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Executives

Richard Eno - President & Chief Executive Officer

Joseph Hill - Chief Financial Officer

Oliver Peoples - Co-founder & Chief Scientific Officer

Anthony Gallo - Investor Relations

Analysts

Michael Cox - Piper Jaffray

JinMing Liu - Ardour Capital

Pamela Bassett - Cantor Fitzgerald

Laurence Alexander - Jefferies

Metabolix Inc. (MBLX) Q2 2009 Earnings Call July 29, 2009 4:30 PM ET

Operator

Good afternoon ladies and gentlemen, thank you for standing by. Welcome to the Metabolix Second quarter 2009 earnings conference. Today’s call is being recorded. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session and instructions will be provided at that time.

I would like to turn the conference over to Mr. Anthony P. Gallo, Managing Director of Integrated Corporate Relations. Please go ahead.

Anthony Gallo

Good afternoon everyone. Let me apologize in advance if I’m not been able to clear my background noise.

Metabolix released second quarter 2009 financial results after the close of the market close today. If you do not have a copy one can be found at the website at www.metabolix.com, in the Investor Relations section. Making the presentation today will be Richard Eno, President and Chief Executive Officer of Metabolix; and Joseph Hill, Chief Financial Officer of the company. We are also joined by Oliver Peoples, the co-founder of Metabolix and Chief Scientific Officer.

Once again our formal remarks; I need to remind everyone as part of our discussion today we’ll include forward-looking statements. These statements are not guarantees of future performance and therefore undue reliance should not be put upon them.

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 call. We refer all of you to our recent filings with the SEC for a more detailed discussion of the risks that could impact our future operating results and financial condition.

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

Richard Eno

Thank you, Anthony. I’d like to welcome all of you to the second quarter 2009 earnings conference call for Metabolix. Today I will provide you with a review of the Metabolix vision and a broad update of our ongoing activities. Joe will then take you through the financials.

We continue to make good progress and have maintained a strong financial position. For those of you new to these calls, Metabolix is an innovation-driven bioscience company, which is focused on bringing environmentally friendly solutions to the plastics, chemicals and energy industries.

We’re developing and commercializing pathways and products that are intended to lessen the world’s dependence on oil, reduce CO2 emissions relative to traditional materials and address critical solid waste issues. We are founded on hard science and have exceptional capabilities in plant science, in fermentation, microbial and polymer engineering, and in market development.

We currently have three business platforms; first Mirel, a biobased and biodegradable plastic currently being commercialized with our partner, Archer Daniels Midland, through a joint venture called Telles; second, industrial chemicals, initially focused on C4 chemicals; and third, crop-based activities, which include our programs in switchgrass, oilseeds and sugarcane. In today’s call I will focus primarily on our Telles activities.

This past quarter, we continued to move towards commercialization of the Telles business. I’d like to first update you on the progress of the Clinton plant, the production source for our first commercial product, Mirel. The schedule for the plant remains consistent with the timing outlined in our last call, with production expected to begin in December.

The overall approach to finishing the construction and starting up the facility is proceeding in a parallel process. Specific sections of the plant, such as utilities, fermentation and recovery are being completed by the construction team and sequentially turned over to operations. The operations team then proceeds through a detailed check out and commissioning process, prior to introducing feed.

Utility systems namely power, compressed air, steam and water are currently proceeding through the commissioning process. The back end of the plant consisting of polymer handling equipment is mechanically complete and being prepared for commissioning. ADM expects mechanical completion for the remainder of the plant, namely fermentation and recovery to occur between September and November. Operator training has been completed.

Our start up plans and initial production sites are being finalized with a great deal of detail. We must point out that a new production process of this type will always possess initial start up risks, which could affect the schedule. We of course are working with ADM to minimize these risks.

We are currently maintaining our guidance for the capital cost of the Clinton plant as north of $300 million. It is important to think of this capital investment in the context of growing the Mirel business. Consistent with most process facilities of this type, about two thirds of the Clinton One capital investment will be in the actual processing equipment; in our case fermentation and recovery.

About one third of the capital investment will be in supporting infrastructure and utilities, including, electrical and cooling water services, control rooms, maintenance facilities and basic site development. As we’ve mentioned before, Clinton was selected and laid out with division of a 4X expansion. As such, a good portion of the supporting infrastructure investment to support future expansion is being made in Clinton One.

We expect that the economics of expansion beyond 110 million pounds per year will reap substantial benefits from this Clinton infrastructure. We should also benefit from a more normal environment for the cost of construction materials and labor, than what was experienced while ADM was proceeding with the construction of the majority of the plant.

Let me now shift to our market development activities. Mirel is a superb product offering superior biodegradability, biobased sourcing and performance levels exceeding those of other bioplastics. Our market development activities remain focused on six specific segments where the combination of Mirel’s properties results in a unique offering.

As a reminder, these segments are packaging, compostable bags, consumer products focusing on cosmetics, gift cards and other products you would commonly find on the retail shelves, business equipment, agriculture and horticulture, and marine and aquatic applications. These six segments represent over GBP 2 billion of addressable annual demand.

In our Q4, 2008 call, we outlined the results of a detailed survey of our Top 74 customers and prospects which confirmed the strength of demand. Most recently, this past June, we participated in the International Plastic exposition in Chicago. In that one conference we had over 500 inquiries of interest in the product. The market demand for this product remains very high. However, given the capacity constraints of our pilot facility, we are focused on our existing customer and prospect relationships.

This quarter, also at the international plastic exposition, we are able to announce that the Fortune 500 customer we communicated in our Q3, 2008, earnings call is Newell Rubbermaid. Newell Rubbermaid manages a suite of leading brands and is planning a new product launch based on Mirel.

We are also in the early stages of discussions to expand Mirel into additional Newell Rubbermaid product lines. We are excited to have Newell Rubbermaid a leading brand owner as a customer for Mirel. We will communicate this launch in greater detail when the timing is appropriate for Newell Rubbermaid.

Now, onto our pipeline; another way we had measured progress towards an effective Telles business start-up, is to monitor the identified potential demand for each prospective customer application for the calendar year two years out, currently 2011. This process enables us to forecast a forward-looking estimate of potential, which is based on discussions with and analysis of our customer prospects.

As a reminder, our customer prospects are not committed to purchase these amounts nor have we received orders for these amounts, but it is an important exercise that helps us gauge demand. This in effect is our pipeline of developmental activities, some of which will be realized, some of which may not.

As we have described before, new polymer market application in general, take 9 to 15 months for development. Hence the metric which looks two years out will provide a good view of those applications which we are developing and will also be enduring beyond our initial plant start-up.

Currently, we are looking at GBP 142 million of indicative demand for two years out versus GBP 135 million shared in our last call; this is all non-food contact volume. As we are focused primarily on our existing customer base and prospects, the slight growth in indicative demand over the last quarter is due to greater opportunities seen at some of our existing accounts.

Once the Clinton plant starts-up, we will begin our transition to full world scale commercial operations. This will include meeting the growing production requirements for our existing customers, as well as providing product to accelerate the commercialization process for the high impact potential impact customers to whom we have not had resins to supply.

In terms of product pricing guidance, we are maintaining our 225, $2.75 per pound guidance. All of our contracts fall within this range. Fundamentally, Mirel’s unique combination of biodegradability, bio-based sourcing and performance properties results in premium pricing relative to most petroleum based plastics.

In our targeted consumer applications, the cost of the plastic is small relative to the value that it brings to the brand. In our targeted industrial applications, the economics of a bio-based, biodegradable plastic adds value to that created by incumbent plastics. In both consumer and industrial applications, customers are seeking to use Mirel to keep products, to create products and product lines that were not possible with incumbent products. Mirel is a premium product.

Let’s now shift to the FDA process for food contact. The FDA process for food contact requires the submittal of a dossier, which is made up of a number of extraction studies conducted under specific guidelines. The tests vary depending upon the level of food contact submittal chosen. Levels range from frozen food storage up to high temperature heat-sterilized applications.

After submittal of a dossier, the FDA has 120 days to ask for additional testing or to modify the submitted approach. Once this time period has elapsed, assuming no objections from the FDA, one is free to pursue the submitted food contact segments.

As described in our first quarter 2009 10-Q, late last year we made some modifications to our pilot production facility. These changes were made in order to mirror what is being constructed at Clinton. As a result of these changes, our cost of pilot production has dropped and our product quality has been enhanced. Product produced from this new configuration is being utilized for our FDA testing, as we anticipate it being very representative of the product to be produced in Clinton. Dossier preparation is in the final stages.

We are not projecting the timing of the overall FDA process, as we have little control over many aspects. Our entry strategy for Clinton One is not designed around food contact applications and does not depend on it. However our interactions with the FDA, reviews by independent consultants, and our own testing gives us confidence in being able to ultimately serve food contact applications.

We have not yet included these in our two year indicative demand outlook, but are investigating how food applications could integrate into our existing non-food contact pipeline. We continue to be very enthused about the potential for Mirel. Demand for the product remains strong in the current economic environment. Product application work is continuing to illustrate the increasing breadth of potential applications for Mirel.

Let me now move on to the other Metabolix platforms. These represent value creation opportunities for us beyond the Telles venture. In C4 chemicals, a key part of our industrial chemicals platform, we are continuing the execution of our ATP grant, a $2 million grant aimed at producing C4 chemicals from renewable sources.

There have been a number of technical milestones thus far in the program, and we have achieved them all. We are pleased with our technical accomplishments and continue work in this area as well in others. We have ongoing discussions with various potential partners. In Metabolix, we also have a range of ongoing plant science activities, including oilseeds, switchgrass and sugarcane.

All-in-all, we are excited about our Plant Science capabilities, as we can see this pathway ultimately replacing the capital intensive steps in the existing plastics industry, such as oil and gas exploration and production, refining in olefins, by producing polymer directly in crops. We are pleased with our technical progress and will communicate important milestones to you when reached, such as our switchgrass and sugarcane announcements from last year.

In summary, we continue to make steady progress this quarter against our milestones. We are moving rapidly towards the start of the Clinton plant and are making good progress against our internal milestones for our other platforms. We are very enthused about the potential for Mirel and our longer term platforms.

I’ll now turn the call over to Joe for a review of our financial results for the quarter.

Joseph Hill

Thanks Rick, and thank you all for joining us today. As Rick mentioned, we continue to deliver on our commitment to grow the company and are very pleased with the significant strides that we have made towards the commercialization of Mirel.

Our partner, ADM, has made significant progress towards completion of the manufacturing facility. Interest for new customer leads remains robust and the strength of our indicative demand gives us visibility of what the future holds for the company. Our Plant Science and industrial chemicals platform are also very important to us, and we’ve continued our progress during the quarter to advance those towards commercialization.

The combination of these platforms gives us a solid and diversified growth strategy for the company and position us to take advantage of global environmental trends that will drive corporations to improve their environmental footprint by reducing dependence on fossil fuels and minimizing solid wastes.

Now, on to the financial results for the quarter; Metabolix currently manages its finances with an emphasis on cash flow. We maintain a strong focus on cash flow and take a strict approach to managing our operating cash. We ended the second quarter of 2009 with over $77.6 million in cash.

For the second quarter, net cash used in operating activities was $4 million as compared to $3.8 million for the comparable period of 2008. A modest increase in our cash burn in Q2 2009 as compared to 2008, was primarily due to the expansion of activities in advance of the start of the Clinton manufacturing facility.

The company expects net cash used in operating activities to increase from this level and the next quarters, as it expands its operations in advance of full commercialization of Mirel Bioplastics. Through the first six months of 2009 ending June 30, net cash used in operating activities was $12.6 million as compared to net cash used of $8.3 million for the comparable period in 2008.

The year-over-year increase in cash usage for the first six months of 2009 is primarily attributed to decreased cash proceeds in 2009 versus 2008. This decrease in cash proceeds for the first six months of 2009 is a result of timing of pre-commercial cost sharing payments received from ADM, a decrease in funds received from investment income, a decrease in proceeds received from the exercise of stock options, and lower grant revenue from the strategic environment research development program grant that expired on February 2009.

Let me give you a reminder on the support payments and an update on where we stand today. The commercial alliance agreement called for Metabolix to receive 12 quarterly support payments of about $1.6 million each during the construction phase of the commercial alliance, along with reimbursements for pre-commercial manufacturing facility expansion and material production expenses.

The final of the 12 quarterly support payments was received in December 2008. However, in January 2009, ADM agreed to provide Metabolix with two additional quarterly payments of about $1.6 million each, which were payable on the first business day of each of the second and third quarters in calendar 2009.

All quarterly support payments due from ADM have been received as of June 30, 2009, and have been recorded as deferred revenue on the company’s balance sheet. We will continue to defer recognition of these and future payments received from ADM during the construction phase of our agreement.

Once we enter the commercialization phase, which will occur some time after the plant becomes commercially productive, our net costs for sales and marketing and Mirel product development will shift to the joint venture. The Metabolix portion of these expansions, which is currently about $5 million to $6 million per quarter will decrease resulting in lower expenses for Metabolix and a lower cash usage for Metabolix.

Let me now give you some additional detail on the company’s financial results for the second quarter of 2009 ending June 30. Total revenue was $348,000 and $401,000 for the first three months ended June 30, 2009 and 2008 respectively. Grant revenue in the second quarter of this year decreased to $283,000 from $355,000 during the three months ended June 30, 2008. This is primarily as a result of a decrease in billable activity related to the strategic environment research development program, which expired in February 2009.

Research and development, and license fee revenue remained modest in both periods. Total operating expenses were $10.2 million, an increase of $205,000 relative to the comparable quarter in 2008.

Research and development expense at $6.3 million, were $315,000 higher than in Q2 2008, due primarily to the addition of new employees, offset by lower pre-commercial manufacturing costs. You may recall that in Q4 of 2008, we did subsequently delayed some hiring when we learned that plant completion would be pushed out from the Q2 2009 to Q4 2009.

Selling, general, and administrative costs in the second quarter of 2009 dropped from the year ago period by $110,000 to $3.9 million. We have implemented a number of expense and cash management controls in Metabolix and manage our expenses and cash very conservatively. We are very careful with our spending while ensuring we invest properly for the growth of the company.

GAAP net loss from operations for the quarter was $9.9 million, as compared to a net loss of $9.7 million for the second quarter of 2008. As we’ve previously discussed, modestly higher research and development expense this year is being offset by lower selling, general and administrative costs.

As a result, through the first six months of this year total operating expenses of $20 million are running pretty much right in line with the first six months of 2008. However, lower interest income in 2009 is contributing to a slightly higher year-over-year GAAP net loss. GAAP net loss for the six months ending June 30, 2009, was $18.8 million compared to $17.4 million in the same period of 2008.

As expected, the second quarter loss was greater than the cash used in operating activities. As we’ve discussed before, all of the payments we received from ADM are recorded as deferred revenue for GAAP purposes, and therefore do not yet appear on our income statement.

We also recognized non-cash stock based compensation expense of $1.2 million on a GAAP basis, which also leads to a reported net loss exceeding cash used in operations. Net loss per share was $0.42, compared to a net loss per share of $0.39 in the year ago period. Through the first six months of 2009, the net loss per share was $0.82 compared to $0.76 in the same period of 2008.

Now on to the balance sheet; our balance sheet remains strong. On June 30, 2009, we had cash and short-term investments of $77.6 million. We have no debt. We expect this capital will be adequate to build our sales and marketing infrastructure, conduct pre-commercial manufacturing and to expand our research and development to build the company.

We continue to work with a roster of successful companies that are partnering with us to create alternative solutions and change the way they bring their products to the marketplace. We are pleased with the progress we have made during the first quarter and second quarter, and we continue to get close to the commercialization of Mirel.

With that we’ll open the call for question.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question will come from Michael Cox with Piper Jaffray.

Michael Cox – Piper Jaffray

Good afternoon guys. Thanks for taking my questions. My first question is on the Clinton facility. A couple of quarters ago you had talked about looking at the Clinton Two, the expansion of the original facility and understanding the delay has probably been a bit of a distraction, but I’d be curious as to what your thoughts are on the planning for expanding that facility given the strength and customer demands?

Richard Eno

Good question. You’re exactly right, we did talk about that and with the delay obviously we have to wait a bit before we can be more concrete about that. One of the key things to look at is that as that plan starts up, we’ll start to think about the technical changes in improvements, which are natural in processes of these types, which we’d like to put into Clinton Two and beyond.

We do have a technical team, which consists of both Metabolix and ADM employees looking at technical options that we have learned, and things we’ve developed over the last couple of years that we are thinking about a plan to Clinton Two and beyond. That work is ongoing now and actively being pursued.

Once the plan starts-up we’ll look at customer adoption, we’ll begin to look at market demand and I would guess sometime thereafter we’d be able to update you all on specific timing, but technical work is continuing right now and market adoption will really dictate the pace of the timing, but I’d expect that we are going to proceed ahead and we are thinking about it as soon as this plant starts-up.

Michael Cox – Piper Jaffray

That’s great. My second question is on your general expectation for volumes in year one at the Clinton One facility, understanding that there’s a normal ramp up period and that you’ll be making a variety of different types of products. So I was just curious what your thoughts are on year one volumes?

Joseph Hill

Michael, we’re not providing a lot of specific guidance at this point. We are looking at our two year out indicative demand, gives our investors the sense that what’s out there that we are working on and once we get up and running, we’ll be able to be much more definitive about the specific ramp up rates and some expectations there.

I would also think about, given the 9 to 15 month window for commercialization of many polymer applications, you can think of 2010 as a transition into full commercial operations and 2011 being a significant ramp up as this proceeds along. So I think you can start to take some of the data we’ve given you and come up with some expectations on what you think that could be, but once the plant gets up and running, we can be a lot more concrete about some guidance there.

Michael Cox – Piper Jaffray

Okay, that’s helpful. My last question is a bit more of a strategic one in terms of paying back ADM for the obligation on the facility, and as we’re taking it on at the Metabolix corporate level it would burden you with interest expense, but would it be possible to look at it at a joint venture level, and then pay back ADM, and obviously we would detract from the profits that you would take from that joint venture, but it would accelerate the flow.

Joseph Hill

So, if I understand your question correctly, for the ledger balance that we call it, it goes back to ADM, is there a way to finance that, such that the cash flow comes back to Metabolix?

It wouldn’t really be a structure at the JV level; it would have to be a structure at the Metabolix level and we’ve made the decision that it makes sense to continue with the structure as was defined a couple of years ago in these agreements, in having this interest free loan for paying back the construction costs.

Metabolix with $77.6 million cash taking on interest expense, that’s real cash payments to us at this point. This isn’t saying there aren’t ways to think about this in the future as we are explaining the facility, but there are ways to model it and ways to do it, but we would have to be at the Metabolix level.

Michael Cox – Piper Jaffray

Okay. Thank you very much.

Operator

Our next question will come from JinMing Liu with Ardour Capital.

JinMing Liu – Ardour Capital

Thanks for taking my questions.

Joseph Hill

Hi, JinMing.

JinMing Liu – Ardour Capital

My first question is really to the Clinton facility. During the last conference call, you mentioned that only a fraction of the total capacity will come online in December this year. Can you give me any idea of how fast can you recognize the rest or put out the rest of the capacity?

Richard Eno

Yes, I think for those that may have missed your question on the last call, it has to do with the modular design of the Clinton plant. We have a number of fermentation vessels and number of recovery trains, and in an interest of getting the plan started as soon as possible, we are beginning with a subset of those.

In effect, all the supporting infrastructure is there and production capacity will be well ahead of market demand and we don’t see any issues with capacity holding back demand at this point. So the implementation of the, you call it the build out, GBP 210 million pounds, is rather straightforward and has been thought through pretty carefully in terms of the construction configuration we are pursuing right now.

So, really the issue for the growth in the business is much more around the development of the pipeline, and moving this customer pipeline to contracts, rather than in any construction issue of adding an additional fermenter or two.

JinMing Liu – Ardour Capital

Okay. Also related to a year one sale, you mentioned that some products will be used for product development for your potential customers. Well, my question related to that is whether you will charge your potential customers that same rate? You mentioned it’s working in the potential $2.75 per pound range or you will cut them less.

Richard Eno

Yes, in nearly all cases it would be the same rate JinMing.

JinMing Liu – Ardour Capital

Okay, good. Thanks a lot.

Operator

Our next question will come from Pamela Bassett with Cantor Fitzgerald.

Pamela Bassett – Cantor Fitzgerald

Hi Everybody. Thanks for taking my questions. This is a follow up to what JinMing was asking about. What portion of the volume during 2010 do you expect to go for potential customers versus commercial customers, and what kind of criteria will you use to make those decisions?

Richard Eno

I guess the question Pamela, if I interpret it correctly, it maybe around, make sure I am answering the correct question, but with the depth of pipeline that we have, how do we make product allocation decisions during that first year of operations, is that a fair way to restate that?

Pamela Bassett – Cantor Fitzgerald

Yes, and is it going to be 50% commercial, 50% to potential customers or is the breakout something very different from that?

Richard Eno

Yes, I don’t believe we are thinking about it in terms of that way. I mean, we have got a series of proven resins in our objection, molding material sheets and film, and a number of developmental resins around foam, non-woven thermoforming. Initially when the plan starts up those proven resins will be going out to customers in our pipelined and those customers are selected based upon their fit with Mirel properties, the value proposition of the end product.

Now, there will be some alternative material that will be going primarily to our product development group that helps to further advance foam, non-woven and thermoforming products for full commercialization, and that would be a relatively small percent of the volume coming out of Clinton, the vast majority would go to moving that pipeline forward towards commercial contracts.

Joseph Hill

I think it’s fair to say that the amount of products we’ll be using for customer development through the pipeline will not interfere with capacity of what we’ll be shipping to customers. It will not limit what product we’ll have available for customers.

Pamela Bassett – Cantor Fitzgerald

Okay. Do I understand correctly there, that the amount of Mirel that’s needed during that nine to 15 months development timeframe can be fairly substantial if you want to move numerous customers through the pipeline concurrently, so it still makes a dent?

Richard Eno

I think what we will have with the Clinton start-up will be sufficient product available to advance that pipeline that we have described. From a business management perspective, one thing we do not want to do is to set ourselves up with an extremely complex supply chain, with numerous customers, very fragmented, lots of small volume.

So being very thoughtful about how we decide, what kind of customer portfolio we wish to develop with that material coming out of Clinton, i.e., we are not going to send it out to a 1000 people right upon start-up. Certainly my experience is that that gets you into a situation where your costs go up and it becomes a very difficult to supply chain to manage.

We are going to be pretty disciplined about how we use it, but those customers that are in our pipeline have been selected for their applications and the fit with Mirel and they will get the highest priority moving forward.

Pamela Bassett – Cantor Fitzgerald

Okay, and they are all paying still fair enough, right?

Richard Eno

Yes.

Pamela Bassett – Cantor Fitzgerald

Then on the C4 chemical program, you mentioned that you started discussions with potential partners?

Richard Eno

That’s right.

Pamela Bassett – Cantor Fitzgerald

Can you tell us what kind of deal might be of interest or the types of structures that you are considering and also the types of partners and how would you characterize them?

Richard Eno

I would probably stop short of characterizing the deal, because that’s a little bit further up.

Pamela Bassett – Cantor Fitzgerald

I don’t mean the deal, but like the type of customers; are they potential users or are they manufacturers or I don’t know, whatever you want to say.

Richard Eno

As we described earlier, our focus in our C4 chemicals program is largely around the butanediol derivatives, pyrrolidones, among others. So we’d look for partners that would either have market channels into those market segments or potentially would be interested in entering those market segments with regards to providing a bio based source of those materials.

As we said in our earlier call, we are shifting away from exposing our self to a pure commodity play. Say for example, entering butanediol production ourselves, because it really is in my view, a commodity play where if crude oil prices go down, our bio based products often have difficulty competing and they are based solely on the benefit of a green Clinton at that point.

So hence we have shifted our strategy a bit to be more focused on the specialties, which are further insulated from commodity price moving, and that’s been the criteria by which we are looking at that potential partners.

Pamela Bassett – Cantor Fitzgerald

And will this require the partner potentially to build out a plant and other kinds of things?

Richard Eno

Yes, that’s possible and obviously if they have production capacity in place that would be amenable to this, that could be advantage to both ourselves and to that partner.

Pamela Bassett – Cantor Fitzgerald

Okay, great. And on the oilseeds and other plant programs, have you begun discussions with potential partners or you’re getting expressions of interest?

Richard Eno

I think we get a lot of expressions of interest. If you recall, we announced our success in transforming switchgrass and that has gained a lot of interest in terms of our capabilities of working with that crop. So in the recent conference in Montreal, we had a number of people approach us on that, and oilseeds, we continue to investigate the model we would like to deploy and we will be building our capabilities up in that area in the near future.

Pamela Bassett – Cantor Fitzgerald

Okay great. Thanks so much.

Operator

Next we will hear from Laurence Alexander with Jefferies

Laurence Alexander – Jefferies

Hi, just a couple of questions. First, you made a comment about how the amount of sample products revenue declined. Can you elaborate a little bit on the dynamic behind that?

