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Verenium Goes Back to the Future

Today the cleantech firm Verenium announced that it was not, after all, going to be in the cellulosic ethanol production business. Instead, the publicly-traded firm has agreed to sell its cellulosic biofuels business to partner BP, giving the oil giant a much-needed non-oil-spill press mention.

At first this news seemed a bit odd as Verenium was formed to make cellulosic ethanol. But it’s not really that surprising.

In a conference call with analysts this morning, the company outlined its plans to move forward as a specialty enzymes company. This means it will not need to put up the hundreds of millions of dollars in capital that would be required to set up and run a commercial-scale cellulosic ethanol facility. Verenium has been generating revenue selling enzymes for a few years now.

In fact, cleantech followers would not need too long of a memory to note that Verenium, prior to its 2007 merger with Vinod Khosla-backed cellulosic ethanol firm Celunol, was called Diversa. And Diversa was… a specialty enzymes company.

Before this announcement,  Verenium’s big claims to fame compared to its renewable fuels rivals was its valuable (in more ways than money) partnership with BP, the fact that Verenium is a public company, and perhaps most important, its plans (with BP) to open a commercial-scale plant in 2012 (a 36 million-gal-per-year ethanol facility in Highlands County, Fla.)

Rather than stick around for the plant opening, Verenium will cash a check worth  $98.3 million for two facilities; the pilot and demonstration scale plant in Jennings, LA and the R&D facilities in San Diego. It also sold  intellectual property relating to cellulosic biofuels generally and cellulosic enzymes in specific.

Verenium’s change of heart could be seen to illustrate two themes I’ve been seeing in industrial biotechnology (both fuels and chemicals). Firms that have leading-edge technology as their competitive advantage are not eager to be in capital intensive businesses. And, as the bio-based fuels and materials industry grows, many will find there is more upside (i.e., higher margins and less effort) to being  a supplier to the industry, rather than as a manufacturer of the end product (in this case, ethanol).

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