Yield10 Bioscience Inc (YTEN) 2007 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for holding. Welcome to the Metabolix, Incorporated Fourth Quarter 2007 Earnings Conference Call. Today's call is being recorded. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session, instructions will be provided at that time for you to queue up for questions.

I would now like to turn the conference over to Kathleen Heaney of ICR. Please go ahead.

Thank you, and good afternoon, everyone. Metabolix released fourth quarter financial results after the market closed today. If you do not have a copy, one may be found on the website at www.metabolix.com in the Investor Relations Section.

Making the presentation today will be Jay Kouba, Chairman and Chief Executive Officer of Metabolix. Before we begin our formal remarks, I need to remind everyone that part of our discussion today may include forward-looking statements. These statements are not guarantees of future performance, and therefore, undue reliance should not be put upon them.

The company undertakes no obligation to update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this conference call. We refer all of you to our recent filings with the SEC for a more detailed discussion of the risks that could impact future operating results and financial condition.

With that, I'd like to turn the call over to Jay.

Thank you, Kathleen. I'd like to welcome all of you to the fourth quarter earnings conference call for Metabolix. I would like to open my remarks by noting that 2007 was a year of great achievement for our company, our first as a public company. We moved closer to full commercialization of Mirel, and we expanded our platforms to address a number of exciting future growth opportunities.

We have established Metabolix as a leader in industrial biotechnology and we are very well positioned to benefit from the transition of our economy from its dependence upon oil to one where sustainable and renewable platforms play a significant role.

Before I discuss our fourth quarter results, I would like to take a moment to discuss executive succession. In a few days, on March 17, Rick Eno will assume the position of President and Chief Executive Officer of Metabolix and will take over the reins from me.

We are very pleased, as Rick is a proven leader with deep knowledge and expertise in each of the three areas where Metabolix is applying its core technology; plastics, chemicals and energy. Trained as a chemical engineer, Rick has more than 25 years of professional experience in the chemicals and energy business and has held operating roles or led clients in financial, technical, marketing and commercial execution.

He has led organizations through periods of substantial growth and has deftly managed, through the challenges and obstacles that arise in that process. Rick has a deep appreciation for the contributions that people make to an organization. He is committed to the future that we are creating and is eloquent in speaking to that future. Rick will be a tremendous asset to Metabolix.

Rick will have a full agenda running the Company as soon as he starts, but he is eager to get out and build relationships within the investment community. We will hit the road shortly after his start date, meeting with analysts and investors and he will appear in a number of conferences over the remainder of the year.

Once Rick is installed, I look forward to resuming my role as Chairman of the Board. Serving as CEO has been a great experience for me and I believe the depth of knowledge I have gained will help enormously in conducting the work of the Board. While being CEO did benefit my future, my frequent flyer mile collection, I must admit I am looking forward to spending more time in my home town of Chicago.

On the senior management front, I should also note that our search for a CFO is progressing well. We are looking forward to making an announcement on a CFO appointment in the near future.

Now on to our fourth quarter results. In the fourth quarter, we made great progress in consolidating the significant changes in focus we announced last quarter. For Mirel, customer development activity was reoriented and advanced around the markets outlined in our last call.

We announced the national release of gift cards by Target using Mirel bioplastics. We made progress in the FDA application process for food contact, and on the construction of the Clinton, Iowa facility. Additionally, we announced the initiation of a program to develop an advanced industrial oilseed crop to produce bioplastics.

Now let me provide some of the details about these developments. First, Mirel. As we discussed on our conference call last quarter, we have refocused our marketing efforts, based upon exhaustive evaluation and testing, towards the segments where we believe we have the greatest market potential and strongest competitive advantage.

As a reminder, these markets are packaging, including compostable bags; consumer goods, including cosmetics and gift cards; consumer electronics; agriculture and horticulture; and, marine and water applications. These segments have an addressable market potential of approximately 2 billion pounds per year and are estimated to be growing at a rate of 5% per year. The growth rate alone would fill our initial plan.

Our customer pipeline continues to grow and evolve. One of the ways we measure progress towards customer purchase commitments is to monitor the identified potential demand for each prospective customer application for the 2010 production year.

