Yield10 Bioscience, Inc.
Q1 2015 Earnings Call Transcript

Published: 14 May 2015

[Operator:]

Good afternoon, and welcome to the Metabolix's First Quarter 2015 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 You may access an archived version of the call on Metabolix's website at www.metabolix.com.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.

[Lynne Brum:]

Thank you, Latonia. Good afternoon, everyone. Welcome to Metabolix's first quarter 2015 conference call. Earlier this afternoon we issued our first quarter 2015 new release which 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 and 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 first quarter and provide an update on the business. Johan van Walsem, our COO will provide an update on commercial development. Then Joe will review several financial items for the quarter and provide a recap of our business milestones. 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?

[Joe Shaulson:]

Thanks, Lynne. Hello everyone and thanks for joining us today. I always think it's helpful to start with a reminder of the core priorities that we are executing against and these are shown on Slide 3. It's been about eight weeks since our last call and I am pleased that we are continuing to make real progress, executing our business plan to transform Metabolix into a specialties focused biopolymers company. Please turn to Slide 4 while I highlight several areas where we have made good progress since our last call. First, let’s talk about commercial development and business culture. As discussed in prior calls, we’ve been transitioning to a more classical specialty materials business model that requires a high level of customer engagement and technical service focused on solutions that do more than just meet basic product requirements. They also create value for the customer. Our lead generation efforts continue to bring in projects across our target applications spaces, PVC processing aids and performance additives, PLA modification, functional biodegradation and barrier coatings for paper. As a result, we have a solid portfolio of activity underway at this point in 2015 and later in the call Johan will talk about some specific examples in the areas of PVC, PLA and functional biodegradation. We hope this additional level of detail will not only provide some insight into the interesting role PHA can play in a diverse set of product applications but also give you a better sense of why we're so excited about our commercial development efforts. In 2015 we’re getting closer to initial conversions and we see the potential for product applications to progress through development and evaluation to commercial launch. We’re working hard to make this happen and we look forward to having additional biopolymer capacity available to support these efforts later this year. Speaking of biopolymer capacity, we’ve talked before about our plan to significantly increase our pilot production capacity for Mirel PHA biopolymers. So far in 2015 we’ve made excellent progress on that plan and I am happy to report that we’re now nearly -- that we've now nearly completed the planned capital upgrades at our contracted biopolymer recovery facility. In addition, we just recently signed a two-year agreement for toll fermentation services from a very capable U.S. based supplier and expanded our contract with the owner-operator of our recovery facility. Technology transfer for fermentation services is currently underway and we will soon have broth supply that is well matched to the 50,000 pounds per month nameplate capacity of our standard recovery plan. With both vendors under contract and our facility upgrades nearly complete, our supply chain for expanded pilot manufacturing is rapidly coming together. In biopolymer research and development, our teams have been busy supporting commercial development and production scale up activities. These efforts are critical to our success as is ongoing R&D work to expand the performance envelope of our PHA Bob biopolymers through more fundamental advancements in PHA technology. With that update on our recent progress, I will hand the call over to Johan to take us through a more detailed review of commercial activities.

[Johan van Walsem:]

Thank you, Joe. Please turn to Slide 5. We are building the PHA biopolymers business using specialties business model where our PHA resins and additives enable new formulations that meet customer needs, enhance system performance and/or reduce system costs. The products we are delivering to customers are PHA performance additives, pure PHA resins and PHA/PLA blends. And these products address four key target applications spaces

[Joe Shaulson:]

Thanks, Johan. I hope it's clear from what we just reviewed that we have a lot going on in commercial development. I think it's important to point out that these are not just ideas that we have about where our PHA biopolymers might be useful. These are real opportunities that we are working on with real customers. Some are already commercial on a small scale and others are much larger scale and in various stages of development. It's probably safe to say that we won't convert every project to commercial success but we are certainly excited about the portfolio and the potential it presents for building a successful specialty biopolymers business. Please turn to Slide 11 and will touch on a few financial highlights. Starting with the balance sheet, we used approximately $6.8 million of cash in Q1 2015 and finished the quarter with $13.3 million of cash on the balance sheet. During our last call, we provided guidance on total 2015 cash usage of approximately $23 million and our Q1 cash usage and ending cash balance are in line with that guidance. We are well aware of the need to secure additional financing this year and are considering a variety of financing options. In continuing operations, we reported a net loss of $5.8 million for the first quarter 2015 or $0.04 per share, representing a $1.7 million improvement from a net loss of $7.5 million or $0.21 per share in first quarter 2014. Product revenue from continuing operations was approximately $100,000 in Q1 2015. We expect to see the revenue line begin to pick up later in the year as we continue working to convert commercial development activities to recurring commercial sales. For a more detailed review of our financial results, please refer to the earnings release we made available earlier today. Please turn to Slide 12 for some closing thoughts. Reflecting on the past 15 months, I think we've made excellent progress developing a solid business strategy reshaping the company around that strategy, securing $25 million of new financing, expanding our pilot production capacity, advancing our technology and building an exciting portfolio of commercial opportunities. Looking forward these are some of the key milestones I hope to see us achieve. First and foremost, we intend to convert commercial development projects to commercial sales. In that regard we look forward to seeing Honeywell launch its first product based on our Mirel PHA biopolymers. We are excited to ramp up pilot production once the capital modifications at our recovery facility are complete and regular supply of broth from our fermentation partner has begun. We will also keep working on plans for commercial scale plant. We intend to secure additional financing and regain NASDAQ compliance and finally we remain focused on our plan to spin out our crop science program. With that I will wrap up and open the call to analysts’ questions. Operator?

[Operator:]

[Operator Instructions] Our first question comes from JinMing Liu with Ardour Capital.

[JinMing Liu:]

So a couple of questions regarding your guidance for the year. Sales picked up in the latter half – later this year. So it sounds like most of the new sales will come from the PLA blend, that part of the product portfolio and they also – have a question about when we should expect the rubber product can start, whether that’s a second quarter event or it’s going to be pushed into second half?

[Joe Shaulson:]

So taking the sort of sales ramp up first, I am hoping to see customer conversions in both PVC and PLA and also to see some ramp up in some of the functional biodegradation customer projects that we talked about today. So I don't think it's just a PLA driven ramp up, I am hoping to see a ramp up across the across the activities that we’re involved in, the one where I would say we are unlikely to see any commercial ramp up in 2015 is in barrier coating for paper. And then with respect to the pilot capacity we’re just about done with the facility modifications, at the same time we’re approaching the end of the of the second quarter. So I think you should expect to see that ramp up in the second half of the year as opposed to in Q2.

[JinMing Liu:]

And regarding the PLA applications, actually it’s a more general question. Are you targeting the end customers as the ultimate OEM – meaning say, if you are working on food packaging you will talk to large food companies or if you are working with the middle layer of the company like a compounder or some other plastic packaging companies?

[Joe Shaulson:]

I think our focus goes across the supply chain and we look to build relationships and have a dialogue wherever it can be helpful to our commercialization efforts.

[JinMing Liu:]

But in that case we have to have all the technical expertise across the value chain?

[Joe Shaulson:]

I would say we don't necessarily have to have all the technical expertise across the value chain, because just because we’re talking to a brand owner for example, doesn’t mean that we’re going to do everything up to the point where the brand owner receives the product. We may work with a partner, that's another place in the supply chain.

[Johan van Walsem:]

I would also add that depending on the specific applications space, the go to market approach is something we optimize for each particular place in packaging foam and other such applications. We do work a lot in the value chain where help them make a better foam and they have a customer base that may be interested in that and in other cases we do work with the ultimate OEM because either the market is very concentrated or we have a large partner. So it is something we determine for each and every case and we really try and leverage our capabilities and resources against other capabilities that exist out there and partnerships are very important for us in that regard.

[JinMing Liu:]

Regarding PLA, are you currently working with PLA producers such as Nature Work?

[Joe Shaulson:]

So we certainly have a regular dialogue with the PLA producers.

[JinMing Liu:]

Lastly just on your pilot sheet [ph], I saw deferred revenue of $249,000 for the quarter, where did that deferred revenue come from –

[Joe Shaulson:]

I think you see generally deferred revenue is of a portion of our sales – due to our sales recognition policy which says we book actual revenue at the later of two months after we sell the product or when the cash is received. And then I would say there are also instances under our government grants and in our licensing arrangement with people where we could have some deferred revenue as well.

[Operator:]

Our next question comes from Lawrence Alexander with Jefferies.

[Lawrence Alexander:]

A couple of questions. First, how many research or partnership programs do you have underway and do you have a updated metrics for roughly how much you and your partners need to spend in terms of OpEx before you get the sort of cash breakeven on a particular program? Because obviously that’s a more technical sales driven – there is always a little bit of OpEx before you get the sales growth. So what’s your rules of thumb around that?

[Joe Shaulson:]

So I wouldn’t necessarily say we have specific rules of thumb, Lawrence. I think what we were trying to do today is to give a sense of what the portfolio of commercial activities looks like. We talked about a whole bunch of projects in PVC. Johan mentioned in his comments that in PVC generally we’re talking about projects that involve durable goods and obviously those have longer sort of sales development testing and certification cycles than some of our other efforts do. We try to have a range of activities across all the different applications spaces because they do have different development and commercialization characteristics and ultimately what we’re trying to do is build a book of business that will consume the material we can produce in our pilot recovery facility, hopefully rapidly and that will provide the base load for our first commercial plant. And then with the long-term vision that says we will need multiple commercial plants to supply that demand but we've not given and are not giving any guidance on what the exact timeline to achieve those things would be.

[Lawrence Alexander:]

Is it fair to say that for each of the market that you flag, you probably have more than one program in each market?

[Joe Shaulson:]

Yes, for sure.

[Lawrence Alexander:]

And I guess secondly, the spin-out on the crop science, can you give a sense for what that would imply for either your balance sheet but also can you update us on -- what exactly the purchaser will be getting – I mean how far along you are, what your expression yields are and so forth?

[Joe Shaulson:]

So what I would say is our focus to date has been a somewhat internal focus as we really have shifted the emphasis of the work we were doing in crop science from the old model which was really based around producing biopolymers and crops to a new model that's really based on taking the technology that we’ve developed in the course of biopolymer production, that happens to be directed at yield improvement and now applying that and building business models for applying that to commercially significant crops. So we’re in the process of reporting of putting that business model together and I think it's too early in the process to say what the balance sheet implications or quite frankly the structure might be for crop spin-out activity. What we’re focused on is allowing it to stand on its own and to be separately financed and separately managed as a sort of standalone business activity. What the legal structure for that looks like and what the economic structure for that looks like is to be determined.

[Lawrence Alexander:]

I guess more as well sort of maybe I don’t know – if you want, you can help us on is where you see the scientific expertise or where you’re differentiated whether it’s gene identification, gene insertion, can you just give us some help for what it is that a potential buyer would be excited about looking at in that package?

[Oli Peoples:]

This is Oli. I will give you a bit of a heads up. So we have some very exciting – advanced transcript on that work analysis which has led to identification on some exciting yield genes for seed or crops. We also have a number of metabolic engineering programs in the area of enhanced carbon fixation, all of which have resulted in very promising and exciting results. As we look at our portfolio and the fact we were really driving those yield increases to increase carbon availability for the bio-plastic, we recognize that we were actually significantly improving crop yield. And as you know a crop yield is a pretty major macro-driver for the industry and so we’ve repositioned the activity of the crops around that and we are very excited about it and when we do begin to talk about it publicly we expect others to be equally excited if not more or so.

[Lawrence Alexander:]

And then just lastly, can you update us – I think it was a few years ago you had a licensing agreement with Abbott for some of your gene insertion patent and if I remember this, we’re getting to about the period when you thought it might possibly be relevant, can you give us an update on that?

[Joe Shaulson:]

Yes, Abbott did actually spend quite a bit of activity on that over the years and then with the divestiture of Abi [ph], the spin-out from that, that license went away. End of Q&A

[Operator:]

[Operator Instructions] At this time I would like to turn the call back over to Mr. Joe Shaulson for closing comments.

[Joe Shaulson:]

Thanks. I just like to finish by saying our team is working with a sense of urgency. We have a clear set of strategic priorities and in our comments today I hope two key points came across. First that we are highly focused on executing our business plan, and second that we have developed an exciting portfolio of commercial opportunities and are working intently to convert them to commercial sales. Thanks to all my colleagues at Metabolix for your hard work and dedication and thanks to you our stockholders for your continuing support. I look forward to talking with you again next quarter. Good night.

[Operator:]

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation.