NEW YORK (GenomeWeb) – Enzo Biochem reported after the close of the market on Monday that its fiscal second quarter revenues fell 26 percent year over year, largely due to a 36 percent drop in its clinical services revenues.
For the three months ended Jan. 31, the diagnostics company said total revenues sank to $19.3 million from $26.2 million a year earlier.
Clinical services revenues fell to $12.0 million from $18.7 million in Q2 of the prior year, largely due to reduced insurance reimbursement payments that were reimbursed at higher rates in the prior year, increased competition, testing denials, and changes to medical and procedural requirements for genetic testing by payors, the company said. In addition, Enzo recorded more than $1.2 million of reserves offsetting revenues due to slow-paying commercial payors and claims made by a commercial payor for overpayments Enzo received in prior periods.
The firm noted that clinical services revenues for Q2 2018 have been restated to reflect the adoption of new revenue recognition rules on a full retrospective basis. Under the new rules, Enzo reports uncollectible balances associated with patient responsibility as a reduction in net revenues, whereas these amounts were historically separately classified in operating expenses as a provision for uncollectible accounts receivable. They amount to $600,000 in Q2 2019 and $800,000 in Q2 2018.
Meanwhile, total diagnostic testing volume as measured by the number of accessions fell 3 percent year over year, again due to lower high-value testing, but was partially offset by an increase in esoteric testing, including Enzo's AmpiProbe woman's health panel.
Product and royalty revenues dropped 1 percent to $7.3 million from $7.4 million in Q2 2018 as a result of the elimination of product royalties tied to the expiration of an agreement in April 2018, but was offset by higher product volume in the US.
Enzo's Q2 net loss widened to $8.4 million, or $.18 per share, from $901,000, or $.02 per share, in Q2 2018.
The firm's R&D expenses for the quarter were flat at $800,000, and SG&A costs rose 4 percent to $11.5 million from $11.1 million a year earlier. SG&A expenses were slightly higher year over year in support of the company's growth strategies.
On Feb. 5, the company said it entered into a legal settlement in a New York case, which resulted in Enzo receiving a payment of $21 million. Total legal expenses for Q2 were $1.1 million compared to $1.7 million in the prior year.
"We continue to focus relentlessly on our strategic program to provide lower cost, highly efficient and effective platforms, and reagents to offset today's reimbursement challenges facing independent and institutional clinical diagnostic laboratories," Enzo President Barry Weiner said in a statement. "Our financial results thus far this year, and for the second fiscal quarter we are reporting today, have been directly impacted by lower reimbursement from governmental and commercial payors and a notable shift away from high-margin esoteric molecular diagnostics testing to lower cost routine core tests. On balance, volume of accessions has remained constant but price per accession has decreased, impacting both revenues and profitability."
Weiner also noted that Enzo's focus is currently directed at developing a pipeline of "wide-ranging" tests and emphasized that the company is still "financially strong and highly liquid," despite its current operating results, which are reflective of the general tailwinds affecting the diagnostic laboratory industry. These high-volume and high-value tests will be used in connection with Enzo's proprietary open-system high-throughput platforms, which are designed for highly efficient and lower cost diagnostic testing, with a focus on molecular diagnostics, immunohistochemistry, and ELISA platforms, the firm said.
"Despite the revenue shortfall, we are diligently working to invest behind our strategic program while we also focus on expense reductions and even more heightened efficiencies," he added. "We also are taking steps to aggressively expand marketing and sales to reach a wider customer base, to maintain the high service standards for which we are known, and to control those aspects of our business that are within our reach to achieve improved results."
Enzo also said it is working to implement its strategic plan to build a comprehensive menu of reagents, automated systems, and related consumables on several independent platforms and systems. This effort has reached the manufacturing phase, and the company noted that the automated systems are in the clinical trials process for submission to obtain LDT, CE marking, and US Food and Drug Administration approvals where appropriate.
The company is also making progress in its plan to turn its Enzo Clinical Labs business into an efficient centralized service provider to other laboratories. It will offer Enzo's platforms and products to other clinical laboratories, including a broad range of diagnostic testing such as FISH, immunohistochemistry, and molecular diagnostics, the firm noted.
On a conference call with analysts following the release of the earnings, Weiner said that the company is building a complete portfolio of products that will address what Enzo sees as a "crisis of cost" in the clinical labs space, and that this work will continue over the course of the next 24 months.
In response to a question from an analyst about Enzo's possible value as an acquisition target, Weiner said that the current value the market places on the company is reflected in the stock price, but that the firm believes what it can offer — in terms of products that can provide cost savings and efficiency for clinical labs — is not reflected in the current stock price. Capturing short-term value from the market through a merger wouldn't be in the interests of Enzo's shareholders, given the long-term value of those assets, he added.
Enzo ended the quarter with $42.7 million in cash and cash equivalents.
The firm's shares dropped nearly 3 percent to $3.00 in early Tuesday morning trading on the New York Stock Exchange.