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Executives

James [Palzinski] –ICR

Richard P Eno – President and Chief Executive Officer

Joseph Hill – Chief Financial Officer

Analysts

Mike [Withenthalor] – Piper Jaffray

Jinming Liu – Ardour Capital

Laurence Alexander – Jefferies

Jeff Osborne – Stifel Nicolaus & Co.

Metabolix Inc. (MBLX) Q2 2011 Earnings Call July 27, 2011 4:30 PM ET

Operator

Please stand by. Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Metabolix Incorporated Second Quarter 2011 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 for you to queue up for your questions.

I would like to turn the conference over to Mr. James [Palzinski] of ICR. Please go ahead.

James [Palzinski]

Thank you, operator, and good afternoon, everybody. Metabolix released second 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 Securities and Exchange Commission 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, James. I’d like to welcome all of you to the second quarter 2011 earnings conference call for Metabolix. Today, I will provide you with the review of the Metabolix vision, and an update of our on-going 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. While I understand that for many of our long-term investors, a company overview is unnecessary, but many of our newer investors find it valuable. So I’ll take about a minute to provide some company context.

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, fermentation, microbial, and polymer engineering and in product and market development.

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

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, Industrial Chemicals focused on C4 and C3 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 FASTe of the business. I’ll review the overall status of the business, primarily addressing market and customer activity as well as the review of our overall growth plans.

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

As you know from our last call, we have primarily focused on shale market, specifically in compost bags, agricultural mulch stones, and packaging. This is due to the strong market pull in these segments 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 bio-based content, than 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 pull appears to be validating the Mirel value proposition and price point. This quarter we continue to expand the customer base, which is currently split between and Europe and the U.S. The customer base has now grown to over 50 customers with over 15 placing repeat orders.

Repeat orders are a good indicator that a customer development program has or will translate to a success product market launch.

We are still seeing smaller innovative customers move faster than the larger customers, which leads to a somewhat smaller initial order size in what we expect to see in the long-term. Note that we also have a number of potential customers in the development pipeline at a pre-order stage.

During the customer development process, we received considerable feedback from our customers. In summary, they are very satisfied with the product, the Telles team, including the technical support, and see Mirel as the key component of the growth plans.

However, many of them are working to developing their own market launch plans for Mirel-based products, which makes forecasting their growth, and hence, ours challenging.

I’d like to highlight three of our new customers, each is highly capable and we’re proud to be working with each. Tenova. Tenova is an innovative, European film converter launching a new line of compostable bags and packaging solutions across Europe. In Sweden, which Tanova is based, biogas generation from organic waste is a critical and growing component of the countries renewable infrastructure. Mirel products are suitable for disposal and anaerobic digestion facilities, in aid and production of biogas.

[Inaudible] Cortec. A Cortec is a U.S. based film manufacturer launching two new products based on our Mirel P5001 product; EcoOcean from marine degradable markets, and EcoWorks AD which is designed to meet the demands of anaerobic digestion systems, thus offering a new disposal option for bioplastic products. Cortec is a leader in the development innovative corrosion protection solutions, and distributes product in over 70 countries.

Next is [inaudible]. As we spoke in our last call, the Italian back market due to the banning of non-biodegradable bags, offers a very attractive opportunity for us. Prior to the ban, approximately 400 million pounds of polyethylene was being sold in this market, and [inaudible] is one of our early adopting customers, is now selling Mirel based bags into this market.

Our pricing guidance of $2.25 to 2.75 per pound of compounded resin is still valid, and we continue to get higher prices in certain niches.

The overall pipeline remains strong and we discussed last quarter two specific challenges that held back some of our near-term potential. The supply disruption of a third-party formulation ingredient that affected about 10 near-term potential customers, and the optimization of the physical properties of our film price, aimed at a specific segment of the agricultural market, which affected about five of our customer prospects.

These types of issues, supply disruptions and product optimization, are common in the plastic industry but in our current small scale, the impact is magnified.

We are still seeing some of the implications of these disruptions but I have made considerable progress in reformulating around the third-party formulation ingredient. We’ve also improved the physical property that the mulch film product, to meet the retail segment and requirements which now being validated. And we have an alternative product being sold into the industrial segment.

