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Verenium Corporation (NASDAQ:VRNM)

Q4 2009 Earnings Call

March 11, 2010 5:00 pm ET

Executives

Jeff Black – Chief Accounting Officer

Carlos Riva – President and CEO

Jamie Levine – EVP and CFO

Analysts

Laurence Alexander – Jefferies

Sanjay Shrestha – Lazard

Pamela Bassett – Cantor Fitzgerald

Paul Resnick – Olympia Capital

Operator

Good day, ladies and gentlemen, and thank you for holding. Welcome to Verenium's fourth quarter and year-end 2009 fiscal results conference call. At this time, all participants are in a listen-only mode. There will be a question-and-answer session to follow. Please be advised that this call is being taped at the company's request. At this time, I would like to introduce your host for today's call, Jeff Black. Please go ahead.

Jeff Black

Thank you for joining Verenium's fourth quarter and year-end 2009 conference call. I'm Jeff Black, Chief Accounting Officer. And with me today are Carlos Riva, our President and Chief Executive Officer; and Jamie Levine, our Chief Financial Officer.

The agenda for today's call is as follows, first, Carlos will review a bit of highlights and accomplishments for 2009. He will then give Verenium's perspective on recent public policy announcements. Then, Jamie will summarize the financial results for the fourth quarter and for the full year 2009, and provide an update on select corporate activities. And finally, we will open the call up for your questions.

Before we begin, I would like to advise that this discussion will include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities and Exchange Act of 1934 as amended. These statements involve a high degree of risk and uncertainty and relates to matters such as our strategy, future operating plans, markets for our products, partnering and collaboration activities, public policy and financing activities, and technical and business outlook.

Such statements are only predictions, and actual events or results may differ materially from these projected in such forward-looking statements. Factors that could cause or contribute to differences include, but are not limited to risks related to our IP partners, competitors; and, regulatory and market forces. Certain of these factors and others are more fully described in our filings with the SEC, including, but not limited to our report on Form 10-Q for the quarter ended September 30th, 2009. I will now turn the call over to Carlos.

Carlos Riva

Thanks, Jeff. Good afternoon, everyone, and thank you for joining us on today's call. The year 2009 has proven to be a successful year for Verenium. Despite the continued economic uncertainties and challenges faced by our industry, we were able to accomplish many of our 2009 initiatives and goals, create a more solid corporate structure, and better position the company for future commercial success. Let me begin by discussing some of the important steps we took during 2009 to improve our corporate strength.

First, throughout the year, we continued to implement aggressive cash management to decrease operating expenses and conserve capital. Then in July, we restructured our 8% notes to create additional financial flexibility and to incentivize conversions. In August, we were successful in exchanging a portion of our 5.5% convertible notes to further reduce debt. And then finally in October, we raised $4.2 million in net proceeds through a public stock offering providing the company with additional working capital. I'm pleased that we're able to take these steps to build a stronger capital structure to help ensure Verenium's future growth and commercial success.

I'd now like to turn to our Biofuels business where we've continued to make progress on a number of fronts. I'd like to start with a brief comment on our Galaxy partnership with BP. As we announced on March 1st, we and BP are continuing discussions regarding the terms for advancement of our cellulosic ethanol technology and building upon the joint technology development program, which was established in August of 2008. These discussions continue.

Regarding our Biofuels activities in 2009, early in the year, we made the strategic decision to consolidate our research and development organization to include both the laboratories in San Diego and the pilot and demonstration-scale facilities in Jennings under Greg Powers, Executive Vice President of R&D. This consolidation has given us a unique set of R&D assets, which integrates the laboratory with an industrial-scale demonstration facility for the efficient development and testing of our Biofuels technologies.

In addition, we were able to build out the Biofuels leadership team by bringing on Carey Buckles as Vice President of Biofuels operations, overseeing our pilot plant and demonstration plant activities at Jennings. Carey's combined industrial and biotechnology operations expertise has greatly benefited our Biofuels operations as we continue to work through optimization activities at our demo facility.

This brings me to the important progress made over the last year with the ongoing optimization of our demo plant. As we have mentioned on previous calls, we've been running various campaigns to systematically evaluate the different stages of our process. Based on the learning and know-how obtained during these campaigns, we recently completed important upgrades to feedstock material handling on front end, allowing for improved reliability. We've also begun the process of testing Sorghum as well as continuing our work with energy cane.

Also as part of the optimization front phase, this last year, we're able to dramatically improve on site enzyme production putting the company ahead of initial targets in this area. This is important because enzyme production is the single largest cost driver in our profits. We continue to believe that there is significant opportunity to further drive down the overall costs of cellulosic ethanol production through the work we are doing to improve enzyme effectiveness.

Turning briefly to biofuels public policy, although the EPA's recent finalization of the renewable fuel standard rules, also called the RFS-2, reduced the 2010 mandate for cellulosic ethanol. There was no change made to the long term mandate to produce 36 billion gallons by the year 2022. The Obama administration has recognized that cellulosic biofuels are a priority, and advanced next generation biofuels will be a critical element in the effort to reduce greenhouse gas emissions to improve energy security and to create real jobs in the coming years. This is an important reaffirmation by EPA of the long range cellulosic ethanol target.

Lastly, on the biofuels front, in June 2009, the Highlands Ethanol project, our first commercial-scale plant being developed in Florida with BP, through our 50-50 joint venture company Vercipia, was invited to begin negotiations for a DOE loan guarantee. As we've said in the past, the next announceable event in that process would be the signing of a conditional term sheet for a DOE loan guarantee. However, I will comment that the DOE loan guarantee office is currently developing its view on how to evaluate projects such as this, an analysis that must incorporate the RFS-2 rules from the EPA, which were only recently announced as well as the structure of the future market for cellulosic ethanol, which will pack the price of our products and the revenues we generate.

Unlike some of the recent loan guarantee commitments made for power generation projects, the cell energy is the well-structured and highly regulated electricity markets, our project will produce cellulosic ethanol and sell into a newly emerging market. Vercipia's working with the loan guarantee office to a grand approach to these and other challenges unique to liquid fuels. And we look forward to advancing this process, which is an important source of funding for the commercial-scale development of our industry.

I'd now like to comment on our specialty enzyme business and recap its accomplishments over the past year. I'm pleased that despite the recession-relation contraction, the animal feed and corn ethanol markets' business remained on track. We saw a 15% increase in the gross margin dollars generated by our enzyme product sales in 2009 versus 2008, which we believe demonstrates our ability to compete in the marketplace with tailored products that offer a higher value proposition to customers.

Jamie will go into more financial specifics, but let me touch on highlights for the last year. First, Phyzyme sales strengthened in late 2009 as demand for poultry recovered with economic conditions. And our marketing partner Danisco continues to be a major global player in the animal nutrition sect. Second, we're pleased to report a significant increase in sales of our newer products, Fuelzyme and Veretase alpha amylases, both sequentially and year-over-year, benefiting from a recovery of the corn ethanol industry during the latter part of 2009. And finally, Purifine gained strong commercial traction during 2009.

As announced previously, we signed a long term contract with Molinos, operator of the world's largest soybean processing plant located in Argentina. We recently completed a successful startup of the commercial-scale oil degumming process using our Purifine system. This has generated significant interest from other large prospective customers, which we believe will create positive momentum for sales of this product into 2010.

During 2009, we also continued to execute in our product growth strategy of building strategic partnerships to increase our global market presence, including in March of 2010, we announced collaboration with Alfa Laval to jointly market enzymatic degumming of vegetable oils using our Purifine enzyme and Alfa Laval's engineering services, which has significantly helped expand Purifine's global market reach in the oil seeds proceeding industry.

In June, we announced the partnership with Add Food Service for Fuelzyme and Veretase to focus on the development and distribution of enzymes for starch-based ethanol production in Europe. Shipments to Europe now accounts for meaningful percentage of Fuelzyme and Veretase sales.

More recently, we extended our partnership with Bunge now working to develop new enzymes for the oil seed processing industry. Yield increases enabled by enzymatic processes are increasingly valuable to this sector, where growth will come from both consumer demand for edible oils and demand biodiesel related to blending mandates in some parts of the world.

In summary, over the past year, our specialty enzyme business has made progress towards becoming a business with a robust and growing product portfolio that is more resilient to market fluctuations such as those seen over the past year in the animal feed industry. In early 2009, we launched Veretase alpha amylase. And more recently, we produced Xylathin xylanase, a highly active enzyme that improves the economics of fuel ethanol production from cereal grains. We also announced that we completed important research collaboration with Syngenta receiving rights to several late stage development product candidates, which have significantly bolstered our development pipeline.

The achievements over the past year for strengthening the enzyme business, and we'll continue to explore opportunities that will allow us to expand our customer base to address adjacent markets where we can supply other industries with our current enzyme products and to commercialize new products from our healthy pipeline. Finally, to allow this business to realize its full potential, we continue to pursue partnership opportunities to expand sales of our current products and accelerate the commercialization of the product pipeline.

Overall, I'm very pleased with Verenium's accomplishments over the past year, particularly given the industry-specific and more general economic challenges we faced. And I look forward to discussing our future achievements with you during 2010. And with that, I'd like to now turn the call over to Jamie Levine, our Chief Financial Officer, to review our fourth quarter and full year 2009 financial results and other business highlights.

Jamie Levine

Thank you, Carlos. I'd like to start by reviewing the company's financial results for our fourth quarter and full year into 2009. And we'll then provide an update on some of our corporate initiatives.

As Carlos mentioned and as we noted in today's press release, we are pleased that despite the continued impact of the global economic recession on the sectors targeted by our enzyme business, the gross margin dollars generated by our product sales increased to $16 million in 2009, a 15% improvement over 2008 on an improved mix of sales in the company's overall enzyme product portfolio.

Regarding our main product, in 2009, we saw softening in the phytase animal feed market attributable to the global recession. And as a result, gross shipments of Phyzyme remained relatively flat as compared to 2008. However, we did see a rebound in sales in the fourth quarter of 2009, and are optimistic that as the poultry market strengthens, sales of Phyzyme will strengthen as well.

Sales of Fuelzyme, our alpha amylase enzyme used in corn-based ethanol production, increased significantly both on a sequential and year-over-year basis signaling a recovery in the corn ethanol industry and our continued success in gaining market share with this product.

We also saw an increase in sales of Veretase, an alpha amylase we began selling to the beverage alcohol production market in the first quarter of 2009, further improving our mix of product sales.

And lastly, as Carlos mentioned, the outlook for Purifine revenues in 2010 is favorable given the signing of a long term supply agreement with Molinos, one of the world's largest soybean oil processors, and other recent interests shown for the product.

While our net product revenue for the fourth quarter declined, compared to the fourth quarter of 2008 as well as on a full year-over-year basis, it's important to note that the majority of this decrease is attributed to our method of revenue recognition for Phyzyme product sales. As is discussed in the past, Danisco, who sells our product using our patented enzyme technology, manufactures some of the Phyzyme products on our behalf to its affiliate Genencor. For sales of Phyzyme manufactured by Genencor, we do not recognize product sales revenue. We only recognize revenue equal to the royalty derived from Danisco's use of our enzyme and certain of its animal feed products. Whereas for products manufactured by us through our toll manufacturing facility in Mexico, we recognize revenue for the sale of the product to Danisco at cost, along with the royalty revenue.

On a year-over-year basis, product volume, including both manufacturing sources for the full year ended December 31st, 2009 were comparable to the same period in 2008. Also is important to note, both gross and net sales of Phyzyme during the fourth quarter of 2009 increased slightly on a sequential basis. Because of the variability in our reported revenue due to the revenue recognition treatment for Phyzyme, we think it's more meaningful to focus on gross margin dollars as an indication of the net cash contribution to the company from our enzyme product sales.

During the fourth quarter of 2009, our total product gross margin dollars increased to $4.4 million from $3.7 million in the third quarter of 2009 and $4 million in the fourth quarter of 2008. Product gross margin dollars also increased on a full year-over-year basis to $16 million in 2009 from $13.9 million for the same period in 2008. The increase in our fourth quarter and full year 2009 product gross margin dollars was due to several factors, including an increase in our royalty revenues from Phyzyme, the improvement in the mix of our product sales, our ability to spread fixed manufacturing costs over a larger production base, our improved manufacturing capacity utilization rates as well as the absence in 2009 of inventory losses recorded in 2008 due to contamination.

In terms of our operating expenses, excluding cost of sales and the non-cash goodwill impairment charge taken in 2008, our gross operating expenses decreased the fourth quarter and year ended December 31st, 2009 to $20.4 million and $102.3 million, respectively, from $30.7 million and $108.3 million for the same periods in 2008, primarily due to aggressive expense management.

Keep in mind that the gross operating expenses on our income statement do not reflect the fact that a portion of these expenses are offset through our joint ventures with BP. BP funded $8.8 million and $34.3 million towards our expenses during the fourth quarter and year ended December 31st, 2009, respectively. This cost reimbursement is included below the operating expenses line in the cash-in entitled "Loss Attributed to Non-Controlling Interest in Consolidated Entities". On a non-GAAP pro forma basis, after considering the impact of BP's cost reimbursement, our net operating expenses for the year ended December 31st, 2009 have actually decreased by approximately $27.8 million over 2008, reflecting the cost sharing through the joint ventures.

Due to the impact of the complex accounting related to our 8% and 9% notes and the non-cash goodwill impairment charge in 2008, we think it’s important to understand our net loss on a non-GAAP basis. Excluding this non-cash impact on a non-GAAP pro forma basis, our net loss was $3.5 million and $40.1 million in the fourth quarter and year ended December 31st, 2009, respectively, compared to a non-GAAP pro forma net loss of $14.1 million and $70.1 million for the same periods in 2008. This decrease is consistent with our ongoing expense management efforts and BP's reimbursements of a portion of our costs to our Galaxy and Vercipia joint ventures.

Finally, I’d like to highlight a few items on our balance sheet. We ended our fourth quarter with unrestricted cash totaling $32.1 million of which $7.2 million was held by our consolidated development joint venture Vercipia, therefore leaving Verenium with $24.9 million of cash and cash equivalents, a cash position higher than at the end of any of the previous six quarters. In addition, in 2009 through a combination of exchanges and conversions, the face value of our total outstanding debt has decreased from approximately $159 million at the beginning of 2009 to just below $98 million as of December 31st, 2009.

Due to accounting rules, our balance sheet shows $106 million in total debt as of the end of 2009 due to certain non-cash adjustments. But the notes to our financial statements included in our Form 10-K, which will be filed in the coming days, provide a reconciliation to the actual face value of debt outstanding of $98 million. Since December 31st, 2009, an additional $2.2 million of our 8% convertible notes were converted into shares bringing the face value of our debt outstanding down to $96 million and our total outstanding shares to approximately $12.1 million at present.

I’d now like to give an update on Galaxy Biofuels, our technology joint development, JV, with BP. As we announced on March 1st, we and BP have extended our technology development joint venture, Galaxy, for an additional month until April 1st, 2010. Initial 18-month joint development program established in August of 2008 was set to expire on February 1st, 2010. And since that time, Verenium and BP have been discussing terms to advance the technology. Rather than let BP's co-funding of Galaxy activities expire, both parties agreed to extend the original terms, including additional funding for Verenium until April 1st, 2010 as discussions continue. As part of this extension, Verenium received $2.5 million from BP for each of the month of February and March to co-fund various ongoing scientific and technical initiatives. We will provide an update on the outcome of our decisions with BP as soon as appropriate.

Finally, due to the continued uncertainties in the global economy and other factors that are beyond our control and the impact they could have on our business, we are not providing 2010 financial guidance at this time. We remain optimistic regarding the performance of our business in 2010, and expect to provide updates on some of these areas in the near future.

I will now turn the call back to Carlos for a few closing remarks before opening the line for questions. Carlos?

Carlos Riva

Thanks, Jamie. I’d like to close by thanking our employees, partners, customers, and shareholders for their continued commitment and support. We look forward to 2010 and anticipate it will be an exciting and critical year for both Verenium and the development of the specialty enzymes and next generation biofuels markets. At this point, I'd like to turn it back to the operator for your questions. Thank you.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) Our first question in queue comes from Laurence Alexander with Jefferies. Please go ahead with your question.

Laurence Alexander – Jefferies

Good afternoon.

Carlos Riva

Good afternoon.

Laurence Alexander – Jefferies

I guess first question is on DOE, the re-evaluation of their funding arrangements. Do you have a sense for – are there concerns about market structure or are there technical issues that they need to flush out as well? And will that extend the timeline before they make a decision on the funding decision?

Jamie Levine

I don't know that – it’s Jamie here, Laurence. I don't know that I characterized it as a re-evaluation. I think at the end of the day, the RFS-2 rules were only recently pronounced. And as we say that’s a critical element in understanding the market for cellulosic ethanol, and therefore the revenue creation and the price for cellulosic ethanol in the future. So I think that with that recently coming out at the end of the day, the DOE is doing their diligence around what that market is likely to look at. And therefore, how do projects in the biofuels sector effectively stack up? And what is the likely revenue opportunities, and therefore, associated debt capacity of the project?

So in terms of timing, I think that’s more difficult for us to predict because it’s purely at the DOE’s timetable. So I think right now, those discussions continue. The RFS-2 rules recently came out and we’re waiting to understand how quickly we can move forward.

Laurence Alexander – Jefferies

And when you submit to them the co-assessment for the project, is that the total cost for the project or there're some ancillary costs that would be above and beyond what is covered by the loan guarantee with the DOE?

Jamie Levine

I think in terms of the operating costs of the project of construction, et cetera, that will be all included. There are certain elements of the costs that go along with the actual process of securing a loan guarantee that may not be able to be folded into the total debt cost or the total cost of the project for debt purposes. But for the most part, all costs that are part of the project are in the project company because it is a non-recourse company that would be trying to secure the loan guarantee.

Laurence Alexander – Jefferies

And then just one last question, have you been negotiating with BP on the JVs? Is the point of the JV to optimize the use of Verenium's technology or is to optimize the use of the best technology that they can find? And if they do end up layering in other technologies, how – do you have any visibility yet as to how the revenue back to Verenium might change?

Carlos Riva

And this is Carlos. I think that the scope of the discussions around the technology really is about not only the technology for the first generation of projects, but how the technology evolves beyond that. And so, it’s pretty wide open in terms of the technology that might be used. Certainly, it centered around Verenium technology, but we've always said that we would be open-minded to bringing on board technology from other sources if in fact that proved to be beneficial, just how that would ultimately play out in terms of revenue streams on the technology side is not clear. But ultimately, we’re focused on trying to get the lowest cost production in the commercial projects that we built, so we see benefit there clearly.

Laurence Alexander – Jefferies

Thank you. I’ll drop back in queue.

Carlos Riva

Thanks, Laurence.

Operator

Thank you, sir. Our next question in queue comes from Sanjay Shrestha with Lazard. Please go ahead with your question.

Sanjay Shrestha – Lazard

Thanks, guys, a couple of quick follow-up questions here. For a start, how should we think about the existing ongoing discussion between you guys and BP related to the extension of the relationship on the Galaxy? It’s very encouraging to see the monthly extension, which certainly means they want to continue to work. But is there any particular milestone or what is it that they're maybe looking for? And I understand it's a sensitive topic. And I don't even know how much in detail you guys go into it. But what can you tell us as to what is the logical progression of events here before it turns to something more formalized?

Jamie Levine

Sanjay, it’s Jamie. I would say that right now, we can talk about what we've done, which is clearly to continue to extend their pro-funding and that element of the Galaxy venture. I think going forward we expect that since the current funding exists through the end of this month that we’ll be updating in a timely way in terms of how we’re thinking it’s going to go forward in a longer term basis. I think the expectation is that we’re going to find a more permanent solution or a more permanent approach to the way that we fund the technology going forward, but at this stage, I think it’s too early to discuss. But I don't think the intention is to continue just a month-by-month extension process for very much longer.

Sanjay Shrestha – Lazard

But given the size of that corporation versus you guys, if there was an extension of one more month, nobody should read into that as anything that didn't go right. It’s really more of the natural progression of the event. And so it’s a few months out type of event rather than end of March we should be looking for something, right?

Jamie Levine

I mean we continue to look to try to find the right way to develop the technology. And at the end of the day, once when we've come up with a different solution other than the extensions, we’ll do so. But right now, the extensions are working well for what we need to do, which is to continue to develop the technology.

Sanjay Shrestha – Lazard

Exactly. That’s what I was trying to get at. One last question from me, guys. So in terms of the DOE loan guarantee money, obviously with the RFS-2, they're trying to figure out how much dollars they need to allocate on the cellulosic side. But other than you guys, given the partnership structure you have, who else is really on the shortlist of those that can actually get money other than you guys for that DOE money when it actually gets released?

Carlos Riva

We believe that we’re the only cellulosic ethanol project, which is currently as this stage of discussions. And that’s why when Jamie talked about their deliberations of market structure, it’s – certainly it applies to our project. But I think it’s a broader industry issue for the DOE as to how they really want to view the markets for liquid fuels. Again as I said in my comments, they have been making guarantees to the electric power sector where there's a very well-defined contract structure for long term uptake. That doesn’t really exist in our industry yet. And so, DOE needs to wrap its mind around that and decide for the industry how they want to move forward to analyze this.

