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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Mark one
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2005
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
Commission File Number 1-9974
ENZO BIOCHEM, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 13-2866202
- -------------------- -------------------
(State or Other Jurisdiction (IRS. Employer
of Incorporation or Organization) Identification No.)
60 Executive Blvd., Farmingdale, New York 11735
- ----------------------------------------- -----------
(Address of Principal Executive office) (Zip Code)
(631-755-5500)
- --------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.01 par value New York Stock Exchange
- ----------------------------- -----------------------
(Title of Class) (Name of Each Exchange on which Registered)
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant has
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
_X_ Yes No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 125-2).
_X_ Yes No
As of May 20, 2005 the Registrant had 32,137,300 shares of Common Stock
outstanding.
ENZO BIOCHEM, INC.
FORM 10-Q
April 30, 2005
INDEX
-----
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
Consolidated Balance Sheets
April 30, 2005 (unaudited) and July 31, 2004 3
Consolidated Statements of Operations
For the three and nine months ended April 30, 2005
and 2004 (unaudited) 4
Consolidated Statements of Cash Flows
For the nine months ended April 30, 2005 and 2004 (unaudited) 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Item 4. Controls and Procedures 16
Part II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings 17
Item 6. Exhibits 20
Signatures 20
2
ENZO BIOCHEM, INC.
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS April 30,
2005 July 31,
Current assets: (unaudited) 2004
--------- --------
Cash and cash equivalents .............................. $ 73,593 $ 54,499
Marketable securities .................................. 6,680 17,242
Accounts receivable, less allowance for
doubtful accounts ................................... 14,096 14,794
Income tax receivable .................................. 4,143 3,907
Inventories ............................................ 2,910 3,434
Prepaid expenses ....................................... 1,638 1,833
Prepaid taxes .......................................... 303 --
Deferred taxes ......................................... 785 1,975
-------- --------
Total current assets ...................................... 104,148 97,684
Property and equipment, at cost less accumulated
depreciation and amortization .......................... 2,681 2,414
Goodwill .................................................. 7,452 7,452
Patent costs, less accumulated amortization ............... 1,670 2,624
Other ..................................................... 165 160
-------- --------
$116,116 $110,334
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ................................. $ 1,209 $ 2,092
Deferred revenue ....................................... 955 --
Accrued legal fees ..................................... 1,163 2,051
Accrued payroll ........................................ 721 258
Other accrued expenses ................................. 1,139 711
Accrued research and development expenses .............. 90 225
Installment payable .................................... 150 --
Deferred rent .......................................... -- 87
-------- --------
Total current liabilities ................................. 5,427 5,424
Deferred taxes ............................................ 446 444
Long term installment payable ............................. 150 300
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value; authorized
25,000,000 shares; no shares issued
or outstanding
Common Stock, $.01 par value; authorized
75,000,000 shares; shares issued: 32,521,746 at
April 30, 2005 and 30,864,800 at July 31, 2004 ...... 325 309
Additional paid-in capital ............................. 230,999 205,920
Less treasury stock at cost: 384,451 shares at
April 30, 2005 and 349,900 shares at July 31, 2004 .. (5,994) (5,669)
Accumulated deficit .................................... (115,116) (96,148)
Accumulated other comprehensive loss ................... (121) (246)
-------- --------
Total stockholders' equity ................................ 110,093 104,166
-------- --------
$116,116 $110,334
======== ========
3
ENZO BIOCHEM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
April 30, April 30,
Revenues: 2005 2004 2005 2004
------- ------ ------- -------
Research product revenues and royalty income ...... $ 2,385 $4,215 $8,112 $10,942
Clinical laboratory services ...................... 8,615 7,550 24,423 22,123
------- ------ ------- -------
11,000 11,765 32,535 33,065
Costs and expenses and other (income):
Cost of research product revenues ................. 535 441 1,665 1,238
Cost of clinical laboratory services .............. 3,430 2,619 9,203 7,457
Research and development expense .................. 2,208 2,073 6,450 6,354
Selling, general and administrative expenses ...... 5,459 3,643 14,334 10,911
Provision for uncollectible accounts receivable ... 950 2,849 3,573 8,354
Legal expense ..................................... 1,387 1,337 3,690 4,116
Interest income ................................... (416) (306) (1,055) (902)
Gain on patent litigation settlement .............. -- -- (14,000) --
------- ------ ------- -------
13,553 12,656 23,860 37,528
(Loss) income before income taxes .................... (2,553) (891) 8,675 (4,463)
Benefit (provision) for income taxes ................. 1,056 431 (3,680) 2,224
------- ------ ------- -------
Net (loss) income .................................... ($1,497) ($ 460) $4,995 ($2,239)
======= ====== ======= =======
Net (loss) income per common share:
Basic ............................................. ($ 0.05) ($0.01) $ 0.16 ($ 0.07)
======= ====== ======= =======
Diluted ........................................... ($ 0.05) ($0.01) $ 0.15 ($ 0.07)
======= ====== ======= =======
Denominator for per share calculation:
Basic ............................................. 32,122 31,713 32,082 31,586
======= ====== ======= =======
Diluted ........................................... 32,122 31,713 32,745 31,586
======= ====== ======= =======
4
ENZO BIOCHEM, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Nine Months Ended
April 30,
Cash flows from operating activities: 2005 2004
------- ------
Net income (loss) ...................................... $4,995 ($2,239)
Adjustments to reconcile net income (loss) to net cash
provided by/(used in) operating activities:
Depreciation and amortization of property and
equipment ......................................... 688 793
Amortization of deferred patent costs................. 979 900
Provision for uncollectible accounts receivable....... 3,573 8,354
Issuance of stock for 401 K plan...................... 352 282
Deferred rent......................................... (87) (174)
Deferred taxes........................................ 1,192 (2,010)
Loss on sales of marketable securities................ 200 --
Changes in operating assets and liabilities:
Accounts receivable before provision for
uncollectible amounts........................... (2,875) (8,274)
Inventories........................................ 524 375
Income taxes receivable............................ (236) (695)
Prepaid expenses................................... 195 581
Prepaid taxes...................................... (303) 415
Trade accounts payable and other accrued expenses.. (455) (191)
Accrued research and development expenses.......... (135) (398)
Deferred revenue................................... 955 --
Accrued legal fees................................. (888) (105)
Accrued payroll.................................... 463 (222)
------- -------
Total adjustments.................................. 4,142 (369)
------- -------
Net cash provided by (used in)
operating activities......................... 9,137 (2,608)
------- -------
Cash flows from investing activities:
Capital expenditures.................................... (955) (938)
Patent costs deferred................................... (25) (414)
Sales (purchases) of marketable securities, net......... 10,594 (287)
Security deposits....................................... (5) 4
------- -------
Net cash provided by (used in) investing activities... 9,609 (1,635)
------- -------
Cash flows from financing activities:
Proceeds from the exercise of stock options............. 348 841
Proceeds from insurance loss............................ -- 13
------- -------
Net cash provided by financing activities............. 348 854
------- -------
Net increase (decrease) in cash and cash equivalents....... 19,094 (3,389)
Cash and cash equivalents at the beginning of the period... 54,499 63,268
------- -------
Cash and cash equivalents at the end of the period......... $73,593 $59,879
======= =======
Supplemental Disclosure for Statement of Cash Flows
- ---------------------------------------------------
In April 2004, certain officers of the Company exercised incentive stock
options. The Company issued 769,290 shares of common stock, and the Officers
exchanged matured shares. The Company recorded the 367,395 shares received,
adjusted, as treasury stock.
