YIELD10 BIOSCIENCE, INC. - Quarter Report: 2013 September (Form 10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

For the quarterly period ended September 30, 2013

 

OR

 

 

For the transition period from                to               

 

Commission file number 001-33133

 

METABOLIX, INC.

 

 

(617) 583-1700

(Registrant’s telephone number, including area code)

 

 

(Former name, former address and former fiscal year, if changed since last report.)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

The number of shares outstanding of the registrant’s common stock as of November 1, 2013 was 34,581,449.

 

 

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Metabolix, Inc.

Form 10-Q

For the Quarter Ended September 30, 2013

 

Table of Contents

 

				Page
Part I. Financial Information				3
Item
1.		Condensed Consolidated Financial Statements (Unaudited)		3
		Condensed Consolidated Balance Sheets at September 30, 2013 and December 31, 2012		3
		Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2013 and 2012		4
		Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2013 and 2012		5
		Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012		6
		Notes to the Consolidated Financial Statements		7
2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
3.		Quantitative and Qualitative Disclosures About Market Risk		25
4.		Controls and Procedures		25
Part II. Other Information				26
Item
1.		Legal Proceedings		26
1A.		Risk Factors		26
2.		Unregistered Sales of Equity Securities and Use of Proceeds		26
3.		Defaults Upon Senior Securities		26
4.		Mine Safety Disclosures		26
5.		Other Information		26
6.		Exhibits		27
SIGNATURES				28

 

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PART I.  FINANCIAL INFORMATION

 

ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

METABOLIX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

UNAUDITED

(in thousands, except share and per share data)

 

		September 30,			December 31,
		2013			2012
Assets
Current Assets:
Cash and cash equivalents		$	8,872		$	14,572
Short-term investments		16,876			29,201
Accounts receivables		501			839
Due from related parties		91			75
Unbilled receivables		271			372
Inventory		3,400			3,204
Prepaid expenses and other current assets		932			692
Total current assets		30,943			48,955
Restricted cash		619			594
Property and equipment, net		891			1,358
Long-term investments		—			2,508
Other assets		50			95
Total assets		$	32,503		$	53,510
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable		$	422		$	1,233
Accrued expenses		3,190			3,519
Current portion of deferred rent		97			165
Short-term deferred revenue		450			1,067
Other current liabilities		141			—
Total current liabilities		4,300			5,984
Deferred rent, net of current portion		—			55
Other long-term liabilities		—			131
Total liabilities		4,300			6,170
Commitments and contingencies (Note 10)
Stockholders’ Equity:
Preferred stock ($0.01 par value per share); 5,000,000 shares authorized; no shares issued or outstanding		—			—
Common stock ($0.01 par value per share); 100,000,000 shares authorized at September 30, 2013 and December 31, 2012, 34,516,762 and 34,306,570 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively		345			343
Additional paid-in capital		291,828			289,050
Accumulated other comprehensive loss		(59		)	(21		)
Accumulated deficit		(263,911		)	(242,032		)
Total stockholders’ equity		28,203			47,340
Total liabilities and stockholders’ equity		$	32,503		$	53,510

 

The accompanying notes are an integral part of these interim consolidated financial statements

 

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METABOLIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

UNAUDITED

(in thousands, except share and per share data)

 

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2013			2012			2013			2012
Revenue:
Revenue from termination of ADM collaboration		$	—		$	—		$	—		$	38,885
Product revenue		265			70			1,876			457
Grant revenue		563			576			1,871			1,415
Research and development revenue		—			—			618			—
License fee and royalty revenue		27			28			139			162
Total revenue		855			674			4,504			40,919
Costs and expenses:
Cost of product revenue		459			316			2,212			808
Research and development		4,643			4,931			14,446			15,982
Selling, general, and administrative		2,995			3,170			9,728			11,006
Total costs and expenses		8,097			8,417			26,386			27,796
Income (loss) from operations		(7,242		)	(7,743		)	(21,882		)	13,123
Other income (expense):
Interest income, net		10			27			43			102
Other expense, net		(19		)	(29		)	(40		)	(78		)
Total other income (expense), net		(9		)	(2		)	3			24
Net income (loss)		$	(7,251	)	$	(7,745	)	$	(21,879	)	$	13,147
Net income (loss) per share:
Basic		$	(0.21	)	$	(0.23	)	$	(0.64	)	$	0.38
Diluted		$	(0.21	)	$	(0.23	)	$	(0.64	)	$	0.38
Number of shares used in per share calculations:
Basic		34,516,051			34,243,792			34,435,129			34,188,146
Diluted		34,516,051			34,243,792			34,435,129			34,270,455

 

The accompanying notes are an integral part of these interim consolidated financial statements

 

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METABOLIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

UNAUDITED

(in thousands)

 

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2013			2012			2013			2012
Net income (loss):		$	(7,251	)	$	(7,745	)	$	(21,879	)	$	13,147
Other comprehensive income (loss)
Change in unrealized gain (loss) on investments		3			12			(8		)	(6		)
Change in foreign currency translation adjustment		(2		)	3			(29		)	(2		)
Total other comprehensive income (loss)		1			15			(37		)	(8		)
Comprehensive income (loss)		$	(7,250	)	$	(7,730	)	$	(21,916	)	$	13,139

 

The accompanying notes are an integral part of these interim consolidated financial statements

 

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METABOLIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

(in thousands)

 

		Nine Months Ended
		September 30,
		2013			2012
Cash flows from operating activities
Net income (loss)		$	(21,879	)	$	13,147
Adjustments to reconcile net income (loss) to cash used in operating activities:
Depreciation		737			1,026
Charge for 401(k) company common stock match		356			350
Stock-based compensation		2,441			2,935
Inventory impairment		317			—
Changes in operating assets and liabilities:
Accounts receivables		338			(508		)
Due from related party		(16		)	311
Unbilled receivables		101			(363		)
Prepaid expenses and other assets		(195		)	94
Inventory		(513		)	(3,028		)
Accounts payable		(811		)	(272		)
Accrued expenses		(360		)	(101		)
Other current liabilities		141			—
Deferred rent and other long-term liabilities		(254		)	(115		)
Deferred revenue		(617		)	(37,900		)
Net cash used in operating activities		(20,214		)	(24,424		)
Cash flows from investing activities
Purchase of property and equipment		(281		)	(397		)
Proceeds from sale of property and equipment		—			12
Change in restricted cash		(25		)	28
Purchase of investments		(15,621		)	(56,428		)
Proceeds from the sale and maturity of short-term investments		30,447			77,320
Net cash provided by investing activities		14,520			20,535
Cash flows from financing activities
Proceeds from options exercised		14			19
Net cash provided by financing activities		14			19
Effect of exchange rate changes on cash and cash equivalents		(20		)	(2		)
Net decrease in cash and cash equivalents		(5,700		)	(3,872		)
Cash and cash equivalents at beginning of period		14,572			21,277
Cash and cash equivalents at end of period		$	8,872		$	17,405

 

The accompanying notes are an integral part of these interim consolidated financial statements

 

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METABOLIX, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

 

(All dollar amounts, except share and per share amounts, are stated in thousands)

 

1. BASIS OF PRESENTATION

 

The accompanying condensed consolidated financial statements are unaudited and have been prepared by Metabolix, Inc. (the “Company”) in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in the Company’s annual consolidated financial statements have been condensed or omitted. The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The consolidated financial statements, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the financial position and results of operations for the interim periods ended September 30, 2013 and 2012.

 

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for any future period or the entire fiscal year. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2012, which are contained in the Company’s Annual Report on Form 10-K filed with the SEC on March 28, 2013.

 

With the exception of 2012, when the Company recognized $38,885 of deferred revenue from the terminated Telles joint venture, it has recorded net losses since its inception, including the nine months ended September 30, 2013. The Company held unrestricted cash, cash equivalents and investments of $25,748 at September 30, 2013. The Company believes that these resources and the cash to be generated from existing grants and expected product sales will be sufficient to meet its projected operating requirements into the third quarter of 2014. However, any significant costs incurred to establish a commercial biopolymer manufacturing facility will shorten this liquidity horizon and require that the Company seek additional funds in order to continue and advance its operations. The Company continues to face significant challenges and uncertainties and, as a result, the Company’s available capital resources may be consumed more rapidly than currently expected due to: (a) lower than expected sales of the Company’s new biopolymer products as a result of slow market adoption; (b) increases in capital costs and operating expenses related to the establishment and start-up of commercial manufacturing operations either on its own or with third parties for its biopolymer products; (c) changes the Company may make to the business that affect ongoing operating expenses; (d) changes the Company may make in its business strategy; (e) changes in the Company’s research and development spending plans; and (f) other items affecting the Company’s forecasted level of expenditures and use of cash resources. Accordingly, the Company will need to raise additional funds to support its operating and capital needs. The Company will attempt to obtain additional funding through public or private financing, collaborative arrangements with strategic partners, or through additional credit lines or other debt financing sources to increase the funds available to support operations. However, there is uncertainty regarding whether the Company can successfully execute these actions, and the Company can provide no assurance that it will. Furthermore, if the Company issues equity or debt securities to raise additional funds, its existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of its existing stockholders. If the Company raises additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish valuable rights to its potential products or proprietary technologies, or grant licenses on terms that are not favorable to the Company. Without additional funds, the Company will be forced to delay, scale back or eliminate some of its sales and marketing efforts, research and development activities, or other operations and potentially delay product development in an effort to provide sufficient funds to continue its operations. If any of these events occurs, the Company’s ability to achieve its development and commercialization goals would be adversely affected.

 

2. ACCOUNTING POLICIES

 

There have been no material changes in accounting policies since the Company’s fiscal year ended December 31, 2012, as described in Note 2 to the consolidated financial statements included in its Annual Report on Form 10-K for the year then ended.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions were eliminated. Telles, LLC (“Telles”), the Company’s former joint venture with Archer Daniels Midland Company (“ADM”) that terminated in early 2012, was not consolidated by the Company.

 

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Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of cash and cash equivalents and short-term investments. The Company primarily invests its excess cash and cash equivalents in money market funds, corporate debt, federal agency notes and U.S. treasury notes. Investments are acquired in accordance with the Company’s investment policy which establishes a concentration limit per issuer.

 

The Company provides credit to customers in the normal course of business. The Company performs ongoing credit evaluations of its customers’ financial condition and limits the amount of credit extended when deemed necessary. At September 30, 2013, the Company’s accounts and unbilled receivables include $571 or 66% from U.S. and Canadian government grants and $140 or 16% from customer product sales. At December 31, 2012, the Company’s accounts and unbilled receivables included $561 or 46% from U.S. and Canadian government grants and $535 or 44% from customer product sales. At September 30, 2013, no customer had accounts receivable due from product sales representing 10% or more of our total accounts receivable.  At December 31, 2012, one customer had accounts receivable due from product sales representing 41% of our total accounts receivable.

 

3. RECENT ACCOUNTING PRONOUNCEMENTS

 

In July 2013, the Financial Accounting Standards Board, or FASB, issued updated accounting guidance for the
presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit
carryforward exists. The updated guidance requires the netting of unrecognized tax benefits against a deferred tax asset for a loss or other carryforward that would apply in settlement of the uncertain tax position. In addition, unrecognized tax benefits will be netted against all available same-jurisdiction loss or other tax carryforwards that would be utilized, rather than only against carryforwards that are created by unrecognized tax benefits. The update is effective prospectively for reporting periods beginning after December 15, 2013, and early adoption is permitted. The adoption of this guidance is not expected to have an impact on the Company’s consolidated financial statements.

