fee income increased 4% and 6%, from the prior year and fourth quarter, respectively. Gross margins on product revenues increased 49% for the year, to $20.6 million, but were off $0.4 million to $3.7 million for the quarter, in large measure reflecting the aforementioned decision to rationalize low-margin inventory in favor of more profitable, higher margin products.

Streamlining Operations

The initiatives announced approximately five weeks ago involve consolidation of acquisitions made the past three years at Enzo Life Sciences into a more cohesive and effective global provider, that draws on the developmental and marketing strengths of each unit. As a result, the segment will have a greater focus on higher margin products in demand in today's increasingly molecular-based approach to medical research, diagnosis and treatment. At Enzo Clinical Labs, the expense reductions and process improvements are attributed to the investment in greater automation of test processing and workforce rationalization. It is estimated, that the actions taken will result in a reduction in annualized operating expenses in excess of $4 million, while also targeting the Company to positive cash flow from operations in 2011.

Recent Events

Enzo Therapeutics, which has reduced its activities for greater cost effectiveness, announced initiation of a clinical trial for Uveitis that will be conducted at the National Institute of Health's National Eye Institute. The randomized, double-masked, placebo-controlled trial of Optiquel™ is expected to involve approximately 60 subjects, with results scheduled to be announced in 2012.

Enzo Clinical Labs was named a participating laboratory provider, effective August 1, 2010, to Empire BlueCross Blue Shield for the metropolitan New York area, in addition to being awarded a license for doing business in the Commonwealth of Pennsylvania. This is the first of several such license applications it has filed with other key states that will enable Clinical Labs to undertake a greater role as a national provider of esoteric and high value diagnostics.

"Fiscal 2010 was very much a year of change, transition and refocusing at Enzo Biochem. As we structure the Company to more fully realize its potential in the evolving field of personalized medicine, we believe that we have strengthened Enzo financially while also providing optionality to more fully capitalize on the multiple opportunities provided in the new directions of healthcare today," said Mr. Weiner.