In an effort to cut costs and boost late-stage opportunities, Diversa Corp. is cutting its work force by 85 people and dropping some of its programs, including its pharmaceutical work.

The move was hardly unexpected. In October, Diversa CEO Ed Shonsey warned that the San Diego company would have to reduce expenditures after reporting what he called "disappointing" third-quarter results. Diversa posted a net loss of $12.1 million, or 27 cents per share, for the quarter ending Sept. 30. The company's cash position was about $70 million.

"Historically, we have simply tried to do too many things," Shonsey said during a conference call. Following the October third-quarter figures, the company "began a top to bottom review" with two goals: to accelerate development and commercialization of late-stage products, and to reduce cash usage by "focusing on a smaller set of high-value opportunities."

"Assuming we are successful on both fronts, we should achieve profitability in 2008," he added.

On the chopping block is Diversa's pharmaceutical operation. The company intends to sell or out-license its small-molecule technologies, including the Soradins antifungal platform, recombinant natural product program, and high-throughput culturing technology.

"We intend to no longer strive to produce or sell pharmaceuticals," Shonsey said.

However, the company will focus more attention on its antibody-optimization program, through which it has ongoing collaborations with Princeton, N.J.-based Medarex Inc.; Berkeley, Calif.-based XOMA Ltd.; and Whitehouse Station, N.J.-based Merck & Co. Inc.

Diversa also plans to devote substantial effort to its alternative energy program, which Shonsey called a "multibillion dollar, high-growth area."

In July, the company launched its Ultra-Thin enzyme product for ethanol production. The enzyme is designed to operate at high temperatures and has a lower pH than other commercially available enzymes. It is marketed by Valley Research Inc., of South Bend, Ind.

In the area of alternative energy, "we have short-, medium- and long-term programs," Shonsey said. "In my opinion, it's the most exciting area."

Work also will continue in specialized industrial processes, as well as animal feed development. Diversa has an ongoing collaboration with Syngenta AG, of Basel, Switzerland, to develop enzymes for use in animal feed additives. Diversa recently delivered candidates, triggering a $500,000 payment from Syngenta.

The company will continue its collaboration with Bayer Animal Health for the Bayovac SRS vaccine launched in Chile in 2004. The vaccine is designed to prevent salmonid rickettsial septicemia in farmed salmon. Diversa manufactures the microbially produced vaccine, and Bayer Animal Health, of Shawnee Mission, Kan., handles marketing and distribution.

Diversa's remaining fish, poultry and swine vaccine candidates will be out-licensed.

Overall profitability is expected to be supported by increasing product revenue growth, from products such as the Ultra-Thin enzyme and the company's Luminase enzymes, which are for pulp bleaching, as well as the successful development and commercialization of its Purifine enzyme for oil processing, Shonsey said.

The staff cuts are estimated to cost $2.5 million, with charges recognized in the fourth quarter of 2005 and first quarter of this year.

The company expects to achieve yearly savings of about $9 million in compensation and through consolidation of the company's facilities. Further financial guidance will be released with the company's year-end financial data in mid-February.

Shares of Diversa (NASDAQ:DVSA) dropped 15 cents Thursday to close at $5.