Yield10 Bioscience Inc (YTEN) 2008 Q2 法說會逐字稿

Welcome to the Metabolix, Incorporated second quarter 2008 earnings conference call. Today's conference is being recorded. At this time all participants are in a listen-only mode. Following the presentation there will be a question and answer session. Instructions will be provided at that time for you to queue up for your questions. Now I'd like to turn the conference over to Kathleen Heaney. Please go ahead.

Thank you. Thank you and good afternoon, everyone. Metabolix released second 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 presentations today will be Richard Eno, President and Chief Executive Officer of Metabolix, Joseph Hill, Chief Financial Officer of the company. They are also joined by Oliver Peoples, Cofounder of Metabolix and the Chief Scientific Officer.

Before we begin our formal remarks, I need to remind everyone that part of our discussion today will 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 the 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 Rick Eno, president and CEO of Metabolix. Rick?

Thank you, Kathleen. I'd like to welcome all of you to the second quarter 2008 earnings conference call for Metabolix. Today I will be providing you with a review of the Metabolix vision and update on our progress with Mirel, our first commercial product, and highlights of recent activities across our other platforms. Joe will then take you through the financials. All in all, I am quite pleased with our progress and the current financial position of the firm.

For those of you new to these calls, Metabolix is a biotechnology company which is focused on bringing environmentally friendly solutions to the energy, chemicals and polymers industry. We're developing and commercializing pathways and products that lessen the world's dependence on oil, reduce the CO2 footprint of traditional materials and address critical solid waste issues.

We are founded on hard science and have exceptional capabilities in plant science, in fermentation microbial and polymer engineering, and in market development. We currently have three business platforms. The first, Mirel, a bio-based, biodegradable plastic currently being commercialized with our partner, Archer Daniels Midland. Second, C4 chemicals platform. And third, our plant-based activities, which include switchgrass, oilseeds and sugarcane.

With that context, I will now provide you with highlights of recent activities across all three platforms. First, Mirel. Mirel is our initial commercial product of bio-based and biodegradable polymer being commercialized through Telles, our joint venture with ADM. During the second quarter we made significant strides in our development of the Mirel business.

I'd like to summarize Mirel's value proposition and highlight the great opportunity that it presents. Mirel is the latest generation of biodegradable plastics, which offers many unique advantages that other bioplastics do not have. Mirel bio-based plastics combine the broad functionality and performance of petroleum-based plastics, such as heat and water resistance, with the broadest spectrum of biodegradability, including soil, home and industrial compost, septic systems, wetlands and the ocean. It is a high performance bioplastic.

To validate this, Mirel resin recently received Vincotte 'OK Biodegradable Soil' and 'OK Biodegradable Water' certifications. These certifications demonstrate that Mirel-based resin is inherently and ultimately biodegradable in soil and water at ambient temperatures.

Vincotte is an international certification body headquartered in Belgium. It provides a wide range of services in quality, safety and environment related areas and is internationally recognized as a certification body. According to Vincotte, we are the first U.S. polymer company to receive these certifications. We are quite excited about this validation of the biodegradability of Mirel.

Let me now review the market entry strategy for Mirel. Our market development activities remain focused on six specific segments where the combination of Mirel's properties result in a unique offering. As a reminder, these segments are packaging, compostable bags, consumer products focusing on cosmetics, gift cards and other products you would commonly find on the retail shelves, business equipment, agriculture and horticulture, and marine and water applications.

These six segment represent over two billion pounds of annual demand, growing at 5% per year. Just the growth in our Target markets is sufficient to fill out our first plant. As we proceed with market development for this product, we are currently product constrained. We have hundreds of opportunities on hold until our world scale plant begins commercial production in Q2 of 2009.

As such, our market development strategy has focused on proving out the material across three critical enabling technologies that allow polymer to be converted into useable products. These are sheet, film and injection molding.

These three processing technologies allow us to serve the six market segments that I described a moment ago. While our work with Target and its gift card effort has indicated the viability of our sheet product, this latest quarter was very important to us and the future growth of the business as we signed two agreements. These indicate our capabilities in the other two key processing technologies, film and injection molding.

First, we entered into an agreement to supply Mirel resin to Heritage Plastics for the production of BioTuf compostable film. Heritage Bag Company, the largest U.S. manufacturer of compostable trash bags, can liners and kitchen compost bags, is working in conjunction with Heritage Plastics to develop a new line of BioTuf compostable bags using Mirel.

The global compost bag market is in excess of 250 million pounds per year and growing at 15% per year. This market is highly aligned to Mirel's value proposition and we are excited to be working with the North American market leader. The work we are doing here will be a springboard into other film applications across our target market segments.

We also announced an agreement with Labcon North America, a manufacturer of laboratory supplies who use Mirel for the production of its new Pagoda pipette reloading system. This system uses Mirel for the injection molded tray that holds the pipettes in place. This application indicates our ability to perform commercially in precision injection molding applications requiring heat and chemicals resistance, dimensional stability and durability.

Labcon is enthused about Mirel and is expected to utilize the product across a number of its applications. Labcon offers over 800 products globally and produces over a billion units per year. We look forward to providing future customer updates as the year progresses.

Now onto our pipeline. Another way that we measure progress towards an effective Telles business startup is to monitor the identified potential demand for each prospective customer application for the 2010 production year. This process enables us to forecast a forward-looking estimate of potential which is based on discussions with and analysis of our customer prospects. As a reminder, our customer prospects are not committed to purchase these amounts, nor have we received orders for these amounts. But it is an important exercise that helps us gauge demand.

The last time we spoke we reported that our pipeline related to non-food contact applications was about 74 million pounds, reflecting growth of 18% over the previous period. Since that time, non-food contact applications have grown to 85 million pounds, an increase of 11 million pounds, or 15% over this period. We expect this volume will continue to grow.

In the near term we'll be focusing our business development efforts in utilizing pilot plant material to drive the current 85 million pounds towards firm purchase commitments. Note that all of the above volume is non-food contact and we are confident that there is more than enough non-food contact demand to fill out Clinton 1.

I'd now like to update you on the FDA process. As you know, we are pursuing a Food Contact Notification process with the FDA. During the second quarter we prepared and submitted a pre-notification document to the FDA as planned. While we requested a meeting with the FDA, they wished to provide a written response to us in lieu of a meeting and we're still waiting on the FDA response. We believe that the response will contain much more detailed feedback than would have been possible in a face-to-face meeting, thus being constructive towards the preparation of the formal dossier.

Preliminary verbal feedback from our FDA outside counsel is very optimistic of our application and its ultimate prospects and we expect formal written comments from the FDA in the coming weeks. Assuming that the written comments are consistent with our expectations, we will move ahead with the preparation of our formal dossier. After submittal of the dossier, the FDA has 120 days to recommend any additional testing. If no additional testing is required, we are free to pursue specific food contact segments consistent with our business strategy.

While our guidance is broadly consistent with our previous call, we are still unable to precisely determine the timing of the Food Contact Notification, as it is very dependent on specific recommendations by the FDA. We still are very confident that we'll ultimately receive food contact approval but remain focused on no-food applications, reflecting the uncertainty associated with the process.

I'd now like to discuss the progress of our Clinton plant. The facility remains on track to deliver product to customers in the second quarter of 2009. The weather has been quite good for construction over the last couple of months and the Clinton site was not affected by the flooding reported in other parts of Iowa. In coming calls we'll be providing more detail on startup schedules and commissioning plans for the asset.

In addition to the above accomplishments, Metabolix and ADM have been working together extensively to establish the infrastructure and operating processes for the business. We have ongoing work teams establishing our fundamental business processes around quality assurance and control, supply chain and logistics, compounding and customer service.

All laboratory, maintenance and shift supervisors have been hired by ADM and they are currently undergoing training and working on detailed operating manuals for the business. We are ensuring that the structures will be in place to support our Q2 2009 startup.

Let me now move on to the other Metabolix platforms. These represent other value creation opportunities for us beyond the Telles venture. In C4 chemicals we are making good progress on execution of our ATP grant, which is a $2 million grant aimed at producing C4 chemicals from renewable sources. We are pleased with our technical accomplishments and are applying for patents on some of our more recent inventions. We aim to update you in more detail on this program during future calls.

In Metabolix we have a wide range of ongoing plant science activities. A major milestone this quarter was the publication in a technical journal of our ability to transform switchgrass. In recently completed greenhouse trials, we applied our multi-gene expression technology to produce PHA bioplastics in switchgrass. Switchgrass is considered a premier crop for conversion into cellulosic ethanol.

We believe we are among, if not the world leader in being able to transform this crop to express value added traits. We are working to further apply this technology to maximize the potential of biomass crops with both bioplastics and biofuels production as well as to increase the overall profitability of the cellulosic ethanol value chain.

We've also made good progress in our oilseeds work. While we cannot provide you with much detail at this point, we are quite comfortable with our technical success. We are preparing a strategy for regulatory approvals and examining options for commercialization. All in all, we are very excited about our plant science capabilities.

In summary, we continue to make steady progress against our milestones. We have moved Mirel closer to commercialization in manufacturing, in market development and in establishing an operating business infrastructure. We feel that our longer term portfolio is aimed in the right direction and we are making good progress against our internal milestones, and our switchgrass announcement is a good indicator of our future progress. With that, I'll now turn the call over to Joe for a discussion of the financial results of the quarter. Joe?

Thanks, Rick, and thank you all for joining us today. The past four months has been an exciting time for both me, in my new role as CFO, and for the Company, as we've made significant progress towards the commercialization of Mirel and, as Rick mentioned, we continue to move along advancing other projects.

Our goal at Metabolix is to continue to deliver on our commitment to grow the Company. We are accomplishing this across various platforms, with our overriding goal to develop and commercialize products that reduce our dependence on fossil fuels while at the same time reducing our CO2 footprint of traditional materials.

During the second quarter ending June 30th, 2008 we made significant progress across our three platforms and are excited with the great opportunity it presents. We are highly focused on key segments of the market where the opportunity is greatest.

Now onto the financial results. As most of you know, Metabolix currently manages its finances with an emphasis on cash flow. We maintain a strong focus on cash flow and take a disciplined approach to managing our operating cash. We ended the second quarter of 2008 with over $100 million in cash and investment balances. For the three months ending June 30th, 2008, our net cash used in operating activities was $3.8 million as compared to net cash used of $4.5 million during the first three months of 2008.

Capital expenditures in the quarter were low at $100,000. Our cash burn rate associated with our operating activities does continue to grow and to track in line with plan. We expect our cash utilization will continue to increase quarter-over-quarter as we expand our pre-commercial production and invest in our sales and marketing infrastructure as well as our research and development.

Our GAAP net losses for the quarter -- for the second quarter of 2008 was $8.9 million as compared to a net loss of $7.7 million for the second quarter of 2007. As expected, our second quarter loss is greater than the cash used in operating activities. As we've discussed before, all of the payments we receive from ADM are recorded as deferred revenue for GAAP purposes and therefore do not appear on our income statement.

During the quarter ended June 30th, 2008 we received a payment of $1.6 million and through June 30th, 2008 we've receive support payments totaling almost $16 million from ADM. The deferral of recognizing payments from ADM will continue until commercial sales from the Clinton plant are reached. We also recognized non-GAAP stock-based compensation expense of $1.1 million on a GAAP basis, which also leads to reported net loss exceeding cash used in operations.

Let me now give you some additional detail on the Company's financial results for the second quarter 2008. The three months ended June 30th, revenues totaled $400,000 as compared to $200,000 in the second quarter in the prior year. This revenue was mostly attributable to our grant revenue payments from ATP for C4 chemicals research as well as from the strategic environmental and development program. Revenues for the second quarter of 2008 also include a nominal amount recognized from sample sales of Mirel.

As we grow the business, our expenses do continue to ramp up. Total operating expenses increased from $9.4 million during the second quarter last year to $10.1 million this year. This primarily reflects increased expenditures for product development and pre-commercial manufacturing. It also reflects new hires across the board in R&D, Sales and Marketing and Administration to support the growing business.

While we do not provide financial guidance, we think it'd be helpful to provide some insight on certain matters that may be useful to investors. As noted above, we presently emphasize cash flow rather than GAAP net loss in our management of the Company. Thus, the cash used in operations of $3.8 million for Q2 is indicative of our current operating profile excluding capital expenditures. However, we expect to continue to add to our headcount and other activities as we approach commercialization of Mirel.

Now onto the balance sheet. Our balance sheet remains strong. On June 30th, 2008 we had cash and short term investments of $101 million. We have no debt. We expect this capital will be adequate to build our sales and marketing infrastructure, conduct pre-commercial manufacturing, and to expand our research and development to build the Company.

Our work with companies such as Target, Heritage and Labcon speaks to the importance and validity of our product and the benefits it will bring our company and more importantly the environment. Our C4 chemicals and other initiatives also speak to other value creating opportunities for Metabolix. In summary, we're pleased with the progress we made during the second quarter on the commercialization of Mirel and with the increased interest by customer prospects. With that, we'll open the call to questions.

Very good. (OPERATOR INSTRUCTIONS). Our first question will come from Michael Cox with Piper Jaffray.

Good afternoon, gentlemen, and congratulations on the quarter. First, I was hoping you could provide an update, as you're looking at pricing of the Mirel product, with oil prices falling here recently, does that have any implications as you're discussing potential contracts with customers?

No. Thanks for the question. We've been providing price guidance of $2 to $2.50 a pound and it is really a value oriented price, disconnected in effect from the cost of oil. And we feel quite comfortable with that pricing level and feel it's being validated through our activities with customers.

Okay, that's very helpful. And then on the FDA process, I certainly appreciate the color you provided. But if you could venture a guess, what would be a likely scenario for receiving either approval or new marching orders on the food contact?

We -- I mean I think we've been as clear as we can be about outlining the timeline. And as our experience and others have shown, it's -- we don't have control of all steps of the process so we're going to move it ahead as quickly as possible and keep you updated. But to -- we can't really fathom a guess as to exactly when that process will be complete. But I think the communication we've had clearly outlines the steps and when we get written feedback from the FDA we'll move right ahead along that plan.

Okay, that's fair. And then in terms of the opening of the facility, it sounds like you'll be in a better position next quarter to provide a little bit more definitive guidance on the opening of the facility. Is that correct? Should we expect that in the third quarter conference call, whether it's the beginning of the second quarter or the end of the second quarter, when we start to see product flowing out of the Clinton facility?

No, I wouldn't expect that much more detail certainly for the third quarter call. I think as we get closer we'll be able to provide you with more detail. But as we've communicated in this call, we feel quite confident in Q2 2009 but it's premature at this point to try to pick which month in Q2 of 2009 we'll have product coming out.

Okay. And then my last question, just housekeeping, could you give us the headcount at the end of the quarter?

Our headcount at the end of the quarter was 85 heads.

Okay, very good. Thank you very much.

Our next question is from Michael Carboy with Signal Hill.

Good afternoon, ladies and gentlemen.

Hi, Michael.

Rick, could you elaborate a little bit on the switchgrass situation and give us an idea are the -- is the PHA yield from the bacteria in the switchgrass -- or I should say from I guess the cells in the switchgrass at a similar level to what we're seeing coming out of the bacteria that are being contemplated for [first applications] in Mirel?

Let me give you some further color. Thanks, Michael, on the switchgrass announcement. The technical journal indicates the results in quite a bit of detail. But in essence, we've achieved 3.7% PHA in the leaves of the plant, 1.2% in the overall plant itself.

And it's interesting when you actually take reasonable yields, and you can run your own calculations, but at a 3% recovered polymer level in the plant, a 100-million gallon cellulosic ethanol facility being fed by switchgrass would produce about 100 million pounds of polymer. That gives you an indication of what that 3% number would apply to in a cellulosic ethanol value chain.

Okay, well, that's helpful. Is there any way to sort of compare that metric back to the current brew of bacteria that the PHA is now grown in?

Not really. And the microbial science is really there is no core product other than renewable energy. The product is the PHA whereas in the biomass cellulosic case, the PHA bioplastic is, in fact, a core product that's a minor component --

Okay, so --

-- quite different.

All right. And, Rick, could you elaborate a little bit on the FDA written response issue? Have your FDA attorneys given you any idea as to how often the FDA responds in [less of a] meeting form rather than in written form?

I don't have the statistics on that, but I believe that the FDA -- these pre-notification submittals are rather lengthy and I think the FDA wanted to ensure they had a chance to go through it rigorously. And we've been -- we've been told to expect very detailed comments on every page of the document.

But the guidance that we're getting is that we're quite optimistic about the submittal and we really even can't predict when they'll get back to us. We expect in the next couple of weeks, but we don't have control over that part of the process.

And there's no time fuse on that response requirement from them, is there?

That's right, Michael. Because certain parts of the FDA process have very specific time fuses, like after the submittal of the formal dossier you have 120 -- they have 120 days to comment. On these pre-notification documents, it just fits in with the [Q with] what they're working. But it's an important step to ensure that the dossier meets all their expectations. So we're actually looking forward to the detail that the FDA provides us.

Okay. And, Joe, could you give us a little bit more insight into the increase in OpEx? How much of that was tied to people rather than spending on specific research or development projects?

As we outlined in the Q, and in the Q it does speak about each of the areas as to how much of our expenses are payroll related versus program related, but if you recall, our headcount at the end of Q1 was about 80 heads and our headcount at the end of Q2 was about 85 heads, so the payroll spending was five additional heads and then the rest of it was program spending and product spending.

Okay, thank you very much.

Thank you, Michael.

Our next question is from Laurence Alexander with Jefferies & Co.

Hi, this is [Lucy Watson] speaking for Laurence.

Hi, Lucy.

Hi. I just wanted to ask which non-food application verticals are you guys targeting next of the six?

Well, we're targeting them all together. We're not picking one or another. Our entry strategy works across all those different -- all those six segments we outlined, so we're not sequentially going across one segment then another. If you look at our pipeline, it consists of applications across all six of those segments.

Okay. And I guess I'm wondering would there be a difference in product unit gross margins for film, sheet and injection molding applications or would they all be similar?

We haven't disclosed anything about the relative economics of any of the grades. We've been pretty consistent in our messaging around production costs and selling price.

Okay. And any updates on your longer term strategic plans for oilseeds?

Not much more, Lucy, than what we talked about in the call. We've been at it for about eight months now and we feel that in an eight-month period we've made exceptional progress. The Danforth Institute and ourselves are working well together. We're starting to get a really close look at the regulatory pathway. But technically, we're -- can't really communicate much right now other than to say that we're moving ahead and quite pleased with what we've been -- what we've managed to accomplish in an eight-month period.

Thank you.

Thank you.

Our next question is from Pamela Bassett, Cantor Fitzgerald.

Hi. Thanks for taking my call and congratulations on the announcement this quarter. You mentioned in the call that you -- that Mirel is now certified for biodegradability by Vincotte and I know that Mirel has also been certified by [ASTM]. Can you talk a little bit about how these certifications help you in your customer agreements or in negotiating with customers?

Yes, sure. As a couple of examples, we're working with potential customers right now, consumer product customers where they would like to certainly put the claim on the product that this is biodegradable in soil, in the ocean.

And having that independent certification is a huge step forward in just being able to say an independent party, not Metabolix, not ADM, have validated these claims. And that's been quite a positive attribute to have when we're in discussions with these parties because it gives them further confidence of the attributes of the material.

And each time you come up with a new grade and go to ASTM, is there -- what's the lead time?

