Metabolix, Inc (MBLX) Q3 2011 Earnings Call November 1, 2011 4:30 PM ET
Rick Eno - President & CEO
Joe Hill - CFO
JinMing Liu - Ardour Capital
Laurence Alexander - Jefferies
Jeff Osborne - Stifel Nicolas
Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Metabolix Incorporated third 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 questions.
I would like to turn the conference over to Ms. [Alison Thompson]. Please go ahead.
Unidentified Company Representative
Thank you and good afternoon, everyone. Metabolix released third 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?
Thank you, Alison. I’d like to welcome all of you to the third 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. 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 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’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 unique source of renewable chemical intermediates.
We currently have deployed our PHA technology across three platforms. First, Mirel, a bio-based and biodegradable plastic, currently being commercialized with our partner, Archer Daniels Midland, through a joint venture called Telles. Second, 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 Telles, our joint venture for commercializing Mirel. We continue to make forward progress in this early growth phase of this business. I’ll review the overall status of the business, primarily addressing market and customer activity as well as a 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’ve an ongoing stream of increase. From this high level of interest, we are currently working with about 100 targeted prospects. It’s very encouraging to us that these prospects reflect a very diverse range of applications, which is reflective of the broad, long-term potential for Mirel.
From this diverse interest, we’ve chosen to focus on the areas, which we believe will provide us with the most rapid growth. Consistent with previous calls, these focus areas are primarily in the film markets, which include compost bags, agricultural mulch stones and packaging. This is due to strong market pull for bioplastics in these segments as well as the characteristics of the Mirel offering.
Mirel offers biodegradability in a wide range and environment including marine applications at higher bio based content in (inaudible) products and in some cases to improve the physical properties of the (inaudible). We are still early in the developments of our business, the ongoing orders appear to be validating the morale value proposition and targeted price point.
With regards to the milestone of the first commercial stable Telles which is based upon the sale of $1 million pounds of product making certain quality, customer acceptance, price and order size requirements, we had expected this to occur by year end. Currently we’ve shipped just over 50% of this target.
Moving forward we are seeing increasing order volumes and expect to qualify a million tons to be shipped some time in the 45 to 120 days. The milestone will be followed by approximately 30 days reflecting typical cash collection terms and customer acceptance.
We are seeing a very wide range in our forecast volumes as the difference is just a future uploads of Mirel across a few customers can move this milestone by several weeks. This quarter we continue to expand the customer base which is based currently between Europe and US. The customer base has now grown to 57 customers, up from 50, the 26the up from 15 and now placing repeat orders.
Repeat orders are leading indicators that a customer development program is translates into a successful product market launch. We are still seeing smaller innovative customer in a path driven by larger customers and smaller initial order sizes at this market launch based on what we expect to see in the long term.
We also have a number of potential customers in the development pipeline at a pre ordered stage, and we have seen steady quarter over quarter increase in volumes this year. The ramp up of some of our key customers has been slower than we had predicted as we are working for them to optimize either the Mirel grade or the processing conditions for the Mirel grade to achieve their specific performance requirements. This will typically introduce iteration in the customer development cycle.
We are encouraged that if these improvements are completed the final benefits are able to be translated relatively quickly to similar customers. In addition, we are now beginning to see interest arise separate from our direct market development activities. This is a result of having Mirel in the hands of compounders and formulators who are using the product to address unmet market needs. We expect this trend to continue and to increase in the coming year.
Our pricing guidance of $2.25 to $2.75 per ton of compounded resins is still valid, and we continue to get higher prices in certain niches.
This quarter, I’d also like to highlights the CJ relationships which are illustrative of our progress and the potential of the Mirel product.
First, distributorship arrangements. In order to balance the focus needed by our commercial team on our film platform with that of a broad market interest in Mirel, this quarter, we have initiated six distributorship arrangements as part of our strategy to cover the market.
