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Executives

Richard P Eno – President and Chief Executive Officer

Joseph Hill – Chief Financial Officer

Analysts

Mike Ericson Brother – Piper Jaffray

JinMing Liu – Ardour Capital

Laurence Alexander – Jefferies

Scott Reynolds – Stifel Nicholas

Ian Horowitz – Rafferty Capital Markets

Metabolix, Inc. (MBLX) Q1 2011 Earnings Call April 27, 2011 4:30 PM ET

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the Metabolix Incorporated First Quarter Fiscal Year 2011 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 for you to queue up for your questions.

And now, I’d like to turn the conference over to Allison (inaudible) of ICR. Please go ahead.

Unidentified Company Representative

Thank you, and good afternoon, everyone. Metabolix released first quarter 2011 financial results after the market closed today. If you do not have a copy, one may be found on 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. They are joined by Oliver Peoples, the co-founder of Metabolix and Chief Scientific Officer.

Before we begin our formal remarks, I need to remind everyone 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’d like to turn the call over to Rick Eno, President and CEO of Metabolix. Rick?

Richard P. Eno

Thank you, Alison. I’d like to welcome all of you to the first quarter 2011 earnings conference call for Metabolix. Today, I will provide you with a review of the Metabolix vision and an update of our ongoing activities. Joe will then take you through the financials.

We continued 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 in plant science, in fermentation, microbial, and polymer engineering and in product and market development.

We are leaders in producing and upgrading a broad family of materials called PHAs. PHA is our energy storage molecules found in nature, which have a number of useful properties as plastics and can also service the unique source of renewable chemical intermediate.

Metabolix has been recognized as a leader in this field and has received numerous awards. Most recently, over the last quarter, we were selected by Bloomberg New Energy Finance as one of their 2011 new energy pioneers. We are honored by this award and are pleased to be recognized for the long-term gain changing potential of our core PHA technology.

We currently have deployed our PHA technology across 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. Second, industrial chemicals, initially focused on C4 chemicals. And third, crop-based activities, which include our programs in oilseeds, switchgrass, and sugarcane.

I’d like to begin with the Telles business, our joint venture for commercializing Mirel, we continue to make forward progress in this early growth base of this business. I will review this overall status of the business, primarily addressing market and customer activity including opportunities and challenges as well as review of our overall growth plans.

In the Telles venture we are very focused on the successful launch of the Mirel business. The market for bioplastics continues to be very robust and we have an ongoing stream of over 50 increase per month. From this high level of interest we are currently working with about 100 targeted prospects reflecting a broad range of process technologies and markets.

We are now working to exploit a number of near term opportunities these are primarily in film markets specifically in compost bags, agricultural mulch film, and packaging. This is due to the strong market pull in these segments in both the U.S. and in Europe as well as the uniqueness of the Mirel offering. Mirel offers biodegradability in a wide range of environments, a higher biobased content, and incumbent film products and in some cases will improve the physical properties of the film.

While still early in the development of this business this pool appears to be validating the Mirel value proposition and price point. We are also seeing good near-term progress in marine applications as well as in horticulture.

In general, we are seeing smaller innovative customers move faster than the larger customer, which leads to a somewhat smaller initial order size in what we expect to see in the long-term. This quarter we continued to expand the customer base primarily in Europe. New customers placement orders include two European film converters will be selling compostable bag into the Italian bag market.

As many of you know, there was a ban on nonbiodegradable bags in Italy which is driving demand for biodegradable solutions in that country. Recently, Italy used about 20 billion plastic bags per year and for reference purposes that is approximately £400 million per year of polyethylene bags and that just in Italy.

It just gives you a relative sense of the scale of the plastics market and opportunity when compared to the design capacity of the £110 million per year Mirel manufacturing facility. We have also added two new customers we are leveraging the marine to gradable properties of Mirel. Our pricing guidance of £225 to £275 per is still valid and we continue to get higher prices in certain niches.

Also as we announced yesterday, we have pleased that UCAN and innovative retailer seeking to help consumers be environmentally responsible will be offering Mirel based compost bags to the U.S. retail market. This offers we had another channel by which Mirel will be finding its way to market in the U.S. While the overall pipeline remains very strong, they have been two specific challenges this quarter that have held back some of our near term potential.

