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Executives

James Palczynski – IR, ICR

Richard Eno – President and CEO

Joseph Hill – CFO

Oliver Peoples – Co-founder, Chief Scientific Officer and VP, Research

Analysts

Michael Cox – Piper Jaffray

Amanda Sigouin – Jefferies

Scott Reynolds – Thomas Weisel Partners

JinMing Liu – Ardour Capital

Ian Horowitz – Rafferty Capital Markets

Pamela Bassett – Cantor Fitzgerald

Metabolix, Inc. (MBLX) Q4 2009 Earnings Call March 10, 2010 4:30 PM ET

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Metabolix Incorporated fourth quarter 2009 earnings conference call. 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. Instructions will be provided at that time, if you have a question. I would now like to turn the conference over to James Palczynski. Please go ahead, sir.

James Palczynski

Thank you, operator, and good afternoon, everybody. Metabolix released fourth quarter and year-end 2009 financial results after the market close today. If you do not have a copy of the press release, one may be found on the website at www.metabolix.com in the Investor Relations sections. Making the presentation today will be Richard Eno, President and Chief Executive Officer of Metabolix, and Joseph Hill, Chief Financial Officer of the company. They are joined by Oliver Peoples, a co-founder of Metabolix and the company's Chief Scientific Officer.

Before we begin our formal remarks, I need to remind everybody that part of our discussion today will include forward-looking statements. These statements are not guarantees of future performance and therefore, undue reliance should not be put upon them. 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.

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 would like to now turn the call over to Rick Eno, President and Chief Executive Officer of Metabolix. Rick.

Richard Eno

Thank you, James. I'd like to welcome all of you to the fourth quarter and year end 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 on our commercialization and development activities 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 are 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 and plant science in fermentation, microbial and polymer engineering and in product and market development.

Over the years, Metabolix has received numerous awards for its ground-breaking technology. Most recently, in December of 2009, we received recognition by the world economic forum with their selection of Metabolix as a technology pioneer and received this award at the annual meeting in Davos, Switzerland.

We are honored by our selection by this influential group and are proud to add this to the list of awards that the company has got us. We currently have three business platforms, first Mirel, a bio-based biodegradable plastic currently being commercialized with our partner, Archer Daniels Midland through a joint venture called Telles. Secondly, Industrial Chemicals, initially focused on C4 chemicals, and third, crop-based activities, which include our programs in switchgrass, oil seeds and sugarcane.

I'd like to begin with the Telles business, our joint venture for commercializing Mirel. We have made some very substantial progress since our last call. I'll provide you with an update on the Clinton plant, the food contact notification process with the FDA, our pipeline and our broad description of our expectations for the coming year.

The Clinton plant hit the production source for our first commercial product, Mirel. Consistent with what we outline in our last call, the construction for the initial phase of the plant was completed in the fourth quarter of 2009 and the plant was fully handed over to ADM operations staff. I'm very pleased to say that all primary areas of the plant have been commissioned, that the plant is now in production.

Initial inventories are being built up and the product has been shifted to Telles for valuation. We expect product to be shifted to our core customers within the next month. Successful startup of this plant is a major milestone for Metabolix and the Telles business. We will now have an operating world scale source to supply and can begin to satisfy the significant market demand for the product. I'm pleased to note that the startup process has gone very well, the transition from constructions to operations was executed very safely and it was a high degree of coordination between the ADM polymer manufacturing team, Metabolix technology specialist and ADM technical support throughout the process.

The integrated team rapidly worked through a few minor mechanical and scale of issues as this large complex facility was brought online. Over the next year, the ADM Clinton plant team with support from Metabolix and ADM technology will continue to optimize the product and improve operational efficiency at the site. There are also numerous future technology improvements which we already have in late stage development including next generation microbial streams, recovery technologies and product enhancements.

We will now move to aggressively implement these at the Clinton plant in order to drive down operating costs and improve capital efficiency and extend the market potential for Mirel. We are currently maintaining our guidance that the capital cost of the Clinton plant as north of $300 million and it is important to think of this capital investment in the context of growing the Mirel business including our potential expansion of the plant.

Consistent with most process facilities of this type, about two-thirds of the Clinton 1 Capital Investment will be in the actual processing equipment and in our case, that is fermentation and recovery. About one-third of the capital 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 the vision of a 4X expansion. As such, a good portion of the supporting infrastructure investment to support future expansion is being made with Clinton 1. 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 construction for the majority of the plant in 2007 and 2008 as well as the application of next generation technology that I mentioned which will enhance capital efficiency.

I'd now like to provide an update on the FDA process for food contact. The FDA process for food contact requires the submittal of a dossier, known as a food contact notification or FCN, which is made up of the results of a number of extraction studies conducted under specific guidelines as well as a thorough review of a range of polymer characteristics. In addition, there are usually formal requests for additional or clarifying information. Once the clarifying information is submitted, the FDA has up to 120 days to reject the FCN or will be connective.

In early October, we submitted our dossier to the FDA for food contact notification. Our dossier addressed applications for all food types except alcohol and conditions ranging from frozen up to contact with boiling water. As you can imagine, this was a very large and expensive FCN due to the normalcy of this manufacturing process and polymer. Since October, we have submitted additional information to the FDA responding to their questions.

Based on the progress of this FCN, we are planning to bring injection molding products to food contact markets in Q2. This will enable us to sell in to applications such as cutlery, an injection molded foods storage containers.

We expect to bring thermoforming and film products to food contact markets in the second half of this year. This will enable us to service applications such as coffee lids, yoghurt cups and film for using storage bags. We also expect to submit additional notifications to the FBI as new Mirel grades are developed and the technology continues to advance.

Given the progress on the FDAs to Mirel, we are currently in the active development stage with potential food contact customers for injection molding, film and thermoforming products producing proto types for their internal testing requirements. Some of our potential customers are already conducting test and again electric testing with early encouraging results.

But keep in mind as stated in previous calls, our entry strategy for Clinton is not designed around food contact applications and does not depend on it as we do not have many control over many of the factors that impacted the overall timing of the FDA process.

Now, an update on our sales and marketing activities, with Clinton product becoming available, we can begin to step up our market development activities. Mirel is a superb product offerings, superior biodegradability, bio-based sourcing and performance levels exceeding that of other available bioplastics.

Our market development activities remain focused on fixed specific segments with a combination of Mirel's properties result in a particularly compelling and unique offering. As a remind, these segments are packaging, compostable bags, consumer products focused on cosmetics, gifts cards and other product you would commonly find on the retail shops, business equipment, agriculture and horticulture, and marine and aquatic applications.

We believe that these six segments represent over 2 billion pounds of initial addressable demand. The market remains extremely robust with Mirel. With over 3000 leads for various applications of which we have selected the pipeline of about 100 prospects that are in various stages of product development with Mirel.

For, well over a year, the magnitude of our pipeline as remained relatively constant with the takeaway message being that we see more than enough non-food contact demand from Mirel to sellout Clinton 1. This continues to be the case. Progress on the FDA process will further increase the demand by opening the food contact markets to us and nearby adding to the potential addressable applications.

Now, with the Clinton plant starting production, we will be able to move forward with the commercialization of our pipeline focusing on the ramp-up of sales and driving towards a planned expansion. This will be the result of choosing the right customers and converting this demand to sales contracts in our ability to manage a development time for new applications which is typically 9 to 15 months. We will be gaining a few quarter of operating and market experience with Mirel at world scale and then regularly provide guidance to you on the plant sales ramp up and expansion prospects.

In the terms of product pricing guidance, we are maintaining our 225, 275 propound guidance, all of our contracts flow within this range. Fundamentally, Mirel's unique combination of biodegradability, bio-based sourcing and performance properties allow premium pricing relative to most petroleum based plastics.

In our targeted consumer applications, the costs of plastic is small relative to the value that brings to the brand. In our targeted industrial applications, the economics of the bio-based biodegradable plastic adds value to that created by incumbent plastic.

In both consumer and industrial applications, Mirel enables the creation of products and product lines that were not possible with legacy products. Mirel is a premium product.

The last update on recent progress with Mirel has to do with brand development. Over the last three years, we have described our core branding strategy and if you watch the recent winter Olympics, you might have seen the television advertising for the PaperMate green and a pencil set. This is a product with bio-based, biodegradable parts enabled by Mirel. You can view this video directly on the PaperMate website. This is a great example how our strategy to build Mirel into a globally recognized industrial brand is being realized.

Looking forward, you should think about 2010 as a transition year, as the Telles business goes commercial. In 2011, as a year when a significant number of customer efforts will materialize those new contracts, most specifically over the course of 2010 we plan to do the following.

First, continued validation with ADM of the Clinton manufacturing technology as scale and begin the process of continuous improvement. This will take the form of improving day-to-day operating efficiencies and the implementation of new technology that will improve operating costs, capital efficiency and expand the market application pattern for Mirel.

Second, we'll advance the developmental cycle for the large number of potential customers that we have maintain in our pipeline for the last three years and start to satisfy the strong market demand for Mirel. Third, we are looking greater clarity on the FDA food contact process with optimizing; we will be selling into a range of food contact market this year.

