Yield10 Bioscience Inc (YTEN) 2014 Q2 法說會逐字稿

Good afternoon and welcome to the Metabolix second-quarter 2014 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 You may access an archived version of the call on Metabolix's website at www.metabolix.com.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 Marketing and Corporate Communications. Please proceed, Ms. Brum.

Thank you, Danielle. Good afternoon, everyone. Welcome to Metabolix's second-quarter 2014 conference call.

If you do not have a copy of our second-quarter news release which was issued earlier this afternoon, one can be found on the Investor Relations section of Metabolix.com. In addition, slides accompanying the presentation are available on Metabolix's website on the Events and Presentations page in the IR section.

Please turn to 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 placed upon them. Investors are also cautioned that statements that are not strictly historical 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. 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; and Joe Hill, Chief Financial Officer. With that, I would like to turn the call over to Joe Shaulson. Joe?

Thanks, Lynne. Hello, everyone, and thanks for joining us today. Please turn to slide 3. Earlier this year we outlined a plan to raise $50 million to $60 million over the next -- over 12 to 15 months to execute our business plan, and we said the capital might be raised in stages. Consistent with that plan, on Monday we announced that we entered into a private placement agreement for $25 million of new equity financing with Jack Schuler, Oracle Investment Management, Birchview Capital, some of our Board and executive team members, and certain other investors.

The closing of the financing is contention on securing a financial viability exception from the NASDAQ shareholder approval rules. We submitted our application to NASDAQ on Monday and are working with them to expedite the review of our case.

Given the limited runway we had entering 2014 and our need for a substantial amount of new capital, this proved to be a challenging financing. In that regard, I want to thank the investor group led by Jack Schuler, Oracle, and Birchview, who are stepping up with a vote of confidence in the Company and our management team's ability to execute the business plan we outlined earlier this year.

I also want to thank all of our shareholders for their patience as we worked on financing. We look forward to deploying this new capital in our efforts to build a commercially successful specialty biopolymers business and, in the process, create value for you.

Finally, I want to thank our employees, who have remained focused on achieving our operational goals during this process.

As we have discussed in prior calls we plan to use this capital towards building an intermediate-scale specialty polymers business based on our PHA biopolymer additives that will serve as the foundation for our longer-range plans and our future growth.

Please turn to slide 4. During the financing process we were not standing still. We made excellent progress moving the business forward.

What I feel when I am with our commercial team, who are in the field every day working with customers, is tangible traction. Customers are seeing the value our PHA additives can bring to their products and processes.

While we can't mention any specific customers at this time, the pipeline of commercial opportunities is building at all stages of development and testing. There are several customers progressing through later-stage evaluations who are dedicating development resources and making investments in facility modifications for large-scale trials and qualification of our PHA performance additives. I am pleased with the work we are doing with these customers and in a moment will hand the call over to Johan, who can provide additional detail on our commercial progress.

Another important element of our plan is manufacturing. Please turn to slide 5. Earlier this year, we said we were evaluating several manufacturing scenarios, and our goal on the manufacturing front was to select a site and have intermediate-scale biopolymer production up and running in 2015. This effort remains on track.

Once we have secured our financing, we will be ready to move forward with the preliminary engineering study and implementation planning for the retrofit of an existing contract manufacturing facility we have targeted for commercial PHA production. We plan to use the results of this study to develop a detailed budget and definitive construction and commissioning schedule. And if everything meets our expectations, we hope to be in a position to commit to this manufacturing facility and sign a formal manufacturing agreement with the owner of the site later this year.

With that, I will turn the call over to Johan for an update on commercial operations. Johan?

Thank you, Joe. Please turn to slide 6. We also continue to make important progress on the commercial front to validate our vision of creating a specialty polymers business based on PHA. We are intensifying product and application development and are working very closely with our customers.

We believe our specialty PHA materials are uniquely positioned as performance additives, and our interactions with customers are further confirming that belief. There are a number of applications that have generated increased interest from our customers, and we are highly encouraged by these opportunities.

In our Q4 call we outlined the process we are using to bring customers from initial interest in our products through to commercial launch. We have identified the key stages as: one, initial data demonstration; two, product and process validation; three, large-scale trials; four, product validation and qualification; and five, commitment for commercial purchases.

In that regard, on the Q1 call we mentioned we had made progress with a couple of customers to large-scale, meaning tonnage-scale trials, a significant step in the commercialization of our product in PVC applications. The goal of the tonnage-scale trials is to produce finished product on actual commercial converting equipment. Once the product is made, it is taken through final validation steps by the customer for product qualifications and may in some cases require validation by third parties.

While we cannot mention the customers or their products at this time, we can say that both products are construction materials. One is based on [highly fold] rigid PVC and the other is based on recycled PVC in a flexible application. So we are pleased that these customers are moving through the qualification process and are progressing to the commercial stage.

