Back in April it was announced that two respected biotech companies, Celunol and Diversa, would merge to form Verenium Corporation (NASDAQ:VRNM).
Celunol, based in Cambridge, Mass., was on the forefront of the effort to derive ethanol from sources other than corn (Celunol focuses on farm waste). Diversa was a California company focusing on the use of enzymes to accelerate reactions for industrial processes. The idea was that Diversa had products that would help with the creation of cellulosic ethanol, and so the merger went forward.
The two companies haven't been merged long, but I think they have a great future together. Already Verenium has won a major contract with the U.S. Department of Energy, and it also completed a significant upgrade of a big celluosic ethanol production facility, which will help generate revenues down the road. It still remains to be seen whether Verenium can generate ethanol at a rate that is cheaper and less ecologically taxing than regular gas, but the signs are positive.
Beyond producing ethanol, VRNM also generates revenues by licensing its technologies to other companies -- for example, the BioEthanol plant in Osaka, Japan is using VRNM technology for its own production of ethanol -- and from using its enzymes in other industrial processes, as well as in the health and nutrition markets.
This is not a risk-free company, but people are demanding a world that is greener and greener and now the U.S. House of Representatives is due to vote on a significant alternative energy bill in the Fall known as the "Renewable Fuels, Consumer Protection and Energy Efficiency Act of 2007."
An article from CNNMoney.com's website on July 3 described the recent pending legislation that will make Verenium's work so important and profitable in the future:
Senate lawmakers recently approved a Renewable Fuels Standard calling for the production of 36 billion gallons of ethanol by 2022, with more than half of that coming from plants other than corn -- so called cellulosic ethanol. That marks a six-fold jump from what's being produced now and nearly a five-fold increase from the 7.5 billion gallon production sought by 2012.
I'm sure this merger of two established and respected companies is a way to make your own profit off the green revolution and the ethanol requirements that will be mandated when this law finally makes its way through the Congress.
Type of Stock: A biotechnology company that is on the cutting edge of current biofuel technology.
Price Target: This stock has been a real dog and is currently trading below $5. If you can take the risk (and hold through legislative mandates becoming reality), I think you'll be happy with the results -- three analysts who cover the stock on Wall Street have a median price target of $13.
Disclosure: Author owns shares in Verenium.
VRNM 1-yr chart: