Yield10 Bioscience Inc (YTEN) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Metabolix Incorporated, fourth quarter and full year 2010 earnings conference. Today's conference 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 like to turn the conference over to Mr. James Palczynski of ICR. Please go ahead, sir.

Thank you, operator, and good afternoon to everyone. Metabolix released fourth quarter and year end 2010 financial results after the market closed today. If you do not have a copy of the press release, one may be found on the website at www.Metabolix.com in the Investor Relations section. Making the presentation today will be Richard Eno, President and Chief Executive Officer of Metabolix, and Joseph Hill, Chief Financial Officer of the Company. They are joined by Oliver Peoples, the co-founder of Metabolix and the Company's 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 would refer all of you to our recent filings with the SEC for a more detailed discussion of the risks that could impact our future operating results and financial condition. With that out of the way, I would like to turn the call over to Richard Eno, President and CEO of Metabolix.

Thank you, James. I would like to welcome all of you to the fourth quarter and year end 2010 earnings conference call for Metabolix. Today I will provide you with a review of the Metabolix vision and an update on our ongoing activities. Joe will then take you through the financials.

We continue to make good progress on our commercialization and development activities and have maintained a strong financial position. For those of you new to these calls, Metabolix is an innovation driven bioscience company that is focused on bringing environmentally friendly solutions to the plastics, chemicals, and energy industries. We're developing and commercializing pathways and products that are intended to lesson the world's dependence on oil, reduce CO2 emissions relative to 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 product and market development. We are leaders in producing and upgrading a broad family of materials called PHA. PHAs are energy storage molecules found in nature, which have a number of useful properties. We currently have deployed our PHA technology across three business platforms.

First, Mirel, a bio-based and biodegradable plastic currently being commercialized with our partner, Archer Daniels Midland through a joint venture called Telles. Second, industrial chemicals, initially focused on C4 chemicals, and third, our crop-based activities, which include our programs in oil seeds, switchgrass, and sugarcane.I would like to begin with the Telles business, our joint venture for commercializing Mirel. We continue to make good progress in this early growth phase of the business. I will review the overall status of the business, addressing manufacturing, the market, including recent customer announcements, and expected growth.

As you know, ADM's Clinton, Iowa polymer plant, the supply source for Mirel bioplastic is up and running. ADM with Metabolix's support, is in the process of improving yields, reducing costs, and increasing capacity. This will be an ongoing process and inherent in how we operate the business. We expect the plant will have capacity available ahead of market demand until the 110 million pound per year name plate design is reached. Since our last call, we have focused on building strategic levels of inventory of our various product grades at distribution points in both the US and in Europe. This has enhanced our assurance of supply to customers and allows us to more efficiently develop new customers around the world. The market for bioplastics continues to be very robust, and we have an ongoing stream of inquires. We are currently working with about 100 targeted prospects, reflecting a broad range of processing technologies and markets.

With regards to technologies, we are currently developing customers with a near-term focus on injection molding, thermoforming, sheet, and film applications. We also have ongoing developments in longer-term technologies in the areas of foam, blow molding, nonwovens, paper coating, and latex. These should drive longer term growth and expansion opportunities for the business. With regard to markets, we have focused on six target market segments. Agriculture and horticulture, compost bags, marine and aquatic applications, consumer products, business equipment, and packaging. In aggregate, these market segments reflect over 50 billion pounds of plastic usage per year and we believe that there is over two billion pounds of addressable demand for us in the near term.

To illustrate our progress since our last call, we have announced five new customers, Al-Pack, Lakeside, Reef, Zoe b and Tecnaro. Let me take you through these recent announcements and how they relate to our marketing strategy. First, Al-Pack, Al-Pack is an innovative company in Canada who is our first announced customer for agricultural mulch film. Al-Pack will be launching a Mirel based film in the fall of this year. We are very excited about the agricultural mulch film market, in which Mirel offers considerable value through its natural degradation in the field. We have also made considerable strides in controlling the rate of film degradation, based on desired customer requirements, which should help us to tailor film properties to specific crops and regions.

Lakeside is an innovative film converter, headquartered in British Columbia. They will be launching a compostable bag based on Mirel. Their focus is on yard waste and consumer kitchen compost bags. They have noted that the Mirel based bag is of superior quality in terms of both strength and compostibility relative to incumbent bags. Lakeside is an early indicator of our expected success in the compost bag market, which is growing rapidly around the world.

