Enzo Delays Shareholder Meeting; Harbert Files Lawsuit

by Jondavid Klipp | Feb 15, 2020 | Enzo Biochem, Harbert Discovery Fund

Enzo Delays Shareholder Meeting; Harbert Files Lawsuit

Enzo Biochem (New York City) has delayed its annual shareholder meeting, originally scheduled for January 31, until February 25. The move comes as Enzo’s executives are engaged in a bitter battle with the Alabama investment firm Harbert Discovery Fund (HDF) over board seats and the
strategic direction of the company

Enzo says the delay is needed so that shareholders can consider a new proposal to keep President Barry Weiner on its board by increasing the size of the board from five to six directors. In addition, Enzo wants to add a seventh board seat to be filled by an independent director to be identified in the near future.

HDF says that all three leading independent proxy advisory services had recommended voting in favor of HDF’s two board nominees, Fabian Blank and Peter Clemens. And that by January 28, three days before the election, with most of the expected votes cast, it was clear that both its nominees would win seats.

HDF has filed a lawsuit in Southern District of New York court against Enzo’s board, alleging it has engaged in “acts of entrenchment and misuse of the corporate machinery” to keep Barry Weiner on the board after most of the company’s shareholders had voted and it had become clear that Weiner would be removed.

“Recognizing that it was too far behind in votes to defeat HDF’s nominees, Enzo agreed in the January 28 Enzo Press Release to no longer oppose HDF’s nominees but instead would seek shareholder approval to expand the size of the board by at least one additional seat in a desperate attempt to keep Weiner on the board and reduce the influence of HDF’s nominees,” according to the lawsuit.

HDF says that Enzo has violated federal securities laws, and is seeking recompense for those actions which have cost hundreds of thousands of dollars in additional, unnecessary legal, proxy and other advisory fees. HDF says that its lawsuit also lays “a marker so that the director defendants’
gamesmanship stops.”

HDF owns 11.8% of Enzo’s outstanding shares, making it the company’s largest shareholder (see LE, January 2020).

Spotlight Interview with OmniPathology CEO Mohammad Kamal

by Jondavid Klipp | Feb 15, 2020 | OmniPathology

Spotlight Interview with OmniPathology CEO Mohammad Kamal

OmniPathology (Pasadena, CA) was formed in 2009 with an initial focus on gastrointestinal pathology. The lab has 15 employees, five of whom are pathologists. Laboratory Economics recently spoke with Founder and CEO Mohammad Kamal, MD.

What areas does Omni Pathology specialize in?

When we started our main focus was GI pathology, but in 2017, we decided to expand our focus into gynecological, male and urological pathology services with our OmniPrism and OmniPathways test panels that combine morphology, immunohistochemistry and FISH testing. This approach allows us to improve the screening for cervical and anal cancers by providing additional information that the traditional approach does not offer. We go beyond the scope by looking for cytogenetic and immunophemotypic changes that identify high-risk patients. We also have FISH tests for bladder cancers and Barrett’s esophagus.

What geographic areas do you serve?

We provide services to about 520 physicians in a number of states, including California, Arizona, Nevada, Texas, Florida, New Jersey and Pennsylvania.

Is the business growing?

Between 2018 and 2019, we increased our CPT test code volume by 43%. Overall, we have had over 10% growth annually since 2013. We had a bad year in 2013 because of a major Medicare reimbursement reduction for CPT code 88305. Our recovery started at the end of 2014, and 2015 was a great year. We learned to diversify more. In 2018, we expanded our lab from 1300
square feet to 7200 square feet. This year we are aiming for 40% growth as a result of our expanded services in GYN, male health and clinical trials.

Do you use digital pathology?

Yes. We use it to a limited extent in primary diagnosis. We are currently engaged in conversations and research to increase our footprint in digital pathology, as I believe it’s the way of the future.

Do you have any plans to expand into other areas?

Yes. We are always looking for growth opportunities. In 2020, we have an initiative to build an infrastructure that will position OmniPathology as one of the premier clinical trial partners in the pharmaceutical and biotechnology industries. We already are working with a CRO which
has made us their preferred pathology lab for two clinical trials.

In the long run, do you think there is a place for small independent pathology labs, or will large health systems and Quest and LabCorp dominate?

More important than being independent, it’s important to highlight that we are a physicianowned organization. This means a lot because as physician-owned, we are always going to be compassionate. This is a major contrast to large corporations. Yes, I believe there is a place for independent pathology labs in the long run. Our healthcare system is better when we allow independent and small players to compete, which means allowing them into insurance networks.

What is your reaction to the recent Anthem BC of California rate cuts?