I'm not sure if we're going to be taking each grade to ASTM -- run ASTM testing on each grade. But the example is the base polymer and it's on the order of months, not years, if that would help.

Okay. And can you give us an idea of what we should be thinking about in terms of next customer announcements, more coming in Q3 or are we going to have to wait until Q4?

Well, we're not going to provide specific targets with X number of announcements of customers for each quarter. What we will do is we'll be making announcements as they indicate the effective growth of the pipeline of the business approaching the Clinton startup or to indicate specific accomplishments, either in technologically speaking or penetration of one of our specific segments.

One of the issues, Pamela, that we've talked about on these calls in the past is that certain, for example consumer product companies, don't want announcements made. And that is in order to give them a first move or advantage in utilizing a product like Mirel in its application. So even if we move ahead on a contract with a company that is a brand name consumer products company, often we can't even announce it anyway.

So what we'll be doing is making announcements as they indicate our progress so people can gauge our progress. But we won't be promising X number of announcements over X period of time because, again, we don't have full control of that process. In many cases, we can move it right ahead and not announce it just because that's what the customer wants us to do.

And what can you tell us about plans for plants 2 through 4 in Clinton?

That's a good question because in the past we've noted that the footprint at Clinton is capable of handling a facility 4X the size of Clinton 1. And we're beginning -- we have not yet launched a formal effort to look at their growth plans for the business but we're beginning to get a deep insight into market potential for the material and looking at what configuration options we could pursue in the future for the facility.

But it's a little premature to put anything more formal out there right now. I do expect in the coming months we'll begin some more detailed work about the expansion of Clinton. But we really have just started talking about it in concept at this point.

So let's say you make a decision to move forward with one or even three more plants there, what kind of lead time are we looking at for those -- for the completion of those plants? I assume it's going to be shorter because the footprint is there.

Well, it is somewhat shorter but in reality these facilities usually take two to three years from the time you give it the go ahead to the time you're actually producing product out of them. And even with the footprint there, we would still have to presumably construct fermenters, we'd have to add some recovery capacity, which requires concrete, structural steel, fabrication.

And that process is typical with any construction process in the polymers or chemicals industry but you can figure two to three years. And what we would like to do is to be in a position that we're able to push that to the shorter end of that timeframe if at all possible. But it is a reasonably rigorous construction process you have to go through, even for a significant expansion like that.

So are you -- how much yield improvement do you think you can get from the first 110-million pound plant?

I don't think we've talked much about yield improvement.

No.

What we have said is when a new process gets commercialized in the chemical industry, or polymers industry for that matter, as it comes on-stream and gets sold out, typically the type of engineers we have in ADM and in Metabolix could try to figure out how to get additional capacity beyond the nameplate in that at modest capital levels.

And we've not predicted what that level could be but it's in -- typical experiences I've seen across the chemical industry it could be 10% extra capacity or so. But we've not studied that for our specific plant. We'll have to wait till we start up and indicate what we can expand the initial capacity of incrementally.

Okay. And did I hear correctly that in the switchgrass journal article at 3% recovered polymer level you can get 100 million gallons of ethanol and 100 million pounds of polymer or did I hear --

No, let me -- the article -- the technical journal itself describes in detail the technical accomplishments and those accomplishments are 3.7% polymer in the leaves of the plant and 1.2% across the whole plant on a dry weight basis.

The example I gave is if you want to get an order of magnitude understanding of what that means for the cellulosic ethanol value chain, a 3% recovered polymer level in plants in switchgrass, when that switchgrass is fed to a cellulosic ethanol facility would produce -- for a 100 million gallon cellulosic ethanol facility would produce on the order of 100 million pounds of polymer.

It's just largely to give an indication of what is that 3% or 1% mean from a commercial perspective. And those numbers will be refined over time but it just starts to put an order of magnitude on the potential business opportunity.

So is there a chance that this kind of co-product strategy could become commercialized in the same timeframe that you would build out your additional plants in Clinton?