Third is Reef. Reef is a company dedicated to sustainable agriculture and is purchasing a special grade of Mirel, which is ideal for managing waste generated in aquariums and marine environments, such as agriculture. In essence, because Mirel is a natural material, which is seen by microbes as food, its presence in aquarium environments activates microbes, which enable a very effective denitrification process. This helps remove nitrates which naturally build up in fish tanks. Reef plans to sell this product across the world. It is one of a number of novel applications which we see developing in the marine and aquatic market segment.

Our fourth announcement, Zoe b, is an early indication of some of the innovation possible with a marine degradable plastic. Zoe is launching a line of marine degradable beach toys this spring. This product maps to our consumer products market segment.

Finally, Tecnaro is a German company, which processes natural materials such as wood lignin and natural fibers into a range of molded products across consumer and business sectors. The addition of Mirel enhances the number of opportunities available for Tecnaro by offering products that are both biobased and can be disposed of in composting or anaerobic digestion facilities. This announcement illustrates yet another innovative use of Mirel, as well as the importance of Mirel blends with other bioplastics and natural products to access new markets.

As we have described before, each new Mirel application requires typically between nine and 15 months of development time, from initial contract to closure of a sales agreement. Each of the customers that I have just described have moved from concept to contract in less than nine months, faster than we expect to be typical. A bit more on the sales agreements. Once the agreement is signed, shipments can take quite -- to a few months to begin, as the customer aligns its supply chains and marketing plans to launch the new Mirel based product. Sales agreements vary, but are often multiyear, typically with a year-on-year increase in volume, as a new customer application is brought to market and then expanded.

Over the next few months, we expect to be able to announce more customers by name who will be launching commercial products based on Mirel.These will be drawing from a series of accounts in the later stage of the commercialization process, deep into product testing.Examples of applications that are moving towards commercial agreements include agricultural film, compost bags, retail bags, and thermoform trays for food and nonfood uses. As I mentioned earlier, polymer blends will be an important factor in the development of the bioplastics industry. By blending various polymers, customers are able to fine tune the price and performance levels for specific applications. Metabolix has been well aware of this trend and has an exclusive license under a US patent on PLA based blends. During the last quarter, we were pleased to grant a non exclusive sublicense of this patent to BASF, the world's largest chemical company. We believe that this license helps underscore the strength of our intellectual property and may enable future royalty income for Metabolix.

With regards to near term goals, as we communicated early this year, we expect the milestone at which the joint venture moves into the defined commercial phase to occur in midyear 2011. On the longer term, we still anticipate reaching the 110 million pound per year capacity limit, by mid 2013. Finally, the last point I would like to cover on the business update is pricing. Our pricing guidance of $2.25 to $2.75 per pound is still valid and we continue to get higher pricing in certain niches.

As we have described in our previous calls, 2010 was a transition year as the Telles business was launched and 2011 is a year in which we expect a significant number of current customer efforts will materialize as new contracts.We will provide regular updates on our future quarterly calls to let you know how we are tracking against the expectation to sell the plant out by mid 2013 at our targeted price point guidance.

Let me now move on to the other Metabolix platforms. These are our industrial chemicals and crop programs. These represent meaningful value creation opportunities for us outside of the Telles joint venture with ADM. In industrial chemicals, we are leveraging our PHA technology to enable chemicals that are currently being produced from fossil fuels to be produced from renewable raw materials. We are utilizing a fermentation process and an efficient integrated thermo recovery process to produce our targeted chemicals. More specifically, we produce a fermentation broth containing tailored PHA compositions, and then dry it. Then through heat, we break the PHA molecules down into their building blocks, which are our targeted chemicals. The PHA compositions we produce are different than those produced for the Telles joint venture, but still based on our core expertise. Given that there are a large number of PHA molecules, our industrial chemicals platform offers numerous possibilities. We have selected the C4 family, followed by the C3 family of chemicals, as our entry strategy into this space.

Our initial focus is the C4 chemicals family, which represents a market greater than $3 billion. Uses of C4 chemicals range from high performance engineering plastics to Spandex. Within the C4 chemicals family, we plan to initially commercialize a specialty segment targeting the pyrrolidones which are used in personal care products and performance solvents, among other applications. This is an $800 million market segment, which is our first step towards addressing the $3 billion broader C4 market. After the C4 market, our next target will be the C3 chemicals market, including the acrylates which are used in paints, coatings, diapers, and adhesives. This market is much larger than the C4 market, or over $7 billion in revenue.

To recap the state of the technology, we have successfully scaled the C4 chemicals fermentation process to intermediate scale, and the technology performed essentially as we predicted. We believe that this mitigates the risk of this crucial step as we move towards commercialization. We have also run all aspects of the recovery process at small scale, consistent with our guidance provided in our last call. We will have specialty C4 chemical samples to potential customers in the first quarter of this year. Work on these samples is essentially complete, with characterization occurring down to the parts per million level, and product will be shipped to customers later this month. Based on feedback from customers, we will be able to fine tune our recovery process to ensure all customer needs are met. In addition, also this quarter, we have completed proof of concept strains for our C3 chemicals platform as well.

A further technological advance over the last quarter relates to our integrated recovery process for industrial chemicals. As I described, the Metabolix process for producing chemicals is based upon thermo conversion of PHAs contained in dried fermentation broth to our targeted chemicals. We now believe that the same basic process and equipment will allow us to address the C3, as well as the C4 families of products, albeit with some relatively minor tailored purification equipment based on the specific molecules being produced.

The implications are important. The addressable C3 and C4 markets are over $10 billion in aggregate, and is now potentially addressable by the same manufacturing facility. In addition, there is the possibility to build swing capacity, which could allow either C3 or C4 markets to be served based on relative market attractiveness. We believe that this is a very differentiated approach relative to existing petroleum or emerging biotechnology pathways, and we will continue to advance it. We are excited about our progress in industrial chemicals. Over the coming months, we will get feedback from prospective customers and fine tune our recovery process. In addition, we have active partner discussions ongoing, as we examine specific business models for our market entry.

Our third Metabolix platform is our crop-based activity, including our programs in oil seeds, switchgrass, and sugarcane. All in all, we are excited about this platform, as we can see the pathways we are developing ultimately replacing capital intensive operations, such as oil and gas exploration and production, refining, olefins, and polymerization, by producing polymer directly in crops. Our crop programs offer numerous options to produce low cost chemicals, plastics, and fuels in a very sustainable manner. As discussed in our last call, we have completed the first field trial of our oil seeds program, with our targeted crop camelina and we are now in the second field trial, which is taking place in Texas. The objective of the field trial work is to fine tune our gene systems to maximize PHA yields, while maintaining healthy, robust plants. We are also gaining data that will help define our regulatory approval strategy.

This quarter, we announced we received a $203,000 grant from the Saskatchewan Ministry of Agriculture to advance our work in camelina. We will be working to develop an enhanced gene expression system to help optimize the production of PHAs in the plant. Camelina is a very important crop to both Metabolix and for the Saskatchewan Province and we are very appreciative of the funding which will support our commercialization efforts. Another major development over the last quarter is our announcement of the production of high levels of PHA polymers in tobacco, one of our research crops. Using our multi gene expression technology, we have developed fertile transgenetic plants producing PHA at levels up to 9% of the total plant weight. PHA levels of up to 17% were found in leaf tissue. These results have 10 times more PHA bioplastic than any previously published reports for tobacco. These findings continue to demonstrate the Company's ground-breaking scientific capabilities and continued progress on using new tools to improve its programs to develop advanced biomass crops, as bio refinery feed stocks. The demonstration of this new approach to increase PHA production in the model biomass crop tobacco is an important milestone in further demonstrating the scientific and technical capabilities of the Company in the crop science field.

In summary, during this quarter, we continue to move forward very effectively across all three of our platforms. In Telles, we continue to make steady progress on building the foundation for the Mirel business, and can see sufficient demand for selling out [Clinton 1]. In industrial chemicals, we have successfully scaled up our C4 chemicals fermentation process and plan to have samples to potential customers later this month. We have also made substantial gains in the development of a unique recovery system. In our crop-based businesses, we have our targeted oil seeds crop camelina, currently in its second field trial, and are seeing continued progress across our other two commercial crop targets, switchgrass, and sugarcane. Our research work in tobacco has provided additional insight we will utilize to move all of our commercial crop varieties towards targeted PHA levels. We are very enthused about the potential for the company. I will now turn the call over to Joe for a review of our financial results for the quarter.

Thanks, Rick, and thank you all for joining us today. Before I go through the financial results of the quarter in detail, I would just like to say that it's very exciting to see a number of things falling into place, and we're pleased with the excellent progress we have achieved with each of our three business platforms. As Rick mentioned, we're seeing very good customer development for Telles. The speed at which our new customers have moved their products through the development cycle is good evidence of how well Mirel can be adapted to existing processes and equipment. This is a key advantage for us, as we convert additional sales leads. All our indications are that over the next few quarters, we will continue to be qualified by an increasing number of customers. The products that are coming into the market are compelling and in many cases, would not have been possible except for Mirel's unique biodegradation properties.

The gains we've made in the development of industrial chemicals are perhaps even more exciting. We're pleased to be working hard to identify and advance discussions with potential partners for this initiative, and create a second source of sustainable meaningful cash flow to add value to our shareholders. Lastly, I'm excited about the long-term financial implications of our crop programs. As science moves forward and we see increasing yield levels, it will open up new and more efficient PHA production techniques. This will potentially enable lower cost products.

I'll now focus on the financial results for our fourth fiscal quarter ended December 31, 2010. As always, we managed our finances with an emphasis on strict cash flow management. We have maintained this focus and ended the fiscal year with $61.6 million in cash and short term investments. For the fourth quarter, net cash used in operating activities was $8.1 million, which represents a planned increase in cash usage from $7.1 million used during the third quarter of 2010, and is an increase over the $5.9 million used during the comparable period of 2009. Net cash used in operating activities reflects the Company's activities in sales and marketing development, as well as research and product development. The increase in net cash usage for the fourth quarter 2010, compared to the fourth quarter 2009, is primarily due to a decrease in cash received from ADM for cost sharing payments related to pilot manufacturing, an increase in cash paid for salaries and benefits, and other operational costs during the fourth quarter of 2010.

For the full year, net cash used in operating activities during 2010 was $32 million, compared to $25.8 million for 2009. The increase in net cash usage relates primarily to a decrease in cash receipts, as a result at the conclusion in 2009 of quarterly support payments received from ADM, and a decrease in grant revenue received. I'll now give some additional detail on the Company's financial results for the fourth quarter 2010 ended December 31.Total revenue for the fourth quarter was $100,000, versus $200,000 for the comparable period of 2009. Revenue in both quarterly periods resulted from revenue recognized from license fees and royalties and government research grants. Revenue for the full years 2010 and 2009, was $400,000 and $1.4 million respectively. The year-over-year decrease was primarily due to a decline in government research grant revenue related to the completion of the integrated bioengineered chemicals grant during the fourth quarter of 2009.

Total operating expense for the fourth quarter of 2010 were $9.6 million, versus $10 million in the comparable quarter of 2009. Selling, general, and administrative costs in the fourth quarter of 2010 were $3.8 million, versus $4.1 million in the fourth quarter last year. Research and development costs were $5.8 million, versus $6 million in the fourth quarter of last year. Net loss for the fourth quarter was $9.5 million as compared to a net loss of $9.8 million for the fourth quarter of 2009. For the full year, total operating expenses were $39.4 million, a decrease of $800,000 from the 2009 level of $40.2 million. This year-over-year decrease is primarily attributable to a decrease in material production costs and depreciation expense, partially offset by an increase in employee compensation and related benefits expenses.

Our net loss for the full year ended December 31, 2010 was $38.8 million compared to $38 million in 2009. As in previous quarters, the fourth quarter loss is greater than the cash used in operating activities as a result of non-cash expenses, including depreciation and stock based compensation expense. Our net loss per share in the quarter was $0.35, compared to a net loss per share of $0.39 in the year-ago period. For the full year of 2010, the net loss per share was $1.45 compared to $1.62 in fiscal 2009.

Now, a few words about our balance sheet. As of December 31, 2010, we had cash and short term investments of $61.6 million. This compares to $69.9 million as of September 30, 2010, and $92.2 million at year end last year. We continue to have no debt. We continue to believe we have adequate capital to build our sales and marketing infrastructure and to expand our research and development to progress the science of our three business platforms. With respect to the ledger balance, which represents the cost of construction of the commercial manufacturing facility, the working capital requirements of Telles, and the support payments Metabolix received from ADM, as of December 31, 2010, the balance of the ADM ledger account was $403 million. We continue to work with a roster of successful companies, with whom we can partner so they can create alternative solutions and change the way they bring their products to the marketplace. We are very pleased with the progress we have made during the fourth quarter and over the course of 2010. With that, we'll open the call to questions.

(Operator Instructions) Up first, we'll take a question from Mike Ritzenthaler, Piper Jaffray.

Good afternoon, guys. My first question is on -- your new customer agreements. Congratulations on those, by the way.

Thank you.

Is there any overlap with previous customer agreements that you've announced in the past? The ag film particularly comes to mind. Is this a different application than -- the customers that you've announced in the past?

This is our first ag film customer that we've announced, and it is a grade specifically tailored for agricultural applications. The only overlap would be the Lakeside and earlier Heritage announcement, both of whom are going after slightly different portions of the compost bag market. But for the most part, I would consider them, Mike, to be unique and just really reflect our -- breadth of opportunity and we're really focused on getting early adopting customers to contracts like these for each of our targeted market segments. From that, we can extend that into deeper penetration of each of our target markets.

Right, okay. Yes, that makes sense. It's the compostable bags that I was thinking of.

Yes.

And could these new sales agreements positively impact either the million pound milestone or the -- potentially the 110 million pounds per year capacity milestone?

Yes, absolutely. Clearly, the -- announcement of these demonstrates continued progress in increasing sales and moving that plant towards its capacity limit. It indicates increasing acceptance of the product across numerous market segments, and the other thing it does, too, I'm glad you raised the question, is that each of these announcements starts to bring more interest to us and we get additional calls based on these too, as people now understand the product essentially being qualified in various segments. And granted, those new leads have to be qualified, we select if we choose to work with them, but they still have to go through the development process. But it does create more interest in the product in our targeted market segment. So for those reasons, yes, it could help on both those fronts.

Absolutely, okay. Interesting. And then one final question, is on the crop. Is the plan for the genes that produce PHA in the crops to develop your own seed product, or would it be to license to somebody with a germ plasm for one of the, one of the other companies (inaudible) to switchgrass, or is it -- is it to sell directly to farmers or some type of royalty structure? Or either, or both?

I mean I'll comment and Ollie can add to it as well. The -- model is still evolving. We have no intention of getting into farming. We are looking at people with appropriate germ plasms as we look at commercializing it. Our primary focus right now is less on defining the specific model, but more on taking what we have learned in the field trials and scaling that up to get very high levels of PHA, similar to what we announced for our tobacco, which is a research crop and translating that into a regulatory pathway for it. So the business models are still evolving. We will manage the technology. We will control the offtake. The intermediate portion, I can rest assured and tell you we're not going to be getting into farming. But we're looking at a range of different options there. I don't know, Ollie, if you want to add a bit to that.

Well, I was actually looking forward to buying a tractor, but I guess I'll have to give that up. But I think fundamentally, I think one of the things we've done, because we've selected nonfood crops, whether that's the camelina switchgrass or switchgrass. You know really it's not the same as trying to develop something in corn, where you really need access to a Monsanto or a (Sangento's) elite germ plasm. So I think we have a lot of flexibility about that. We work in an oil seeds, which is a way (inaudible) in terms of working with, you know, folks who developed germ plasm for that particular crop. But again, you know, Metabolix is not trying to be in the farming business. We are really trying to, really optimize the technology and validate that then how we go to market with it I think all of the things you mentioned are possible. But we are really focused on the technology at this point.

Alright, excellent. Thanks, guys.

Our next question today -- I'm sorry.

Next question?

Our next question today comes from Laurence Alexander, Jefferies.

Good evening. This is Lucy Watson on for Laurence today.

Hello, Lucy.

Hello. I guess a quick question in terms of cash burn. What should we be expecting on a quarterly basis for 2011? Do you have any guidelines there?

So at, you know, as we've said with our -- with our current cash burn, that when we reach the commercial phase of the agreement, which will be mid 2011, that our expenses related to supporting Telles sales and marketing and R&D expenses will shift over to the joint venture and leave the Metabolix P&L. And that will be in the range of $4 million to $5 million per quarter.

