Diversa Corporation (Nasdaq: DVSA), a leader in the development of high-performance specialty enzymes, reported financial results for the first quarter 2007.
Revenues were $11.3 million, up 19% compared to $9.5 and net loss was $10.3 million ($0.22 per share) compared to $21.4 million ($0.47 per share) for Q106, including restructuring charges of $11 million. Diversa has cash, cash equivalents, and short-term investments totaling $125.5 million.
Revenue increases were primarily from increased product-related revenue ($5.4 million, up 111%) and, to a lesser extent, from grant revenue.
The increase in product-related revenue resulted primarily from increased sales of Phyzyme(TM) XP enzyme sold through the Company’s collaboration with Danisco Animal Nutrition.
Gross margins decreased in Q1 compared to Q106, primarily due to increased sales of the Company’s zero gross margin inventory to Danisco Animal Nutrition and one-time marketing roll-out expenses for the new thermally-stable formulation of Phyzyme XP, as well as costs related to ramped-up sales efforts of Phyzyme in Europe following the recent expanded approval within the European Union.
The Company sells such inventory to Danisco at cost and then shares 50% of Danisco’s profit when the product is sold to the end user. The Company expects both its revenue and gross margins for the remainder of 2007 to be positively impacted by Danisco’s enhanced sales and marketing activities described above, as well as by the Company’s recent success in further reducing manufacturing cost of the active intermediate supplied to Danisco for these formulations.
In February of 2007, the Company entered into an agreement to merge with Celunol Corp. to create what it believes would be the first entity with integrated, end-to-end technologies to convert cellulosic biomass into fuel ethanol.
In addition to accelerating the Company’s strategy to pursue vertical integration within the biofuels industry, the Company expects that the proposed merger has the potential to enhance its existing enzyme business by providing access to a cellulosic ethanol pilot plant to accelerate the development of novel enzymes and enzyme cocktails for the production of cellulosic ethanol. Subject to receiving required regulatory and stockholder approvals, the merger is expected to be completed by the end of the second quarter of 2007.
In March of 2007, the Company announced the successful completion of an offering of 5.50% convertible senior notes due 2027 in a private placement. Including the over-allotment closing, which was completed after the quarter close, the offering totaled $120 million aggregate principal amount, resulting in net proceeds to the Company of approximately $115 million after applicable fees and expenses.
“During the first quarter, we made significant progress on several key corporate initiatives. In addition to delivering a record quarter for sales of our enzyme products, we also continue to progress on our merger with Celunol to create a world-class, vertically integrated company with end-to-end technologies to convert biomass into cellulosic ethanol,” stated Edward T. Shonsey, Diversa’s chief executive officer.
“Sales of Phyzyme(TM) XP enzyme continue to exceed our expectations, and we believe this trend will continue as Danisco has recently launched a new highly thermo-stable formulation of the enzyme and has received approval to market and sell Phyzyme XP throughout the EU. Because of our strong product sales, we continue to believe that product-related revenue will be a minimum of $28 million in 2007, which would represent a minimum 75% increase over 2006.”
About Diversa
Since 1994, San Diego-based Diversa Corporation has pioneered the development of high-performance specialty enzymes. Diversa possesses the world’s broadest array of enzymes derived from bio-diverse environments as well as patented DirectEvolution(R) technologies. Diversa customizes enzymes for manufacturers within the biofuels, industrial, and health and nutrition markets to enable higher throughput, lower costs, and improved environmental outcomes.
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