I want to remind you that this provides a forward-looking estimate of potential, which is used for internal purposes and is based on discussions with and analysis of our customer prospects. This is not to be construed as an estimate of future sales or guidance on expectations. Our customer prospects are not committed to purchase these amounts, nor have we received orders for these amounts.

During the last call, we reported that our pipeline for all applications, including food contact, totaled 172 million pounds. Of that, the portion related to non-food applications was about 51 million pounds. Since then, with the realignment of our marketing efforts, we have grown this estimate of non-food potential demand for 2010 by 24% to 63 million pounds.

We are pleased that this growth occurred in spite of a slow down in activity during the holiday season as well as a realignment of our product development efforts to address the needs of these customers. With these developments in hand, we anticipate gaining momentum in our focus markets during the coming quarters and expect the growth of indicated 2010 demand to accelerate. There is a large opportunity set which is emerging and not yet reflected in these numbers.

As you know, we have been conservative in talking about our customers and making customer announcements. We have discussed our efforts with Target and are frequently asked when we might announce other customers. At this point, I would like to say that we are cautiously optimistic about making some customer announcements as early as second quarter. Our goal remains to achieve an indicated level of 2010 demand that is a multiple of the 110 million pound capacity of our commercial manufacturing facility.

I will speak to the FDA approval process in a moment, but we are confident that the capacity at Clinton can be sold out with non-food contact applications. As our focus markets represent 2 billion pounds of market potential, we remain excited by the response we are seeing in the marketplace and are comfortable with our prospects for a successful product launch and production ramp.

Now, let me bring you up to date on the FDA application process. We received a lot of questions about the FDA since our last call. I would like to make two things perfectly clear. One, we do not need FDA approval to fill out our first plant. Two, there is nothing intrinsic to Mirel that will prevent it from being cleared for food contact use. The question here is one of timing. In order to see our efforts in context, I would like to provide you with more background on what is going on and why this is a manageable issue.

During the manufacturing process, Mirel plastics are separated from residual biomass using a solvent extraction process. While the material is thoroughly washed, trace amounts of residual solvent remain in the finished plastic. Food contact issues can arise if those residual materials are present at even at parts per billion levels in extracts.

When we met with the FDA in October, at a pre-notification, we discussed with them our preliminary extraction work. They provided us with valuable feedstock concerning sample preparation, extraction protocols, and analytical protocols, as well as key metrics that they would want to evaluate in the food contact notification dossier.

Since that meeting, we have completed additional laboratory work and calculations following the guidance received from the FDA. We have also validated process modification that can impact levels of residual solvent. We are now prepared to conduct sample preparation and extraction studies following FDA protocols beginning in March, with results to be available in second quarter.

We intend to organize a follow up meeting with the FDA during the second quarter to discuss our conclusions and present a detailed approach for food contact notification. A favorable review of this will allow us to proceed with preparation of a food contact dossier. While this represents clear progress, the timing of food contact notification cannot be determined at this time, as it is dependent upon the specific data we get and the recommendations by the FDA.

So, in summary, we remain confident that we will have food contact approval for Mirel and we also remain confident that we can fill Clinton capacity with non-food contact applications.

Now, let me spend a moment discussing the Clinton facility. The timing of product availability from the Clinton facility has been projected to be December 2008. Construction continues to move ahead but much of the current construction work at Clinton has been impacted by this year's harsh Midwest winter. ADM is in the process of re-evaluating construction timing. We will provide you with further updates as soon as they are available to us.

Before I discuss the financials, I want to touch on one other of our new initiatives, oilseed crops. A key initiative for us is to expand our product platforms through proprietary technology and intellectual property. In February, we announced our most recent effort, a program to develop an advanced industrial oilseed crop to produce bioplastics. This is now the third crop [op] system to which Metabolix is applying its patented technology. As a reminder, the other two are switchgrass and sugar cane.

The technology that Metabolix has developed for multi gene expression in plants is broadly applicable and oilseeds are an attractive target because they offer multiple sources of value in a single crop. Additionally, the commercial infrastructure for non-food applications of oils in biodiesel and oleochemicals is well developed. Co-production of bioplastics promises to improve the economics of these industries.