Okay, and then I guess a question on the crop-based chemical field trials. As you look to scale up and commercialize some of these crops, do you anticipate narrowing down the list of crops that you are evaluating, or will you continue with all of the crops perhaps because they are ideal for different geographic regions, or would you mind just expanding a little bit on expectations?

Yes, I'll start and Ollie can add his comments on that also. You're exactly right, Lucy, that the crops do address different geographic regions. The camelina crop a very cold weather crop. Switchgrass, below the corn belt, and sugarcane, southern hemisphere, which we like that diversification. The other thing to keep in mind is the oil seed crop is moving ahead very quickly because we get a crop cycle every 90 to 120 days in camelina which allows us to move that quickly. So we can, and we get learnings from that program, which we can apply to the longer-term biomass crops. So we get a lot of synergies between the three programs and the learnings from one are very easily translated into others, just in terms of thinking about regulatory and thinking about commercialization paths. So from a science perspective, we feel we can handle all three really with camelina being the lead crop. And Ollie, I don't know if you want to add to that?

Yes, I think I would basically agree with what Richard said there. That's really the issue here is that in order to have global production of some, with bioplastics and also PHA based chemicals from crops, you need to be looking at the world as a whole I mean having the three crop platform really gives us some very good optionality around that. And also allows us to then consider what types of conversion technology is likely to apply to those different feed stocks as they go into a burn finally.

Okay, and one other one on industrial chemicals and maybe I'll hop back in queue. With oil now above $100 per barrel, have you seen any acceleration or urgency in your partnership discussions, or any change in your expectations on the timeline for ramping up that business?

I think on the first part of your question, Lucy, clearly there is one heck of a lot of interest in industrial chemicals from renewable sources these days. There's just a lot of activity out there and certainly that has translated into a -- very significant amount of discussions, and that takes us to all corners of the world as we think about that. So clearly increased interest in it. With regards to timeline, we're moving ahead quite rapidly, and I think that's to me one of the highlights over the last, say, six months or so, is how quickly this has moved, where we've got the -- fermentation process for our first entry target, the specialty C4 chemicals scaled up to pilot scale, the bench scale operation looks very effective for recovery. We're down at the parts per million level that I mentioned, just really fine tuning that.

And, you know, it really -- the unique characteristic of the PHA platform is this could allow us to address both C3 and C4 markets using the same manufacturing set. And we're going to work hard to see if we can optimize that and do that, but it is very differentiating. So I think the interest is there in the market, with oil getting high. That's translated into increased amount of customer interest, as well as partner interest, and we're working hard to move this rapidly to pilot and semi work scale.

Thank you.

Next up, we'll take a question from Jeff Osborne, Stifel Nicolaus.

Great, just a follow-up on the C4 side. Maybe, Rick, if you could just kind of go over the milestones that we should be looking at for the next three to six months. I mean, it sounds like the fermentation side, science aspect has been kind of nailed down a little bit of work on recovery. But you know how do we think about your efforts of -- getting a partner coming on board to really be the key element to allow this to kind of expand to prime time?

Sure. Good question. I think first of all, technically, the -- next step will be getting feedback from customers for the products which we'll be sending them later this month. Now, you know, for the -- for anyone looking at it, these look identical to what the products are that are made from petroleum sources, where we're pretty much there. The issue gets down to the very part per million level and it requires a very keen focus on any potential impact on a variety of downstream products as a result of getting the product to that level. So I think the next thing which we'll communicate once we get the feedback and assess it, is do we see anything that requires us to put further optimization into the recovery process. We feel pretty good where it is now, but we really need to get customer feedback to do so. So we expect to get customer feedback hopefully within the next couple of months after we get the samples to our customer targets. They have promised quick turnaround.

From that, we'll be able to give you a much better timeline in terms of the scale-up of the technology, because it really is a little bit digital at that point. With regards to the second part of your question on partners, that's hard to predict, hard to predict as well, because, we've got numerous discussions ongoing and we're looking at the market side, offtake discussions with various customers, as well as the supply side of feedstock, and we're actively looking at second generation feedstocks as well, to provide us some hedging diversification away from sugar. And all those are going in parallel and very hard to predict timing. So I can't, Jeff, be more definitive on timing, but clearly the technical side we'll have feedback to you much quicker, once we've determined that we've got the whole process pinned down, at which point the next step is just to run it at a full continuous demonstration facility, which is we're thinking about how we would do that next as well.

