Diversa, a biotechnology company once known for searching the world to find unique enzymes to make better drugs, is now hoping to be the leader in a hot emerging market: biofuels.

The San Diego company announced yesterday that it would buy privately owned Celunol of Cambridge, Mass., creating the nation's first end-to-end biofuels processing company to turn plants and plant waste into energy.

Diversa said its expertise making enzymes for food, drugs and industrial processing could be used to increase the efficiency of Celunol's process for turning biomass into ethanol.

The combined company will be based in Massachusetts and run by Celunol's CEO.

By 2009, the company hopes to have built the first of several biofuel plants, each of which would turn corn husks, switch grass, wood pulp and other biowaste material into 25 million to 30 million gallons of ethanol a year to be added to gasoline, helping ease the nation's demand for foreign oil.

“The global market demand for alternative fuels such as cellulosic ethanol is potentially massive,” Celunol CEO Carlos Riva said. “We believe the combined strengths of both companies will enable us to accelerate commercialization of cellulosic ethanol by leveraging our skills and proprietary knowledge into large-scale biofuels project developments.”

Under the acquisition plan, Diversa would issue 15 million new shares of its stock, valued at $155 million, to shareholders of privately owned Celunol. Diversa would also make up to $20 million in debt financing available to Celunol before the deal is finalized.