As part of this initiative, we established a strategic research collaboration with noted oilseed experts at the Donald Danforth Plant Science Center in St. Louis and will assemble a team of scientists to work closely with them. We're very excited about this collaboration, which is supported financially by a $1.1 million grant from the state of Missouri. This initiative has the potential to expedite the commercial fulfillment of our plant sciences effort.

As we have discussed in the past, the demand for sources of alternative energy and bio-based products is rapidly accelerating and, with that, so is the need for biotech solutions to meet that demand. Metabolix is uniquely positioned at the forefront in the field of industrial biotechnology based on our promising scientific and engineering achievements.

I will now discuss the financial results of the quarter. As most of you know, Metabolix currently manages its finances with an emphasis on cash flow. For the three months ending December 31, we experienced net cash used in operating activities of $3.7 million, as compared to a net cash used of $0.8 million for the comparable quarter of 2006.

We spent $0.8 million for capital expenditures during the quarter, primarily for the expansion of our pre-commercial manufacturing facility to produce market development material. Our cash burn rate associated with operating activities continues to grow and track in line with plans. We expect our cash utilization will continue to increase quarter over quarter, as we expand our pre-commercial production, expand our sales and marketing infrastructure, as well as expand our research and development.

Our GAAP loss from operations for the quarter was $8.6 million, as compared to a loss of $8.4 million for the fourth quarter of 2006. Cash used for operating activities during the fourth quarter of 2007 was $3.7 million, as compared to $0.8 million during the same period in 2006. As expected, our fourth quarter loss is greater than the cash used in operating activities.

As we have discussed before, all of the payments we receive from ADM are recorded as deferred revenue for GAAP purposes, and therefore do not appear in our income statement. The deferral of recognizing payment from ADM will continue until first commercial sales from the Clinton plant are reached. We also recognize non-cash stock compensation expense on a GAAP basis, which also leads to a reported net loss exceeding cash used in operations.

Now, let me give you some additional detail on the Company's financial results for fourth quarter 2007. For the three months ended December 31, revenues totaled $0.9 million, which compares to $0.4 million in revenue during the fourth quarter of 2006.

During the fourth quarter of 2007, we received $0.5 million in license payments from a new licensing arrangement. As we grow the business, our expenses continue to ramp up. Total operating expenses increased from $8.8 million during the fourth quarter last year, to $9.5 million this year. This increase reflects new hires across the board in R&D, sales and marketing and administration support, growing the business.

In addition, we grew our expenditures for product development and for pre-commercial manufacturing. These increases were partially offset due to higher non-cash stock based compensation recognized during the fourth quarter of 2006.

Our balance sheet remains strong. On December 31, 2007, we had cash and short term investments totaling $109 million. This capital should be adequate to build our sales and marketing infrastructure, conduct pre-commercial manufacturing and make necessary commercial formulation investment and to expand our research and development to build the Company.

In summary, we are pleased with the progress we made during the fourth quarter in repositioning the Company's focus around the markets that play best to our competitive advantages and we look forward to focusing our efforts around those markets going forward.

With that, we will now open the call to questions.

Thank you. The question and answer session will be conducted electronically.

(OPERATOR INSTRUCTIONS)

We'll go first to Laurence Alexander with Jefferies.

Good afternoon.

Hi, Laurence. How are you?

Very good. I have a question on the ADM relationship during the transition. Can you just walk us through who will be handling the relationship with ADM?

Well, most of our operating relationship with ADM is really embedded much deeper in the organization than with me, so we have an operating business team with ADM that meets at least monthly and goes through all of the issues with respect to timing of the facility, technology transfer, product development, customer pipeline. So there are detailed discussions going on with ADM constantly. There will be a formal transition of executive relationships with ADM that has not yet been scheduled.

And as you look at sort of the news flow over the next six months in terms of the new contract wins, ADM revisiting the timing on the facility. And, so on -- what's your strategy in terms of informing the street? Is it going to be -- are you going to wait for the conference call to give us an update or is it going to be so as each item develops, and if you give an update on new customer wins, do you think you will be able to address pricing directly at that time?

So if we sign a contract with a customer, then we consider that, and we believe that is a disclosable event, and we will file disclosure immediately upon signature of those contracts. There may be other announcements which may be about market trials or relationships with customers that may be not contractual in nature, and under those circumstances, again, it would be governed by the willingness of the customer to disclose that.

So in general, Laurence, I think our strategy is that our preference is to disclose events as they occur and not wait until the quarter (inaudible).

And lastly, on the Clinton facility. Can you give a rough range or a probability range on how much it might be delayed, or is ADM sensitive on that topic?

ADM just initiated their study and so it would really just be speculation on my part. I really have no factual information other than our observations and communication from ADM over the course of the winter that this has actually been a very difficult winter to do exterior construction. And I think you can probably make your own estimates as to what impact that could have.

Fair enough. I'll drop back in queue. Thank you.

Thank you.

We'll go next to Brian Millberg, Piper Jaffray.

Hi, Brian.

Hello. The 0.5 million in royalty, was that the Abbott payment?

Yes, it was.

Okay. And that's going to be occurring every year, or can you refresh our memory on the payment schedule for that?

That's a one time payment.

That's a one time payment?

Yes.

Okay. I'd also heard a rumor that they've actually started building the second footprint to build out the plant. Is that true? Do you have any comments on that?

They, ADM?

Yes.

I'm not aware of that. The site is laid out at Clinton, Iowa, at ADM's corn wet mill facility and the Mirel polymer plant takes a feed of glucose from the corn wet mill plant. There is sufficient space and glucose supply at the site to potentially quadruple the production of Mirel at that site and so some of the design and some of the layout of the plant can accommodate, and is in essence, a pre-investment in that expansion.

Okay. And then one quick question on cash usage.

Yes.

If we look at 2007, it looks like around $4.5 million, $4.75 million average per quarter. Can you give some comment on continuation in 2008 any percentage bump in that? Obviously, it's going to go up as you move towards commercialization, but can you give us any color on that?

Yes, our cash has been more a little below $4 million, organic cash and operating activities, and we're at $3.7 million for fourth quarter. That number is really dependent upon the rate of recruitment into the Company. It's really personnel costs which are the largest factor in that. And we do plan to make some recruitment efforts to develop our newer platforms and to expand our product development activities in Mirel. And I think that we have, we're currently at a personnel level of 81, and I think that we'll be growing that over the next year but not rampantly.

Okay, very good. Thank you.

Our next to Michael Carboy with Signal Hill.

Hi, Michael.

Good afternoon, ladies and gentlemen. A couple of quick questions for you here. Let me just go back to the Abbott issue for a moment. I had understood that Metabolix was also to enjoy a carried interest in whatever product it was Abbott might be producing based on the licensed technology from Metabolix. Could you elaborate on that, please?

Yes, but it is a -- it's a running royalty that is incumbent upon product sales by Abbott. So we are not aware yet of a -- and have not been notified by Abbott of any commercializations of products based upon that license. And so we would not expect any payment under it until various commercializations.

And can you elaborate as to whether they are in FDA approval on that drug?

We do not have information as to what specific applications they will use the license for.

Okay. And, Jay, in your role as Chairman of the Board, maybe you could help us understand the dynamic that the Board had to weigh in terms of bringing in a chief executive with regular, with a decade of operating experience, versus an individual who had more experience in the consulting and the soft side of the world.

And I recognize that Metabolix is more of an IP entity right now than a manufacturing entity, but still, it's sort of an interesting set of choices and pros and cons and I was hoping you might tell us a little bit more about how the Board thought about all that.

Sure, I'd be happy to. So as we look forward as to what Metabolix will actually be over the next five years, the Telles venture will be a joint venture and the operation of the Mirel plastics business will be within an operating joint venture within Telles. So it will not be directly operated by Metabolix, but rather, we will have influence and management of that through a board of directors.

And so, as we look forward as to our other platforms, much of what we will be doing over the next few years is really commercial development in terms of establishing partnerships, in terms of understanding of value chains, agricultural value chains or chemical value chains and positioning ourselves with relationships and alliances that are appropriate to the new business platforms that we're developing in C4 chemicals or in oilseeds or in switchgrass.

And beyond that, there is a number of portfolio questions really about what is the scope of our developmental activities beyond Mirel and how do we drive the development of those business options. How do we decide how many are in that portfolio and which one, based upon the commercial and economic value of those business options.