In December 2004, a director of the Company exercised incentive stock options.
The Company issued 31,660 shares of commons stock, and the director exchanged
matured shares. The company recorded the 17,056 shares received as treasury
stock.
5
ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2005
(Unaudited)
Note 1. Basis of Presentation
- -----------------------------
The consolidated financial statements are unaudited and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial position and
operating results for the interim periods. The consolidated financial statements
should be read in conjunction with the consolidated financial statements for the
year ended July 31, 2004 and notes thereto contained in the Company's Annual
Report on Form 10-K filed with the Securities and Exchange Commission. The
results of operations for the nine months ended April 30, 2005 are not
necessarily indicative of the results to be expected for the entire fiscal year
ending July 31, 2005.
Reclassifications
- -----------------
Certain amounts in prior years have been reclassified to conform to current year
presentation.
Note 2. Stock Based Compensation Plans
- --------------------------------------
In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123 "Share-Based Payment" ("SFAS 123(R)"). The statement requires that the
compensation cost relating to share-based payment transactions be recognized in
financial statements. That cost will be measured based on the fair value of the
equity or liability instrument issued. The statement covers a wide range of
share-based compensation arrangements including share options, restricted share
plans, performance-based awards, share appreciation rights, and employee share
purchase plans. The Company will be required to adopt SFAS 123(R) as of August
1, 2005, the first day of its fiscal year ending July 31, 2006. The adoption of
SFAS 123(R) may have a material impact on the consolidated financial statements
of the Company.
For the fiscal year ending July 31, 2005, the Company will continue to account
for stock option grants to employees under the recognition and measurement
principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related Interpretations. Under APB No. 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recorded.
Pro forma information regarding net income (loss) applicable to common
stockholders is required by FASB Statement No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation," which also requires that the information be
determined as if the Company has accounted for its stock options under the fair
value method of that statement. For purposes of pro forma disclosures, the
estimated fair value of the options is amortized to expense over the options'
vesting period.
The following table illustrates the effect on net (loss) income and (loss)
earnings per share if the Company had applied the fair value recognition
provisions of SFAS No. 123 to stock-based compensation for the periods ended
April 30, 2005 and 2004:
6
Three months ended Nine months ended
(In thousands, except for share data) April 30, April 30,
2005 2004 2005 2004
------- ------- ------ -------
Reported net (loss) income ......... ($1,497) ($ 460) $4,995 ($2,239)
Pro forma compensation expense ..... (1,101) (983) (3,133) (2,285)
------- ------- ------ -------
Pro forma net (loss) income ........ ($2,598) ($1,443) $1,862 ($4,524)
======= ======= ====== =======
(Loss) earnings per share:
Basic - as reported ............. ($.05) ($.01) $.16 ($.07)
Basic - pro forma ............... ($.08) ($.05) $.06 ($.14)
Diluted - as reported ........... ($.05) ($.01) $.15 ($.07)
Diluted - pro forma ............. ($.08) ($.05) $.06 ($.14)
The Company applies SFAS No. 128, "Earnings per Share." SFAS No. 128 establishes
standards for computing and presenting earnings per share. Basic net (loss)
income per share represents net (loss) income divided by the weighted average
number of common shares outstanding during the period. The dilutive effect of
potential common shares, consisting of outstanding stock options, is determined
using the treasury stock method in accordance with SFAS No. 128. Diluted
weighted average shares outstanding for the three and nine month periods ended
April 30, 2004 and for the three months ended April 30, 2005 do not include the
potential common shares from stock options because to do so would have been
antidilutive. Accordingly, basic and diluted net loss per share for those
periods is the same. The following table sets forth the computation of basic and
diluted net (loss) income per share pursuant to SFAS 128.
Three months ended Nine months ended
(In thousands, except for share data) April 30, April 30,
2005 2004 2005 2004
------- ------- ------- --------
Numerator:
Net (loss) income for numerator for
basic and diluted earnings per common share ($1,497) ($460) $4,995 ($2,239)
======= ======= ======= ========
Denominator:
Denominator for basic earnings per common
equivalent share during the period 32,122 31,713 32,082 31,586
Effect of dilutive employee and director
stock options and warrants -- -- 663 --
------- ------- ------- --------
Denominator for diluted (loss) earnings per
common equivalent share and assumed conversions 32,122 31,713 32,745 31,586
======= ======= ======= ========
Basic net (loss) income per share ($.05) ($.01) $.16 ($.07)
======= ======= ======= ========
Diluted net (loss) income per share ($.05) ($.01) $.15 ($.07)
======= ======= ======= ========
7
The following table summarizes, for each period presented, the number of shares
excluded from the computation of diluted earnings per share, as their effect
upon potential issuance was anti-dilutive.
Three months Nine months
ended ended
(In thousands) April 30, April 30,
2005 2004 2005 2004
---- ---- ---- ----
Employee and director stock options and warrants 639 617 -- 916
The Company declared a 5% stock dividend on October 5, 2004 which was paid on
November 15, 2004 to shareholders of record as of October 25, 2004. The shares
and per share data have been adjusted to retroactively reflect this stock
dividend for all periods presented. The Company recorded a charge to accumulated
deficit and a credit to common stock and additional paid-in-capital in the
amount of $24.0 million which reflects the fair value of the dividend on the
date of declaration.
Note 3. Inventories
Inventories consist of the following, as of:
(in thousands) April 30, 2005 July 31, 2004
-------------- -------------- -------------
Raw Materials $72 $125
Work in process 1,628 2,188
Finished products 1,210 1,121
------ ------
$2,910 $3,434
====== ======
Note 4. Gain on Patent Litigation Settlement
- --------------------------------------------
On October 14, 2004, the Company finalized and executed a settlement and license
agreement with Digene Corporation to settle its patent litigation lawsuit. Under
the terms of the agreement, the Company received an initial payment of $16.0
million, of which $2.0 million is to be used to offset royalty income payments
based upon net sales of licensed products covered by the agreement during the
first year. The Company will receive in the first annual period (October 1, 2004
to September 30, 2005) a minimum royalty payment of $2.5 million inclusive of
the $2 million discussed above and at least a minimum royalty of $3.5 million
for each of the next four annual periods. In addition, the agreement provides
for the Company to receive quarterly running royalties on the net sales of
Digene products subject to the license until the expiration of the patent on
April 24, 2018. These quarterly running royalties will be fully creditable
against the minimum royalty payments due in the first five years of the
agreement. The balance, if any, of the minimum royalty payment will be
recognized in the final quarter of the applicable annual royalty period. As a
result of this settlement and license agreement with Digene (the "Digene
agreement"), the Company recorded a gain on patent litigation settlement of
$14.0 million in the first quarter of Fiscal 2005. During the fiscal quarters
ended April 30, 2005 and January 31, 2005, the Company recognized royalties from
the Digene agreement, which is included in research product revenues and royalty
income. See Legal Proceedings.
8
ENZO BIOCHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2005
(Unaudited)
Note 5 - Segment Information
The Company follows the provisions of SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS No. 131"). The Company has two
reportable segments: research and development and clinical reference
laboratories. The Company's research and development segment conducts research
and development activities and sells products derived from these activities. The
clinical reference laboratories provide diagnostic services to the health care
community. The Company evaluates segment performance based on segment income
(loss) before taxes. Costs excluded from segment income (loss) before taxes and
reported as other consist of corporate general and administrative costs which
are not allocable to the two reportable segments. Management of the Company
assesses assets on a consolidated basis only and therefore, assets by reportable
segment have not been included in the reportable segments below.
The following financial information (in thousands) represents the operations of
the reportable segments of the Company:
RESEARCH CLINICAL REFERENCE
SEGMENT AND DEVELOPMENT LABORATORIES OTHER CONSOLIDATED
THREE MONTHS ENDED THREE MONTHS ENDED THREE MONTHS ENDED THREE MONTHS ENDED
APRIL 30, APRIL 30, APRIL 30, APRIL 30,
Operating revenues: 2005 2004 2005 2004 2005 2004 2005 2004
------- ------- ------- ------- ------- ------- ------- -------
Research product revenues $2,385 $4,215 -- -- -- -- $2,385 $4,215
Clinical laboratory services -- -- 8,615 $7,550 -- -- $8,615 7,550
Cost and expenses and other (income):
Cost of research product revenues 535 441 -- -- -- -- 535 441
Cost of clinical laboratory services -- -- 3,430 2,619 -- -- 3,430 2,619
Research and development expense 2,208 2,073 -- -- -- -- 2,208 2,073
Provision for uncollectible accounts
receivable -- -- 950 2,849 -- -- 950 2,849
Other costs and expenses 659 642 3,361 2,396 2,826 1,942 6,846 4,980
Interest income -- -- -- -- (416) (306) (416) (306)
------- ------- ------- ------- ------- ------- ------- -------
(Loss) Income before income taxes (1,017) 1,059 874 (314) (2,410) (1,636) (2,553) (891)
======= ======= ======= ======= ======= ======= ======= =======
NINE MONTHS ENDED NINE MONTHS ENDED NINE MONTHS ENDED NINE MONTHS ENDED
APRIL 30, APRIL 30, APRIL 30, APRIL 30,
Operating revenues: 2005 2004 2005 2004 2005 2004 2005 2004
------- ------- ------- ------- ------- ------- ------- -------
Research product revenues $8,112 $10,942 -- -- -- -- 8,112 10,942
Clinical laboratory services -- -- 24,423 $22,123 -- -- 24,423 22,123
Cost and expenses and other (income):
Cost of research product revenues 1,665 1,238 -- -- -- -- 1,665 1,238
Cost of clinical laboratory services -- -- 9,203 7,457 -- -- 9,203 7,457
Research and development expense 6,450 6,354 -- -- -- -- 6,450 6,354
Provision for uncollectible accounts
receivable -- -- 3,573 8,354 -- -- 3,573 8,354
Other costs and expenses 1,918 1,740 9,228 7,053 6,878 6,234 18,024 15,027
Interest income -- -- -- -- (1,055) (902) (1,055) (902)
Gain on patent litigation settlement (14,000) -- -- -- -- -- (14,000) --
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes 12,079 $1,610 2,419 (741) (5,823) (5,332) 8,675 (4,463)
======= ======= ======= ======= ======= ======= ======= =======
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations
should be read in conjunction with our financial statements and related notes.
This discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements. See "Forward-Looking and Cautionary
Statements." in our Form 10-K for the year ended July 31, 2004. Because of those
factors, you should not rely on past financial results as an indication of
future performance. We believe that period-to-period comparisons of our
financial results to date are not necessarily meaningful and expect that our
results of operations might fluctuate from period to period in the future.
Enzo Biochem, Inc. (the "Company" or "Enzo") is a leading life sciences and
biotechnology company focused on harnessing genetic processes to develop
research tools, diagnostics and therapeutics. Enzo also provides clinical
laboratory services to the medical community. In addition, our work in gene
analysis has led to our development of significant therapeutic product
candidates, several of which are currently in clinical trials, and several are
in preclinical studies.
The business activities of the Company are performed by the Company's three
wholly owned subsidiaries. These activities are: (1) research and development,
manufacturing and marketing of biomedical research products and tools through
Enzo Life Sciences and research and development of therapeutic products through
Enzo Therapeutics, and (2) the operation of a clinical reference laboratory
through Enzo Clinical Labs. For information relating to the Company's business
segments, see Note 5 of the Notes to Consolidated Financial Statements.
The Company's source of revenue has been from the direct sales of research
products of labeling and detection reagents for the genomics and sequencing
markets, as well as through non-exclusive distribution agreements. The other
source of revenue has been from the clinical reference laboratory service
market. Clinical laboratory services are provided to patients covered by various
third party insurance programs, including Medicare, and to patients who are self
payers. Clinical laboratory services revenues are net of contractual discounts
and allowances, which is the difference between services invoiced and the
estimated payment expected from Medicare and third party insurance programs. The
clinical laboratory is subject to seasonal fluctuations in operating results.
Volume of testing generally declines during the summer months, the year-end
holiday period and other major holidays. In addition, volume declines due to
inclement weather may reduce net revenues. Therefore, comparison of the results
of successive quarters may not accurately reflect trends or results for the full
year. For the nine months ended April 30, 2005 and 2004, respectively,
approximately 25% and 33% of the Company's operating revenues were derived from
research product sales and royalty income and approximately 75% and 67% were
derived from clinical laboratory services.
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 2005, our cash and cash equivalents and marketable securities
totaled $80.3 million, an increase of $8.5 million from July 31, 2004. We had
working capital of $98.7 million at April 30, 2005 compared to $92.3 million at
July 31, 2004.
Net cash provided by operating activities for the nine month period ended April
30, 2005 was approximately $9.1 million as compared to net cash used in
operating activities of ($2.6) million for the nine month period ended April 30,
2004. The increase in net cash provided by operating activities was primarily
due to net income in the 2005 period resulting from a settlement and license
agreement with Digene Corporation as compared to the net loss in the 2004
period.
10
On October 14, 2004, the Company finalized and executed a settlement and license
agreement with Digene Corporation to settle its patent litigation lawsuit. Under
the terms of the agreement, the Company received an initial payment of $16.0
million, of which $2.0 million is to be used to offset royalty income payments
based upon net sales of licensed products covered by the agreement during the
first year. The Company will receive in the first annual period (October 1, 2004
to September 30, 2005) a minimum royalty payment of $2.5 million inclusive of
the $2 million discussed above and at least a minimum royalty of $3.5 million
for each of the next four annual periods. In addition, the agreement provides
for the Company to receive quarterly running royalties on the net sales of
Digene products subject to the license until the expiration of the patent on
April 24, 2018. These quarterly running royalties will be fully creditable
against the minimum royalty payments due in the first five years of the
agreement. The balance, if any, of the minimum royalty payment will be
recognized in the final quarter of the applicable annual royalty period. As a
result of this settlement and license agreement with Digene (the "Digene
agreement"), the Company recorded a gain on patent litigation settlement of
$14.0 million in the first quarter of Fiscal 2005. During the fiscal nine months
ended April 30, 2005, the Company recognized royalties from the Digene
agreement, which is included in research product revenues and royalty income.
See Legal Proceedings.
Net cash provided by investing activities was approximately $9.6 million during
the nine months ended April 30, 2005, as compared to net cash used in investing
activities of ($1.6) during the nine months ended April 30, 2004. The increase
during the 2005 period was primarily the result of the net sales of marketable
securities totaling $10.6 million. Net cash provided by financing activities was
approximately $0.3 million during the nine months ended April 30, 2005, as
compared to $0.9 during the nine months ended April 30, 2004. The cash provided
in both periods was primarily from the exercise of stock options. There was less
option exercise activity during the 2005 period than the 2004 period.
We believe that our current cash position is sufficient for our foreseeable
liquidity and capital resource needs, although there can be no assurance that
future events will not alter such view. Management is not aware of any material
claims, disputes or settled matters concerning third-party reimbursements that
would have a material effect on our financial statements.
CRITICAL ACCOUNTING POLICIES
GENERAL
The Company's discussion and analysis of its financial condition and results of
operations are based upon Enzo Biochem, Inc. consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires the Company to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses; these estimates and
judgments also affect related disclosure of contingent assets and liabilities.
On an on-going basis, we evaluate our estimates, including those related to
contractual allowance, allowance for uncollectible accounts, intangible assets
and income taxes. The Company bases its estimates on experience and on various
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions.
REVENUE RECOGNITION
Revenues from the clinical reference laboratory are recognized when services are
provided. The Company's revenue is based on amounts billed or billable for
services rendered, net of contractual adjustments and other arrangements made
with third-party payers to provide
11
services at less than established billing rates. Revenues from research product
sales, excluding certain non-exclusive distribution agreement revenues, are
recognized when the products are shipped.
The Company has certain non-exclusive distribution agreements, which provide for
consideration to be paid to the distributors for the manufacture of certain
products. The Company records such consideration provided to distributors under
these non-exclusive distribution agreements as a reduction to research product
revenues. The revenue from these non-exclusive distribution agreements are
recognized when shipments are made to their respective customers and reported to
the Company. Under the Digene agreement, the Company records royalty income
based on the net sales of products subject to the license, as reported by Digene
to the Company.
CONTRACTUAL ALLOWANCES
The percentage of the Company's revenues derived from Medicare, third party
payers, commercial insurers and managed care patients continue to increase. The
Medicare regulations and various managed care contracts are often complex and
may include multiple reimbursement mechanisms for different types of services
provided in our clinical laboratory. We estimate the allowance for contractual
allowances on a payer-specific basis given our interpretation of the applicable
regulations and historical calculations. However, the services authorized and
provided and related reimbursement are often subject to interpretation that
could result in payments that differ from our estimates. Additionally, updated
regulations occur frequently that necessitates continual review and assessment
of the estimation process by management.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company's ability to collect outstanding receivables from third party payers
is critical to its operating performance and cash flows. The primary collection
risk lies with uninsured patients or patients for whom primary insurance has
paid but a patient portion remains outstanding. The Company estimates the
allowance for doubtful accounts primarily based upon the age of the accounts
since invoice date. The Company continually monitors its accounts receivable
balances and utilizes cash collections data to support the basis for its
estimates of the provision for doubtful accounts. Significant changes in payer
mix or regulations could have a significant impact on the Company's results of
operations and cash flows. In addition, the Company has implemented a process to
estimate and review the collections of its receivables based on the period they
have been outstanding. Historical collection and payer reimbursement experience
is an integral part of the estimation process related to reserves for doubtful
accounts. The Company also assesses the current state of its billing functions
in order to identify any known collection or reimbursement issues in order to
assess the impact, if any, on the reserve estimates, which involves judgment.
The Company believes that the collectibility of its receivables is directly
linked to the quality of its billing processes, most notably, those related to
obtaining the correct information in order to bill effectively for the services
provided. Revisions in reserve for doubtful accounts estimates are recorded as
an adjustment to bad debt expense. The Company believes that its collection and
reserves processes, along with the close monitoring of its billing processes,
helps reduce the risk associated with material revisions to reserve estimates
resulting from adverse changes in collection and reimbursement experience and
billing operations.
INCOME TAXES
The Company accounts for income taxes under the liability method of accounting
for income taxes. Under the liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying
12
amounts of existing assets and liabilities and their respective tax bases. The
liability method requires that any tax benefits recognized for net operating
loss carry forwards and other items be reduced by a valuation allowance where it
is more likely than not the benefits may not be realized. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under the liability method, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the requirement to recognize impairment losses on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. As of April 30, 2005, the Company has not
recorded an impairment charge.
RESULTS OF OPERATIONS
The following discussion compares the results of operations for the three and
nine months ended April 30, 2005 and 2004, respectively.
RESEARCH PRODUCT REVENUES
- -------------------------
Research product revenues and royalty income were $2.4 million during the three
months ended April 30, 2005, compared to $4.2 million during the same period in
2004, a decrease of $1.8 million or 43%. The decrease was primarily due to the
failure of certain distributors to provide the Company with sales information
relating to their sales of the Company's products and the inability, therefore,
of the Company to recognize any revenue from such sales, partially offset by
royalty income from Digene. See Legal Proceedings.
Research product revenues and royalty income was $8.1 million during the nine
months ended April 30, 2005, compared to $10.9 million during the same period in
2004, a decrease of $2.8 million or 25%. As with the third quarter, the decrease
was primarily due to the failure of certain distributors to provide the Company
with sales information relating to their sales of the Company's products and the
inability, therefore, of the Company to recognize any revenue from such sales,
partially offset by royalty income from Digene. See Legal Proceedings.
CLINICAL LABORATORY SERVICES
- ----------------------------
Clinical laboratory revenues were $8.6 million during the three months ended
April 30, 2005, compared to $7.5 million during the same period in 2004, an
increase of $1.1 million or 14%, primarily due to the increase in the number of
customer accounts being serviced.
Clinical laboratory revenues were $24.4 million during in the nine months of
fiscal 2005, compared to $22.1 million during the same period in 2004, an
increase of $2.3 million or 10%, primarily due to the increase in the number of
customer accounts being serviced.
COST OF RESEARCH PRODUCT REVENUES
- ---------------------------------
The cost of research products revenues was $0.5 million during the three months
ended April 30, 2005, compared to $0.4 million during the same period in 2004,
an increase of $0.1 million, primarily due to certain new products currently
being manufactured and the higher costs associated with these new products.
The cost of research products revenues was $1.6 million during the nine months
ended April 30, 2005, compared to $1.2 million during the same period in 2004,
an increase of $0.4 million,
13
primarily due to certain new products currently being manufactured and the
higher costs associated with these new products.
COST OF CLINICAL LABORATORY SERVICES
- ------------------------------------
The cost of clinical laboratory services was $3.4 million during the three
months ended April 30, 2005, compared to $2.6 million during the same period in
2004, an increase of $0.8 million or 31% primarily due to higher costs incurred
to perform certain esoteric tests and the increased number of tests performed.
The cost of clinical laboratory services was $9.2 million during the nine months
ended April 30, 2005, compared to $7.5 million during the same period in 2004,
an increase of $1.7 million or 23%, primarily due to higher costs incurred to
perform certain esoteric tests and the increased number of tests performed.
RESEARCH AND DEVELOPMENT EXPENSE
- --------------------------------
Research and development expenses were $2.2 million during the three months
ended April 30, 2005, compared to $2.1 million during the same period in 2004,
an increase of $0.1 million or 7% primarily due to increases in clinical trial
study costs for the development of therapeutic products.
Research and development expenses were $6.5 million during the nine months ended
April 30, 2005, compared to $6.4 million during the same period in 2004, an
increase of $0.1 million or 2% primarily due to increases in clinical trial
study costs for the development of therapeutic products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
- -------------------------------------------
Selling, general and administrative expenses were $5.4 million during the three
months ended April 30, 2005, compared to $3.6 million during the same period in
2004, an increase of $1.8 million or 50%. The increase was primarily due to an
increase in direct selling expenditures for our clinical reference laboratory
and life science divisions, an increase in information technology costs for the
expansion of the data processing connectivity program and infrastructure, and
accounting related fees for the compliance with Sarbannes-Oxley regulations.
Selling, general and administrative expenses were $14.3 million during the nine
months ended April 30, 2005, compared to $10.9 million during the same period in
2004, an increase of $3.4 million or 31%. The increase was primarily due to an
increase in direct selling expenditures for our clinical reference laboratory
and life science divisions, an increase in information technology costs for the
expansion of the data processing connectivity program and infrastructure, and
accounting related fees for the compliance with Sarbannes-Oxley regulations.
LEGAL EXPENSE
- -------------
The Company's legal expenses were $1.3 million during both the three months
ended April 30, 2005 and 2004.
The Company's legal expenses during the nine months ended April 30, 2005 were
$3.7 million, compared to $4.1 million in the 2004 period, a decrease of $0.4
million. The decrease is primarily due to the reduction of legal activities
because of the settlement with Digene Corporation during the first quarter ended
October 31, 2004.
14
PROVISION FOR UNCOLLECTIBLE ACCOUNTS RECEIVABLE
- -----------------------------------------------
The Company's provision for uncollectible accounts receivable in the clinical
reference laboratory segment during the three months ended April 30, 2005 was
$0.9 million, compared to $2.8 million during the same period in 2004, a
decrease of $1.9 million or 67%. The percentage of the provision for
uncollectible accounts receivable as a proportion of clinical laboratory
services revenues decreased to 11% for the 2005 period as compared to 44% for
the 2004 period. This decrease was primarily due to the change in the mix of
payers.
The Company's provision for uncollectible accounts receivable in the clinical
reference laboratory segment during the nine months ended April 30, 2005 was
$3.6 million, compared to $8.4 million during the same period in 2004, a
decrease of $4.8 million or 57%. The percentage of the provision for
uncollectible accounts receivable as a proportion of clinical laboratory
services revenues decreased to 11% for the 2005 period as compared to 44% for
the 2004 period. This decrease was primarily due to the change in the mix of
payers.
INTEREST INCOME
- ---------------
The Company earns interest on its cash balances by investing primarily in money
market funds and short term (90 days or less) financial instruments with high
credit ratings.
Interest income increased $0.1 million to $0.4 million during the three months
ended April 30, 2005, compared to $0.3 million during the same period in 2004.
The increase was due to larger amounts of cash available for investment.
Interest income increased $0.2 million to $1.1 million during the nine months of
fiscal 2005 as compared to $0.9 million during the same period in 2004. The
increase was due to larger amounts of cash available for investment.
GAIN ON PATENT LITIGATION SETTLEMENT
- ------------------------------------
On October 14, 2004, the Company finalized and executed a settlement and license
agreement with Digene Corporation to settle its patent litigation lawsuit. Under
the terms of the agreement, the Company received an initial payment of $16.0
million, of which $2.0 million is to be used to offset royalty income payments
based upon net sales of licensed products covered by the agreement during the
first year. The Company will receive in the first annual period (October 1, 2004
to September 30, 2005) a minimum royalty payment of $2.5 million inclusive of
the $2 million discussed above and at least a minimum royalty of $3.5 million
for each of the next four annual periods. In addition, the agreement provides
for the Company to receive quarterly running royalties on the net sales of
Digene products subject to the license until the expiration of the patent on
April 24, 2018. These quarterly running royalties will be fully creditable
against the minimum royalty payments due in the first five years of the
agreement. The balance, if any, of the minimum royalty payment will be
recognized in the final quarter of the applicable annual royalty period. As a
result of this settlement and license agreement with Digene (the "Digene
agreement"), the Company recorded a gain on patent litigation settlement of
$14.0 million in the first quarter of fiscal 2005. During the fiscal nine months
ended April 30, 2005, the Company recognized royalties from the Digene
agreement, which is included in research product revenues and royalty income.
See Legal Proceedings
BENEFIT (PROVISION) FOR INCOME TAXES
- ------------------------------------
For the three months ended April 30, 2005 the Company recorded a benefit for
income taxes of $1.1 million which was based on the combined effective federal,
state and local income tax rates applied to the loss before taxes for the
period.
15
For the nine months ended April 30, 2005 the Company recorded a provision for
income taxes of $3.7 million which was based on the combined effective federal,
state and local income tax rates applied to the income before taxes for the nine
month period.
The provision for income taxes for the nine months ended April 30, 2005, at an
effective rate of 42%, was different from the U.S. federal statutory rate of 34%
due to state income taxes, net of federal tax deduction (5%), expenses not
deductible for income tax return purposes (1%), and the effect of state net
operating loss carryforwards (2%).
SEGMENT (LOSS) INCOME BEFORE INCOME TAXES -
THREE MONTHS ENDED APRIL 30, 2005 VS. 2004
- -------------------------------------------
The research and development segment's (loss) income before income taxes was
(1.0) million compared to $1.1 million in the 2004 period. The decrease in the
fiscal 2005 period is primarily the result of a decline of $1.8 million in
research product revenues. The Company is not recording revenue on the sales of
certain licensed products due to the ongoing dispute with certain distributors.
The clinical reference laboratory segment's income (loss) before income taxes
was $0.9 million versus a loss of ($0.3) million. This increase is due to higher
revenues, due to the increase in the number of customer accounts being serviced,
and a lower provision for uncollectible accounts, due to the change in the mix
of payers. The Other segment's (loss) before income taxes was ($2.4) million
versus ($1.6) million in the 2004 period, primarily due to accounting related
fees for the compliance with Sarbannes-Oxley regulations not incurred in the
2004 period.
SEGMENT (LOSS) INCOME BEFORE INCOME TAXES -
NINE MONTHS ENDED APRIL 30, 2005 VS. 2004
- -------------------------------------------
The research and development segment's income before income taxes was $12.1
million compared to $1.6 million in the 2004 period. The increase in the fiscal
2005 period resulted from the $14 million gain from the Digene agreement reached
during the first fiscal quarter ended October 31, 2004. This gain is partially
offset by a decline in research product revenues due to the ongoing dispute with
certain distributors on the sales of certain licensed products. The clinical
reference laboratory segment's income (loss) before income taxes was $2.4
million versus a loss of ($0.7) million. This increase is due to higher
revenues, due to the increase in the number of customer accounts being serviced,
and a lower provision for uncollectible accounts, due to the change in the mix
of payers. The Other segment's (loss) before income taxes was ($5.8) million
versus ($5.3) million in the 2004 period, primarily due to accounting related
fees for the compliance with Sarbannes-Oxley regulations not incurred in the
2004 period.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's earnings and cash flows are subject to fluctuations due to changes
in interest rates primarily from its investment of available cash balances in
investment grade corporate and U.S. government securities. Under its current
policies, the Company does not use interest rate derivative instruments to
manage exposure to interest rate changes.
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of the Company's management,
including the Company's Chief Executive Officer and Chief Financial Officer, the
Company has evaluated the effectiveness of the design and operation of its
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14c within
90 days of the filing date of this quarterly report. Based on that evaluation,
the Chief Executive Officer and Chief Financial Officer have concluded that
these disclosure controls and procedures are effective. There were no
significant changes in the Company's internal controls or in other factors that
could significantly affect internal controls subsequent to the date of their
evaluation.
16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In March 2002, Enzo Life Sciences, a subsidiary of the Company, filed suit in
the United States District Court for the District of Delaware against Digene
Corp., charging it with infringing the Company's U.S. Patent No. 6,221,581 B1,
which concerns a novel process for detecting nucleic acids of interest. On May
31, 2002, Digene filed counterclaims in that suit against Enzo Life Sciences and
the Company, including business tort counterclaims relating to the `581 patent.
On October 13, 2004, the Company, its wholly owned subsidiary Enzo Life
Sciences, Inc. ("Enzo Life Sciences") and Digene Corporation ("Digene") entered
into a Settlement and License Agreement (the "Agreement") and a Joint
Stipulation and Order of Dismissal with Prejudice (the "Stipulation"). The
Agreement provides for (i) the full and final settlement of the Litigation and
(ii) the grant to Digene of a non-exclusive, worldwide, royalty-bearing license
with respect to such `581 Patent and the remaining patents in the `581 patents
global family. The `581 patent is set to expire on April 24, 2018. Pursuant to
the Agreement Digene is irrevocably required to pay Enzo Life Sciences an
aggregate of $30.5 million of which Life Sciences received $16 million (the
"First Payment") from Digene on October 14, 2004. Digene will pay to Enzo $16.5
million (subject to the $2 million credit discussed below) ("Additional
Irrevocable Payments"), $2.5 million of which shall be paid by November 14, 2005
and $3.5 million per year by November 14 of each of 2006, 2007 2008 and 2009. In
addition, Digene shall pay Enzo Life Sciences Running Royalties on Net Sales of
Licensed Products. Each Additional Irrevocable Payment is fully creditable by
Digene against the Running Royalties that are due under the Agreement. Digene at
it discretion may credit $2 million of the First Payment against either the
payment required to be paid by Digene by November 14, 2005 or the Running
Royalties due Enzo Life Sciences under the Agreement. The Stipulation, which was
filed with the Court on October 15, 2004, dismisses with prejudice all claims,
counterclaims and defenses brought or raised by any party to the Litigation.
In June 1999, the Company filed suit in the United States District Court for the
Southern District of New York against Gen-Probe Incorporated, Chugai Pharma
U.S.A., Inc., Chugai Pharmaceutical Co., Ltd., bioMerieux, Inc., bioMerieux SA,
and Becton Dickinson and Company, charging them with infringing the Company's
U.S. Patent 4,900,659, which concerns probes for the detection of the bacteria
that causes gonorrhea. On January 26, 2001, the court granted the defendants'
motion for summary judgment that the Company's patent is invalid. On July 15,
2002, the Court of Appeals for the Federal Circuit reversed the judgment of
invalidity and remanded the case to the district court for further proceedings.
In March 2003, settlements were reached with bioMerieux and Chugai; the
settlements did not have a material monetary impact on the Company. In July
2004, the district court again granted another motion by the remaining
defendants (Gen-Probe and Becton Dickinson) that all claims of the Company's
patent are invalid. The Company has filed an appeal of that judgment. There can
be no assurance that the Company will be successful in the on-going proceedings.
However, even if the Company is not successful, management does not believe that
there will be a significant adverse monetary impact to the Company.
On March 6, 2002, the Company was named, along with certain of its officers and
directors among others, in a complaint entitled Lawrence F. Glaser and Maureen
Glaser, individually and on behalf of Kimberly, Erin, Hannah, and Benjamin
Glaser v. Hyman Gross, Barry Weiner, Enzo Biochemical Inc., Elazar Rabbani,
Shahram Rabbani, John Delucca, Dena Engelhardt, Richard Keating, Doug Yates, and
Does I-50, Case No. CA-02-1242-A, in the U.S. District Court for the Eastern
District of Virginia. This complaint was filed by an investor in the Company who
had filed for bankruptcy protection and his family. The complaint alleged
securities fraud, breach of fiduciary duty, conspiracy, and common law fraud and
sought in excess of $150 million in damages. On August 22, 2002, the complaint
was voluntarily dismissed; however a new
17
substantially similar complaint was filed at the same time. On October 21, 2002,
the Company and the other defendants filed a motion to dismiss the complaint,
and the plaintiffs responded by amending the complaint and dropping their claims
against defendants Keating and Yates. On November 18, 2002, the Company and the
other defendants again moved to dismiss the Amended Complaint. On July 16, 2003,
the Court issued a Memorandum Opinion dismissing the Amended Complaint in its
entirety with prejudice. Plaintiffs thereafter moved for reconsideration but the
Court denied the motion on September 8, 2003. Plaintiffs thereafter appealed the
decision to the United States Court of Appeals for the Fourth Circuit. On March
21, 2005, the Fourth Circuit affirmed the lower Court's prior dismissal of all
claims asserted in the action, with the sole exception of a portion of the claim
for common law fraud and remanded that remaining portion of the action to the
U.S. District Court for the Eastern District of Virginia. On May 20, 2005,
defendants again moved the District Court to dismiss the sole remaining claim
before it and that motion is presently pending before the Court. Discovery has
not yet begun in the action but will proceed quickly if the defendants' motion
is denied. The Company continues to believe, in any event, that the complaint
has no merit whatsoever and intends to continue to defend the action vigorously.
In October 2002, the Company filed suit in the United States District Court of
the Southern District of New York against Amersham plc, Amersham Biosciences,
Perkin Elmer, Inc., Perkin Elmer Life Sciences, Inc., Sigma-Aldrich Corporation,
Sigma Chemical Company, Inc., Molecular Probes, Inc. and Orchid Biosciences,
Inc. In January 2003, the Company amended its complaint to include defendants
Sigma Aldrich Co. and Sigma Aldrich, Inc. The counts set forth in the suit are
for breach of contract; patent infringement; unfair competition under state law;
unfair competition under federal law; tortious interference with business
relations; and fraud in the inducement of contract. The complaint alleges that
these counts arise out of the defendants' breach of distributorship agreements
with the Company concerning labeled nucleotide products and technology, and the
defendants' infringement of patents covering the same. In April, 2003, the Court
directed that individual complaints be filed separately against each defendant.
The defendants have answered the individual complaints and asserted a variety of
affirmative defenses and counterclaims. Fact and expert discovery is ongoing.
The Court will conduct a claim construction ("Markman") hearing on June 30,
2005. There can be no assurance that the Company will be successful in this
litigation. However, even if the Company is not successful, management does not
believe that there will be a significant adverse monetary impact to the Company.
A trial date has not been set. The Company did not record any revenue from any
of the above companies in the three months ended April 30, 2005
On October 28, 2003, the Company and Enzo Life Sciences, Inc., a subsidiary of
the Company, filed suit in the United States District Court of the Eastern
District of New York against Affymetrix, Inc. The Complaint alleges that
Affymetrix improperly transferred or distributed substantial business assets of
the Company to third parties, including portions of the Company's proprietary
technology, reagent systems, detection reagents and other intellectual property.
The Complaint also charges that Affymetrix failed to account for certain
shortfalls in sales of the Company's products, and that Affymetrix improperly
induced collaborators and customers to use the Company's products in
unauthorized fields or otherwise in violation of the agreement. The Complaint
seeks full compensation from Affymetrix to the Company for its substantial
damages, in addition to injunctive and declaratory relief to prohibit, among
other things, Affymetrix's unauthorized use, development, manufacture, sale,
distribution and transfer of the Company's products, technology, and/or
intellectual property, as well as to prohibit Affymetrix from inducing
collaborators, joint venture partners, customers and other third parties to use
the Company's products in violation of the terms of the agreement and the
Company's rights. Subsequent to the filing of the Complaint against Affymetrix,
Inc. referenced above, on or about November 10, 2003, Affymetrix, Inc. filed its
own complaint against the Company and its subsidiary, Enzo Life Sciences, Inc.,
in the United States District Court for the Southern District of New York,
seeking among other things, declaratory relief that Affymetrix, Inc., has not
breached the parties' agreement, that it has not infringed certain of Enzo's
Patents, and that
18
certain of Enzo's patents are invalid. The Affymetrix complaint also seeks
damages for alleged breach of the parties' agreement, unfair competition, and
tortiuous interference, as well as injunctive relief. The Company does not
believe that the complaint has any merit and intends to defend vigorously.
Affymetrix also moved to transfer venue of Enzo's action to the Southern
District of New York, where other actions commenced by Enzo were pending as well
as Affymetrix's subsequently filed action. On January 30, 2004, Affymetrix's
motion to transfer was granted. Accordingly, the Enzo and Affymetrix actions are
now both pending in the Southern District of New York. The Affymetrix action has
been consolidated with the Amersham, et al cases for the purposes of discovery.
The Company did not record any revenue from Affymetrix during the nine months
ended April 30, 2005 and 2004
On June 2, 2004, Roche Diagnostic GmbH and Roche Molecular Systems, Inc.
(collectively "Roche") filed suit in the U.S. District Court of the Southern
District of New York against Enzo Biochem, Inc. and Enzo Life Sciences, Inc.
(collectively "Enzo"). The complaint was filed after Enzo rejected Roche's
latest cash offer to settle Enzo's claims for, INTER ALIA, alleged breach of
contract and misappropriation of Enzo's assets. The complaint seeks declaratory
judgment (i) of patent invalidity with respect to U.S. Patent No. 4,994,373,
(ii) of no breach by Roche of its 1994 Distribution and Supply Agreement with
Enzo (the "1994 Agreement"), (iii) that non-payment by Roche to Enzo for certain
sales of Roche products does not constitute a breach of the 1994 Agreement, and
(iv) that Enzo's claims of ownership to proprietary inventions, technology and
products developed by Roche are without basis. In addition, the suit claims
tortious interference and unfair competition. The Company does not believe that
the complaint has merit and has vigorously responded to such action with
appropriate affirmative defenses and counterclaims. The Roche action has been
consolidated with the Amersham, et al cases for discovery. A trial date has not
been set. The Company did not record any revenue from Roche during the nine
months ended April 30, 2005.
On June 7, 2004, the Company and its wholly-owned subsidiary, Enzo Life
Sciences, Inc., filed suit in the United States District Court for the District
of Connecticut against Applera Corporation and its wholly-owned subsidiary
Tropix, Inc. The complaint alleges infringement of six patents (relating to DNA
sequencing systems, labelled nucleotide products, and other technology). Yale
University is the owner of four of the patents and the Company is the exclusive
licensee. Accordingly, Yale is also a plaintiff in the lawsuit. Yale and Enzo
are aligned in protecting the validity and enforceability of the patents. Enzo
Life Sciences is the owner of the remaining two patents. The complaint seeks
permanent injunction and damages (including treble damages for wilful
infringement). Defendants answered the complaint on July 29, 2004. The answer
pleads affirmative defences of invalidity, estoppel and laches and asserts
counterclaims of non-infringement and invalidity. A trial date has not been set.
Discovery commences on September 15, 2004. There can be no assurance that the
Company will be successful in this litigation. Even if the Company is not
successful, management does not believe that there will be a significant adverse
monetary impact on the Company. The Company did not record any revenue from
either of the above during the nine months ended April 30, 2005 and 2004.
19
ITEM 6. EXHIBITS
---------
Exhibit No. Exhibit
----------- -------
31(a) Certification of Elazar Rabbani, Ph.D. pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31(b) Certification of Barry Weiner pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32(a) Certification of Elazar Rabbani, Ph.D. pursuant to 18
U.S.C. ss. 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
32(b) Certification of Barry Weiner pursuant to 18 U.S.C.
ss.1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ENZO BIOCHEM, INC.
------------------
(Registrant)
Date: June 7, 2005 by: /s/Barry Weiner
---------------
Chief Financial Officer
20