Yield10 Bioscience Inc (YTEN) 2012 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Metabolix, Inc., third-quarter 2012 earnings conference call. Today's call is being recorded. (Operator Instructions).

I would now like to turn the conference over to Ms. [Alison Thompson] of ICR. Please go ahead.

Thank you, and good afternoon, everyone.

After the market closed today, Metabolix issued its third-quarter 2012 financial results press release. If you do not have a copy of this press release, a copy 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. The slides are being webcast live and will be available on the Metabolix website in conjunction with 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, a 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, and 10-Q filed on July 27, 2012, and risks related to international business activities, particularly in Europe.

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 over to Rick Eno, President and CEO of Metabolix. Rick?

Thank you, Alison.

I'd like to welcome all of you to the third-quarter 2012 earnings conference call for Metabolix. We're particularly cognizant of and appreciate the efforts of our New York-based investors and analysts who have joined us today. We wish you and your families the best as you recover from Hurricane Sandy.

I look forward to describing the progress we are making and the momentum we are building across each of our three business platforms. After my remarks, Joe will take you through the financials.

I will first remind you that at Metabolix, we are focused on three business platforms -- first, Metabolix biopolymers, a family of biobased and biodegradable polymers; second, biochemicals initially focused on the family of C-4 and C-3 chemicals as drop-in replacements for conventional chemicals; and third, crop-based activities, which include our programs in switchgrass, oil seeds, and sugarcane. All of these efforts are enabled by our PHA, or polyhydroxyalkanoate technology, around which we have over 700 patents either awarded or pending.

In our review of the business, I'll begin with our biopolymers business. After the ADM termination of the Telles joint venture in January, I outlined our plans for you. I told you that we would launch biopolymers under the Metabolix nameplate. I said that we would initially target a 10,000-metric-ton per year plant, maintain the ability to engage multiple partners, deploy our most recent technology, and retain the potential to create an integrated value chain. We continue to be well on our way to delivering upon all of these objectives at a very rapid pace.

I also told you that we would pursue high-value market segments. In today's call, I will begin by outlining the key aspects of our commercial strategy for the biopolymers business, specifically our focus on value-added applications, and then I will address the results for the quarter.

Over the last nine months, we have taken the time to take a close look at the biopolymers business in order to define our focus and priorities. We looked at the markets, our customers, our product portfolio, and the commercial options available to us. In summary, we've identified a number of compelling opportunities, aligned our team to pursue them, and are very enthused about the potential.

I am now on slide two. This graphic illustrates a typical price/volume relationship in the polymers industry. Our earlier vision and business strategy was established on the basis of a large, 50,000-ton per year initial plan. This aimed us towards markets and applications where volume was key.

Similarly, it drove us towards pursuing a relatively broad set of processing technologies, such as thermal forming foams, nonwovens, and others. With a smaller initial facility, we have the opportunity to focus on applications which are more oriented towards value than volume, near term in nature, and based in areas where we have historical customer experience.

We also have the ability to be focused on a limited set of opportunities and be more selective around our resource deployment. I'll emphasize that we still have the opportunity to pursue the many applications which we have described to you earlier and will do this commensurate with our future scale and cost structure. We believe the focused approach we are outlining will offer us near-term profitability, plus considerable growth potential as we continue to build the business and gain economies of scale.

Our launch strategy will be built around three primary areas. Each is large, offers high-valued opportunities, and has market needs that align very well with the characteristics of our biopolymer products. The first two, film and plastic additives, will be receiving the majority of our business focus. As our third area, we will be pursuing very specific customer opportunities where the biodegradation properties of PHAs offer exceptional value.

I'm now moving to slide three, where I will describe these opportunities to you in greater detail. Films are the largest single processing application in the plastics industry, representing approximately 100 billion pounds per year of demand. Biobased and biodegradable or compostable films are an evolving subset of this market, showing substantial growth. This is approximately a 200 million-pound a year market, growing at about 15% to 20% per year. Growth is driven by rapid technical advances across the entire value chain, consumer demand for biobased solutions, and, in some cases, government regulations banning non-biodegradable bags.

