Focus on Verenium and Cellulosic Ethanol

The last few years have brought the United States to a realization that many have feared for some time: Both our national security and economy is vulnerable to the vagaries of the oil markets. This is a stggering realization if you have the courage to really ponder it. Imagine, the most powerful country on the planet (at least until recently) is not in control of its own destiny. With this in mind, our leaders in Washington made a big push to ethanol in an energy bill passed a couple of years ago that included mandates and generous subsidies to quickly get production ramped up. Unfortunately, currently the only economical method in the U.S. to produce ethanol is with corn as its input. Unfortunately, corn based ethanaol has proven to be more of a problem than a solution. First of all, many believe the amount of fossil fuel needed to produce corn-based ethanol approaches or exceeds the energy output of the ethanol produced. Secondly, corn is a food staple and the increase in corn based ethanol production has had a direct effect on both food supplies and food inflation, as anyone who visits a grocery store can attest. That's were Verenium Corporation comes in.

Corn based ethanol has always been seen as a stepping stone to the ultimate goal of producing it from cellulosic ethanol. Cellulolsic ethanol includes corn stover, switch grass, and other forms of biomass. The problem has been that the technology to produce ethanol from these readily available, environmentally friendly sources, has yet to be proven on a commercial scale. That's were Verenium comes in.

Verenium is a company that came about as a result of a merger of two entities in June 2007:

1. Diversa Corporation - a global leader in enzyme technology and
2. Celunol Corporation - a leading developer of cellulosic ethanol process technologies and projects.

The pending energy bill, which passed with enough votes to make it veto proof, has new important incentives to transition our nation from unattractive corn based ethanol to cellulosic ethanol. Do your own DD about VRNM. Here is my short synopsis:

THE GOOD: VRNM has decades of enzyme research and hundreds of millions in accumulated R&D. The justified bad press on corn based ethanol has unjustly negatively effected the stock of VRNM which is developing the attractive cellolosic alternative. The pending 2008 energy bill recognizes the need to move from corn to cellulous and is very favorable in this regard with up to a huge $1.01 tax credit per gallon.

THE BAD: Cost overruns at the company's demonstration plant have put pressure on the company's finances and it will need to raise capital or find a corporate backer.

THE UGLY: The February 2007 convertible offering in conjunction with a call spread on its own stock was an expensive piece of financing sold mostly to hedge funds that short the VRNM stock as a hedge to its long position. As a result the stock price has and will be volatile.

Short Term CATALYST: The passage of the energy bill.

Simply put, the risk/reward profile of VRNM is very high. If VRNM can show in its current demonstration projects that it has viable technology to produce commercial scale cellulosic ethanol, it could become an easy 1o-bagger. If it fails or runs into major roadblocks the risk is your entire investment.

Do your own DD and pass this link on to those who may be interested.