ENZO-UBS WARBURG Q&A REPORT (10/10/02)

by GDVMARCH

The ~23-minute oral presentation by Barry Weiner, President of Enzo Biochem, Inc., at/or about 9:00 A.M. on 10/10/02, in the NYC The Plaza’ Terrace Room, is recorded and available for a couple more weeks via the webcast at the UBS Warburg homepage at www.ubswarburg.com/  Click-on UBS Warburg Conferences link in the lower right hand corner of the resulting page. The link for the Webcast listen-in/replay is under the Global Life Sciences Conference heading that comes on, following a click on for Agenda.  Free registration is required.  In the interests of accuracy, please note conference attendees viewed screens and saw subject matter not discussed in the time-limited presentation that was further time constrained because the prior company’s presenter over-ran its allotted time.

INTRODUCTION:  I taped the subsequent Breakout (Q&A) Session held in the Ermitage Room and, therefore, didn’t take written notes.  However, due to the fact that (1) the speakers/answerers of questions were not miked, their voices didn’t carry well enough to be audible on the tape reply; and (2) the persistent noise from workmen hammering on scaffolding immediately outside the Ermitage room’s three windows obliterated the taped voices even more.  As a result, the best I can do is to try to recall a few of the many interesting topics addressed in the time-limited Q&A.  I cannot guarantee what I report is totally accurate, and I know it is not complete.  Next time I’ll back-up the tape with speed notes too. :)   Anyway, there will be a shareholders 4^th quarter teleconference in a couple of weeks; so those needing further clarification or confirmation of accuracy of anything I say about the UBS Warburg 2002 stuff should, perhaps, pose questions re: same on this board.  They will, no doubt, reach Barry Weiner before the teleconference and he may, as he usually does, deal with the relevant information in the text of the taped presentation and its replays.

COMMENTARY:  I recall there were quite a few multi-facted questions about Enzo and its relationship with Affymetrix and sales and revenues re: the latter’s genechips, microarrays and sales of Enzo’s re-agent kits.  I don’t recall them all or all of the answers, but a couple of items were, as follows:

Q. Is there anything in the market place that would indicate there is a slowdown in the re-agent kit business Enzo is in?

A.  No….This is a very cost-effective way for them to target identification programs,,,and a very cost-effective way for them to screen thousands of targets at a time …. There has been a rather significant acceleration of kit orders over the past several months…..

Q. What about Enzo’s relationship with Affymetrix?  How long is it for?  We’ve talked to them and they say they are a supplier and sell Enzo kits, but stop there and don’t go on to say too much more?  Can Affymetrix get someone else to make re-agents for use with its chips?

A. If you called me about Affymetrix, I’d say the same thing.  We have an exclusive distribution arrangement with them.  Everytime Affymetrix sell a genechip, they sell an Enzo kit with it.  It’s based on a contractual relationship; but they sell at our will.  We are the owners of the patent and so we keep our distribution relationships on a relatively short-term basis.  So you know, I am not sure of the contract dates, but we have an ongoing relationship.  Over time, Enzo’s re-agent kits have become the standard.  Affymetrix puts out material to its customers based on their use in getting the best results using Enzo reagent kits with the Affymetrix genechips.  So it’s unlikely Affymetrix would want to defeat all of its own work by moving from the standards its been promulgating and encouraging with its customer base.  The customers can, of course, use the genechips with whatever re-agents they want to; and it’s possible, of course, for someone else to come up with re-agent kits for the Affymetrix chips.

But its doubtful they could without infringing given our broad patent ownership, as supplemented from time to time.  If someone came up with a product that didn’t infringe our many re-agent patents, then they would be free to market it.  Also, our patents probably wouldn’t stop an individual researcher from  coming up with and using his own re-agent in his research using an Affymetrix chip, because patent litigation for that breach is not economically feasible.  But it would become a matter for litigation if that researcher tried to sell his infringing product to others for use with chips.   ……

Q.  Someone has already mentioned Affymetrix and I know it is opening an office in Japan or whatever.  My question is, doesn’t Enzo also sell its re-agent kits to Roche, Dako, Amersham and a whole bunch of other companies?  Is Enzo seeing increases in re-agent kit orders and revenues from all of those other companies as well; or is this increase you’ve talked about in re-agent revenues particularly focused on Enzo kit sales to Affymetrix?

A. No, the increase in re-agent kit revenue is not only from Affymetrix.  It is just one of 14 or 15 supply/distributorships with have with other companies, including the ones you mentioned, plus Gene Logic (also in biochip/sequencing), PerkinElmer, Loxo, Ortho, and others who sell and distribute Enzo’s more than 300 life science and other products worldwide.  Enzo also sells them on a direct basis to many other companies and customers, including individual researchers; and sales of its new product GeneBeam low density Labeling System are doing well, as well as that of its BioArray Labeling Kit.  The market for all of these products is rapidly increasing worldwide.

Q. Does Enzo manufacture its own re-agents and other of the life science research products at its plant.

A. Yes.

Q. Does the reported increases in orders for these goods mean Enzo will have to expand the manufacturing space in its facility.

A. Yes, we are.

Q. [out of order] When will Enzo start expanding its facility, and will doing so increase product output and sales revenues.

A.  We have already started and currently believe out expansion should be finished by the end of this calendar year/beginning of next.  It will enable us to eventually double and then perhaps triple our manufacturing output and the sales revenues we get for these products. …….

Q. [out of order] Is Enzo adding to its sales force on account of the increasing sales?  If so, by how many?

A.  Yes.  We have added/are adding 5 or 8 [not sure which] sales individuals……..

Q.  With regard to the Enzo Clinical Labs HMO contract cancellation you spoke of in the last teleconference, is the Enzo FY-Q4 the last quarter in which it will have an impact on the numbers?

A.  Yes.  What you will see in the report for the FY2002-4^th quarter coming up is the final debt [a write-off[?] of]  from the discontinuance of that contract.  It was cancelled on January 1, 2002, and scaled down over the rest of its year.  The debt arising therefrom will be spread out over the full year. The Clinical Lab cash flow will probably remain positive, but the events of that contract will have an effect on its revenue.   Then explanation of how contract was entered into and what happened that led to its cancellation, etc.

Q.  Asking for info on timing/market segment/financial possibilities for Enzo’s 3-tiered ISO Thermal Diagnostic Platform, and whether a partner had been identified, etc.

A.  A few salient points made by B.W. include: (1) Yes…Enzo is past the ‘concept’ stage and has constructed and is testing the large clinical lab model of its ISO Thermal diagnostic platform.  (2) Enzo will be required to obtain FDA approval/license to market this 3-tiered platform of diagnostic products, and that will take at least 18 to 24 months.  (3) Yes...Enzo does have a partner identified to handle product manufacture, marketing, distribution, quality control, customer service, etc.  Comparing attributes of this platform versus existing use of diagnostic testing, B.W. asked Dr. Goldberg what a particular [blood screen?] manual diagnostic test currently costs, and was told ~$75.00 – upon learning of which, B.W. said that test performed by the new Enzo diagnostic platform would probably cost in the range of $20 to $25.00.  …….

Q.  Asked about the direction of the diagnostics testing market, etc……

A. B.W. discussed the fact that life sciences was a major growth opportunity that was moving toward ‘clinical’ application.  He also noted that the market dynamics was transforming from a culture based testing milieu to real-time diagnostics testing.  He also reported that cost structure and performance are important components of clinical lab market competitiveness, and that Enzo’s product design will focus on reduction of reagent and labor costs, but that Enzo’s development expertise will ensure high performance (re: specificity, sensitivity, etc.), and automation will help make esoteric assays easy to use.  He advised there are no COMPREHENSIVE nucleic acid diagnostic systems yet on the market; only “limited” performing instrumentation is now available.  He saw Enzo’s advantages as being: better performance, more competitive products that were poised to replace “culture diagnostics” as the “standard of care”.  He advised that single units will replace multiple units from different niche producers.  Stat tests are rapid and give accurate results – DNA is the “ultimate diagnostic determinant”.  Its Central lab tests will have savings from labor and reagent [cost?] reductions; and its  pathology lab tests should be advantaged by accurate results, with lower labor and reagent costs. ….

