Yield10 Bioscience Inc (YTEN) 2012 Q1 法說會逐字稿

Please stand by. We are about to begin. Good afternoon ladies and gentlemen thank you for standing by. Welcome to the Metabolix Inc. First Quarter and Fiscal Year 2012 Earnings Conference Call. Today's call is being recorded. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for your questions.

I would like to turn the conference over to Allison Townsend of ICR. Please go ahead.

Thank you and good afternoon everyone. Metabolix released first quarter 2012 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. In addition, today we have provided several slides to accompany the presentation. These slides will also be available on the Metabolix's website following today's call.

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. Investors are also cautioned that statements in the discussion today, which are not strictly historical statements, constitute forward-looking statements.

Such forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated, including the other risks and uncertainties detailed in Metabolix's filings with the Securities and Exchange Commission including the company's 10-K filed on March 12, 2012. 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 the conference call.

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

Thank you Allison. I'd like to welcome all of you to the first quarter 2012 earnings conference call for Metabolix. Today I will provide you with a review of the Metabolix vision, and an update on each of our three platform areas and then Joe will take you through the financials.

While I understand that for many of our long-term investors, a company overview is unnecessary, many of our newer investors find it valuable. I'll take about a minute to provide some company context.

Metabolix is an innovation-driven bioscience company, which is focused on delivering sustainable 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're 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. As a result of our capabilities and work in PHAs, we have assembled a strong IP portfolio as an anchor for our commercial initiatives.

We currently have deployed our PHA technology across three business platforms. First, Mirel, a family of biobased and biodegradable polymers; second, Industrial Chemicals, initially focused on C4 and C3 chemicals; and third, crop-based activities, which include our programs in oilseeds, switch grass and sugarcane.

In review of the business, I'd like to begin with Mirel biopolymers. So let's turn to slide two of the accompanying slides. We are driving the biopolymers business forward across many fronts. In early March, all business operations for our PHA biopolymers platform were transferred to Metabolix.

During the transition, in the first quarter, we provided customers with access to product inventory and began to fulfill orders from customers. During this period, our team set up the appropriate administrative, logistical and financial systems to enable us to take orders, deliver inventory and record sales for Metabolix. After March 6th, the settlement date of our relationship with ADM, Metabolix recorded the first sales of Mirel biopolymer on our books.

The revenue recorded in the quarter reflects small orders from existing Mirel biopolymer inventory for a number of customers primarily in the areas of horticulture, aquatic applications, molded bioplastic items. So our sales level reflected about three weeks of activity, commencing immediately after the settlement of the Telles determination negotiation with ADM.

I'd like to mention that we are now gaining further visibility on customer orders expected to shift in the second quarter. One area where we expect to be active in the second quarter, is the compostable bag market in Europe. As you know we are been working with European customers to develop and market compostable bags based on our Enverra film and we are pleased to say that we have recently resume productive conversations with customers serving this market.

In addition, I would like to remind everyone that our goal is not to sell Mirel and Enverra inventory as fast as we can, but to use our inventories strategically to provide product to core customers as we bridge to new supply. With more than 5 million pounds of product inventory available, we expect to have adequate product inventory to supply core customers with PHA biopolymer until new inventory becomes available and to continue product development in high value-added applications.

Note that prior to the startup of the ADM facility, our pilot plan can produce less than a half-million pounds per year. So we have significantly more product from market development than we did at the startup of the ADM facility and we anticipate the capacity of our targeted production site to be much less than the ADM asset. I will mention that Metabolix also continues to engage core customers in discussions of inventory requirements and in first quarter continued to provide product samples to potential customers. The feedback we have heard on the attributes and performance of our product continues to be positive.

Later in the call, Joe will provide additional color on revenue, costs of goods sold and the valuation of inventory as of first quarter.

Today, I'd like to spend a few moments to profile our relationship with long-time customer, Ball Horticultural, an internationally renowned breeder, producer and wholesale distributor of ornamental plants. We began to work with Ball in 2008 to develop SoilWrap and after significant investment and development, jointly announced last year, piloted marketing of the product. In the first quarter, the Metabolix team worked right through the transition in the business to ensure Ball would stay on track to commercially launch its new Mirel-based biodegradable SoilWrap containers through leading retailers this spring. This launch includes Home Depot, Lowe's and Shopko locations in 20 states. We congratulate Ball and their growers on this important commercial launch and want to highlight their commitment to developing this innovative solution.

Our vision is to have many customers like Ball. To do this on a commercially important scale, we must restore the supply chain to launch the business under a new commercial model. As you know, we have opened and advanced discussions with perspective manufacturing and commercialization partners for biopolymers and are focusing on evaluating certain manufacturing options and locations worldwide.

In a year-end call, we said we were considering about 10 potential manufacturing sites worldwide. As we stand right now, we are working on four specific locations as potential production sites. In second quarter, we plan to conduct due diligence to enable us to narrow our choices to a very short list for final selection. In going through this process, we have also been evaluating the potential to integrate the manufacturing of biopolymers with biobased chemicals, and I will return to this point in a moment.

In April, we opened a new business office as a focal point for commercial activities in Europe. The office is located in the BioCampus, biotech park Cologne, Germany. This space, which is initially staffed with two employees, will enable us to directly access the European market for biopolymers and will serve as a coordination point for expanding regional initiatives in renewable chemicals. We expect this space to give us visibility and presence in the European market, which is the largest for bioplastics, while at the same time being very cost effective for us.

I will briefly mention that also in the first quarter, though previously announced, we received FDA clearance for food contact applications for the next generation of Mirel technology. In addition, we also granted a license to NatureWorks, a global leader in the PLA biopolymers industry. This intellectual property will help NatureWorks expand the market for bioplastics through blending its PLA product with other bioplastics. Overall, I think we have achieved a level of momentum in the biopolymers business over the last few months and appreciate the support we've seen from customers and business partners.

Now I am on slide 3, to update you on a chemicals platform. In industrial chemicals we are leveraging our PhaG 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, which we called FAST; Fast-Acting, Selective Thermolysis. The PHA approach is a unique platform, which enables a pipeline of chemical product opportunities for Metabolix. Our competitive assessment has indicated that our PHA fermentation technology, plus a simple recovery process, results in a highly competitive production platform for biobased chemicals.

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 relatively minor tailored purification modifications, based on the specific molecule being produced. In the C4 program we have been sampling C4 chemicals, specifically GBL, produced up a 60,000 liter scale.

We have continued work with our C4 chemicals joint development partner, CJ CheilJedang, as well as others, towards commercialization of the C4 chemicals platform. We are actively involved in site and market analysis as well as reviewing the feedstock markets. We also have received independent confirmation of the cost competitiveness of our GBL and BDO products and received positive validation of the purity of our samples, as well as the conversion to downstream products.

In our C3 chemicals program, we are also now in a range of discussions with potential feedstock manufacturing and off-take partners for our renewable C3 chemicals technology.

As a result of these discussions, in the first quarter we produced densified biomass for acrylic acid, a key C3 chemical, and we expect to sample it to perspective customers beginning in the second quarter. This sampling process is a key step along the path toward securing industry partnerships.

A few words on patents. Metabolix has over 700 issued and pending patents covering our technology platform. The strategy around our intellectual property portfolio has been to aggressively pursue patent protection for our enabling technology, manufacturing processes and downstream applications.

In the first quarter, we were issued two new key patent, U.S. patent 8093022 - titled Polyhydroxalkanoate Biopolymer Compositions. This patent enables production of a series of new PHA biopolymer compositions using genetically engineered microbial strains. And U.S. patent 8114643 - Polyhydroxalkanoate Production from polyols. This patent enables the creation of genetic constructs to make the biobased chemical 3-hydroxypropionic acid, 3 HPA, in microbial and crop plant systems.

3 HPA is a precursor to a PHA polymer P3HP, which is the key polymeric intermediate for the production of our bio-acrylic acid. We look forward to additional pattern awards in 2012. Based on our work to-date, we remain confident that we have a robust and cost effective technology to make biobased drop-in chemicals.

I'm now turning to slide 4. As I mentioned earlier, we are engaged in discussions to secure manufacturing supply of biopolymers. One new option that is factoring into our strategic thinking is to integrate manufacturing of PHA biopolymers and PHA biobased chemicals.

All of our PHA molecules share a common fermentation platform, and the customization is in the genetically engineered micros. The recovery process is different for biopolymers versus chemicals. For biopolymers, the recovery process is designed to extract intact biopolymer. For chemicals, we utilize our BEST process, which is designed to break polymers into their monomer units to create the target chemical.

We currently view this as a paradigm for integration. We like the efficient structure and flexibility this model could provide as we ramp to commercial scale. It also allows a similar asset to be used to commercialize a pipeline of PHA-based chemical opportunities.

I am now on slide 5. Our third Metabolix platform is our crop-based activity, including our programs in oil seeds, switch grass and sugarcane. Long-term, this is an exciting opportunity and historically we have leverage government grants and academic research collaborations to move this work ahead. All in all, we are excited about this platform, as we can see the pathways we're 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 continued to made progress in our work on the $6 million Department of Energy grant for development of our Biomass Program. This funding will allow us to work on increasing the PHB levels expressed in switch grass and conduct pilot testing of the production of chemical intermediates via our FAST process.

PHB is one of the key PHA structures, which we can express in the leaf tissue of plants. In this approach, we will feed biomass containing PHBs to our FAST recovery process, recovering commodity chemicals which can serve as the basis from maleic anhydride, butanol and propylene, among other products. Our residual is a densified biomass suitable for firing on-site, converting to fuels, or being effectively transported to other users.

I would also like to mention our key findings in our crop research was published in a peer review journal. In March 2012, researchers at Metabolix, along with collaborators from the University of Queensland, Australian Institute for Bioengineering and Nanotechnology published a paper in the Plant Biotechnology Journal, demonstrating the genetic constructs used to produce PHB and switch grass could be directly transferred to sugarcane and produce the same level of PHB accumulation in plant tissue. These results highlight the cross-species synergy of our research, and importantly, expand the range of biomass crops suitable for deployment of Metabolix technology.

Finally from a corporate perspective, I would like to mention that we recently added Steven Large, currently CEO of SI Group, to our Board of Directors. We named Steve to the Board in March. Steve has a very impressive background and track record in the global chemicals industry. We are pleased he has joined our Board and look forward to benefiting from his broad experience.

Earlier this month, we filed an 8-K indicating that Ed Giles has decided not to stand for reelection to the Board at our annual meeting on May 31st. I will note that over the past year we have expanded our Board with four members, and given Ed's planned departure from the Board, have sized our Board to 11 members. I would like to thank Ed for his many years of outstanding service in Metabolix.

That wraps up the business review. And I will now turn the call over to Joe for a review of our financial results for the first quarter.

Thanks Rick and thank everybody for joining the call today. I will now focus on the financial results for our first quarter ended March 31, 2012. 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 $66 million in cash.

Turning to slide 6, for the first quarter, net cash used in operating activities was $12.3 million, which represents an increase in cash usage from $8.6 million used during the fourth quarter of 2011, and an increase of $2.9 million over the comparable quarter in 2011.

The $3.7 million increase in net cash usage in the first quarter 2012 compared to the fourth quarter 2011, was primarily attributable to the purchase of more than $5 million pounds of PHA biopolymer inventory in Telles for approximately $3 million. The increased cash usage also includes restructuring expense of $900,000 and annual bonus payments made of $1.2 million, partially offset by lower expenses related to the reduced head count.

Turning to slide 7, I will now give some additional detail on the company's financial results for the first quarter 2012 ended March 31st. Total revenue was $39.3 million and $300,000 for the three months ended March 31, 2012 and 2011 respectively. The first quarter 2012 revenue consisted primarily of $38.9 million in non-recurring previously deferred revenue, which is recognized as part of the termination of the joint venture with Archer Daniels Midland.

The deferred revenue balance had been building since 2004 and was recorded as a liability on our balance sheet. Payments that have been recorded as deferred revenue consisted of $3 million in an upfront payment, $2 million in milestone payments, $22 million in support payments and $11.9 million in cost sharing payments. This deferred revenue was expected to be recognized over 10 years, starting with the first commercial sale, which is a technical milestone outlined in the commercial alliance agreement with Archer Daniels Midland.