In Italy, we have engaged two firms to help us cover the Italian market where back band legislation is driving interest income post (inaudible). In Northern Italy, we’re working with Technical and in Southern Italy, we’re working with Plastichemia. For the broader EU, work has begun with Calco and [E-Test] specifically addressing the markets in Northern Europe, Scandinavia and Eastern Europe and Turkey. In these geographic markets, there’s a well-established infrastructure for diverting organic waste from landfills into composting and into anaerobic biogas generators as a source of renewable fuel.
In each applications Mirel has unique differentiation in terms of its multiple end-of-life options including home composting and anaerobic digestion capability.
In North America EnTech and Channel Prime Alliance have been engaged as our distribution partners. We are anticipating additional distribution arrangements for Southeast Asia, China and South America. Second, we have announced a new Telles customer Starchtech. Starchtech is using in Mirel in a blend which starts to improve the performance of starch based packaging supplies.
The result is a bio based, biodegradable packing with better physical properties such as water resistance in the incumbent materials. Starchtech illustrates a theme that we are seeing in the bioplastics industry. Different types of materials are blended together in order to optimize price performance characteristics for customers. Mirel is typically used as a high end performance enhancer and is blended with other bioplastics. Finally, indicative of Mirel moving more broadly into the market we have a number of market tests either completed, ongoing or planned. These include testing of compost bags on an industrial level in Minnesota, piloting of a zero-waste demonstration zone in Wisconsin, ocean testing of innovative crab traps, shoreline replanting using Mirel based planters and market testing of bags suitable for anaerobic digestion in Scandinavia.
Mirel is now being tested in numerous countries in applications around the world and the feedback from those tests will inform our product and market development activities. 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 costs, and debottlenecking the facility to increase capacity. This will be an on-going process and in inherent 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 grades at 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.
As we have described in previous calls, 2010 was a transition year as the Telles business was launched and 2011 is a year when we expect a significant number of current customer development efforts will materialize as product purchases. 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 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 Thermolysis. The PHA approach is a unique platform which enables a pipeline of chemical product opportunities for Metabolix.
Our 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 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 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 you know, this is a smaller market in 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 and are meeting all of our milestones. Let me recap our milestones and our progress. First, samples of our C4 product were sent to customers in Q1. This as you know is completed.
Second, feedback from C4 customers in Q2; this 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. We noted that additional sample shipments were to be made in Q3 in order to extend the testing. This was completed and the feedback on the product quality, again, was very positive.
Our third target was to be ready to begin engineering for a commercial facility by the end of the year. This means we will have proven our 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 milestone.
Our fourth target was produce tonnage sized quantities of our C4 product to allow our customers to test product in large scale trials. We are on our way to completing this milestone. This quarter we also successfully scaled up C4 chemicals fermentation process to the 15,000 gallon or 60,000 liter scale. This is very significant. The process worked as we predicted and will provide drop for us in recovering tonnage sized quantities of materials by the end of the year.
Over the past quarter, we continue to work with our C4 chemicals joint development partner, CJ, CheilJedang towards commercialization of the C4 chemicals platform. We are actively involved in site and market analysis as well as reviewing the feedstock markets.
We are also now in a range of discussions with potential feedstock manufacturing and off-take partners for our C3 chemicals program. There is a high degree of market interest around bio-based C3 chemicals. Our development here, obviously leverage much of our C4 work in equipment and technology and development and this will follow our C4 program by about one year.
Across our industrial chemical activities in both C3 and C4 programs, we are continuing our strain development research as we move towards commercial yield targets and also evaluating second generation or cellulosic sugars as possible feedstocks. We’ll keep you informed on progress if you are comfortable with the milestones that we’ve communicated to-date.
Our third Metabolix platform is our 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 we are 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 made progress on 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 PHA levels expressed in switchgrass and conduct pilot testing of the production of chemical intermediate via our FAST process. In this approach, we will feed biomass containing PHAs 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 been effectively transported to other users. Also this quarter, given our experience with the oilseed crop, camelina, we’re seeing considerable interest for Metabolix as a potential developmental partner to the commercialization of this crop. As many of you know, camelina is receiving increasing interest as a biofuels crop by the USDA and DoE. Our team is now supporting the delivery of one recent DoE 0:00:28.4 13 (inaudible) grant are in discussions around others.
