Yield10 Bioscience Inc (YTEN) 2011 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the Metabolix Incorporated First Quarter Fiscal Year 2011 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 sessions and instructions will be provided at that time for you to queue up for your questions. And now I'd like to turn the conference over to Allison Townsend of ICR. Please go ahead.

Thank you, and good afternoon, everyone. Metabolix released first quarter 2011 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 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 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 our recent filings with the SEC for a more detailed discussion of the risks that could impact our future operating results and financial conditions. With that, I would like to turn the call over to Rick Eno, President and CEO of Metabolix. Rick?

Thank you, Allison. I would like to welcome all of you to the first quarter 2011 earnings conference call for Metabolix. Today I will provide you with a review of the Metabolix vision and an update of 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 which is focused on bringing environmentally friendly solutions to the plastics, chemicals and energy industries. We are developing and commercializing pathways and products that are intended to lessen 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 PHAs. PHAs are energy storage molecules found in nature which have a number of useful properties as plastics, and can also serve as a unique source of renewable chemical intermediates.

Metabolix has been recognized as a leader in this field and has received numerous awards. Most recently, over the last quarter we were selected by Bloomberg New Energy Finance as one of their 2011 new energy pioneers. We are honored by this award and are pleased to be recognized for the long-term, game-changing potential of our core PHA technology.

We currently have deployed our PHA technology across three business platforms. First, Mirel, a bio-based biodegradable plastic currently being commercialized with our partner, Archer Daniels Midland, to a joint venture called Telles. Second, industrial chemicals initially focused on C4 chemicals, and, third, crop-based activities which include our programs in oilseeds, switchgrass and sugarcane.

I'd like to begin with the Telles business, our joint venture for commercializing Mirel. We continue to make forward progress in this early growth phase of this business. I will review the overall status of the business primarily addressing market and customer activity including opportunities and challenges as well as a review of our overall growth plans.

In the Telles venture, we are very focused on a successful launch of the Mirel business. The market for bioplastics continues to be very robust, and we have an ongoing stream of over 50 inquiries per month. From this high level of interest we are currently working with about 100 targeted prospects reflecting a broad range of processing technologies and markets.

We are now working to exploit a number of near-term opportunities. These are primarily in film markets, specifically, in compost bags, agricultural mulch films and packaging. This is due to the strong market pull in these segments in both the US and in Europe, as well as the uniqueness of the Mirel offering. Mirel offers biodegradability in a wide range of environments, a higher biobased content and incumbent film products, and in some cases will improve the physical properties of the film. While it is still early in the development of this business, this pull appears to be validating the Mirel value proposition and price point.

We are also seeing good near-term progress in marine applications as well as in horticulture. In general, we are seeing smaller innovative customers move faster than the larger customers which leads to a somewhat smaller initial order size than what we expect to see in the long term.

This quarter we continue to expand the customer base primarily in Europe. New customers placing orders include two European film converters who will be selling compostable bags into the Italian bag market.

As many of you know, there is a ban on nonbiodegradable bags in Italy, which is driving demand for biodegradable solution in that country. Recently, Italy used about 20 billion plastic bags per year, and for reference purposes that is approximately 400 million pounds per year of polyethylene bags, and that's just in Italy. This gives you a relative sense of the scale of the plastics market, an opportunity when compared to the design capacity of the 110 million pound per year Mirel manufacturing facility. We have also added two new customers who are leveraging the marine degradable properties of Mirel.

Our pricing guidance of $2.25 to $2.75 per pound is still valid and we continue get higher prices in certain niches.

Also, as we announced yesterday, we are pleased that UCAN, an innovative retailer seeking to help consumers be environmentally responsible, will be offering Mirel-based compost bags to the US retail market. This offers yet another channel by which Mirel will be finding its way to market in the US.

While the overall pipeline remains very strong, there have been two specific challenges this quarter that have held back some of our near-term potential. These are considered temporary, that is, there is no fundamental issue we do not see worked through over time. First, supply disruption of a third-party formulation raw material has slowed down the pace of commercialization for about 10 near-term potential customers. It is very frustrating to us that we are now are actually pushing orders out in this segment until the supply disruption is resolved nominally midyear. We are working to reformulate around the issue and have seen early indications of success.

Secondly, we are working directly with customers to optimize the physical properties of our film project aimed at a specific segment of the agriculture mulch film market. This iteration is delaying the launch of about five of our near-term customer prospects. These type of issues, supply disruptions and product optimization are common in the plastics industry but at our current small scale their impact is magnified. As a result, we expect the milestone for the joint venture to transition to the commercial phase to the commercial phase of this relationship to slip into the second half of 2011.

Outside of these developments, much is the same for the Telles business as in previous calls. ADM's Clinton, Iowa polymer plant, a supply source for Mirel bioplastic, is up and running. ADM with metabolic support is in the process of improving yields, reducing costs and debottlenecking the facility to increase capacity. This will be an ongoing process and inherent in how we operate the business. We expanded the plant to continue to have capacity available ahead of market demand until the 110 million pound per year nameplate design is reached.

We have continued to focus on building strategic levels of inventory of various product grades at distribution points in both the US and in Europe. This has enhanced the insurance of supply to customers and allows us to more efficiently develop new customers around the world.

With regards to technologies, we have near-term efforts around injection molding, thermoforming, sheet and film applications, and ongoing developments in the areas of foam, low molding, nonwoven, papercoating and latex.

With regards to markets, we continue to develop six target market segments -- agriculture/horticulture, compost bags, marine 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 there is over 2 billion pounds of addressable demand for us in the near term.

As we have described in previous calls, 2010 was a transition year as the Telles business was launched, and 2011 is the year when we expect a significant number of customer development efforts to materialize as contracts. We will provide regular updates on our future quarterly calls to review our progress and the commercialization of this new material.

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.

Industrial chemicals, we are leveraging our PHA gene 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 thermal recovery process to produce our targeted chemicals. The PHA approach is a unique platform which enables a pipeline of chemical product opportunities for Metabolix. We have selected the C4 family followed by the C3 family of chemicals as our entry into this space.

Our technology is unique in that the same basic process can produce both families of products with only relatively minor purification modifications based on a specific molecule being produced.

We have also established intellectual property around the C5 family of products, but as many of you know, this is a smaller market than the $10 billion C3 and C4 market, and as such it is currently a lower priority for us.

To recap the state of the technology, we have successfully scaled the C4 chemical experimentation process to intermediate scale and the technology performed essentially as we predicted. We believe that this mitigates the risk of the crucial fermentation step as we move towards commercialization.

We have also run all aspects of the recovery process at small scale. We have delivered samples to our first set of potential customers. We expect feedback within the coming two months, and based on this feedback, we will be able to fine-tune our recovery process, if necessary, to ensure customer needs are being met.

We also expect to send samples to additional potential customers over the next two to three months. In addition, we continue to optimize strains for our C3 chemicals platform as well.

In terms of timing, we expect the C4 technology to be ready for engineering design of a commercial facility by the end of this year. Our 2011 objectives are to prove all key technology elements at a scalable equipment size, be able to produce large samples which can be further validated with potential customers, and prepare a detailed process package including flow sheets, (inaudible) and energy balances, equipment lists, and key vendor packages.

The C3 technology program will obviously leverage much of the C4 work and equipment and will follow the same program by about one year. The timing for actual business commercialization is dependent upon partnership conversations, which are ongoing.

Our third Metabolix platform is our crop-based activity including our programs in oilseeds, 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, 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 previous calls, we have completed the first field trial of our targeted oilseeds crop, camelina, and are now beginning the harvest of our 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. Over the next few months we will examine the results for this trial and integrate the results into our scientific and regulatory strategies.

In summary, during this quarter we continue to move forward 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 more than sufficient demand for selling out Clinton 1.

In industrial chemicals, we delivered samples to potential customers this quarter and are moving to be ready for plant engineering for our C4 program by the year end. And in our crop-based business we are finalizing our second field trial for camelina, which will be important to inform our ongoing development efforts. We are very enthused about the potential for the Company and the broad scale deployment of our PHA platform. I will now turn the call over to Joe for a review of the financial results for the quarter.

Thanks, Rick, and good afternoon, everybody, and thank you all for joining the call. I will now focus on the financial results for our first quarter ended March 31, 2011. As always, we managed our finances with an emphasis on strict cash flow management. We have maintained this focus and ended the first quarter with $51.9 million in cash. For the first quarter, net cash used in operating activities was $9.4 million, which represents a planned increase in cash usage from $8.1 million used during the fourth quarter of 2010, and is unchanged from the comparable quarter in 2010. The $1.3 million increase in net cash usage in the first quarter of 2011 compared to the first quarter 2010 was attributed to annual bonus payments made in February of each year. Now I will give some additional detail on the Company's financial results for the first quarter of 2011 ended March 31.

Total revenue was $300,000 versus $200,000 for the three months ended March 31, 2011 and 2010, respectively. During the three months ended March 31, 2011, primarily consisted of royalties earned under sublicensing agreements with Tepha, Inc. a related party.

Total operating expenses in the first quarter of 2011 were $10 million, consistent with the comparable quarter in 2010. Selling, general and administrative costs from the first quarter of 2011 were $3.8 million versus $3.9 million in the first quarter last year. Research and development costs were $6.2 million, consistent with the comparable quarter in 2010.

Net loss for the first quarter of $9.6 million as compared to a net loss of $9.8 million for the first quarter of 2010. Our net loss per share in the quarter was $0.36 per share compared to net loss per share of $0.37 in the year-ago period.

Now on to the balance sheet. Our balance sheet remains strong. As of March 31, 2011, we had cash and short-term investments of $51.9 million. This compares to $61.6 million as of December 31, 2010, and $82.8 million at March 31, 2010. We continue to have no debt.

I wanted to make a point to clarification about our longer term expected cash usage. As we progress, we expect to see two major factors that will reduce our use of cash. First, as we reach the commercial phase of the agreement with ADM, which Rick has mentioned is now expected to occur in the second half of the current fiscal year, we will shift approximately $4.5 million of quarterly operating expenses from our P&L to the Telles joint venture.

Additionally, while the split of Telles operating profits does not occur until the ledger balance is fully paid down, we will receive royalties on the Mirel sales of approximately $0.10 to $0.12 per pound. At design capacity, this will amount to approximately $12 million per year of royalty income. As of March 31, 2011, the ledger balance was $412 million. Increase in the ledger balance from December 31, 2010 is primarily attributed to operating cash needs of Telles.

With that, we will open the call to questions.

Thank you. (Operator Instructions) We'll go first to Mike Ritzenthaler with Piper Jaffray. Mike, your line is open.

I'm sorry, I was on mute. Good afternoon, guys. My first question is on the million pounds sold and is there any impact on your guidance to the mid-2013 sellout of the facility guidelines that you gave on the last call?

Right now, Mike, -- thanks for the question -- we are really focused on the near term in getting these products into customers' hands and we are not reforecasting the sellout data at this point. When we look at our pipeline of what we have, we can see more than enough demand to sell out the plant. And the Italian example of how big the market is gives you an indication of the relative scale of our operations versus what this market is. So, it's been very difficult to forecast and very lumpy in terms of we look at forward-looking views.

So, we can see products propagate very quickly against the market given our small scale relative to the large industry. But that is not saying that there is any risk associated with that. There is risk associated with that timing because we don't have the product, the customers signed up yet, but we are making progress and we can see the demand out there. Over time we will reforecast that point, but that is still a couple years out.

Okay, interesting. And then my next question is on the bag, the UCAN partnership. I was digging around a little bit on other 3-gallon bags that could be used for the composting. There is another offering that is from a company called World Centric Bags. It's roughly a third of the cost per bag of what UCAN is offering. I was wondering if your product has better digestibility or some characteristics of it that would kind of justify that premium?

That's a good question. As I look at the cost of bags and at least you could correct me if I'm wrong, but I think the bags are in the range of $0.30 per bag, something like that; is that about right?

Yes, that's about right, yes.

Yes. So, when you look at the content of Mirel, the bags typically weigh about 8 grams or so. So, typical content of Mirel measures about $0.04 out of that $0.30 or $0.33 or so. So, it has less, I believe, to do with the product itself and more to do with UCAN's marketing strategy. As you can see, they are looking at very innovative compost collection bins that you would put on the countertop in your kitchen, and they are very nice looking designs. But I can't really comment on how they have opted for the actual product selling price.

We looked at the content of Mirel within that bag and the pricing strategy is not driven by Mirel; it's more driven by how they see their own desired returns and now they see their market segmentation, we believe.

Okay, excellent. And then my final question and I'll jump off. Is the $100 million shelf offering in early March one of the potential uses of proceeds was included acquisitions? I mean, I'm sure there are other things that you're looking at using those proceeds for, but I was just wondering if you would be willing to give us a little bit more color on what types of acquisitions are looking appealing or what you would be interested in doing there?

When we put the shelf up there, which was put there strategically to keep our options open, and we listed what the use of proceeds could be, it wasn't that we had anything near term or specific in mind that we will be using the shelf for at this point. So, it really wasn't sent out as a signal as there is something imminent or any M&A activity imminently happening.

Okay, excellent. Thanks for the information.

Our next question is from Min Lu with Ardor Capital.

Thanks for taking the question. Actually, my first question is something I asked before, because I believe once you reach that 1 million pound commercial field milestone, you will recognize royalty fees and the compounding of revenue, right?

Yes, royalty for compounding, that's right.

So, can you give us any ballpark number for your common cause and also whether you will recognize any margins on that, or it is just simply a pass-through revenue and cost?

Yes, if we understand the question, the royalty stream associated with compounding will come to Metabolix, and Telles is incurring the cost of compounding. Now, if you remember, compounding has a -- it is a pass-through and it has costs associated with the totaling of compounding plus additives, but we typically compound things that are less than the value of Mirel within that, as you well understand. But the economics of Metabolix, and Joe could further elaborate, are a royalty stream based on the pounds of compounded product that go through that operation.

Yes. So --

If you need further clarity, make sure that we are answering what you are asking, [Lu Min], so I apologize if we didn't hit it right on the mark, but feel free to follow-up here.

Okay, we can talk that offline.

If you want to, okay. Okay.

Lastly, it is about the 1 million pound milestone. It sounds like to me there are additional requirements other than simply quantity, that 1 million pounds. So, can you give us any color regarding that?

That's right. Yes. The million pounds is more than just a million pounds. It is million pounds shipped, cash collected meeting, certain specifications, and of certain volume. So, there are various things that certain pounds that are going out in the market do not count towards that milestone. Largely, small volume, developmental quantities. Those that contribute to that volume have to meet the specs, the scale, and then they start to register towards that once the cash is collected.

The actual date relates to an acceptance period following that, but the mechanics retroactively work back to cash collection date. So, you're right, clearly not all the pounds for shipping have moved into that category right now.

And just one really quick one. Is there any requirement for you to ship different grade of [resins] to different applications?

No, there is not. It is really based, Lu Min, on the volume of Mirel that is shipped. So, in some cases we are formulating Mirel with other components. So, it doesn't matter if that Mirel is going to thermoforming or film. But if it has other components in it, only the quantity of Mirel, not the additional additives, would count towards that milestone. So, you are exactly right. There are a series of screening criteria by which the volume that is shipped gets parsed into those that count and those that don't count, and those are some of the decision rules that determine whether the volume shipped counts or does not count.

Okay, thanks a lot.

We'll go next to Laurence Alexander with Jefferies.

Good afternoon. I guess, first of all, can you -- I mean, just to follow-up on that question about the 1 million pounds, can you give a rough sense for how much Mirel has been produced in total since the start of the project?

No, we have not disclosed it. What we have said, Laurence, is that what we have done with ADM recently is we have -- last year I think it was our July call, the Clinton plant met all the specs. In the call we had in November, the Q3 call, we talked about all the compounded material for, I believe it was 8 grade (inaudible) specs. The latest call we had before this one, we were moving that compounded material into strategic inventory locations in different parts of the world, but we have never talked about exactly what volume that relates to.

Okay.

Just to be clear, Laurence, it is clearly more than a million pounds. The plant, as we said several times, has more capacity, ahead of market demand. Capacity is ahead of market demand.

And for the C4 chemical intermediate scale, can you give a sense for how large that is or what you are using as an intermediate scale?

By the end of the year, Laurence, we would like to be able to produce tonnage quantities. Okay, we are already there -- we're there at the fermentation right now, and the samples that went out to customers in Q1 had to -- were more last scale, where we had produced -- we scaled up fermentation and it was last scale recovery. What we are doing the rest of this year, we would like to be able to produce the next higher scale samples in equipment at a scale that can be scaled up reliably to full world scale operation. And our assessment is that that basically is equivalent to tonnage quantities of C4 chemicals.

And how flexible with the plant design be? I guess what I mean by that is do you expect to have a partner who goes -- partners with you to make one specific chemical and so you have one extraction process, or do you expect to design a plant where you can swap which chemical you are producing and swap the extraction process accordingly?

Yeah, there are a couple of questions embedded in what you've asked Laurence. I think that technically the fermentation -- we expect the fermentation portion of the technology to be able to produce the core broth that would enable us to do C3, C4, and there have been questions about C5. Ultimately C5 in the same fermentation system.

What we are now working on is coming up with a robust recovery process that allows us to produce C3 and C4. Now, realistically, because the physical properties of acrylic acid and GBL are slightly different, there will have to be some slightly different downstream equipment. You've got different vapor pressures, different kind of materials of construction, and so on.

But what we are working towards is to have the vast majority of the downstream recovery equipment to be as interchangeable as we can, and we are working on that now. What that would then imply, getting to the second part of your question about partners, that if a partner chose to participate in the C3 and C4 markets, it would only be a minor incremental capital, so the recovery equipment does whatever the noncore product is, is it C3 or C4, to allow a flexible facility.

In terms of our partnership discussions, we are being more pragmatic than that. We are looking at -- some people are clearly interested in the C4 part of the market and are not that interested in C3. Some are interested in C3 and not interested in C4. So, we are talking to a variety of partners trying to determine what's best for the Company and what the best way is to move forward. But our lead product will be specialty C4s with the technology developments looking ahead to make it as robust and flexible as possible.

And, lastly, can you give a quick snapshot on any progress in the last quarter on the foam, blow molding, nonwovens, paper coatings, latex research profiles?

Sure.

And also food contacts.

Yes, absolutely. To be honest, most of the resources in Telles are focused on near-term sales. We have intellectual property in the areas you described, and we are largely focused on the near-term products in those specific opportunities largely in the area of films. So, we are not putting a lot of resource into those long-term programs at this point. Some external partnerships we have are doing some work on it, but for the most part, our resources are aimed at getting the business launched, getting the film products and the near-term products in the market rapidly.

The one exception is we are executing against a USDA blow molding grant, and we are doing work actively on that, because part of the requirements for receiving that grant were certain time frames, so we are obligated to work on that and making good progress on that.

Thank you.

No, and your food contact question, as mentioned, we got food contact approval for injection molding. We launched a thermoforming braid last year, and we have said we will be getting film, we believe, this year, and that is on target.

Okay, thank you.

Next we'll hear from Rob Stone with Cowen and Company.

A couple of questions, if I may, and I apologize if you have already commented on this in prior calls. But as you think about answering, especially the chemicals market, at what scale does it make sense for a first commercial planter or partnership?

Yes, the economics we're looking at for our specialty C4, we are looking at -- and, again, this is still being optimized. We don't yet have a formal partnership in place. But in terms of the scale of the market, which is a 800 million pound market and the technology we see, we have been doing our economics around a 25,000 ton facility, is what we have been looking at, as we are looking at how close we are to economics, at economic production levels. We have gone back and looked at relative oil and sugar prices over the last eight years at that scale.

But we have done the analysis for a range of scales and a range of yields, but our working model is somewhere around 25,000 tons a year. But, again, that is just telling you how we're thinking about it but not yet anything in the ground or anything formalized.

Sure. And how does that rank for relative to potential partner type facilities? Is that small, medium, large or what in relation to the industry?

I think it's a -- the Clinton plant that ADM has constructed is a 50,000 ton capacity facility. So, it's smaller relative to that. And, again, the plastics market is much, much larger in the specialty C4 market. So, it commensurate with that. Part of what we have to look at in our partner discussions is the potential to repurpose fermentation assets to produce this material. If we are successful in doing so, we lowered the capital cost of the production and of the construction, and that may dictate a little bit about our market entry strategies. So, there is a grass roots path and there is a repurposing path, and a repurposing path would clearly influence our scale of how we look at it.

Sure. The second question related to Clinton, and I recognize it's early since you're thinking you'll fill that out by 2013. But what kind of increment for the next phase of Mirel capacity would make sense?

Again, it is a bit early to say. I think a similar question came up on the last call and where the team -- the ADM team supported by Metabolix working on improving yields, downstream time, producing the grades that folks need. But there is also an ADM/Metabolix team looking ahead. What are some of the expected bottlenecks we may see at the Clinton plant as it approaches capacity?

We are beginning to look at what are some of the next generation recovery schemes we can think about that could reduce the capital cost per pound? What end -- some of that will be informed, of course, of what we see in the markets over the next couple of years. But we really haven't gotten to the point yet of really thinking about the scale, but we are looking is the technology and we will be looking in the next year or so at what we see in the market versus what technology set applies to that. From that we would then begin to look at -- have a better view of scale. But that is a ways off. We are really focused on getting this product to market and meeting the demand in places like Italy and other places, where we see strong pull for the product.

That is a perfect segue to my last question, which is about Italy. Given the size of the market relative to the capacity you expect to have available near-term, who else do you see as key competitors for that market, specifically?

Well, I think there is a range of things. If you're taking polyethylene in bags and you're banning it for whatever reason, whether it's CO2 or litter, the consumer has a number of choices -- cloth bags, paper bags are clearly alternatives. When you get into the bioplastic space, which I think is what you are referring to, there are -- BASF has a biodegradable product that can be turned into a bag. We do. [Nova Mod] has some technology that they can us to make a bag that is potentially acceptable. Saraplast is compounding material which is finding its way into the bag. So, a lot of the bio-based plastics makers are looking at addressing that market and addressing other markets.

We are particularly pleased with what we have from Mirel, because it has a wide range of properties, and what we are finding is we've got a lot of different levers to access as it relates to whether biodegradation properties, film strength, and different film strengths are needed and different film properties are needed for different segments in that Italian bag market. And we are happy that we are able to start to address a wide range of that market with our Mirel platform.

So, I think I would say that a lot of the bioplastics people are looking at how their own materials, each of which has their own specific characteristics, can address certain segments of that Italian bag market, because it's not all the same. But we are pleased that what we have has a very broad usage pattern and are looking to see where we can make the most traction quickly.

And how do you think about the price positioning in the context of different thickness of that market?

It's still early stage for us in Italy. There is certain price dynamics in a completely free market, and there are various price dynamics in a more regulated market. And we are finding that the film product we're getting very -- it's early stage, I'll point that out, but we're comfortable with our price point in the film market, and we said $2.25 to $2.75 per pound.

Okay. Thanks very much.

Moving on to Scott Reynolds with Stifel Nicolaus.

Good afternoon, guys. To that on the film, I was wondering in the initial applications, how would you say that the film market or the compostable bag market compares for ASP versus your other six end markets or adjustable markets?

I think we can walk through each of those. And, again, I just qualify this. This is early stage. We are in a rapid commercialization process getting feedback. These markets are very large and we are working through them.

I think we are seeing very good potential in markets where biodegradation is one of the key performance requirements the customer is looking for. And those markets would include agriculture, where mulch film degrades naturally in the field; horticulture, compost bags, where you want degradation and strength; and marine and aquatic applications. Those are where we are seeing a lot of near-term traction. And it makes sense, when you think about it, that places where biodegradation is desired, we've got one of the -- if not the best, one of the best biodegrading products out there with a broad range of properties. So, that really fits nicely with our value proposition.

When we are moving into some of the more consumer and business segments, there, what typically happens when you think of a molded printer case or a heavy piece of -- a computer housing, those type of things, there is sometimes, if the part is large, a price point is difficult to move through at $2.50 a pound.

So, what is happening in that market is there is some innovations occurring where Mirel is being blended with starch-based components and less costly components. So, we are holding our price point. The customer is getting the physical properties that Mirel brings, so we are in effect, Scott, what is happening there is we are beholding our price point but Mirel will be blended with lower cost things to access customer needs. And that's the development as we see it occurring. So, that is pretty consistent in the consumer and business equipment sections for larger parts.

And, of course, as you well know, we have various things out in those markets right now including Labon, Paper Mate pen, Pharmafilter, they're out there now and we're seeing interest there. But there is a bifurcation of the market depending on the scale of the part.

In packaging, we're, again, early stage, but packing where we'll get the most traction and be able to have higher ASPs will be in places, I believe -- this again is my view from what I've heard from our sales force and talking to customers -- where anaerobic digestion is an interesting end use application, end-of-life application for the material, because Mirel works very good in those operations. And I think that will be a place.

So, we are at the point now, Scott, where we are looking across the markets. We've got, as I mentioned, 100 different prospects reflecting a pretty diverse group. We are migrating towards film products where the selling price is being accepted, and we are looking at the technical innovations in the business equipment and consumer market that will help us hold that price point. And packaging is evolving, so a lot of the food packaging, that takes a bit more time given the test that the customers run and the commercialization path for food products. I hope that answers your question, but that's kind of a play-by-play across the six market segments we talked about.

All right. Thanks for all the color. And then on the C4 strategy, I was wondering if you could provide a little bit more detail potentially how you might go about financing something like this? Would you be looking into a contract manufacturing? Is that something that is even possible? Is there fermentation capacity out there that can do this?

Contract fermentation, probably not, but I think it's a bit premature to speculate. We are looking at talking to potential partners about a whole range of options. Our interest is to participate in the business and we will be working with different partners to see how we can structure that. But it still is early and I think a lot of it, Scott, would depend on the repurposing of assets versus green field.

So, we're keeping an open mind. We are looking at a range of different options and we clearly want to hear what our partners are interested in, too, because we want to structure a win-win arrangement where we are both aligned about what we're trying to create.

Very good. Thanks.

(Operator Instructions) We'll go to Ian Horowitz with Rafferty Capital Markets.

Hi. Good afternoon, guys. A couple of quick questions. This delay in the commercial phase, I mean, I think you guys stated that you were pretty much slated for a mid '11 commercial phase before this call, and now we're in the second half of '11. Am I to assume that this is going to be a little bit more tilted towards the fourth quarter than it's going to be toward the third, since it's -- I'm not sure you'd be putting out an announcement if it was coming in July rather than June, would you?

Well, I think if you -- people interpret midyear as, I don't know, end of June to beginning of July, and we can see it happening beyond that. The issue, Ian, is that it is very lumpy, and a couple big -- a million pounds is not a lot given the scale of the facility. And the question before, I think Min asked on the qualifiers, of course, but certain things can move that quite dramatically, but we are saying into the second half of the year. If we resolve some of the issues, it would be sooner; if we don't, it will be later. But what we are seeing is a very strong market and a lot of interest from customers, and we are working to pull that in the best we can.

Okay. And does this, you know, a slight delay, kind of pause, whatever you want to call it, put risk at all to the day for full capacity at this point, or could you kind of catch up and --

I think there was a specific question on that earlier, Ian, and the response we provided is that we're really focused on the near term, and we're a relatively small player in a very large market, and there is risk to that mid 2013 date, because we don't have the customers lined up, we don't have a line of sight on the volume. But products, just looking at the sheer scale of the Italian market, as an example, products can propagate pretty quickly, and we are trying to set the cards up so it happens.

But in the future, once we get a better line of sight and get to our first milestone, we'll reforecast the second one with a heck of a lot more insight into how the market is looking and where the traction points will be for Mirel. We think we know where they are, as we noted in this call. We will be validating that. We learn more almost every day about where we are getting the traction and the film market is where the action is right now.

Okay, fair enough. And then can you give me a little bit more color on the UCAN bag product? Are you going to be able to -- I don't know what you call it -- is it cold composting, residential compost, this bag, or is it more for a municipal level or commercial scale?

This launch, Ian, is for a municipal level, industrial composting. It is not for home composting, although that could very well be an extension of the product line. But right now the launch that they have put out was for an institutional material.

So, Mirel is cold compostable, correct?

That's right.

So, there is some other added component to the film that kind of negates that opportunity?

Yes. There is the Mvera grade. See, the bag markets are -- you go to the store and you think a bag is a bag, but there is a wide range of performance requirements in the bag market. And certain bags where different strength is required, different forms of end of life, different things are put together to create that need. And option that is selected here for this launch is the Mvera option, which is aimed at an end-of-life for institutional/industrial composting. There could very well be, as I mentioned, another product launch. I don't know if it's UCAN or someone else, that would say this is for home composting, but this is the Mvera launch for industrial composting.

And are you doing that final formulation or are you sending your Mirel off to do the final formulation?

That is going to Lakeside. I mean, so we've disclosed that Lakeside is making the bag and UCAN is marketing on a retail basis, and we have had announcement on Lakeside a little while back.

Fair enough. One last question, you always ask it on the call, you know, the current ledger balance.

Joseph Hill. Yes, as we have said before, the ledger balance at March 31 was $412 million.

Sorry, I missed that. Okay. Great. Thanks, guys.

Thank you.

And there are no further questions at this time. I'll turn the conference back over to management for any additional or closing comments.

Good. Thank you very much. I'd like to thank all of you for attending our call today. We are making good forward progress and 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 areas in the coming quarters, and we look forward to keeping you informed. We'd like to thank you all for joining the call and I wish you a nice evening. Thank you very much.

Ladies and gentlemen, that does conclude today's conference. We thank you for your participation.