Please stand by. We are about to begin. Good afternoon ladies and gentlemen thank you for standing by. Welcome to the Metabolix Inc. First Quarter and Fiscal Year 2012 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 (inaudible) of ICR. Please go ahead.
Unidentified Company Representative
Thank you, and good afternoon, everyone. Metabolix released first quarter 2012 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. In addition, today we have provided several slides to accompany the presentation. These slides will also become available on the Metabolix’s website following today’s call.
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. Investors are also cautioned that statements in the discussion today, which are not strictly historical statements constitute forward-looking statements.
Such forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated, including the other risks and uncertainties detailed in Metabolix’s filings with the Securities and Exchange Commission including the company’s 10-K filed on March 12, 2012. 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 the conference call.
With that, I’d like to turn the call now over to Rick Eno, President and CEO of Metabolix. Rick?
Thank you Elsenhans. I’d like to welcome all of you to the first quarter 2012 earnings conference call for Metabolix. Today I will provide you with a review of the Metabolix vision, and an update on each of our three platform areas, and then Joe will take you through the financials.
While I understand that for many of our long-term investors, a company overview is unnecessary, many of our newer investors find it valuable. I’ll take about a minute to provide some company context.
Metabolix is an innovation-driven bioscience company, which is focused on delivering sustainable 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’re leaders in producing and upgrading a broad family of materials called PHAs. PHAs are energy storage molecules found in nature, which have a number of useful properties as plastics and can also serve as a unique source of renewable chemical intermediates. As a result of our capabilities and work in PHAs, we have assembled a strong IP portfolio as an anchor for our commercial initiatives.
We currently have deployed our PHA technology across three business platforms. First, Mirel, a family of biobased and biodegradable polymers; second, Industrial Chemicals, initially focused on C4 and C3 chemicals; and third, crop-based activities, which include our programs in oilseeds, switch grass and sugarcane.
On review of the business, I’d like to begin with Mirel bio-polymers. So let’s turn to slide two of the accompanying slides. We are driving the biopolymers business forward across many fronts. In early March, all business operations for our PHA biopolymers platform which transfer to Metabolix.
During the transition, in the first quarter, we provided customers with access to product inventory and began to fill orders from customers. During this period, our teams set up would be appropriate administrative, logistical and financial systems to enable us to take orders, deliver inventory and record sales for Metabolix. After March 6, the settlement date of our relationship with ADM, Metabolix recorded the first sales of Mirel biopolymer on our books.
The revenue recorded in the quarter reflects small orders from existing Mirel biopolymer inventory for a number of customers primarily in the areas of horticulture, aquatic applications, molded bioplastic items. So our sales level reflected about three weeks of activity commencing immediately after the settlement of the Telles determination negotiation with ADM.
I’d like to mention that we are now gaining further visibility on customer orders expected to shift in the second quarter. One area where we expect to be active in the second quarter, is the compostable bag market in Europe. As you know we are been working with European customers to develop and market compostable bags based on our assumptions and we are pleased to say that we have recently resume productive conversations with customers serving this market.
In addition, I would like to remind everyone that our goals is not to sell the morale and the inventory as fast as we can. But, to use our inventories strategically to provide product to core customers as we bridge to new suppliers.
With more than 5 million pounds of product inventory available we expect to have adequate product inventory to supply core customers with PHA bio-pharma until new inventory becomes available and to continue product development in high value-added applications.
Note that prior to the start of the ADM facility our private plan can produce less than a half million pounds per year. So we have significantly more product from market development than we did at the start of the OEM facility and we anticipate the capacity of our targeted production site to be much less in the ADM asset. I will mix the Metabolix also continues to engage core customers in discussions of inventory requirements and in first quarter continue to provide product samples to potential customers. The feedback we have heard on the attributes and performance of our product continues to be positive.
Later in the call, Joe will provide additional color on revenue, costs of goods sold and the evaluation of inventory as of first quarters.