So we did look at a variety of candidates who ranged from extremely operational to much, more conceptual and strategic, and our belief was, is that Rick actually is a very good balance of being able to and having -- and a lot of time, actually making the kinds of decisions that will actually face Metabolix over the next five years in terms of joint venture governance, joint venture influence, as well as commercial development activities and understanding value chain.

So we think that the kind of deep understanding that Rick has, not only about the specific markets that we're in, but experience in the kinds of decisions that we'll have to make, is just going to be extremely valuable to Metabolix going forward.

Okay, and --

And I should add beyond that, Michael, is that we have a very strong executive team with tremendous operational experience. So we didn't feel that it was absolutely necessary to replicate that in the CEO.

You've touched on this issue of value chains. You know, you have several different legs that can be developed on the agricultural front here for Metabolix. How do you think about the rates of return those three different legs can generate, whether it's sugar cane based, whether it's switchgrass based or whether it's oilseed based? How should investors think about the potential economic value of those three legs?

Yes, I think that the switchgrass and sugar cane are more difficult to evaluate at this point in time because of the exact, the more specific manifestation of those -- I should say, in the switchgrass case, in particular, the specific manifestation of that business is yet unclear because a biomass based energy business, which is based upon switchgrass, has not yet emerged.

And that will be a key economic element of a business involved in switchgrass. So as cellulosic applications of switchgrass or direct energy business models of switchgrass emerge, then we will be able to map into those (inaudible).

The sugar cane is, I guess, we can look at that in terms of a value add within that. We think that the entry costs into that will actually be fairly high because of the scale of the business in terms of extraction of PHAs from the gas, the sugar cane refinery. So we think that the entry costs will be high.

We are attracted to the oilseed business because the entry costs will be relatively modest in that the existing sort of economic systems and structures are already in place. In any of these, our belief is that the returns on those businesses will be of the same order of magnitude as the returns within Mirel and actually give us also a potential variety of applications beyond high polymers.

So, I think that instead of looking at the differences between those in terms of potential returns between the three crop alternatives, I would look at it more in terms of a temporal difference where our belief is that the oilseed is something that we can actually accelerate the commercialization of a crop based system and actually help us accelerate, once that is in place, actually build a system where we can accelerate the other two options as well.

Okay. And last question here, on the mundane front. There has been a lot of press recently about the run up in agricultural grain prices, in particular, corn. Could you elaborate on the corn syrup costs and how that metric moves around, vis a vis, corn bushel pricing?

Well, the arrangement, as I've said to many of you, the contractual relationship arrangement with ADM is that we are afforded a glucose price which is a net price at the Clinton facility which basically gives us access to the same byproduct credits that ADM enjoys because they have a corn wet mill.

So, the net price of feedstock to us is dependent not only upon the price of a bushel of corn, but the value of corn gluten meal and other corn oil and other products of the corn wet milling process. So if those materials move around, that does impact our net feedstock costs.

We have given estimates in the past that a dollar a bushel of corn changes the cost structure of Mirel by $0.10 a pound. And, again, recognize that we are marketing Mirel as a premium material and have an expectation of relatively high growth margins. We don't expect our pricing to be driven by corn prices.

Okay, thank you.

For the next, Pamela Bassett with Cantor Fitzgerald.

Hi. Thanks for taking my call. I wonder if you could give us an update on the progress in the focus market segments -- where are you with respect to formulation and moving forward in the mechanics of producing products in each of those market segments?

Yes, I guess I can't speak to them specifically. Let me just say that we have -- we've been focusing our product development efforts on application areas where, which are more relevant, which are specific to the market segments that we chose and de-emphasizing product technology that is focused on food contact applications.

An example of that is that the largest application for paper coatings would be in paper cups, hot cups, and those -- and so we have de-emphasized that product development effort and are focusing much more on film and injection molding and [fold].

And I should say -- but -- so there has been a realignment of our product development efforts to support the market development efforts that we have underway. We have a lot of interest, in particular, in injection molding and in film application and the numbers I gave don't really reflect that emerging interest that we have developed and focused on over the last four months.

I should say that the interest of our potential food contact customers has not diminished at all and they continue to be interested in Mirel and will, I believe, re-emerge as soon as we have food contact [of] Mirel product. Is that helpful, Pamela?

Yes. It's always helpful. With respect to FDA and extraction studies and toxicity studies, if I heard correctly, you're starting those in March.

Correct.

And these will all be conducted according to the guidance you received from FDA. And remind me -- did you say is there some standard amount of time that these tests will take?

But there isn't a standard amount of time that the tests will take. So there is not a specific set of information that you must give to the FDA. And that's really the purpose of having pre-notification meetings with the FDA to make sure that you're on the same page with the FDA. And they're very helpful about telling you what they will be looking for and what kinds of things they have concerns about and what kinds of things they don't have concerns about.

So the process is that we will go through is that we will do a set of sample preparation and extraction experiments and our intention is to set up a meeting with the FDA in the second quarter and discuss that with them. And if we get a favorable response from them, then we will put together that information in a dossier. If we don't, then we will go back and we'll do more studies that are consistent with their advice.

So it's fair to characterize this as an iterative process where --

We'll get to the point where we're going to submit a food contact dossier and the process is that when you submit that, you are notifying them that you will use the material for food contact applications and they have 120 days to object. Well, you don't want to put yourself into a position to be objected to, so that once we submit that, we believe -- we will do that under the circumstance that we believe it will be approved.

And following that, it should be 120 days and we should be able to market it for food contact material. So this is not a long drawn-out process. This is a process of [iteratively] getting to the kind of information and understanding with the FDA about what constitutes a dossier that can be approved, putting that together and then a four-month process of their evaluation.

Great, thank you. Two other hopefully quick questions. One, can you lay out briefly the timeline for oilseeds, for the oilseed program? And, second, can you tell us a little bit about what we might expect in terms of partnering activity over the next year or two?

I guess we're not quite ready to disclose the time frame for the oilseed, but I do want to be clear that we are not simply doing laboratory work in this area. We are doing laboratory work in creating new strains of oilseed.

We are simultaneously looking at intellectual property issues, looking at regulatory issues around doing field trials, planning for scaling our plant production so that we can do a field trial, and establishing relationships within the commercial part of the industry and potentially looking forward to alliances.

So we are approaching the oilseed in a really comprehensive way so we can move it forward as a commercial enterprise as quickly as we possibly can. The implications of that is that if it is appropriate for the development of that business that we will make alliances. And those alliances could be partnerships, they could be buy-sell relationships, they could be co-development relationships.

But we will establish partnerships in that area to the extent that they help us execute the business proposition that we have in mind. And we're choosing to work on the oilseeds because we think that this is something that we can progress rapidly.

Great. Thanks very much.

We'll go next to Scott Reynolds with Thomas Weisel.

Hey, guys, it's actually Jeff Osborne at Thomas Weisel. Can you hear me?

Yes.

Excellent. I just had a couple of quick questions. Most of them have been answered at this point. On the FDA side, you mentioned the impurities level in this testing that you're doing in terms of parts per billion, or million -- I forget which one it was you said.

Billion.

Billion, great. Is there any applications that the FDA looks at that would have less stringent requirements versus other applications, or are they all the same?

They have different applications for wet food versus dry food but, frankly, our interest is in actually getting the broadest possible coverage that we can. So we'll try to pursue as broad of an application as we can. But the only thing I know about is dry versus wet because there's different extractability.

Meaning wet is more stringent versus dry?

Right, if you have dry food in contact with a solid material that the potential for extraction of residues into the food is significantly (inaudible).

Very good. And then, just my last question was on the ADM side. At what point do you think that this review that they're doing will be finished and how do you expect to convey that to the market? Would it be in conjunction with an earnings call or via an 8-K or at a conference?

My -- so this is an internal process within ADM. I mean, they're constructing the plant so I really can't speculate on how long this will take or what the outcome of that is. My belief is that as soon as we have clear information from ADM that ADM and Metabolix will have consistent discussion of what the outcome of that is. I'm not -- I guess my view is that we'll probably talk about that as soon as the information is clear.

Got you. And, just to be sure, everything in terms of the delay that they're reviewing is weather related? There's no equipment delays or engineering and construction delays in terms of getting people on site? Anything like that?

Yes, I mean -- we see -- we have constant conversations with ADM and this has been a very difficult winter. I don't know if you've followed the weather in Iowa, but it's been very cold and particularly snowy this winter in Iowa so we feel we're doing some exterior work in terms of steel work and concrete work, and that's very difficult to accomplish in (inaudible) [conditions].

Very good. Thanks much.

Sure.

We'll go next to JinMing Liu with Ardour Capital.

Hello?

Hi.

Hi. I have a couple of questions. The first one is about if there's potential delays for the Telles plan, should we expect increase in terms of costs in terms of construction, from construction costs?

We -- I guess not necessarily. The cost of building a plant is generally the cost of the labor which is often half the cost of constructing a plant and then equipment and materials. There should be no impact on equipment and materials. And you generally put into these kinds of construction projects, contingencies around either rising materials costs or labor. And we have appropriate contingencies built into this plan. So we have no evidence at this point that the cost of the plant is rising.

Okay, the next question is about the usage after 2009 production of PHA. Should we expect that your company (inaudible - highly accented language) that productions with [2009] or pre-commercial trials like what they are doing today, or is all those productions 2009 are for sales?

Oh, yes, so when you look at our production capability for today, and if I'm, I'm trying to get the numbers that Johan described to me, but the production -- it's something like the production that we can make in a month at our development facility will be made in one day at Clinton. So we need to move to commercial sales immediately upon the start up of the Clinton facility.

So as we move into the 2009 year, then the plant -- when the plant starts up, the situation at that point in time is that we will either be production limited in that the rate of ramp of production at the plant will be limiting our sales or we will be sales limited, in which case the rate of development of customers will limit our revenues. And either one of those situations can be the case when you bring a new facility with a new product on line.

I see. Is there any indication of potential 2009 demand at this moment?

We haven't set any guidance on that.

Okay, fair enough. My next question is about your C4 platform and I know that there are other similar approach, like using ethanol to produce polyethylene. Can you address that? Are those (inaudible) competition against your C4 platform?

Yes, so the C4 platform is about using fermentation to make C4 chemicals, which are a particular set of chemicals, which include butanedioyl, gamma butyrolactone, N-methylpyrrolidone, vinylpyrrolidone, and polyvinylpyrrolidone. And this is a set of chemicals with a broad range of application and they're used as solvents, as polyols in polyurethane application, as polyols in Spandex, as monomers in engineering polymers, as well as the pyrrolidones are used in personal care products.

So by being able to produce these materials which we believe that we can do economically relative to petrochemical processes, we believe it gives us access into this market of 2.5 billion pounds growing at 5% per year.

Okay.

Differentiate this from some of the other things that are happening in the industrial biotechnology area, one of which is the announcement of making ethylene from ethanol, which has been announced by both Braskem and Dow. Their intention of taking ethanol in Brazil and then converting that to ethylene and then operating a standard petrochemical process for producing polyethylene.

So I think these are examples of companies looking at essentially the same, not the identical space, but other spaces within the industrial biotechnology and trying to understand how we can develop sustainable and renewable resources for the chemicals and plastics.

The bottom line is you're targeting applications off of the C4 platform is that whether the unit price is higher than polyethylene? Is that -- I should assume that?

Oh, yes, the C4 chemicals -- and the reason actually we chose that as a target, is indeed that these are fairly high value materials in the marketplace today.

Okay.

And their price points are established and the markets are large and well known. And so, yes, we picked them because, indeed, they have higher price points than ethylene and polyethylene.

Okay. So my last question is can you give me an updated number about the numbers of potential customers and/or applications?

Actually we didn't prepare those at this time, but -- and I would have to evaluate that. We have far more potential customers and applications than we can manage.

Okay.

So we're actually being selective about which particular applications we bring forward in our process. But we are -- when we ultimately have customers for our plant, our intention is not to have 100 customers. Our intention is to have a few dozen customers that will be able to fill out the plant with applications in the 1 million to 5 million pound range.

Okay, thanks.

Thank you.

(OPERATOR INSTRUCTIONS)

At this time, we'll go next to Laurence Alexander with Jefferies.