 

In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02). This newly issued accounting standard requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. This ASU is effective for reporting periods beginning after December 15, 2012. The adoption of this standard did not have an impact on the Company’s financial position or results of operations. Reclassification adjustments were insignificant for all periods presented.

 

4. BASIC AND DILUTED NET INCOME (LOSS) PER SHARE

 

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding. Common stock equivalents include stock options and warrants. Diluted net income per share is computed by dividing net income by the weighted-average number of dilutive common shares outstanding during the period. Diluted shares outstanding is calculated by adding to the weighted shares outstanding any potential (unissued) shares of common stock from outstanding stock options and warrants based on the treasury stock method.  In periods when a net loss is reported, all common stock equivalents are excluded from the calculation because they would have an anti-dilutive effect, meaning the loss per share would be reduced. Therefore, in periods when a loss is reported there is no difference in basic and diluted loss per share.

 

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Shares used to calculate diluted earnings per share are as follows:

 

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2013			2012			2013			2012
Numerator:
Net income (loss)		$	(7,251	)	$	(7,745	)	$	(21,879	)	$	13,147
Denominator:
Weighted average number of common shares outstanding		34,516,051			34,243,792			34,435,129			34,188,146
Effect of dilutive securities:
Stock options		—			—			—			82,309
Dilutive potential common shares		—			—			—			82,309
Shares used in calculating diluted earnings per share		34,516,051			34,243,792			34,435,129			34,270,455

 

The number of shares of potentially dilutive common stock related to options and warrants that were excluded from the calculation of dilutive shares since the inclusion of such shares would be anti-dilutive for the three and nine months ended September 30, 2013 and 2012 are shown below:

 

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2013		2012		2013		2012
Options		6,195,437		5,665,046		5,675,833		5,413,073
Warrants		4,086		4,086		4,086		4,086
Total		6,199,523		5,669,132		5,679,919		5,417,159

 

5. INVENTORY

 

The components of biopolymer inventories are as follows:

 

		September 30, 2013			December 31, 2012
Raw materials		$	854		$	640
Work-in-process		12			2
Finished goods		2,534			2,562
Total inventory		$	3,400		$	3,204

 

At September 30, 2013 and December 31, 2012, included within finished goods are $104 and $257, respectively, of inventory that the Company has sold and shipped to customers for which the Company has not yet recognized revenue under its product revenue recognition policy. During the three and nine months ended September 30, 2013, the Company recorded a $46 and $317 charge to cost of product revenue for raw material and finished goods inventory, respectively, that it determined was unlikely to be sold or converted to future sellable product based on customer demand and current sales forecasts.

 

6. INVESTMENTS

 

Investments consist of the following:

 

		Amortized			Unrealized						Market
		Cost			Gain			(Loss)			Value
September 30, 2013
Short-term investments:
Government sponsored enterprises		$	16,871		$	5		$	—		$	16,876
Total		$	16,871		$	5		$	—		$	16,876
December 31, 2012
Short-term investments:
Government sponsored enterprises		$	29,189		$	12		$	—		$	29,201
Long-term investments:
Government-sponsored enterprises		2,507			1			—			2,508
Total		$	31,696		$	13		$	—		$	31,709

 

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Long-term investments have maturity dates of two years or less. The average maturity of the Company’s marketable securities available-for-sale as of September 30, 2013 and December 31, 2012 was three and four months, respectively.

 

7. FAIR VALUE MEASUREMENTS

 

The Company has certain financial assets recorded at fair value which have been classified as either Level 1 or 2 within the fair value hierarchy as described in the accounting standards for fair value measurements. Fair value is the price that would be received from the sale of an asset or the price paid to transfer a liability in an orderly transaction between independent market participants at the measurement date.  Fair values determined by Level 1 inputs utilize observable data such as quoted prices in active markets. Fair values determined by Level 2 inputs utilize data points other than quoted prices in active markets that are observable either directly or indirectly. Fair values determined by Level 3 inputs utilize unobservable data points in which there is little or no market data, which require the reporting entity to develop its own assumptions. The fair value hierarchy level is determined by the lowest level of significant input.  At September 30, 2013 and December 31, 2012, the Company did not own any Level 3 financial assets.

 

The Company’s financial assets classified as Level 2 were initially valued at the transaction price and have been subsequently valued typically utilizing third party pricing services. Because the Company’s investment portfolio may include securities that do not always trade on a daily basis, the pricing services use many observable market inputs to determine value including reportable trades, benchmark yields and benchmarking of like securities. The Company validates the prices provided by the third party pricing services by reviewing their pricing methods and obtaining market values from other pricing sources. After completing the validation procedures, the Company did not adjust or override any fair value measurements provided by these pricing services as of September 30, 2013 or December 31, 2012.

 

The tables below present information about the Company’s assets that are measured at fair value on a recurring basis as of September 30, 2013 and December 31, 2012 and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value.

