Verenium Corporation Management Discusses Q4 2010 Results - Earnings Call Transcript

| About: Verenium Corporation (VRNM)

Verenium Corporation (NASDAQ:VRNM)

Q4 2010 Earnings Call

March 1, 2011 05:00 pm ET


Kelly Lindenboom – Vice President of Corporate Communications

James Levine – Executive Vice President and Chief Financial Officer

Janet Roemer – President and Chief Operating Officer

Jeffrey Black – Senior Vice President, Chief Accounting Officer


Laurence Alexander – Jefferies & Co.


Thank you for holding. Welcome to Verenium's Fourth Quarter and Year End 2010 Financial 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 now like to introduce your host for today's call, Kelly Lindenboom. Kelly, please go ahead.

Kelly Lindenboom

Thank you for joining Verenium's fourth quarter and year end 2010 conference call. I'm Kelly Lindenboom, Vice President of Corporate Communications. With me today are Jamie Levine, our President and Chief Executive Officer Designate, Janet Roemer, our Chief Operating Officer; and Jeff Black our Senior Vice President and Chief Financial Officer Designate.

The agenda for today's call is as follows. First, Jamie will remark on the outlook for Verenium based on industry trends and our 2011 goals. Janet will then discuss key assets of our business operations, including each of the major industries our enzymes currently served, as well as manufacturing and partnership initiatives. Jeff will then summarize our financial results for the year-ended December 31, 2010 as well as 2011 guidance and we will then open the call up for your questions.

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

Such statements are only predictions, and actual events or results may differ materially from those 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 market forces. Certain of these factors and others are more fully described in our filings with the SEC, included, but not limited to, our report on Form 10-Q for the quarter ended September 30, 2010. These forward-looking statements speak only as of the date hereof, and company expressly disclaims any intent or obligation to update these forward-looking statements.

I will now turn the call over to Jamie.

James Levine

Thanks, Kelly and good afternoon everyone and thank you for joining us on today's call. I'd like to begin by discussing the organizational changes we announced last week. As a recap, I will be stepping into the role of President and Chief Executive Officer succeeding Carlos and Jeff Black has been promoted to Chief Financial Officer. Janet Roemer remains Verenium's Chief Operating Officer.

I’m extremely enthusiastic about taking on this new role and look forward to continuing to partner with Janet, Jeff and the rest of the team here at Verenium. For the last couple of years, I’ve had the chance to work closely with a knowledgeable, energetic and hard working people at Verenium and I'm honored to work with a team of this caliber to continue building what is the potential to be the next leading industrial enzyme’s company.

I'd now like to take a few minutes to discuss two topics. First, I will describe Verenium’s strategy and how we approach the opportunities we see to acquire technology. And then I will describe the vision we have for 2011.

Simply put, our strategy is to use our enzyme technologies to develop and sell products that improve the performance of industrial processes. Our vision is to build a high growth, highly profitable industrial biotech business by capturing a portion of the value our products create.

Part of our growth will come from further penetrating our existing target markets with our current nine commercial products as well as new products from our pipeline and part will come from launching products for markets we don't currently serve.

We believe the near term growth available through these two actions is significant relative to our business today. And while we also see broader areas and large markets where our platform technology has direct application such as metabolic engineering, our job today is to maintain our focus so we convert the large opportunities we see in our product lines and product pipeline into revenue and profit growth.

In the near term, we will demonstrate progress towards this vision most tangibly by growing our current product revenue, improving the efficiency of our manufacturing base, controlling costs and announcing partnerships for future areas of focus. We believe 2011 will be a transformational year for most if not all, on most and not all of these fronts.

I would like to bring the high level strategy into a more action oriented set of steps to explain exactly how we execute on our business plan. Our decision to invest in any opportunity requires a complete plan which addresses the critical elements that influence our success, which I will summarize as markets, products and channel. I will walk through each of these using our animal health and nutrition product line as an example.

When we say markets, we mean we target attractive existing markets for industrial enzymes or we target industries we believe can convert to using enzymatic processes. Our intense focus on creating products customers will value is the foundation on which we’ve grown our business over the past several years and which will allow us to compete successfully with larger enzyme companies. Using the example of our animal health and nutrition product line, a recent industry report indicates that there has been robust growth in the animal feed markets and these now represent one of the largest markets for industrial enzymes.