Yes, Jay, two quick questions. First, can you just give an update on the Board's philosophy about the comfort zones on the cash burn and cash balance, given the number of platforms that you will be juggling over the next couple of years?

Yes. I guess we're all very comfortable with our rate of cash burn and recognize, as we go forward, some of our cash burn right now is directly related to Telles and Mirel and some of that is in the development of new platforms.

Once we go into the commercial phase for Telles, then the costs associated with Telles, the cost directly associated with Telles on product development, marketing and sales -- all of those costs will be covered by the joint venture -- by the cash flow of the joint venture.

And today, some of those costs -- those costs in our organization -- are in excess of the support payments that ADM is providing for us. So there's a piece of our cash flow that we will decline once we move into the commercialization phase for Mirel. So our current cash burn is less than $4 million a quarter and we have $109 million in the bank.

Our belief within the Board is that we should maintain a prudent cash flow position and that we should expand our resources within the Company consistent with rapid development of our technologies but not in a imprudent, at an imprudent rate.

I think that as we look forward -- as you know, we have registered a [shelf] for new equity and our view is that we would like to have very clear disposition of funds before we would make a significant issuance of new securities. And I think that we believe if that emerges with the development of our C4 program or any of our crop programs that we will have funds to pursue those however we choose to do it.

And the second is, just very quickly, on the -- Metabolix has several layers of IP protection about both the processes and the handling, as well as the underlying technology. Do any of those layers represent an obstacle for either Meridian or Tianjin Bioscience, your DSMs a new partner in the PHA market. I mean, are they going to run into an obstacle once they get down towards the processing of the plastic?

Well, I'm not qualified to speak as an intellectual property lawyer, so we believe -- so let me just make a broad statement here. We believe we have very broad coverage in PHA, genetic modification to make PHAs in the recovery of PHA plastics in certain PHA copolymer compositions, in product formulation compositions, and in processing of Mirel plastics. So, we believe we have very strong intellectual properties in this area, and we will aggressively defend our IP.

Okay, thank you.

The next is Brian Millberg with Piper Jaffray.

Thank you. One real quick question. I've been looking at plastic prices and it looks like over the last three or four years it's been about a 6% increase each year. Are we still looking at a $2.00 per pound guidance price for your plastic when it does come out in 2009, or have you thought about changing that number?

We're still talking to people about $2.00 to $2.50, and again, we will negotiate the specific prices as we negotiate contracts. But again, we're not really necessarily positioning our pricing relative to specific existing petrochemical polymer grades. We're pricing it to the value that it creates for our customers.

And then, perhaps this is a somewhat touchy issue. But can you tell me where your cash is?

Yes, I think we announced that at the beginning of the year we had $190 --

No, I know what the number is.

Okay.

Physically where is it?

Where is it? Ah, yes. So we -- thanks for asking that question, because I actually prepared for it. We actually have moved our cash from investments in financial institutions to investments into corporate bonds and into treasuries. We want to make sure that we're not exposed to any of the challenges in the financial area and so we have purposefully made some choices to be more conservative in our investment strategy.

Very good. Thank you.

And for our final question we'll go to Michael Carboy with Signal Hill.

Thanks for the follow up. Jay, you had mentioned the notions of growth beyond the 24% [statistic] you had cited earlier. To the extent that the various product modalities you've discussed so far are in the growth numbers, what different modalities do you expect to drive growth beyond the 24% number?

I think we just see an expansion of - I should say, number of applications, so that -- the $62 million, I think I quoted, is the enumeration of a very specific set of applications that are within the market segments that we define. And within those same market segments there are many more applications that are emerging and so what we will see is that within our given market segments that we will essentially have greater penetration. Is that your question, Michael?

Yes, it is.

All right. Thank you.

Thank you.

We have no further questions at this time. I'd like to turn it to the speakers for any additional or closing remarks.

Well, thank you very much for joining us today. In summary, I'd like to say that Metabolix continues to set and meet our milestones. We will keep you updated on the progress on all these fronts, and look forward to speaking with you again at the end of the next quarter. Thank you very much.

Ladies and gentlemen, this does conclude today's conference. We appreciate your participation. You may disconnect at this time.