 

		Fair value measurements at reporting date using
		Quoted prices in active
		markets for identical			Significant other			Significant
		assets			observable inputs			unobservable inputs			Balance as of
Description		(Level 1)			(Level 2)			(Level 3)			September 30, 2013
Cash equivalents:
Money market funds		$	5,958		$	—		$	—		$	5,958
Short-term investments:
Government securities		—			16,876			—			16,876
Total		$	5,958		$	16,876		$	—		$	22,834

 

		Fair value measurements at reporting date using
		Quoted prices in active						Significant
		markets for identical			Significant other			unobservable
		assets			observable inputs			inputs			Balance as of
Description		(Level 1)			(Level 2)			(Level 3)			December 31, 2012
Cash equivalents:
Money market funds		$	11,157		$	—		$	—		$	11,157
Government securities		—			2,015			—			2,015
Short-term investments:
Government securities		—			29,201			—			29,201
Long-term investments:
Government securities		—			2,508			—			2,508
Total		$	11,157		$	33,724		$	—		$	44,881

 

The Company considers all highly liquid investments purchased with an original maturity date of ninety days or less at the date of purchase to be cash equivalents, and investments purchased with an original maturity date of more than ninety days at the date of purchase and a maturity date of one year or less at the balance sheet date to be short-term investments.  All other investments are classified as long-term.

 

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8. ACCRUED EXPENSES

 

Accrued expenses consisted of the following at:

 

		September 30, 2013			December 31, 2012
Employee compensation and benefits		$	1,877		$	2,379
Professional services		433			301
Other		880			839
Total accrued expenses		$	3,190		$	3,519

 

9. STOCK-BASED COMPENSATION

 

The Company recognized stock-based compensation expense, related to employee stock option awards, of $764 and $2,441 for the three and nine months ended September 30, 2013, respectively. Stock-based compensation expense, related to employee stock option awards was $852 and $2,954 for the three and nine months ended September 30, 2012, respectively. At September 30, 2013, there was approximately $4,272 of pre-tax stock-based compensation expense, net of estimated forfeitures, related to unvested awards not yet recognized which is expected to be recognized over a weighted average period of 2.12 years.

 

A summary of option activity for the nine months ended September 30, 2013 is as follows:

 

		Number of		Weighted Average
		Shares		Exercise Price
Outstanding at December 31, 2012		5,579,042		$	6.68
Granted		1,053,915		1.64
Exercised		(7,550	)	1.82
Forfeited		(142,382	)	3.60
Expired		(340,776	)	9.38
Outstanding at September 30, 2013		6,142,249		5.74
Options exercisable at September 30, 2013		3,573,589		$	7.91
Weighted average grant date fair value of options granted during the nine months ended September 30, 2013				$	1.16

 

For the nine months ended September 30, 2013 and 2012, the Company determined the fair value of stock options using the Black-Scholes option pricing model with the following assumptions for option grants, respectively:

 

		Nine Months Ended
		September 30,
		2013		2012
Expected dividend yield		—		—
Risk-free rate		0.71% - 1.90%		0.67% - 1.15%
Expected option term (in years)		6.0		5.3 – 5.5
Volatility		84% - 85%		84% - 87%

 

10. COMMITMENTS AND CONTINGENCIES

 

Litigation

 

On February 17, 2012, a purported shareholder class action, Hilary Coyne v. Metabolix, Inc., Richard P. Eno, and Joseph Hill, Civil Action 1:12-cv-10318 (the “Class Action”), was filed in the United States District Court for the District of Massachusetts, naming the Company and certain officers of the Company as defendants. The Class Action alleges that the Company made material misrepresentations and/or omissions of material fact in the Company’s disclosures during the period from March 10, 2010 through its January 12, 2012 press release announcing that ADM had given notice of termination of the Telles joint venture for PHA biopolymers, all in violation of Sections 10(b) and 20(a) of the Securities Exchange Act and Rule 10b-5.  On September 20, 2013, the court granted the defendants’ motion to dismiss the Class Action in full and with prejudice.  The period during which the plaintiff could appeal the dismissal has expired and no appeal was filed.

 

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On March 7, 2012, a purported derivative lawsuit, Childs v. Kouba et al., Civil Action 12-0892 (the “Derivative Action”), was filed in Massachusetts Superior Court for Middlesex County, on behalf of the Company against members of the Company’s Board of Directors for alleged breaches of their fiduciary duties and based on a nearly identical set of alleged facts as those asserted in the Class Action. The Derivative Action seeks compensatory damages in an unspecified amount, plaintiff’s costs and attorneys’ fees, and unspecified equitable or injunctive relief.

 

The Company is currently unable to assess the probability of loss or estimate a range of potential loss, if any, associated with the Derivative Action because it is at an early stage.

 

From time to time, the Company may be subject to other legal proceedings and claims in the ordinary course of business. The Company is not currently aware of any such other proceedings or claims that it believes will have, individually or in the aggregate, a material adverse effect on the business, financial condition or the results of operations.

 

11. GEOGRAPHIC AND SEGMENT INFORMATION

 

The accounting guidance for segment reporting establishes standards for reporting information on operating segments in annual financial statements. The Company operates in one segment, which is the business of developing and commercializing technologies for the production of polymers and chemicals in plants and in microbes. The Company’s chief operating decision-maker does not manage any part of the Company separately, and the allocation of resources and assessment of performance are based on the Company’s consolidated operating results.

 

As of September 30, 2013, less than 10% of the Company’s combined total assets were located outside of the United States and the reported net income (loss) outside of the United States for the three and nine months ended September 30, 2013 and 2012 was less than 10% of the combined net income of the consolidated Company.

 

The geographic distribution of the Company’s revenues and long-lived assets from continuing operations is summarized as follows:

 

		U.S.			Canada			Germany			Eliminations			Total
Three Months Ended September 30, 2013:
Net revenues to unaffiliated customers		$	574		$	56		$	225		$	—		$	855
Inter-geographic revenues		214			175			—			(389		)	—
Net revenues		$	788		$	231		$	225		$	(389	)	$	855
Three Months Ended September 30, 2012:
Net revenues to unaffiliated customers		$	617		$	57		$	—		$	—		$	674
Inter-geographic revenues		—			180			—			(180		)	—
Net revenues		$	617		$	237		$	—		$	(180	)	$	674
Nine Months Ended September 30, 2013:
Net revenues to unaffiliated customers		$	3,516		$	232		$	756		$	—		$	4,504
Inter-geographic revenues		889			586			—			(1,475		)	—
Net revenues		$	4,405		$	818		$	756		$	(1,475	)	$	4,504
Nine Months Ended September 30, 2012:
Net revenues to unaffiliated customers		$	40,767		$	152		$	—		$	—		$	40,919
Inter-geographic revenues		—			508			—			(508		)	—
Net revenues		$	40,767		$	660		$	—		$	(508	)	$	40,919

 

Foreign revenue is based on the country in which the Company’s subsidiary that earned the revenue is domiciled.

 

The geographic distribution of the Company’s long-lived assets is summarized as follows:

 

		U.S.			Canada			Germany			Eliminations			Total
September 30, 2013		$	836		$	55		$	—		$	—		$	891
December 31, 2012		$	1,309		$	49		$	—		$	—		$	1,358

 

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12. INCOME TAXES

 

Deferred tax assets and deferred tax liabilities are recognized based on temporary differences between the financial reporting and tax basis of assets and liabilities using future enacted tax rates.  A valuation allowance is recorded against deferred tax assets if it is more likely than not that some or all of the deferred tax assets will not be realized.

 

For the three and nine months ended September 30, 2013 and 2012, the Company did not recognize any tax expense or benefit due to its continued net operating loss position.  Due to the uncertainty surrounding the realization of favorable tax attributes in future tax returns, the Company has recorded a full valuation allowance against its otherwise recognizable net deferred tax assets.

 

The Company follows the accounting guidance related to income taxes including guidance which addresses accounting for uncertainty in income taxes. This guidance prescribes a threshold for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transitions. The Company had no amounts recorded for any unrecognized tax benefits as of September 30, 2013 or December 31, 2012.

 

The tax years 2010 through 2012 remain open to examination by major taxing jurisdictions to which the Company is subject, which are primarily in the U.S. Additionally, the Company can be audited for any loss year up to three years after the year in which the loss is utilized to offset taxable income.  This would include loss years prior to 2010.

 

The Company’s policy is to record estimated interest and penalties related to uncertain tax positions in income tax expense. As of September 30, 2013 and December 31, 2012, the Company had no accrued interest or penalties recorded related to uncertain tax positions.

 

At December 31, 2012, the Company had net operating loss (“NOL”) carryforwards for federal and state income tax purposes of $211,016 and $148,611, respectively. Included in the federal and state NOL carryforwards are approximately $19,213 of deductions related to the exercise of stock options subsequent to the adoption of amended accounting guidance related to stock based compensation. This amount represents an excess tax benefit as defined under the amended accounting guidance related to stock based compensation and has not been recorded as a deferred tax asset. The Company’s existing federal and state NOL carryforwards begin to expire in 2013. At December 31, 2012, the Company also had available research and development credits for federal and state income tax purposes of approximately $4,502 and $3,577, respectively. The federal and state research and development credits will begin to expire in 2014 and 2016, respectively. At December 31, 2012, the Company also had available investment tax credits for state income tax purposes of $100, which also begin to expire in 2013. Management has evaluated the positive and negative evidence bearing upon the realizability of the Company’s deferred tax assets, which are comprised principally of NOL carryforwards and research and development credits. Under the applicable accounting standards, management has considered the Company’s history of losses and concluded that it is more likely than not that the Company will not recognize the benefits of federal and state deferred tax assets. Accordingly, a full valuation allowance has been established against the deferred tax assets.

 

Utilization of the NOL and research and development credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986, as amended, due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount of NOL and research and development credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. The Company completed an evaluation of its ownership changes through December 31, 2012 and has determined that its NOL and research and development credit carryforwards originating on or before that date are not subject to an annual limitation under Section 382. To the extent an ownership change occurs in the future, the net operating loss and credit carryforwards may be subject to limitation.

 

No additional provision has been made for U.S. income taxes related to the undistributed earnings of the wholly owned subsidiaries of the Company or for unrecognized deferred tax liabilities for temporary differences related to investments in subsidiaries. As such, earnings are expected to be permanently reinvested, the investments are essentially permanent in duration, or the Company has concluded that no additional tax liability will arise as a result of the distribution of such earnings. A liability could arise if amounts are distributed by such subsidiaries or if such subsidiaries are ultimately disposed. It is not practical to estimate the additional income taxes related to permanently reinvested earnings or the basis differences related to investment in subsidiaries. Unremitted earnings at December 31, 2012 approximated $252.

 

13. RESEARCH AND DEVELOPMENT

 

All costs associated with internal research and development as well as research and development services conducted for others are expensed as incurred. Research and development expenses include direct costs for salaries, employee benefits, subcontractors,

 

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facility related expenses, depreciation and stock-based compensation related to employees and non-employees involved in the Company’s research and development. Costs related to revenue-producing contracts and government grants are recorded as research and development expenses.

 

14. ADM COLLABORATION

 

From 2004 through 2011, the Company developed and began commercialization of its PHA biopolymers through a technology alliance and subsequent commercial alliance with ADM Polymer Corporation, a wholly owned subsidiary of ADM. The Commercial Alliance Agreement between the Company and ADM Polymer specified the terms and structure of the alliance. The agreement governed the activities and obligations of the parties and included the establishment of a joint venture company, Telles, to market and sell PHA biopolymers, the construction of a manufacturing facility capable of producing 110 million pounds of material annually, the licensing of technology to Telles and to ADM, and the conducting of various research, development, manufacturing, sales and marketing, compounding and administrative services by the parties.

 

Under the Commercial Alliance Agreement, ADM was permitted, under limited circumstances, to terminate the alliance if a change in circumstances that was not reasonably within the control of ADM made the anticipated financial return from the project inadequate or too uncertain. The agreement provided that, upon termination by ADM due to a change in circumstances, the Company would be permitted to continue to produce and sell PHA biopolymers, and ADM would be required to perform manufacturing services for the Company for a period of time following the termination (subject to certain payment obligations to ADM). On January 9, 2012, ADM notified the Company that it was terminating the commercial alliance effective February 8, 2012, citing the projected financial returns from the alliance were too uncertain.

 

Upon termination of the alliance, the Company’s intellectual property licenses to ADM Polymer and Telles ended, with Metabolix retaining all rights to its intellectual property.  ADM retained its manufacturing facility located in Clinton, Iowa, previously used to produce PHA biopolymers for Telles.  Also upon termination, contractual payments made to the Company by ADM during the term of the alliance totaling $38,885 and recorded as deferred revenue on the Company’s balance sheet were immediately recognized during its fiscal quarter ended March 31, 2012, as the Company had no further performance obligations in connection with the alliance.

 

After termination of the Commercial Alliance Agreement, the parties entered into a Settlement Agreement in which the parties agreed to specific terms related to the winding up and dissolution of Telles. Under this Settlement Agreement, the Company purchased certain assets of the joint venture for $2,982, including Telles’s entire inventory, exclusive and perpetual rights to all of Telles’s trademarks, and all product registrations, certifications and approvals for Telles’s PHA biopolymers. Pursuant to the Settlement Agreement, ADM relinquished any claims with respect to certain co-funded equipment previously acquired by the Company and situated at locations other than ADM’s Clinton, Iowa manufacturing facility, and the Company and Telles waived any rights to post-termination manufacturing and fermentation services under the Commercial Alliance Agreement.

 

In February 2013, Telles was formally dissolved and ADM notified the Company that no trade or other obligations remain to be paid. As a result, the Company does not believe that it is contingently liable for any third party obligations stemming from the former ADM collaboration.

 

15. RELATED PARTIES

 

The Company engaged in various transactions with Tepha, Inc. (“Tepha”), a related party, and recorded $27 and $113 of license and royalty revenue during the three months and nine months ended September 30, 2013, respectively. During the three and nine months ended September 30, 2012, the Company recorded license and royalty revenue from Tepha of $28 and $122, respectively. As of September 30, 2013, the Company had an outstanding receivable of $91 due from Tepha.  There were no outstanding receivables due from Tepha at December 31, 2012.

 

The Company engaged in various transactions with ADM and Telles during the nine months ended September 30, 2012 as the parties wound down the affairs of the terminated Commercial Alliance Agreement.  As of September 30, 2013 and December 31, 2012, no outstanding receivables or payment obligations remained with either party.

 

16. RESTRUCTURING

 

In connection with the Telles termination, in the first quarter of 2012, the Company restructured its biopolymers business and downsized its operations to more appropriately align its 2012 business priorities and strategic plans with its cash and investment

 

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resources. The Company recognized $920 of restructuring charges within operating expenses during the nine months ended September 30, 2012.  There were no remaining balances accrued for restructuring charges at September 30, 2013.

 

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

(All dollar amounts are stated in thousands)

 

Forward Looking Statements

 

This quarterly report on Form 10-Q contains “forward-looking statements” within the meaning of 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In particular, statements contained in the Form 10-Q, including but not limited to, statements regarding our future results of operations and financial position, business strategy and plan prospects, projected revenue or costs and objectives of management for future research, development or operations, are forward-looking statements. These statements relate to our future plans, objectives, expectations and intentions and may be identified by words such as “may,” “will,” “should,” “expects,” “plans,” “anticipate,” “intends,” “target,” “projects,” “contemplates,” “believe,” “estimates,” “predicts,” “potential,” and “continue,” or similar words.

 

Although we believe that our expectations are based on reasonable assumptions within the limits of our knowledge of our business and operations, the forward-looking statements contained in this document are neither promises nor guarantees. Our business is subject to significant risk and uncertainties and there can be no assurance that our actual results will not differ materially from our expectations. These forward looking statements include, but are not limited to, statements concerning: future financial performance and position and management’s strategy, plans and objectives for research and development, product development, and commercialization of current and future products, including the commercialization of our biopolymer products. 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, without limitation, risks related to our financial position,  risks related to our dependence on establishing collaborations or partnerships for the manufacture and commercialization of our products, risks related to the development and commercialization of new and uncertain technologies, risks associated with our protection and enforcement of our intellectual property rights, as well as other risks and uncertainties set forth under the caption “Risk Factors” in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2012.

 

The forward-looking statements and risk factors presented in this document are made only as of the date hereof and we do not intend to update any of these risk factors or to publicly announce the results of any revisions to any of our forward-looking statements other than as required under the federal securities laws.

 

Overview

 

Metabolix is an innovation-driven bioscience company focused on delivering sustainable solutions to the plastics, chemicals and energy industries. We have core capabilities in microbial genetics, fermentation process engineering, chemical engineering, polymer science, plant genetics and botanical science, and we have assembled these capabilities in a way that has allowed us to integrate our biotechnology research with real world chemical engineering and industrial practice. In addition, we have created an extensive intellectual property portfolio to protect our innovations and, together with our technology, to serve as a valuable foundation for future industry collaborations.

 

The markets for petroleum-based plastics, chemicals and fuels are among the largest in the global economy. Issues associated with the prolonged use of petroleum-based products include plastic waste management and pollution, limited fossil fuel availability and price volatility, and global warming and climate change. We believe that a substantial global market opportunity exists to develop and commercialize our technology to produce sustainable, renewable alternatives to petroleum-based products including advanced biopolymers, biobased industrial chemicals and bioenergy.

 

Metabolix was formed to leverage the ability of natural systems to produce complex biopolymers from renewable resources. We have focused on a family of biopolymers found in nature called polyhydroxyalkanoates (“PHAs”), which occur naturally in living organisms and are chemically similar to polyesters. We have demonstrated the production of PHAs at the industrial scale to produce PHA biopolymers and biobased industrial chemicals, as well as production of polyhydroxybutyrate (“PHB”), a subclass of PHA biopolymer, in agriculturally significant crop plants.

 

From 2004 through 2011, we developed and began commercialization of our PHA biopolymers through a technology alliance and subsequent commercial alliance with a wholly-owned subsidiary of Archer Daniels Midland Company (“ADM”), one of the largest

 

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agricultural processors in the world. Under the commercial alliance, ADM was responsible for resin manufacturing, and Metabolix was primarily responsible for product development, compounding, marketing and sales. Through this alliance, the companies established a joint venture company, Telles, LLC (“Telles”), to commercialize PHA biopolymer products.

 

After ADM terminated the Telles joint venture early in 2012, we retained significant rights and assets associated with the PHA biopolymers business, which are being used to launch the business using a new commercial model, continuing business operations, marketing biopolymer products, and identifying alternate manufacturing capability. We hold exclusive rights to the Metabolix technology and intellectual property used in the joint venture. We acquired all of Telles’s product inventory and compounding raw materials totaling more than five million pounds, all product certifications and all product trademarks including MirelTM and MveraTM, and we retained all co-funded pilot plant equipment in locations outside of the Commercial Manufacturing Facility in Clinton, Iowa. In early 2012, we restructured the biopolymers business retaining a core team in our biopolymers group to provide continuity with technology, manufacturing process, and markets.

 

During 2012, we established Metabolix GmbH, a subsidiary located in Cologne, Germany, to serve as a focal point for our commercial activities in Europe. This cost effective location is intended to enable us to directly access the European market, which is the largest for bioplastics. We also took steps toward establishing a new commercial model for our PHA biopolymers business. We worked closely with our core customers to supply product from existing inventory as a bridge to new supply. We evaluated the potential applications for our biopolymer products and narrowed our market development focus to three high value market segments: (i) film and bag applications; (ii) performance additives; and (iii) functional biodegradation. In March 2012, we began directly booking product sales and shipping product from inventory to our customers. During the second half of the year, we developed, sampled and launched two new products: Mvera B5008, a compostable film grade, and I6001, a polymeric modifier for polyvinyl chloride.

 

During 2013, we are continuing to use existing inventory to develop the market and to supply new and existing customers. In the third quarter of 2013, we broadened our offering of film resins with the launch of Mvera B5010, a new certified compostable resin for film and bag applications.  In October 2013, we launched I6003rp, a new polymeric modifier for recycled PVC and presented data at a technical conference supporting the use of this product in that application.  We continue to explore alternative options to establish a new biopolymer manufacturing and supply chain properly sized to our business.

 

We are working to establish our own PHA supply chain. This captive capacity will be combined with access to additional biodegradable polymers sourced from third parties, which will allow us to formulate proprietary high-performance products for our target segments.

 

In March 2013, we entered into a supply agreement with China-based Tianjin GreenBio Materials, or TGBM, to buy various grades of PHA polymers that will extend the range and availability of our grades. We have been working with TGBM and its products for more than one year and have spent time on site in China. In May 2013, we completed an additional arrangement with TGBM, under which TGBM will be able to purchase and use our PHA biopolymer resins.

 

In July 2013, we formalized a Memorandum of Understanding (“MOU”) with Samsung Fine Chemicals, a significant biopolymers industry player based in South Korea. Samsung is pursuing a similar strategy to Metabolix, offering a complementary product slate and complementary regional positioning. In terms of geographies, Metabolix is focused on the U.S. and Europe while Samsung has a strong market presence in Korea and across Asia. Metabolix has been working with Samsung on biodegradable polymers since early 2012. Under the MOU, we will work together with the goal of expanding the global market for biodegradable polymers. The products we will develop will be designed to deliver the best performance and value to targeted customer applications. Samsung and we have agreed to work together, but will fund our respective costs separately. The MOU does not represent a legally binding commitment by either party, and it may be terminated at any time without liability or obligations by either party.

 

For our second platform, we are developing C4 and C3 chemicals from biobased sources, as opposed to the fossil fuels that are currently used to produce most industrial chemicals today. Our process for creating biobased industrial C4 and C3 chemicals involves engineering metabolic pathways into microbes that, in a fermentation process, produce specific PHA structures that serve as precursors for the chemicals. Through our PHA technology, we are able to control the microbe biology to achieve high concentrations of specific, naturally-occurring PHA that accumulate inside cells as they metabolize sugars. This intracellular accumulation of the biopolymers inside the microbes is a unique and differentiating aspect of our technology. When the fermentation is completed, we use a novel internally developed recovery process known as “FAST” (fast-acting, selective thermolysis) that converts the biopolymer to the target chemical using heat.

 

In the C4 program, we have produced biobased gamma butyrolactone (“GBL”) at industrial scale and demonstrated a chemical profile that meets or exceeds the existing industrial specifications. In 2012, we completed the preliminary design for a commercial

 

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scale plant to enable production of biobased GBL and, through an established conversion process, butanediol (“BDO”). This plan, which could be implemented under a potential future collaboration, includes specifications for all of the components of our fermentation and recovery process. We believe that developing and commercializing biobased C3 chemicals could represent another attractive market for our technology. In 2011, we undertook a market analysis of the global market for acrylic acid, a C3 chemical, to assess the market participants, renewable technology competition, economics, intellectual property status, and end markets. In 2012, we continued scale up of fermentation and optimization of microbial strains to produce biobased C3 chemicals. We also successfully scaled up recovery of acrylic acid from dried biomass using the “FAST” process in our Cambridge laboratory. We also provided sample quantities of dried biomass for conversion to biobased acrylic acid for customer evaluation. We believe that strategic alliances will be required to commercialize C3 chemicals, and during the nine months ended September 30, 2013, we continued to engage in partnership discussions.

