Lynne Brum - VP, Marketing and Corporate Communications Joe Shaulson - Director, President and CEO Johan van Walsem - COO

JinMing Liu - Ardour Capital

Good afternoon, and welcome to the Metabolix's Year-End 2014 Conference Call. Today's call is being recorded for Internet replay. You may access an archived version of the call on Metabolix's website at www.metabolix.com. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference call. I will now turn the call over to Ms. Lynne Brum, Metabolix's VP of Marketing and Corporate Communications. Please proceed, Ms. Brum.

Thank you, Gloria. Good afternoon, everyone and welcome to Metabolix's year end 2014 conference call. If you do not have a copy of our year end 2014 news release, which was issued earlier this afternoon, one can be found on the Investor Relations section of metabolix.com. In addition, slides accompanying the presentation are available on Metabolix's website on the Events & Presentations page in the IR section. Please turn to Slide 2. Please note that as a part of our discussion today, management will be making forward-looking statements. These statements are not guarantees of future performance, and therefore, undue reliance should not be placed upon them. Investors are also cautioned that statements that are not strictly historical constitute forward-looking statements. Such forward-looking statements are subject to a number of risks and uncertainties that could cause the actual results to differ materially from those anticipated. These risks include risks and uncertainties detailed in Metabolix's filings with the Securities and Exchange Commission, including the earnings release filed this afternoon in the Company's most recent 10-K. 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. Now we will turn to the agenda of our call today. Joe Shaulson, our CEO will describe the highlights for 2014 and provide an update on the business. Johan van Walsem, our COO will provide an update on commercial development and manufacturing. Then Joe Shaulson will review several financial items for 2014. We will then open the call to Q&A and joining us will be Oli Peoples, Co-Founder and CFO and Chuck Haaser, our Chief Accounting Officer. With that, I would like to turn the call over to Joe Shaulson. Joe?