These are considered temporary that is – there is no fundamentally issue we cannot see work through all the time. First, supply disruption of a third-party formulation raw material has slowed down the pace of commercialization for about 10 near-term potential customers. It’s very frustrating to us that we now are actually pushing orders out in this segment until the supply disruption is resolved, normally mid-year. We are working to reformulate around the issue and are seeing early indications of success.

Secondly, we’re working directly with customers to optimize the physical properties of our film project, aimed at a specific segment of the agricultural multi-film market. This iteration is delaying the launch of about five of our near-term customer prospects. These type of issues, supply disruptions and priced optimization are common in the plastics industry, but at our current small scale, their impact is magnified.

As a result, we expect the milestone for the joint venture to transaction to the commercial phase of its relationship to slip into the second half, 2011. Outside of each development, much is the same for the Telles business as in previous calls. ADM's Clinton, Iowa polymer plant, supply source for Mirel bioplastic is up and running. ADM with metabolic support is in the process of improving yields, reducing costs and debottlenecking the facility to increase capacity. This will be an ongoing process and inherit in how we operate the business. We expect plants to continue to have capacity available ahead of market demand until the 110 million pound per year nameplate design is reached.

We have continued to focus on building strategic levels of inventory, our various product rate of distribution points in both the U.S. and in Europe. This has enhanced our assurance of supply to customers and allows us to more efficiently develop new customers around the world. With regards to the technologies, we have near-term efforts run injection molding, thermal foaming, sheet and film applications, and ongoing developments in the areas of foam, blow molding, non-wovens, paper coating and latex.

With regards to markets, we continue to develop six target market segments. Agricuture, horticulture, compost bags, marine aquatic applications, consumer products, business equipment and packaging. In aggregate, these market segments reflect over 50 billion pounds of plastic usage per year and we believe there is over two billion pounds of addressable demand for us in the near-term.

As we’ve described in previous calls, 2010 was a transition year as the Telles business was launched and 2011 is the year when we expect significant number of customer development efforts to materialize as contracts. We will provide regular updates on our future quarterly calls to review our progress in the commercialization of this new material.

Let me now move on to the other Metabolix platforms. These are our industrial chemicals and crop programs. These represent meaningful value creation opportunities for us outside of the Telles joint venture with ADM. In industrial chemicals, we are leveraging our PHA technology to enable chemicals that are currently being produced from fossil fuels to be produced from renewable raw materials.

We're utilizing a fermentation process and an efficient, integrated, thermal recovery process to produce our targeted chemicals. The PHA approach is a unique platform, which enables a pipeline of chemical product opportunities for Metabolix. We have selected a C4 family, followed by the C3 family of chemicals as our entry into this space. Our technology is unique and that the same basic process can produce both families of products with only relatively minor tailored purification modifications based on a specific molecule being produced.

We have also established intellectual property around the C5 family of products but as many of know this is a smaller market than the $10 billion C3 and C4 market and as such it is currently a lower priority for us.

To recap the state of the technology we are successfully scaled to C4 chemical fermentation process to intermediate scale and the technology performed essentially as we predicted. We believe that this mitigate the risk of the crucial fermentation step as we move towards commercialization. We have also run all aspects of the recovery process at small scale.

We have delivered samples to our first set of potential customers, we expect feedback within the coming two months and based on this feedback we will be able to fine tune our recovery process if necessary to ensure customer needs are being met. We also expect to send samples to additional potential customers over the next two to three months.

In addition we continue to optimize strains for our C3 chemicals platform as well. In terms of timing, we expect the C4 technology to be ready for engineering design of a commercial facility by the end of this year. Our 2011 objectives are to prove all key technology elements at a scalable equipment size, be able to produce large samples, which can be further validated with potential customers and prepare a detailed process package, including flow sheets, (inaudible) balances, equipment list and key vendor packages.

The C3 technology program will obviously leverage much of the C4 work and equipment and will follow the same program by about one year. The timing for actual business commercialization is dependent on partnership conversations which are ongoing.

Our third metabolic platform is a crop-based activity including our programs in oilseeds, switchgrass, and sugarcane.

All in all, we are excited about this platform as we can see the pathways redeveloping ultimately replacing capital intensive operations such as oil and gas exploration and production, refining, olefins, and polymerization producing polymer directly in crops.

Our crop programs offer numerous options to produce low-cost chemicals, plastics, and fuels in a very sustainable manner. As discussed in previous calls, we have completed the first field trial of our targeted oilseeds crop, Camelina, and are now beginning the harvest of our second field trial, which is taking place in Texas. The objective of the field trial work is to fine tune our gene systems to maximize PHA yields, while maintaining healthy, robust plants. Over the next few months, we will examine the results of this trial and integrate the results into our scientific and regulatory strategies.

In summary, during this quarter, we continued to move forward across all three of our platforms. In Telles, we continued to make steady progress on building the foundation for the Mirel business and can see more than sufficient demand for selling out Clinton 1.

In industrial chemicals, we delivered samples to potential customers this quarter and are moving to be ready for plant engineering for our C4 program by year-end and in our crop-based business, we are finalizing our second field trial for Camelina, which will be important to inform our ongoing development efforts. We’re very enthused about the potential for the company and the broad scale deployment of our PHA platform.

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

Joseph Hill

Thanks, Rick, and good afternoon, everybody. And thank you all for joining the call. I’ll now focus on the financial results for our first quarter ended March 31, 2011.

As always, we managed our finances with an emphasis on strict cash flow management. We have maintained this focus and ended the first quarter with $51.9 million in cash. For the first quarter, net cash used in operating activities was $9.4 million, which represent a plant increase in cash usage from $8.1 million used during the fourth quarter of 2010 and is unchanged from the comparable quarter in 2010.

The $1.3 million increase in net cash usage in the first quarter 2011 compared to the fourth quarter of 2010 was attributed to annual bonus payments made in February each year. And I’ll give some additional detail on the company’s financial results for the first quarter of 2011 ended March 31.

Total revenue was $300,000 versus $200,000 for the three months ended March 31, 2011, and 2010 respectively. During the three months ended March 31, 2011, primarily consisted of royalties earned under sub-licensing agreement with Tepha, Inc. to related party. Total operating expenses in the first quarter of 2011 were $10 million, consistent with the comparable quarter in 2010.

Selling, general and administrative costs in the first quarter of 2011 were $3.8 million versus $3.9 million in the first quarter last year. Research and development costs were $6.2 million consistent with the comparable quarter in 2010. Net loss for the first quarter was $9.6 million as compared to a net loss of $9.8 million for the first quarter of 2010. Our net loss per share in the quarter was $0.36 per share compared to net loss per share of $0.37 in the year-ago period.

Now on to the balance sheet. Our balance sheet remained strong as of March 31st 2011, we had cash in short term investments of $51.9 million. This compares to $61.6 million as of December 31 2010 and $82.8 million at March 31 2010. We continue to have no debt. I want to make a point of clarification about our longer term expected cash usage. As we progress we expect to see two major factors that will reduce our use of cash.

First, as we reach the commercial phase of the agreement with ADM, which Rick has mentioned is now expected to occur on the second half of the current fiscal year. We will shift approximately $4.5 million of quarterly operating expenses from our P&L to the Telles joint venture.

Additionally while the split of Telles operating profits does not incur into the ledger balance is fully paid down. We will receive royalties on the Mirel sales of approximately $0.10 to $0.12 per pound. At design capacity this would approximately $12 million per year of royalty income.

As of March 31, 2011, the ledger balance is $412 million. Increase in the ledger balance from December 31, 2010, is primarily attributed to operating cash needs of Telles.

With that, we’ll open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) We’ll go first to Mike Ericson Brother with Piper Jaffray. Michael, your line is open.

Mike Ericson Brother – Piper Jaffray

I’m sorry, (inaudible). Good afternoon guys. My first question is on the millions of pounds sold and if – is there any impact on your guidance to the May 2013 some of the facility guidelines that you given in the last call?

Richard P Eno

Right now, Mike thanks for the question. We are really focused on the near-term and getting these products into customers hands and we are not re-forecasting to sell out data at this point. Yeah, when we look at our pipeline of what we have, we can see more than enough demand to sell out the plant and you're telling an example of how big the market is gives you an indication of the relative scale of arched operations versus what this market is.

So it’s been very difficult to forecast and very lumpy in terms if we look at forward looking views. So we can see products profligate very quickly across the markets given our small scale relative to large industry. But that saying that we there is any risk associated with that, there is risk associated with that timing, because we don’t have the product the customers signed up yet, but we are making progress and we can see the demand out there. Over time, we will reforecast at that point, but that still a couple of years out.