 

In our third technology platform, we are harnessing the renewable nature of plants to make bioplastics, renewable chemicals and bioenergy from crops. The focal point of our plant technology efforts is around PHB, the simplest member of the broad PHA family of biopolymers. While applications for PHAs have focused mainly on their use as biodegradable bioplastics, these polymers have a number of other unique features that will allow their use in other applications, such as the production of chemical intermediates and their use as value-added animal feeds. We are creating proprietary systems to produce PHB in high quantity in the leaves of biomass crops or seeds of oilseed crops for these multiple applications.

 

Our work in crops highlights our leading edge capabilities and research targeting multi-gene expression and transformation of plants. Researchers at Metabolix have designed novel, multi-gene expression systems to increase production of PHB in plant tissue. The science behind this shift in metabolism is complex since the goal is to significantly increase production of PHB to be viable at industrial scale without impairing the ability of the plant to thrive in its natural environment. In 2011, Metabolix was awarded a $6 million grant by the U.S. Department of Energy (“DOE”) to engineer switchgrass to produce 10 percent PHB, by weight, in the whole plant and to develop methods to thermally convert the PHB-containing biomass to crotonic acid and a higher density residual biomass fraction for production of bioenergy.  During 2012, Metabolix was awarded four additional grants for leading-edge crop research targeting multi-gene expression and transformation of plants including important biofuel and food crops. Funding from these four grants is expected to total approximately $1.0 million and will run through 2014.

 

In 2013, we are continuing to identify additional sources of grant funding while we advance research under our existing grants, focused primarily on increasing PHB production in switchgrass and developing a thermal conversion process to recover crotonic acid. We may also seek to establish alliances with partners to commercially exploit this platform. We are in the process of capturing intellectual property gained in our work in crops and will be evaluating the possibilities of monetizing that intellectual property.

 

As of September 30, 2013, we had an accumulated deficit of $263,911 and total stockholders’ equity was $28,203.

 

Collaborative Arrangements

 

We are not currently participating in any collaborative arrangements. Our historical strategy for collaborative arrangements has been to retain substantial participation in the future economic value of our technology while receiving current cash payments to offset research and development costs and working capital needs. By their nature, our collaborative agreements have been complex, containing multiple elements covering a variety of present and future activities.

 

ADM Collaboration

 

From 2004 through 2011, the Company developed and began commercialization of its PHA biopolymers through a technology alliance and subsequent commercial alliance with ADM Polymer Corporation, a wholly owned subsidiary of ADM. The Commercial Alliance Agreement between Metabolix and ADM Polymer specified the terms and structure of the alliance. The agreement governed the activities and obligations of the parties and included the establishment of a joint venture company, Telles, LLC (“Telles”), to market and sell PHA biopolymers, the construction of a manufacturing facility capable of producing 110 million pounds of material annually, the licensing of technology to Telles and to ADM, and the conducting of various research, development, manufacturing, sales and marketing, compounding and administrative services by the parties.

 

Under the Commercial Alliance Agreement, ADM was permitted, under limited circumstances, to terminate the alliance if a change in circumstances that was not reasonably within the control of ADM made the anticipated financial return from the project inadequate or too uncertain. The agreement provided that, upon termination by ADM due to a change in circumstances, we would be permitted to continue to produce and sell PHA biopolymers, and ADM would be required to perform manufacturing services for us for a period of time following the termination (subject to certain payment obligations to ADM). On January 9, 2012, ADM notified us that

 

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it was terminating the commercial alliance effective February 8, 2012, citing the projected financial returns from the alliance were too uncertain.

 

Upon termination of the alliance, Metabolix intellectual property licenses to ADM Polymer and Telles ended, with Metabolix retaining all rights to its intellectual property.  ADM retained its manufacturing facility located in Clinton, Iowa, previously used to produce PHA biopolymers for Telles.  Also upon termination, contractual payments made to us by ADM during the term of the alliance totaling $38,885 and recorded as deferred revenue on the Company’s balance sheet were immediately recognized during its fiscal quarter ended March 31, 2012, as the Company had no further performance obligations in connection with the alliance.

 

After termination of the Commercial Alliance Agreement, the parties entered into a Settlement Agreement in which the parties agreed to specific terms related to the winding up and dissolution of Telles. Under this Settlement Agreement, we purchased certain assets of the joint venture for $2,982, including Telles’s entire inventory, exclusive and perpetual rights to all of Telles’s trademarks, and all product registrations, certifications and approvals for Telles’s PHA biopolymers. Pursuant to the Settlement Agreement, ADM relinquished any claims with respect to certain co-funded equipment previously acquired by Metabolix and situated at locations other than ADM’s Clinton, Iowa manufacturing facility, and Metabolix and Telles waived any rights to post-termination manufacturing and fermentation services under the Commercial Alliance Agreement.

 

In February 2013, Telles was formally dissolved and ADM notified us that no trade or other obligations remain to be paid. As a result, we do not believe that the Company is contingently liable for any third party obligations stemming from the former ADM collaboration.

 

Government Grants

 

As of September 30, 2013, expected gross proceeds of $3,466 remain to be received under our United States, Canadian and German government grants, which includes amounts for reimbursement to our subcontractors, as well as reimbursement for our employees’ time, benefits and other expenses related to future performance.

 

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