Throughout 2014 we have also placed emphasis on the unique performance improvements that our PHA can bring to PLA, the leading bio-based compostable bioplastic. We have shown the PHA improves the softness and flexibility of PLA while maintaining biocontent and compostability.

We are working with several customers who are developing applications in the foam, fibers, and injection-molded parts. Two of our customers have reached the commercial stage and have launched commercial products based on PLA/PHA this year. We have numerous customers at the earlier stages of the cycle and expect to stay commercially active in this space, given the performance we are seeing with PLA/PHA compounds.

Our PHA also enables the production of bio-based marine degradable micropowders and microbeads. Our PHA is potentially unique in this space, as it can provide the texture needed for microbeads used in cosmetics and personal care products, while being fully marine degradable. Because of this differentiation we are seeing a high level of interest from cosmetics companies and suppliers in this space.

In addition, earlier this year, we discussed the progress we are making with PHA latex coatings for paper and cardboard. We continue to engage leading brand owners and converters who are interested in our PHA latex coatings, tie layers, and unique marine applications. We are excited about the ongoing testing and development work in this application space.

In third quarter we will continue to guide our customers through the product validation process using both existing inventory and pilot plant products. This will allow us to better define our customers' anticipated product volume requirements as we plan our product mix and volumes for the new manufacturing facility.

I will now turn the call over to Joe Hill. Joe?

Thank you, Johan, and thank you all for joining us today. We were excited to announce earlier this week that we entered into a securities purchase agreement with certain investors for $25 million.

Even if the financing is completed as planned, we will during 2015 require significant additional financing to continue to fund our operations and to support our capital needs. The timing, structure, and vehicles for future financing are under consideration by the Company and it may be accomplished in stages.

I will now focus on the financial results for our second quarter ended June 30, 2014. Please turn to slide 7.

We will review product orders and associated revenue recognized. Product revenue for the second quarter of 2014 was $662,000, which primarily represents revenue deferred from Q1 products shipments. We shipped and billed $588,000 of product in Q2 2014, nearly all of which will be deferred and recognized in Q3 2014 as a result of the Company's revenue recognition policy.

By way of comparison, during the second quarter of 2013, the Company recognized $822,000 of product revenue. 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 has decreased from $1.2 million in the second quarter of 2013 to $774,000 in the second quarter of this year. The decrease of $422,000 was primarily attributable to shipping fewer pounds of excess raw materials to customers during Q1 2014, for which the revenue and cost of product were deferred and recognized during Q2. Cost of goods sold also includes the cost of sample inventory shipped to prospective customers, warehousing and product packaging costs, and certain freight charges.

Through the first 6 months of 2014 ending June 30, product orders shipped and billed were $1.2 million, as compared to $1.1 million during the first 6 months of 2013. Product revenue recognized during the first half of 2014 was $1.2 million, as compared to $1.6 million for the comparable period of 2013. The decrease in recognized revenue is mainly attributive to higher raw material sales recognized in the first half of 2013.

Cost of product revenue was $1.5 million during the 6 months ended June 30, 2014, compared to $1.8 million for the comparable period of 2013.

Now turning to slide 8 for a review of financial results, you will notice that in the second quarter of 2014 research and development expenses were $4.5 million, which is $466,000 lower than Q2 2013, which is primarily due to a decrease in employee compensation and related benefit expense. Selling, general, and administrative expenses were $266,000 lower in Q2 2014 versus Q2 2013.

Through the first 6 months of 2014, research and development expenses were $9.4 million versus $9.8 million for the same period of 2013. Selling, general, and administrative expenses were $6.8 million for the 6 months of 2014, as compared to $6.7 million for the comparable 6-month period in 2013.

Net loss for the second quarter was $7.2 million or $0.21 per share, as compared to a net loss of $7.9 million or $0.23 per share for the second quarter of 2013. Net loss for the first half of 2014 was $15.4 million or $0.44 per share, compared to a net loss of $14.6 million or $0.43 per share in the same period of 2013.

Please turn to slide 9 for a review of cash usage. As we look at cash usage, you can see at the bottom of the table we had unrestricted cash and investments of $5.5 million as of June 30, 2014. This compares to $31.7 million at June 30, 2013.

For the second quarter, net cash used in operating activities was $4.9 million, as compared to the first quarter of 2014 where total cash usage was $9 million. This represents a planned decrease in net cash usage of $4 million, which is mainly attributable to the timing of annual variable compensation payments of $1.7 million, reductions in operating expenses, and timing of vendor disbursements. This compares to the second quarter of 2013 where total cash usage was $5.8 million.

Ignoring one-time cash usage items as highlighted on the slide, normalized cash usage decreased in Q2 2014 over Q2 2013 by $100,000. Through the first 6 months of 2014 ending June 30, net cash used in operating activities was $13.8 million as compared to a net usage of $14.3 million for the comparable period of 2013. The decrease of $500,000 was mainly attributable to a decrease in operating expenses.

Now let's open the call to your questions.

(Operator Instructions) JinMing Liu, Ardour Capital.

Thanks for taking my question. First, regarding the financing, is it possible for you to share with us the split of that $25 million between insider and the outside investments?

JinMing, there is a list with the allocation of the shares to the various participants that was filed with our 8-K yesterday.

Okay.

I don't have the calculation handy in front of me.

Okay, I will look it up. Regarding the future -- I mean the facility you guys are going to retrofit, can you share more information with us about that facility? And also the upfront -- how much the upfront engineering costs will be.

The upfront engineering costs that we are talking about is less than $1 million. In terms of additional details, it is an existing contract manufacturing facility. What we don't want to do is get too far ahead of ourselves, given the experience we have had getting ahead of ourselves with respect to manufacturing.

But it is an existing contract manufacturing facility, and it is owned and operated by a well-known and quite reputable contract manufacturer.

Does it have the fermentation assets already in place?

Fermentation assets in place, and the bulk of our investment in the site would be around recovery.

Okay. So -- I got that, yes, okay. Lastly, it is interesting to see you mention the potential sales into the micropowder market. How big is that market?

JinMing, Johan here. Good to speak with you. The micropowders market is a highly specialized market and there is a variety of uses in cosmetics and other applications. It is in the range of approximately less than 10 kiloton in aggregate, but it is very high-value use of PHA that we look at there.

Okay, got that. Thanks a lot.

Laurence Alexander, Jefferies & Company.

Good afternoon. I guess a couple of questions. I guess one -- I am not sure to what degree you can help us on this. But to the extent that the executive team and the Board members who participated have some knowledge of previous history with cash costs and process economics, were the other participants in the private placement brought up to the same level of information?

Yes, Laurence, I'm not sure that's one I can really help you with. Wouldn't want to start digging into what the due diligence process was among the investors.

Okay. You have kept the crops platforms. Seeking partnerships for the crops platforms is one of the key bullet points.

Can you give us some sense of how you're thinking about that in terms of timing, potential expenditures you might need to make, how the value-capture equation might look? Just help frame that.

Yes, I am not sure how much I can help frame those specific points. But what I would say is, we are particularly focused on engaging with companies that might be interested in the more recent traits that we have been working on, which are focused on yield and stress tolerance, as opposed to necessarily focusing on the work that we did with producing PHA in the plants.

Can you elaborate on that?

I can't elaborate a ton on it; but in the course of doing our work around growing PHA in the plants, one of the things that we focused our efforts on was helping the plants to survive and thrive while they were doing something that they are not actually designed by nature to do. And in the course of that, we have come across some traits, and we have done some work on those traits that help the plants to thrive, and to tolerate stress, and to grow at higher yields than they might do ordinarily.

We are looking at the applicability of that work across a range of different crops, not just the ones that were the focus of our PHA efforts. And our plan is to engage with folks out in the industry who might be interested in those sorts of attributes.

Now, if memory serves, you had a technology license a couple of years ago with -- I believe it was Abbott, around your ability or your competency, being able to splice multiple genes in closely together, more precisely than other people's technology. I guess it was stacking more efficiently.

Is this trait work building on that? Or is this a completely separate avenue?

Laurence, no, that was different. That was specific very useful genetic tools that -- developing crops in that broader applicability that could be of interest to Abbott. The traits that Joe just described are really related to stress response of crops specifically.

No, understood. I guess what I am asking is, when you say traits, are you really speaking of specific traits? Or are you speaking of like a stacked modification which would then built off of that other competency? Just trying to understand exactly what the play --

They are directly related. It is the same general toolset; but it is not that.

Okay. Separately, just to follow up on the question about the cosmetics and personal care, can you give a sense on how you are approaching the product testing for that? Or how you think that -- or how your customers are indicating that that will be shared between you and their R&D departments,

Yes. In general, we work very closely with the customers' product and applications development. This is certainly a case where that is even more amplified, because it is a value chain where there is the ultimate brand-owners and cosmetics companies, producers of micropowders, and formulators of micropowders. We have discussions across the value chain, as we have indicated, and are working very closely with some of the key and finding where in that channel we best participate.

But the plan would be to interact very closely in partnership there. Our focus is on optimizing the relevant grades of PHA for particular microbeads. We have a lot of flexibility in that regard -- softer and more abrasive microbeads for different purposes.

Got it. Okay. Thank you.

Thank you, at this time we have reached the end of our Q&A session. I will now turn the conference back over to Joe Shaulson for closing comments.

Well, with the first phase of our financing underway, we plan to continue executing on the business plan outlined earlier in the year. We still have work to do on manufacturing, but have also made good progress on our plans to have production up and running in 2015.

Our PHA products are providing a highly differentiated performance profile that is resulting in strong interest and engagement from our customers, which gives us confidence that our performance-additive strategy is on point. With that, I would like to thank everyone for joining us today. We look forward to talking with you again soon and wish you a good evening.

Thank you. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you all for your participation.