We haven't talked much about the commercialization timeline for switchgrass. It would certainly take longer than what we could do at Clinton, no doubt about that. And our goal for the switchgrass process is to have commercially viable plants in field trials in three to four years. And just that timing would be -- just to get to those field trials we could certainly be in a position to have Clinton expanded almost at that time as well from the timing I just provided to you earlier in your question.

Okay, great. Thanks very much.

Thanks, Pamela.

Our next question is from JinMing Liu with Ardour Capital.

Hi, there.

Hi, JinMing.

I have a couple of questions related to your switchgrass program. I'm wondering, what kind of costs are we looking at for you to isolate PHA from switchgrass at the 3.7% yield from leaves?

We haven't -- we've not provided any guidance on that cost level and clearly there's a lot of technical work that goes into actually putting a cost level together that we would feel comfortable communicating.

So I think more of what we want to highlight at this point is that our long term technical programs are moving ahead quite nicely and we're actually beginning to formulate a business concept around switchgrass with some real significant proof of concept numbers. But we've not gotten at the point where we've provided any technical guidance around the recovery costs.

I see. The reason I ask is try to get a clue whether at the 3.7% or 1.2% level, expression level whether purification of PHA from switchgrass will be accretive or dilutive to the cellulosic ethanol plant.

I think the other thing, just to mention to be clear, we have not done -- [threw out] any guidance on those economics. But our goal is beyond what those numbers are I quoted. Those numbers are those that are quoted within the technical journal. And we've said in other places that we would like to get 5% to 7.5% in the whole plant. So our program in switchgrass is continuing and that technical publication is a very clear proof of concept of our company's capabilities to modify switchgrass.

Okay, thanks. My last question is about the two new contracts you announced during the last quarter. What's the timing of the supply to those two companies? Is it next year or this year?

Well, the primary supply for those companies, I mean we're going to -- they're our developmental partners, Heritage for film and Labcon for injection molding, and the real significant volume of course is when Clinton starts up in Q2 of next year.

We're going to keep working with them through the startup of Clinton because they're great customers to have and they continue to work with us on the nuances of the resin. But the real significant commercial volumes will occur only after Clinton starts up.

Okay. Do you have any idea what we should look at for the volume from Clinton [County] in the second half '09?

No, we've not provided any guidance on that. We talked to the polymer development cycle, which when you get a new customer it can take anywhere from nine to 18 months to move a potential concept into full production because the company has to test the resin, it has to test market it, and then scale it. But we've not specifically talked about the volume in second half of 2009.

Okay. That's all my question. Thanks.

Thanks, JinMing.

And we'll next go to a follow-up from Laurence Alexander with Jefferies & Co.

Hi. Just a follow-up question on production volumes. Do you guys have any more of a sense for what the impact of product mix might have on plant capacity? In other words, what your upper and lower limits might be on volumes, depending on what kind of applications you're producing?

No, Lucy. We've been -- we think that 110 million pounds capacity is a very good number to use at this point. So I would utilize that number independent of specific application at this point.

Okay, thank you.

And we'll go to -- return to Michael Carboy with Signal Hill.

Thanks for the follow-up. My question concerns the potential to expand the C4 technology. As I think about some of the comments your trade partners have made with regard to exploring biocrude, I'm wondering whether that is a more likely direction for other sugar sources outside the country than the fabrication perhaps of other polymers. Could I get you to talk a little bit more about that?

Michael, I'm not sure I quite get your question. Could you just clarify that for me?

Sure. Some of your trade partners have talked about their intended uses for sugar streams outside the country, in particular ADM has talked specifically about biocrude. And I'm wondering whether that is a likely area for the C4 technology that you folks are working on to be played out or whether you will explore use of sugar elsewhere outside the U.S. as a feedstock really for plastics rather than for petrochemical intermediates.

I think actually our intention would be to use sugars in this particular process as a feedstock for the C4 chemical intermediates that we're targeting. I think when you refer to biocrude, I know that ADM, for example, has a program on [paralysis] of biomass to make a biocrude feed into the [existing refinery] structures but we haven't looked at biocrude as a feedstock. We've looked in this case primarily at sugar feedstocks.

Okay, great. Thanks, Ollie.

And we return, then, to Pamela Bassett, Cantor Fitzgerald.

Hi. Thank you. Any plans about how you might move forward with both C4 and oilseeds in terms of partnering versus maintaining proprietary programs?

That's a good question, Pamela. The C4 chemicals, the scope of our work is largely around the existing C4 chemicals themselves. We're not creating a new molecule here. For example, we're working the [butane dial] value chain around tetrahydrofurane, PBT resins, GBL and we're working all the various pathways between them as we look for advantaged ways to displace petroleum-based materials.

Assuming technical success there -- and again, we've been at that program for I believe about 10 months now. Assuming technical success, my expectation is we would be looking to partner with someone that already participates in C4 chemicals because, again, we're not creating a new business here, we're actually coming up with a better way to produce existing C4 chemicals. So in that platform, I would expect a partnering strategy would make a lot of sense.

Now, in oilseeds, we are doing something that's pretty novel and different there where we're -- actually we can produce polymer within an oilseed crop. We can add a lot of value to that through providing a different revenue source to potential biodiesel feeds. We've got multiple revenue streams coming out of an oilseeds crop. And that's quite different than what's out there now. So in that case, I would expect we would certainly play a pretty key role in certainly the technology formulation along that chain and along many steps of that chain.

I think we'd be keenly looking for partners along the core agriculture part of that chain such as the plant doing the harvesting, the crop origination. But when you look at the technology and you look at the actual processing on oilseeds, I can see Metabolix driving that pretty extensively. C4 chemicals, on the other hand, I think drives us towards a partnership, as we're going to be basically playing an existing chemistry, with a different route of course.

Okay, great. That's helpful. And just as far as the types of deals you might do around C4, could it be for the entire platform or might you parse out individual chemicals or groups of chemicals?

We haven't quite gotten to that point of setting that out. But my expectation at this point is some of the various pathways would be more advantaged than others from the routes we're looking at and clearly we would be picking where we think the biggest economic advantage is to focus our commercialization efforts there. So it probably will begin with a subset of the [seeds so for our] chemical platform driven by where technically we have the greatest advantage versus incumbent processes.

I'm sorry, I meant would you be seeking multiple partners or one partner for the entire platform?

It depends exactly -- there are multiple pathways and it would depend on what the technical results prove out against those multiple pathways. So as I mentioned, it would be driven by where the economic advantage is greatest versus the incumbent.

So there could be cases where we're successful across multiple pathways, in which case there could be a broad-based C4 partnership, or it could be a case where we have one specific pathway to a given product in that value chain that is really advantaged and that may drive the -- that would definitely drive the nature of the partnership.

Okay, great. Thank you very much.

Thanks, Pamela.

We have an additional question here. It is Michael Cox, Piper Jaffray.

Thanks. Just one last quick question on the FDA -- or the food contact product. I'm curious if you have been working with customers as you're -- on product testing as you're going through this FDA approval process or is that premature at this point and then once the approval is granted, then you start that process?

We've put all of our food contact work on hold. We constantly get calls from our potential food contact customers, but we're running a pretty tight operation, we're trying to be careful with how we pursue this. And our resources are clearly aimed at non-food contact right now, reflecting that there's -- we feel there's sufficient non-food contact to sell out Clinton 1 and there's a lot of uncertainty with the FDA process.

When we work our way through the FDA process, then we'll clearly look carefully at what we have on hold that's food contact and decide which ones to pursue. But at this point, we're not putting very significant resources at all into any food contact applications.

Okay, thanks.

Thank you.

With that, there are no further questions. I'd like to turn the call, then, to Rick Eno for any additional or closing comments.

Thanks a lot. Well, in summary, thank you for all the questions and thank you for attending our call. We continue to move forward on both near and long term business platforms at Metabolix and we're enthused about the potential. And we'll keep you updated on the progress and we look forward to having you all join us again for our next quarterly call. Thank you for attending today.