NEW YORK--(BUSINESS WIRE)--Enzo Biochem, Inc. (NYSE: ENZ) (“Enzo”) has issued the below letter to
shareholders:
December 22, 2015
Dear Fellow Shareholder,
Enzo Biochem, Inc. will hold its 2015 Annual Meeting of Shareholders on
January 6, 2016. This year’s meeting is particularly important, as a
small-cap activist investor, Lone Star Value, owning only approximately
1.0% of the Company’s outstanding shares, is seeking control of your
independent board members. Lone Star, led by its Principal and Founder
Jeffrey Eberwein, is a serial short-term activist investor that has
demonstrated a track record of value destruction at the expense of
shareholders and the companies that it systematically targets.
In the case of Enzo, Lone Star has launched a misguided and disingenuous
proxy fight. Even a cursory review of Lone Star’s nominees records shows
that they are:
Not qualified to serve by any measure or standard
Lacking even a rudimentary understanding of both our business and
our industry
Unprepared and unable to provide any true plan for shareholder value
Conflicted and lack any independence
Even more concerning, Lone Star’s nominees have chosen not to purchase
even one share of Enzo stock, demonstrating a callous disregard for the
shareholders that they purport to wish to serve. In fact, Lone Star
itself has been reducing the number of shares it owns in Enzo: Lone Star
has sold 226,784 shares of Enzo since October 30, 2015, but has only
purchased 1,784 during that period. In contrast, Enzo’s current Board
and management team are long-term Enzo shareholders and are fully
committed to taking the best path towards creating shareholder value.
Enzo has already demonstrated systematic execution of its business plan
– a comprehensive strategy that has been in development for several
years. We have achieved substantial operational and financial
improvements over the past several quarters, punctuated by successes
such as assay approvals and licensing and settlement agreements – all of
which have contributed to an 85.6% total shareholder return in the
last six months. In contrast, the disruption of Enzo’s current
strategy by an activist investor offering nominees with a proven track
record of nothing more than value destruction would achieve just the
opposite (and likely derail the continued execution of our strategic
growth plan which has already begun to yield meaningful positive
results). This is why we urge you to vote the WHITE
proxy card “FOR” the re-election of Enzo’s director nominees: Gregory
Bortz and Dov Perlysky.
LONE STAR’S PROXY FIGHT: MISGUIDED CLAIMS VS. REALITY
While the Board and management have been executing on our strategic plan
for the benefit of all shareholders, Lone Star has chosen to run a proxy
campaign based on claims and criticisms that do not hold up under even a
modicum of scrutiny. Moreover, Lone Star or its nominees have failed to
present any plan or even provide a single comment on our strategic plan,
a copy of which was shared with Lone Star by Enzo management.
In order to cover the lack of any strategic approach to our business,
which he admittedly does not understand, Lone Star has brought forth
assertions that are not only inaccurate and misleading, but most
importantly, are irrelevant to both shareholder value and our business
plan. The reality is that our Company and our strategy are transparent
and are clearly visible to our shareholders. Our execution and stock
performance are evident for all to see. As such, we want to take this
opportunity to set the record straight on the key points of Lone Star’s
misleading argument:
Lone Star Claim: “We
have identified two highly qualified, independent directors with
complementary skill sets.”1
The Reality:
The nominees put forth by Lone Star Principal and Founder Jeffrey
Eberwein – John Climaco and Dimitrios Angelis – are far from
independent of each other or from Mr. Eberwein. On the contrary,
all three individuals are part of an insular group of professional
activists who regularly collaborate to target small companies with
little resources to defend themselves. Mr. Eberwein has been on three
public company boards with Mr. Angelis, and two public company boards
with Mr. Climaco, and there is a litany of other connections between
them.
Further, we strongly disagree with the claim that Mr. Eberwein’s
director nominees are “highly qualified.”
