- Progress made across the business setting the stage for future growth and development -

CAMBRIDGE, Mass., Aug. 10 /PRNewswire-FirstCall/ -- Verenium Corporation (Nasdaq: VRNM), a pioneer in the development of next-generation cellulosic ethanol and high-performance specialty enzymes, today reported corporate accomplishments and financial results for the second quarter.

"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."

Company Highlights and Accomplishments

Since the beginning of 2009, Verenium has made significant progress and achieved several important milestones, including:

Corporate

• Continued to implement aggressive expense management initiatives to decrease operating expenses and conserve cash;
• Amended its 8 percent Senior Convertible Notes due April 1, 2012 to modify certain terms of the notes, an important step towards simplifying and improving Verenium's capital structure; and
• Announced key hires and shifts in management to lead the Company to the next phase of development, including the appointment of James E. Levine as Executive Vice President and Chief Financial Officer, and the consolidation the Company's R&D organization to include the Jennings, LA, pilot and demonstration-scale facilities under Gregory Powers, Executive Vice President of Research and Development.
  

Biofuels Business

• Vercipia, the Company's joint venture with BP, entered the due diligence phase of the U.S. Department of Energy's Title XVII Loan Guarantee Program for its first commercial cellulosic ethanol project in Highlands County, Florida; and
• Continued the optimization process at the 1.4 million-gallon-per-year demonstration-scale plant in Jennings, LA, including:
  • Operated the plant on both sugarcane bagasse and energy cane feedstocks; and
  • Scale-up of on-site enzyme production continued with reproducible levels of enzyme expression on target with development plans.
    

Specialty Enzymes Business

• Key products Phyzyme(R) XP and Fuelzyme(R)-LF have been impacted by challenging economic and market conditions but continue to maintain market share;
• Purifine((R)) has gained traction at commercial-scale and has a strong pipeline of customer candidates, however, customer adoption rates and resulting sales have been slower to ramp than expected;
• Launched Veretase((TM)) alpha-amylase, a high-performance enzyme that improves the economics and efficiency of the sweetener and beverage alcohol production markets; and
• Executed a successful inventory management strategy as a cash management initiative.
  

Financial Position

• Ended the second quarter with unrestricted cash totaling $14.8 million, of which $4.9 million was held by Vercipia, the Company's joint venture with BP;
• Subsequent to June 30, 2009, received a payment of $14 million from BP as part of the Galaxy Biofuels Joint Development Agreement;
• Reduced specialty enzyme product inventory to appropriate levels, reducing working capital and conserving cash; this had a negative impact on reported product dollar gross margin as unused manufacturing capacity was expensed rather than being allocated to inventory; and
• Increased gross operating expenses, reflecting current investment in the development of cellulosic ethanol technology, however, net of BP's share of these expenses, Verenium's pro forma net operating expenses were lower than the second quarter of 2008.
  

"During the first half of the year Verenium took some important first steps to simplify and address our capital structure, including amending the terms of the outstanding 8 percent convertible notes that would have restricted the Company's future growth. In the near-term we will continue to manage expenses aggressively and will take the actions necessary to build an appropriate capital structure to support our strategy to be a leader in the commercialization of cellulosic ethanol and specialty enzymes," said James E. Levine, Executive Vice President and Chief Financial Officer.

Financial Results

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.