However, as a result of the termination of the commercial alliance agreement on February 8, 2012, Metabolix has no further performance obligations and the deferred revenue balance was recognized in full in Q1 2012. Metabolix did not receive any additional cash related to recognition of the deferred revenue. Metabolix also recorded revenue related to the sale of PHA inventory in the amount of $14,000 and related cost of sales of $55,000.

The cost of sales includes the value of the inventory sold plus warehousing and freight costs. Cost of product revenue will include ongoing warehouse costs for the inventory. We expect to have a positive product contribution as the sales volumes increase. The quarter-over-quarter increase in revenue also reflects an increase in government research grant revenue, partially offset by a decrease in license fee and royalty revenue.

Revenue in the first quarter of 2011 primarily resulted from revenue recognized from royalties under a license arrangement with Tepha, a related party.

Total operating expenses in the first quarter of 2012 were $10.4 million versus $10 million in the comparable quarter of 2011. Selling, general and administrative cost in the first quarter of 2012 were $4.4 million versus $3.8 million in the first quarter last year. Included in the selling, general and administrative expense are one-time restructuring expenses of $400,000.

Research and development costs were $6 million versus $6.2 million in the comparable quarter in 2011. Included in the research and development expenses are one-item restructuring expenses $500,000.

As part of the restructuring and related head count reduction, we've decided to consolidate some of our facilities. As you know, we have two facilities in Cambridge, Massachusetts and Lowell, Massachusetts. We are taking steps to sublease our administrative office in Cambridge and in early May we will reallocate those employees to the other two locations. In addition, we recently announced the opening of a European office located in Cologne, Germany. Taking together these changes for our facilities plan simplify our Massachusetts footprint and provides us with cost effective means to access the European market.

Net income for the first quarter was $28.8 million as compared to a net loss of $9.6 million for the first quarter of 2011. Our net income per share for the quarter was $0.84 compared to a net loss per share of $0.36 in the year-ago period.

Now onto the balance sheet. Our balance sheet remains strong. We have added $3 million in product inventory to our assets. As of March 31, 2012 we had cash and short term investments of $66 million. This compares to $78.4 million as of December 31, 2011 and $51.9 million at March 31, 2011.

Now turning to slide 8, this slide here, the first set of bullets, summarizes the key points that we just discussed and highlights our current expectations for cash usage in 2012. Referring down to the section highlighted in green, we estimate cash usage for the year to be in the range of $28 million to $30 million, excluding partner contributions and additional grants or royalties. We anticipate ending the year with cash balances of approximately $48 million to $50 million and are anticipating a year-end cash usage run rate of about $24 million. We continue to have no debt.

With that, we'll open the call to questions.

(Operator Instructions) Laurence Alexander, Jefferies.

I guess first of all on the PHA platform, you've indicated that you narrowed it down into four potential manufacturing sites. Can you give us a sense of what the range might be in terms of capital outlays that you'll be choosing on, you know, depending on the sites and what the trade-offs might be if you for a capital-light, as opposed to a more capital intensive approach?

It's a little premature to speak to the capital, but I can outline the trade-offs for you. As we are looking at sites, as I mentioned at the end of our first quarter, we had 10 sites we're looking at in detail and have narrowed that down to four. Some of the more interesting sites to us have existing fermentation capacity, with the ability to put our recovery process integrated to that existing fermentation capacity. Typically, as you well know, that would be capital-light by avoiding the fermentation investment, but you typically include a tolling fee or cost of access to that. So that'd be one set of trade-offs we would see. You could see a slightly higher cash cost of operation, while a lower capital contribution's required because a lot of that asset is there. That's one thing we are looking at.

Second thing in terms of trade-offs, there may be operations that we can get up to speed slight faster but the raw material cost could be a little bit higher based on their specific location. That's something we would have to consider. We've also found cases that, not in the short-list of four, but in the longer list of places that have fairly attractive raw material cost positions, but will take us longer to get into business and we are kind of putting those aside for future investments.

So that kind of gives you a sense of what we are looking at for each of the various sites. The capital estimate is a bit early to talk to at this point, but the primary driver for this initial step forward for PHA polymers is to get back in production as soon as we can, to meet customer requirements that actively want the product and customers who actively want the product and move as quickly as we can. Our team has made great progress over the last couple of months in getting to where we are right now.