And finally with our experiences in both technology assessment and the market, we will developing with ADM a view on the Clinton expansion program. It will be an exciting year for Telles and the Mirel brand and we look forward to keeping you up to date on our progress.

Let me now move onto the other Metabolix platforms. These are Industrial Chemicals and crop programs. These represent meaningful value creation opportunities for us beyond the Telles venture.

We have been quite pleased with the progress we've been making and these are the platforms. As such, in November, we raised a net of approximately $29 million to help us accelerate these commercialization efforts.

First, Industrial Chemicals. In C4 chemicals, we continued our work of optimizing the fermentation process and made significant strides in the development of a very official recovery process. As outlined in our previous call, our initial focus is on the C4 specialty market including the proladones [ph] and we continue exploratory part of discussions.

In 2010, we will be broadening our development work outside of this official opportunity as we flush out our industrial chemicals platform to also include C3 and C5 alternatives to other chemical families. Our third Metabolix platform is our crop-based activity including our programs in oilseeds, switchgrass and sugarcane. All in all, we are excited about the platform as we can see the pathways we are developing, alternatively replacing capital intensive operations such as oil and gas exploration of production, refining, olefins and polymerization by producing polymer directly in crops. Our crop programs offer numerous options to produce low-cost chemicals, plastic and fuels in a very sustainable manner.

In 2010, we expect continued gains in PHA yields expressed in crops and to gain field trial experience for our industrial crop targets. We also expect to make significant gains in testing of technologies for the recovery of PHA material from the crops.

In terms of overall timing for the commercialization of our crop programs, we are comfortable with our previous estimates of having commercially viable crops in field trials with intuitive growth in the last two years.

We are pleased with our technical progress on our crop programs and we will communicate important milestones to you when reached. In summary, we continue to make excellent progress this quarter against our milestones. The start-up of the Clinton facility initiate the next phase of the Metabolix growth story and we look forward to providing regular update of our progress to you.

We are very enthused by the potential for Mirel as well as 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, Rich, and thank you all for joining us today. As Rick mentioned, we are very excited about the year ahead. We have our sights to the number of important goals and we are very pleased to be able to move forward with customer developments and to focus on the ramp-up of sales. The development and commercialization of Mirel has been a goal which we have been working towards for many years and it’s a very rewarding to reach such an important milestone.

At the same time, it’s exciting to know that while Mirel is our first commercial initiative, as Rick mentioned, our crop and industrial chemicals platforms also each have a colorful market opportunity. We are continuing to make steady progress in both fields we believe will ultimately enable us to develop new businesses to track additional partners and to significantly diversify our customer and product mix. This diversification will be important part of our drive to generate substantial and enduring revenue in profit streams from our many initiatives in the years ahead.

I will now focus on the financial results for our fourth quarter ended December 31, 2009. As always, we managed our finances with an emphasis on cash flow management. We have maintained the focus and ended the fiscal year with $92.2 million in cash and short-term investments. This reflects the completion of our equity offering that placed on November 11, 2009 which had net proceeds of $29.1 million to the company.

For the fourth quarter, net cash used in operating activities was $5.9 million which represents a plant decrease in cash usage from $7.3 million used during the third quarter of 2009 but it has increased over the $3.7 million used during the comparable period of 2008. Net cash used in operating activities reflects the company’s activities in sales and marketing development as wells as research and product development. The increase in net cash usage in the fourth quarter of 2009 compared with the fourth quarter of 2008 is primarily due a decrease in cash proceeds.

The fourth quarter of 2008 included two quarterly support payments totaling $3.2 received from Archer Daniels Midland. The company Telles is a joint venture partner. No further quarterly payments were expected or received from ADM after June 2009. The decrease in cash usage in the fourth quarter of 2009 from the third quarter is primarily due to an increase in cash proceeds from ADM for pre-commercial cost sharing.

For the full year, net cash used in operating activities during 2009 was $25.8 million compared to $18.4 million for 2008. The increase in net cash usage relates primary to a decrease in cash proceeds in 2009 as compared to 2008 including a decrease of approximately $4.9 million in pre-commercial cost sharing and quarterly support payments from ADM and the decrease of approximately $2.1 million in funds received from investment income.

I will now give some additional detail on the company’s financial results for the fourth quarter of 2009 ended December 31. Total revenue was $205,000 versus $399,000 from the three months ended December 31, 2009 and 2008 respectively. Revenue in both quarterly periods resulted from revenue recognized from a delivery of Mirel sample product, license fees and royalties and government research grants.

The year-over-year decrease was attributable to lower revenue recognized from delivery of Mirel sample product and the declining government research grant revenues, primarily related to the completion of the company's strategic environmental research development program grant which ended in 2009. For the full year, revenue decreased approximately $200,000 from $1.6 million to $1.4 million, also due to lower Mirel sample product revenue and the net decrease grant revenue from our government research programs.

Total operating expenses for the fourth quarter of 2009 were $10 million, an increase of $300,000 relative to the comparable quarter in 2008. This year-over-year increase is primarily attributed to higher SG&A cost associated with the hiring of additional personnel needed to support the commercialization of Mirel bioplastics but partially offset by slightly lower research and development cost.

Selling, general and administrative costs in the fourth quarter of 2009 were $4.1 million, versus $3.6 million in the fourth quarter last year. Research and development costs were $6 million versus $6.2 million from the fourth quarter of last year. Net loss for the fourth quarter was $9.8 million as compared to a net loss of $8.9 million for the fourth quarter of 2008.

For the full year, total operating expenses were $40.2 million compared to the 2008 level of $40.4 million.

Our net loss for the full year ended December 31, 2009 was $38 million compared to $36 million in 2008. As in previous quarters, our fourth quarter loss is greater than the cash used in operating activities as a result of non-cash expenses including depreciation and stock-based compensation expense.

Additionally, as we have discussed before, all of the payments we receive from ADM are recorded as deferred revenue for GAAP purposes and therefore do not yet appear in our income statement. Our net loss per share in the quarter was $0.39, compared to a net loss per share of $0.40 in a year ago period. For the full year of 2009, the net loss per share was a $1.62 compared to a $1.58 in fiscal 2008.

Now, a few words about our balance sheet which has grown stronger. As of December 31, 2009, we had cash and short-term investments of $92.2 million. This compares to $70.1 million as of September 30, 2009 and $91.1 million a year in last year.

The equity offering we completed in the fourth quarter of 2009, provided net cash for the company of $29.1 million. We continue to have no debt. We continue to believe we have adequate capital to build ourselves in marketing infrastructure and to expand our research and development to build the company. We continue to work with the roster of successful companies that only can partners, so they can create alternative solutions and change the way they bring that products to the marketplace.

We are very pleased with the progress we have made during the fourth quarter and over the course of 2009. With that, we will open the call to questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question will come from Michael Cox with Piper Jaffray.

Michael Cox – Piper Jaffray

Good afternoon, guys and congratulations on start up of the facility.

Richard Eno

Thanks, Michael.

Michael Cox – Piper Jaffray

My first question is on the ledger balance for the construction cost, I know you said, you still think north of $300 million, is it fair to say that it is south of $400 million?

Joseph Hill

So the ledger balance, remember the ledger balance that we report in the K, is comprised of the few things. It is the construction costs of the manufacturing facility. It is the support payments that ADM has made to us and it will be any working capital funding that Telles will meet that ADM is going to be providing to Telles. So as of the – at the end of Q3, the ledger balance was $369 million and at the end of Q4, it’s $385 million.

Michael Cox – Piper Jaffray

Okay. That’s very helpful. And as you described before the sales and marketing expenses associated with the development of Mirel will transfer to the Telles JV. But I'm assuming you will step up R&D spend for your next plant science program, so just for our modeling perspective, could you shed some on light on what that offset might look like, should we expect the increase spend in the other program to offset with lead to shift in sales and marketing expense or will it be at a lower rate?

Richard Eno

I'll provide a view, Michael, and Joe can add to the implications on our financials. Yes, we will be ramping up the other programs but it is not going to be anywhere nearest material as what those reimbursements will be for the Telles operation that the business that ends from commercialization right now and we are still in the development programs for the crop activities. So I can see those moving up but rather is quietly compared to the overall effort, Telles what the mean from that cost cut – that cost structure gets reimbursed to us.

Joseph Hill

So as we had said before in our previous calls, there is about $5 million per quarter of expense that we are spending on the sales and marketing development and product development for Telles that will shift over to the Telles joint venture after we reached the first commercial sale and we will not be bag filling that full amount with increased R&D spend from Metabolix.

Richard Eno

And it will be gradual but it will be small compared to the magnitude of Telles spend that Joe outlined.

Michael Cox – Piper Jaffray

Okay. That's great and my last question is on the food contact product. You have mentioned in previous calls that Clinton 1 would be filled out without food contact products and then this call you are saying that you will be selling food contact product. Is that merely food contact product for test or sampling for perspective customers or do you anticipate allocating some capacity to food contact this year?

Richard Eno

Yeah. Good question. I'll clarify. What we've said historically and we continue to say is that we have sufficient non-food contact demand, we believe to sell at Clinton one. Now, that we are feeling comfortable and are optimistic on the food contact process, it then becomes a process of optimizing how much non-food contact and how much food contact customers and applications will fill our Clinton 1. We are now starting to aggressively move forward with food contact customers in certain areas and so I could expect that Clinton 1 will consist of non-food contact and food contact applications in some mix which will be determined. But I think the statement you are referring to, Michael, is that we just dug consistently and still do that because of the uncertainties with the FDA process. We have designed a primary entry strategy around non-food contact but as those that process gets resolved, we will integrate food contact applications into the sales mix for Clinton 1.

Michael Cox – Piper Jaffray

Very good. Thanks for the answer. I appreciate it.

Richard Eno

Thank you.

Operator

Our next question comes from Laurence Alexander.

Amanda Sigouin – Jefferies

Hi. This is Amanda Sigouin for Laurence. Another question regarding the FDA and food contact application progress. Could you help us quantify the relative market opportunity for food contact?

Richard Eno

Yeah. I guess, did at a high level. There are about 540 billion pounds of plastic per year and about a third of that is food contact meaning that the world market for food contacts about 180 billion pounds of plastic application. So it’s an absolute huge number and much of that is single serve which is ideally suited to a biodegradable product like Mirel.

We have not got to the point yet of determining at our $2.50 selling point exactly what each application means in terms of the addressable market. We know it’s huge and we see trends moving in our favor that are helping us in terms of bans on disposable items and the implementation of composting infrastructure and aerobic digestion always helps us. But no, Amanda, we've not got to the point that we have said we can absolutely quantify this specific amount of food contact applications in an addressable market way because it’s a very regionalized evolving situation but which is excited that it is such a huge market and an 110 million pound, we just have to tap a small of piece of it and we'll be more than happy.

Amanda Sigouin – Jefferies

Okay. Just a follow up, are these deferred grades of material than you find with your industrial customers and I guess, the solid margin for food contact products, should we expect this to be similar to margins with the other customers?

Richard Eno

We are not providing margin guidance at this point but the base horizon is going to be basically the same, coming from the same major technology and may be a few minor things that we've done initially but in the end will migrate towards very similar identical grade actually for food contact and non-food contact.

Operator

Thank you. Next question comes from the Scott Reynolds with Thomas Weisel Partners.

Scott Reynolds – Thomas Weisel Partners

Hey guys. Thanks for taking my question. I was wondering typically in the past year that provided a demand pipeline number of your thinking about given that going forward or if you can get that on the stall?

Joseph Hill

Okay. Yeah. We – this is just the end of year call and we looked at the messages and the feedback we have getting on that metric and it's been basically a constant number and it was somewhat confusing to people about what that means, what we intend to do now and that was just still the same, there is more than enough non-food contact volume to shall this plant out Clinton 1 up. What we want to do now is get a couple of quarters of operating and marketing experience under our belt and begin to provide a more inducible metric as requested by many people who follow us around the ramp-up rate of the plant and the anticipation of an expansion. That prime earlier metric just talked about what is actually in the pipeline without really an indication of the yield on that and we intend to provide more color on that as we get experience but the basic message has always been the same and it has been for well over the last year that we have more than enough non-food contact demand in our pipeline to more than sellout at Clinton 1.

Scott Reynolds – Thomas Weisel Partners

Very good. And would it be fair to say that sometimes in the summer or second half of the year, we should be a full ramp-up facility up to 110 million pounds per year.

Richard Eno

No, we wouldn't say that, that we will provide you with – once you get some experience under our belt with a view on the ramp-up rate, but I think – we try to describe 2010 as a transition year for this business. We have such a rich pipeline and for the last really two to three years, we have been hampered on product availability. That will be resolved for us and we are now able to move a number of things forward.

Typically, we've described a 9 to 15 month development cycle for a variety of product or typical applications in this industry. And of the 100 chosen customers, potential customers we are working with, they're all at various stages of that developmental pipeline, able to be advanced with the material commencing Clinton.

So, I would see 2010 as being a year where lots of activity occurs, and then 2010 – including signing up new customers and increasing payouts out of Clinton, but 2011 is when a lot of things will convert because we'll be in the middle of that 9 to 15 month development cycle.

Scott Reynolds – Thomas Weisel Partners

Okay. You have several non-food contact customers, already announced, such as the plant that you set on the commercial. Are those customers fully qualified, they can start receiving material as soon as it starts coming out of the plant. And, if that's the case, are there are enough customers that are fully qualified that they can take all the material that's going to be coming out of the ADM plans if that is able to ramp daily cost.