Since the ADM launch in 2011, the majority of our sales have been in the film market, so we understand it well. We have a very good sense of the customer needs and how our product can meet them. We understand price elasticity, as well as formulation techniques which allow us to enhance margins.

We have a series of offerings in the film market, which offer a range of performance depending on the specific customer requirements. In general, we are roughly comparable in performance to a petroleum-based film, such as that produced by C-4 linear low-density polyethylene, but our product is based on a renewable feedstock and, depending on grade, either biodegradable or compostable.

We also see an opportunity to continue to expand our margins in this sector. Our initial products target the compostable bag market, but we see substantial room to utilize our film capabilities to pursue higher-performance film applications such as barrier film, protective wrap, agricultural mulch film, and high-strength films. We have encouraging early results in each of these high-valued applications.

Our second focus area will be the use of our Mirel biopolymers as performance plastic additives. After evaluating our historical sales, we concluded that many customers were buying our Mirel products due to these unique property attributes above and beyond their classic degradation properties. These properties include and characteristics include our products are miscible and compatible with a broad range of other materials, both biobased and petroleum-based; our products can positively impact a range of performance attributes typically demanded by plastics customers. These include impact strength, barrier properties such as for odor, heat distortion temperature, processability, plasticization, and in addition, we provide biobased content, which is increasingly in demand.

In summary, we learned that we can do what a lot of current petroleum-based polymer additives do, but do it with a renewable differentiated material.

Additives are widely used in the plastics industry as a tool to improve the performance of basic materials. The plastic additives market has a volume of about 25 billion pounds with selling prices ranging from $1.00 to over $5.00 per pound, depending on the properties being brought to bear. We will be initially pursuing the performance polymeric additives segment, which reflects about 1.5 billion pounds of annual demand with attractive selling prices.

As an example, last week we announced some very encouraging results where our Mirel biopolymers substantially improved the properties of PVC. PVC market demand is about 77 billion pounds per year, and a compounded product is typically formulated with about 20% to 40% performance additives.

Our testing shows that our Mirel product has the potential to improve PVC impact resistance beyond that achievable with leading polymeric modifiers and, at the same time, serve as a non-migrating, non-phthalate plasticizer. This offers numerous value propositions, including lower migration through the reduced use of phthalate plasticizers in the creation of tougher PVC compounds. In addition, our product is biobased, which is a further differentiator.

In aggregate, these are very compelling properties and we are already seeing substantial interest. We were supported in this work by AlphaGary, a leading compounder of PVC.

Finally, our third area of focus will be on supplying customers that are pursuing high-valued applications where biodegradation is key. These include products specifically designed for use in anaerobic digesters for use in water treatment, marine applications, and soil degradation. While our product is very differentiated and valuable in these applications, the supply chains here tend to be embryonic, and as a result, development cycles can be longer.

We will be very selective here and qualify our opportunities based on margin potential and development time. Market prices vary widely, based on the level of performance brought to bear.

As you know, our historical pricing guidance has been $2.25 to $2.75 per pound, with significantly higher pricing in certain niches. Given the early stage of our launch, we see no reason to change these expectations, but we are currently seeing a number of applications where our Metabolix biopolymer products are currently commanding over $3.00 per pound.

Our goal is to continually work up our selling prices through the pursuit of high-value differentiated applications, some of which we have highlighted here.

It's important to note that we are not walking away from the hundreds of opportunities we've seen over the years. We firmly believe as our technology moves down the cost curve and the markets and supply chains mature, we'll be supplying many of these applications, in addition to those I outlined today.

We believe our approach offers us the ability to generate margins in the near term, while offering substantial long-term growth opportunities as the cost structure continually improves.

With that context, let me now review the results for the quarter. Let's turn to slide four of the accompanying slides. I'll begin with our market activity. Joe will explain the implications of our new revenue recognition policy that we communicated to you last quarter.

Products shipped and billed in Q3 were substantially higher than in Q2, $691,000 versus $373,000. This is an indication of our re-engagement of the customers and the interest we are seeing since the Antibioticos announcement. As I have mentioned in previous calls, we are not trying to sell the product as quickly as possible, but ensure that we enable a smooth transition to product that will be produced by Antibioticos.

We have also built up our active customer list to about 50 customers, who are buying product in advance of our Antibioticos startup. If you recall, we had about 57 paying customers at the time of the ADM termination, so I believe our team has done a good job of maintaining relationships and transferring customers over from Telles to Metabolix. The customers have found the product to be valuable in their applications.

Looking forward, we expect increased sales in Q4, as well as the number of customers to increase, as we build the market and launch our latest film product, Mvera B5008. Mvera B5008 is a next-generation compostable film product which will help us to prepare the market for Antibioticos production.

Now onto manufacturing. I am now on slide five. As I described in our last call, we anticipate two phases of our relationship with Antibioticos. We are on track to produce demonstration quantities of Mirel in the demonstration phase by early 2013. Equipment has been ordered, technology transfer is continuing, and plans are well underway for start up.

We are still on track to enter the second-phase commercial production later in 2013.

With regards to investment, we have completed enough of the engineering to discuss an indicative capital budget for our launch. This is early stage, but should provide you with a sense of the required investment.

We currently anticipate startup costs, including facility modifications, in the range of $10 million to $13 million. Included in this estimate is approximately $3 million for the demonstration phase, which is nearly all applicable for the commercial phase. For those of you doing the calculation, this is approximately $0.45 to $0.60 per pound of capacity, based on 10,000 tons per year or 22 million pounds per year of capacity.

For the ADM facility, you may have calculated that the facility had a capital cost in the range of $3.50 per pound. Granted, much of this capital efficiency is due to the fact that Antibioticos has existing capacity, but because of that, we can execute our strategy for very limited capital investment and aim to generate substantially higher returns on capital for our shareholders.

In addition, we have a further performance lever as we have the choice to sell either straight uncompounded PHA or compounded product where our PHA is blended with other products, as in the case with our new Mvera B5008 product. This option will allow us to sell more than 10,000 tons per year of product from Antibioticos, potentially delivering more than the $50 million to $60 million in revenue I described to you in earlier calls. We will be optimizing this compounded decision based on where we generate the greatest margin.

We see the Antibioticos operation ultimately being profitable for Metabolix, a key contributor to driving the Company to positive cash flow, and a foundation for growing a significant biopolymers business.

While it should be clear to you that we're enthused about the potential for the biopolymers launch in making good and rapid progress, we are well aware of the many challenges in front of us and are working aggressively to overcome them. Our key areas of focus include, first, ensuring an effective technology transfer to Antibioticos in a smooth manufacturing startup; selecting high-value applications with reasonable qualification times; third, transitioning the customer base to our new production supply; and fourth, driving the business to early profitability.

To conclude on biopolymers, we have built momentum this quarter with positive developments in technology, manufacturing, and commercial. We plan to enter the market quickly at a reasonable scale and economics, free from the over $400 million ledger balance that existed under our previous relationship.

I'm now on slide six to begin the update on our chemicals platform. In industrial chemicals, we are leveraging our PHA microbial technology to enable chemicals that are currently being produced from fossil fuels to be produced from renewable raw materials. We have selected the C4 family, followed by the C3 family of chemicals, as our entry strategy into this space.

Together, the addressable market for these products exceeds $10 billion. Our technology is unique in that the same basic process can produce both family of products, with only relatively minor tailored purification modifications, based on the specific molecule being produced.

We believe that due to the synergy between the platforms and the simplicity of the recovery process that we can ultimately possess the most cost-competitive bio routes to both the butanediol and acrylic acid markets.

Over the last year or so, we've been in discussions with a number of chemical industry leaders about our technology for making biobased GBL and BDL. Over the third quarter, these have intensified, and we are engaged in detailed conversations with a number of parties, each with multibillion dollars in corporate revenue, on the potential for an exclusive commercialization relationship for our C4 chemicals technology.

