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Woe Is Metabolix

News Analysis: ADM’s breakup with Metabolix and their bioplastics venture shows risks of big industrial partners

by Melody M. Bomgardner
January 30, 2012 | APPEARED IN VOLUME 90, ISSUE 5

Biobased plastics firm Metabolix, founded in 2002, has partnered over the years with industry giants BP and BASF, but its joint venture with agribusiness firm Archer Daniels Midland was the deal that was supposed to catapult it into the big leagues.

The goal of the joint venture, called Telles, was to manufacture and market Metabolix’ first product, a biodegradable polyhydroxyalkanoate polymer, in commercial quantities. Brand-named Mirel, the polymer is made from corn sugar via microbial fermentation. Early markets included horticultural mulch, trash bags for composting, and consumer products.

But on Jan. 12, before Telles reached its fifth anniversary, ADM pulled the plug on the venture (C&EN, Jan. 23, page 5). “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,” the firm said in a statement.

With ADM out of the picture, Metabolix no longer has a plant where it can make commercial quantities of its product. It will take back its intellectual property and begin the search for a new partner.

As Metabolix regroups, other biotech firms are likely now viewing corporate partnerships—generally considered a savior for smaller firms with few capital resources—in a new light. “The termination of Telles by ADM illustrates one of the challenges faced by the capital-intensive renewables sector: Low returns on a first project can destabilize a joint venture,” wrote Laurence Alexander, chemicals analyst at Jefferies & Co., in a note to investors.

The Telles partnership started out well for Metabolix. First, the two firms worked closely together on a pilot plant. In 2006, the collaboration turned into a formal joint venture that called for ADM to build a 50,000-ton-per-year fermentation plant adjacent to its corn wet mill in Clinton, Iowa. When Metabolix went public later that year, the ADM agreement was arguably its most important asset.

In addition, funds for operations and expenses flowed from the joint venture to Metabolix during the planning and construction phases and continued to do so while Telles tried to carve out a market for Mirel. The Clinton facility began production in 2009. In 2012, Metabolix was set to receive more than $14 million for research costs and $3 million for sales expenses.

But sales of the novel polymer ramped up slowly, and by the end of the third quarter of 2011 Telles had sold only about 250 tons of Mirel, to 57 customers. The vast majority of the capacity in Clinton was still idle.

Fortunately for Metabolix, it is not responsible for paying for the facility; that’s on ADM, which will take a one-time charge of $300 million to $360 million on its earnings this year. And Metabolix has gained the experience of scaling up its fermentation technology, which ADM reports worked well.

But many questions remain. In a conference call with analysts, Metabolix declined to answer questions about the cost of converting sugar to Mirel. That reticence makes it difficult to assess the likelihood that the technology will attract new partners. “New plastics, whether bio- or petroleum-based, must be more cost-effective—including environmental benefits—than existing plastics, which is a huge hurdle to overcome,” points out Ted Goldman, senior consultant at the Martec Group, which follows the bioplastics industry.

The firm was also mum about a new partner, which is a must for Metabolix, says Jeffrey J. Zekauskas, chemicals analyst for J.P. Morgan. In a note to investors he explains that without a new partner to help pay the bills, Metabolix will have to spend its own cash, which will further weaken its share price.

The firm will also need cash to pursue its two other platforms, now in the experimental phase. One is making biobased C4 industrial chemicals, such as acrylics and γ-buty­rolactone, from fermentation. The other is developing crops such as switchgrass that produce bioplastics inside their cells.

Large corporations routinely reach out to smaller technology firms in lieu of spending years on their own R&D programs. The power difference can make for difficult partnerships, however. ADM has a joint venture with biotech firm Igene to produce naturally derived astaxanthin, used to color feed for farmed salmon. But the firms first tangled for years in court when Igene alleged that ADM stole its intellectual property.

Joint ventures that do not have to create a new market for their products may have more success than Telles did, Goldman suggests. Biobased intermediates for the common plastic polyethylene terephthalate, being developed at Coca-Cola’s behest, will test this hypothesis in the next year or two (C&EN, Jan. 23, page 19). Similarly, cellulosic ethanol will have a ready market. Biofuels start-up Mascoma has aligned with oil giant Valero Energy to build its first commercial plant, in Kinross, Mich. Valero will contribute most of the capital and retain a majority interest in the venture.

Metabolix’ stark situation following the dissolution of the Telles joint venture is no doubt making companies such as Mascoma wary of the weight and power of their corporate partners. But with other sources of money hard to come by these days, there’s not much they can do about it.



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