Q.  In the area of GENE THERAPY, there seems to have been some articles raising alarm about some problems developing in the SCID gene therapy area.  I understand the US-FDA and France – though England hasn’t – have called a halt to the SCID experimental trials.  What is it about Enzo’s gene therapy – particularly as regards its use in treating HIV – that distinguishes it from the problems that seem to have been experienced – perhaps as a result of the retroviral vector used in the experimental SCID gene therapy?

[NOTE;  Both Barry Weiner and Dr. Dean Engelhardt gave long and very interesting explanations of the science involved and why the problem probably would not be encountered by Enzo.  None of it is audible on the tape recording.  So, unfortunately, I can only supply the little nugget or essence of their lengthy answers that I recall, which went something like the following:

A.In France some children were given SCID gene therapy to create immune systems for them, otherwise they would have died – probably before reaching a year old.  One of those children, now a two year old boy, was found to have developed a form of anemia and on examination was found to have grown a bunch of T-lymphocytes, though there was not yet any indication they had turned cancerous.  The SCID trials here and in France were put on hold, pending investigation by the FDA and the French equivalent.  Dr. Engelhardt said he did not believe the trials would be halted on a permanent basis, but just during an investigation, because the children treated would not have lived without that gene therapy and that fact when weighed against the probability that another treatment may well take care of the resulting T-lymphocyte replication if it is found to have been caused by the gene therapy – which is not yet the case –mitigated against throwing out the therapy. [Dr. Engelhardt was right, because the next day the FDA allowed continuation of the SCID gene therapy trials in this country.]

Both Dr. Engelhardt and Barry Weiner provided an explanation of what had probably happened in the French trial -- if indeed it was the therapy that caused the event rather than something in the boys familial genetic makeup – and said that Enzo had long ago considered such a possible effect from a retroviral vector and had therefore designed and constructed its own bio-stealth vectors in such a way as to avoid that event happening.

Apparently, in Enzo’s vector there is no transcriptional activation function for specific genes.  Therefore, the vector cannot activate oncogene (i.e., cancer) expression when it is integrated into the cellular genome.  In addressing the French SCID group’s vector,it was thought probable that once integrated into the cellular genome it probably activated gene expression at a certain chromosomal point that was responsible for cell proliferation.

Enzo cut out that gene [I think it’s called a promoter gene].  Dr. E briefly noted there are essentially two ways what happened in France can happen.  It occurs if a [promoter?] gene is chopped in two, or if the infused gene gets into the wrong sequence.  Then it triggers that sequence to replicate to a large number of genes which go on to create the T-lymphocyte or cancerous excessive replication of genes.

Enzo cut out that gene.  So, it is easier to analogize it to a car engine that has had its starter taken out.  Because the starter has been cut out, the car doesn’t turn on.

Q. Is the FDA aware that Enzo’s vector doesn’t have that weakness or defect or will it slow down the start-up of the HIV/AIDS multicenter trials?

A. Barry Weiner said he couldn’t comment on what the FDA would do, and Dr. Engelhardt felt Enzo would not have a problem on that issue.

Barry Weiner was asked to comment on status of HIV, HCV and Crohn’s trials and ran through the well known results of the first arm of HIV Phase 1 at UCSF and the setting up and start-up of the next 3 multicenters when the last needed approval is received from the FDA.  He also noted that the Phase I’s of HCV and Crohn’s Disease should be completed by year’s end.  A question as to whether any of the HBV or HCV trials would be or is treating participants with liver cancer went unanswered as the attendees from the company presentation that followed Enzo’s streamed noisily into the Q&A Ermitage room.

There were, if I recall, other sub questions from analysts concerning Enzo’s ongoing relationship with Affymetrix, potential for different product revenues, etc., the answers to which I cannot recall.  In addition, one analyst asked for FY2002 Annual Financial earnings and info and for guidance as to Q1 for FY2003.  Barry Weiner declined, stating the FY2002 Annual figures would be released to all shareholders, et al., at the end of October.

Hope some of the above is of use or interest.  Apologies for lack of a verbatim report and for typos, writing transgressions, inadvertent mis-statements, etc.  Also, while hope I got the gene therapy science bit right,  I am not a scientist.  Hence, no-one should rely on what my interpretation and recollection is on those scientific issues.

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gdvmarch.