Mike Ericson Brother – Piper Jaffray

Okay, interesting. And then my next question is on the bags that UCAN partnership. I was digging around a little bit on other last three gallon bag that could be used for composting, there is another offering that’s former company called World Centric Bag that’s – it’s roughly a third the costs of what per bag of what deep of what UCAN is offering, I was wondering if that – if your product has better digestibility or some characteristics on that would kind of justify that premium?

Richard P Eno

Yes, it's a good question. As I’ve look at the cost of bags and at least you could correct me if I’m wrong, but I think the bags are in the range of $0.30 per bag something like that that right.

Mike Ericson Brother – Piper Jaffray

Yeah, it’s right.

Richard P Eno

Yeah, so when you look at the content of the Mirel, the bags typically way about 8 grams or also, so the typical content of Mirel is about $0.04 out of that $0.30 or $0.33 or so. So as last I believe to do with the product itself and more to do with U.K. and its marketing strategy as you can see they are looking at very innovative compost collection been that you would put on the counter top and your kitchen and a very nice looking design, but I can't really comment on how they have opted for the actual product selling price. Where we looked at the content that Mirel within that bag and it’s the pricing strategy is not driven by Mirel it’s more driven by how they see their own desired returns and how they see their market segmentation we believe.

Mike Ericson Brother – Piper Jaffray

Okay, excellent. And then my final question I will jump up. Is the $100 million shelf operating in early March one of the potential uses of proceeds was included acquisitions, I am not sure that there is other things that you are looking at using those proceeds for, but I was just wondering if you would be wanted to give us a little bit color on what type of acquisitions are looking, appealing or what you would be interested in doing that?

Joseph Hill

When we put the shelf up there, which was put there strategically to keep our options opened, and we listed what the use of proceeds could be, that wasn’t that we had anything near-term or specific in mind that we will be using the shelf for at this point. So really what is sent out as the signal as there is something imminent or any M&A activity eminently happening?

Mike Ericson Brother – Piper Jaffray

Okay. Thanks for the information.

Operator

Next line JinMing Liu with Ardour Capital.

JinMing Liu – Ardour Capital

Thanks for taking my question.

Richard P Eno

Hi, JinMing.

JinMing Liu – Ardour Capital

Hi, actually my first question is something I asked before because, I believe once you reach that £1 million commercial sales milestone you well recognized relatively end the compounding revenue right.

Joseph Hill

Yeah right. That’s right. Yeah, so that’s – can you give us the number for common cause and the – also whether you want to reconnect any margin on that or it’s putting a path through running on the cost.

Richard P. Eno

Yeah, if we understand the question, the royalty stream associated with compounding will come to Metabolix and Telles is incurring the cost of compounding. Now compounding has – it is the path through and it has cost associated with totaling compounding plus additives, but we typically compound things at less than the value of Mirel within – as you well understand. But the economic, Metabolix and Joe could further elaborate our royalty stream based on the pounds of compounded product it goes through that operation.

Joseph Hill

Okay. So if you need further clarity, you make sure that we’re answering what you’re asking, Jim, apologize if we didn’t hit it right on the mark. But feel free to follow-up.

JinMing Liu – Ardour Capital

Okay. We can do that offline.

Joseph Hill

If you want to. Okay, okay.

JinMing Liu – Ardour Capital

Yeah. Lastly, it’s about a – the 1 million pound milestone. It sounds like to me, there are additional requirement other than the simply that quantity.

Joseph Hill

That’s right.

JinMing Liu – Ardour Capital

At 1 million pounds. So can you give us any color regarding that?

Joseph Hill

Yes, the 1 million pounds, it’s more than just 1 million pounds, this is the 1 million pound ship cash collected meeting certain specification and of certain volume. So there are various things that certain pounds that are going out in the market do not count towards that milestone, largely small volume developmental quantities, those that contribute to that volume have to meet the spec, the scale and then they start to register towards that once the cash is collected. The actual date is related to an acceptance following that, but the mechanics retroactively worked back to cash collection date. So you’re right, not – clearly not all the pounds we’re shipping have moved into that category right now.

JinMing Liu – Ardour Capital

And just one really quick one. Is there any requirement for you to ship more different grade of license to give mitigation?

Joseph Hill

It’s really based demand on the volume of Mirel that is shipped. So in some cases, we’re formulating Mirel with other components. So it doesn’t matter if that Mirel is going to thermal forming or film, but if it has other components in it, only the quantity of Mirel, not the additional additives would count towards that milestone. So that you are exactly right this is a series of screening criteria, I wish the volume that shift get passed into those that count and those that don’t count and those are some of the decision rules that determine whether the volume shift counts, does not count.

JinMing Liu – Ardour Capital

Okay, thanks a lot.

Richard P Eno

Okay. Next?

Operator

We will move on to Laurence Alexander with Jefferies.

Laurence Alexander – Jefferies

Good afternoon.

Richard P Eno

Hi, Laurence.

Laurence Alexander – Jefferies

I guess first of all, can you I mean just a follow up on that question about the $1 million pound, can you give a rough sense for how much Mirel has been produced in total, since the start of the project?

Richard P Eno

No, we’ve not disclose it, what we said Laurence is that what we have done with ADM recently is we last year, think it was our July call we the Clinton plant metal the specs in the call we had in November, the Q3 call we talked about all the compounded material for I believe was A grade at [Metspec]. The latest call we had before this one, we were moving that compounded material into strategic inventory locations in different parts of the world, but we can ever talked about exactly what volume that relates to?

Richard P Eno

Okay. On the – it’s [Multiple Speaker] clearly more than 1 million [pops]. You know, it’s so that the plant is as we said several times has more capacity, it’s ahead of market demand, capacity is ahead of market demand.

Laurence Alexander – Jefferies

And is – now for the C4 chemicals, the intermediate scale, can you give us a sense for how large that is or what are you using as an intermediate scale?

Richard P Eno

By the end of the year Laurence, we would like to be able to product tonnage quantities, okay. So we’re already there with the – we are there with the fermentation right now.

Laurence Alexander – Jefferies

Yeah.

Richard P Eno

And the samples that went out to customers in Q1 had to – had where more of large scale, where we had produced the scale of fermentation and it was large scale recovery. What we are doing the rest of this year are we would like to be able to produce the next higher scale samples in equipment at a scale that can be scaled out reliably to full world scale operation. And our assessment is that that basically is equivalent to tonnage quantities of C4 chemicals.

Laurence Alexander – Jefferies

And how flexible will the plant design be, I guess what it mean by that is, do you expect to have a partner who goes, via partners UCAN make one specific chemical or and so you have one extractor processor. Do you expect to design a plant, we can swap which chemical you're producing and swap the extraction process accordingly?

Richard P Eno

Yeah there are a couple of questions embedded in what's (inaudible). I think that technically the fermentation, we expect the fermentation portion of the technology to be able to produce the core prospect would enable us to do C3, C4 and been questions about C5, ultimately C5, in the same fermentation system. What we’re now working on is coming up with a robust recovery process that allows us to produce C3 and C4.

Now, realistically because the physical properties of acrylic acid and GPL are slightly different, there will have to be some slightly different downstream equipment. You get different vapor pressures, different kind of materials for construction and so on. But what we’re working towards is to have the vast majority of the downstream recovery equipment to be as interchangeable as we can, and we’re working on that now. Then – what that would then imply, getting to your second part of your question about partners that if a partner chose to participate in the C3 and C4 market, it would only be a minor incremental capital for the recovery equipment of whatever the non-core product is, is it C3 or C4 to allow a flexible facility.

In terms of our partnership discussions, we’re being more pragmatic than that, we’re looking at – some people as clearly interested in the C4 part of the market and are not that interested in C3s, some are interested in C3s and not interested in C4s. So we’re talking to a variety of partners kind of telling what’s best of the company and what’s the best way to move forward. But our lead product will be specialty C4s with the technology developments looking ahead to make it as robust and flexible as possible.

Laurence Alexander – Jefferies

And lastly, can you give a quick snapshot on any progress in the last quarter on the foam, blow molding, non-wovens, paper coatings, latex research profile?

Richard P. Eno

Sure.

Laurence Alexander – Jefferies

And also food contact.

Richard P. Eno

Yeah, absolutely. To be honest, most of the resources in Telles are focused on near-term sales. We’re trying – we have intellectual property in the areas you described and we’re largely focused on the near-term products and those specific opportunities largely in the area of films. So we’re not putting a lot of resource into those long-term programs at this point, some external partnerships we have are doing some work on it, but for the most part, our resources are aimed at getting the business launched, getting the film products and the near-term products in the market rapidly.

The one exception is we’re executing against a USDA blow-molding brand and we are doing work actively on that because part of the requirements we receive in that grant for certain timeframe. So we’re obligated to work on that and making good progress on that. And on food contact question, as mentioned that we’ve got full contact approval for injection molding, we launched a thermal forming grade last year and we’ve said we will be getting film, we believe this year and that that’s on target.

Laurence Alexander – Jefferies

Okay, thank you.

Operator

(inaudible) with Cohen & Company.

Unidentified Analyst

Hi guys. One question if I may, I apologize if you have already commented on this in prior call, but as you think about answering the specialty chemicals market, at what scale that it makes sense for a first commercial plant or partnership?

Richard P. Eno

Yeah the economic we are looking at for our specialty C4, we are looking at and again this is still being optimized we don’t yet have a formal partnership in place, but in terms of the scale of the market which is £800 million market and xthe technology we see – we’ve been doing our economics around the 25,000 tons facility is what we’ve been looking at as we’ve looking at how close we are to economics that economic production levels we have gone back and looked at relative oil and sugar prices over the last eight years in that scale, but we’ve gone down the analysis of range of scales that are range of yields, but our working model is somewhere around 25,000 tons a year, but again that’s just tell me how you're thinking about it, but not yet anything in the ground or anything formulation.

Unidentified Analyst

Sure and how does that rank sort of relative to potential partner that type facilities or is that multi-gene large or what in relation to the industry.

Richard P. Eno

I think it’s a – that the Clinton plant that ADM has constructed is that 50,000 ton capacity facility, so it’s smaller relative to that and again the plastics market is much, much larger in the special C4 market, so it’s commenced with that. Part of what we have to look at in our partner discussions is the potential to repurpose fermentation assets to produce this material. If we’re successful in doing so, we lowered the capital costs of the production and we would block off the construction, and that may dictate a little bit about our market entering strategy. So there is a grassroot’s path and there is a repurposing path and a repurposing path would clearly influence our scale of how we look at it.

Unidentified Analyst

So, second question related to – I recognize it early since your (inaudible) that out by 2013, but what kind of increment for the next phase of Mirel capacity that would make sense?

Richard P. Eno

Yeah, and again, it’s a bit early to say. I think a similar question came up on the last call and with the team at the ADM team supported by Metabolix working on improving yields, on screen time, producing the grades that our folks need, but there is also a ADM Metabolix looking ahead. What are some of the expected bottlenecks we may see at the Clinton plant as it approaches capacity? We’re beginning to look at what are some of the next generation recovery schemes we can think about that could reduce the capital cost for pound.

What end – some of that will be informed of course, to what we see in the markets over the next couple of years. But we really haven’t got to the point yet of really thinking about the scale. What we are looking at is the technology and we’ll be looking in the next year or so at what we see in the market versus what technology set price to that. From that, we would then begin to look at – we could have a better of scale, but that’s the way we’re really focused on getting this product to market meeting the demand like the demand in places like Italy and others places where we see strong pull for the product.

Unidentified Analyst

That should be what leads to my last question, which is about Italy. Given the size of the market relative to the capacity you expect to have available near-term, who else do you see as key competitors for that market specifically?

Richard P. Eno

Well, I think there is a range of things. If they’re taking polyethylene in bags and you’re banning it for whatever reason, whether it’s CO2 or litter, the consumer has a number of choices. Cloth bags, paper bags are clearly alternatives. When you get into the bioplastic space, which I think is what you’re referring to, (inaudible) has a biodegradable product that can be turned into a bag. We do know the mass [adjustment] technology that they can use – its make bag is potentially acceptable Zaraplast is compounding material which is finding its way into that bag.

There were lot of the biobased plastics makers are looking at addressing that market and addressing other markets. We are particularly pleased with what we have for Mirel because it is – it has a wide range of properties and what we’re finding is we’ve got a lot of different levers to access as it relates to whether biodegradation properties, film strength and different film strengths are needed in different film properties, and needed for different segments that Italian bag market. And we’re happy that we are able to start to address a wide range of that market with the Mirel platform.

So I think I would say that a lot of the bioplastics people are looking at how their own materials into which their own specific characteristics can address certain segments that Italian bag market, because its not all the same that we are pleased that what we have has a very broad usage pattern and are looking to see where we can make the most traction quickly.

Unidentified Analyst

And how do you think about the trades positioning in the context of different segments in our market?

Richard P. Eno

It's too early page for us in Italy and if there is certain price dynamics in a completely free market and the various price dynamics in a more regulated market and you know we are finding that the film product on we are getting very – its early stage I will point that out but we are comfortable with our point in the film market and it was 225 to 275 per ton.

Unidentified Analyst

Okay, thanks very much.

Operator

Moving on to Scott Reynolds with Stifel Nicholas.

Scott Reynolds – Stifel Nicholas

Good afternoon guys. Two doubts on the film, I was wondering in the initial application how would say that the film market or the compostable bag market compares for ASPs versus your other six end markets where adjustable markets.

Richard P Eno

Yeah I think we can walk through each of those, and again I just qualified if this is early stage we are in a rapid commercialization process getting feedback. These markets are very large and we are working through them. I think we are seeing very good potential in markets where biodegradation is one of the key performance requirements the customers looking for. And those markets would include agriculture where our most don’t degrades naturally in the field of water culture, and compost bags where you want degradation and strength and marine and aquatic applications. Those are where we are seeing a lot of near-term traction and it makes sense when you think about that places were biodegradations is desired we’ve got one of the if not the best, one of the best biodegrading products out there, with a broad range of property so that really fits nicely with the value proposition.

When we are moving into some of the more consumer and business segments there what typically happens when you think of a molded printer case for a heavy piece of computer housing those type of things. There sometimes if the part is large, our price pint is difficult to move through $2.50 a pound, what’s happening in that market is there is some innovations occurring where Mirel is being blended with starch based components and less costly components. So we are holding our price point, the customer is getting the physical properties that Mirel brings, so we are in effect Scott, what's happening there is we will be holding our price point, but Mirel would be blended with lower castings to access customer needs and that’s the development as we think as we see it occurring

So, that’s pretty consistent in the consumer and business equipment sections for our larger parts. And of course, as you will know, we have various things out in those markets right now, including Labcon, paper made pen, Pharmafilter, they are out there now and we’re seeing interest there, but there’s a slight rotation of the market depending on the scale of the part.

In packaging, we’re – again it’s early stage, but packaging where we will get the most traction and be able to have higher ASPs will be in places I believe, is again is my view from what I’ve heard from our sales force and talking to customers, where anaerobic digestion is a interesting end use application, end of life application for the material, because Mirel works very good in those operations. And I think that will be a place.

So, we are at the point now Scott, we are looking across the markets, we’ve got as I‘ve mentioned 100 different prospects reflecting a pretty diverse group. We are migrating towards film products, where the selling price staying is being accepted and we are looking at the technical innovations and the business equipment in consumer market that will help us hold that price point and packaging is evolving because a lot of its food packaging that takes a bit more time given the test that the customer run and the amount of time commercialization have for food products. Hope that answered your question, but that’s kind of a play-by-play across the six market segments we’ve talked about.

Scott Reynolds – Stifel Nicholas

All right. Thanks for all the color. And then on the C4 strategy, I was wondering if you could provide a little bit more detail potentially how you might go about financing something like this, would you be looking into our contact manufacturing. Is that something that’s even possible, is there from adjacent capacity out there that can do this?

Richard P Eno

Contract fermentation probably not, but I think it’s a bit premature to expect like we’re looking in and talk to potential partners about a whole range of options. Our interest is to participate in the business and we will be working with different partners who see how we can structure that. But it still is early and I think a lot of it, Scott, would depend on the repurposing of assets versus Greenfield, so. We’re keeping an open mind, we’re looking at a range of different options and we clearly want to hear what our partners are interested in too because we want to structure the win-win arrangements where we’re both aligning to what we’re trying to create.

Scott Reynolds – Stifel Nicholas

Very good. Thanks.

Operator

(Operator Instructions) We’ll go to Ian Horowitz with Rafferty Capital Markets.

Ian Horowitz – Rafferty Capital Markets

Hi, good afternoon, guys.