Thanks, Lynne. Hello everyone and thanks for joining us today. As discussed on prior calls, we've been focused on a core set of priorities shown on Slide 3. Throughout 2014 we made progress against each of these priorities. Fundamental to that was defining our business strategy and committing to build a successful specialty biopolymers business focused on performance additive applications for our PHA biopolymers. We continue to believe that following this strategy is the best way to create value for Metabolix and our shareholders. Please turn to Slide 4 as I touch on each of these priorities in more detail. First is reshaping the company. In early 2014, we outlined our plan to reposition our PHA biopolymers as performance additives. We believed then as we believe now that this is the best way to capture value from our innovative PHA technology platform. In doing so, we also selected and had continued to refine several target application spaces that we believe are crucial to our success. As the year progressed, we focused on commercializing PHA performance additives in PVC compounds and for PLA modification as well as in a range of applications requiring functional biodegradation. We also worked to develop PHA coatings for paper and cardboard and showed that PHAs are well suited for marine biodegradable micro powders used in personal care applications. With the adoption of this more narrowly focused strategy, we also needed to manage our financial profile. So we restructured our US operations and sold our business in Germany. Through these actions, we were able to reduce headcount in our core biopolymers business to about 50 people. We believe this is an appropriate structure for the continuing execution of our biopolymers business strategy. To ensure we stay focused on the success of our biopolymers business, we also decided to stop work on our biobased chemicals program and we announced our intention to spin out our crop science program. Historically, our crop science program has targeted the production of plastics and chemical intermediates from PHAs produced directly in plants. These were ambitious developments with long time horizons. We’ve learned a great deal along the way and have begun to explore how techniques we use to increase PHA production or plant yield in our research programs might be applied in commercial crops. Based on recent advances, we believe our approach to introducing multigene traits and enhanced carbon capture capability into plants has the potential to significantly increase yield in food, feed and biomass crops. We are in the process of capturing intellectual property gained in our crop science program and much work remains to be done to advance this technology from the lab and greenhouse to field trials and ultimately commercial crops. We think this is best done in a separately funded entity focused entirely on the development of this business opportunity. To that end, we are beginning the spin-out process and expect to have more to report on the topic as the year progresses. In the meantime, the crop science program will use some cash resources but we continue to offset a significant portion of these R&D costs with research grants. In fact, we were recently selected for another two-year $1.6 million Department of Energy grant to develop higher-yielding non-GMO Camelina. Turning next to financing. In 2014, we raised $25 million in an equity financing. We are using this capital to execute our business plan, including commercialization of our PHA biopolymers and expansion of our pilot production capacity. Of course, we're mindful of our cash requirements and continue to explore options for additional financing. Moving on to commercial development and business culture. We’ve been transitioning to a classical specialty materials approach that requires a high level of customer engagement and technical service, focused on solutions that not only meet basic product requirements but also create value for the customer. Our lead generation and portfolio management system is an integral part of this approach and has helped us prioritize commercial opportunities. From this, we've been working with key PVC and PLA performance additive customers to progress through detailed product development and evaluation to commercial launch of applications using our PHA biopolymers. We are working hard to drive customer evaluations to successful conclusion in 2015 aided by the availability of amorphous PHA from our expanded pilot capacity which I will come back to in a minute. In the meantime, we also have been seeing increased activity from customers whose interest in morale PHA solutions is driven by the functional biodegradability of our biopolymers. Our recently announced alliance with Honeywell is a great example of this. Now coming back to PHA biopolymer production. At the end of 2014, we decided to significantly increase our pilot production capacity for morale PHA biopolymers. The expansion of capacity within the existing footprint of our contracted recovery facility is well underway and we expect to begin ramping production to our expanded nameplate capacity of 50,000 pounds per month once these facility modifications are complete. This approach allows us to accelerate the availability of our amorphous low Tg PHA biopolymers for customer trials. It also allows us to stage our capital investment in biopolymer production while we continue to develop the market and commercialize our PHA biopolymers in target applications. Finally, a few words on biopolymer research and development. In tandem with our commercial and production activities, we have completed an important technical work on yield and process improvements that will help us meet both near-term and longer-term production targets. Of course, these are ongoing efforts and we continue to challenge our biopolymers R&D team to not only achieve further improvements like these but also to continue innovating and exploring more fundamental areas for new product and process development. Please turn to Slide 5. Now I would like to discuss our recently announced alliance with Honeywell. It’s a global exclusive alliance centered around developing and commercializing marine biodegradable ingredients for cosmetics and personal care products based on Metabolix’s PHA biopolymers. We think this is a powerful combination of our innovative work with bio-based biodegradable polymers and Honeywell’s commercial reach as a leading personal care ingredient formulator into the cosmetics and personal care market. For the last several months we have worked closely with Honeywell to explore the suitability of our technology for these applications and we look forward to seeing formulated ingredients based on our biopolymers launched under Honeywell’s Asensa brand. Marine biodegradation is one of our sweet spot and it’s gratifying to have this opportunity to work closely with Honeywell to bring this unique product attribute to market. With that, I'll turn the call over to Johan for some additional comments on Honeywell alliance and more on our operations. Johan?

Thank you, Joe. So let’s stay on Slide 5. We are certainly excited to be working with Honeywell as it aligns with our interest in creating biodegradable PHA biopolymers for cosmetic and personal care applications. There is growing public, regulatory and NGO concern about the use of synthetic non-biodegradable plastic microbeads that ultimately pollute streams, lakes and oceans. In 2014, the state of Illinois enacted legislation to ban plastic microbeads and several states have followed suit with similar draft legislation pending around the country. With the backdrop of environmental concerns as well as pending legislation across the US, some major consumer products brand owners have pledged to voluntarily phase out microbeads and to seek potential replacements. Our PHA material is unique in that it can mimic the feel and performance of conventional microbeads but it is rapidly biodegradable in wastewater treatment systems and furthermore is marine biodegradable. Therefore it can offer a compelling alternative to conventional microbeads. We will work closely with Honeywell to develop ingredients for commercial customers in this area. The alliance with Honeywell provides a level of validation for the rising interest in biobased biodegradable polymers. We expect to continue working with a variety of customers to deliver solutions for applications that require functional biodegradable in soil and marine environments. Please turn to Slide 6. We are making good progress on the commercial front to validate our vision of creating a specialty polymers business based on PHA. As Joe mentioned, we have narrowed our focus to PHA biopolymers for performance additives. Within this area there are four key target application spaces: PLA modification, PVC processing aids, barrier coatings for paper and functional biodegradation applications. Next week at the NPE, the biggest plastics tradeshow of the year, we will highlight a range of applications for our PHA biopolymers. We will showcase products and display customer samples based on applications and construction materials and packaging as well as products for industrial and consumer use. At NPE, we will also display and sample recently developed foam drives based on PHA modified PLA as a means to generate feedback from customers. We continue to see interest from customers that need to increase the flexibility of PLA foams to improve properties such as tear resistance, less moist generation and better folding characteristics. ANTEC is the technical conference co-located with NPE. At ANTEC, two Metabolix papers will be presented. One will highlight the use of amorphous PHA copolymer blends to improve the physical properties and versatility of PLA. The other will describe methods for improving the moisture resistance and performance of biodegradable PHA-latex paper coatings. In both PVC and PLA modification, several customers are now well advanced with the commercial validation of initial applications. The timing of these phased-rollouts at our customers depends on factors such as the complexity of the product design and final application, the service life and other external requirements such as third party testing. With that said, we are working to bring key customer validation programs to successful conclusion in 2015. In addition, we continue to manage the pipeline of new customers in related applications as well as a variety of new applications. Now please turn to Slide 7. As Joe mentioned, we are well underway with the project to expand pilot manufacturing capacity. We have been using a contracted pilot manufacturing facility for biopolymer recovery for several years. In 2014, we used the facility intermittently to produce sample quantities of amorphous PHA. In 2015, we are expanding the recovery facility within its existing footprint to a nameplate capacity of 50,000 pounds per month. To achieve the additional capacity, we are debottlenecking our process and installing biopolymer recovery equipment with larger capacity. The installation is well underway and progressing to plan. Once complete, we will ramp production to support our customer development activities with amorphous PHA. As we have done in the past, we plan to use third-party fermentation services to supply broths to our recovery facility. Going forward we intend to continue evaluating and developing production expansion options for our business as we bring on commercial scale customers for our PHA biopolymers. I will now turn the call back to Joe Shaulson for the financial review. Joe?

Thanks Johan. Please turn to Slide 8. There are four items related to our financials that I would like to discuss today. The first is our balance sheet. We used approximately $24 million of cash in 2014 and finished the year with $20 million of cash on the balance sheet, which includes the proceeds of the $25 million private placement we completed last year. Our cash usage in 2015 should be slightly lower than 2014 due to headcount reduction last year, largely offset by increased cash costs associated with expanded biopolymer production this year. Based on our current plans, we anticipate cash usage of approximately $23 million in 2015. This includes $1 million of capital expenditures for pilot capacity. Also, while we are working on the spin-out of our crop science program this year, we thought it best to include a full year of crops program costs in our 2015 cash estimate. With those assumptions, we will need to secure additional financing this year and are not surprisingly considering a variety of financing options. More to come on this as the year progresses. Next are our results from continuing operations. We reported a net loss of $26.8 million for 2014 or $0.44 per share, representing a $1.7 million improvement from a net loss of $28.5 million or $0.83 per share in 2013. These results exclude the business formerly conducted by our German subsidiary which is now presented in discontinued operations. Turning to product revenue. Revenues associated with our German business have been reclassified into discontinued operations and represented a majority of our product revenue in 2013 and 2014. Product revenue from continuing operations was approximately $0.5 million in each of 2013 and 2014. With the narrowing of our business focus, it will take some time for our product revenue line to build as we continue working to convert performance additive customers from product and application development to recurring commercial sales. We are supporting the transition with select inventory purchase from the Telles JV as well as product that will become available from our expanded pilot capacity later this year. The final item to note is our capital expenditure estimate for 2015. The expansion of our pilot recovery operation will require a small capital investment estimated at approximately $1 million. This capital is being used to purchase equipment and install it within the existing footprint of the recovery facility. For a more detailed review of our financial results, please refer to the earnings release we made available earlier today. The release includes full-year and fourth quarter 2014 condensed consolidated financial statements and related commentary. With that, I'll wrap up the financial review and open the call to analysts’ questions. Operator?

[Operator Instructions] Thank you. Our first question comes from the line of JinMing Liu of Ardour Capital.

Thanks for taking my question. First, regarding the spin-off of your crop program. I am trying to understand what form of spin-off you are planning and whether you will get any cash proceeds from the spin-off, or just simply you will just be a shareholder of that new company?

JinMing, we are at the beginning of that process and I think it's too early to say much about what the form of the spin-off might be. I think what’s critical for us is that the crop science program has reached the point where the technology is really ready to be commercialized and the factors that will drive the commercialization of that technology are considerably different than what drives on biopolymers business. So what makes sense to us is to get it into a separately funded, separately focused entity that really is concentrating on the development of those technologies as opposed to the biopolymers business which is what we will be concentrating on. We see how that process goes and probably be in a position to comment more about what the form is as it progresses.

Okay. In the $23 million cash burn forecast for the year, how much you allocated for the crop program?

So we haven't disclosed the breakout.

From what I understand, if you spin-off the crop program earlier this year whether you would spin it to risk TEPCO [ph].

What I say is we will certainly use less cash if we are able to spin the crops program off earlier. Remember that we have a certain amount of research and development dollars that we commit to the crops program but a lot of it is offset by grants. So it's not as big as it would be if we didn't have the grant revenue. And sort of the last comment I would make is I’ve talked about our biopolymers headcount being around 50, our total headcount is around 65, 68 and that gives you a sense of sort of order of magnitude of the people involved in the program.

That is very helpful. Now switch to your pilot production, it sounds like to me the $1 million CapEx is just for recovery operation and you don’t put in any fermentation capacity.

So as Johan, mentioned, our plan is to continue to use fermentation service providers to provide the broth that goes into recovery. That's what we've done historically in our pilot operations as well.

So you just put that most – the new recovery or expanded recovery equipment, well the on-site with your third party fermentation provider?

Yes, it will actually be at our third party recovery provider. The third-party fermentation services don't come from the same person or from the same company.

But in the future whether that could be the model for you to increase your capacity further?

I think in the future we’re going to look at every option available for how we scale our capacity to match up with the scale up of our business. And we've looked at options that range from building our own facilities to doing things in contract manufacturing facilities to just about everything in between. And we will continue to look for the best options that give us the material that we need to support the scale-up of the business.

Lastly, regarding your collaboration with Honeywell, any significant milestone that we should be looking for?

I think the milestone we’re all looking for ultimately is the successful development and launch of some products that contain PHA microbeads. That’s what we're focusing on first. And we're just -- we're excited to have an opportunity to take that really unique attribute of our product to market and we think we’ve got a great partner in Honeywell to do that.

[Operator Instructions] Thank you. We have no further questions in queue at this time. I’d like to return the floor back over to Mr. Shaulson for closing remarks.

Great. Thank you. I’d just like to finish up by saying in our comments today I hope two key points came across. First that we're highly focused on executing our business plan. And second, that there's a lot going on as we start 2015. I want to thank Metabolix employees for all their hard work and dedication and our stockholders for their continuing support. I look forward to talking with you again next quarter. Good night.

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. And thank you for your participation.