We continue to work to address this diverse but very attractive agricultural segment. Given recent market developments, we still anticipate the milestone for the joint venture to transition to the commercial FASTe of this relationship to occur in the second half of 2011.

Outside of those developments, much is the same for Telles as in previous calls. ADMs Clinton Iowa polymer plant, the supply source for Mirel bioplastic, is up and running. ADM with Metabolix support is in the process of improving yields, reducing cost, and debottlenecking the facility to increase capacity. This will be an on-going process and in inherit in how we operate the business.

We expect the plant 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, of our various product rates at distribution points 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 throughout injection molding, thermal foaming, sheet and film applications, and we have ongoing developments in the area of foam, blow molding, non-wovens, paper coating and latex.

As described in our previous calls, 2010 was a transition year as the Telles business was launched and 2011 is a year when we expect significant number of current customer development will materialize as new 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 for ADM.

In industrial chemicals, we are leveraging our PHA gene 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 which we call FAST, fast acting selective [inaudible].

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 strategy into this space.

Our technology is unique and that the same basic process can produce both families of products with only 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 much smaller market than the $10 billion C3 and C4 market and as such, it is currently a lower priority for us.

We continue to move ahead well in our industrial chemicals platform. Let me recap our milestones and our progress.

First, a samples of our C4 product were sent to customers in Q1. This as you know was completed. Second, feedback from customers in Q2. This is has also been completed. We received very favorable feedback from targeted customers, both with respect to purity of product and successful conversion of our product to key derivatives.

Additional sample shipments are planned for Q3 with the goal to extend the testing. Our process, albeit currently in small scale, produces very high quality product in a very efficient manner.

Our third target was to be ready for engineering design for a commercial facility by the end of this year. This means we will have proven out all key technology elements at a size which allows the process to be scaled up to commercial levels. We are still on track to complete this, and also anticipate producing tonnage sized quantities of material by the end of the year

One of the most significant steps forward in our industrial chemicals platform this quarter was the initiation of a joint development agreement with CJ CheilJedang, or CJ to further advance our C4 technology and develop a market entry plan for C4 chemicals.

For those of you not familiar with CJ, they have a rapidly growing food biotechnology and pharmaceutical company based in Korea. They are a leading producer of amino acids, including [inaudible], and operate world scale fermentation facilities in Brazil, Indonesia, and China. They are seeking to build their biotechnology business and the Metabolix C4 technology fits in very well with their plans.

Today’s press release outlines the respective role of each party. CJ will utilize Metabolix, microbial strains produced dry fermentation broth which is a precursor of C4 chemicals. No pure polymer is recovered.

In addition to further enhancing our microbial strains, Metabolix will take the dried fermentation broth from CJ and recover high purity C4 chemicals for market development.

CJ and Metabolix will work together on a detailed site and market analysts, examining the potential integration of the Metabolix C4 technology into one of the existing CJ sites in Indonesia, China, or Brazil, or potentially into a new site. Alternative market entry models will be analyzed together.

Given their on the ground presence, CJ will play a key role in examining market opportunity for C4 chemicals in Asia. Together, we will meeting with perspective customers in this fast growing region of the world. Each party is responsible for its own cost and this is a non-exclusive relationship for both sides. We anticipate the work being complete within a year.

We are very excited to be working with CJ towards commercialization of our C4 chemical platform. We’ll keep you informed on progress, but feel comfortable with the milestones that we have communicated today.

We are also now in early stage discussions with potential manufacturing and offtick on our C3 technology program. This is obviously leveraging much of our C4 work and equipment, and technology development will follow the C4 program by about one year.

Our third Metabolix platform is our crop based activity including our programs in oilseeds, swithgrass and sugarcane. All in all we are excited about this platform as we can see the pathways we’re developing, ultimately replacing capital intensive operations such as oil and gas exploration and production, refining, olefins and polymerization by producing polymer directly in crops. Our crop programs offer numerous options to produce low-cost chemicals, plastics and fuels in a very sustainable manner.

This past quarter we were excited to have been awarded a $6 million department of energy grant for development of our biomass program. The work being funded will allow us to increase the PHA levels, expressed in switchgrass and conduct pilot testing of the production of chemical intermediates via our FAST process.

In this approach, we will feed biomass containing PHA to our FAST recovery process, recovering commodity chemicals which can serve as a basis for maleic anhydride, butenal, among other products.

Our residual is a densified biomass suitable for firing onsite, converting to fuels or being effectively transported to other users.

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 expanding the customer base for the Mirel business and can see more than sufficient demand for selling out Clinton 1.

In industrial chemicals, we received positive feedback from potential customer this quarter and are moving to be ready for commercial plant engineering for our C4 program by year end. In addition, we entered into an exciting joint development agreement with CJ.

In our crop based businesses we received a significant grant from the department of energy and continue to move the science effectively ahead. 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. Thank you for joining the call. I’ll now focus on the financial results for our second quarter end June 30, 2011.

As always, we managed our finances with an emphasis on strict cash flow management. We have maintained this focus and ended the second quarter with $95 million in cash and investments. For the second quarter, we used $5.9 million of cash for operations. This compares favorably to the $9.4 million we utilized in the first quarter and is down from the year ago second quarter level of $7.4 million.

3.5 million decrease in net cash usage in the second quarter 2011 compared to the first quarter 2011 was attributed to accrued annual bonus payments made in February each year, an increase in related party receipts and changes in working capital related to accounts payable. The decrease compared to the year ago period was primarily due to an increase in related party receipts and [inaudible] in working capital accruals.

Through the first 6 months of 2011 ending June 30, net cash used in operating activities was $15.3 million as compared to net cash used of $16.8 million for the comparable period of 2010. The year-over-year decrease in cash usage for the first six months of 2011 is primarily attributed to an increase in cash receipts in 2011 over 2010. This increase in cash receipts for the first 6 months of 2011, is a result of an increase in related party reimbursement and royalty payments.

I’ll now give some additional detail on the company’s financial results for the second quarter 2011 ended June 30. Total revenue for the second quarter 2011 was $191,000 versus $109,000 for the second quarter of 2010. During the 3 month ended June 30, 2011, revenue primarily consisted of royalties and license fees earned under licensing agreement with Tepha, Inc. a related party, and government grant revenue.

The quarter-over-quarter increase was primarily attributable to higher revenue recognized from government research grants. Total revenue for the 6 months ending June 30, 2011 was $517,000 versus $289,000 for the year ago period. And the year-over-year increase was primarily related to sub-licensing royalties from Tepha, Inc.

Total operating expenses in the second quarter of 2011 were $10.2 million, an increase of $510,000 relative to the comparable quarter in 2010. Research and development cost were $6 million, an increase of $162,000 relative to the comparable quarter in 2010.

Selling, general and administrative costs from the second quarter of 2011 were $4.2 million and increase of $348,000 relative to the year ago quarter. For the 6 month ended June 30, 2011 total operating expenses were $20.2 million as compared to $19.7 million for the respective period in 2010. Research and Development expenses were $12.2 million as compared to $12 million for the comparable 6 month, 2010. Increase of $200,000, was due to increase in employee compensation and related benefits expense. Research and Development supplies and services, and contracted research, partially offset by a decrease in material production costs.

Selling, general, and administrative cost in the first 6 months of 2011 were $8 million as compared to $7.7 million for the comparable 6 months in 2010. The increase of $300,000 was generally attributable to an increase in employee compensation and related benefits expense, an increase legal fees, partially offset by a decrease in consulting fees and related expenses.

Net loss for the second quarter was $10 million, or $0.33 per-share. This compares to a net loss of $9.5 million or $0.36 per-share in last year’s second quarter. Net loss for the 6 month ending June 30, 2011 was $19.6 million or $0.69 per-share compared to $19.3 million or $0.73 per-share in the same period of 2010. This increase in net loss is mostly driven by increases in operating expenses, offset partially by an increase in revenue.

Now onto the balance sheet, our balance sheet remains strong. As of June 30, 2011 we had cash and investments of $95.2. This reflects the additional funding received in a recent secondary offering, and compares to $61.6 million of cash and investments as of December 31, 2010. We continue to have no debt.