When Mr. Climaco was asked to furnish his resume in advance of a
meeting with the nominating committee of Enzo’s Board, he omitted
details of his previous public Board roles at Essex Rental Corp,
(whose stock lost more than 80% of its value and was delisted during
his directorship), and ALCO Stores (which ended up in Chapter 11
bankruptcy during his directorship). This lack of judgment shown by
Mr. Climaco’s omitting of these facts greatly concerns Enzo and is not
indicative of the standard of behavior and professional ethics that
Enzo and its Board adhere to.
This disingenuous misrepresentation greatly concerns Enzo for two
reasons: it demonstrates Mr. Climaco’s alarmingly poor track record as
a director and highlights his unprofessional character. These are not
the qualities we believe are beneficial to any Board.
Mr. Eberwein claims that Mr. Climaco would make a good candidate
because of his, “nine years as a CEO of a company involved in
clinical lab services.” Mr. Eberwein, we believe, is referring to
Mr. Climaco’s time as Founder, President, and CEO of Axial Biotech
which was founded in 2003 and ultimately liquidated in a
distressed sale at a loss of approximately 80% of the start-up
costs.2
Mr. Angelis, in our view, is a mercenary Board member, as his
chief occupation appears to be serving on boards with Mr. Eberwein
and Mr. Climaco (such as Digirad and Ameri Holdings). Mr. Angelis
has only served as a director on boards that Mr. Eberwein has also
been on. As a result, we have serious concerns regarding his
independence and consider him simply a proxy for Lone Star.
Mr. Angelis’ most recent full-time position was serving as CEO of
On Track Innovations (where Mr. Eberwein, Mr. Gillman, and Mr.
Singh were all on the Board), and during his tenure the company
saw a nearly 20% decline in its stock price.3
Mr. Climaco also serves on the Board of Perma-Fix Environmental
Services Inc. Recently, the Company filed an amendment disclosing
that he would no longer be considered an “independent” Board
member after he had entered into a $22,000 / month consulting
agreement with the Company.
Further, on July 24, 2015, Perma-Fix Medical entered into a
supplier agreement with Digirad, at a time when both Mr. Climaco
and Mr. Eberwein were Digirad directors, valued at approximately
$1 million, which resulted in Digirad not only owning over 5% of
Perma-Fix, but also with Digirad obtaining the right to appoint
two individuals to the Perma-Fix board or to the Perma-Fix
management team. Mr. Climaco had to abstain from approving this
deal, as it was deemed a “related party transaction.”4
During his interview with Enzo’s Nominating Committee, Mr. Angelis
who according to his resume, has been educated as an attorney, was
asked to opine on Enzo’s extensive patent estate. After
complimenting the Board on Enzo’s achievement in building up its
intellectual property estate, he stated that he hadn’t actually
looked at it. We find this highly suspect from an individual
who claims he can bring value to our Company, and further, could
not find any evidence that he is indeed registered as either a
patent attorney or even a patent agent –a reasonable
conclusion for someone who, according to Lone Star has “managed a
patent portfolio of 42 patents.”
Bottom Line: Based on an
established history of questionable interconnected dealings, Mr.
Angelis and Mr. Climaco appear to be neither “independent” of Mr.
Eberwein, nor of each other, and their unquestionable records of poor
stewardship and integrity would put your investment at considerable
risk.
Lone Star Claim: “Our
interests are fully aligned with the interests of all Enzo shareholders.”5
The Reality:
Lone Star’s track record tells a different story. Since 2012, Mr.
Eberwein has been one of the most active activist investors in the
U.S., routinely targeting small public companies across a variety of
industries. In this time, he has launched a total of 18 campaigns –
with a staggering 15 of these companies losing value since Lone Star’s
campaign and an average true shareholder return of NEGATIVE
37.1% following Lone Star’s involvement.6
Since October 30, 2015, Lone Star has been a net seller of Enzo’s
stock. During this time, Lone Star has sold in excess of 225,000
shares.7 If Lone Star’s interests are truly aligned with
the interests of all shareholders with the aim of unlocking and
building shareholder value, why would they sell a single share? Lone
Star has no regard for Enzo’s shareholders. They are merely
opportunistic traders with no concern or interest in the long term
growth prospects of Enzo. Moreover, neither Mr. Climaco nor Mr.
Angelis own a single share of Enzo stock.
Bottom Line: The
only Enzo shareholders Lone Star’s interests are aligned with are
short-sellers betting on Enzo’s stock to go down.
Lone Star Claim: “We are also
troubled by the Company’s related-party transactions.”8
The Reality:
Although Lone Star repeatedly uses the term "transactions,” there is
in fact a single related-party transaction which has been in place for
25 years, is fully disclosed, and is unquestionably beneficial for
Enzo’s shareholders. The transaction that Lone Star is concerned with
is the Company’s lease of its clinical lab in Farmingdale, NY. This
criticism is not only disingenuous, but it also demonstrates a
complete lack of knowledge of Enzo and the lab industry.
In 1990, Enzo was experiencing financial challenges and was in
dire need of an expanded laboratory facility in order to grow its
business. To address this challenge, a limited liability company
established by the founders of the Company acquired a property in
Long Island and immediately structured a market-rate lease for the
Company.
Since that time, all of the rent increases for the lab have been
associated with significant square foot expansions commensurate
with Enzo’s growth, increases in real estate tax rates (nnn
lease), and regional cost of living adjustments (the facility has
grown from ~25,000 sq. feet to ~43,000 sq. feet).
The independent members of the Board retained CB Richard Ellis, a
leading independent real estate firm, which reviews Enzo’s lease
renewals to ensure that the rates and terms are fair and customary.
Finally, moving locations for a clinical laboratory, which needs
to be operational 24/7/365, is exceedingly challenging and
impractical from a logistical, financial, and regulatory
perspective, while the stability provided by the current structure
is tremendously favorable and has given the Company the latitude
to sustainably grow and innovate.
Bottom Line: Lone
star’s attempt to depict the Company’s lab lease as somehow unfair or
enriching the management team at the expense of shareholders we
believe demonstrates either a complete misunderstanding of the facts
or a further attempt to mislead shareholders.
Lone Star Claim: “We also have
concerns about whether director Dov Perlysky truly represents the
Company’s public shareholders as he is the son-in-law of Rosalind
Davidowitz, who had an approximate 9.3% ownership interest in the
Company at the time Mr. Perlysky was appointed to the Board in September
2012.”9
The Reality:
Mr. Perlysky manages a Family Office with a demonstrated track record
of highly successful investments in small-cap growth companies.
Affiliates of the Family Office own in excess of 9% of Enzo’s shares.
Moreover, Mr. Perlysky’s family has owned Enzo shares for over three
decades. Obviously, Mr. Perlysky is more aligned with our
shareholders than Mr. Eberwein’s nominees who own zero.
Consistent with our desire to value input from all shareholders,
Enzo’s Nominating and Governance Committee gladly agreed to thoroughly
vet Mr. Perlysky as a candidate when he was recommended to the Board.
After conducting the same evaluation process used with Lone Star’s
nominees, it was determined that Mr. Perlysky would add meaningful
value to the Board for all shareholders.
Bottom Line: Since Mr.
Perlysky joined the Enzo Board, our stock has appreciated 100%.
Lone Star Claim: “The Board’s
current classified structure, in our view, impedes shareholders’ ability
to regularly and effectively evaluate the performance of their directors
and insulates and entrenches the incumbents despite their apparent
lapses in oversight.”10
The Reality:
Enzo’s model requires that we vigorously defend our patents and
technology against some of the largest, most well-funded and
aggressive corporations in the life sciences and diagnostics sector.
Our classified board is a necessary protection for Enzo’s shareholders
since we have litigation against significantly larger companies where
the potential settlement amounts exceed our current enterprise
value.
Having a classified board is, in our view, the most effective way of
preventing a hostile acquirer from taking control of Enzo in a
strategic effort to avoid substantial patent infringement payments to
Enzo.
Our independent directors are subject to term limits to ensure
shareholders regularly have a say in the Board’s composition and that
the board is continually refreshed.
The ultimate example of our Board independence was that the Board
terminated an individual that was a founder, officer, fellow board
member and major shareholder as it was determined to be in the best
interest of the Company.