Makes sense. And are you looking for feedback on both GBL and BDO or just GBL at this point?

Right now, it's GBL with its derivatives to pyrrolidone chain which is used in solvents and personal care, among others. And we're working on the GBL to BDO step of the technology as well. In addition, in parallel, the strain group that had developed, the C4 strain has now -- has migrated over to work also on the C3 strain, which we had proof of concept this quarter, so that we can drive that towards the (aqua lite) market. So, that's -- where that stands as well.

Got you. Then just two quick other ones. You know, given my assumption would take about a year and a half to two years to expand capacity and you're kind of targeting mid 2013 to be at full utilization. You know, how do we think about the discussions of expanding? I would think you would kind of need to come to some type of resolution in the next six months if you wanted to expand in -- Clinton, or am I off on the timing there?

Oh, not at all. In the last call, I believe it was the last call, we mentioned that there is an integrated ADM Metabolix team looking very deeply at the current technology, as well as next generation technology, because, when construction was begun, you know, four or so years ago, we essentially had to freeze the technology at that point, so we could -- so ADM with ourselves could construct a facility. Our work on technical advancement did not stop at that point.

So what we're looking at is how we get what we've learned and some of the next generation technology into the Clinton plant and our objective is to figure out how to expand that at the bare minimum capital, deploying some of this next generation technology, which is in both the fermentation side and recovery side of the process. So the team is working on it, Jeff, and the ideal outcome would be able to figure out how to get more capacity out of that plant without a -- major construction project, and that's something that we haven't got to yet, but we're striving to get there and over the coming months, we'll get further resolution of what that would look like.

Very good. Thanks much.

Thank you.

(Operator Instructions) Next up is Ian Horowitz at Rafferty Capital Markets.

Good evening, guys.

Hi, Ian.

Just to piggy back off Jeff's last question do you feel like -- I don't know what you want to call it, enhancements, or kind of, retrofits at the current Clinton plant, I mean, can that -- I mean, not looking for guidance, but are these kind of, you know, 10%, 15% volume increase opportunities, or is it something larger than that potentially, or too hard to tell at this point?

Probably too hard to tell. I mean, certainly there are parts that just -- new strains and things can get us on the order of the numbers you're talking about pretty quickly. And then there's a variety of pieces of equipment in the back end that, some of which we can get much higher numbers, some of which we can't. But we're -- looking at it as an integrated system. So a little too soon to tell, but just to, you know, to Jeff's question earlier our objective in expanding it is figuring out how we can be positioned to meet the market need, with deploying the best technology at the minimal capital, and seeing the plant operating and knowing what the key points are in it and seeing our advanced technology, we're trying to bring all of those together in the -- proper solution for the -- expansion.

So I guess the six-month timeframe elapses without any kind of real capacity announcement, that may not necessarily mean that there won't be capacity additions kind of the mid '13 level since, I would assume some sort of retrofit or enhancement would be much more, much easier to implement quicker?

Yes, that's right, that's right, Ian. And typically in these type of plants, and it's similar from the chemical industry, the refining industry, is as you start pushing in assets capacity, you typically don't hit a limit with all the pieces of equipment at one time. You start to look at where you get, where you see production being limited and you address that and typically in the industry it's called debottlenecking, and you're right, it's things that we'll be looking at where the bottlenecks are, where we -- how we can unload the plant and start to work it that way. And it's just too soon to say what the results of that work could be, but we've got a rather experienced team of people looking at it.

And, Joe, are we going to be seeing kind of -- volumes now being reported in the -- next earnings announcement, since some of these customers will be kind of taking on product or -- ?

You need to remember that the Clinton manufacturing facility is owned and run by ADM. The Telles is a joint venture between Metabolix and ADM. The Telles financial statements for now are consolidated into ADM. What you will see going forward will be royalties we would be receiving on the sale of Mirel, which are around $0.10 a pound. But for a number of reasons, we won't be disclosing volume of customers or volume of current capacity, and a lot of that is also driven for competitive marketing reasons.

Okay, and, well, then, are your royalties kind of relatively timed close to shipping a product, or is there some sort of delay on payments?

There's, there's a slight delay, but not a huge delay. It's about a third.

And then one last -- I'm sorry?

Well, actually, we'll be collecting it later, but we will be recognizing royalty revenue as shipped.

Okay, and then I may have missed it, but sometimes -- recently you've been giving kind of your thoughts on the total addressable market, end market levels. Are your thoughts changing on those at all one way or another, or are they-- ?

No, I think it's, you know, for quite a while, we've pointed out a 2 billion pound addressable market in the range of our current pricing guidance for the -- for film, injection molding, thermoforming and sheet, and that's drawn out of a total market for those materials of probably some order of 50 billion pounds. So what we've done is taken the amount of plastic that actually goes into these markets and then actually been fairly conservative to cut that back to, say, there is some form of elasticity in the market where at our pricing guidance can we actually see the addressable market and that's how we came to that 2 billion pound number.

The addressable market expands when you talk -- when you think about the longer term technology that we are working on, which we see as growth potential, expansion potential for building out the Clinton site to full capacity, that 400 million pound type footprint and then beyond. And these are things that aren't included in our current sales mix in the customers we're working on, things like nonwovens for diapers, for wipes, for filters, blow molded bottles, foam, replacing polystyrene foam with a bio based, biodegradable foam, paper coating, latex. These are things that have relatively synergistic extensions beyond what we're doing and those applications, Ian, would expand the addressable market for the product. So the addressable market hasn't changed, but the -- those new applications will certainly increase the scale of it.

Got it, understood. And one last question and I'll get back in queue and I think, Rick, this is just I want to know, what you're seeing philosophically. Do you kind of find that bioplastics in general, or PHA or Mirel, or however you want to kind of tranche the market, do you find it to be much more of a European or ex-US opportunity right now than you do your -- in the US?

Yes, it's a little early to tell, Ian, right now. But we clearly I think directionally you're seeing a lot of activity in Europe. So at least from a very early read of the market, and I'll qualify it as such, because we really just -- we're at the early stage of our first tranche of 100 target customers, there is directionally more activity in Europe and it's hard to point out whether it has to do with the specific customers we've selected by region, if it has to do with the attitude towards biomaterials, if it has to do with the applications, but there clearly is a slight tilt in our mix towards Europe right now initially. But I think we'll keep an eye on it over the coming quarters to see if it's -- call it sampling error versus a real trend.

Great, thank you.

Thank you.

(Operator Instructions) Up next is Lawrence Alexander, Jefferies.

Thank you for taking my follow-ups. This is Lucy Watson again. Just two quick ones. On food contact, do you expect to announce any customer agreements in the next maybe two to four quarters?

I can say, Lucy, that we have a number of food contact customers in the queue, in the development pipeline. It's hard at this point to predict which one of those will come through. The group that has just been announced most recently, none of them are food contact requirements, although Tecnaro is working with a food grade product, Mirel F1005, which is an injection molded food grade product. But we do have a number of food customers in the pipeline. Just hard to predict which one will be out first. I would certainly expect we'll be seeing some.

Okay, and another one of those tough timing questions, but maybe just for some more at least qualitative color. Do you have any opinions on the timeframe or the amount of potential royalties coming out of the licensing agreement with BASF, and is this an exclusive licensing agreement, or are you evaluating other agreements of this type, would you be able to just maybe provide a little bit more color?

Sure. The BASF license is nonexclusive and we would be happy to discuss licensing with other companies that may be an interest -- that may be interested in obtaining a license. And it is too soon to predict the amount of royalties that come from it. Clearly, we believe that the world of blending these materials is going to grow, as certainly our materials in the market and others are coming to the market. And I think BASF, largest chemical company in the world, seems to agree. So, we think there's some potential there, but it is too soon to predict the amount of royalties that would come from it. But we point to that as just indicative of, I think we feel we've got a strong intellectual property portfolio and this is one, all be it small point, that validates it. So we're pretty happy about that.

Thank you.

And that does conclude today's question and answer session. At this time, I would like to turn the conference back to Rich Eno for any additional or closing remarks.

Okay, thank you very much. I would like to thank all of you for attending our call today. As you can tell, we're very pleased with our progress, and we have a lot of enthusiasm about the long-term potential for each of our Metabolix platforms. We anticipate much more progress across each of these business areas in the coming quarters and we look forward to keeping you informed. Thanks, again, for joining the call. And I wish each of you a very nice evening. Thank you very much.

Ladies and gentlemen, that does conclude today's conference. We would like to thank you all for your participation, and have a great day.