And then with the customers who are launching products, I mean, not to use Ball as a specific example, but just in general as you think about the customer pipeline, are they doing this because they had already made commitments to their downstream partners and so they're following through on something that was already set in motion, or is this something that was galvanized by the prospects of you being able to deliver a more targeted supply chain once you get your operations sourced out again?

It's primarily the former, Laurence, that the people we're working with, particularly those that are keen to move ahead rapidly, many of these companies we have been working with for a year or two years, or sometimes even longer, and they have lined up the supply chain, using our product downstream of their operations, and as a result through positive feedback they have been receiving, are keen to move ahead rapidly. So the primary activity with regard to moving inventory, to driving our investment decision, is basically back stopped by customers that we work with over a couple of years.

In addition, we continue to provide developmental samples to other customers and we would expect those to materialize in the future at some point, but those that we're working with are historical customers of ourselves.

Mike Ritzenthaler, Piper Jaffray.

A couple of quick questions. The visibility in the revenues that you mentioned, is the three weeks that shows up in the 1Q results, is that a good run rate for the 2Q, and I guess maybe the broader question is what's the best way to think about product revenues within the next couple of quarters?

Yeah I think, Mike, you're going to have to wait a little bit. If you think about the dynamics internally, we did not have clarity on the final settlement with ADM as we worked together to wind down the Telles venture, until I believe it was March 6th. And that gave us three weeks left in the quarter. So on March 6th, so probably more accurately March 7th, our teams started contacting customers to let them know that we've resolved the inventory, we have access and control of it; let's start working through orders. And even based on that pretty rapid fire process, we began to ship against that inventory, albeit at a very, very small levels.

That has built momentum since those initial phone calls, so we're not at a point yet of forecasting or providing guidance on sales levels for the inventory. A lot of that will depend on our final asset selection, which implies timing and what we have to make that inventory do as we move to a supply source. But we can say that the second quarter sales would be substantially higher than the first quarter, just given the dynamics of the timing of what we had to do operationally from the time that the settlement was finalized with ADM on March 6th.

Okay. That makes sense. And then in order to hit the cash burn rate for the year, it sounds like you had basically reiterated your guidance from the last quarter, it seems like operating expenses are going to have to come down pretty significantly, sequentially and year-over-year in the company. We're looking at about $20 million from kind of the year-end target. What's the best run rate to use for SG&A and R&D for the remainder of the year?

We haven't historically given the breakout to the run rates by category, but if we look at following the restructuring expense and following expenses that we have going on, that we've given the forecast as to what we expect that the burn will be this year and in Q4 we'll be exiting the year with a total cash burn of about $24 million; annualized cash burn of about $24 million.

Right. Okay, and then just one last one for me. On the new European office in Cologne, it sounded that from your prepared comments that the extension into Cologne is sort of an artifact of a couple of different things that you are doing in the States, and that the net impact to cash outflows is more or less neutral. And I guess kind of a second part of that question is the strategy of the decision to open the office. It seems like efforts to increase sales, in your prepared comments you said that you don't want to necessarily sell it as quickly as possible until supplies are a little bit more certain. It seems like a little bit of a misalignment there. I was wondering if you could help us understand the fundamentals underlying that decision?

Absolutely. If you recall, at the time of that termination of the ADM venture, we had about 57 customers; 26 routine buyers which basically Metabolix was handling the whole relationship, the entire set of relationships with that group. A good number of those customers, I think we've talked about in earlier calls, were in Europe. And going back to the earlier question on the pipeline, those are the relationships that we have maintained and we have maintained individuals, leadership in Europe, so that those customers can have a direct line of contact to a local resource to talk about their inventory needs, to talk about growth. And the European bioplastics market is the largest in the world. So having feet on the ground there makes so a lot of difference and we found a very attractive office location with some talented people to work out of it. So from a cost side Mike, it's not a big deal at all, but from a perspective of having resources and talented people in the same time zone and within a drive of a lot of those key customers we developed, it's absolutely essential.

Just reflecting on your opening, we're consolidating offices in Cambridge and we're opening the office in Europe, but it (inaudible) expenses. The office we are closing in Cambridge is larger than the office we have opened in Cologne, substantially.

JinMing Liu, Ardour Capital.

First of all regarding your PHA process, can you give us more clarity on who are those four potential partners are, what type companies they are? And also, related to feed stock selection to both PHA and the C4 platform, is your fermentation technology limited to just sugar as feed stock or you can use some [shorter] process?

Okay, I will begin with the characteristics of the type of people we're looking at and Oli can talk a bit about some of the feedstock flexibility embedded in our technology. I can't give you too much more detail, JinMing, on the specific companies obviously. We're working quite fast to do the best we can to make the right decision there and we have good lines of conversion with all potential manufacturing partners.

Just thinking that all of them have fermentation expertise, at least at this state and what that does, building on I think the question Laurence asked, is that it does give us the chance to move more quickly in a capital-light manner, because fermentation assets are existing at I believe all four of these sites. And what that means is that waste water treating is there, utilities are there, skilled operators are there, and it typically will come up with an already existing raw material supply with a very known cost and ability to map that cost to other competing sources of raw materials. So that's all inherent in the type of assets we are using.

Now as we look forward, as I mentioned, our objective function for this first sight is to get going quick and get product in the market and be able to define a supply chain for our customers, but some, as I mentioned earlier, some of these sites that we are looking at bring us access to alternative feedstocks, primarily sugars but maybe Oli, you can comment a little bit about some of the feedstock flexibility that our PHA technology has?

Yes. As we've looked to these feedstocks, we've always had in mind the global view and so whether it's cane sugar or starch-based sugars, whether that's [sava] or corn or wheat or potato or whatever, are very suitable for this particular process we run, either C4 or on the Mirel platform. For the Mirel technology, we also have a platform that runs on vegetable oil and we have not previously deployed that, but we did in fact develop it and have it available to us, should that at some point be an attractive thing to do. I would say we are testing a lot of sugar derived from cellulose from a wide range of companies and we are anticipating that should those become available, we'll be in pretty good shape to use those as well, but we still see those as quite far off.

Okay, thanks. My next question relates to your current inventory. Is there a shelf life concern for your inventories? What I'm trying to look at is say you have some delay in finding another commercial partner or commercial operation to produce PHA, whether your current inventory could last long enough?

Our belief is that it's going to be absolutely fine. We've got PHA produced many many years ago that we still use for testing. We, as part of one of the things we've had to do just as we get the business launched is to make sure we have a robust QA/QC function so that we're certainly testing inventory and making sure there are no issues. But we've got experience using PHA produced a decade ago here; we're not too concerned about that and we will have any checks and balances needed in place to ensure that's the case, to make sure our customers get exactly what they need.

But the volume we have being substantially larger than what we had available at the start up of the ADM facility, gives us far more material to work with than we ever had before the startup of that facility. So with a rapid entry back into the market, we're anticipating that that volume should be fine. But we have very active lines of communication with our customers, making sure we know exactly what they need and when, so we can define the pace at which we should be selling that inventory, what grades we should sell first, what grades we should sell later and that process is actively being optimized right now.

Jeff Zekauskas, JP Morgan.

In the old days, you wanted to sell Mirel for roughly $2.50 a pound; if you think of selling it in more volume in 2013, what do you think the price will be? Do you think it will be different from your old price or the same or higher or lower?

I mean, that's to be determined, Jeff, but right now all the work we are doing and what we are looking at is a price similar to what we've talked about in the past. As we continue to advance new applications, continue to move the technology forward, that may move, but I think for the time being, using historical information is probably the best guidance at this point.

Do you think that your growth may be, I don't know, crimped a little bit by the price of your polymer and you know maybe for a faster uptake do you think you should consider lower prices, or do you think that it really doesn't, that there is sufficient demand to sell all you can at $2.50?

This has a been obviously a very active discussion and debate and we've been asked this numerous times in historical calls over the last four or five years. And we tested this in the market. We have had more than sufficient demand available at the $2.50 - within that range. We were talking $2.25 to $2.75 per pound, to really keep the pipeline [open].

We continue to believe that the pace of sales is more dictated by the commercialization steps that a customer has to go through and doubling the number of people in the pipeline by lowering the price as an option would not necessarily have sped things up historically; it would just have created far more complexity for us to manage. So you know we felt that given the objectives in front of us, the customer base, we're comfortable in that in that price range. And the gaining factor was the development cycle, the optimization of the product on customer equipment, getting the customers' downstream supply chain mined up and you know we continue to have more than enough incoming leads an serious inquiries and serious relationships at that price level.

Jeff Osborne, Stifel Nicolaus.

Great. Thank you. Most of my questions have been asked, but just a couple quick ones here. I was wondering Rick, if you can go through the qualification process? So you've got this inventory that you are, I imagine selling to people like Ball, who are commercializing products, but also to potential new customers or potential new partners down the road. And as they get comfortable with the product that was produced in Clinton, what would be the process than as a new plant's built next year or the year after, whenever it's finished; would you expect there to be a similar lag like you saw at Clinton with 9 to 15 months or so for somebody to ramp up and requalify the process, or would you expect somebody to hit the ground running as the new facility's built?

The intent Jeff, is to obviously have people hit the ground running. That's not to discount customers' obvious questions. Okay, you are serving me from another facility, is the product exactly the same? And technically we are looking to make sure that the product is either identical or if it's different, we would be short to guide customers. Well we can tell right now, if it's any different it's going to be pretty minor in terms of processing conditions, just within the realm of one manufacturing facility versus another. Our goal of course is to use this inventory as strategically as we can to make sure that the lag time is minimal.

And we're well aware of that. It's becoming a key part of our engineering work we're doing on the next site. It's a key part of our inventory allocation and optimization. And it's a key part of how we talk to our customers, because it's a good question you ask and the customers are asking the same question. So, are very aware of it and trying to make sure that whatever we do going forward we hit the ground running on startup of the facility.

Perfect. And just two other ones here. So on the first facility that you envision here with one of these four sites, you spent some time on the call today talking about a PHA polymer and chemical kind of joint facility with the recovery process being different and leveraging one fermentation site. Would you envision that the first facility would be this kind of bio-refinery step or would that be more of a distraction and potentially, you should just focus on plastics to start and longer-term, the third or fourth facility might be this joint combination?

Actually, I mean the pace at which the chemicals is moving, we're looking actively at all these sites to say would they make sense to produce chemicals there. I mean we've got chemical up to successfully 60,000 liters fermentation. We've got strong interest across the market. We've got technical developments moving very quickly.

And again, we are looking thoughtfully at making sure we are not distracted. There were benefits to having - and one more thing I would add Jeff, is the recovery process for chemicals is less costly and simpler than for polymers. So as an option to if there is any lag time with regards to a ramp-up, as your first question queried, then having ability to test product volumes of chemicals with a very simple recovery process could make some sense to fully utilizing the fermentation asset.

I am not saying at this point we are going to put them together for this first facility because there is some situations we probably we wouldn't, but it is a question that our engineering team is looking at for each site that we are examining. Would it make sense for polymers, would it make sense for chemicals and what kind of synergies could we get by fully loading of fermentation asset by putting chemicals and polymers there? And in these cases where it is a toll fermentation site, the value is really driven by getting that fermentation asset up to full utilization as quickly as possible. And we think in some scenarios we can integrate chemicals very nicely, very quickly into that to help to do that.

That is a good point. I hadn't thought about that. And then the last question just for Joe. So you've got this facility issue in Cambridge and I was wondering if there is any charges that we should model for this quarter in terms of that, and then where are we in terms of the restructuring the $900,000 this quarter, is that behind us or is there any additional trickle into 2Q here?

There's a negligible expense trickle into Q2 for either of those.

And at this time, we have no further questions in the queue. I'll turn things back over to our host for any additional or closing remarks.

Okay, thank you very much. I'd like to thank all of you for attending the call today. In numerous ways our technology portfolio is very well allying with the global trends toward sustainability and the use of renewable materials. And we're well-positioned to build value in each of our Metabolix platforms.

Most immediately, the access to the Mirel product inventory will help us to develop the customer base for our launch of this unique and innovative material. And our attractive potential cost position for our C4 chemicals business is being increasingly validated. We anticipate tangible progress across each of our business areas in the coming quarters and we look forward to keeping you informed. Again, I would like to thank you for joining the call, your interest in Metabolix and I want you to have a nice evening. Thank you very much.

Again ladies and gentlemen, this does conclude today's conference call. Thank you all for your participation.