Richard P. Eno

Hi Ian.

Ian Horowitz – Rafferty Capital Markets

Couple of quick questions. This delay in the commercial phase, I mean, I think you guys stated that you were pretty much slated for a mid ’11 commercial phase before this call and now we’re in the second half of ’11, would I – I might assume that this is going to be a little bit more tilted towards the fourth quarter than it's going to be towards the third since it’s – I'm not sure you’d be putting out an announcement if it’s coming in July rather than June, would you?

Richard P. Eno

Well, I think if you – you said, we’re – people interpret mid-year now it’s end of June to beginning of July and we can see it happening beyond that (inaudible) is that it’s very lumpy and a couple of big – a million pounds is not a lot given the scale of the facility and the question before I think, JinMing, asked on the the qualifiers of course. But certain things can move that quite dramatically. But we’re seeing into the second half of the year. If we resolve some of the issues, it would be sooner if we don't want to be later. But our – what we’re seeing is a very strong market and a lot of interest from customers and we’re working to pull that in the best we can.

Ian Horowitz – Rafferty Capital Markets

Okay. And the – I’m not – slight delay, kind of pause or whatever you want to call it. But risk at all to the days for full capacity at this point and could you kind of catch up and…?

Richard P. Eno

I think there was a specific question on that earlier, and the we response we provided is that we’re really focused on the near-term and we’re a relatively small player in a very large market, and there is risk to that mid-2013 date because we don’t have the customers lined up, we don’t have a line of site on the volume, but products just looking at the sheer scale of just the Italian market as an example, products can propagate pretty quickly and we’re trying to step the cards so it happens, but in the future will, once we get better line of sight and get to our first milestone we’ll reforecast the second one with a heck of a lot more inside into how the markets looking and where the traction point to be from Mirel. We think we know where they are as we’ve noted in this call. We’ll be evaluating that, we learn more almost every day about where we getting traction and the film markets, where the action is right now.

Ian Horowitz – Rafferty Capital Markets

Okay, fair enough. And then, just can you give me a little bit more color on the UCAN bag products, are you going to be able to, I don’t know what you call it, as it call composting, back residential compost bag or this is more for a municipal level or financial scale.

Richard P Eno

This [dislodge] in is for a municipal level industrial composting and it is not for home composting although that could very well been extension of the product line, but right now the launch that they have put out was for an institutional or material.

Ian Horowitz – Rafferty Capital Markets

The Mirel is called compostable correct.

Richard P Eno

That’s right.

Ian Horowitz – Rafferty Capital Markets

So there is some other added components to the film that and I gave that that opportunity?

Richard P Eno

Yeah, there is (inaudible) grade see it is the bag markets, it will go with the story you think the bag to bag, but there is a wide range of performance requirements in the bag market and certain bags were different strength is required different forms of end of life, different things are put together to create that need and the option is like you hear for this launch is the [Enviro] option which is aims at in end of life for institutional or industrial composting. They could very well be as I mentioned another product launch (inaudible) plus UCAN or someone else that would say this is for home composting but this is the Enviro launch for industrial composting.

Ian Horowitz – Rafferty Capital Markets

Are you doing that final formulation are you spending your Mirel folks to do the final formulation?

Richard P Eno

That’s going to Lakeside. I mean so we’ve disclosed that Lakeside is making the bag and UCAN is marketing it done on a retail basis and we’ve had the announcement on Lakeside on the while back.

Ian Horowitz – Rafferty Capital Markets

And one last question you always asked on the call. The current ledger balance?

Richard P Eno

Yeah, as we had said before the ledger balance at March 31 was $412 million.

Ian Horowitz – Rafferty Capital Markets

Sorry, I missed that. Okay, great. Thanks guys.

Richard P Eno

Thank you.

Operator

And there no further questions at this time. I’ll turn the conference back over to management for any additional or closing comments.

Richard P Eno

All right. Thank you very much. I would like to thank you all of you for attending our call today. We’re making good forward progress and have a lot of enthusiasm about the long-term potential for each of our Metabolix platforms. We anticipate much more progress across each of these areas in the coming quarters, and we look forward to keeping you informed. So, I’d like to thank you all for joining the call and I wish you a nice evening. Thank you very much.

Operator

Ladies and gentlemen that does conclude today’s conference. We thank you for your participation.

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