Sanjay Shrestha – Lazard

But once they move through that and figure out what that structure needs to look like, so it’s really a matter of time as to when, rather than whether or not to you guys in terms or receiving some funding in this particular project, right?

Carlos Riva

Well, we think that the administration from – all of their public pronouncements are still committed to developing and supporting the development of cellulosic ethanol industry. And obviously, in order to do that, they need to remind around and decide how they're going to view market risks and market structure.

Sanjay Shrestha – Lazard

Exactly. That’s what I was trying to get at. Thank you, guys.

Carlos Riva

Thanks, Sanjay.

Operator

Thank you, Sanjay. Our next question in queue comes from Pamela Bassett with Cantor Fitzgerald, your question please.

Pamela Bassett – Cantor Fitzgerald

Thanks for taking the question, and congratulations on the progress. Will you talk a little bit about how customers approach Purifine? Is it quarterly? Is it annually? And does Q4 reflect purchases that may have been made by Molinos Rio dela Plata?

Carlos Riva

Right. I think that first of all, Q4 was the initiation of some of those sales that – whose full impact will be seen in the first quarter of this year because it’s – our policies are to wait until actual cash flows before recognizing some of those – the revenues from those projects that are starting up. And in that case, we have a long term – our contract with Molinos, which will be – we haven't disclosed any details of it. But suffice to say that the use of our enzyme is – has been incorporated into the process in a very significant way. And it’s been designed into the modifications that are made to the process such that Purifine will be used.

Pamela Bassett – Cantor Fitzgerald

So they pay just a fee – a lump-sum fee for the whole year or they pay as they go? How does that work?

Carlos Riva

No. Basically, we work on a bulk shipment basis. There are periodic shipments. And then, the revenue's recognized at the appropriate time. It’s somewhat different for the launch of a product, where you have to wait to see a payment history in order that you’re a bit more conservative in terms of how you book revenue in your early phases. So we do tend to delay booking revenue, and that would probably have impact of moving it into the first quarter in this case where it's once – we understand the payment history and payment terms will potentially be able to accelerate when we recognize revenue. But it's full shipments that would be in multiple times a year. If it’s monthly, it all depends on exactly the nature of what the person is looking to have in inventory. And that’s the way it works for that, and frankly, in many of the other products we have.

Pamela Bassett – Cantor Fitzgerald

Okay. And for Purifine, how many are their plant trials or – are going on right now?

Carlos Riva

Well it’s a process that requires a certain small capital upgrade in order to allow the existing processes to be able to use the enzymes. So there effectively does intend to be trials in the same way that you might see trials for Fuelzyme in a corn ethanol plant. It tends to be just talking about the terms of buying the enzyme and the experience that we've had in other plants or with our partner Bunge in terms of the use and the result of using the enzymes, and then the person a the purchase decision.

That’s why it’s important to have the first large player come on board because in some ways, it's a sign of the credibility of the offer that they now have it up and are running. And that’s really the key marketing tool as opposed to a trial in an existing plant because without the small modification to the process, it’s not something that we really can trial in existing other plants. We need to have people make the modification, and then we can sell them the enzyme.

Pamela Bassett – Cantor Fitzgerald

And how about Bunge? They have some big crushing plants. Are we going to see them come on board, for instance plants on line using Purifine this year as well?

Carlos Riva

I think suffice to say, as Jamie said, the fact that Molinos, which have the largest crushing plant in the world, has incorporated. It has generated a lot of interest among the different other crushers, particularly in Latin America. So we would hope to see new customers coming on stream during 2010.

Pamela Bassett – Cantor Fitzgerald

Okay. And when they come on stream that’s a pretty significant size purchase, those plants are generally fairly large, right, especially some of Bunge’s plants?

Carlos Riva

Well, I’d say they got – they are all different sizes. But obviously, we're targeting some of the larger ones, especially as part of the early rollout.

Pamela Bassett – Cantor Fitzgerald

So could we start seeing a real bump in revenue from Purifine contributions over the next year or is it more like two years out?

