Yield10 Bioscience Inc (YTEN) 2012 Q4 法說會逐字稿

Good afternoon, and welcome to the Metabolix fourth quarter and year-end 2012 conference call. Today's call is being recorded for internet replay. You may access an archived version of the call on Metabolix website at www.Metabolix.com. At this time, all participants are in a listen-only mode. We will conduct a question and answer session toward the end of this conference call. I will now turn the call over to Ms. Lynne Brum, Metabolix VP of Marketing and Corporate Communications. Please proceed, Ms. Brum.

Thank you, Roya Good afternoon. This is Lynne Brum, VP of Marketing and Corporate Communications. Welcome to the Metabolix fourth quarter and year-end 2012 conference call. On the call with me today are Rick Eno, President and Chief Executive Officer; Joe Hill, Chief Financial Officer and Oliver Peoples, co-founder and Chief Scientific Officer. If you do not have a copy of the fourth quarter news release which was issued a little bit earlier this afternoon, one can be found in the Investor Relations section of Metabolix.com. In addition, slides accompanying the presentation are available on the Metabolix website on the events and presentations page in the IR section. Now please turn to page 2 -- slide 2.

Please note that as part of our discussion today, Management will be making 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 that 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 most recent 10-K and the Company's 10-Qs and other filings. 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. With that, I would like to turn the call over to Rick Eno. Rick?

Thanks, Lynne. Good afternoon, and thank you everyone for joining us today. As many of you know, Lynne has assumed the leadership of the Investor Relations function for the Company and will be supported by Sharon Merrill, the Investor Relations firm. I am sure all of you will enjoy working with them. Please turn to slide 3.

On last quarter's call, I outlined our strategy going forward for each of our business platforms, which include Metabolix's biopolymers which are a family of biobased and biodegradable polymers, biobased chemicals to be used as drop-in replacements for conventional, industrial chemicals. And finally, crop-based activities which include our programs in switchgrass, oil seeds and sugarcane. I will refer you to that transcript for the summary of our strategy. In essence, for biopolymers, we have developed well-patented technology for biobased biodegradable products with exceptional properties. We are working to develop high-valued markets and customers for these products, while continually working to lower the cost of our product supply and manufacturing. As a result of these efforts, we expect to have a large profitable business protected by our patents and know-how. Our chemicals and crop programs offer further value potential based on our technology.

I will now report on our progress in pursuing this vision. Please turn to slide 4. Let's start with Metabolix biopolymers. During the fourth quarter, we achieved quarter-on-quarter sales growth of 33% over the third quarter of 2012. We now have over 70 customers in total. Our customers represent the film, performance additives, and functional biodegradation application segments targeted in our biopolymer business. Keep in mind, that we are not trying to sell the product as quickly as possible at this point, but we are building our customer base, and supplying product to enable a smooth transition to ongoing manufacturing.

During the fourth quarter we launched our next-generation certified compostable film product, Mvera B5008 polymer resin for film and bag applications. We entered into a agreement in December with Swiss-based packaging solution supplier Kenmare to promote Mvera B5008 to its customers in Europe beginning 2013. Mvera B5008 is designed for consumer compost bags, can liners for commercial compostable food waste, and shopping and retail bags than can be re-used as consumer compost bags. Based on the worldwide trends we are seeing in the compostable market, this is an exciting long term growth opportunity for Metabolix.

In December, we also began shipping I6001, which is a biobased polymeric modifier for PVC. Our testing shows that I6001 not only provides biobased content, but has the potential to improve the impact resistance and toughness in rigid and flexible PVC applications, without compromising transparency or UV stability. We are currently working with customers to identify specific applications for PVC formulations using I6001 which is based in our Morel biopolymer resin. We believe I6001 offers numerous value propositions, including lower migration through the reduced use of phthalate plasticizers and the creation of tougher PVC compounds for a wide range of applications from construction materials to medical. We are also using our existing inventory to continue to develop new formulations for high valued applications. We are blending our own biopolymers with those purchased from third parties to enhance certain performance attributes and develop new products that are targeted for specific uses. The demand for application specific products is an important trend in the biopolymers, market and we are actively working to capitalize it -- capitalize on it.

Please turn to slide 5. Let me update you on our plans for commercial production of our biopolymers. As you know, we plan to use the existing capacity at Antibioticos in Spain as a source for manufacturing of our biopolymers. I have recently returned from Spain where we have had numerous discussions with Antibioticos' management regarding their liquidity and our current and future relationship. As has been documented in the press, Antibioticos is undergoing a financial restructuring, in order to grow the site and ensure a long-term strength.

Some key points for you. Antibioticos are in active discussions with multiple financial and business partners, in order to resolve their issues. The timing and outcome of this restructuring is unclear and the outcome will directly affect their ability to deliver on both the demonstration and commercial phase for Metabolix. We are in frequent contact with Antibioticos' leadership and are monitoring progress on a regular basis. We continue to be very impressed with the Antibioticos' site and the capabilities of their technical and manufacturing team. We are in the process of negotiating our commercial contract with them, so that when we are satisfied with the outcome of their restructuring, we can move ahead rapidly with commercial production. While the site is impressive, you should know that we have and will continue to develop multiple options to drive down the cost of our supply, including opportunities that are being brought to us. We will keep you up to date on the Antibioticos progress and our product launch with them.

In order to enhance our supply chain for our customers and to diversify our expected supply from Antibioticos, we also took another major strategic step in our biopolymer business with agreements with China-based Tianjin GreenBio Materials or TGBM. The first is a distribution agreement through which Metabolix will distribute a biobased heat shrink film produced by TGBM in the US and in Europe. This film will broaden our film portfolio. The heat shrink film market is estimated at approximately $2 billion in the US and Europe. In addition, we have entered into a supply agreement to buy various grades of PHA polymers that will extend the range and availability of our grades. Tianjin GreenBio is a leading Chinese PHA manufacturer with 10,000 tons of design capacity currently in place. They have excellent formulating and compounding capabilities. We have been working with them and their products for more than a year and have spent time on their site. This relationship helps Tianjin to grow its business through our efforts in the EU and the US, and it gives our customers further assurance of supply.

Looking further ahead, we believe a key long term objective for Metabolix is a low cost site with the potential ability to integrate PHA biopolymers and our PHA-based chemicals. This will allow us to continually lower costs, expand margins, and grow the business. We are in the process of conducting a feasibility study, examining alternative low cost sites that could incorporate both our biopolymer and biobased chemical platforms. We have already seen strong engagement from parties interested in potentially participating with us. Our commercial strategy, in essence, is to build the customer base and demand ahead of this site. To conclude on biopolymers, we have made progress in our program, both in terms of launching our compostable film and polymeric modifier products, and advancing toward commercial production both at Antibioticos and through our relationship with Tianjin GreenBio. And we are now looking forward to the future to a potential long-term site that will help us grow the business, expand margins and meet the market needs.

Please turn to slide 6. Let's move on to our biobased chemicals platform, where we are leveraging our PHA microbial technology to produce renewable-based chemicals as drop-in replacements for fossil fuel-based chemicals. We are developing four-carbon or C4 and three-carbon or C3 chemicals from biobased sources using proprietary, patented fermentation technology and the FAST, our fast-acting selective thermolysis recovery process. We continue to make advancements in this program, and are actively filing additional IP.

Our crops platform includes our programs in oil seeds, switchgrass and sugarcane. During the fourth quarter, we received a sub award under the Advanced Research Projects Agency Energy, or ARPA-E, to work with UCLA to redesign carbon fixation pathways to increase the efficiency of capturing energy from sunlight. This was the third grant that we received in 2012 for leading-edge crop research targeting multi-gene expression and transformation of plants. Funding from these new grants will total nearly $1 million and run through 2014. In addition, we are making good technological progress under a $6 million grant from the US Department of Energy to produce PHB in switchgrass, to co-produce densified biomass for fuel, and to produce value-added crotonic acid. We plan to continue to pursue opportunities for additional grants and collaborations to fund and advance our crop program.

Now turn to slide 7. In our recap of 2012 accomplishments, I would like to mention that the focus on developing intellectual property is a key element of our business strategy. In 2012, we filed 14 new patent applications. We were also granted or allowed 43 patent applications, 5 in the United States, and 38 internationally. The inventions covered under these patents include methods of processing PHA biopolymers and compositions, methods to produce biobased chemicals, PHA expression systems in microbes and plants, and novel feedstocks for PHA production. With that, I will turn the call over to Joe for a review of the financial results. Joe?

Thanks, Rick, and thank you all for joining us today. I will now focus on the financial results for our fourth fiscal quarter ended December 31, 2012. As always, we managed our finances with an emphasis on strict cash flow management. We have maintained this focus, and ended the fiscal year with $46.3 million in unrestricted cash and investments.

Turning now to slide 8. The fourth -- for the fourth quarter, net cash used in operating activities was $7.3 million, which represents a planned increase in cash usage from $6.3 million during the third quarter of 2012 -- 2012, and is a decrease over the $8.6 million used during the comparable period of 2011. Net cash used in operating activities reflects the Company's activities in sales and marketing development, as well as research and product development. The increase in net cash usage in the fourth quarter of 2012 is primarily attributable to plant modification, manufacturing and equipment, and raw material costs incurred in connection with the Antibioticos manufacturing demonstration agreement. For the full year, net cash used in operating activities was $31.7 million, unchanged from 2011.

Now turning to slide 9, we will now review product orders and associated revenue recognized. Product revenue for the fourth quarter of 2012 was $918,000, which includes $621,000 of revenue from Q3 orders that were previously deferred, and $133,000 from product shipped and billed during the fourth quarter. $785,000 of Q4 orders that were shipped and billed was deferred to the first quarter of 2013, as a result of the Company's product return policy adopted in the third quarter of 2012. We modified our product return policy prospectively during the quarter ending September 30, 2012, to allow discretion in accepting returns during a period of 60 days after product delivery. Until we have sufficient return history on which to base an estimate of product returns, we defer recognition of product revenue and related costs to the latter of the end of a 60 day period, or when the customer payment has been received.

Turning to slide 10 for a review of financial results. Total revenue for the fourth quarter was $1.4 million versus $400,000 in the comparable period of 2011, and consisted primarily of revenue from government grants and product sales. Cost of product revenue was $600,000 during the quarter ended December 31, 2012, and primarily reflects inventory product costs associated with product revenue recognized during the period, plus current period inventory storage and shipping costs including warehouse consolidation activities. At this point, we are not ready to provide specific guidance for sales forecasts. However, we do anticipate that product revenue will increase in 2013 as we continue to gain market acceptance for our products, although there will be fluctuations from quarter to quarter. Overall, the markets we are serving are growing at about 15% to 20% per year, and we are enthused about our long-term growth potential.

Total operating expense, that is R&D plus G&A -- SG&A, in the fourth quarter of 2012 were $10.3 million, versus $10.1 million a year ago. Research and development costs were $7.2 million, an increase of $1.1 million from the comparable period in 2011. This increase was primarily due to $2.3 million in plant modification, manufacturing equipment, and raw material costs incurred in connection with the Antibioticos manufacturing demonstration agreement. This increase was partially offset by reductions in the use of external research and development support and consulting costs. Selling, general and administrative costs were $3.1 million, versus $4 million in the fourth quarter last year. The decrease of $900,000 was primarily attributable to decreases in employee compensation and related benefit expenses and travel, due to a reduction of headcount in response to the termination of the Telles joint venture and consulting reductions due to that termination. As a result, net loss for the fourth quarter was $9.5 million or $0.28 per share, as compared to a net loss of $9.6 million or $0.28 per share for the fourth quarter of 2011.

Revenue for the 2012 fiscal year was $42.3 million. The year-over-year increase was primarily related to $38.9 million in deferred revenue that was recognized as a result of the termination of the Telles joint venture in February 2012. Grant revenue was $2 million and biopolymer product revenue was $1.2 million. An additional $800,000 of product revenue was deferred to Company's first quarter of 2013, as a result of the Company's product return policy mentioned earlier. Net income for the full-year ended December 31, 2012 was $3.6 million or $0.11 per share, compared to a net loss of $38.8 million or $1.24 per share in 2011. As in previous quarters, the fourth quarter loss is greater than the cash used in operating activities as a result of non-cash expenses, including depreciation of $300,000 and stock-based compensation expense of $900,000.

As I mentioned, our cash level at December 31, 2012 was $46.3 million and we continue to have no debt. This compares to $53.6 million in cash as of September 30, 2012, and $78.4 million at the end of 2011. We believe that our cash, cash equivalents and investments, together with expected funds to be received from existing grants and anticipated product sales will be sufficient to meet anticipated cash requirements for at least the next 12 months. With that, we will open the call to questions.

Thank you.

(Operator Instructions)

Thank you. Our first question comes from the line of Laurence Alexander with Jefferies. Please proceed with your question.

Good afternoon.

Hi, Lawrence.

Can you sum -- sort of sketch of how you expect R&D costs and SG&A costs to evolve, given the new partnership structure?

So with the Antibioticos partnership structure, of course, that we have R&D and SG&A costs, we are not expecting significant changes in those. Other than as we had discussed earlier, as Antibioticos resolved their financial situation we would be making additional capital investment, in getting to the commercial phase of the agreement.

Okay. And the change in partnership, there will be no increase in R&D costs for you to -- for that relationship; correct?

No, Lawrence. We don't foresee that at this point. It is a very collaborative relationship, and their products will work right down our channels that we have established. And we will be working to determine if there are future joint projects we should be working under would change R&D. But right now, it is more of a distribution and marketing synergy approach.

Okay. And then the -- the caution around outlook commentary, does that mean the prior cash burn comments were -- are off the table?

So you are talking about the guidance we gave at the last earnings call?

Yes.

At this point, as we are working through our partnerships and our supply arrangements, we are not prepared to give cash burn numbers for the year-end. But we are comfortable that the cash balances we have will be there to -- for us to meet our goals for 2013.

Yes, thank you.

Thank you.

Thank you. Our next question comes from the line of Henri Akaishi with Piper Jaffray. Please proceed with your question.

Hi.

Hi, Henrique.

So can you give us a little bit more color on ramp up of Antibioticos? Are you still expecting 2013, or can that get pushed off into 2014, or do we just not know enough yet?

I think the -- it has been well reported that they are going through a restructuring. We are in touch with them frequently, including in person as well as on the phone with them quite frequently, to keep up with that. But it is unclear to predict the timing of that. So what we have done, is we have, of course, continued to seek options and pursue options, and we have established alternative supply points. So we continue to monitor. We like the site. We like the people there. We are pretty much comfortable that it is going to be a great place to produce. But [while] they sort their financial restructuring out, we continue to meet the requirements of the market through other sources.

So will Tianjin be able to make a wide range of biopolymers that will offset any reductions from Antibioticos?

Well, if you recall Antibioticos was 10,000 tons of capacity, Tianjin is10,000 tons of capacity. It is an operating facility with proven product. We worked with them for over a year. And we have got an agreement to access PHA resins that extend the range and availability of our resins. So it is very complementary.

I see. So I understand that the timing is a little muddy with the restructuring over at Antibioticos. But how, if the restructuring concludes say, right away, how soon after can we expect commercial production out of Antibioticos would you estimate?

Yes, I would say that -- I mean, Henrique, at this time, the critical path item is their financial restructuring. As we note, we have completed technology transfer. We have worked through engineering design. We have got a commercial contract in negotiation. So the real critical issue is in their court on conducting their financial restructuring to the point that we are satisfied with it. And as we monitor that, we will continue to meet customer requirements and grow through our relationship with Tianjin.

Great. Last one for me. So we noticed an uptick in R&D for the quarter. Just can you provide any color on those charges?

Yes, so as I was saying before that the R&D expense was increased due to the Antibioticos payment. Remember, that we paid them $2.3 million for progress being made on the demonstration agreement. So that is mostly the uptick in the expenses.

Great. Thanks.

Thank you.

(Operator Instructions)

Thank you. Our next question comes from the line of JinMing Liu with Ardour Capital. Please proceed with your question.

Thanks for taking my question.

Hi, JinMing.

Yes. First, just want to clarify the relationship with Antibioticos. How much did you spend so far, just that $2.3 million or -- ?

That's correct.

Okay. And the -- related to that, you mentioned you are well-developed -- you are looking at to develop a low cost production site in the future. You say Antibioticos comes back online in the near future. Are you still going to do -- develop your own production site or not?

Oh, yes, JinMing. It is a good question that -- what we are -- our basic commercial strategy is to build the markets for our materials. In our case, these are biodegradable, biobased materials in advance of a commercial site, a low cost site. Having multiple production sites and multiple options is a very good thing from the perspective of a customer. But in the end, to expand the market and lower our costs, we want to keep our eye on a long-term option to actually have a lower cost site. Having options to prime the market in the near-term, working with our partners, Tianjin, working with Antibioticos gives us the options and the tools to do just that.

Okay. But a -- just a follow-up question on that. What will be your strategy to come up with the financing to [build] that additional site?

Right now, as we mentioned in the prepared remarks, we have interest. We have technology that we know works, and we continue to remove costs out of the manufacturing technology. We are building the markets, I think quite effectively. And we have got -- there are a number of people out there that have, start streams looking for higher valued homes. So there is interest. And it is way too early to determine the specific mechanics of financing. But we have to do the homework to understand the configuration, the technology and the market focus of that site, and that is exactly what we are doing.

Okay. Going to your relationship with Tianjin GreenBio. Regarding the supply part of that agreement, are you just simply supply and distribute their products, or do we need to do any upgrading? Because I know their PHA purification [step] is different from yours.

That's right. It is a good question. There are two components of our relationship with Tianjin GreenBio. The first is a distribution agreement, for what they call heat shrink film. And this is-- if you get a package of bottled water or other various -- a pill bottle, it is the plastic wrap that is shrinked around it to seal it. In that case, they have produced the product. We will be selling the product on behalf of them through our channels in the US and Europe. Through our collaborative relationship, if we identify market needs that will cause a reason to improve or tweak the product, we will coordinate with them, and be able to give them that feedback. So in that case, we are primarily selling a product that they have developed, that they are marketing in China. But we are doing it through our channels in the US and Europe.

The second part of our relationship with Tianjin is actually for PHA polymers. In which case, we have got an agreement to purchase PHA polymers, which in some cases are very similar to ours. And in other cases, they actually extend our range. And in those cases, we would use those PHA polymers, even -- either directly to meet our customer needs or blended with other materials as we mentioned in the prepared remarks to meet specific product requirements. So I would think of the second part of that Tianjin agreement to basically provide Metabolix with a further diversity in our PHA supply chain, provides a hedge to Antibioticos, and it gives our customers assurance of supply, by just having yet another source of product that we can help tailor to meet their needs.

Okay. Lastly, can you share with us any more financial details regarding your relationship with Tianjin GreenBio? Like, well, whether you have to have a minimal purchase amount, or you have to give them certain margins?

No, not at this point.

Okay, got that. Thanks.

Thank you. At this time, we have reached the end of the Q&A session. I will now turn the conference back over to Rick Eno for any closing or additional remarks.

Good. Thank you very much. Just like to close by saying that the achievements that we have outlined today are very much in line with the strategy that we provided to you on our third quarter conference call, and we are confident we that we will continue to execute on this strategy as we proceed through 2013. We continue to build the markets for PHA and biodegradable materials. We are continuing to advance our manufacturing and product technology, and we are continuing to diversify our supply sources. We see substantial long-term growth potential. So I would like to thank you all for joining us for today's call, and we look forward to speaking with you next quarter. Thank you very much.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.