In summary, during this quarter, we continue to move forward across all three of our platforms. In Telles, we continue to make steady progress on expanding the customer base for the Mirel business, optimizing the product and can see more than sufficient demand for selling out Clinton 1.
In industrial chemicals, we’re meeting our milestones and see our fast process as an advantage. In our crop-based businesses, we are executing against our grant from the Department of Energy and continue to move the signs effectively ahead. We’re very enthused about the potential for the company and the broad scale deployment of our PHA platform. With that, I’ll turn the call over to Joe for a review of the financial results for the quarter.
Thanks Rick, and thank you everyone for joining us today. I’d like to quickly review our financial results for the third quarter ended September 30, 2011. As always, we managed our finances with an emphasis on strict cash flow management. We have maintained this focus and ended the third quarter with $87.2 million in cash and investments.
For the third quarter, we used $7.8 million of cash for operations. This represents a slight increase from the $7.1 million, we utilized in the year-ago third quarter. This was an increase in cash used in operations of 1.9 million from the 5.9 million we utilize in the second quarter of 2011. This increase related to decreased cash receipts from relative parties, changes in working capital related to accounts payable on accrued expenses.
Through the first nine months of 2011 ending September 30, net cash used in operating activities was $23.1 million as compared to net cash used of $23.9 million for the comparable period of 2010. The year-over-year decrease in cash usage for the first nine months of 2011 is primarily attributed to increased cash receipts as a result of an increase in a related party reimbursement and royalty payments.
Total revenue for the third quarter was $500,000 versus $46,000 in the year-ago third quarter. During the three months ended September 30, 2011 revenue primarily consisted of government grant revenue. The quarter-over-quarter increase was primarily generated from work performed on the company's new $6 million renewable enhanced feedstocks for advanced biofuels and bio-products grants and it’s existing blow molded bioproducts from renewable plastics grant.
Total revenue for the nine months ending September 30, 2011 was $1 million compared to $300,000 in the same period in 2010. And the year-over-year increase was primarily generated from work performed on the government grants as well as royalties earned under a license (inaudible) I think.
For the three months ended September 30, 2011 total operating expenses were $10 million as compared to $10.1 million in the comparable quarter of 2010. Research and development expenses in the quarter were $6.2 million as compared to $5.9 million for the comparable quarter in 2010. A $300,000 increase was primarily due to an increase in contracted research related to product development from Mirel Bioplastics.
SG&A expenses for the quarter were $3.9 million versus $4.2 million in the third quarter of 2010. The decrease of $300,000 was primarily attributable to greater patent filing costs incurred during the three months ended September 30, 2010 compared to the respective period in 2011.
Through the first nine months of this year, total operating expense were $30.2 million as compared to $29.8 million for the comparable period in 2010. For the nine months ended September 30, 2011 total research and developmental expenses were $18.4 million as compared to $17.9 million for the comparable nine months of 2010.
The $500,000 increase was primarily attributable to increases in contracted research related to Mirel product development and the company’s industrial chemicals program, employee compensation and related benefits expenses and consulting services, partially offset by a decrease in material production costs.
For the nine months ended September 30, 2011 and 2010 total selling, general, and administrative expenses were $11.9 million for both periods. Our net loss for the third quarter was $9.6 million or $0.28 per share. This was consistent with our plan and compared to a net loss of $10 million or $0.37 per share in last year’s third quarter.
GAAP net loss for the nine months ended September 30, 2011 was $29.2 million or $0.96 per share compared to $29.3 million or $1.10 per share in the same period of 2010. This decrease in net loss is mostly driven by an increase in grant revenue. As I mentioned, our cash level at September 30, was $87.2 million and we continue to have no debt. We continue to believe that we have adequate financing to fully support our development activities for at least the next two years.
I would like to reiterate from last quarter’s call that when we reached the commercial milestone of the agreement with ADM, we will shift approximately $4 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 $0.10 to $0.12 0:00:19.5 16 per pound, which would amount to approximately $12 million per year, when the Clinton plant is operating at its full 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 September 30, 2011, the ledger balance was $425 million. This $4.7 million increase in the ledger balance from June 30, 2011 was primarily attributed to our operating cash needs at Telles.
Thanks everybody, and I believe we’re now prepared to take questions.
(Operator Instructions). Our first question today comes from JinMing Liu with Ardour Capital.
JinMing Liu - Ardour Capital
I just want to clear one thing here. If I understand correctly, right now, you guys have a strategy to sell PHA directly to compounders, so they can produce more diversified products. Is that what you guys trying to do or are you guys still stick to compounding biocells and sell the final products?
Yeah, good question. As you know, we’ve got a direct sales force team, which is responsible for developing a number of customers but the interest is very broad. So, we’ve a combination of channels by which the product gets into the market. First to the direct sales team and that direct sales team is primarily handling the 100 or so process that we referred to.
In addition to that there are a handful of compounders that we are working with that are actually developing their own channels for the materials to the market, and that relatively small numbers, but there are compounders who are working with material particularly in blends with another bio plastics.
And then finally as announced in this call today, we have a series of distributors who are helping us to cover the market for Mirel. The ones we have announced today are in North America and Europe primarily and we are now examining options for South America, Southeast Asia and China.
So (inaudible) in all three channels and -- but the predominance what we have done so far is during direct sales force but now it’s a product optimization we have undergone we now feel comfortable spending that a bit more money.
JinMing Liu - Ardour Capital Investments
And just a release presence here, if you sell directly to (inaudible) owners are you going to target the strategy of lower price?
Yeah, that’s right. The $2.25 to $2.75 per pound is for compounded materials. So we are selling through a compound -- would be right and that is not compounded, it would be at a lower end of that range or lower price. We don’t have enough experience to actually provide guidance in that as I noted, its only a very small part of our mix right now.
JinMing Liu - Ardour Capital Investments
Okay. With your commercial milestone (inaudible) finally unify (inaudible) the last thing I believe is the breakeven level which were at that moments you guys will sort of pay down the CapEx or (inaudible) through the Clinton facility? Can you at this moment share with us what levels of revenue from Clinton that will reach that breakeven point?
No, we’re not quite ready to do that at this point JinMing. We’re clearly looking at that I think our thought process is similar to yours being the first thing is let’s get the milestone -- the first milestone taken care of. The next thing you’re right -- you’re exactly right moved the business towards the breakeven point and then it sells out the plant, but right now we’ve been very focused on that first milestone and we will provide comments on the other milestones in the future.
JinMing Liu - Ardour Capital Investments
And lastly a quick one, what’s going on in Europe and the fact there is no certain level of regulation on (inaudible) do you see any impact of the sales in Europe related to what’s going on with credit crisis over there and the -- have you observed any positive movement in the US?
In Europe, we’re actually discussing a bit today. There is a -- we’ve not seen a big impact from all of the yeah, call it turmoil, may be a strong word in Europe but all the activity in Europe, but not seen a big impact as of yet. The big issue for us launching a new material is really just having successful trials with early adopting customers many of whom are in Europe. There may be a couple of cases there of the portfolio in Europe and taking maybe two customers. So we are seeing potentially a touch of slowdown from the market, but the vast majority of the impact has more to do with the launch of new material than the economic situation.
So as a result I think we are not seeing that as a big impact at all in our business. As far as the execution, we are getting in the hands of the people and having successful trials. And in the US, we continue to see the interest we see primarily is around marine degradable plastics and development of compost and infrastructure. And of course the infrastructure in the US lags that of Europe, and in California, of course, where there’s quite a bit of activity.
We will take our next question from Laurence Alexander with Jefferies.
Laurence Alexander - Jefferies
Good afternoon. I guess first question is, do you have any sense for capital costs for water the demonstration plant for the C4 platform might entail, or how are you discussing capital intensity with your potential partners?
We've not talked externally about capital costs. The complication, Lawrence is that as you know our primary development partner at this point is CJ CheilJedang and part of the analysis we are doing with CJ is an examination of whether it makes sense to integrate our C4 technology into their existing sites.
As you know they have sites in Brazil, Indonesia and China. So as part of the exercise with them we are looking at the utility capacity in their sites, the availability of fomenters, the phosphates for recovery technology and all of those aspects will influence the amount of capital required.
Obviously if we are able to re-use the assets and take advantage of existing infrastructure that’s going to result in a substantial lower model for capital entry. In addition, CJ is booking a new site too and that would then get you back to more of a grassroots for integrated grassroots type facility. So, there is a wide range (inaudible) based on what model we pursue and that’s the work that we are executing with CJ right now.
Laurence Alexander - Jefferies
And then two questions on the Telles JV, and this were coming at the cash breakeven point some of them directly, you know that how long can Telles evolve with its financing structure before -- you know without hitting a breakeven. That is if you were to ramp up to 30%, 40%, 50% utilization rate how long could it survive in that mode without getting further capital, and separately, you know, with a volume that you shift today are you still seeing the data in the feedstock cost from ADM roughly in line with the cash cost around the $25 to $50 per pound?
There is a lot there in your question, Laurence. I think the first part of it that Telles financial as you know in Joe’s remark he talked about the change in the ledger balance, which had to do with the funding requirements for the Clinton plant.
So, you know, obviously with ADM we were working very carefully to minimize cash usage there. So that’s more of an ongoing discussion with ADM as we optimized production portfolio. What we are producing what levels we’ve run at in order to manage cash there. So that’s just, I think that answers that, but I think it’s an actively managed subject there.
So I think that would be probably the best way to deal with that and just to summarize the second question again for me, Laurence just to make sure I answer it correctly?
Laurence Alexander - Jefferies
And I guess in terms of triangulating the gross margin or the potential cash generation on the business, has anything changed in sort of either the inputs or your assessment of the plant’s capabilities I mean you can triangulate cash costs?
Right. I think that everything we’ve told is consistent with where we see the business ultimately going. It is quite obvious to anyone familiar with these businesses that at low levels of production where we clearly are now, the margin structure is nowhere near what it’s going to be at higher levels of production.
But you know, we have not seen anything that caused us anything substantially different than what we’ve talked about in the past and clearly there is a lot of work to do as we’ve noted in the remarks, we’re improving yields, we’re lowering costs. We’ve got, as I said in the earlier calls, next generation technology, we’re looking at and all that’s just a part of continually looking ahead to how we drive cost down. So, you know, we’re seeing it consistent with what we said in the past, but there is a lot of work to do to get to the bulk in the sales side and then the manufacturing side.
Laurence Alexander - Jefferies
And then lastly on oilseeds, you know, that was for a while the program that seemed to be moving fairly quickly. The emphasis now on the C3, C4, is that just because this program is turning out to be easier or has the other program running to a bottleneck?
No. We’ve always – we try to describe the company across the three platforms, the Telles, industrial chemicals and oilseeds. I think the C3, C4 program is moving very fast for a number of reasons. It’s a very innovative recovery technology that we’ve developed over the last year or so. It’s building fielding on the fermentation expertise we gained in launching the Telles business, so with all that, clearly and there is a lot of market interest there; that’s moving fast. The crop programs by their nature move a bit slower but the oilseed program continues to hit its internal targets and our Saskatoon operation is doing well. I don’t know if you want to comment anything more there Oliver?
No, I think that’s basically, I think we are building off the Mirel platform for the C3, C4 lets say it just moved very quickly and therefore it is closer to market and given the interest in Wall Street the things are closer to market and it seems to make a lot of sense to mention that so just a reminder how we are utilizing the resources in fact the C3, C4 is jus moving faster.
(Operator Instructions) We’ll now hear from Jeff Osborne with Stifel Nicolas.
Jeff Osborne - Stifel Nicolas
Most of the questions are answered but over the couple of quarters you have talked about shortages of raw material that’s impacted I think it was in the first quarter that you hoped to resolve to summarize it, I was wondering if you could give an update on that?
Yes that’s basically resolved. You know as of I believe it was August-September timeframe things started coming back in the market and that’s largely resolved that’s no longer an issue for us.
Jeff Osborne - Stifel Nicolas
And then I think in the past you’ve also talked about kind of mid 2013 reaching full utilization of the Clinton I facility, is that still the target or we’ll see kind of slowness of some of the acceptance here of the customers in finding the right formulation so that would be pushed out in our model?
We’ve not updated or provided new guidance on that. We are largely focus on this initial milestone which as you rightly pointed out has taken longer than we expect to get there largely through the optimization of products and just to give you some color on that, as you optimize the film product there is all sort of things that we are doing and making very good progress on whether it’s puncture resistant types of bag, the strength of the bag and so on.
And with those behind us, as we get those behind us, the strategy that we’re deploying is the translation of those updated products across many, many similar accounts. So what that implies is somewhat of an inflection point that leads to carrier we believe of stronger growth for the business and we haven’t yet been able to forecast that with enough accuracy, it’s pretty challenging to be able to provide much more color on the sell out of the plant. So we’re pretty much focused on the launch of the business and getting the first commercial sale milestone behind us as we’ve been talking about in the last few calls.
Jeff Osborne - Stifel Nicolas
Make sense and just two other quick ones. One for Joe; could you just – how should we think about the grant revenue kind of rhythm the quarters here over the next four to five quarters especially now you have that $6 million grant. Should it be running at this run rate or a little bit more acceleration as you hit more milestones in 2012?
I think fairly flat would be okay to be modeling that.
Jeff Osborne - Stifel Nicolas
Okay. And then the last question was just about a year ago I think it was the second or third quarter call last year, you talked about preliminary discussions of expansion at Clinton. Given some of the issues you’ve talked about on this call and past calls about getting up to the commercialization stage, I imagine those were put on the backburner, but how do we think about that over the next six to nine months do you restart that process or do you look elsewhere in the world?
We would say look elsewhere in the world, what do you mean by look elsewhere in the world?
Jeff Osborne - Stifel Nicolas
Instead of expanding in Clinton, would you use palm oil or something else that may be has a better cost structure for you?
No. The clear focus right now is on getting the business launch. ADM team has done a very nice job of getting quality product in the hands of the commercial people. Our acceptance rate of the product in the market has been very, very high. We’re optimizing the plant. So we’ve not, because of the way we are, we’re not yet focused on expansion however, we have done a lot of thinking and continuing to work on next generation strains and recovery technologies so as we move towards that.
With regards to looking some place else in the world, as this business grows, if you see the potential out there the capital investment made in Clinton I believe it’s the right, will be the right business decision to continue to build that out in Clinton prior to looking at an alterative site.
The ADM sourcing situation is very, very good for our distributors in North America. There is room at the site to expand and I think it would make a lot more business sense to continue to build that footprint out as opposed to moving to another site and starting basically the support and capital all over again. But that would be a decision that would have to be jointly made by Metabolix and ADM.
And ladies and gentlemen, that does conclude today's question-and-answer session. I will turn the call back over to management for any closing comments.
I would like to thank you all for attending our call today. As you can tell, we are pleased with our 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 business areas over the coming quarters and I personally look forward to keeping you informed. Thanks again for joining the call. We appreciate that and I wish you all a nice evening. Thank you.
Ladies and gentlemen, that does conclude today's conference. We thank you for your participation.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: firstname.lastname@example.org. Thank you!