The Anthem BC rate cuts, in my opinion, are a form of bullying. They are arbitrary and illogical. In their cuts Anthem did not follow any guidelines and used a take-it-or-leave-it approach, knowing that the big players will take it. So it is in a way a tactic to squeeze out everyone else. Over the long run, these disruptive and draconian cuts are not good for our healthcare system and will destabilize our industry because they are disregarding quality.

What advantage does an independent pathology practice have over labs?

Before I started OmniPathology, I held leadership positions at some of the large labs. Organizations like OmniPathology have efficiencies that the larger labs don’t have. We provide faster turnaround time, higher quality and better and more personalized customer service. We have a compassionate approach to billing, where we can customize payment plans for patients with financial hardship. Our customers can directly reach out to our pathologists to discuss their cases, which is very hard to do in a larger organization. Revenues are reinvested in the organization rather than being spent on overinflated executive bonuses and sales commissions. Our approach in adopting technologies is guided by a strong understanding of the test clinical utility and clinical outcomes. As a physician executive, I engage my pathology teams and seek their input in everything we do, while in larger organizations, final decisions are made by non-technical executives.

What do you see as your biggest opportunities?

Our biggest opportunity is the screening and early detection of anal cancer. We have seen recent reports addressing the increased incidents of anal cancer. We validated TERC FISH on anal pap smears and use it as a valuable tool to enhance our capability to properly screen high-risk patients. When you combine the morphology of the anal pap with HPV testing and TERC FISH, you maximize the diagnostic potential of the sample and identify patients who require more aggressive treatment and follow-up.

You also are an artist, selling abstract photographs of cells. How did you get into that?

It’s a hobby. I find it’s a unique way to bridge science and art. Arman Trousseau said, “Every science touches art at some points – every art has its scientific side; the worst man of science is he who is never an artist, and the worst artist is he who is never a man of sciences.” I want my art to inspire
scientists to encourage their inner artist and inspire artists to encourage their inner scientist.

PAMA Reporting Period Delay Is Welcome News For Labs

by Jondavid Klipp | Jan 15, 2020 | CLFS, CMS, PAMA

PAMA Reporting Period Delay Is Welcome News For Labs

On December 20, President Trump signed into law a spending package that included provisions of The LAB Act. The legislation delays the PAMA
private-payer data reporting schedule by one year, in order to give more time for all labs, especially hospital outreach labs, to gather and report data. The new schedule does not change the data collection period (Jan. 1 to June 30, 2019), but does delay the reporting of that data to CMS until Jan. 1 to March 31, 2021.

The reporting delay comes as a big relief to hospital outreach labs. Even the nation’s more sophisticated hospital outreach labs were planning to devote substantial billing and IT staff to meet the original deadline. The delay should allow more labs to report more complete and accurate payment data.

Furthermore, the delay will give ACLA a fighting chance to get something out of its PAMA lawsuit with CMS, notes lab industry consultant Dennis Weissman. “The original reporting schedule might have rendered the lawsuit moot. Now it has more time to move through the courts,” notes Weissman.

Julie Khani, President of the American Clinical Laboratory Assn., notes that there was broad bipartisan support for The LAB Act in both the House and Senate. In particular, she cites Rep. Scott Peters (D-CA), who introduced the House bill and raised The LAB Act with Energy & Commerce Committee Chair Frank Pallone (D-NJ) at a committee mark-up meeting earlier this year.

In addition to the delayed data reporting, The LAB Act directs the Medicare Payment Advisory Commission (MedPAC) to conduct a study to review how CMS has implemented the privatepayer-based Clinical Lab Fee Schedule (CLFS) under PAMA. As part of this study, MedPAC is to consider the least disruptive ways for CMS to collect data from labs and the most accurate and representative methods to determine payments rates, including the use of statistical methods for estimating rates that are representative of the whole lab market. MedPAC must report its findings to CMS and Congressional committees no later than 18 months from the enactment of The LAB Act (i.e., by late June 2021).

MedPAC is an independent U.S. federal body comprised of 17 members appointed by the Comptroller General of the United States. MedPAC’s Chair is Francis Crosson, MD, a former executive at the integrated managed care plan Kaiser Permanente. Its Vice Chair is Paul Ginsburg, PhD, a professor of health policy at the University of Southern California.

Of course there is no guarantee that MedPAC’s study recommendations will be favorable or that they will be acted upon by CMS or Congress.

Furthermore, using statistical sampling methods to capture a representative share of all sectors of the lab market (independents, hospital outreach and POLs) may be extremely complicated, notes Laboratory Economics. That’s because provider market share can vary widely for each of the 1,000+ CPT test codes on the CLFS.

Delayed Reporting Guarantees a Fourth Year of Cuts in 2021

The one-year delay in reporting means that CMS will continue to use pricing data from the initial PAMA survey to formulate CLFS rates for 2021. This guarantees rate cuts averaging 10-15% for most high-volume tests next year when the max reduction cap becomes 15%.

As highlighted in the last issue of Laboratory Economics, three straight years of 10% annual rate cuts (2018-2020) have not fully lowered many high-volume lab tests down to the median CLFS rates set by the initial PAMA survey. For example, after three years of the max 10% annual rate reduction, the comprehensive metabolic panel (CPT 80053) will still need another 14% cut next year to reach the median rate determined by the initial PAMA survey.

Any potential benefit from delayed PAMA reporting and the inclusion of more hospital outreach labs won’t occur until 2022.

Shareholder Vote To Decide Enzo’s Fate

by Jondavid Klipp | Jan 15, 2020 | Enzo Biochem

Shareholder Vote To Decide Enzo’s Fate

The activist hedge fund manager Harbert Management Corp. (Birmingham, AL) is seeking to replace two board members at Enzo Biochem (New York City) with its own nominees. A shareholder vote at Enzo’s annual meeting on January 31 will decide the matter. Harbert has an
11.8% stake in Enzo making it the company’s largest shareholder. Harbert acquired its stake in Enzo from May to August 2019 at prices ranging from $3.07 to $3.65 per share.

Enzo’s board has five members and is led by Elazar Rabbini, PhD, age 76, an original founder who has served as the company’s Chairman and CEO since its inception in 1976. Harbert wants to replace board members Barry Weiner, 69, who is President of Enzo, and Bruce Hanna, PhD, 76, an independent director who is Clinical Professor of Pathology and Clinical Professor of Microbiology at the New York University School of Medicine. Rabbini owns a 4% stake in Enzo, while Weiner has a 2.8% stake.

Harbert’s two nominees are Fabian Blank, 45, who is former CEO of Meduna Klinik Group in Germany and a former McKinsey consultant, and Peter Clemens, 54, who has held CFO positions at Caremark Rx and Surgical Care Affiliates. If both are elected, Harbert would control 40% of Enzo’s board.
Harbert says that Enzo’s stock has underperformed for years as a result of a bloated cost structure and poor strategy. Harbert wants Enzo to: 1) sell its drug development business and non-core patents; 2) relocate its headquarters from Madison Avenue to its laboratory in Long Island; and 3) focus its clinical lab business on the greater New York City market. Harbert has created a website (CureEnzo.com) to convince Enzo shareholders to vote for its two board nominees.

Meanwhile, Enzo management has countered that Harbert’s board nominees: 1) have irrelevant experience; 2) declined an opportunity to participate in a standard interview process; and 3) are likely to promote Harbert’s short-term objective of driving a fire sale of Enzo’s assets at depressed valuations.

DermTech’s Pigmented Lesion Assay Gets Medicare Coverage

by Jondavid Klipp | Jan 15, 2020 | DermTech, Medicare

DermTech’s Pigmented Lesion Assay Gets Medicare Coverage

DermTech (La Jolla, CA) received a Proprietary Laboratory Analyses CPT code (0089U) for its Pigmented Lesion Assay in late October, according to CEO John Dobak, MD. Medicare reimbursement has been set at $760 per test effective January 1.

The Pigmented Lesion Assay (PLA) is a non-invasive gene expression test used for early melanoma detection. The test uses an adhesive patch, about the size of a quarter, that is applied across an entire skin lesion. The tape removes the very upper layer of the skin, called the stratum corneum.
RNA is then extracted from the collected skin cells and RT-PCR is used to assess the expression level of two specific genes, PRAME and LINC00518, associated with melanoma. If one or both of the target genes is detected, the test is positive.

Dobak notes that gene expression changes are detectable before physical changes to a skin lesion occur. In two validation studies comparing the PLA test to traditional histopathology diagnosis (n=398), the PLA demonstrated a sensitivity of 91%, a specificity of 69%, and a negative predictive value of 99%.The PLA reduces the probability of missing melanoma to less than 1% (compared to 16% for early stage melanoma with visual assessment and histopathology), according to Dobak.

DermTech performs the test at its CAP-accredited lab in southern California. DermTech is marketing the test directly to dermatologists through 22 employed sales reps. Dobak plans to double the sales rep staff by year’s end.

Challenges include educating the nation’s 12,000 dermatologists on the benefits of the PLA test. There is also a small economic disincentive because the PLA test eliminates the need for a dermatologist to perform and bill for a biopsy procedure (~$100). However, dermatologists that perform the PLA test can bill for a Level IV office visit versus a Level II visit, notes Dobak.

With financial backing from RTW Investments, HLM Venture Partners, and Irwin Jacobs, a co-founder of Qualcomm, DermTech came public by merging with a dormant publicly traded company (Constellation Alpha Capital) in early September.

DermTech reported billable test volume of 3,596 for the three months ended September 30, 2019, up 18% compared to 3,043 for the same period in 2018. Test revenue increased to $385,000 from $321,000.