Frameworks being discussed include cash contributions to Metabolix and a plan to jointly bring the technology to market. Discussions are proceeding, and we will keep you informed of any major developments.

Our C3 chemicals program is also receiving significant interest. We are also now in a range of discussions with potential feedstock, manufacturing, and offtake partners for our renewable C3 chemicals technology. With the global market estimated at over $8 billion and renewable solutions in demand, this is a very attractive market for our technology.

In addition to our partnering progress, we have also worked to further our intellectual property around this field, including some innovative renewable pathways to key C3 derivatives, such as butyl acrylate, which is used as a key ingredient in paints and coatings. We believe this will offer us a long runway for the technology and a range of options for commercialization.

I'm now on slide seven. Our third Metabolix platform is our crop-based activity, including our programs on oilseeds, switchgrass, and sugarcane. Long term, this is an exciting opportunity, and as in the past, we continue to leverage government grants and academic research collaborations to move this work ahead.

This quarter, we continued to make progress in our work on the $6 million Department of Energy grant for the development of our biomass program. This funding will allow us to work on increasing the PHP levels expressed in switchgrass and conduct pilot testing of the production of chemical intermediates via our FAST process.

In addition, we continue to pursue opportunities for additional grants and collaborations to fund this work. We are seeing numerous opportunities, including those where our core plant science skills, specifically around multigene stacking capabilities, are being sought out for collaboration opportunities in the broader biofuels and food crop markets, as well.

I'm now turning to slide eight. To summarize my remarks, I'd like to outline our game plan moving forward and our key milestones.

In biopolymers, we'll deliver product from the demonstration phase, enable the customer base readiness in advance of Antibioticos' startup, and begin commercial manufacturing. As we launch biopolymers, we will be selective, focusing on value over volume.

In biochemicals, we'll achieve technical milestones to enable industrial-scale production and pursue commercialization partnerships.

In crops, we will advance technology and meet milestones, as well as secure grants to support crop research and evaluate commercialization options.

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 third quarter.

Thanks, Rick, and welcome, everybody, to our earnings call this afternoon.

I'll now focus on the financial results for our third fiscal quarter ended September 30, 2012. As always, we manage our finances with an emphasis on strict cash flow management. We have maintained this focus and ended the third quarter with $53.6 million in cash and investments.

For the third quarter, net cash used in operating activities was $6.3 million, which represents an increase in cash usage from $5.9 million used during the second quarter of 2012 and a decrease in cash usage from $7.8 million for the comparable quarter in 2011. The $400,000 increase in net cash usage in the third quarter 2012 compared to the second quarter 2012 was primarily attributable to inventory build as we compound current inventory.

Through the first nine months of 2012, ending September 30, net cash used in operating activities was $24.4 million, as compared to net cash used of $23.1 million for the comparable period of 2011. The $1.3 million year-over-year increase in cash usage for the first nine months of 2012 is primarily attributable to the Company's payment of $3 million to Telles in March of this year to acquire all of the existing inventory from the ended joint venture, offset by a decrease in operating expenses due to reduced headcount.

I'll now give some additional detail on the Company's financial results for the third quarter of 2012, ended September 30. Total revenue was $700,000 and $500,000 for the three months ended September 30, 2012, and 2011, respectively. The third-quarter revenue consisted primarily of revenue from government grants and product sales.

Biopolymer product orders of $691,000 were shipped and billed through the Company's third quarter of 2012, of which $70,000 were recognized and $621,000 were deferred to the Company's fourth quarter as a result of the Company's product return policy adopted in the third quarter ended September 20 -- September 30, 2012. This is an 85% increase over the $373,000 of orders shipped and billed during the Company's second quarter of 2012.

Cost of product revenue for the quarter ended September 30, 2012, was $300,000. The cost of product revenue includes the cost of products shipped to customers, warehousing, and freight costs.

As discussed during the Q2 call, the cost of product revenue includes significant ongoing warehousing costs for the over 5 million pounds of inventory we have on hand. During the third quarter of 2012, we completed the consolidation of our inventory into fewer and less expensive warehouses. While this consolidation will decrease our warehousing costs going forward, I would like to note that we will incur freight costs in the coming months as we move some material from the US to Europe. 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, which increased $200,000 over the same quarter of 2011. This was primarily as a result of work performed on the Company's $6 million DOE grant.

Total revenue for the nine months ended September 30, 2012, was $40.9 million, versus $1 million for the year-ago period. The year-over-year increase was primarily related to the $38.9 million in deferred revenue which was recognized as a result of the termination of the Telles joint venture. Increases in grant and product revenues during the first nine months of 2012, compared to the nine months of 2011, of $800,000 and $500,000, respectively, were partially offset by a $300,000 decrease in license and royalties fees received from Tepha, Inc.

Total costs and expenses in the third quarter of 2012 were $8.4 million, versus $10 million in the comparable quarter of 2011. Selling, general, and administrative costs in the third quarter of 2012 were $3.2 million, versus $3.9 million in the third quarter last year.

Research and development costs were $4.9 million, versus $6.2 million in the comparable quarter in 2011.

For the nine months ended September 30, 2012, total costs and expenses were $27.8 million, as compared to $30.2 million for the respective period in 2011. Research and development expenses were $16 million, as compared to $18.4 million for the comparable nine months in 2011.

The decrease of $2.4 million was primarily due to a decrease in employee compensation and related benefit expense of $700,000, net of one-time restructuring expenses of $500,000 and a reduction in contract research expenses of $1.1 million.

Selling, general, and administrative costs for the first nine months of 2012 were $11 million, as compared to $11.9 million for the comparable nine months in 2011. The decrease of $900,000 is primarily the result of a decrease in employee compensation and related benefit expense of $800,000, net of one-time restructuring expense of $400,000.

Net loss for the third quarter was $7.7 million, as compared to a net loss of $9.6 million for the third quarter of 2011. Our net loss per share in the quarter was $0.23, compared to a net loss per share of $0.28 in the year-ago period. Net income for the first nine months of 2012 was $13.1 million, or $0.38 per share, compared to a net loss of $29.2 million, or $0.96 per share, in the same period of 2011. This increase in net income is mostly driven by recognition of deferred revenue.

Now onto the balance sheet. Our balance sheet remains strong. As of September 30, 2012, we had cash and investments of $53.6 million. This compares to $59.9 million as of June 30, 2012, and $87.2 million at September 30, 2011. Please note that our cash and investments are categorized on the balance sheet as both short term and long term. All of our long-term investments are AAA-rated government securities.

I now am on slide 11. This slide summarizes the key points just discussed and highlights our current expectations for cash usage for 2012. We estimate operating cash usage for the year, excluding startup costs related to the startup of biopolymer manufacturing and Antibioticos, to be about $30 million.

We anticipate ending the year with cash and investments balance of approximately $44 million, after $3 million of anticipated startup costs and facility modifications related to the demonstration phase of Antibioticos' manufacturing. Once we move to the commercial manufacturing phase, we anticipate additional startup costs to be in the range of $7 million to $10 million. We are currently undergoing engineering design for the commercial phase and we are refining these estimates.

Most of the expenses we are incurring for the startup of the demonstration phase are directly applicable to the commercial manufacturing phase.

The Company anticipates ending 2012 with an annual cash usage from operations run rate of about $24 million per annum, excluding any additional partner funding, grant revenue, other sources of income, or any additional one-time charges related to the Antibioticos startup. We continue to have no debt.

We are very excited with the progress we have seen on order growth and with the preparation for manufacturing at Antibioticos. We see the supply of product from the Antibioticos as an important part of our business strategy.

Our portfolio of platforms in biopolymers, chemicals, and crops put us in good position for growth and value creation, with our business model being that of, one, growing the biopolymer business through manufacturing with Antibioticos; two, partnering for growth of the chemicals platform; and three, advancing the crop program in the near term through grant funding. We are confident that the manufacturing facility with Antibioticos will supply sufficient material at costs that will lead us to profitability for the entire Company.

I'd like to now share some thinking on the longer-term financial strategy for the Company. Note that we are well aware of the need to manage our cash balances and believe that we have a number of levers in the business to do so. I'd like to highlight four of these levers in order of importance.

One is operational effectiveness. In biopolymers, we are pursuing a very capital-efficient approach to launch Mirel. We do not intend to subsidize product in the marketplace. We need to produce it cost effectively and sell it profitably. Given our understanding of the product and markets, we believe we have an approach to operate this business profitably at a much smaller scale than possible in a large-scale facility.

Two is our partners. While we anticipate the biopolymers-launch economics being manageable for Metabolix, we can now choose to open conversations, if we wish, with a number of customers who have expressed an interest in investing with us in PHA biopolymers manufacturing.

In biobased chemicals, we believe our technology is highly competitive and are in discussions with numerous partners, all of whom have significant financial wherewithal. Partner relationships can take numerous forms, ranging from direct cash payments to offtake agreements.

Three is the timing of our programs. Our intellectual property extends, in some cases, for well over a decade. A further lever we have is to adjust the resource and timing of our non-Mirel programs commensurate with our financial resources, recognizing that successful production and commercialization of biopolymers is our top priority.

And four are alternative financing vehicles. We have a number of additional alternatives, such as grants and loans, which will be evaluated and pursued as required.

We recognize that our operational effectiveness and partnerships are our strongest leverage points.

Over the next 12 months, we anticipate that achieving milestones of producing quality products at Antibioticos and demonstrating commercial success with biopolymers will directly translate into increased shareholder value.

With that, we will open the call to questions.

(Operator Instructions). Laurence Alexander, Jefferies.

On the Antibioticos relationship, I guess two questions. One, can you give some initial sense for how quickly you estimate that that can ramp up? Would it be over two to three years or would it take longer than that?

And also, can you address whether the benchmark economics for that are any different from what you had discussed previously with respect to ADM?

Laurence, Rick here. Thanks for joining the call and thanks for the questions.

I think, to be honest, both of those questions are a bit premature for us to answer. I think what we have said is we see substantial market opportunity, work up average selling price, transition customers to the supply. We're getting -- every week, we're getting more and more insight into that ramp up, and then, be able to drive volume as quickly as possible.

With regards to benchmark economics, as we noted in the call, this is clearly a capital efficient approach we're pursuing. We've got a very good relationship with Antibioticos in terms of a cost structure to drive profitability, and both of us see a lot of potential here. There is, as we mentioned in earlier calls, a slightly higher sugar cost in Europe than in the US, which we're well aware of and working to optimize.

But I think, Laurence, in coming calls we'll provide a bit more color as we feel very confident on the ramp up rate. We just wanted to make it clear in this call how we're thinking about it and our general commercial strategy, so we will get back to you and will provide more information in future calls.

And does the $10 million to $13 million include working capital or is that just the capital outlay?

It includes a portion of working capital. It's a good question. Working capital, though, would depend on the pace of that ramp up, which is exactly going back to the first part of your question, but it also depends on various terms that we negotiate with both suppliers and customers, which we're actively working right now. But there is some working capital -- base working capital included in that number.

And then, while it's difficult to do a horse race for the C3 and C4 platforms, you know, can you give us a sense of which ones you think might move forward most quickly? And in particular, any update on the discussions with CJ?

Yes, I think the C4 program, we've always said, has led the C3 program in terms of our technical development, and the deal discussions are following that same pattern.

What we said in the remarks today is that we are focused primarily right now on -- with a number of parties for the C4 platform, while we continue conversations in C3. So I would say, Laurence, I would expect C4 to move potentially more quickly than C3. And the kind of companies that we're talking to here typically reflect those that have a strategic rationale for being in bio C4 chemicals.

And CJ could be a potentially -- a future manufacturing partner for us, but they may not be one of the primary partners in this discussion. I'd just leave it at that.

Thank you.

Mike Ritzenthaler, Piper Jaffray.

This is Enrique in for Mike. So if it comes down to it, will you be willing to fund the Antibioticos project in the absence of partner funding?

Be willing to fund? I think Joe, you can provide your comments, but I think Joe outlined the levers we have, and the nice thing about our portfolio is we do have a number of different options within it.

Our first approach is just operational effectiveness, being very efficient as we get that facility launched at a very low amount of capital and ramp it up quite quickly, kind of back to Laurence's first question, and then we've got partner conversations going on both in the C3 and C4 area, but as well as with biopolymer customers.

So I guess your question, Enrique, would be, if none of those came to pass, would we still be willing to fund it? And the answer, as we said in the call, is yes. This is our top strategic priority, and we're looking at another series of programs outside of those as an option to fund it. And I believe that we're pretty focused in terms of how we plan to do that.

I don't know if there's anything you want to add to that, Joe.

No, I think that's a good summary. It is a top priority. We're proceeding ahead. We're making investment now on the demonstration phase and are planning on continuing to getting to commercial phase as quickly as we can.

Okay, great. And on the PVC opportunity, since PHAs are engineered to degrade over time, do you foresee any market adoption risk due to compounders being concerned that the structural integrity of the PVC will break down over time?

It's interesting that you asked that. It's a question that I had asked here quite early in the development of this program.

There actually are quite a number of biodegradable additives already used in the PVC market. Many are encapsulated within PVC, which prevent that type of degradation that you're talking about. Quite often, there are biocides that are compounded with PVC that prevent that, but the miscibility of our product with PVC is really exceptional and the performance attributes are quite strong. But no, there are a number of biodegradable aspects used in PVC.

In addition, the PVC market is huge, as you well know, and there are a range of different applications. Some of the things which we're not pursuing initially would be the demanding building and construction applications, which have the long qualification times and where biodegradation is really a risk that neither ourselves nor our customers would want to take on.

But there are numerous shorter-lifecycle PVC opportunities, including protective clothing, protective gear, signage. There's a host of applications where the kind of -- even if there was a risk of degradation, it's not a key purchasing criteria in the near term.

So yes, it's a good question, but degradable components are already used in PVC. It comes down to application selection, and the performance attributes are strong enough that it gives us quite a bit of opportunity to pursue there, even with that potential issue, which the industry has actually worked around already.

Okay. And so, given this proportion -- the proportion of additives that go into the PVC, does that change the price of the end product?

When you buy PVC -- most PVC is compounded, and what we've said is there's usually between 20% and 40% other stuff mixed in with the PVC in order to meet the certain performance requirements that the customer demands.

And I think one thing we've learned in our Telles launch is that no one buys these products just to be green. They buy them to make money. Everyone makes money or else it doesn't happen.

The benefit of what we're talking about here is that if we can, say, for example, generate greater impact resistance in PVC, meaning that it's a more durable product, than potentially the customer can use less of the additive; hence, is willing to pay more. So there's a calculation that goes on as you launch these new products around price/performance, so I think that that's how these launches will occur, that should we eliminate -- require less material, we can charge more for that. Should -- if we replace phthalates, that's worth something as well.

And there's very attractive pricing in this area, which we notice, typically $3 to $5 a pound in certain the performance part of the segment. So that's what we're looking at there, and we see that there's numerous value propositions here, but everyone's got to make some money for it to work and we think we can command quite a good bit of performance in that market.

Okay, great. Thanks for taking the questions.

Thank you.

(Operator Instructions). JinMing Liu, Ardour Capital.

Thanks for taking my question. First of all is just a follow-up question on the additive opportunities. Rick, can you share with us, like give us some directional answer, what percentage of your PHA will go into other plastics, like an additive or perhaps let's use the PVC application as an example.

I think -- are you talking, JinMing, about the mix, the sales mix, from the Antibioticos plant? Is that what you're getting at there?

No, what I'm trying to get is a PVC is compounded with other material. I'm just wondering, say, for a given pound of PVC, what's the percentage of your PHA could be used in there?

Yes, okay, yes. So again, going back to our historical sales mix, we have seen cases where there's been 3% PHA mixed in with a specific opportunity, where we get very good pricing, because that small amount of PHA brings substantial value to cases where we're almost 50% PHA in the given application, and a lot of things are blended as materials optimize.

I think it's a bit early right now, JinMing, to provide, okay, it's going to -- we're going to take X percent of that 20% to 40% compounding mix in PVC, but to the point Enrique asked, the question he asked, there will be an optimization around the performance properties and the costs that will occur.

So I think it's a little early to point that out, but I'll just highlight that historically, as we looked at our strategy and we looked at why people were buying our product, we saw cases -- value-added cases where we were getting good pricing where we were anywhere from a few percent to nearly half of the additive package, which depends on the specific opportunity and the specific product.

Okay, good. Regarding your approach to compounding in Europe, two questions here. First is whether the cost of compounding in Europe is comparable to the cost here in the States, where I think of what you did before. Secondly is, you mentioned that you potentially, because of the compounding, potentially you can sell more than the 10,000 metric pounds. Can you just give us some color there and say whether that's 10% more or 20% more, or is it too early to tell?

Yes, it's a good question.

First of all, the compounding, we're not -- I don't have on my fingertips the exact compounding costs in Europe versus the US, but we're getting some very competitive offers and we're currently working through three different compounders in Europe, and all of whom are high quality, all of whom are being relatively aggressive in pricing, which is giving us the ability to get some good economics.

And I pointed out in the prepared remarks that our decision to compound is going to be based on where we generate the most margin. There will be cases where we'll let someone else do the compounding just because it's something they can do more efficiently, and in other cases we'll do it because we can make more money that way. But the cost structure, we've not found any significant penalty versus that in the US.

On your second question of whether we can sell more, a little too soon to give you a precise number, but there are some products we're selling on a compounded basis where the PHA is 50%, roughly, of the total blend, which would mean 1,000 tons of that product on a PHA basis would generate 2,000 tons of sales.

I think it's too early to apply that to the whole mix because some of that will evolve as the product slate evolves. I think the additives bit, it will be mostly pure PHA. Some of the film products will get that kind of volume uplift. But you can envision for certain products a pretty significant uplift on volume, but that mix is still evolving as we move to launch.

Okay. Switch to your C4 product platform, I think I read in your slides the (technical difficulty) 60,000 liters. What kind of yield do we have in there, like, say, whether that's in the kilograms or metric tons?

Yes, we're not, JinMing, disclosing the yield. What we have said and one of the compelling parts of our processes is that we have produced tonnage quantities of the material, and we can be able to get product to market even as we are improving yield, and we can see cases where we could be profitable in some applications quite soon. Do you want to add anything, Ollie, to that?

Yes, so JinMing, we haven't been very specific on some of the yield numbers, but that fermentation process that was run does generate over 120 grams per liter of the reagent C4 chemical precursor. It's a pretty efficient process. Although it's not yet where we want it to be.

Okay, good. Excellent. Thanks.

And at this time, there are no other further questions in the queue.

No more questions, okay.

Just to wrap up, we'd like to thank all of you for joining our call today. In numerous ways, our technology portfolio is very well aligned with the global trends towards sustainability and the use of renewable materials. We at Metabolix are fortunate that we possess a high-value technology platform which offers us numerous commercialization and partnering options.

Just to summarize, today we outlined our commercial strategy for biopolymers and provided an update on our progress with Antibioticos, which is aimed at establishing commercial manufacturing capacity in 2013. We selected three target markets which share the common characteristics of being large, offering high-valued opportunities, and providing an excellent fit with our biopolymer capabilities. Our customers are with us.

In our chemicals platform, the attractive potential cost position for our technology is being increasingly validated by the strong interest demonstrated by prospective sophisticated partners with whom we aim to structure a win-win relationship in which we both benefit. And as we continue to move our crops towards cash neutrality, we'll optimize that technology for the long term and we will maintain a lean corporate overhead structure.

In aggregate, we're driving the Company towards cash positive operations while establishing a very strong foundation for growth. We anticipate tangible progress across each of our business areas in the coming quarters and look forward to keeping you informed.

Thanks again for joining the call and have a nice evening.

Ladies and gentlemen, that does conclude (technical difficulty)