Enzo Biochem Inc. (ENZ, Financial) filed Quarterly Report for the period ended 2010-04-30.
Enzo Biochem Inc. has a market cap of $168.6 million; its shares were traded at around $4.44 with and P/S ratio of 4.2. ENZ is in the portfolios of Jim Simons of Renaissance Technologies LLC.
On May 8, 2008, Enzo Life Sciences, Inc. acquired substantially all of the U.S. based assets and certain liabilities of Biomol International, LP (Biomol LP) through a newly formed US subsidiary Biomol International, Inc. and all of the stock of Biomols wholly-owned United Kingdom subsidiary, Affinity Limited, through Axxora UK, a wholly-owned subsidiary of Enzo Life Sciences, collectively referred to as Biomol for approximately $18.1 million in cash and stock, subject to adjustment, exclusive of acquisition costs of approximately $800,000 and two contingent earn-out payments which will be accounted for as additional purchase consideration over the next two years if and when the contingencies are resolved beyond a reasonable doubt. At closing, the purchase price was satisfied as follows: $12.9 million in cash was paid to Biomol LP, issuance of 352,000 shares of Enzo common stock, at fair market value, to Biomol LP, $1.5 million in cash was paid to an escrow agent for the two-year period following the closing to satisfy any indemnification obligations of the sellers under the Agreement and $550,000 was paid to an escrow agent, for the 60 day period following the closing to satisfy any specified purchase price adjustments. The $550,000 and $1.5 million were released by the escrow agent in August 2008 and May 2010, respectively. The earn-outs of $2.5 million on each of the first two anniversaries of the acquisition date will be based on attaining certain revenue and EBITDA targets, as defined.
The cost of product revenues during the 2010 period was $5.4 million compared to $6.8 million in the 2009 period, a decrease of $1.4 million or 21%. The decrease is primarily due to the impact of $0.7 million in lower costs from low margin third party distribution business, reduced fair value accounting adjustments of $0.8 million in accordance with purchase accounting rules and reclassification of $0.8 million in costs relating to the realignment of manufacturing facilities and personnel. Such amounts in 2010 were partially offset by product cost increases relating to ADI of $0.6 million.
Selling, general and administrative expenses were approximately $12.0 million during the 2010 period as compared to $10.0 million in the 2009 period, an increase of $2.0 million or 20%. The increase was primarily due to the net increase at the Enzo Life Sciences segment of $1.1 million in the 2010 period which included approximately $0.2 million of selling, general and administrative expenses related to ADI operations, the impact of realigning manufacturing facilities and certain personnel of $0.5 million and additional payroll and benefit costs of $0.3 million. The Clinical Lab segments selling general and administrative increased $1.0 million primarily due to increased payroll and related benefits attributed to increases in headcounts in our sales force and management personnel partially related to the marketing and development of esoteric and gene based testing capabilities.
The Life Sciences segments income before taxes was $0.5 million for the 2010 period as compared to $0.2 million for the 2009 period. Product revenues increased by $0.6 million in the 2010 period primarily due to the full periods contribution of product revenues from the March 2009 acquisition of Assay Designs which replaced low margin, high volume distribution product revenues principally to one customer offset by an organic decline in core products. Royalty and license fee income decreased $0.1 million from the Qiagen agreement. The segments gross profit increased to $7.6 million from $5.6 million. Gross profit margins increased to 58% from 45% due to favorable impact from ADIs higher margin, which replaced lower margin revenue in 2009, lower inventory fair value adjustments and realignment of personnel from manufacturing to trading activity. The segments other operating expenses, including selling, general and administrative, legal and research and development, increased by $1.4 million during the 2010 period primarily due to the inclusion of Assay Designs expenses and the impact of the aforementioned realignment of personnel. The segment experienced a non-cash foreign currency loss of $0.2 million during the 2010 period resulting from the slight strengthening foreign currencies had on settled transactions and on an intercompany loan denominated in pounds sterling. In aggregate, the inventory fair value adjustment and amortization of intangibles negatively impacted the segment operating results in the 2010 period by $0.4 million.
The Clinical Laboratory segments loss before taxes was $2.2 million for the 2010 period as compared to a loss of $0.4 million in the 2009 period. The revenue from laboratory services increased in the 2010 period by $0.2 million due to increased service volume in higher priced testing despite being adversely affected by severe winter weather in the Northeast in February, a general slowdown in physician office visits and a decrease in Medicare reimbursement rates. The gross profit of $3.2 million, which decreased by $0.8 million in 2010, was impacted by the increase in the cost of laboratory services of $1.0 million. In the 2010 period, selling, general and administrative costs increased by approximately $1.0 million due to increases in payroll and payroll related costs primarily due to increased headcount in sales and lab administration partially attributed to development and marketing of esoteric and gene-based testing capabilities. The provision for uncollectible accounts receivable decreased by $0.1 million as compared to the 2009 period.
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Enzo Biochem Inc. has a market cap of $168.6 million; its shares were traded at around $4.44 with and P/S ratio of 4.2. ENZ is in the portfolios of Jim Simons of Renaissance Technologies LLC.
Highlight of Business Operations:
The execution of the Purchase Agreement and the closing of the transaction occurred simultaneously on March 12, 2009. The purchase price consisted of $12,228,000 in cash exclusive of acquisition costs of approximately $540,000, subject to an upward or downward post-closing purchase price adjustment based on Assay Designs working capital as of the closing date, $100,000 of which was held in escrow for approximately 60-90 days to secure the payment of any downward post-closing purchase price adjustment and $750,000 of which was held in escrow for 12 months to secure the payment of any indemnification obligations of Assay Designs under the Purchase Agreement. Subsequent to the acquisition date, the Company paid $270,000 in additional purchase price in connection with the working capital adjustment and released the escrow amounts. The $100,000 and $750,000 were released by the escrow agent in June 2009 and March 2010, respectively. The cost of the acquisition included the cost to consolidate a leased facility and the involuntary termination of certain employees, which occurred during the measurement period.On May 8, 2008, Enzo Life Sciences, Inc. acquired substantially all of the U.S. based assets and certain liabilities of Biomol International, LP (Biomol LP) through a newly formed US subsidiary Biomol International, Inc. and all of the stock of Biomols wholly-owned United Kingdom subsidiary, Affinity Limited, through Axxora UK, a wholly-owned subsidiary of Enzo Life Sciences, collectively referred to as Biomol for approximately $18.1 million in cash and stock, subject to adjustment, exclusive of acquisition costs of approximately $800,000 and two contingent earn-out payments which will be accounted for as additional purchase consideration over the next two years if and when the contingencies are resolved beyond a reasonable doubt. At closing, the purchase price was satisfied as follows: $12.9 million in cash was paid to Biomol LP, issuance of 352,000 shares of Enzo common stock, at fair market value, to Biomol LP, $1.5 million in cash was paid to an escrow agent for the two-year period following the closing to satisfy any indemnification obligations of the sellers under the Agreement and $550,000 was paid to an escrow agent, for the 60 day period following the closing to satisfy any specified purchase price adjustments. The $550,000 and $1.5 million were released by the escrow agent in August 2008 and May 2010, respectively. The earn-outs of $2.5 million on each of the first two anniversaries of the acquisition date will be based on attaining certain revenue and EBITDA targets, as defined.
The cost of product revenues during the 2010 period was $5.4 million compared to $6.8 million in the 2009 period, a decrease of $1.4 million or 21%. The decrease is primarily due to the impact of $0.7 million in lower costs from low margin third party distribution business, reduced fair value accounting adjustments of $0.8 million in accordance with purchase accounting rules and reclassification of $0.8 million in costs relating to the realignment of manufacturing facilities and personnel. Such amounts in 2010 were partially offset by product cost increases relating to ADI of $0.6 million.
Selling, general and administrative expenses were approximately $12.0 million during the 2010 period as compared to $10.0 million in the 2009 period, an increase of $2.0 million or 20%. The increase was primarily due to the net increase at the Enzo Life Sciences segment of $1.1 million in the 2010 period which included approximately $0.2 million of selling, general and administrative expenses related to ADI operations, the impact of realigning manufacturing facilities and certain personnel of $0.5 million and additional payroll and benefit costs of $0.3 million. The Clinical Lab segments selling general and administrative increased $1.0 million primarily due to increased payroll and related benefits attributed to increases in headcounts in our sales force and management personnel partially related to the marketing and development of esoteric and gene based testing capabilities.
The Life Sciences segments income before taxes was $0.5 million for the 2010 period as compared to $0.2 million for the 2009 period. Product revenues increased by $0.6 million in the 2010 period primarily due to the full periods contribution of product revenues from the March 2009 acquisition of Assay Designs which replaced low margin, high volume distribution product revenues principally to one customer offset by an organic decline in core products. Royalty and license fee income decreased $0.1 million from the Qiagen agreement. The segments gross profit increased to $7.6 million from $5.6 million. Gross profit margins increased to 58% from 45% due to favorable impact from ADIs higher margin, which replaced lower margin revenue in 2009, lower inventory fair value adjustments and realignment of personnel from manufacturing to trading activity. The segments other operating expenses, including selling, general and administrative, legal and research and development, increased by $1.4 million during the 2010 period primarily due to the inclusion of Assay Designs expenses and the impact of the aforementioned realignment of personnel. The segment experienced a non-cash foreign currency loss of $0.2 million during the 2010 period resulting from the slight strengthening foreign currencies had on settled transactions and on an intercompany loan denominated in pounds sterling. In aggregate, the inventory fair value adjustment and amortization of intangibles negatively impacted the segment operating results in the 2010 period by $0.4 million.
The Clinical Laboratory segments loss before taxes was $2.2 million for the 2010 period as compared to a loss of $0.4 million in the 2009 period. The revenue from laboratory services increased in the 2010 period by $0.2 million due to increased service volume in higher priced testing despite being adversely affected by severe winter weather in the Northeast in February, a general slowdown in physician office visits and a decrease in Medicare reimbursement rates. The gross profit of $3.2 million, which decreased by $0.8 million in 2010, was impacted by the increase in the cost of laboratory services of $1.0 million. In the 2010 period, selling, general and administrative costs increased by approximately $1.0 million due to increases in payroll and payroll related costs primarily due to increased headcount in sales and lab administration partially attributed to development and marketing of esoteric and gene-based testing capabilities. The provision for uncollectible accounts receivable decreased by $0.1 million as compared to the 2009 period.
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