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ADM's Abrupt Departure Leaves Uncertain Future for Metabolix

9:38 AM MST | January 13, 2012 | By REBECCA COONS

So, we need to talk. This isn't working out. I'm taking the $300 million commercial-scale plant, you can take the intellectual property and vacation photos. 

Archer Daniels Midland (ADM) told Metabolix earlier this week that it was terminating their Telles bioplastics jv−and ending production on its behalf−effective, February 8, 2012. The business isn't delivering sufficient results now, nor is it expected to deliver sufficient results within a reasonable timeframe, ADM says.

Metabolic executives, clearly surprised and saddened, told analysts on a conference call earlier today that the company is evaluating alternative business models, but will be unable to meet customer demand in the near-term. All Metabolix technology that was used in the joint venture, including intellectual property rights, will revert solely to Metabolix.

Telles was formed in 2006 to produce resins based on polyhydroxyalkanoate (PHA), and  a 110 million lbs/year PHA facility was brought online at Clinton, IA in late 2009. But path to commercialization was much more complicated than anticipated. The plant took more money and time to build than expected. Thermoformers were reluctant to make the necessary investments to switch to PHA. The recession hit, and the green consumers the companies expected would create a market pull for their product became less willing to pay the green premium.

Bioplastics was largely uncharted territory.  Only Cargill's Natureworks polylactic acid (PLA)  jv proceeded Telles, and suffered similar growing pains. At $500 million, market development for Cargill's resin was nearly twice as expensive as the cost of developing the technology and building the  first plant. Cargill's partners also had trouble stomaching ballooning costs and slow adoption. Cargill and Dow Chemical formed the 50-50 jv in 1997. Dow exited the venture in 2005, saying the unit had not performed as expected, and sold its stake to Cargill. Teijin bought a 50% stake in 2007, but exited the jv in 2009 amid poor economic conditions and portfolio restructuring. PTT Chemical (Bangkok) bought a 50% stake in NatureWorks in October, for $150 million.

While the innovative and entrepreneurial spirit behind PHA and PLA is often praised, the most recent class of biochemical/bioplastic firms appear to shun any molecule that's not a drop-in replacement with large, existing markets. And if you're not at price parity with the petroleum-based counterpart, don't even bother pitching it.

If there's any silver lining to be had here, it's that Metabolix can now explore new business models, perhaps strategies that target smaller-volume,  but higher-value markets. The company is also in a reasonably good cash position, and is not obligated to pay anything to ADM. Considerable investments have already been made in application development for PHA, so the company won't be starting from square one with customers. The company also has a DOE biofuels grant for fuels produced from switchgrass, and a C4 chemicals development deal with Korean firm CJ CheilJedang.

Today's news was disappointing. I hope Metabolix is down, but  not out for the count.



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