I’d like to reiterate from last quarter’s call that as we reached the commercial FAST milestone of the agreement with ADM 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. When this occurs, we’ll also begin to offset cash usage as we receive royalty income on Mirel sales of approximately 10 to 12 sets per pound, which would amount to approximately $12 million per year, that’s a Clinton plant design capacity.

While the split of Telles’s operating profits does not occur until the ledger balance is fully paid down, the combined effect of both of these events will have a significant positive impact on the company’s cash flow.

As of June 30, 2011, the ledger balance was $421 million. This increase in the ledger balance from March 31, 2011 is primarily attributed to operating cash needs at Telles.

With that, we’ll now open the call to questions.

Question-and-Answer Session

Operator

(Operator instructions). We’ll go first to Mike [Withenthalor] from Piper Jaffray

Mike [Withenthalor] – Piper Jaffray

Good afternoon, guys. My first question is around the CJ Bio agreement. Obviously they primarily make amino acids as alluded to in your prepared comments, presumably they have a good expertise in bacterial fermentation, which would be useful for you.

So can you give us a little bit more of a handle on what sort of fermentation assets they have in Brazil and Indonesia and China? And then I guess the second part of that question is, is the pricing strategy for the GL BBDO, the THF and the TTD types of markets that you’re targeting, is the idea to still go after green-premium markets where you hope to get, you know, a two to three-x AST lift from markets that are looking for more of a green pull?

So I guess that was my first question. It’s kind of two-part.

Richard Eno

Sure. Thanks, Mike. In terms of the assets that CJ operates around the world, we’re exciting that they have facilities in some very attractive and interesting places for chemicals manufacture, namely Brazil, Indonesia and China.

The fermentation assets they have, you can research them to determine what they’ve disclosed about capacity at each site. But we’re very confident their screens will run very effectively in those assets.

And a key part of our agreement with CJ is to work to a very detailed analysis about the implementation and the construction of the Metabolix technology at those sites as well as potentially new sites.

So it’s truly a company with great fermentation expertise, with very synergistic market footprint relate to where the chemical markets are actually growing.

Mike [Withenthalor] – Piper Jaffray

With regards to your second question on pricing strategy, you know, no, we’re not – in our industrial chemicals platform, we’re not counting on going premium. We are aiming to get the technology to deliver returns at pricing parity to petroleum-based products that are out there now. You know, what we’re hearing from the market right now is there seems to be a bit more understanding from the end users of offering a bit of a premium to many products to enable some of these new renewable technologies to get to market. But the conversations are clear that over the long haul, there will be no premium and you have to compete on costs.

So that’s what we’re thinking about, and as we’re looking at our production economics, our feedstock sourcing, our yields, we’re all working on the basis that we are competing on costs for petroleum-based materials.

Mike [Withenthalor] – Piper Jaffray

Okay. That’s helpful. And then I guess my second question is on the cash burn in the quarter. You know, sequentially down quite a bit and you know, year over year. Joe had touched on some of these in his prepared comments. I just wanted to get a little bit more color on, you know, going – on a go-forward basis. So you know, an increase obviously in this quarter, an increase in cash receipts and funding from related parties, that type of thing.

And going forward, is this, you know, for the next at least two quarters I guess, is this level of cash burn something that you would expect, or would you expect it to increase until you hit the million-pound threshold?

Joseph Hill

I think our cash burn was lower than the trend this quarter, for a couple reasons. One was we had received some significant payments from related parties, that we received some cash from Tepha in royalties. I think that as we go forward, it should go back to where we were at about 8 to $9 million per quarter.

Mike [Withenthalor] – Piper Jaffray

Okay, that’s fine. Thanks.

Operator

And well move next to Jinming Lui from Ardous Capital.

Jinming Liu – Ardour Capital

Thanks for taking my questions.

Joseph Hill

Hi, Jinming.

Jinming Liu – Ardour Capital

Yeah. Hi. My first question’s related to the CJ JDA. Do you specify what scale the fermentation will be carried out? Meaning they, do you want them to run the fermentation [inaudible] or all the way to the commercial scale fermentation?

Richard Eno

Yeah. We’ve not – that’s not specified. I mean, what we’re doing is we’re in the process already of scaling up well past, you know, the thousand-liter scale already. And we actually feel quite comfortable with fermentation scale up given our years of experience in that.

So really, what we’re designing the fermentation process around is what’s needed for market development at this point. So we’re aiming to produce tonnage-sized quantities of C4 chemicals by the end of the year. And you know, clearly as part of the JDA, CJ will be running some of these fermentations to be [inaudible] with them and we have very high confidence they will be able to very successfully operate these processes.

Jinming Liu – Ardour Capital

Okay. And on the [inaudible] chemical, I saw many renewable chemical companies are getting a [inaudible]. Some of them are, you know, gearing up pallet or demonstration skill facilities for product of some C4 chemicals like PDO. What do you see your technology against theirs?

Richard Eno

As you know, Jinming, the technology landscape is moving very fast in this field, and there’s a lot of people looking at clearly renewable source of the chemicals.

We are extremely comfortable about the ultimate competitive position of this platform, and two reasons for that. One is that the fermentation experience that we’ve gotten over the years and the scale of fermentation has gone very well and it’s a very robust fermentation with very high productivity.

But probably the greatest differentiator is the uniqueness of the recovery process, this FAST process, which allows polymer that has been basically sequestered in the cells to be released in a vapor form.

And what that means, the separation is very selective, very pure, and very light on capital. So as a result, the, you know, it’s usually very difficult to separate high purity products out of fermentation broth in the liquid FASTe. We’re doing it in the gas FASTe, which is a much, much easier way to go.

So as a result of those two factors, we’re very comfortable with our competitive position and we’re moving very quickly to continue to develop the market and to continue to own the technology. And the JDA [inaudible] is going to help us do that.

Jinming Liu – Ardour Capital

My last question is regarding your DOE grant. I read that [inaudible] from the DOE, it looks like the grant is for an increased yield of switchgrass. There is nothing mentioned in the [inaudible] PHA production in there. So – sorry? Go ahead. [Inaudible], grant and in there it mentioned the purpose of that grant is for the increase of the yield of switchgrass, nothing about PHA was mentioned in there. Can you clarify that?

Richard Eno

Yes. So the [inaudible] is targeted at two occupied. The first is to increase the concentration of PHB in the switchgrass. That’s the major task. That’s the Metabolix engineering, genetic engineering task. And the second task is to utilize the FAST – demonstrate the FAST process, this thermal technology ot recovery plutonic acid. And the final task in that is to demonstrate a number of different catalytic conversion os plutonic acid to induce chemicals.

We are working with partners for federal conversion and also some of the catalysis to convert plutonic acid to the chemicals. That’s basically the nature of the grant.

Jinming Liu – Ardour Capital

Okay. But the [inaudible] so that’s why I wanted to clarify. Thanks.

Richard Eno

You’re welcome.

Operator

The next question comes from Laurence Alexander from Jefferies.

Laurence Alexander – Jefferies

Good afternoon.

Richard Eno

Hello.

Laurence Alexander – Jefferies

I guess first of all, on the Telles JV, can you give a little bit more detail without the product issues that you’re partners are dealing with? What kind of obstacles that they’re running into and are these obstacles that each new partner is going to run into or can you transfer the learnings from – or the solutions from one customer to another to help people move up the curve a little bit faster?

Richard Eno

What – I guess I may need just a little bit more clarity on what you mean by partners? You mean suppliers, customers, just a little bit more clarity to help us answer.

Laurence Alexander – Jefferies

Well, it depends on which issues – you refer to several different types of issues. If you could go through them, give me all the issues you have for the supplies and then the issues you have with your customers who are trying to work with your [inaudible].

Richard Eno

So think about it in two ways. One is supply and the second would be product. So on the supply side, in the plastics industry, it is very common that arranged materials are combined in various combinations to actually produce desired products and properties.

As we noted in our last call, there was one of those ingredients that there was a supply disruption. So what we did, and what is typically done in the industry is you formulate around it. And that’s what we managed to do this last quarter, is we find different ways to make the same product and – or I say a product with equivalent properties using different materials.

And over time in this industry, what happens is you build up a whole host of different formulations and ingredients in order to get to the same end point. And that’s exactly what we did in the second quarter.

So we’re largely past that right now and as that ingredient comes back on the market, we’ll look at the ability to continue to source that to produce the product we were producing before, but then compare it to the product we’ve developed over the last quarter.

And that’s pretty common, Laurence to me, in this industry. It’s not a desirable situation to be in, but you know, overtime you start building up a suite of these recipes that you can work around. And that’s what we’ve done.

On the second area, on the product side, the example we cited last quarter was in the agricultural mulch-fill market, which I believe is 6 billion pounds of plastics to manage each year.

And there’s a range of different performance requirements in that market that depend on whether, you know, it is a retail market, an industrial market, and those properties have to do with tear strength, so if something gets pulled behind a tractor, it’s going to maintain it’s integrity. It has to do with the rate of degradation that that fill has, which is different in different climates and for different crops.

So you know, and we’re constantly getting feedback from customers, so in that case, what the customer asks for is greater in performance in one of those attributes and that’s what we’ve been working on and we feel we’ve knocked that one out as well. And that’s in the final validation testing now.

So in this industry, and part of what we’re seeing across a lot of our customers is, you know, we’ve got a very good working relationships and very good marks from out technical support team and commercial team with how we’re interacting with customers. But it does tend to be a bit of an integrative process as they see this new product and they hon in on exactly the properties that they would like for their application.

That will starting to slow down, I believe, as we start getting more and more customers out there that you get into a zone for a certain application and that starts to replicate across the application and we’re starting to see that now, for example, in the compose bag area. And that will happen again as the business matures and we grow, that we’ll always have optimization of products, but when you get into the zone for certain applications, you then can replicate it across that application. And that’s beginning to happen also.

Laurence Alexander – Jefferies

And how many customer does the JV have product in however small of quantity actually being out in the marketplace where consumers can touch the material?

Richard Eno

Well, hard to say. I don’t know if we even can answer that ourself. What we have said is we’ve got 100 – roughly 100 that we’re working with. Of that 100, we’ve got, you know, 50 customers, meaning paying for product, and we’ve got about over 15 or so in repeat orders.

So you know, 100 people are working with this product right now and whether they actually have molded that into a part in testing that it’s hard to know the precise number. But there clearly are, you know, a number of customers that have products out in the market in small scale testing it. So – but I can’t point exactly, Laurence, to the precise number that have product in the market as final finished product right now.

Laurence Alexander – Jefferies

And then with respect to this new development agreement, do you have any rough sense for what the draw on your capital will be for your part of the first stage of the JV venture? I mean, are we looking at 5-million spend, 10 million?

Richard Eno

No, it’s not a dramatic change over what we have been using – utilizing in the last couple of quarters. You know, we’ve got a team deployed against it. They’re moving very rapidly to finalize process of design elements. We’ve got pilot locations selected. We’re working in that – I think the – as we move towards the latter half of that agreement, one of the big decisions is to remove up to, you know semi-commercial quantities of product for further market development and right now we’ve got just – we’ll work that through with CJ and we’ll decide of what scale that would be.

But that type of investment would be seen in 2012, not this year.

Laurence Alexander – Jefferies

And then lastly, as you look at conversion costs, you know, to make either the [inaudible] BDO, how much of a disadvantage are you at working through a multi-step process rather than direct to production, and working through, you know, if you would have to use more heat to do a gas transformation of a solid product as opposed to doing something that is separated out at room temperature? What’s the [inaudible] on capital cost and conversion costs?

Ronald Eno

I’m not sure that there’s any process out there with things separated out at industry purity at room temperature. But that being aside, the process that we’re using for recovery is extremely energy efficient. We may think – it could be close to energy neutral given the heat you recover in the process as a way to dry the fermentation broth. So it’s very energy efficient and water efficient.

So we don’t see much cost there. And because the metabolic pathways take us very quickly from sugars to GDL, we’ve got a very advantage path to GDL.

So I think that, Laurence, the GDL is the – our platform molecule for the C4 industry. And from that platform, we are looking at the best way to get to THF and to PV2. And if we go to butane dion to get there, that’s also has to be considered. Butane bio is consumed in [inaudible] industries and if we can short circuit some steps to get there, we can think of it as a GBL platform business as opposed to a way we should have to get back to butane dion.

We’re looking at all the different half way within the C4 industry but the recovery process is highly effective to get to GBL. And you know, again, I don’t think there’s other processes that operate without a lot of different steps at room temperature to get to an industry mature product.

Laurence Alexander – Jefferies

Thank you.

Richard Eno

Thanks.

Operator

We’ll move next to Jeff Osborne from Stifel Nicolaus.

Jeff Osborne – Stifel Nicolaus & Co.

Great. Good afternoon. Most of my questions have been answered. Just a few quick ones. Just so I’m clear, when you come up with a new formulation because of the supply construction, do you have to re-qualify the product with the customer?

Richard Eno

We re-qualified, Jeff, may be a strong term. It is done in usually an interactive way with customers, and we’ll get immediate feedback, yeah, this meets our performance requirements and that would be qualified. It’s less of a – I would describe it as less of a formal process and more of one where you’re just working to meet customer needs [inaudible] stage of development.

Jeff Osborne – Stifel Nicolaus & Co.

Okay. And then first you’ve been talking about the bottlenecking now for, I don’t know, 12, 18 months. And from my understanding, the 110 million pound [inaudible] was kind of lost in the stone and I don’t know, [inaudible]. You know, at what point can you come out and tell us, you know over the last 18 months or two years, here’s the tweaks we’ve done and you know, maybe not specifics but you know, my sense is that maybe the plant’s 130 or 140 million pounds by now just because you, you know, you’re planning to gain more experience [inaudible]. You know, both in your own labs and now at the plant. Wouldn’t it be of help to be a little bit more transparent to your investors given people are looking out to 2014 and 15 for you folks if the plant’s actually 15 or 20% larger?

Richard Eno

Yeah. Ultimately, I think that is something we’ll do as we get more experience pushing the plant at higher levels of production. But right now, we’re still in the early market development stage, so our primary concern is, you know, getting the initial and our communications has largely being trying to keep people apprised on how we’re moving these prospects through the pipeline, how we’re thinking about developing the market, how we’re planning to ramp it up. As we get further along, that will become very important because it relates to capital usage, amount of capacity you can get out of the plan and you know, ourselves and the ADM team that is operating the plant is getting considerable experience at operating the plant and as good – as a good manufacturing organization that they are, they keep working on yields. And this is an ongoing process and it just keeps getting – they just keep showing improvement.

So right now, given the low sales level, it’s not quite as important. But as we start to ramp up, I agree with you, Jeff, it will become more important for understanding the future demand from the business.

Jeff Osborne – Stifel Nicolaus & Co.

And just a last thing. I think there’s been some stuff in the local press in Clinton, Ohio, about you know, resident complaining about the plant with the smell and I think ADM has fought with the city council to use [inaudible] for the process that has some adverse impact on air quality. You know, are [inaudible] these sort of near-term obstacles that happen with every chemical plant out there in the country or is this something specific to the client that there may be a concern and perhaps prevents you for getting commercialization this year?

Richard Eno

No, I mean, first of all, I want to be clear that ADM owns the plant and ADM operates the plant. And you know, to the best of our knowledge, they’re meeting every environmental and regulatory requirements for the plant. And you know, we’re not really commenting on actions of the neighbors but the plant is meeting requirements and the plant is operating and producing product that our customer’s very pleased with. That’s more a question for ADM in terms of the local community and how that’s being managed. But the ADM plant is just meeting all the requirements that it’s required to meet.

Jeff Osborne – Stifel Nicolaus & Co.

Thanks much.

Richard Eno

Thank you.

Operator

It appears there are no further questions. At this time, I’d like to turn the conference back over to our speakers for any additional or closing remarks.

Richard Eno

Thank you very much. I’d like to thank all of you for attending our call today. We’re very pleased with our progress and have a lot of enthusiasm about the long-term potential for each of the 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 thanks again for joining us on the call, and you all have a nice evening. Thank you very much.

Operator

That concludes today’s presentation. Thank you for your participation.

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