Yield10 Bioscience Inc (YTEN) 2011 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Metabolix Incorporated second quarter 2011 earnings conference call. Today's call is being recorded. (Operator instructions) I would like to turn the conference over James Palczynski of ICR. Please go ahead.

Thank you, operator, and good afternoon everybody. Metabolix released second 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're joined by Oliver Peoples, the co-founder of Metabolix and Chief Scientific Officer.

Before we begin formal remarks, I need to remind everyone that part of the 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 Securities and Exchange Commission for a more detailed discussion of the risks that could impact our future operating results and financial conditions.

With that, I'd like to turn the call over to Rick Eno, President and Chief Executive Officer of Metabolix. Rick?

Thank you, James. I'd like to welcome all of you to the second quarter 2011 earnings conference call for Metabolix. Today I will provide you with a review of the Metabolix vision and 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. While I understand that for many of our long-term investors a Company overview is unnecessary, but many of our newer investors find it valuable, so I'll take about a minute to provide some Company context.

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, 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 serve as a unique source of renewable chemical intermediates.

We currently have deployed our PHA technology across three business platforms - first, Mirel, a biobased, biodegradable plastics currently being commercialized with our partner, Archer Daniels Midland, through a joint venture called Telles; industrial chemicals focused on C4 and C3 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 the business. I'll review the overall status of the business, primarily addressing markets and customer activity, as well as the review of our overall growth plans.

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

As you know from our last call, we are primarily focused on the film markets, specify in compost bags, agricultural multifilms and packaging. This is due to a strong market pull in these segments both in the U.S. 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 than incumbent film products, and in some cases will improve the physical properties of the film. While still early in the development of the business, this pull appears to be validating the Mirel value proposition and price point.

This quarter we continued to expand the customer base, which is currently split between Europe and the U.S. The customer base has now grown to over 50 customers, with over 15 placing repeat orders. Repeat orders are a good indicator that a customer development program has or will translate to a successful product market launch. We are still 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. Note that we also have a number of potential customers in the development pipeline at a preorder stage.

During the customer development process, we've received considerable feedback from customers. In summary, they are very satisfied with the product, the Telles team, including the technical support, and see Mirel as a key component of their growth plans. However, many of them are working to developing their own market launch plans for Mirel-based products, which makes forecasting their growth, and hence our sales, challenging.

I'd like to highlight three of our new customers. Each is highly capable and we're proud to be working with each. Tenova is an innovative European film converter launching a new line of compostable bags and packaging solutions across Europe. In Sweden, where Tenova is based, biogas generation from organic waste is a critical and growing component of the country's renewable infrastructure. Mirel products are suitable for disposal in anaerobic digestion facilities and aid in the production of biogas.

Next, Cortec. Cortec is a U.S.-based film manufacturer launching two new products based on our Mirel P5001 product - EcoOcean for marine degradable markets and EcoWorks AD, which is designed to meet the demands of anaerobic digestion systems, thus offering a new disposal option for bioplastics products. Cortec is a leader in the development of innovative corrosion protection solutions and distributes products in over 70 countries.

Next is Indofine. As we spoke in our last call, the Italian bag market, due to the banning of non-biodegradable bags, offers the very attractive opportunity for us. Prior to the ban, approximately 400 million pounds of polyethylene was being sold in this market. Indofine, as one of our early adopting customers, is now selling Mirel-based bags into this market.

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

The overall pipeline remains strong and we discussed last quarter two specific challenges that held back some of our near-term potential - the supply disruption of a third party formulation ingredient that affected about ten near-term potential customers and the optimization of the physical properties of our film product aimed at a specific segment of the agricultural market, which affected about five of our customer prospects. These types of issues - supply disruptions and product optimization - are common in the plastics industry, but at our current small scale, their impact is magnified.

We are still seeing some of the implications of these disruptions, but have made considerable progress in reformulating around the third party formulation ingredient. We've also improved the physical properties of the mulch film product to meet the retail segment requirement, which is now being validated, and we have an alternative product being sold into the industrial segment.