Richard Eno

I guess the first point is that, yes, those customers are fully qualified on material. And as I described in the call, we've got some early material coming out of the plant, we're looking at it, we are assessing it. There is a process of fine tuning and optimization going on at the Clinton site because there is numerous specifications that a product coming from the plant must meet and plant is turning to met all those specifications, when we are happy with that all are met. That product will go to the customer and they're fully qualified.

With regards to ramp up, we've not much about that other than just saying that we have a significant pent-up demand for the product and as soon as we can get product in the hands to potential customers, we have been get a lot of things moving simultaneously.

Scott Reynolds – Thomas Weisel Partners

Okay. And just a housekeeping question, you did your deal on the fourth quarter, so I was just wondering if you get some a share account guidance for the first quarter?

Joseph Hill

Share account guidance, I mean outstanding shares?

Scott Reynolds – Thomas Weisel Partners

Yeah. If there is anything, yeah. What the first question has been?

Joseph Hill

So you will say in the 10-K that’s been filed in actually, it's in the press release as of now that we have about $23 million shares, basic shares, $23.4 million basic shares on a weighted average basis and on a absolute basis, it's about $26 million shares.

Scott Reynolds – Thomas Weisel Partners

Okay. Thank you.

Operator

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

JinMing Liu – Ardour Capital

Hi, Rick and Joe.

Richard Eno

Hi, Jin.

JinMing Liu – Ardour Capital

Hi, hi. First of all, I want to clarify one thing here, is about shifting that's about 5 million per quarter to the Clinton (inaudible) that to in last conference call, you guys mentioned that shift will happen if one facility meets certain production level and meet certain products meet, I mean certain specification. And a few minutes ago, you mentioned that a shift will happen once the first commercial sale happens. So which one is the right?

Richard Eno

So the first commercial sale is a definition of what you just described that there is a minimum quantity that needs to be shift to customer and pay for by the customer in order to be considered first commercial sale.

JinMing Liu – Ardour Capital

Yeah. You can think. This is definitional thing because you are describing exactly the same thing.

Richard Eno

The first commercial sale is contractual term and we are looking at a period between the initial start up of the plant in that “first commercial sale” as the optimization period for the business that’s get started. But in the 10-K, we outline the various characteristic in criteria that defined what that term first commercial sale means?

JinMing Liu – Ardour Capital

Can you be able to give us any guidance on that, why should we expect that shift will happen and it currently, it looks like from the language used in your new release, it sounds like it will not happen this year.

Richard Eno

No. We are currently -- we are anticipating that to occur in the second half of this year.

JinMing Liu – Ardour Capital

Second half. Sometime in second half. Okay.

Richard Eno

Yes.

JinMing Liu – Ardour Capital

In terms of this product process, my understanding is that and the expense related be the way to startup and the future potential losses with the procedural, if you go through the ledger balance and the JV, the JV will have to be pay that part of expense as well. Am I correct on that?

Richard Eno

Yes. You are.

JinMing Liu – Ardour Capital

Okay. So, potentially, we are looking at a total capital cost, basically the ledger balance, this is going to be over $400 million. Once, they full commercial sales happens.

Joseph Hill

So we haven't given any more guidance other than it will be north of $300 million. We know what the ledger balance is as of the end of the year which is $384 million and then there will be some modeling to take into account, the final cost of the completion of Clinton 1 and the – any of the operating losses that Telles will have.

Richard Eno

And from a management perspective, we are cognizant of that and continuing to manage the startup process of this business in a very careful way and I think ADM shares that approach also and I have seen it over the last couple of months as the plant of this product line a very methodical cost focus weight to bring this business to commercial. So you got the mechanics correct. We are cognizant other than we are watching it very carefully.

Joseph Hill

Right. So when you are looking at your models, it is careful – it is important to note that this ledger balance which includes the construction cost of the Clinton 1 facility also includes significant infrastructure and expansion of the Clinton 1 facility. So your model volume building in the full expense of the ledger balance should also be including the expansion of the Clinton facility in order to understand the utilization of what that cost is and what the real return on that expense is going to be.

Oliver Peoples

And not to mention, I will add to what Joe said which is exactly right is, with the – we mentioned in the call, we've got a series of late generation technology development that is aimed at capital efficiency and one of the things, we'll be working on with ADM is what – how much production can we actually get out of a plant that's designed for 110 million pounds with no additional capital, that will be one thing we will work on very aggressively this year.

JinMing Liu – Ardour Capital

Okay. My last question relates to your, the price of your PHA. I remember that Metabolix is responsible for compounding PHA for its various applications. How much company cost included in that is 200 – 205 pounds rise?

Joseph Hill

That’s the question, JinMing but – so that’s getting in to what are some of the components of the gross margin. We just have not been disclosing any of what the gross margin – net gross margin or components of net gross margin will be. I think you can understand that lots of competitive reasons.

Richard Eno

Let’s say we are using compounds that are out in the market today and we are using full commercial compounding lines that are there today and there is a cost structure associated with those that you could investigate. We are not writing guidance on it?

JinMing Liu – Ardour Capital

Yeah. I did talk about and that cost varies, it could be $0.30, could be much higher than that. So that's why I am asking to – could that be (inaudible) net price of your PHA.

Joseph Hill

Yeah. It could be less also.

JinMing Liu – Ardour Capital

Yeah. Yeah. I understand that, yeah. But on an average, that's price I got. So let’s say let’s price (inaudible) to your FDA portion. Can you give us an idea when was the last comment FDA sent to you and when did your respond to that – response …?

Richard Eno

We will provide a specific date but it was very early this year.

JinMing Liu – Ardour Capital

Very early this year. Okay.

Richard Eno

Yeah. We had two iterations with the FDA since October responded to both of them, a lot of information transferring ends to them and waiting to hear back from them but it was early this year.

JinMing Liu – Ardour Capital

And your Clinton facility, are you still using percentage of one recovery technology, right? Is there some close on water based process?

Richard Eno

No. We are not talking about the specific type of technology but we are saying that based on what we are using to start up Clinton 1, we had advanced the technology substantially over three and half years and we are looking at them, continue improvement by getting process operating plant and we are doing some tests on new and improved ways that will improve capital efficiency lower cost and improve product application. We are not getting into the details of the specifics of our recovery technology.

JinMing Liu – Ardour Capital

Okay. Thanks a lot.

Richard Eno

Thank you.

Operator

From Rafferty Capital Markets, we have Ian Horowitz.

Ian Horowitz – Rafferty Capital Markets

Hi. Good afternoon, guys.

Richard Eno

Hi.

Ian Horowitz – Rafferty Capital Markets

Just continuing on JinMing's line of question. With the – the comments from the FDA, it doesn't change the common period at all – does it – I mean we are still looking kind of mathematically towards the end of this month to finalize the food contact dossier, is that correct?

Richard Eno

Well, I think the FDA can – we submitted in October. And I guess if you took 120 days from October, that would push what, mid-February, something like that. Over the course, we responded within the time frame requested by the FDA, but they have given a volume of information required. They have prerogative if they choose to reset that clock.

So we are saying that for injection molding products, we expect to have the ability to sell into food contact market in Q2 and fulfillment in thermoforming in the second half of this year.

Ian Horowitz – Rafferty Capital Markets

Thanks for that. I mean that doesn't give us I mean Q2 can be – selling in Q2 because it's pretty wide, special for something, so close. And I understand because the second half for the rest of the things was – can we get a little bit more clarity on whether this expectation is going to be a Q2 event, a full three months or near full three months, or is this something that's these comments are pushed this dossier back?

Richard Eno

Yeah. We assume that is hard to predict from the FDA, but in dealing with our customers in their own internal estimates, we are just saying Q2. We are planning on injection molding in the second half of the year, film and thermoforming.

Ian Horowitz – Rafferty Capital Markets

Okay. And so, and then from modeling sampling, the volumes that are going through kind of free this commercial sale. How are we – is this not going to come through the income statement but all this is going to be recognized revenue or – what do we look at first quarter and second quarter, it's just very low volumes kind of about 225 or 275 a pound range?

Richard Eno

Right. So, remember the revenue flows through Telles, not Metabolix, right? So this is only …

Ian Horowitz – Rafferty Capital Markets

Right. I mean I understand. A bit – when I talk about the whole effort, what we see it in the Telles number is revenue or is this still just kind of transfer costs plus volume?

Joseph Hill

So any product being sold that’s coming out of the Clinton facility flows through the Telles financial state.

Ian Horowitz – Rafferty Capital Markets

Right.

Joseph Hill

Whether it’s a first pound or the 1 million pound or the 10 million pound.

Ian Horowitz – Rafferty Capital Markets

Okay. So fully recognizes revenue at the JV, correct?

Richard Eno

At the JV.

Ian Horowitz – Rafferty Capital Markets

Okay. Great. Thanks a lot.

Richard Eno

Thank you.

Operator

And your next question will come from Pamela Bassett with Cantor Fitzgerald.

Pamela Bassett – Cantor Fitzgerald

Hi, everybody. Thanks for taking my questions, congratulations.

Joseph Hill

Thank you.

Richard Eno

Thank you, Pamela.

Pamela Bassett – Cantor Fitzgerald

I just want to confirm on the injection molding plastic grade. In summer, you announced the second generation Mirel for injection molding P1003 and is this the same grade that will be used for the food contact, initial food contact shipment?

Richard Eno

It's going to be very similar.

Pamela Bassett – Cantor Fitzgerald

So just likely different formulations?

Richard Eno

Yeah. And just a thing, Pamela, you have to recognized this is such rapidly moving technology that everything is moving and we continue to improve things. And like that P1003 grade is a excellent injection molding resin, which has real broad applications and there is some slight variation to that have occurred since that announcement. But basically it's very, very close to the same resin.

Pamela Bassett – Cantor Fitzgerald

Also we can expect to see a continual migration of those improved grade, where optimize grade as well as optimized production ability both going on concurrently?

Richard Eno

Absolutely. I mean every single product grade we are working on from injection molding to thermal forming to form to not moving; it's all moving and improving quite nicely. And then with the plant step and running exactly as you point out to be optimization of that and then the next generation technology. So it’s a really a lot of things moving in a positive way.

Pamela Bassett – Cantor Fitzgerald

And probably, is it fair to characterize these optimizations in the plant optimizing for primarily for yield whereas in the grade optimization rather than the strength and output in the formulation for functional characteristics?

Richard Eno

That’s a little bit of both but primarily the typical as a most processing facilities that the plant modifications at this stage of the technology development and as you plan out that yield, the cost reduction as well as capital efficiency if we try to see how much capacity can a given asset produce, that’s very plant oriented. In addition, there is some effect, buy those changes on the breadth and application pattern of the product but there is another effort going on with regards to the processing of the products from Clinton plant that’s also moving to expand the application pattern and continue to increase the performance parameters of the product. So both things are happening there.

Pamela Bassett – Cantor Fitzgerald

With respect to optimization of the plant, we see changes in the – more upstream and fermentation and having to do with the changes in strengths or on the downstream on extraction processes.

Richard Eno

Both.

Pamela Bassett – Cantor Fitzgerald

Both really – okay, interesting. And is the power plant sill running and are you using what percent?

Richard Eno

Yeah. The pilot plant is running and just to give some color on that, one of the first things done the start up processes was material from fermentation recovered by the plant as many of you know some of the fermented material from the Clinton plant went to recovery and we use that to help tune the recovery conditions at the plant. So it is very helpful to have that facility in the startup process for Clinton and now we are using that plant and we will be using that plant and we will be using that plant in the very near future to test some of the recovery technologies that we have in the joint venture.

Pamela Bassett – Cantor Fitzgerald

And how does the C4 program coming along, can you talk a little bit about timeline and commercialization plans, of course, C4?

Richard Eno

Sure. It’s a fermentation process to produce, say, series of C4 chemicals with the initial focus being what we are calling the part of the specially C4 market called proladones [ph] and that’s where the primary commercialization efforts reside right now. What’s happening this year is we are continuing to improve the strength that are being used to make that product and we’ve got a recovery technology that we really – that we like we quite a bit, that we are starting to do some small scale further optimization work around. We are starting to have exploratory discussions with partners and we are hoping later on this year, we can test the technology that something larger than pilot-type scale.

I think, the other thing I mentioned to is that – as I mentioned in the call, also this year in industrial chemicals, we're beginning to explore things outside of the C4 area, including C3 and C5, opportunities that our microbial team is working on right now.

Pamela Bassett – Cantor Fitzgerald

And that would also use a fermentation process?

Richard Eno

Exactly. That's right.

Pamela Bassett – Cantor Fitzgerald

Okay. And then should we – that partnership separately run those three opportunity types or maybe one large partnership?

Richard Eno

Hard to determine right now, we are having exploratory discussions and we will do whatever makes the most sense to Metabolix.

Pamela Bassett – Cantor Fitzgerald

All right. Thanks very much. Congratulations on the quarter.

Richard Eno

Thanks Pamela.

Operator

Ladies and gentleman, that concludes today's presentation. At this time, I will like to turn the conference over to management for any additional closing remarks.

Richard Eno

Thank you very much. I will like to thank all of you for attending our call today. As you can tell, we are very pleased with our progress and with lot of enthusiasm about the long-terms potential for each of our Metabolix platforms. There is a huge milestone for us and for the company, as Telles moves into full operations and we anticipate a lot of progress across each of these business platforms over the coming quarters, and we look forward to keeping you informed.

Thanks again for joining the call, and thanks again for your interest in Metabolix. Have a good evening.

Operator

Well, ladies and gentlemen, that does conclude today's presentation. We do thank everyone for your participation. Have a wonderful day.

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Source: Metabolix, Inc. Q4 2009 Earnings Call Transcript
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