Enzo Biochem: Debt-Free Company with Strategic/Litigation Optionality

Jim Roumell of Roumell Asset Management presented his in-depth investment thesis on Enzo Biochem (US: ENZ) at Best Ideas 2019.

Thesis Summary:

Enzo Biochem is a debt-free company with a strategically located clinical lab footprint in the NY/NJ/CT Tri-state area in a consolidating industry. The company has significant IP assets, a therapeutics business Jim expects to be monetized in H1 2019, significant IP litigation optionality, and a vertically integrated clinical lab platform with gross margin expectations of 65% versus a current 35% model.

ENZ’s recent enterprise value is roughly 90% of what the company has collected in IP litigation in the past several years. The company has won settlements and royalty payments of $100 million ($67 million net) in recent years, highlighting its rich IP assets. The company has seven outstanding IP lawsuits, six of which are financed on a contingency basis with the law firm that has already won ENZ suits against Illumina, Thermo Fisher Scientific, and Siemens.

ENZ possesses multiple ways to win. The stock price has dropped from $10+ per share two years ago to sub-$3 per share recently because of dramatically reduced reimbursement payments (Medicare and private pay insurers) for clinical lab services.

While there is near-term pain associated with the reimbursement issue affecting ENZ’s lab business, the company appears well-positioned to be a winner with its low-cost Ampiprobe lab platform. Smaller, independent labs are being squeezed particularly hard, and ENZ offers an outsourced diagnostic solution.

At a price of $2.75 per share, ENZ’s market cap is $130 million and EV is $77 million, reflecting $53 million in net cash.

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About the instructor:

Jim Roumell entered the securities industry in 1986. Before founding the firm in 1998, he was a Registered Principal at Raymond James Financial Services, Inc. Mr. Roumell is a frequent contributor to Manual of Ideas Global and has been featured in such publications as Barron’s, Kiplinger’s, Value Investor Insight, Financial Planning Magazine, and The Washington Post. He is listed and quoted in “The Art of Value Investing: How the World’s Best Investors Beat the Market.” Mr. Roumell was selected to participate in, and won, two consecutive Wall Street Journal stock picking contests in 2001 and 2002. He is a Board Member and Chairman of the Investment Committee of Wayne State University Foundation. He is also a Board Member and serves on the Investment Committee of Amalgamated Casualty Insurance Company. Mr. Roumell is a graduate of Wayne State University in Detroit, Michigan.