We continue to work to address the diverse but very attractive agricultural segment. Given recent market developments, we still anticipate the milestone for the joint venture to transition to the commercial phase of its relationship to occur in the second half of 2011. Outside of those developments, much is the same for Telles as in previous calls.

ADM's Clinton, Iowa polymer plant, the supply source for Mirel bioplastic, is up and running. ADM, with Metabolix support, is in the process of improving yields, reducing costs, and de-bottlenecking the facility to increase capacity. This will be an ongoing process and inherent in how we operate the business. We expect 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 continue to focus on focus on building strategic levels of inventory of our various product rates at distribution points, both in the U.S. and in Europe. This has enhanced our assurance 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, thermal forming, sheet and film applications and we have ongoing developments in the area of foam, blow molding, nonwovens, paper coating and latex. As described in our previous calls, 2010 was a transition year as the Telles business was launched and 2011 is a year when we expect a significant number of current customer developments will materialize as new contracts. We'll provide regular updates on our future quarterly calls to review our progress in 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 creations and creation opportunities for us outside of the Telles joint venture for ADM.

In industrial chemicals, we are leveraging our PHA gene technologies 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, which we call FAST, Fast-Acting Selective Thermolysis. 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 strategy into this space.

Our technology is unique in that the same basic process can produce both families of products with only minor, tailored purification modifications based on the 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 much smaller market than the $10 billion C3 and C4 market and as such it is currently a lower priority for us.

We continue to move ahead well in our industrial chemicals platform. Let me recap our milestones and our progress. First, samples of our C4 products were sent to customers in Q1. This, as you know, was completed.

Second, feedback from customers in Q2. This has also been completed. We received very favorable feedback from targeted customers, both with respect to purity of products and successful conversion of our products to key derivatives. Additional sample shipments are planned for Q3 with the goal to extend the testing. Our process, albeit currently at small scale, produces very high quality products in a very efficient manner.

Our third target was to be ready for engineering design for a commercial facility by the end of this year. This means we will have proven out all key technology elements at a size which allows the process to be scaled up to commercial levels. We are still on track to complete this and also anticipate producing tonnage-sized quantities of material by the end of the year.

One of the most significant steps forward in our industrial chemicals platform this quarter was the initiation of a joint development agreement with CJ CheilJedang, or CJ, to further advance our C4 technology and develop a market entry plan for C4 chemicals.

For those of you not familiar with CJ, they are a rapidly-growing food, biotechnology, and pharmaceutical company based in Korea. They are a leading producer of amino acids, including lysine, and operate world scale fermentation facilities in Brazil, Indonesia and China. They are seeking to build their biotechnology business and the Metabolix C4 technology fits very well with their plans.

Today's press release outlines the respective role of each party. CJ will utilize Metabolix' microbial strains to produce dried fermentation broth, which is a precursor to C4 chemicals. No pure polymer is recovered. In addition to further enhancing our microbial strains, Metabolix will take the dried fermentation broth from CJ and recover high-purity C4 chemicals for market development.

CJ and Metabolix will work together on a detailed site and market analysis examining the potential integration of the Metabolix C4 technology into one of the existing CJ sites in Indonesia, China, or Brazil, or potentially into a new site. Alternative markets will be analyzed together.

Given their on-the-ground presence, CJ will play a key role in examining market opportunities for C4 chemicals in Asia. Together, we will be meeting with prospective customers in this fast-growing region of the world. Each party is responsible for its own costs and this is a non-exclusive relationship for both sides. We anticipate the work being complete within a year. We are very excited to be working with CJ towards commercialization of our C4 chemicals platform.

We'll keep you informed on progress, but feel comfortable with the milestones that we have communicated to date. We are also now in early-stage discussions with potential manufacturing and off-tech partners on our C3 technology program. This is obviously leveraging much of our C4 work and equipment and technology development will follow the C4 program by about one year.

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 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.

This past quarter we were excited to have been awarded a $6 million Department of Energy grant for development of our biomass program. The work being funded will allow us to increase the PHA levels expressed in switchgrass and conduct pilot testing of the production of the chemical intermediates via our FAST process. In this approach, we will feed biomass containing PHAs to our FAST recovery process, recovering commodity chemicals which can serve as a basis for maleic anhydride, butanol, among other products. Our residual is a densified biomass suitable for firing on site, converting to fuels, or being effectively transported to other users.

In summary, during this quarter we continued to move forward across all three of our platforms. In Telles, we continue to make steady progress on expanding the customer base for the Mirel business and can see more than sufficient demand for selling out Clinton one.

In industrial chemicals, we received positive feedback from potential customers this quarter and are moving to be ready for commercial plant engineering for our C4 program by year-end. In addition, we entered into an exciting joint development agreement with CJ.

In our crop-based businesses, we received a significant grant from the Department of Energy and continue to move the science effectively ahead. We're very enthused about the potential for the Company and the broad scale deployment of our PHA platform.

I'll now turn the call over to Joe for a review of our financial results for the quarter.

Thanks, Rick and good afternoon, everybody. Thank you for joining the call. I'll now focus on the financial results for our second quarter ended June 30, 2011. As always, we managed our finances with an emphasis on strict cash flow management. We have maintained this focus and ended the second quarter with $95 million in cash and investments. For the second quarter, we used $5.9 million of cash for operations. This compares favorably to the $9.4 million we utilized in the first quarter and is down from the year-ago second quarter level of $7.4 million. The $3.5 million decrease in net cash usage in the second quarter 2011, compared to the first quarter 2011, was attributable to accrued annual bonus payments made in February each year, an increase in related party receipts and changes in working capital related to accounts payable. The decrease compared to the year-ago period was primarily due to an increase in related party receipts and changes in working capital accruals. Through the first six months of 2011 ending June 30th, net cash used in operating activities was $15.3 million. That's compared to net cash used of $16.8 million for the comparable period of 2010. The year-over-year decrease in cash usage for the first six months of 2011 is primarily attributed to an increase in cash receipts in 2011 over 2010. This increase in cash receipts for the first six months of 2011 is a result of an increase in related party reimbursement and royalty payments.

I'll now give some additional detail on the Company's financial results for the second quarter of 2011 ended June 30th.

Total revenue for the second quarter 2010 was $191,000 versus $109,000 for the second quarter of 2010.

During the three months ended June 30, 2011, revenue primarily consisted of royalties and license fees earned under licensing agreements with Tepha, Inc., a related party, and government grant revenue. The quarter-over-quarter increase was primarily attributable to higher revenue recognized from government research grants.

Total revenue for the six months ending June 30, 2011was $517,000 versus $289,000 for the year-ago period and the year-over-year increase was primarily related to sublicensing royalties from Tepha, Inc.

Total operating expenses in the second quarter of 2011 were $10.2 million, an increase of $510,000 relative to the comparable quarter in 2010.

Research and development costs were $6 million, an increase of $162,000 relative to the comparable quarter in 2010.

Selling, general and administrative costs in the second quarter of 2011 were $4.2 million, an increase of $348,000 relative to the year-ago quarter.

For the six months ended June 30, 2011 total operating expenses were $20.2 million as compared to $19.7 million for the respective period in 2010.

Research and development expenses were $12.2 million, as compared to $12 million for the comparable six months in 2010. The increase of $200,000 was due to an increase in employee compensation and related benefits expense, research and development supplies and services and contracted research, partially offset by a decrease in material production costs.

Selling, general and administrative costs in the first six months of 2011 were $8 million, as compared to $7.7 million for the comparable six months in 2010. The increase of $300,000 was generally attributable to an increase in employee compensation and related benefits expense, and increased legal fees partially offset by a decrease in consulting fees and related expenses.

Net loss for the second quarter was $10 million, or $0.33 per share. This compares to a net loss of $9.5 million, or $0.36 per share, in last year's second quarter. Net loss for the six months ending June 30, 2011 was $19.6 million or $0.69 per share, compared to $19.3 million or $0.73 per share in the same period of 2010. This increase in net loss is mostly driven by increases in operating expenses, offset partially by an increase in revenue.

Now on to the balance sheet. Our balance sheet remains strong. As of ended June 30, 2011 we had cash and investments of $95.2 million. This reflects the additional funding received in a recent secondary offering and compares to $61.6 million of cash and investments as of December 31, 2010. We continue to have no debt.

I would like to reiterate from last quarter's call that as we reached the commercial phase milestone of the agreement with JDM 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. When this occurs, we will also begin to offset cash usage as we receive royalty income on Mirel sales of approximately $0.10 to $0.12 per pound, which would amount to approximately $12 million per year at the Clinton plant's design capacity.

While the split of Telles' operating profits does not occur until the ledger balance is fully paid down, the combined effect of both of these events will have a significant positive impact on the Company's cash flow. As of June 30, 2011, the ledger balance was $421 million. This increase in the ledger balance from March 31, 2011 is primarily attributed to operating cash needs at Telles.

With that, we'll now open the call for questions.

(Operator instructions) Mike Ericson Brother, Piper Jaffray

Good afternoon, guys. My first question is around the CJ Bio agreement. So obviously they primarily make amino acids, as you were alluding to in your prepared comments, so presumably they have a good amount of expertise in bacterial fermentation, which would be useful for you. So could you give us a little bit more of a handle on what sort of fermentation assets they have in Brazil, Indonesia and China?

And then I guess the second part of that question is, is the pricing strategy for the GBL, BDO, the THF and the PBT types of markets that you're targeting, is the idea to still go after green premium markets where you hope to get a 2-3X ASP list from markets that are looking for more of a green pull? So I guess that was my first question was kind of a two-part.

Sure. Sure. Thanks, Mike. In terms of the assets that CJ operates around the world, we're excited in that they have facilities in some very attractive and interesting places for chemicals manufacture, namely Brazil, Indonesia, and China.

The fermentation assets they have you can research them to determine what they've disclosed about capacity at each site, but we're very confident that our strains will run very effectively in those assets. And a key part of our agreement with CJ is to work through a very detail analysis about the implementation in the construction of the Metabolix technology at those sites, as well as potentially new sites. So it's truly a company with great fermentation expertise with a very synergistic market footprint relative to where the chemical markets are actually growing.

With regards to your second question on pricing strategy, no we're not. Our industrial chemicals platform we're not counting on a green premium. We are aiming to get the technology to deliver returns as pricing parity to petroleum-based products that are out there now. What we're hearing from the market right now is there seems to be a bit more understanding from the end users of offering a bit of a premium to many products, to enable some of these new renewable technologies to get to market.

But the conversations are clear that over the long haul there will be no premium and you have to compete on costs. So that's what we're thinking about and as we're looking at our production economics, our feedstock sourcing, our yield, we're all working on the basis that we're competing on costs with petroleum-based materials.

Okay. That's helpful. And then I guess my second question is on the cash burn in the quarter sequentially down quite a bit and year-over-year. Joe had touched on some of these in his prepared comments. I just wanted to get a little bit more color on a go forward basis. So, obviously in this quarter there was an increase in cash receipts and funding from related parties, that type of thing and going forward, is this -- for the next at least two quarters, I guess. Is this level of cash burn something that you would expect or would you expect it to increase until you hit the million-pound threshold?

I think our cash burn was lower than the trend this quarter for a couple reasons. One was we had received some significant payments from related parties, that we received some cash from Tepha in royalties. I think that as we go forward, it should go back to where we were, at about $8-9 million per quarter.

Okay, excellent. Thanks.

JinMing Liu, Ardour Capital

Thanks for taking my questions.

Hi JinMing.

My first question is related to the CJ JDA. Do you specify on what scale the fermentation will be carried out, meaning do you want them to go on the fermentation using a 10,000 liter fermentation tank or all the way to the commercial scale fermentation?

No. We've not -- that's not specified. I mean what we're doing is we're in the process already of scaling up well past the thousand-liter scale already and we actually feel quite comfortable with fermentation scale up, given our years of our experience in that.

So, really, what we're designing the fermentation process around is what's needed for market development at this point, so we're aiming to produce tonnage-sized quantities of C4 chemicals by the end of the year. And clearly, as part of the JDA, CJ will be running some of these fermentations to be comfortable with them and we have very high confidence they will be able to very successfully operate these processes.

Okay. Then on the C4 chemical platform, I saw many renewable chemical companies are getting attention. Some of them are building up (inaudible - heavily accented language) or demonstration of skill facilities for the production of some C4 chemicals like the PDO. What do you see your technology against theirs?

As you know, JinMing, the technology landscape is moving very fast in this field and there's a lot of people looking at clearly renewable sources of chemicals. We are extremely comfortable about the ultimate competitive position of this platform and there are two reasons for that. One is that the fermentation experience that we've gotten over the years and the scale of the fermentation has gone very well and it's a very robust fermentation with very high productivity.

But probably the greatest differentiator is the uniqueness of the recovery process, this fast process, which allows polymer that has been basically sequestered in the cells to be released in a vapor form and what that means is the separation is very selective, very pure and very light on capital. So, as a result, it's usually very difficult to separate high purity products out of fermentation broth in the liquid phase. We're doing it in the gas phase, which is a much, much easier way to go.

So, as a result of those two factors, we're very comfortable with our competitive position and we're moving ahead very quickly to continue to develop the market and to continue to own the technology and the JDA retail is going retail is going to help us do that.

Okay, my last question is regarding your DOE grant. I read that usually is from the DOE. It looks like the grant is for an increased yield of switchgrass. There is nothing mentioned about the PHA production there. So, can you --?

Yes (inaudible - multiple speakers) Sorry? JinMing, go ahead.

Yes, I was reading the DOE news release regarding your grant and in there you mentioned the purpose of that grant is for the increasing the yield of switchgrass. Nothing about PHA was mentioned in there. Just can you clarify that?

Yes. So the switchgrass is targeted at two aspects. The first aspect is to increase the concentration of PHB in the switchgrass. That's essentially the major path.

That's the metabolic engineering, genetic engineering task and the second task is to utilize the fast, or demonstrate the fast process of this thermal technology to recover crotonic acid. And the final task in that is to demonstrate a number of different catalytic conversions of crotonic acid to end use chemicals and we are working with our partners, both on the thermal conversion and also on some of the catalysis to convert crotonic acid to the chemical. That's basically the nature of the grant.

Okay, but the DOE news release didn't mention the upload, so that's what I want to clarify. Thanks.

You're welcome.

Laurence Alexander, Jefferies & Co.

Good afternoon.

Hi, Laurence.

I guess, first of all on the Telles JV, can you give a little bit more detail about the production issues that your partners are dealing with, what kind of obstacles that they're running into and are these obstacles that each new partner is going to run into, or can you transfer the learning or the solutions from one customer to another to help people move up the curve a little bit faster?

What, I guess maybe just a little bit more clarity on what you mean by partners? Do you mean suppliers, customers, what -- a little bit more clarity would help us answer it, Lawrence.

Well, it depends on which issues. You refer to several different types of issues. If you could go through them, piecemeal, the issues you have with the suppliers and then the issues you have with your customers who are trying to work with you on material.

Sure. Okay. So, I think about it in two ways. One is supply and the second would be products. So, on this supply side, in the plastics industry it is very common that arranged materials are combined in various combinations to actually produce desired products and properties.

As we noted in our last call, there was one of those ingredients that there was supply destruction. So, what we did and what is typically done in the industry is you formulate around it and that's what we managed to do this last quarter, is we find differently ways to make the same product and let's say a product with equivalent properties using different materials. And over time, in this industry, what happens is you build up a whole host of different formulations and ingredients in order to get to the same end point and that's exactly what we did in the second quarter. So we're largely past that right now.

When that ingredient comes back on the market, we'll look at the ability to continue to source that to produce the product we were producing before, but then compare it to the product we've developed over the last quarter. And that's pretty common, Laurence, in the industry. It's not a desirable situation to be in, but over time you start building another suite of these recipes that you can work around and that's what we've done.

On the second area on the product side, the example we cited last quarter was in the agricultural mulch fill market, which I believe is some six billion pounds of plastic demand each year and there's a range of different performance requirements in that market that depend on whether it is a retail market, an industrial market, and those properties have to do with tear strength. So the film gets pulled behind a tractor. It's got to maintain its integrity. It has to do with the rate of degradation that that film has, which is different in different climates and for different crops.

So -- and we're constantly getting feedback from customers, so in that case, what a customer asks for is greater in performance in one of those attributes and that's what we've been working on and we feel we've knocked that one out as well and that's in the final validation testing now.

So, in this industry and part of what we're seeing across a lot of our customers is we've got very good working relationships and we've got very good marks from our technical support team and commercial team with how we're interacting with customers. But it does tend to be a bit of an iterative process, as they see this new product and they home in on exactly the properties that they would like with their application.

That will start to slow down, I believe, as we start getting more and more customers out there, that you get into a zone for a certain application and that starts to replicate across the application and we're starting to see that now, for example, in the compost bag area and that will happen again. As the business matures and we grow, that we'll always have optimization of products, but when you get into the zone for certain applications you then can replicate across that application and that's beginning to happen also.

And how many customers of the JV have products, in however small a quantity, actually being out in the market place where consumers can touch the material?

Well, hard to -- I don't know if we even can answer that ourselves. What we have said is we've got roughly 100 that we're working with. Of that 100, we've got 50 customers, meaning paying for product, and we've got about over 15 or so in repeat orders. So 100 people are working with this product right now and whether they actually have molded that into a part and testing that, it's hard to know the precise number.

But there clearly are a number of customers that have products out in the market in small scale, testing it. So, but I can't point exactly, Laurence, to the precise number that have products in the market as final, finished product right now.

And then, with respect to this new development agreement, do you have any rough sense for what the draw on your capital will be for your part of the first phase of the venture? I mean, are we looking at a $5 million spend, $10 million?

No. No, it's not a dramatic change over what we have been using, utilizing, in the last couple of quarters. We've got a team deployed against it. They're moving very rapidly to finalized process design elements. We've got pilot locations selected. We're working in that.

I think, as we move towards the latter half of that agreement, one of the big decisions is do we move up to semi-commercial quantities of product for further market development and right now we've not -- just we'll work that through with CJ and we'll decide what scale that would be. But that type of investment would be seen in 2012, not this year.

And then lastly, as you look at conversion costs to make either the gamma-Butyrolactone or the BDO, how much of a disadvantage are you at working through a multistep process rather than direct production and working through -- anyway, if you would have to use more heat to do a gaseous transformation of a solid product, as opposed to doing something that just is separated out at room temperature? And what's the impact on capital costs and conversion costs?

I'm not sure there's any process out there where things are separated out at industry purity at room temperature, but that being aside, the process that we're using for recovery is extremely energy efficient. We may think -- it could be close to be energy-neutral, given the heat being you've recovered in the process as a way to dry the fermentation broth. So it's very energy efficient and water efficient, so we don't see much cost there and because the metabolic pathways take us very quickly from sugars to GBL, we've got a very advantaged path to GBL.

So think of it, Laurence, as GBL is our platform molecule for the C4 industry and from that platform, we are looking at the best way to get to THF and to PBT and if we go through butanediol to get there, that also has to be considered. But there's no butanediol that's consumed in those end use industries and if we can short circuit some steps to get there, we can think of it as a GBL platform business, as opposed to a way we just have to get back to butanediol.

So we're looking at that, all the different pathways within the C4 industry, but the recovery process is highly effective to get to GBL and again, I don't think there's other processes that operate without a lot of different steps at room temperature to get to an industry-pure product.

Thank you.

Okay, thanks.

Jeff Osborne, Stifel Nicholas

Great. Good afternoon. Most of my questions have been answered. Just a few quick ones. Just unclear, when you come up with a new formulation because of the supply destruction, do have to re-qualify the product with the customer?

Re-qualify, Jeff, may be a strong term. It is done usually in an interactive way with customers and we'll get immediate feedback and they say, "Yes that meets our performance requirements" and in that sense it would be qualified. It's less of a -- I could describe it as less of a formal process and more of one where you're just working to meet customer needs. That's certainly at our stage of development.

Okay, excellent and then you folks have been talking about debottlenecking now for, I don't know, 12 or 18 months and from my understanding, 110 million pound was kind of locked in stone and I don't know, a six timeframe maybe, or seven.

At what point can you come out and tell us, over the last 18 months or two years, "here are the tweaks we've done" and maybe not specific, but my sense is that maybe the plant's 130 or 140 million pounds by now, just because you've -- so you're planning to gain more experience in fermentation both in your own labs and now it's a plant. Wouldn't that be (inaudible - background noise) be a little bit more transparent to investors, given people are looking out to 2014 and '15 for you folks if the plant's actually 15% or 20% larger?

Yes. Ultimately, I think that is something we'll do as we get more experience pushing the plant at higher levels of production, but right now we're still in the early market development stage. So our primary concern is getting these initial and our communications have largely been trying to keep people apprised on how we're moving these prospects through the pipeline, how we're thinking about developing the market, how we're planning to ramp it up.

As we get further along, that'll become very important because it relates to capital usage, amount of capacity you can get out of a plant and ourselves and the ADM team that is operating the plant is getting considerable experience at operating the plant and as good a manufacturing organization as they are, they keep working on yields and it's an ongoing process and it just keeps getting, keep showing improvement.

So, right now, I've given the low sales level. It's not quite as important, but as we start to ramp up - I agree with you, Jeff - it will become more important for understanding our future demand from the business.

So just the last thing. I think there's been some stuff in the local press there in the Clinton, Ohio Gazette, residents complaining about the plant with the smell. I think ADM's filed with the city council, they use two different solvents for the process that has some adverse impact on air quality. Are some of these just kind of near-term obstacles that, in your view, happen with every chemical plant out there in the country, or is this something specific to the plant that may be a lingering concern and perhaps prevent you from getting to commercialization this year?

No. I haven't yet -- I mean, first of all be clear that ADM owns the plant. ADM operates the plant and to the best of our knowledge they're meeting every environmental and regulatory requirement for the plant and we're not really commenting on actions of the neighbors. But the plant is meeting requirement and the plant is operating and producing product that our customer is very pleased with, so that's more of a question for ADM in terms of the local community and how that's being managed, but the plant is meeting all the requirements that it is required to meet.

Okay. Thanks much.

Thank you.

It appears there are no further questions at this time. I'd like to turn the conference back over to our speakers for any additional or closing remarks.

Thank you very much. I'd like to thank all of you for attending our call today. We're very pleased with our progress and have a lot of enthusiasm about the long-term potential for each of Metabolix' platforms. We anticipate much more progress across each of these areas in the coming quarters and we look forward to keeping you informed. So, thanks again for joining us on the call and you all have a nice evening. Thank you very much.

That concludes today's presentation. Thank you for your participation.