Carlos Riva

I think at this stage, it’s a bit early for us to look to predict because it has to do a lot with the nature of the market for soy oil as well in terms of what they're going to be – what kind of paths they’re running at, et cetera. Yes, we do expect that we’re going to see more adapters doing the modification that takes a number of months to achieve, and then they become Purifine customers. So we expect that to continue to roll out over 2010, and then see the revenues from it.

Pamela Bassett – Cantor Fitzgerald

Okay. Great. And you were talking about revenue recognition. And at one point, actually it might – it’s probably over a year ago now there was $5 million in Fuelzyme revenues that wasn’t being recognized. Remind me, when did that revenue recognition take place, was it a month-some?

Carlos Riva

I’m sorry. I’m not familiar exactly. We might have to take a look at that offline and get back to you on that specific million dollars on Fuelzyme. I’m not familiar with it off hand.

Pamela Bassett – Cantor Fitzgerald

Okay.

Carlos Riva

We’ll probably take a look at that, Pamela, and get back to you.

Pamela Bassett – Cantor Fitzgerald

Okay. No problem. Okay, and thanks very much.

Carlos Riva

Thank you.

Operator

Thank you. Our next question in queue comes from Paul Resnick with Olympia Capital, your question please.

Paul Resnick – Olympia Capital

Good afternoon. Everybody talks about the constraining costs. But if the SG&A and R&D costs in the quarter really were significantly lower than the general quarterly rate for the year, is this a – is this lower level the expenditure rate that one could expect going into 2010?

Jamie Levine

I think in terms of some of that reduced costs, it has to do with the timing of certain elements that we recognize, so there are certain elements of that. Because it was getting to year-end, they did flip into the first quarter. But I would say overall, you have been seeing – when you look at the progression on the SG&A and the R&D line, you have been seeing a down-tick just as it comes to. Frankly, some are just the nuts and bolts that come along with the expense focus, such as looking at lab supplies and ensuring that lab supplies and inventories are being held to appropriate levels. And that has the effect of over-producing R&D expense over time, and just simply keeping a very hard focus on cost. So I think that I wouldn't argue that that’s going to be an ongoing run rate. At the same time, we are looking to continue to bring down those line items. And you’re seeing that really over the last 24 months.

Paul Resnick – Olympia Capital

Right. And on the Syngenta collaboration, can you give me a little more color or just how that – the outcome of that collaboration and what it seems to leave you with the ongoing plant to try to commercialize the work and in Syngenta bowing out?

Carlos Riva

Yes. Well I think – again, this was the conclusion of a multi-year effort. And what we strove to achieve in wrapping things up is to have an allocation of the intellectual property in the products that resulted from that collaboration. And in so doing, Verenium was able to increase its pipeline of enzyme products to be used by – reproduced through microbial expression. And so we thought that was a very positive outcome.

Paul Resnick – Olympia Capital

Thank you.

Carlos Riva

Thanks, Paul.

Operator

Thank you, sir. (Operator Instructions) We do have a follow-up question from Laurence Alexander with Jefferies. Please go ahead with your question.

Laurence Alexander – Jefferies

Hi there. Just one follow-up, would you mind discussing for a little bit the longer term pipeline for the enzyme business, and what the hurdles would be to commercializing products. Is it a customer adoption? Is it testing costs on your trial in product mix [ph] or working capital build?

Carlos Riva

Well I think it’s a number of things. And the one that you didn't really mention there is also regulatory. We have a number of enzyme products that are enzymes that we've discovered that have applications that we know to be valuable industrial processes. But in order to get them to market, depending on the particular enzyme, different things are required.

In most cases, there’s an element of regulatory approval, which will have its – it requires a certain degree of testing, again, depending on the products and the use. So there'll be the required time to do that work and the costs to do that work. In other cases, it will be market development. Of course, we have – that developed over the last couple of years an organizational capability to reach out directly to markets, and have product managers for various ones of our enzymes. And I think those are the main challenges that we need to focus on in order to build the enzyme business with new products.

Laurence Alexander – Jefferies

Thank you very much.

Operator

Thank you, sir. And at this point, I’m showing no further questions in the queue. I’d like turn the program back over to Jeff Black.

Jeff Black

Thank you very much for participating. And we look forward to providing you further updates on Verenium's continued progress.

Operator

Thank you, sir. Ladies and gentlemen, this does conclude today’s program. Thank you for your participation, and have a wonderful day. You may now all disconnect.

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Source: Verenium Corporation Q4 2009 Earnings Call Transcript
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