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| VRNM > SEC Filings for VRNM > Form 10-Q on 15-May-2012 | All Recent SEC Filings |
15-May-2012
Quarterly Report
Except for the historical information contained herein, the following discussion, as well as the other sections of this report, contain forward-looking statements that involve risks and uncertainties. These statements speak only as of the date on which they are made, and we undertake no obligation to update any forward-looking statement.
Forward-looking statements applicable to our business generally include statements related to:
• our expected cash needs, our ability to manage our cash and expenses and our ability to access future financing;
• our ability to continue as a going concern;
• our estimates regarding market sizes and opportunities, as well as our future revenue, product revenue, profitability and capital requirements;
• our ability to increase or maintain our product revenue and improve or maintain product gross margins;
• our strategy;
• our ability to improve manufacturing processes and increase manufacturing yields in order to improve margins and enable us to continue to meet demand from customers;
• our ability to maintain good relationships with the companies with whom we contract for the manufacture of certain of our products;
• our expected future research and development expenses, sales and marketing expenses, and general and administrative expenses;
• our plans regarding future research, product development, business development, commercialization, growth, independent project development, collaboration, licensing, intellectual property, regulatory and financing activities;
• our products and product candidates under development;
• investments in our core technologies and in our internal product candidates;
• the opportunities in our target markets and our ability to exploit them;
• our ability to continue to expand internationally;
• our plans for managing the growth of our business;
• the benefits to be derived from our current and future strategic alliances;
• our anticipated revenues from collaborative agreements and licenses granted to third parties and our ability to maintain existing or enter into new collaborative relationships with third parties;
• the impact of dilution to our shareholders and a decline in our share price and our market capitalization from future issuances of shares of our common stock or equity-linked securities;
• our exposure to market risk;
• the impact of litigation matters on our operations and financial results; and
Factors that could cause or contribute to differences include, but are not limited to, our operations and ability to continue as a going concern, risks involved with our new and uncertain technologies, risks involving manufacturing constraints which may prevent us from maintaining adequate supply of inventory to meet our customers' demands, risks associated with our dependence on patents and proprietary rights, risks associated with our protection and enforcement of our patents and proprietary rights, our dependence on existing collaborations, our ability to enter into and/or maintain collaboration and joint venture agreements, our ability to commercialize products directly and through our collaborators, the timing of anticipated regulatory approvals and product launches, and the development or availability of competitive products or technologies, as well as other risks and uncertainties set forth below and in the section of this report entitled Risk Factors beginning on page 30.
Overview
We are an industrial biotechnology company that develops and commercializes high performance enzymes for a broad array of industrial processes to enable higher productivity, lower costs, and improved environmental outcomes. We operate in one business segment with four main product lines: animal health and nutrition, grain processing, oilfield services and other industrial processes. We believe the most significant near-term commercial opportunity for our business will be derived from continued sales and gross product margins from our existing portfolio of enzyme products; however, our long-term growth opportunities will be heavily dependent upon our continued development and commercialization of products from our pipeline.
Our business is supported by a research and development team with expertise in gene discovery and optimization, cell engineering, bioprocess development, biochemistry and microbiology. Over nearly 20 years, our research and development team has developed a proprietary technology platform that has enabled us to apply advancements in science to discovering and developing unique solutions in complex industrial or commercial applications. We have dedicated substantial resources to the development of capabilities for sample collection from the world's microbial populations, generation of DNA libraries, screening of these libraries using ultra high-throughput methods capable of analyzing more than one billion genes per day, and optimization based on our gene evolution technologies. We have continued to shift more of our resources from technology development to commercialization efforts for our existing and future technologies and products. While our technologies have the potential to serve many large markets, our primary areas of focus for product development are specialty enzymes for animal health and nutrition, grain processing, oilfield services, and other industrial enzyme markets. We have current collaborations and agreements with key partners such as DSM Food Specialties B.V. ("DSM"), Novus International, Inc. ("Novus"), Danisco Animal Nutrition ("Danisco'), which was acquired in 2011 by E. I. du Pont de Nemours and Company ("DuPont"), Fermic S.A., ("Fermic'), and WeissBioTech (formerly Add Food Services GmbH), each of which complement our internal technology, product development efforts, and distribution efforts.
As of March 31, 2012, we owned 203 issued patents relating to our technologies and had 172 patents pending. Also, as of March 31, 2012, we either jointly owned or in-licensed from BP Biofuels North America LLC ("BP") 124 patents and 155 patents pending. Our rights to sell our products and products in development are largely covered by the patents and patent applications we own, and to a lesser extent by patents and patent applications we jointly own with BP. Our rights to practice the discovery and evolution technology which we originally developed are covered by patents we in-license from BP. We believe that we can leverage our owned and licensed intellectual property estate to enhance and improve our technology development and commercialization efforts while maintaining protection on key intellectual property assets.
We have incurred net losses from our continuing operations since our inception. As of March 31, 2012, we had an accumulated deficit of approximately $570.7 million. Our results of operations have fluctuated from period to period and likely will continue to fluctuate substantially in the future. During the three months ended March 31, 2012, excluding the one-time gain on sale of the oilseed processing business, we generated operating income of $0.8 million, however, we expect to incur losses in the foreseeable future, as a result of any combination of one or more of the following:
• continued research and development expenses for the progression of internal product candidates;
• our continued investment in manufacturing facilities and/or capabilities necessary to meet anticipated demand for our products or improve manufacturing yields; and
• maintaining or increasing our sales and marketing infrastructure.
Results of operations for any period may be unrelated to results of operations for any other period. In addition, we believe that our historical results are not a good indicator of our future operating results.
The holders of the 5.5% Convertible Senior Notes due 2027 ("2007 Notes") had the right to require us to repurchase the 2007 Notes for cash (including any accrued and unpaid interest) on April 2, 2012. The holders of our 2007 Notes exercised this right, and on April 2, 2012 we paid $35.8 million, which included the full payout of the 2007 Notes and related interest. Based on our current cash resources and 2012 operating plan, our existing cash resources may not be sufficient to meet the cash requirements to fund our planned operating expenses, capital expenditures and working capital requirements beyond December 31, 2012 without additional sources of cash. If we are unable to raise additional capital, we will need to defer, reduce or eliminate significant planned expenditures, restructure or significantly curtail our operations, sell some or all our assets, file for bankruptcy or cease operations.
Asset Purchase Agreement
On March 23, 2012, we entered into an asset purchase agreement with DSM, a Dutch private corporation, for the purchase of our oilseed processing business. In connection with entering into the purchase agreement, we concurrently entered into a license agreement, a supply agreement and a transition services agreement with DSM. Under the license agreement, we licensed our alpha-amylase product and xylanase enzyme product to DSM for use in the food and beverage markets. In turn, DSM licensed to us the intellectual property purchased by DSM in the transaction for our use of our alpha-amylase enzyme product in the food and beverage field, with respect to the intellectual property purchased by DSM in the transaction, and the intellectual property that we had previously licensed to BP Biofuels North America LLC under the BP License Agreement, dated September 2, 2010. Further in the license agreement, we agreed to provide DSM with Verenium dedicated full time equivalents ("FTE") for new gene libraries to be developed by us for one year and to deliver any new gene libraries derived from these efforts to DSM in exchange for a royalty paid by DSM to us on any enzyme product discovered by DSM through the use of the new gene libraries. The supply agreement allows for the continued manufacture by us of the purchased oilseed processing product and the licensed alpha-amylase and xylanase products on a non-exclusive basis for a set price and quantities to be paid by DSM. The transition services agreement is to provide for our services to DSM to be paid on an hourly basis as services are incurred through December 31, 2012.
The aggregate consideration received by us in connection with the transactions was $37 million, including transaction and related expenses.
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