We have a very complex business that takes years to understand.
Bottom Line: Lone
Star’s criticism in this instance is yet another example of how little
they understand Enzo’s business and industry.
ENZO IS ON THE RIGHT PATH TO INCREASING SHAREHOLDER VALUE
Our vertically-integrated structure and strategy represent the
culmination of years of extensive planning and execution. The Company
now has the unique ability to offer low cost, high performance
products and services in molecular diagnostics, which the Company
believes positions it now to make a significant impact on the clinical
laboratory marketplace, which has experienced increased demand with
simultaneous reductions in reimbursements from payers.
Enzo’s IP portfolio stands as one of the most extensive in the
industry and serves as the foundation upon which the Company’s
technologies, platforms and products are built. The result is a
business that is poised to create significant shareholder value.
In one recent key development, on November 16, 2015, New York State
Department of Health approved Enzo’s AmpiProbe HCV™ assay for the
detection of Hepatitis C, clearing the way for Enzo to immediately
begin offering this assay and product to the market on a global basis.
This is the first in a pipeline of products Enzo is developing to
address the critical needs of the molecular diagnostics market and we
believe serves as validation of Enzo’s unique business strategy and
structure. Enzo is leveraging its proprietary platform to other
molecular diagnostic assays in order to expand the Company’s product
offerings and address an estimated aggregate
market opportunity in excess of $2 billion worth of laboratory service
and product revenue.
ENZO HAS DELIVERED STRONG AND IMPROVING RECENT FINANCIAL RESULTS
Throughout fiscal 2015, and into the first quarter of fiscal 2016,
Enzo has built momentum by delivering positive operational and
financial performance.
Bolstered by strong and accelerating performance at Enzo Clinical Labs
and a series of new legal settlements, Q1 2016 revenues and net income
advanced year-over-year, with total revenue up $25.2 million
year-over-year, Clinical Lab revenue up 8% over the prior year
quarter, and gross margins increased by 400 basis points.
The first quarter of fiscal 2016 also brought a boost in
profitability, with net income of $4.4 million, or $0.10 per share
fully diluted, compared to a loss of $3.7 million, or $0.08 per share,
in the prior year quarter. Furthermore, even net of legal settlements,
Enzo saw a 30% improvement in income from operations.
The Company has also significantly bolstered its balance sheet, with
cash on hand increasing in Q1 by $12.5 million, or 69%, from fiscal
2015 year-end, as the Company reaped the rewards of the continued
monetization of litigation efforts arising from Enzo’s strong patent
portfolio. The Company’s cash position at the end of Q1 was over $30
million, as we continue to benefit from settlements such as our $10
million licensing and settlement agreement with Affymetrix.
Over the course of fiscal 2015 we continued to emphasize fewer, more
high-margin products, along with new product introductions and an
expanding experienced sales force, which enabled Life Sciences to
remain profitable even while facing macro foreign currency challenges
to the market.
Additionally, with higher margin molecular testing now approaching 50%
of its base business, Lab revenues grew 8% during fiscal 2015; and
with process improvements spurred by fresh investments, gross margins
increased 500 basis points over the course of the year.
WE HAVE STRONG DIRECTORS IN PLACE WHO HAVE HELPED POSITION ENZO FOR
SUCCESS
At our 2015 Annual Meeting of Shareholders, Gregory Bortz, a director
since January 2010, and Dov Perlysky, a director since September 2012,
will be nominated for reelection as Class I directors.
Both of these individuals have been strong contributors to the
progress the Company has experienced in the last several years and in
ensuring our business is well positioned for the future.
Mr. Bortz has more than 22 years of financial, investment banking,
accounting and operational experience, in addition to his service as a
board member of CREO’s (the private investment firm he co-founded)
portfolio companies.
Mr. Perlysky has extensive experience in the healthcare field
(including his director position at Pharma-Bio Serv, Inc.), which,
along with his other current and past board positions and finance
background, make him well qualified to serve on the Enzo Board.
We urge you to use the Company’s WHITE
proxy card to vote for the Board’s nominees and in accordance with the
Board’s recommendations on the other proposals, as soon as possible, by
telephone or Internet, or by signing, dating, and returning the enclosed WHITE
proxy card in the postage-paid envelope provided, whether or not you
plan to attend the Annual Meeting.
Thank you for your continued support, interest, and investment in Enzo.
The Company hopes that we can count on your vote to allow us to continue
to fully focus on delivering value to the true owners of the Company:
you, our shareholders.
Sincerely,
Barry W. Weiner President
Except for historical information, the matters discussed in this news
release may be considered "forward-looking" statements within the
meaning of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities Exchange Act of 1934, as amended. Such
statements include declarations regarding the intent, belief or current
expectations of the Company and its management, including those related
to cash flow, gross margins, revenues, and expenses are dependent on a
number of factors outside of the control of the company including, inter
alia, the markets for the Company’s products and services, costs of
goods and services, other expenses, government regulations, litigations,
and general business conditions. See Risk Factors in the Company’s Form
10-K for the fiscal year ended July 31, 2015. Investors are cautioned
that any such forward-looking statements are not guarantees of future
performance and involve a number of risks and uncertainties that could
materially affect actual results. The Company disclaims any obligations
to update any forward-looking statement as a result of developments
occurring after the date of this letter.
Enzo Biochem, Inc. (the “Company”) has filed a definitive proxy
statement with the U.S. Securities and Exchange Commission (the "SEC")
with respect to its 2015 Annual Meeting of Shareholders and intends to
file a definitive proxy statement as well. The definitive proxy
statement and white proxy card has been mailed to shareholders of the
Company. Enzo Biochem, Inc., its directors and certain of its executive
officers may be deemed to be participants in the solicitation of proxies
from shareholders in connection with the matters to be considered at its
2015 Annual Meeting. ENZO BIOCHEM, INC. SHAREHOLDERS ARE STRONGLY
ENCOURAGED TO READ ANY SUCH PROXY STATEMENT AND ACCOMPANYING PROXY CARD
AS THEY WILL CONTAIN IMPORTANT INFORMATION. Information regarding the
ownership of the Company’s directors and executive officers in the
Company’s common stock, restricted stock and options is included in
their SEC filings on Forms 3, 4 and 5, which can be found at the
Company's website (www.enzo.com)
in the section "Corporate—Investor Information." More detailed
information regarding the identity of potential participants, and their
direct or indirect interests, by security holdings or otherwise, is set
forth in the proxy statement and other materials to be filed with the
SEC in connection with the Company’s 2015 Annual Meeting. Information
can also be found in the Company’s Annual Report on Form 10-K for the
year ended July 31, 2015, filed with the SEC on October 13, 2015, as
amended on November 27, 2015. Shareholders will be able to obtain any
proxy statement, any amendments or supplements to the proxy statement
and other documents filed by the Company with the SEC for no charge at
the SEC's website at www.sec.gov.
Copies will also be available at no charge at the Company’s website at www.enzo.com
or by writing to the Company at 527 Madison Avenue, New York, New York
10022.
__________________________ 1 Source: Lone Star Value
Investors Schedule 14A, filed with SEC on December 2, 2015 2
Source: Capital IQ 3 Source: Factset 4
Source: Digirad Press Release ‘Strategic Partnership with Perma-Fix
Medical’ posted on January 20, 2015 5 Source: Lone Star
Value Investors Schedule 14A, filed with SEC on December 2, 2015 6
Source: Factset 7 Source: Lone Star Value Investors
Schedule 14A, filed with SEC on December 2, 2015 8
Source: Lone Star Value Investors Schedule 14A, filed with SEC on
December 2, 2015 9 Source: Lone Star Value Investors
Schedule 14A, filed with SEC on December 2, 2015 10
Source: Lone Star Value Investors Schedule 14A, filed with SEC on
December 2, 2015
Contacts
Investors: Okapi Partners Pat McHugh / Michael Fein 212-297-0720 or Media: Sloane
& Company Elliot Sloane / Dan Zacchei 212-486-9500 Esloane@sloanepr.com
