Telles, which was created in July 2006, is on the verge of a 1m pound commercialization milestone for its polyhydroxyalkanoate (PHA) bioplastic, Mirel, expected in March. Customers are currently testing Mirel, which were being produced by ADM Polymer, the subsidiary of ADM, at the newly constructed 110m lb/year (50KT/Y) Clinton, Iowa, plant.
According to Metabolix, Telles has ongoing sales activities primarily in the US and Europe working approximately with 100 customers and prospects -- 57 active and 26 repeat buyers.
Unfortunately for Metabolix (and the company said this is an unexpected news), ADM has now decided to evaluate other commercially viable uses for the Clinton facility leaving Metabolix in the commercial lurch although ADM said it will continue to provide PHA fermentation services for Metabolix during a 3-year period following the termination of the JV.
ADM said it will record a one-time pretax charge in its second quarter of between $300m and $360m for the impairment of the JV's production assets. There are currently 90 full-time ADM employees at the Clinton polymer plant as well as a small number of employees supporting the Telles sales and marketing efforts in Europe. ADM will reportedly offer severance packages or employment opportunities for the staff affected.
"We have had a good working relationship with Metabolix, and the fermentation technology performed well at our facility. Unfortunately, uncertainty around projected capital and production costs, combined with the rate of market adoption, led to projected financial returns for ADM that are too uncertain. Therefore, we have decided to exit the business as permitted by the commercial alliance agreement with Metabolix." - ADMMETABOLIX' ACTIONS
The news took Metabolix' stock plunging by 45% last quoted at $3.28 on after-hours volume of nearly 20,000, according to Nasdaq.com. Metabolix held a conference call at 5pm (EST) yesterday to answer analysts' questions on the JV termination.
Metabolix CEO outlined the impact of the JV termination as follows:
- ADM no longer has the obligation to fund the joint venture, nor supply PHA product.
- All intellectual property flows back to Metabolix. Metabolix will retain sole rights to all PHA bio-plastics technology, including intellectual property rights and trademarks.
- The obligations of the joint venture to pay back the Ledger Balance, which stood at $425 million as of the end of Q3 2011, are eliminated. Therefore, Metabolix will have no ongoing obligation under the ledger account which was funded by ADM to finance the Clinton plant and certain Telles operating costs.
In terms of supporting their current PHA bioplastic customers, Metabolix said it is examining near term options and alternative approaches to regain production capacity but no timing has been projected for availability of commercial production capabilities for Mirel. Metabolix still has its pilot facility for manufacturing PHA bioplastic but of course, that will not be enough to sustain its current customers, and this pilot plant is most probably being used to sustain its PHA-based chemicals development with collaborator CJ CheilJedang
Here are my wild guesses on how Metabolix will be able to supply its customers with PHA:
- Pay ADM to produce PHA for them.
- Contract CJ since they have global-scale fermentation facilities in China, Indonesia and Brazil.
- Partner with contract manufacturer to produce PHA
The question is how easy or difficult will it be to manufacture Metabolix's PHA? Technically (according to sources), PHA are semicrystalline thermoplastics with similar structure such as polylactic acid (PLA) and polycaprolactone.
Metabolix can reportedly modify their PHA's hydrophobicity, tensile strength, transition temperatures and level of crystallinity, making these molecules having a wide range of properties comparable to everything from rigid thermoplastics to thermoplastic elastomers as well as forms useful in waxes, adhesives, binders and solvents.
Going back to Metabolix' new plans, the company expect to have initial commercial facility smaller than the 50KT/Y Clinton capacity. Metabolix is also targeting initial market focus on higher margin applications.
"It is clear that developing a lower capital approach will be essential and we have some options framed out that we will now evaluate. We have five years of learning which we and a new partner can now benefit from and that's very valuable knowledge." - Metabolix
Metabolix said it has ended 2011 with unaudited cash and investment balance in excess of $78m, and for 2012, they expect to take restructuring charge of $2m-$3m resulting in cash usage of between $23m and $28m in 2012. This year's balance sheet is expected to end with cash and investment between $50m and $55m.
Metabolix will definitely be walking in a tight rope this year balancing its cash between the bioplastic business, its PHA-based chemicals R&D, and the Metabolix crop platform unless they can find a partner fast to mitigate the expenses in commercializing the Mirel plastic.
As of December 2011, pricing for Mirel was estimated by Jefferies analyst Laurence Alexander at around $2.50/lb, north of that for some applications, and $2/lb for some densified material (for blending or downstream compounding). The blog is not sure how much margins Metabolix is getting for these prices nowadays but Jefferies had a very rough estimate early last year of around $1-$1.10/lb.
As for the PHA bioplastic market itself, Metabolix cited the 20%/year overall bioplastic market growth where PHA resins can ride into. The blog has not yet found projected growth rate for PHA plastic as it is already 2am in the morning and the blogger needs its sleep.
Maybe a PHA market article for ICIS Chemical Business should be next in line...we will see.