Richard Eno

Not sure where we said that. They are modest, so sample revenue that we are booking today are real modest amounts. We are producing such a small quantity of material right now, it’s not that material we’ve assembled.

Joseph Hill

I think what I said was that research and development and license fee revenue remain modest in both periods, that I said grant revenue had decreased, but I didn’t say anything about sample revenue.

Laurence Alexander – Jefferies

It’s the last line of the third paragraph in the release. I guess a little context, maybe like a broader question. You indicated that you were focusing on your existing customers for evaluating your level of indicated interest. Is the implication that we basically had all of the major customer announcements, we should expect prior to Clinton coming on or should we expect another raft of announcements once we are within spitting distance of Clinton production starting up?

Richard Eno

Yes Laurence, we moved away from trying to promise or project customer announcements. We’ve got that fairly limited volume coming out of our pilot facility and we are doing a number of things with that, including meeting our current customer demand, we are developing next generation products and we are moving customers forward towards firm contracts.

Just balancing those various dimensions with too much data is pretty much saying you should expect X number of customer announcements by X date. So we’ve moved away from that.

Laurence Alexander – Jefferies

Once the facility starts up, if you’re going to be taking a modular approach, then the accruals to the ADM and balanced ledger or to a particular ledger account should probably continue well into 2010 or 2011, is that correct or would you still be adding capacity, adding fermentation capacity that would be going into the ledger account?

Joseph Hill

That’s right.

Richard Eno

We realized it’s depending on the working capital needs of the business as well.

Laurence Alexander – Jefferies

Then earlier there’s some back and forth on whether that you might explore a notion at financing structure to accelerate sort of cash flow returning to Metabolix, but if you think about the longer term strategy, do you want cash flow to return to Metabolix from the JV or do you want the JV to gain enough traction that all the cash flow will be invested in new capacity?

Richard Eno

Laurence, we’d gotten to the point of determining the cash strategy for that. We are pretty much right now focused on getting the business started up, getting the customer pipeline strong and then as we start thinking to Michael’s question earlier on, expansion, clients and timing,

I think a lot of the things you are asking will become much more top of mind for us and right now it’s really getting the foundation for the business established. So it would be premature for me to comment on our longer term strategy relating to joint venture and cash.

Laurence Alexander – Jefferies

As you look at the sort of range of customers you have now, and how many grades of polymer do you expect to be producing, and obviously the number might change over the next 12 months, but just as a rough flag.

Richard Eno

Yes, I’d say it’s very limited. You can look at the product literature made available by our Telles team and you can see that there’s a injection molding resin, a sheet resin, a film resin, so with that it’s half a dozen type of a number. We are purposely keeping it pretty limited, just again to the point on supply chain and organizing the business. We don’t want to make a whole raft of products, which would make operation management quite complex for our ADM partner.

Laurence Alexander – Jefferies

Finally, I guess on the switchgrass platform, would you just mind giving any sort of update on milestones in terms of yields or progress there?

Richard Eno

Yes, we’d say that we announced some very compelling results last year. Switchgrass takes a while to grow and mature, and we’ll be keen to make further announcements when we have some next set of results. But we are pleased with the progress and we are getting lots of interest based on our proven capabilities to genetically modify switchgrass, which is something various people have been able to do.

Laurence Alexander – Jefferies

Thank you.

Joseph Hill

Laurence, just to go back to your first question; that statement in the press release refers to the revenue for the first six months and it refers to a decrease of $200,000 from $800,000 to $600,000, and it refers to lower sample product revenue and lower grant revenue. It’s really mostly as a result of the sort of grant expiring in February. So when you are comparing 2008 to 2009, that’s really where the decrease is.

Laurence Alexander – Jefferies

Thank you.

Operator

At this time I’ll turn the conference back over to Rick Eno for any additional or closing remarks.

Richard Eno

Thank you very much. I’d like to thank all of you for attending the call today. We are very pleased with where we are with our progress; we have a lot of enthusiasm about the long-term potential for each of our Metabolix platforms. We look forward to updating you on our progress across each of these during our next earnings call. Thanks again for participating and we’ll speak to you then.

Operator

Again that does conclude today’s conference call. Thank you for your participation. You may now disconnect.

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Source: Metabolix Inc. Q2 2009 Earnings Call Transcript
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