It’s been roughly a year since Verenium (NASDAQ: [[ticker:VRNM]]) returned to its roots, so to speak, in San Diego as an industrial biotechnology company with an extensive catalog of enzymes.
The company got its start here two decades ago as a kind of science project—amassing samples of enzymes from “life at the edge,” the organisms that thrive at the perilous extremes of cold or heat, light or dark, in the farthest corners of the planet.
Now the person at Verenium’s helm is a finance guy, and that might be just as well. James Levine is a former Goldman Sachs investment banker who spent 2½ years as Verenium’s chief financial officer in Cambridge, MA, before taking over as CEO following the sale of its ethanol business to BP. As I explained last year, Levine has taken a pragmatic approach to rebuilding Verenium by focusing on developing its enzymes as catalysts that can accelerate a host of biochemical reactions.
Before he could turn his full attention to commercializing the enzymes Verenium has collected, however, Levine says he had to address nearly $35 million in debt that weighed on the company. As the company explains in its annual report for 2011 (filed last month), the debt amounted to 78 percent of Verenium’s total capitalization. And like some cruel practical joke, the company was obligated to repurchase the $35 million in loans, plus interest, on April 1.
Levine opted instead to sell Verenium’s oilseed processing business to DSM Food Specialties, a business unit of Royal DSM, the Dutch multinational food, pharmaceuticals, and materials conglomerate, for $37 million. “The debt was a challenge that needed to be solved,” Levine says. “Let’s get rid of this financing and distraction and get going on building the business around our core products.”
The company says the sale, which closed on March 26, enables Verenium to erase its debt and move ahead with more than $20 million in available cash.
Nevertheless, Verenium faces an essential challenge. While the company has billions of enzymes in its collection, Verenium’s product line consists of just 10 enzymes that generated only about $56 million in total revenue last year. The sale of its oilseed processing business reduces that portfolio by one—and eliminates roughly $7.5 million in Purifine sales and related revenue.
In its annual report for 2011, Verenium says, “Through a combination of increased sales and penetration of existing enzyme products, as well as the launch of new enzyme products, we expect to increase product revenues and related gross margins during the next several years, sufficient for our business to become profitable.” Yet the company also acknowledges, “We estimate that each product candidate requires $3 million to $5 million in total development costs, including regulatory approvals which are a significant portion of this total, and typically require a total of four-to-six years to reach market.”
Levine tells me, “Our plans for profitability don’t require us to fundamentally restructure the business,” and his strategy remains the same for expanding Verenium’s enzyme portfolio for use in such areas as animal feed and products, grain processing, food, and detergents.
Still, the capital requirements are many. In short, Verenium faces the sort of challenges that only a finance specialist like Levine would relish.
