BioFuels Journal

Cambridge, MA—Verenium Corporation (Nasdaq: VRNM), a pioneer in the development of next-generation cellulosic ethanol and high-performance specialty enzymes, reported August 10 corporate accomplishments and financial results for the second quarter.

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"This is an exciting and critical time for Verenium.

"We continue to make considerable progress toward developing and financing commercially-viable, next-generation cellulosic ethanol which we believe is an important component of America's future energy mix," said Carlos A. Riva, President and Chief Executive Officer of Verenium.

"I am very encouraged by the increasing third-party support for alternative energy solutions - particularly from the federal government with DOE-sponsored grants and loan guarantees, which are vital catalysts for enabling commercial projects to come online quickly."

Total revenues for the second quarter and six months ended June 30, 2009 were $16.3 million and $30.7 million, respectively, compared to $18.3 million and $33.5 million for the same periods in the prior year, with product revenues representing more than 60 percent of total revenues in both periods.

Product revenues for the second quarter and six months ended June 30, 2009 were $10.5 million and $21.1 million, respectively, compared to $13.4 million and $24.6 million for same periods in the prior year, representing a decrease of 22 percent for the second quarter and 14 percent decrease for the six months ended June 30, 2009, reflecting the impact of the current economic recession.

Gross sales of Phyzyme, the Company's phytase for the animal feed industry sold to Danisco Animal Nutrition, increased during the first half of 2009, as compared to 2008.

However, reported Phyzyme revenue in the second quarter of 2009 and six months ended June 30, 2009 was lower than reported revenue for the same period in 2008 due to a larger percentage of Phyzyme being manufactured by Danisco, for which the Company only recognizes the net profit share component in revenue pursuant to current accounting rules.

The decrease in product revenue also reflects the Company's discontinuation of its Bayovac-SRS and Quantum product lines during early 2008.

The decrease in product revenue from these sources was offset in part by an increase in revenue from Fuelzyme, the Company's alpha amylase for corn ethanol.

Product gross margin decreased in the second quarter of 2009, versus the same period in the prior year, due primarily to a strategic decision to reduce inventory, resulting in lower production volumes and a related decrease in fixed capacity utilization.

This decision achieved the benefits of bringing inventory to an appropriate level and conserving cash, but had a negative impact on product gross margin as the fixed manufacturing costs associated with unused capacity were expensed in the quarter rather than being allocated to inventory.

Excluding cost of product revenues, total operating expenses increased from $24.0 million for the three months ended June 30, 2008, to $27.0 million for the three months ended June 30, 2009 and increased from $48.5 million for the six months ended June 30, 2008, to $54.0 million for the six months ended June 30, 2009.

The year-over-year increase in total gross operating expenses (excluding cost of product revenues) relates primarily to the acceleration of biofuels development and commercialization efforts in 2009.

Total operating expenses include gross expenses incurred to support ongoing development related to the Company's consolidated joint ventures with BP: Galaxy and Vercipia.

BP's share of the Company's total operating expenses was $8.9 million and $16.8 million for the three and six months ended June 30, 2009, and is included below operating expenses as "Loss attributed to non-controlling interest in consolidated entities" on the Company's Condensed Consolidated Income Statement.

On a non-GAAP basis, including BP's share of expenses, pro forma net operating expenses decreased as compared to prior periods, reflecting the Company's expense minimization efforts.

Net interest expense related almost exclusively to the cash and non-cash interest expense from the Company's convertible debt instruments. Of total net interest expense for the second quarter and six months ended June 30, 2009, $0.9 million and $2.3 million, respectively, represents non-cash interest expense related to the Company's 8 percent convertible notes, compared to $1.3 million and $1.8 million in non-cash interest for the same periods in 2008.

Net loss attributed to Verenium for the quarter and six months ended June 30, 2009 was $20.0 million and $16.6 million, respectively, compared to $15.4 million and $38.5 million for the same periods in 2008.

Adjusted for the non-cash impact of accounting related to the 8 percent convertible notes, the Company's non-GAAP pro-forma net loss for the quarter ended June 30, 2009 was $12.5 million, as compared to $17.6 million for the same period in the prior year and $26.1 and $36.5 million for the six months ended June 30, 2009 and 2008.

The Company believes that excluding the non-cash impact of these items provides a more consistent measure of operating results.

As of June 30, 2009, the Company had unrestricted cash and cash equivalents totaling $14.8 million, of which $4.9 million was held by the Company's consolidated joint venture with BP, Vercipia, to be used solely for the operations of Vercipia.

Subsequent to June 30, 2009, the Company received a payment of $14 million from BP, which was the third transaction fee due as part of the Galaxy Biofuels Joint Development and License Agreement effective August 1, 2008.

Since January 1, 2009, a significant portion of the Company's 8 percent convertible notes have been converted by various noteholders in exchange for common stock, which decreased the face value of these notes.

For more information, call 617-674-5335.

See Related Websites/Articles:

• Verenium Corp.
• Full Verenium Report

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