Today I’d like to spend a few moments to profile our relationship with long-time customer Ball Horticultural. And intentionally, we are now in greater producer in wholesale distributor of ornamental plants. We begin to work with Ball in 2008 to develop soil wrap and after significant investment and development we announced last year highlighted marketing of the product. In the first quarter, the Metabolix team were great to the transition in the business to ensure Ball would stay on track to commercially launch its new by morale based biodegradable continues to leading retailers this spring. This launch includes from the numerous locations in 20 states. We congratulate all and they grow as it’s as important commercial launch and want to highlight their commitment to developing this innovative solution.
Our vision is to have many customers like (inaudible) to do this on a commercially important scale, we must restore the supply chain to allows the business under a new commercial model. As you know, we have opened in advanced discussions with perspective manufacturing and commercialization partners the biopolymers and our focusing on evaluating certain manufacturing options and locations worldwide.
In a yearend call, we said we are considering about 10 potential manufacturing sites worldwide. As we stand right now, we are working on four specific locations as potential production site.
In second quarter, we plan to conduct due diligence to enable us to narrow our choices to a very short list for final selection.
In going through this process, we have also been evaluating the potential to integrate the manufacturing of bio polymers with bio based chemicals. And I will return to this point in a moment.
In April, we opened a new business office as a focal point for commercial activities in Europe, the office is located in the Biocampus, bio tech park Germany in (inaudible) Germany this space which is initially staffed with two employees will enable us to directly access the European market for bioployers and will serve as a coordination point for outstanding regional initiatives in renewable chemicals. We expect this space give us visibility and presence in the European market, which is the largest for bio plastics while at the same time being very cost effective for us.
I would briefly mention that also in the first quarter, though previously announced we received FDA clearance for food contact applications. For the next generation of (inaudible) technology. In addition, we are also granted a license to NatureWorks, a global leader in the PLA biopolymers industry. This intellectual property will help NatureWorks expand the market to bioplastics to blending its PLA product with other bioplastics.
Overall I think we have achieved a level of momentum in the biopolymers business over the few months in appreciate to support we’ve seen from customers and business partners. Now I am on slide 3, to update you on a chemicals platform. In industrial chemicals we are leveraging our PhaG technology to enable chemicals that are currently being produced from faster fields to be produced from renewable raw materials.
We utilizing a fermentation process and the efficient integrated – complete process to produce our targeted chemicals, which we called FAST Fast-Acting, Selective Thermolysis. The PHA approach is a unique platform, which enable us a pipeline of chemical product opportunities for Metabolix, my competitive assessment has indicated that our PHA fermentation technology plus a simple recovery process results in a highly competitive production platform for bio based chemicals.
We have selected the C4 family followed by the C3 family of chemicals as an entry strategy into this space. Our technology is unique and at the same basic process can produce both families of products with only relatively minor tailored purification modifications based on the specific molecule being produced. In the C4 program we have been sampling C4 chemicals specifically GBL produced up a 60,000 leader scale.
We have continued work with our C4 chemicals joint development partner CJ CheilJedang as well as others towards commercialization of the C4 chemicals platform. We are actively involved in site and market analysis as well as reviewing the stock markets. We also have received independent confirmation of the cost competitiveness of our GPL and BDO products and receive positive evaluation of the purity of our samples as well as the conversion to downstream products.
And as C3 chemicals program, we are also now in a range of discussions with potential feedstock manufacturing and uptick partners for our renewable C3 chemicals technology.
As a result of these discussions, in the first quarter we produced densified biomass polylactic acid, a key C3 chemical and we expect to sample it to perspective customers beginning in the second quarter. The sampling process is a key step along the path toward securing industry partnerships.
A few words on patents. Metabolix has over 700 issued in pending patents covering our technology platform. The strategy around the intellectual property portfolio has been to aggressively pursue patent protection for our enabling technology, manufacturing processes and downstream applications.
In the first quarter, we were issued two new key patent, U.S. patent 8093022-title polyhydroxy alkanoate, biopolymer compositions. This patent enables production of a series of new PHA biopolymer compositions using genetically engineered micro real strengths. And U.S. patented 8114643 polyhydroxy alkanoate production from polyols. This patent enables the creation of genetic contract to make the biobased chemical 3-hydroxypropionic acid 3 HPA in microbial and crop plant system.
3 HPA is a precursor to PHA polymer P3HP which is the key polymeric intermediate for the production of our bio acrylic acid. We look forward to additional pattern awards in 2012 based on our work to-date we remain confident that we have a robust and cost effective technology to make bio-based drop in chemicals. And now turning to slide four as I mentioned earlier we are engaged in discussions to secure manufacturing supply of bio-polymers one new option that is factoring into our strategic thinking is to integrate manufacturing of PHA bio-polymers and PHA bio-based chemicals.
All of our PHA molecules share a common fermentation platform in the customization is in the genetically engineered micros the recovery process is different for bio-polymers versus chemicals for bio-polymers the recovery process is designed to extract intact bio-polymer for chemicals we utilized our fast process which is designed to break polymers into their monomer units to create the target chemical.
We currently view this as a paradigm for integration, we like to efficient structure and flexibility the small it could provide as we ramp to commercial scale, it also allows a similar asset to be used to commercialize a pipeline of PHA based chemical opportunities.
I’m now on slide 5. Our third Metabolix platform is our crop-based activity including our programs in oil seeds, switch grass and sugarcanes. Long-term this is an exciting opportunity and historically we have leverage government grants in academic research collaborations to move this work ahead. All in all we’re 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 – by producing polymer directly in crops. Our crop programs of numerous options to produce low cost chemicals, plastics and fuels in a very sustainable manner.
This past quarter we continued to made progress in our work on the $6 million Department of Energy grant for development of our Biomass Program. This funding work will allow us to work on increasing the PHB levels expressed in switch grass and conduct pilot testing of the production of chemical intermediates via our FAST process.
PHB is one of the key PHA structures, which we can express in the leaf tissue of plants. In this approach, we will feed biomass containing PHBs to our FAST recovery process, recovering commodity chemicals which can serve as a basis from maleic anhydride, butenal and propylene among other products.
Our residual is a densified biomass suitable for firing on-site, converting to fuels are being effectively transported to other users. I would also like to mention our crop research that published our creek findings in top research was published in a review journal.
In March 2012, researchers at Metabolix along with collaborators from the University of Queensland, Australian institute for bio engineering and nano technology published a paper in the plant and biotechnology journal demonstrating the genetic constructs used to produce PHP and switch grass could be directly transferred to sugar cane and produce the same level of PHP accumulation in plant tissue.
These results highlight the cross BC synergy of our research and importantly expand the range of biomass crops suitable for deployment at Metabolix technology. Finally from a corporate perspective I would like to mention that we recently added Steven Large currently CEO of FSI Group to our Board of Directors. Remain Steve to the board in March. Steve has a very impressive background and track record in the global chemicals industry. We are pleased he has joined our board and look forward to benefiting from his broad experience. Earlier this month we filed an 8-K indicating that at jails has decided not to stand for reelection to the board at our annual meeting on May 31. I will note that over the past year we have expanded our board with four members and given (inaudible) plan departure from the board have seized the board to 11 members. I would like to thank for Ed for his many years of outstanding service to Metabolix. GAAP reps of the business review. And I would turn the call over to Joe for a review of our financial results for the first quarter?
Thanks Rick. And thank everybody for joining the call today. I will now focus on the financial results for our first quarter in the March 31, 2012 as always we manage to finance this with an emphasis on strict cash flow management. We had maintained this and ended the first quarter of $66 million in cash.
Turning to slide six, for the first quarter net cash used in operating activities was.$12.3 million which represents an increase in cash usage from $8.6 million used during the fourth quarter of 2011 and an increase of $2.9 million over the comparable quarter through 2011.
The $3.7 million increase in net cash usage in the first quarter 2012 compared to the fourth quarter 2011 was primarily attributable to the purchase of more than $5 million pounds of DHA inventory approximately $3 million. The increased cash usage also included restructuring expense of $900,000 and annual bonus payments made of $1.2 million partially offset by lower expenses to reduced head count.
Turning to slide seven, I will now give some additional detail on the company’s financial results for the first quarter 2012 ending March 31. Total revenue was $39.3 million and $300,000 through the three months ended March 31, 2012 and 2011 respectively.
The first quarter 2012 revenue consisted primarily of $38.9 million in non-recurring previously deferred revenue which is recognized as part of the termination of the joint venture with Archer Daniels Midland.
The deferred revenue balance have been building since 2004 and was recorded as a liability on our balance sheet. Payments that have been reported as deferred revenue consisted of $3 million and an upfront payment, $2 million of milestone payments, $22 million of support payments and $11.9 million in cost sharing payments. This deferred revenue was expected to be recognized over 10 years starting with the first commercial sale which is a technical milestone outlined in the commercial alliance agreement with Archer Daniels Midland.
However as a result of the termination of the commercial alliance agreement on February 8, 2012, Metabolix has no further performance obligations and the deferred revenue balance was recognized in full in Q1 2012. Metabolix did not received any additional cash relates to recognition of the deferred revenue. Metabolix also recorded revenue related to the sale of PHA inventory in the amount of $14,000 and related cost of sales of $55,000.
The cost of sales includes the value of the inventory sold in warehouse and freight cost. Cost of product revenue will include ongoing warehouse costs for the inventory. We expect to have a positive product contribution as the sales volumes increase. The quarter-over-quarter increase in revenue also reflects an increase in government research grant revenue, partially offset by a decrease in license fee and royalty revenue.
Revenue in the first quarter of 2011 primarily resulted from revenue recognized from royalties under license arrangement with Tepha the related party. Total operating expenses in the first quarter of 2012 were $10.4 million versus $10 million in the comparable quarter of 2011, selling general and administrative cost in the first quarter of 2012 were $4.4 million versus $3.8 million in the first quarter last year. Included in the selling general and administrative expense or one-time restructuring expenses of $400,000.
Research and development costs were $6 million versus $6.2 million in the comparable quarter in 2011. Included in the research and development expenses or one-item restructuring expenses $500,000. As part of the restructuring our related head count reduction, we’ve decided to consolidate some of our facilities, as you know we have two facilities in Cambridge Massachusetts and – Massachusetts we are taking steps to sublease our news reading office in Cambridge and in early May we will reallocate those employees to the other two locations.
In addition we recently announced the opening of the European office located in Cologne, Germany.
Taking together these changes for our facilities plan simplify our Massachusetts footprint and provides us with cost effective means to access the European market. Net income for the first quarter was $28.8 million as compared to a net loss of $9.6 million for the first quarter of 2011. Our net income per share for the quarter was $0.84 compared to a net loss per share of $0.36 in the year ago period.
Now into the balance sheet, our balance sheet remained strong, we have added $3 million in product inventory to our assets. As of March 31, 2012 we had cash and short term investments of $66 million. This compares to $78.4 million as of December 31, 2011 and $51.9 million at March 31, 2011.
Now turning to slide eight, this slide here, the first set of bullets summarizes the key points that we just discussed and highlight our current expectations for capital users in 2012. Referring down to the section highlighted in green, we estimate cash usage for the year to be in the range of $28 million to $30 million. Excluding partner contributions and additional grants of royalties.
We anticipate ending the year with cash balances of approximately $48 million to $50 million and have – are anticipating a year-end cash usage run rate of about $24 million. We continue to have no debt.
With that, we’ll open the call to questions.
Thank you. (Operator instructions) We will go to Laurence Alexander with Jefferies.
Laurence Alexander – Jefferies
Laurence Alexander – Jefferies
I guess first of all on the PHA platform you’ve indicated that you narrowed down into four potential manufacturing sites. Can you give us a sense of what the range might be in terms of capital outlays that you’ll be choosing on, you know, depending on the sides and what the trade-offs might be if you go to capital light, I suppose to more capital intensive approach?
Sure, I think – it’s a little premature to stick to the capital but I can outline the trade-offs for you. As you are looking at sites as I’ve mentioned at the end of our first quarter, we have ten sites we are looking at in detail and now that’s down to four. There are some of them more interest sites to us have existing fermentation capacity with the ability to put our recovery process integrated to that existing fermentation capacity, typically as you all know, that would be capitalized by avoiding the fermentation investment but typically include a total fees for cost of access to that, so everyone is trying to trade we would see you could see a slightly higher cash cost of operation while a lower capital contribution required because a lot of that asset is there.
That’s one thing we are looking at, second thing in terms of Trada’s they are may be operations that we can get up to speed slight faster but the raw material cost could be a little bit higher based on your specific location that something would have to consider we’ve also found cases that not in the short-list form but in the longer list of places that have fairly attractive raw material cost position, but we’ll take as longer to get into business, we are kind of putting those aside for future investments.
So that kind of gives you a sense of what we are looking at for each of the various sites, the capital estimate is a bit early to talk to at this point but the primary driver for this initial step forward for PHA polymers is to get back in production as soon as we can to meet customer requirements that actively want the product and customers who actively want the product and move as quickly as we can. Our team has made a great progress over the last couple of months in getting to where we are right now.
Laurence Alexander – Jefferies
And then with the customers who are launching products, I mean, not to use – as a specific example but just in general as you think about the customer pipeline, are they doing this because they had already made commitments to their downstream partners and so they’re following through on something that was already set in motion or is this something that was galvanized by the prospects of you being able to deliver a more targeted supply chain one to get to the operations source down again?
That is primarily the (inaudible) that’s the people were working with particularly those that are keen to move ahead rapidly. Many of these companies we have been working with for a year or two years or sometimes even longer and they have lined up the supply chain, using our product downstream of operations and as a result through positive feedback they have been receiving are keen to move ahead rapidly. So the primary activity with regard to moving inventory to driving our investment decision is basically back stopped by customers that we work with over a couple of years.
In addition, we continue to provide developmental samples to other customers and we would expect those to materialize in the future at some point, but those that were working with our historical customers of our sales.
Laurence Alexander – Jefferies
Okay, perfect. And thank you.
Moving forward, we will now hear from Mike Ritzenthaler with Piper Jaffray.
Mike Ritzenthaler – Piper Jaffray
Good afternoon guys. A couple of quick questions, the visibility and the revenue that you had mentioned, is the three weeks that shows up in the 1Q results, is that a good run rate for the kind of 2Q, and I guess maybe the broader question is what the best way to think about product revenues within the next couple of quarter?
Yeah I think, Mike, you’re going to have to wait a little bit if you’re just – you think about the dynamics internally, we did not have a clarity on the final settlement with ADM as we won together we worked, together to wind down the capital expenditure, until I believe it was March 6. And on mind that gave us three weeks left in the quarter, so on March 6, probably more accurately March 7, our teams started contacting customers to let them know that, we resolve the inventory, we have access in control of it.
Let’s start working to orders and even based on that pretty rapid fire process we began to ship against that inventory albeit at a very, very small levels. That has built momentum since those initial phone calls, we have not point at a point yet are forecasting or providing guidance on sales levels for the inventory.
A lot of that will depend on our final asset selection which implies timing and what we have to make that inventory do as we move to a supply source, but we can say that the second quarter sales would be substantially higher than the first quarter as given the dynamics of the timing of what we had to do operationally from the time that the settlement was finalized with ADM on March 6.
Mike Ritzenthaler – Piper Jaffray
Okay. That makes sense and then in the cash burn rates for the year, it sounds like you had basically reiterated your guidance from the last quarter, it feels like operating expenses are going to have to come down pretty significantly sequentially in year-over-year of the companies and we are looking at about $20 million kind of the yearend target what’s the best run rate to use for SG&A and R&D for the remainder of the year?
We haven’t historically given the breakout of this two, the run rates by category but if we look at following the restructuring expenses, and following expenses we have going on that we’ve given the forecast as to what we expects that the burn will be this year and in Q4 we’ll be exiting the year with the total cash burn of about 24 million, annualized cash burn of about $24 million.
Mike Ritzenthaler – Piper Jaffray
Right. Okay, and then just one last one for me, on the year European office in Cologne it sounded that from your prepared comments that extension in the Cologne is sort of an auto fact of couple of different things that you are doing in the States, the net impact to cash uploads was more or less neutral.
And I guess kind of a second part of that question is that strategy of opening, of the decision to opening offers, it seems like efforts increase sales, in your prepared comments you said that you don’t want to necessarily sell it as quickly as possible, it will supply a little bit more certain, it seems like a little bit of a misalignment there I was wondering if you could help us understand the fundamentals underline that decision?
Absolutely, if you recall that time of that termination of the area in bench we have about 57 customers, 26 routine buyers which basically Metabolix was handling the whole relationship, the entire set relationships with that growth, a good number of those customers I think we’ve talked about in earlier calls, where in Europe and going back to the earlier question on the pipeline are those of the relationships that we have maintained in – that we have maintained a individual’s leadership in Europe, so that those customers can have a direct line of contact to a local resource to talk about their inventory needs, to talk about growth, and the European bioplasmics market is the largest in the world.
So having seat on the ground they’ll makes so a lot of difference in – we have found a very attractive office location with some talented people to work out of it. So it’s not a – from a cost side Mike, it’s not a, it’s not a big deal at all but from a perspective of having resources and talented people in the same time zone within the drive of a lot of those key customers we developed its absolutely essential.
Yeah, it doesn’t (inaudible).
Just reflecting on your opinion was, we’re consolidating offices in Cambridge and we’re opening the office in Europe so there essentially with some expenses. The office we are closing in Cambridge is larger than the office we have opened in Columbus.
Mike Ritzenthaler – Piper Jaffray
Okay, thanks for the color guys and good afternoon.
Moving forward, we will go to JinMing Liu with Ardour Capital.
JinMing Liu – Ardour Capital
Thanks for taking my question. First of all regarding you PHA process, can you give us more clarity on the who are those four potential partners are, what type companies they are and also relate to feed stock selection to both PHA and (inaudible). Is your fermentation technology limited to just sugar as feed stock or you can use some shorter process?
Okay, I will begin with the characteristics of the type of people we’re looking at and hardly can talk a bit about some of the feedstock flexibility embedded in our technology. I can’t give you too much more details (inaudible) the specific companies obviously, we’re working quite fast to just as we can to make the right decision there and we have good lines of conversion with all potential manufacturing partners.
Just thinking that all of them have fermentation expertise at least at this state and what that does building on I think the question Lawrence asked is that – it does give us the chance to move more quickly in a capital like manner because fermentation assets are existing at (inaudible) four of the sites. And what that means is that waste water treating is there, utilities, they are skilled operators are there and if typically we’ll come up with a already existing raw material supply with the very known cost and ability to map that cost to other competing sources of raw materials so that’s all inherent in the type of assets we are using.
Now as we look forward, as I mentioned our objective functions for this first sight is to get going quick and get product in the market and be able to define a supply chain for our customers and some as I mentioned, some of these sites that we are looking at bring as access to alternative feed stocks primarily sugars but may be although you’ve commented little bit about some of the feed stock flexibility that are PHA technology has?
Yeah, let me go into the feed stocks, we’ve had in mind the global view and so whether it’s tea, sugar or stock based sugars for the last, saba or corn or wheat or potato or whatever very suitable for this particular process we run either C4 or other real platform. It is not a real technology, we also have a platform that runs on vegetable oil and we have not previously deployed that but we did in fact develop and have it available to us should that at some point be an attractive thing to do. I would say we are testing a lot of our sugar is derived from cellulose from a wide range of companies and we are anticipating that sugar has become available be in pretty good shape to use those products we still (inaudible).
JinMing Liu – Ardour Capital
Okay, thanks. And that – relate to your current inventory. Is there a short life concern for inventories, you know, what I’m trying to get is you would say, you will have some delay in spending another commercial partner or commercial operation to produce PHA whether you cover even though it’s last long enough?
Our belief is that it’s going to be absolutely fine, we’ve got PHA produced many, many years ago that we still use for testing we as part of one of the things we’ve had to do just as we get the business line just to make sure we have a robust QA and QC function so that we’re certainly testing inventory and making sure that there are no issues but we could experience using PHA produced decade ago here, we were not too concerned about that and we will have any checks and balances needed in place to ensure that’s the case to make sure our customers get exactly what they need.
But the volume we have being substantially largely than what we had available at the start up of the ADM facility gives us far more material to work with again we’ve ever had before the start of that facility. So with a rapid entry back into the market, we’re anticipating that that volume should be fine. But we will – we have very active lines of communication with our customers making sure we know exactly what they need and when, so we can define the basic which we should be selling that inventory, what grades we should sell first, what grades we should sell later and that processes actively being optimized right now.
JinMing Liu – Ardour Capital
At this time, we will take the question from Jeff Zekauskas with JP Morgan.
Jeff Zekauskas – JP Morgan
Hi, good afternoon.
Jeff Zekauskas – JP Morgan
In the old days, you wanted to sell laurel for roughly 2.50 a pound, if you think of you know selling it in more volume in 2013, what do you think the price will be? Do you think it will be different from your old price or the same or higher or lower?
I mean that to be determined yet but right now all the work we are doing and what we are looking at is a price similar to what we’ve talked about in the past, as we continue to advance new applications continued to move the technology or that may move but the excess of time being using historical information is probably the best guidance at this point.
Jeff Zekauskas – JP Morgan
Do you think that your growth maybe I don’t know clumps a little bit by the price of your polymer and you know maybe for a faster uptick consider lower prices or do you think that it really doesn’t that there is sufficient demand to that to 250
Yeah this has a been obviously very active discussion in today and we’ve been answered this numerous times in historical calls since over the last four, five years. And we tested this in the market, we’ve tested this in the market, we’ve looked we have had more than sufficient demand available at the 250 within that range we were talking 225 per pound to really keep the pipeline slow.
So we continue to believe pace of sales is more dictated by the commercialization steps that customers has to go through and doubling the number of people in the pipeline and by lowering the price as a option would not necessarily has expecting – historically it would just a created formula complexity for us to manage. So you know we feel that given objectives in front of us the customer base we are comfortable in that in that price range and the gaining factor was the development cycle, the optimization of the product and customer equipment. Getting the customers downstream supply chain minded and you know we continue to have more than enough incoming leads an increase serious increase and serious relationships at that price level.
Jeff Zekauskas – JP Morgan
Okay. Thank you very much.
And moving forward, we will hear from Jeff Osborne with Stifel Nicolaus.
Jeff Osborne – Stifel Nicolaus
Great. Thank you. Most of the questions have been asked, but just a couple quick ones here. On the – I was wondering Rick if you can go through the qualification process, so you’ve got this inventory that you are imagine selling to people that (inaudible) who are commercializing products, but also to potential new customers and potential new partners down the road.
And as they get comfortable with the product that was produced in Clinton what would be the process than as a new plants built next year the year after when it’s finished, would you expect that would be a similar lag like you saw Clinton with nine to 15 months or so for somebody to ramp up and requalify the process or would you expect somebody to running as the new facilities built.
The intent Jeff is to obviously have people hit the ground running, that’s not a discount customers obvious questions okay you are serving me from another facility is the product exactly the same and technically we are looking to make sure that the product is either identical or its different we would be short to guide customers, well we can tell right now is there is any different it’s going to be pretty minor in terms of processing conditions, just within the (inaudible) one manufacturing facility versus another. Our goal of course is to use this inventory strategically as we can to make sure that the lag time is minimal.
So you’re well aware that it’s becoming a key part of our engineering work, we’re doing on the next site, it’s a key part of our inventory allocation and optimization, and it’s a key part of how we are talking about customers because it’s a good question you ask and the customers are asking the same question. So are very aware of it and trying to make sure that whatever we do going forward we keep hit the ground running on start up of the facility.
Jeff Osborne – Stifel Nicolaus
Perfect, and then just two other ones here, so on the first facility that you envision here with one of this four sites, you spend some time on the call today talking about our PHA polymer and chemical kind of joint facility with the recovery process being preferring leveraging one fermentation side would you envision that the first facility would be this kind of bio-refinery step or would that be more of a distraction and potentially, you should just focus on plastics to start and longer term third and fourth facility might be this joint combination.
And actually, we have – I mean the pace at which the chemicals is moving. We’re looking actively at all these sights and say would they make sense to produce chemicals there. I mean we’ve got chemical up to successfully 60,000 leaders fermentation. We’ve got strong interest across the market. We’ve got technical developments moving very quickly.
And again we are looking thoughtfully and making sure we are not distracted. There were benefits to having, you know and one more thing I would add Jeff is the recovery process for chemicals is less costly and simpler than for polymers. So as an option to – if there is any lag time with regards to a ramp up as you – your first question (inaudible). Then having ability to do test product volumes of chemicals with a very simple recovery process could make some sense to fully utilizing the fermentation assets.
I am not saying at this point we are going to put them together, so this first facility because there is some situations we probably we wouldn’t but it is a question that our engineering team is looking at for each side that we are examining would it make sense for polymers, would it make sense for chemicals and what kind of synergies could we get by fully loading of fermentation asset by putting chemicals in polymers there an these cases where it is a tall fermentation side the value was really driven by getting that fermentation asset of to full utilization as quickly as possible and we think in some scenarios we can integrate chemicals very nicely, very quickly into that to help to do that.
Jeff Osborne – Stifel Nicolaus
That is a good point. I haven’t got about that. And then the last question just for Joe, so you have got this facility issue in Cambridge and I was wondering if there is any charges that we should model for this quarter in terms of that and then where are we in terms of the restructuring the $900.000 this quarter is that behind us or is there any additional trickle into just 2Q here?
There’s a negligible expense trickle into Q2 for either of those.
Jeff Osborne – Stifel Nicolaus
Okay, perfect, thank you.
And at this time, we have no further questions in the queue. I’ll turn things back over to our host for any additional or closing remarks.
Okay, thank you very much. I’d like to thank all of you for attending the call today. A numerous ways our technology portfolio is very well allying with the global trends to our sustainability and the use of renewable materials.
And we’re well-positioned to build value in each of our Metabolix platforms. The most immediately the access to the moral product inventory will help us to develop the customer base for our launch of this unique and innovative material. And our attractive potential cost position for our C4 chemicals business is being increasingly validated. We anticipate tangible progress across each of our business areas in the coming quarters, and we look forward to keeping you informed. Again, I would like to thank you for joining the call, your interest in Metabolix and I (inaudible) have a nice evening. Thank you very much.
Again ladies and gentlemen, this does conclude today’s conference call. Thank you all for your participation.
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