The challenges facing food producers to meet growing global demand for proteins creates a significant market opportunity for Verenium. Today we have one product Phyzyme phytase targeted in this area. This product has grown rapidly over the past few years on the basis of its high performance characteristics.

Looking forward, we expect that our animal health and nutrition product line will continue to be an important area for Verenium as we expand the single-enzyme product we sell today to commercialize new enzyme products to broadly serve this market.

Phyzyme phytase is a product targeted for use with monogastrics like chicken and pigs. And we expect to roll out new products for this end market. However we are also considering broadening the market to include enzyme products for ruminants like cattle or agriculture applications as well as other uses for food production. The consistent theme we use to evaluate these types of new opportunities is to focus on end markets that play to our strengths and reward superior performance.

Turning to the second element which drives our success, namely product. We start the product design process by looking at the market we’re targeting and finding the unmet need we can address. We’ll always look to compete based on higher performance because we believe this is a more sustainable competitive advantage for Verenium than competing on price alone. In the current and new markets we are targeting we will develop products from the three sources available to us.

First, we start with our existing non-commercial products. We will always look for ways to apply our existing commercial enzymes to other markets. This has the obvious benefit of reducing development costs and timing. The second source we tap for new products is the 4,000 unique enzymes we’ve discovered and have produced in sample size quantities. We can rapidly screen this collection against the commercial need.

The third approach we can bring to developing product is to go back to the lab bench so to speak where we can launch a new discovery program for an enzyme or seek to evolve one of the tens of thousands of enzymes in our libraries against a commercial need.

Given the four to six year time horizon for lab bench activities, we’ll always focus on first using the two approaches which have a faster time to market, but will consider a development program if it supports longer-term growth opportunities where no suitable current candidate exists.

Janet will discuss the three new products we are considering launching in the animal health markets, but I will say that for the methodology I just described, we will run trials in animals that compare the performance of one of our currently marketed enzymes with candidate enzymes from our collection. We can then use the performance data to select the best enzyme to commercialize considering its performance and expected manufacturing costs.

The third element of our approach to our strategy is the channel approach we take for a market. For our current portfolio of products there are several that we take to market using our own salesforce and others where we work with a partner to access a market. For Phyzyme phytase, we partnered with Danisco to both co-fund the development of the product and to act as the exclusive seller of the product to the market.

Looking forward, we expect to continue to work with partners to market the broad array of products we will commercialize. While co-funding the development is a useful way of reducing our costs in the short term, our partner selection process is fundamentally driven by the longer term value created for Verenium by leveraging our partner’s capabilities.

As we discussed partnering opportunities for our animal health and nutrition pipeline, I’ll emphasize that of the four major high-performance phytase enzymes on the market today, two were created from Verenium’s technology namely Phyzyme phytase and Quantum phytase which is AB Vista’s product.

Given our track record our next generation pipeline candidates across a number of end markets are growing strong interest from potential partners and we are enthusiastic about the opportunities these products represent for our future growth. So with that overview of our strategy and approach, I'd like to make three comments about the markets we target.

First, as Janet will discuss later our strategy is to target growth not only from our existing products and pipeline candidates across our three current product lines, but also by developing products for industry areas which we don't currently serve. For example, the basing sector is a large and growing market with an increasing need for high-performance enzymes.

In our pipeline, we have several candidates targeted at the basing sector, which represent an opportunity for us to partner in the near term and to develop a new product line for the company in the medium term.

Second, in addition to targeting the areas that make up the $3 billion market for enzyme products today, we are also creating products for markets that don’t currently use enzymes. While this brings unique challenges for driving adoption the success we're having for products we’ve launched which are targeted at non-enzyme users like our Purifine PLC product for enzymatic degumming shows that with creativity and focus we can develop attractive and entirely new markets.

The final comment I’ll make regarding our market strategy is to observe that the markets we target are generally connected to the production of food or transportation fuels. We believe the challenges faced by these two major global markets are growing and they are looking to tap into the efficiencies provided by industrial biotechnology which is Verenium sweet spot.

We see DuPont’s recent announcement of their intention to acquire Danisco, as a confirmation of the importance of enzyme solutions in addressing major global challenges and we are confident in our ability to grow our business by applying our technology towards meeting these challenges. After all our existing commercial portfolio is a good representation of the types of industry-leading and environmentally beneficial products we can deliver.

I'll now turn to the near term and review the goals we’ve laid out for 2011 to continue building momentum. In addition to the financial guidance we’ve provided which Jeff will discuss later, our goals for 2011 serve as a roadmap for how we intend to execute on our strategy.

First, we intend to diversify our product revenue base achieving 50% of revenue from products and partnerships other than our lead product Phyzyme phytase. Second, we intend to improve our manufacturing productivity during 2011 through focused investments.

Third, we intend to control operating expenses including consolidating our operations in San Diego during the first quarter of 2011. Fourth, we intend to continue to address the company’s outstanding convertible notes. Fifth, we intend to complete two new partnerships directed at advancing the development of product pipeline candidates towards commercialization. And finally, we intend to advance two product pipeline candidates into the regulatory phase of development.

In conclusion, I will note that our industrial enzymes technology platform has always been the core of our commercial efforts by refocusing our resources in 2010 towards growing our industrial enzymes business in 2011 and beyond. We are able to capitalize on our heritage strength in industrial biotechnology and enzyme development.

Importantly, we believe Verenium is well positioned in 2011 operationally and financially to develop and commercialize enzyme product with industry leading performance characteristics to the high growth markets we serve. Based on the power of our unique technology platform and the capability and know-how of the team we have in place, I believe we are well positioned to execute against our 2011 goals and move our business toward profitability and long-term success.

I look forward to continuing to update you on our progress in the coming months. And with that I will turn the call over to Janet.

Janet Roemer

Thank you and good afternoon. As Jamie mentioned, 2010 was a transformational year for the company. And I am very pleased with the progress we made especially during the latter half of the year as we shifted our focus to building the next leading industrial enzymes company.

I will begin my comments by reviewing the progress made in each of our three main product lines in 2010 and also discuss the outlook for our products and the industries they serve.

Let me start with the animal health and nutrition product line and our leading product Phyzyme phytase. Verenium developed Phyzyme phytase to improve the digestibility of phosphorus and other nutrients naturally contained in grains and reduce the amount of supplemental phosphorus added to feed for monogastric animals. We continue to see strong demand for Phyzyme throughout 2010 with full year gross profit for this product increasing 25% versus 2009.

Feeding a projected population of 9 billion people by 2050, creates an opportunity for industrial biotech companies like Verenium to develop more and better products to enhance the production of food.

At the same time, the agricultural industry is challenged with doing so without putting further strain on the environment. A significant issue for producers of monogastrics is that the species cannot digest approximately 70% of the phosphorus that is naturally contained in the grains in order to satisfy nutritional requirements producers add in organic phosphorus to the feed.

However much of this is not digested and is subsequently excreted by the animals polluting groundwater. This is a particularly acute problem in modern high intensity farming.

Due to a superior performance characteristic, Phyzyme phytase has become established as a leading enzyme used to enhance nutrition and at the same time reducing environmental impact of poultry and pig farming.

In January, I attended the 2011 International Poultry Expo in Atlanta, the largest conference of its type. I was very encouraged by leading industry participants for promoting increased dosing of high-performance phytases such as Phyzyme to unlock additional benefits. This could potentially lead to a step change in the size of the addressable market for phytases already at well in excess of $300 million and growing at 6% to 7% per year.

In this large and growing market there are significant interests in Verenium, our technology and importantly our animal health and nutrition pipeline product candidates and we are in active discussions with potential partners who can efficiently take our new products to the global market.

We currently have three animal feed enzymes in our pipeline. Our next generation phytase, xylanase and beta-gluconase. With the phytase, we are developing a higher performance product with higher activity of thermostability than any available, on the market today.

The xylanase and beta-gluconase pipeline products are being developed to breakdown non-starch polysaccharides they incur in small grain diets such as barley, wheat and rice enabling better absorption of nutrients. We're moving these products steadily through the development phase and have begun conducting initial animal testing trials at a leading university.

Overall, we are very pleased with the performance of our foundational product Phyzyme phytase and its leading position in the market and are enthusiastic about our next generation enzymes for the Animal Health and Nutrition industry. We can contribute to increasing the efficiency of producing food for our world’s growing population.

I'd now like to turn to our grain processing product line. As a reminder, we have four enzymes in our portfolio. Two Fuelzyme and Deltazym are used in the production of bioethanol from starch primarily corn. Another Veretase, in the production of beverage alcohol and the fourth Xylathin in the production of bioethanol from wheat and other grains.

We are pleased to report that 2010 annual revenue from these products grew by over, by 38% versus 2009. This growth represents progress toward our goal of diversifying our portfolio of products and markets representing 27% of products revenue in 2010.

Verenium’s grain processing products are positioning us to be a significant player in the biofuels market. We design these products to have superior operating characteristics over competing products, with higher activity retained at higher temperatures and the ability to run at lower pH, which many operators prefer. These characteristics provide ethanol plants direct cost savings through lower enzyme dosage, reduced use of chemicals, higher throughput and greater operating flexibility, which becomes more and more important as the demand for alternative fuels increases.

The revenue potential for each new customer will vary depending on the capacity of the plant and the way they run it. But as the rule of thumb, the industry spends $0.01 on alpha amylase and $0.02 on glucoamylase per gallon of ethanol produced. In our experience the benefits of our products can significantly reduce enzyme costs per gallon of ethanol though the degree of benefit is highly plant specific.

We believe that we will continue to see growth in the grain processing industry. Biofuels made from feedstocks such as corn and wheat will continue to play a role in meeting the world’s demand for cleaner and more sustainable fuels. And we have significant upside from gaining market share.

Protocol uncertainties in the Middle East will continue to impact oil prices and price volatility. For decades the U.S. government has been talking about the need to decrease dependence on foreign oil and the decision by the EPA to allow an increase in the amount of ethanol blended into gasoline from 10% to 15% in vehicles produced since 2001 is a step in the right direction and one which benefits companies like Verenium, whose products, help ethanol plants operating more efficiently.

Turning to our third commercial product line, 2010 was a year significant progress for Purifine, a novel phospholipase C enzyme used in the degumming step of oil seed processing. In November, we announced the second engineering partnership agreement with Desmet Ballestra, a leading global engineering solutions provider in the edible oils and fats and biodiesel industries.

Much like our partnership with Alfa Laval this partnership further extends Verenium's market reach by utilizing Desmet Ballestra’s sales force and international presence in the field to promote the Purifine enzymatic degumming process and cell installations. As we announced on our last call, we currently sell Purifine to four soybean crushing facilities, including Molinos the world's largest soy crushing facility in Argentina. And as we announced this week the Terminal 6, the second largest in terms of crushing capacity.

With the Purifine Enzymatic process now running at these leading soybean processors, our reach to this market expanded through our engineering partners Alfa Laval and Desmet Ballestra and with the recent approval to sell the product in China, the level of engagement with potential new customers have increased substantially.

As we have mentioned, our rule of thumb for revenue gains from a new Purifine customer is $500,000 to $2 million per year depending on plant configuration, operating conditions and the processors content to the oil. As of today, an additional five plans are implementing the Purifine enzymatic degumming process including one in China. With several others moving forward, but not yet in the implementation phase, which we define as engineering and construction.

Importantly, we envision additional opportunities for entirely new uses of enzymes and oilseed refining and consider our success with Purifine as a door opener into this industry, which has the potential to become a major new end use for enzymes.

I'm very pleased with the progress made in each of our product lines in 2010 and feel we’re well positioned to execute on our 2011 goals of continuing to grow and diversify our product revenue.

I'd now like to move on to discus manufacturing, a critical aspect of our business. As we’ve stated previously, enhancing our manufacturing capability is an important area of focus for Verenium. In 2010, as a first step toward increasing capacity to manufacture our products, we took control of a third 190,000-liter fermentation unit bringing the total capacity reutilized for our products to 660,000 liters at Fermic our manufacturing partner in Mexico City.

To efficiently use this world scale capacity, we are executing a number of projects for improving manufacturing performance in the first half of 2011 and we expect to see the impact of these efforts over the remainder of the year in the form of greater yields, reduce cost per kilogram and improve product profits.

Lastly, I’d like to discuss business development activities. Another important corporate goal for 2011 is to execute two new partnerships for advancing the development of product pipeline candidates towards commercialization. We have a track record of strategic partnership which have underpinned our success such as our marketing partnership with Danisco for Phyzyme phytase, our commercial scale proof-of-concept for Purifine PLC with [fungi] and our marketing partnerships with Alfa Laval and Desmet Ballestra.

In parallel with the technical development of our pipeline products, our business development team is actively engaged in various stages of discussions of new partnerships that will accelerate the commercialization and market adoption of our next generation enzymes.

Further in our business development efforts, we are putting renewed emphasis on beta glucanase with broad substrate specificity called Pyrolase 160 used in the hydraulic fracturing of oil wells or Fracking. During Fracking, large volumes of a pressurized fluid are injected into the well. These fluids contain natural gums such as guar or carboxymethyl cellulose that increase the viscosity of the fluid.

Once the gums complete their function, they then need to be degraded or broken as known in the industry and removed from the well. This is where Verenium’s Pyrolase 160 comes into the process. Pyrolase 160 is a robust enzyme that can effectively break down the polymers of guar in similar gums and help to clean up the well for enhanced productivity. Pyrolase has an exceptional range of temperature and pH tolerance and can be used under the very testing conditions of many oil wells.

This product provides an efficient and more environmentally friendly alternative to the conventional chemical breakers that often pose serious corrosion and safety hazards. This has been a small volume product for us. But with increased drilling activity based on the high price of crude coupled with more intense focus on the environmental impact of drilling. We have generated renewed interest within this market and are in discussions with potential partners interested in accelerating adoption of this product as well as developing additional enzymes for this and other applications in the oilfield.

In summary, we are very pleased by the reception we have received from potential partners in our targeted markets as we look to significantly build our business due to commercialization of our pipeline products.

In closing 2010, has been a remarkable year for Verenium’s enzyme business and we are all looking forward to building on the success in 2011.

With that I'll now turn the call over to Jeff.

Jeffrey Black

Thank you, Janet. I’d like to start by saying that I'm very excited to be joining Jamie and Janet on the Executive team during what we believe is an exciting time for the company. And I'm extremely optimistic about our prospects going forward.

As Jamie and Janet have discussed 2010 was the year of change for Verenium and the fourth quarter was our first quarter after the close of the BP transaction in September, we were able to completely shift our focus to our industrial enzyme business.

I’d like to begin with an overview of our 2010 financial results and from there I’ll discuss our 2011 guidance. I’ll start with the review of our product revenue performance for the year. As you recall we issued full year 2010 product revenue guidance of $48 million to $54 million and I'm pleased to report that we met this target with 2010 product revenues of $50.4 million, which is a 15% increase over 2009. This increase was driven primarily by increased market penetration from our grain processing and oilseed processing product lines, which we currently market through both our direct sales force and various distribution and marketing relationship.

I’d now like to provide some context for our revenue based on the detail reporting we provide for our animal health and nutrition and grain processing product lines. While our revenues for animal health and nutrition products for 2010 was flat versus 2009 the gross profit from this product increased by 25%.

As you might recall our reported Phyzyme revenue is dependent upon manufacturing source. For Phyzyme we manufactured Fermic, we report the full value of manufacturing revenue plus royalty from profit share. For the Danisco manufactures through our [toll] manufacturing relationship, we only report the royalty from profit share.

And this is why on the gross profit line is a better indicator of the growth in the business since it reflects the net contribution from our animal health and nutrition product line regardless of manufacturing sources.

On our last earnings call we began reporting the revenue from our products targeted to grain processing market including Fuelzyme, Xylathin, Veretase and Deltazym separately and we’ll continue to do that going forward.

Our revenues from this product line in 2010 increased 38% to $13.4 million when compared to 2009. And this reflects both a general recovery in the first generation ethanol sector as well as our ability to further penetrate the market with our products.

Turning to product gross profit for 2010 we issued gross profit guidance of $16 million to $18 million and again I am pleased to report that we beat that guidance with gross profit of $18.6 million which was an increase of 16% over 2009 gross profit.

Overall we are very pleased with the level of gross profit growth we've been able to generate and anticipate we will begin to see further improvements in the second half of 2011 as we begin to see the benefits of our planned investment in manufacturing improvement at Fermic.

And turning to our operating expenses, the effect of the deferral of our cellulosic biofuels business to BP are historic cellulosic biofuel operations are now retroactively included in discontinued operations and presented separately in our statements of operations. This presentation which is presented to current accounting rules enables us to show operating results from our continuing operations which reflect the historical results of our current business.

Excluding cost of product revenues, our operating expenses decreased in 2010 from $32.9 million from $35.3 million in 2009. Excluding the impact of share based compensation our operating expenses increased 2.2 million primarily due to 2009 bonus payment expense in 2010.

During the fourth quarter, our operating expenses in 2010 increased to $8.3 million compared to $5.7 million in 2009. This increase during the fourth quarter relates primary to the bonus expense reversal in 2009, which under stained our run rate in the fourth quarter of last year.

The $8.3 million in total operating expenses during the fourth quarter of 2010 is more inline with the run rate suggested by our 2011 guidance. Although, we expect an overall increase in R&D into our increase investment in the product pipeline will be offset by a decrease in SG&A during 2011. And finally regarding our cash position, we ended the fourth quarter with just under $88 million in unrestricted cash.

I would now like to turn to our financial guidance for 2011. On December 14, we issued a press release which included our 2011 guidance which I will review again. First for 2011, we expect total revenue of between $55 million and $60 million. As stated previously, a top 2011 corporate goal is to achieve 50% of revenue from products and partnerships other than our lead product pipeline.

Taken together, our product revenues from the non-Phyzyme product lines increased to 35% of total product revenues in 2010 compared to 25% in 2009. And we are continuing to see traction in growing interest for these high performance enzymes as we enter 2011.

And this brings me to gross profit guidance. For 2011 we expect to generate product gross profit of between $21 million and $24 million. Even with ongoing manufacturing and supply challenges we were able to increase product gross profit by 16% over 2009 and now we have the resources necessary to invest in our manufacturing capabilities to increase our gross profits.

In terms of operating expenses excluding cost of product revenues, we expect total operating expenses in 2011 of $33 million to $37 million consistent with the guidance we provided last December. However we are reallocating the accounting of certain regulatory and intellectual property expenses from R&D to SG&A, but we consider these expense as critical components of our R&D programs, we determine that classification of these costs into SG&A is a more appropriate presentation under current accounting and reporting standards.

We expect R&D spend for 2011 of $10 million to $12 million. This could represent much as much as 100% increase over 2010 R&D spend of $6 million, but keep in mind that there is very little investment going into our enzyme business and our pipeline products for the bulk of 2010 due to the focus on the cellulosic biofuels business for most of the year. Despite this we were able to move two product candidates into the regulatory phase. Now we have resources to move our product and going forward will do so opportunistically.

Our goal of working with partners to advance our pipeline products to our commercialization should help offset some of the cause. And we are encouraged by the discussions we have to date with perspective partners. We did not include the upside impact of these potential partnerships in our financial guidance for 2011. We expect our SG&A spent to be between $23 million and $25 million in 2011.

Our SG&A spent for 2010 was just under $28 million to our 2011 guidance represent an overall decrease in SG&A levels of 10% to 15% over 2010, even while we continue to invest in our sales and marketing infrastructure to grow the business. We believe that this guidance is appropriate for a public company of our size and in our stage of development.

And we’ve already taken steps to keep our SG&A cost in line mainly due to planned closure of our Cambridge office and elimination of several G&A positions, which we expect will be completed on March 31. And we are competing to manage costs aggressively. Finally on the 2011 guidance, we expect time capital investments for the commercial business including manufacturing of between $4 million and $6 million.

We also expect to spend up to $10 million to build out a new San Diego facility over the next two years and are exploring the potential to extend that spend over a longer period of time.

Before I wrap up, I would like to briefly adjust our current debt balance. We ended 2010 with a debt balance of phase value of just under $75 million. We'll continue to look at ways to address our debt with a goal of a more simplified and solid capital structure going into 2012.

In summary, we believe our achievements in 2010 have helped build the platform necessary to grow our industrial enzyme business and set us on the path to achieving profitability.

And with that I'd like to turn the call over to the operator to take your questions.

Question-and-Answer Session


(Operator Instructions) And at the moment, I’m showing just one question coming from Laurence Alexander. Laurence, go ahead.

Laurence Alexander – Jefferies & Co.

Good afternoon.

James Levine

Good afternoon, Laurence.

Janet Roemer

Hi, Laurence.

Laurence Alexander – Jefferies & Co.

I guess, first of all with the new mills that you might be switching over to using Purifine, what is the likely conversion time or how long does it take to fully scale up?

Janet Roemer

Sure, Laurence. Hi, it’s Janet Roemer. So the actual implementation, the placing of the equipment on the site and tie it into operations is about a six month process. So that's the last piece before you start up a new installation. Prior to that is the negotiation and discussions with the engineering firm as well as with [us] and then supply contract which can vary depending on customer.

But once you have that agreement and it's about a six-month installation process. Now the exception to that is a new build, and Alfa Laval are also offering this process as part of a new GreenField plant construction which in that case the timeline would be governed by the plant, construction not the implementation or the retrofit.

Laurence Alexander – Jefferies & Co.

And secondly, the release mentioned sort of eventually having a target for a path to profitability, do you give a sense for when you think you might be ready to sketch that out and would you do it first at the product level and then full country level or how do you see approaching that?

James Levine

Sure Laurence, its Jamie. I would say that I expect it will be attacking it first at the full company level and talking about overall operation. And I think some of the key factors that go into it directly tied to our 2011 goals. So when we talk about bringing partners in to offset some of our costs and when we talk about some of the acceleration that we want to see from our commercial products, I think that those are steps that we have in our 2011 goals and that we’ve said on the call, we're working on right now.

And I think if some of those steps look to fall into line, we will be able to be more clear in terms of what our expectations are for the period beyond 2011 and what that means for profitability. So I think once we get some of those steps in place, I think we will be able to make further comments on it. We would like to be able to do that sooner rather than later obviously.

Laurence Alexander – Jefferies & Co.

And lastly, do you look at your technology portfolio, are there any opportunities to monetize the portfolio through partnerships with people who are working in other areas, while you focus on their core enzyme business? And how does that affect the way you think about your balance sheet or to what degree does your balance sheet constrain your partnerships?

James Levine

Well I think from a broad perspective, our balance sheet, I would not say constrained our partnerships, I think that right now frankly we're looking to advance many of the products that we have in our pipeline even before we enter into the formal partnership, because we want to keep momentum behind the product launches that we’re anticipating.

In terms your first question, we're having some discussions around areas where we can apply our technology. But as I said at the outset, we see right now that we are a $50 million revenue business and we’re targeting addressable markets in excess of $1 billion. So from our perspective, we think the greatest area of growth does come from focus on attracting partners to help us purse our markets and penetrate our markets. So while we will look opportunistically, I don't think that there is likely to be game changers there only because our focus is on selling products and on generating revenue to that mechanism and we think we have a lot of opportunity there.

Laurence Alexander – Jefferies & Co.

Okay, thank you.

James Levine



Okay (Operator Instructions) At the moment, I do show no questions. However, I would like to remind everyone just one more time (Operator Instructions) And still showing no questions, I would like to turn the call back to Kelly Lindenboom.

Kelly Lindenboom

Thank you all for joining us this afternoon. We look forward to updating you on our continued progress. Have a nice evening.


Okay, thank you ladies and gentlemen for your participation. This conference has concluded. You may now disconnect.

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