Enzo Biochem, Inc. (NYSE:ENZ) is a leading manufacturer and supplier of a comprehensive portfolio of high-quality products, including antibodies, genomic probes, assays, biochemicals, and proteins. The company's proprietary products and technologies play central roles in translational research and drug development areas, such as cell biology, genomics, assays, immunohistochemistry, and small molecule chemistry.
Enzo Biochem's Life Science division supports the work of research centers and industry partners worldwide. The company has a broad and deep intellectual property portfolio, with patent coverage across many vital enabling technologies.
Business Overview
Enzo Biochem operates through its wholly-owned subsidiary, Enzo Life Sciences, Inc. This segment manufactures, develops, and markets products and tools to life sciences, drug development, and clinical research customers globally. Enzo Life Sciences is a recognized leader in labeling and detection technologies across research and diagnostic markets. The company's strong portfolio of proteins, antibodies, peptides, small molecules, labeling probes, dyes, and kits provides life science researchers with essential tools for target identification/validation, high content analysis, gene expression analysis, nucleic acid detection, protein biochemistry and detection, and cellular analysis.
Enzo Life Sciences is an established source for a comprehensive panel of products to scientific experts in the fields of cancer, cardiovascular disease, neurological disorders, diabetes and obesity, endocrine disorders, infectious and autoimmune disease, hepatotoxicity, and renal injury. The strategic focus of this segment is directed towards innovative, high-quality research reagents and kits in the primary key research areas of genomics, immunohistochemistry, immunoassays, cellular analysis, and small molecule chemistry.
Recent Developments
Discontinued Operations: Sale of Clinical Services Business
Effective July 24, 2023, Enzo Biochem completed the sale of certain assets used in the operation of its clinical laboratory business, Enzo Clinical Labs, to Laboratory Corporation of America Holdings (Labcorp) for an aggregate purchase price of $113.25 million in cash, subject to customary closing adjustments. In accordance with the sale, the company ceased its clinical services operations but continues winding down activities. As a consequence, the company has classified the income and expenses attributable to the clinical services business as discontinued operations for the three and nine months ended April 30, 2024 and 2023.
Ransomware Attack
In April 2023, Enzo Biochem experienced a ransomware attack that impacted certain critical information technology systems. The company promptly deployed containment measures, including disconnecting its systems from the internet, launching an investigation with assistance from third-party cybersecurity experts, and notifying law enforcement. Enzo Biochem adhered to its disaster recovery plan, which enabled it to substantially maintain operations throughout the incident response process.
As a result of the ransomware attack, the company determined a material weakness existed that impaired its ability to ensure that standard systems and accounting processes could operate effectively. Management began remediation measures during and after the April 30, 2023 period end, which were substantially implemented by July 31, 2023. During the nine months of the fiscal year ending July 31, 2024, evaluation of certain controls' effectiveness could not be performed according to the typical frequency or sufficient evidence of control performance was not available for testing due to the cyber incident.
Financials
For the nine months ended April 30, 2024, Enzo Biochem reported revenues of $24,381,000, compared to $22,102,000 in the prior-year period, an increase of 10%. This growth was driven by a 10% increase in the US market, a 16% increase in the European market, and a 2% increase in the Asia Pacific market. The increase in revenues was primarily due to an increase in the marketing effort in drug development and cell and gene therapy markets.
The company's gross profit margin for the Products segment was approximately 47% in the nine months ended April 30, 2024, compared to 38% in the prior-year period. The improved gross profit margin was positively impacted by a more profitable mix of the types of products sold, higher revenues sourced from the US market, and lower input costs.
Enzo Biochem reported a net loss from continuing operations of $8,669,000 for the nine months ended April 30, 2024, compared to a net loss of $16,142,000 in the prior-year period. The reduced net loss was primarily due to higher revenues, improved gross margins, and lower legal and related expenses.
For the full fiscal year ended July 31, 2023, Enzo Biochem reported annual revenue of $31,061,000 and a net loss of $20,288,000. The company's annual operating cash flow was -$36,976,000, and its annual free cash flow was -$39,736,000.
Liquidity
As of April 30, 2024, Enzo Biochem had $57,156,000 in cash and cash equivalents, compared to $82,373,000 as of July 31, 2023. The decrease in cash was primarily due to the net loss and the paydown of accounts payable and accrued liabilities, particularly those related to the discontinued operations.
Based on the current available working capital, management believes the company has sufficient funds to meet its operating requirements for the next twelve months from the date of the filing of this report.
Risks and Challenges
Enzo Biochem remains subject to risks and uncertainties as a result of the April 2023 ransomware attack, including as a result of the data that was accessed or exfiltrated from the company's network. Additionally, security and privacy incidents have led to, and may continue to lead to, additional regulatory scrutiny and class action litigation exposure.
The company is also a defendant in a number of legal matters, including class action lawsuits related to the ransomware attack. These legal proceedings have the potential to result in future financial obligations, adversely impacting the company's business and profitability.
Outlook
Enzo Biochem has not provided specific financial guidance for the upcoming fiscal year. However, the company remains focused on driving growth in its core Life Sciences Products segment, particularly in the areas of drug development, cell and gene therapy, and other key research markets. Management is also committed to strengthening the company's internal controls and cybersecurity measures to mitigate the risks posed by the recent ransomware attack.
Conclusion
Enzo Biochem is a diversified life sciences company with a strong portfolio of proprietary products and technologies. While the company faced challenges related to the ransomware attack and the sale of its clinical services business, it has demonstrated resilience and a commitment to innovation and growth in its core Life Sciences Products segment. Investors should closely monitor the company's progress in addressing the material weakness identified, as well as the ongoing legal proceedings, as these factors could significantly impact Enzo Biochem's future performance.