Yield10 Bioscience Inc (YTEN) 2013 Q4 法說會逐字稿

Good afternoon and welcome to the Metabolix fourth-quarter 2013 conference call. Today's call is being recorded for Internet replay. You may access an archived version of the call on Metabolix's website at www.Metabolix.com. (Operator Instructions)

I will now turn the call over to Ms. Lynne Brum, Metabolix's VP of Corporate Communications. Please proceed, Ms. Brum.

Thank you, Manny, and good afternoon, everyone. Welcome to Metabolix's fourth quarter and year-end 2013 conference call. If you do not have a copy of the fourth-quarter news release which was issued earlier this afternoon, one can be found on the Investors Relation section of Metabolix.com.

In addition, slides accompanying this presentation are available on the Metabolix website on the Events and Presentation page in the IR section. Now please turn to slide two.

Please note that as part of our presentations today management will make forward-looking statements. These statements are not guarantees of future performance and, therefore, undue reliance should not be placed upon them. Investors are also cautioned that statements that are not strictly historical constitute forward-looking statements. And such forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated.

These risks include risks and uncertainties detailed in Metabolix's filings with the Securities and Exchange Commission, including the earnings release filed this afternoon and the Company's most recent 10-K. 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.

On the call with me today are Joe Shaulson, President and Chief Executive Officer; Johan van Walsem, Chief Operating Officer; Joe Hill, Chief Financial Officer; and Ollie Peoples, co-founder and Chief Scientific Officer. With that I would like to turn the call over to Joe Shaulson. Joe?

Thanks, Lynne. Good afternoon, everyone, and thanks you for joining us today. I am excited to be here and to share with you our priorities for Metabolix in 2014. Please turn to slide three.

I joined Metabolix in January with the mandate to lead the Company to commercial success. In my first three months I have focused primarily on our strategy and the capital plan required to execute against it. Based on my experience, which includes over 15 years in advanced materials and specialty chemicals, I believe Metabolix has a solid foundation for commercial success.

That foundation includes a broad, innovative technology platform centered around PHA biopolymers and supported by an extensive intellectual property portfolio. It also includes extensive know-how gained from the scale up of our fermentation and recovery technology and the operation of those processes at world-class commercial scale.

It includes the work we have done reshaping our commercial approach from one based on drop-in replacement of commodity plastics with biodegradable plastics to one focused on the unique properties of our PHA biopolymers. Biodegradability is only one of those properties and we see considerable value in the role our biopolymers can play in enhancing performance or reducing end product or processing costs of other materials.

And, finally, our foundation is built on an impressive team of talented people dedicated to making Metabolix successful.

Please turn the slide four. Since coming on board, we have reviewed our biopolymer strategy and I think it's important to describe it here for context. At its core, it is quite simple: we are focused on building a commercially successful specialty polymers business with attractive margins based on the unique properties of our PHA biopolymers.

Taking it down a level, it means we are intensifying our effort in product and application development as we work closely with customers from initial data demonstration through product and process validation, large-scale trials, and ultimately purchasing decisions. This approach is integral to our additives-based strategy where the market opportunities are driven by the value-adding role our biopolymers play as components of other material systems.

Please turn to slide five. Of course, production capacity is a key part of building a commercially successful business. In that regard, we are working to secure intermediate scale production capacity for 2.5 to 5 kilotons per year of our PHA biopolymers. We are making excellent progress with site selection and expect to have this capacity online and available for supply in 2015.

While we work to execute these elements of our strategy, we will continue to position ourselves to move forward with longer-range plans for larger scale production supported by customer demand for PHA biopolymers. Ultimately, this will create significant value for all Metabolix stakeholders, and once we reach that level, I would expect us to have attractive margins and significant cash flows to fund our operations and future growth.

Please turn to slide six. So what are our top priorities for 2014? First, to secure the financing we need to execute our strategy. Second, to select a production site and do the legwork needed to get it up and running in 2015.

Third, to intensify our product and application development work with customers with a focus on the right opportunities: those with critical mass and where PHA additives deliver real value. Fourth, to progress technical work in areas like yield and product and process development that will help advance our strategy.

Fifth, to continue to seek value-capturing partnerships or collaborations for our chemicals and crop platforms. And, finally, to build a stronger specialty materials business culture that permeates our approach to all aspects of our business.

Now let me add some detail on a few of these priorities. Please turn to slide seven.

Today we reported in our 2013 financial results that we ended the year with $19.2 million in cash and unrestricted investments and we noted that we anticipate ending the first quarter 2014 with approximately $10 million. Clearly this puts financing at the top of our list of priorities.

Based on our current plans and projections, which, of course, remain subject to uncertainties, we plan to raise $50 million to $60 million over the next 12 to 15 months. The timing, structure, and vehicles for this financing are under consideration and it may be done in stages.

While I can't comment on anything specific, we are working on a variety of options and our goal is to use this capital to execute our business plan and to build an intermediate scale specialty polymers business that serves as the foundation for our longer-range plans and future growth of our business.

Please turn to slide eight. In 2014 we are also sharpening our emphasis on developing performance additive solutions that deliver the greatest combination of value and performance to our customers. We are being strategically selective as we develop our business, focusing on application spaces that stand to gain the greatest benefit from our PHA-based technology and that have the critical mass necessary for commercial success.

Over the last year, Metabolix has presented data highlighting the performance and processing advantages that our PHA additives can deliver when added to PVC- or PLA-based plastics. From those data we are now driving deeper into the market segments where our products can have the most impact.

For example, we have been working to show help PHA additives can be used to enhance performance in specific flexible PVC applications like wiring cable. Similarly, we are showing customers how PHA additives can improve processing and enable the use of significantly more PVC recyclate or fillers in rigid PVC products.

We have also recently shown how our PHA additives can be used as a performance modifier to produce tougher, more flexible PLA films while maintaining other important properties like clarity, biocontent, and compostability. PLA is already an important bioplastic and it's exciting to think about the potential for PHA additives to help expand the application space PLA by enhancing physical properties.

We are also working to develop solutions based on new PHA product forms such as a PHA-based latex that can be used, for example, to coat paper or corrugated cardboard. Here, our PHA biopolymers can add barrier properties without compromising in important product attributes like printability, recyclability, or repulpability.

In all of these areas we are working with customers on solutions where our PHA biopolymers enable material systems with better overall performance and/or lower total costs. These are exciting opportunities and we are evolving our approach and culture to drive them to commercial success.

With that I would like to hand the call over to Johan, who will describe some of our recent accomplishments, and to Joe Hill, who will take you through the numbers. Johan?

Thanks, Joe. Good afternoon, everyone. Please turn to slide nine.

As Joe highlighted for you, we are viewing our PHA products through the lens of performance additives to ensure our product offering is distinct, differentiated, and viewed as a high-value addition to polymer systems and formulations. Over the last several months, we have achieved milestones that are in line with our product development strategy in each of the strategic market segments of PVC, PLA, and in the new area of latex.

Starting with PVC; we are progress thing the development and commercialization of three main value propositions with leading players in the PVC industry. First, we are working with PVC converters to demonstrate the benefits of using PHA additives to increase the amount of PVC recyclate used during processing without compromising end product performance.

Second, we are developing solutions that use PHA rubber additives to improve toughness and produce migration of plasticizers in flexible PVC applications such as wire and cable. Reducing plasticizer migration is a major industry concern for both performance and environmental reasons. Third, we are working with rigid PVC converters to commercialize PHA as a processing aid for highly-filled systems where PHA enhances processing and product performance at increased filler levels.

Turning to PLA. We have also presented data showing use of our PHA rubber modifiers to improve the performance of PLA, a widely used biobased compostable resin. Our modifiers have been shown to improve the softness and flexibility of PLA while also retaining clarity, biocontent, and compostability. We believe our PHA rubber modifiers have the potential to expand application space for PLA leading to new business opportunities in the future.

In 2014, we expect to continue working closely with customers on improved films, foams, and nonwoven products based on PHA and modified PLA. We will also continue to sell compostable film including Mvera B5010 and Mvera B5011 products that we launched in 2013.

Turning to our new PHA latex product. In 2013 we developed technology to produce PHA latex, an aqueous dispersion of PHA that has very interesting potential in applications such as coatings, binders, tie layers, and adhesives. One unique attribute of PHA latex is that it can form a tough tack-free film making it well-suited for thin barrier coatings on paper and corrugated cardboard.

Our PHA latex has been demonstrated to be compostable and marine degradable, and they also compatible with the repulping applications commonly used to recycle paper and corrugated cardboard.

During 2013, we demonstrated the latex technology at product scale and began sampling customers who are evaluating PHA latex in a range of applications. We intend to continue this development and commercialization effort during 2014.

On the technology front, Ollie presented data in November demonstrating for the first time that Metabolix-designed microbes can convert cellulosic sugars to produce targeted PHAs through fermentation at virtually identical growth rate and yield to glucose. This is significant as it provides us with the flexibility to use a range of first-generation industrial sugars as well as potentially lower-cost second-generation cellulosic sugars to manage feedstock costs in the long term.

In our chemicals platform we achieved another key technical milestone, demonstrating a significant increase in yield with our technology to produce bioacrylic. We are continuing to build on these results and believe our chemicals platform remains an interesting area for potential partnership or collaboration.

In our crops platform we have made recent discoveries regarding genetic traits that are linked to increased crop yield and improved stress tolerance. We plan to talk with potential partners about the commercial potential for these discoveries.

In summary, our recent accomplishments positions us well for 2014 as we focus on the use of our PHA products and technology as performance additives and work with customers in our target market segments which have the potential for significant annual volumes of material.

With that I will turn the call over to Joe Hill for a review of the financial highlights of the quarter. Joe?

Thanks, Johan, and thank you all for joining us today. I will now focus on the financial results for our fourth quarter ended December 31, 2013.

As always, we manage our finances with an emphasis on cash flow and deploy our financial resources in a disciplined manner to achieve our key strategic objectives, maximize value from our technology [and product] portfolio. We have maintained this focus and ended the fiscal year with $19.2 million in unrestricted cash and investments. I would now like to take you to some highlights of the financial results.

I won't read out all of the numbers presented on the sides, but instead will highlight certain points worthy of note. I will first review product orders and associated revenue recognized. Please turn to slide 10.

Product revenue for the fourth quarter of 2013 was $200,000, which is the deferred revenue from Q3 orders. We shipped and billed $500,000 of product in Q4 2013 that will be recognized in Q1 2014 as a result of the Company's revenue recognition policy. By way of comparison, during the fourth quarter of 2012 the Company recognized $700,000 of product revenue.

For the full year 2013, we shipped and billed $1.8 million in orders, of which $500,000 has been deferred to Q1 of 2014. We also recognized $800,000 of 2012 deferred revenue during 2013, which brought our total product revenue recognized in 2013 to $2.1 million.

You can see on the sixth row of the table, that we had an inventory impairment charge of $500,000 in Q4 2013 for a total inventory impairment charge for the year of $800,000. The inventory impairment was primarily related to material that is no longer part of our strategic business plan.

We continue to hold significant product inventory in the form of resins and blended material, which we are using together with pilot production of newer products to support market development with customers and prospective customers. Cost of product revenue remains relatively low as we are selling inventory that we purchased from the terminated joint venture at a low cost per pound.

Cost of goods sold also includes the cost of sample inventory shipped to prospective customers, warehousing and product packaging costs, and certain freight charges. We anticipate that product revenue will increase in 2014 as we continue to gain market acceptance for our products. Although there may be fluctuations from period to period, we remain enthusiastic about our long-term growth potential.

Now turning to slide 11 for a review of financial results. You will notice in the fourth quarter of 2013 research and development expenses were $2.5 million less than Q4 2012. The decrease was primarily due to $2.3 million in charges incurred with a third-party during 2012 for a manufacturing demonstration agreement that we terminated during 2013.

Selling, general, and administrative expenses are $900,000 higher in Q4 2013 versus Q4 2012, primarily due to $800,000 in one-time costs associated with the replacement of our CEO. As a result, net loss for the fourth quarter was $8.6 million, or $0.25 per share, as compared to a net loss of $9.5 million, or $0.28 per share, for the fourth quarter of 2012.

The full-year 2012 financial results include recognition of $38.9 million in nonrecurring deferred revenue that was recognized from the ending of the Telles joint venture in February 2012 which is driving the significant change in earnings per share year over year.

Now on to the balance sheet, turning the slide 12. As we look at cash usage, you can see at the bottom of the table we had unrestricted cash and investments of $19.2 million as of December 31, 2013. This compares to $46.3 million at December 31, 2012.

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 $200,000 and stock-based compensation expense of $800,000. For the fourth quarter, net cash used in operating activities was $6.4 million compared to cash usage of $5.9 million used during the third quarter of 2013 and $7.3 million used in the fourth quarter of 2012. Ignoring one-time cash usage items as highlighted on this slide, normalized cash usage increased in Q4 2013 over Q4 2012, mostly driven by increased inventory build for formulated products.

For the full year, net cash used in operating activities was $26.6 million compared to $31.7 million used during the full year 2012. The decrease of $5.1 million was mainly attributable to $3 million paid during 2012 for inventory acquired from the ended Telles joint venture and $2.3 million paid during 2012 in connection with the manufacturing demonstration agreements.

Based on our current forecast, we anticipate ending Q1 2014 with approximately $10 million in cash. Our quarterly cash usage remains about the same as we experienced in 2013. It is worth noting that our cash usage in Q1 of each year is generally higher than the other three quarters due to the timing of payments for our variable compensation to employees which occurs in Q1 of each year.

We are focused on strengthening our balance sheet. We expect that our cash and investments, together with expected funds that we received from existing grants and anticipated product sales, will take us into Q3 2014, but will not be sufficient to meet our projected operating requirements for the coming year. This raises substantial doubt about our ability to continue as a going concern.

We will require significant additional funding this year and we plan to raise $50 million to $60 million over the next 12 to 15 months. However, if we are unable to raise additional funds, we will be forced to delay, scale back, or otherwise modify our business and manufacturing plans, sales and marketing efforts, research and development activities, and other operations and/or seek strategic alternatives.

We will attempt to obtain additional funding through public or private financing, collaborative arrangements with strategic partners, or through credit lines or other debt financing sources to increase the funds available to support operations. We understand that strengthening our balance sheet is very important and we are extremely focused on raising these funds.

With that, I now turn the call back to Joe Shaulson.

Thanks Joe. To sum it up, we are excited about the opportunities in front of us. Our immediate focus is on execution: execution of our financing plan and execution of our business plan. There is much work ahead and we look forward to delivering on our priorities in the coming months.

With that we will open the call to your questions.

(Operator Instructions) Laurence Alexander, Jefferies & Company.

Good afternoon. I guess a couple of questions. First, you laid out four different growth platforms. As you think about your ability to flex on the cash burn, can you rank those?

And then can you give some sense for each one about sort of what needs to happen to arrive at partnerships or what it would take to be able to monetize one of the platforms?

Sure. So at its most fundamental element, the core of the strategy is about driving for those applications where there is a combination of value and critical mass. We have staked out PVC, PLA, and this new latex opportunity as three of those core areas.

And we have done it because, in each case, the scientific work that we have done, the work that we have done with a range of potential customers in the application space has provided extremely encouraging feedback and we know that, if successful, the size of the market opportunity is significant. It's significant in all three of those cases and I would be hesitant to rank them at this point in time, other than to say that each of them is an important part of the strategy and we are pursuing them all diligently.

And I guess then in terms of -- then can you give a sense for which ones you have had the longest and most stable customer partners or -- evaluating the platforms? I guess really what I'm trying to figure out is, as you think about your cash burn near term, the degree of emphasis or lack thereof for what you are doing with the trait program, for example.

I'm sorry the --?

The trait program.

So all of the platforms that -- all the things that I just talked about are within the biopolymers platform and that is our primary area of focus. In terms of the crops program, we are continuing to advance research under grants and to look for potential partners for commercialization or potential licensees for the technology. And in the chemicals program the story is similar.

So really the execution story we talked about is heavily focused on the biopolymers opportunities that I discussed initially.

Right, and one point to remember, Laurence, is that the work that we do on the crops program is funded through government grants. So that doesn't impact our cash burn.

And I would say -- I would add to that that our goal for both the crops program and the chemicals program is to do work to the extent that we were able to generate either grant or partnership funds to support those activities.

Then one last one, if I may, is just as you think about the likely opportunities that you are targeting near term because of the capital outlay that you have highlighted, is that intended to be eventually you will narrow it down to one of these platforms, one plant, or one plant that is flexible between three? Or would it be a modular, a smaller modular design that can be attached on existing infrastructure somewhere?

In the applications that we have talked about, it is a pretty narrow range of specific products that would go into those applications and we would anticipate having one manufacturing facility that can support all three of those platforms.

Okay, perfect. Thanks.

(Operator Instructions) JinMing Liu, Ardour Capital.

Thanks for taking my question. First, I would like to understand what is the positioning of your company at this moment? Are you just trying to be a specialty (inaudible) company or a biotech company focusing on developing new technologies?

I think the positioning is we are a specialty polymers company, so whether you classify that as materials or chemicals would probably depend by person. But fundamentally a specialty polymers company that happens to use a biotech route for producing its products.

Okay. But given that, given the kind of cash you guys have and I look at your cost structure, if you guys going to be a specialty chemical company are you going to still keep a very high R&D budget?

So we are going to maintain -- we are working on the commercial focus first and that is what drives the R&D to back it up. So I think we will always have a significant R&D component to the Company, but it may be focused on different types of things than it has been historically. Because applications, development, and specific product development that is application and customer focused will become much more important in this specialties business model than it was in the days when we were still inventing the technology to make the product.

Okay. Switch to your capital plan. First of all, currently you guys are talking about an intermediate stage scale capacity somewhere between 2.5 to 5 kilotons per year. Why is that?

And related to that, how much capital do you project to build up that capacity? And also your [projectile] production begins in 2015; that sounds like too quick to me if you guys build out everything from scratch.

Sure. So consistent with the approach that we have had for some time, our manufacturing strategy is still focused on brownfield sites where some of the capability will be existing and some of the capability will need to be added. And that has the benefit both of speed and the reduction of total capital.

When you think about the capital plan, that $50 million to $60 million that we have talked about raising gets us through the balance of this year and next year and gets the facility up and running.

Okay. Actually that is my next question. Related to the $50 million, about $50 million you guys are going to raise, can you share with us a breakdown of what are you going to use of that amount?

I'm not sure I understood the question.

Just for the $50 million to $60 million you guys are going to raise, can you give us the potential use of proceeds from that [raise]?

The proceeds will be used to fund all of our commercial R&D and other operations through the balance of this year in 2015, as well as to make the investment in and get up and running the manufacturing plant at 2.5 to 5 kilotons.

How much capital you guys budget for the production capacity?

So we are not disclosing the specific capital number. We are in -- making excellent progress and in discussions with potential manufacturing partners and when we have something specific to announce we will announce it.

Okay. Lastly, in your near-term plan what you guys are factoring in with all the existing partners you have like the Samsung Fine Chemicals and the Tianjin GreenBio?

So we are continuing to work with our existing partners on -- Samsung, as an example, is a supplier that provides materials that are important to our Mvera films business. We're continuing that films business as usual and then layering on top of that a new focus on these areas such as PVC, PLA, and PHA latex.

Okay, got that. Thanks a lot.

You're welcome.

Thank you. We have no further questions in the queue at this time. I would like to turn the floor back over to management for any closing remarks.

Thanks again for joining us today and for your continued support of Metabolix. We have a strong team here that is focused on executing our plans. We look forward to talking to you again at our first-quarter call. Have a good evening.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation.