Initiating Coverage Comments

Investment Summary

Results for 3Q00 demonstrated a 19% increasein net income to $2,003,000 from $1,682,000 over the comparable period in 1999.For the nine months ending April 30, 2000 net income rose 36% to $5,040,000 from $3,705,000 versus the corresponding year earlier period.

·The Clinical Laboratories Division is generating $30 million in revenues annually, growing at a yearly rate of 10%.

·The Diagnostics (Life Sciences) Division is gaining increasing presence in a genomics-focused market that is expected to expand in tandem with the technology to annual sales in the range of $1-$4 billion.

·The Therapeutics Division is developing products for target treatment markets including:

Hepatitis B (HBV): (US & 15 member country European Union [EU]) in excess of $4.2 billion annually

HIV linked AID: (US alone) in excess of $18 billion annually

Graft versus Host Disease (GvHD): (US & EU) in excess of $2.75 billion annually

·The company’s proprietary life sciences product line for gene sequencing and genetic analysis is comprised of more than 400 patents (issued and pending) worldwide and are sold to the life science market globally. Enzo continues to expand its relationships supplying biological ‘gene juice’ material to chip makers for incorporation into silicon microchips (gene/DNA or biochips). The patent estate has been successfully defended numerous times and remedies applied. In each case Enzo has been the beneficiary of million dollar cash settlements and, as well, gained labeling agreements that force the licensee to include the Enzo Biochem, Inc. logo on that company’s proprietary substance label – hence the development of the ‘ENZO INSIDE’ identifying mark (see patent estate section).

·Phase II clinical trials of Enzo’s proprietary medicine EHT899 are underway, following a highly successful Phase I trial for the treatment of patients with chronic hepatitis B virus (HBV) thatresulted in an 80% favorable response rate. October 27-31 - Final Phase I data will be presented at the 51^st annual meeting of the American Association for the Study of Liver Diseases.

·Preliminary data from Enzo’s Phase I trial of HGTV43, its proprietary anti HIV-1 antisense gene therapy product was presented at the annual meeting of the American Society of Gene Therapy.The results demonstrated that the engineered cells remained in circulation, were active and remained present in the individuals’ CD4+ cells at 6 and 8 months.

·October 2, 2000 - The company reported that new data on the first individual treated in the Phase 1 clinical trial of HGTV-43, the company's HIV-1 gene medicine product, show that after nine-and-one-half-months Enzo engineered cells have successfully engrafted in the patient's bone marrow and were spawning new differentiated CD4+ cells designed to fight the virus.CD4+ cells have been shown to provide resistance to HIV.

Inside ‘ENZO INSIDE’—20+ years of scientific research, 410 patents issued and pending, extensive product pipeline, cash flow positive with growing profitability and debt free, the company is a leader in DNA/gene-based applied medical science.

The Company

Adenine

Enzo Biochem, Inc. is comprised of three operational divisions:

·Enzo Therapeutics

·Enzo Life Sciences (Diagnostics)

·Enzo Clinical Labs

Guanosine

Guanosine

The company embarked on its current expanded visionary applied science modality more than 10 years ago.Leveraging on its ongoing successful clinical laboratory’s profitable business base, management undertook to understand the nature of the diseases the presence of which the laboratory was determining. Long before it became fashionable Enzo’s investigators understood the gene to be a mine of information and that products for human use might be developed employing an informational model of the gene and its expressions. This was quite a visionary undertaking as at the time the norm consisted in thinking about the cell and its genomic structure as a medium in which biochemical interactions took place – specifically recombinant DNA was the dominant technology platform of the day. Management evolved the belief that gene modification and regulation would offer a robust modality in the quest for therapies with which to tackle a broad range of human ailments and diseases.This approach recognized that the molecules that comprise nucleic acids were more than storehouses of biologic information and could be employed as antiviral effectors.In consequence, Enzo’s Therapeutics Division strategically embarked on a two-tiered approach.

Thymine

Enzo researchers focused on the basic structural make-up of the nucleic acids and have been able to build a library of patents that describe and control the nature and essence of molecular binding at most of the optimal binding sites on the four nucleotides that comprise Deoxyribonucleic Acid (DNA):

·

Cytosine

The enormous advances in molecular biology were once inconceivable without the use of radioactivity for labeling and detection in nucleic acid analysis. For many years, it was unequivocally accepted that radiolabeled probes provided the highest level of sensitivity in detection of single-copy genes or rare mRNAs. However, there are major drawbacks to the use of isotopes, including short half-life times (some would no longer exist beyond minutes or hours), hazards to health and the environment, and extensive safety regulations for handling, storage, and disposal. The company was successful in developing alternatives that avoid the drawbacks of radioactivity but provide equal sensitivity and comparably convenient experimental procedures.

·Enzo’s global patent web includes separately issued patents that specifically cover labeling sites on each of the four nucleotides (Thymine, Cytosine, Adenine, and Guanosine) which comprise DNA and thus the ‘ENZO INSIDE’ label. They provide the company with comprehensive and distinctive area coverage throughout the nucleic acid continuum.Collectively, Enzo’s patent coverage extends to most labeling and detection positions on nucleotides for the efficient and convenient labeling of nucleic acids.

This basic structural work led Enzo scientists to identifying and utilizing nucleic acids – to deliver methods for regulating the functions of genes.This gene regulation has been referred to as genetic antisense. This antisense approach employs the Watson-Crick base pairing principle to permit therapeutic DNA to target a sensitive viral mRNA or even genomic DNA. Enzo has been able to use nucleic acids as antiviral agents, designing them to interfere with processes involving viral messenger RNA—that is to transcribe viral genes into mRNA or translate viral mRNA into proteins.

Until recently, the dominant technology in this arena was that of employing oligonucleotides which are synthetic, the manufacturing process being a large component of the expense in this costly procedure, administered locally with sustained dosing where large quantities are needed to affect the desired goals.This synthetic modality had an additional drawback, the proscribed doses can be toxic creating another whole problematic dimension to the protocol. By contrast, Enzo’s genetic modality is a therapy operating at the gene level. With this modality the insertion of a gene can have a positive effect, as in enabling the gene to express its natural protein as needed or a negative end outcome where the problematic gene is inhibited from producing the problem producing protein.This last is what is known as antisense. Its two major attributes are that the therapy is managed/produced by the gene and the impact is permanent. A further feature of the robust nature of this approach is one of the fundamentals of nature: that DNA to DNA binding is a constant irrespective of the disease. Therefore an approach such as Enzo’s, ought to find application to any disease because the approach focuses on the source of the problem rather than its expression.

A creature from the pre-computer era might serve as a good analogy by which to understand the antisense modality. The self-correcting typewriter would enable typos to be corrected by simply pressing a key and the typewriter would space back over the line, eliminate any trace of the incorrect letter and then one could type in the correct one creating the correct copy.

An extension on the success of this approach by Enzo is the recent approval and issuance of a US Patent for correcting genetic abnormalities at the single nucleotide level:

U.S. Patent No. 5,958,681 claims a method and materials suitable for correcting point mutations or small insertions or deletions of genetic material. By way of example, genetic abnormalities caused by single nucleotide alterations or small deletions could be corrected through the insertion or exchange of the correct or desired sequences into the genome of the cell where the error exists.

Normal Gene Expression

This new technology provides the company with an additional therapeutic platform and a uniquely specific approach for treating genetic-based diseases, in addition to gene therapy and gene modulation. This gene editing technique differs from other gene therapies in that other therapies typically require the complete insertion of an entire new gene to correct a nonfunctional or incorrectly functional gene.

Antisense Nucleic Acid Inhibits gene Expression

This invention could lead to creation of a normally functioning gene by correcting a mutated or altered gene sequence. It could correct, for example, an inborn error of metabolism for a condition such as hemophilia. Potentially, it could also be used to correct a mutated p53 gene that controls cell growth. In the mutated gene, cell growth is uncontrolled, likely resulting in a cancerous condition. In the corrected p53 gene, cell growth would be restored to its normal, non-cancerous state. The method and materials covered by the `681’ patent work by correcting the specific gene within cells by employing defined short gene sequences through a strategic application.

These sequences are held in place through formation of a triple helix complex. The principle of the invention is that when the short gene sequence containing the correct sequence is held in general proximity to the target DNA to be corrected, the probability of a double crossover or an editing event becomes quite high. That is that the triplex-forming DNA sequences bind to specific regions in the DNA in a sequence-specific manner so as to provoke cellular DNA repair. The elegance of this approach is embodied in that delivering the correct nucleic acid sequence to general proximity to the incorrect gene sequence inside the cell then stimulates the cell’s own distinctive DNA repair mechanisms to correct the deleterious condition.

The company’s therapeutics technologies are finding applications in a number of directly applicable arenas including the treatment of patients contending with such conditions as HIV infection, hepatitis, and Graft versus Host Disease.

Because detection of DNA can be made independent of the presence or absence of antibodies, presence of the virus can be determined much earlier after infection. This is clearly critical with such viral infections as AIDS.

Enzo’s Patent Estate is substantial with 200 patents approved and another 200 pending. In the diagnostics realm Enzo’s patents on the binding loci in each of the four nucleotides as described elsewhere in this report date back to the mid-1980’s. Enzo has an ongoing evolutionary approach to maintaining this estate as solid and robust as possible, by evolving new iterations and improvements to its framework so as to continually expand the patent duration and extension. There are patent improvements that constitute part of their library of potential patent developments both on existing patents and on prospective patents that are being kept in reserve to fit in to the ongoing scientific business development strategy that the company has forged. The nucleotide loci patent complex exists in at least 45 patents that cover the territory of the nucleotide binding sites. The company has defended its intellectual property in a number of infringement suits and has been successful in every exercise to date. In 1998 Enzo was granted a decision which netted the company a settlement of $21 million and an agreement that on every container label, where applicable, Boehringer Mannheim,GmbH is required to place the Enzo logo conspicuously present and equal in size to the manufacturers’ logo.Agreements are also in place withRoche Molecular Diagnostics, Ortho Diagnostics, Dako A/S, Nen Life Sciences, Inc., and Amersham International.

Spinning the patent web….

Innovation and development strategy keeps patents vibrant and robust beyond the standard 17.5 years of protection.

Other patents comprising the bulk of Enzo’s patent estate are similarly protected and in large part novel expressions of the Enzo scientific and research estate. Continual innovation permits ongoing support and expansion of initial patent protection.In any event, some of the patent estate, as on the continuum gene editing, genetic modification, and immune modulation is so new and radical that patent life is just commencing.It is our appreciation that patent protection will extend beyond the terms of reference for this analytical report and hence is firmly supportive of our projected revenue model. In the biochip and genetic sequencing area Enzo has agreements in place with Affymetrix, Inc., Gene Logic, Inc., and Li-Cor, Inc. where patent and product protection have been converted to ongoing commercial relationships.

‘non-radioactive tests use Enzo’s DNA probes to identify viruses and other infectious disease pathogens, and cancer markets…’

‘… detecting the presence of the AIDS virus in blood cells, the presence of hepatitis virus in serum and the presence of the tuberculosis organism in sputum.’

Enzo’s Life Sciences’ (Diagnostics) business continues to benefit from Enzo’s proprietary nucleic acid binding site patent web that Enzo enjoys. Leading pharmaceutical manufacturers and diagnostics labs that wish to attach molecules for labeling or other applications are required to negotiate with Enzo for the rights to access these locales on each of the nucleic acids as protected by the issued patents.Gene probes are emerging as the next growth technology in the diagnostics and testing market. The advantages that genetic probes bring to the industry include speed and that the diagnosis is processed in real time. Immunoassays, the technology that has been the gold standard, suffers from both a degree of inconsistency of outcome and the fact the process requires time to produce results.Gene probes, operating in real time, offer the healthcare community some significant advantages including: lower cost of use partly because of mechanization, specificity of treatment, precision, and for public health concerns, this technology can be distributed widely and easily.

Enzo’sDNA probe tests can be powerful diagnostic tools to find and identify viral and bacterial diseases, including sexually transmitted diseases, as well as cancer. Because they work at the genetic level, DNA probes have the potential to facilitate earlier and more definitive diagnoses. This is especially important in the diagnosis and testing of such problem diseases as AIDS. Antibodies to HIV, the virus that is causally linked to AIDS, often appear several months after initial infection. However, Enzo’s test can detect the HIV virus independent of the presence or absence of antibodies; presence of the virus can be determined much earlier after infection.

Enzo’s