Metabolix Needs Time to Grow

Metabolix Inc. (MBLX - Snapshot Report) is a biotechnology company focused on the development and commercialization of environmentally sustainable, economically attractive alternatives to petrochemical-based plastics, fuels and chemicals. While we are excited about the prospects of Mirel (Metabolix’s first product), we were disappointed to hear about the delay in the company’s commercialization plans, as construction work at the Clinton facility was impacted by a harsh Midwest winter.

On the first quarter call, the company announced a delay in the scheduled commercialization date for Mirel from December 2008 to the second quarter of 2009. Meanwhile, FDA approval for the use of Mirel in food contact applications has yet to come. We believe investor focus will remain on these issues, and recommend waiting on the sidelines until we gain more visibility.

We maintain our Hold rating on Metabolix. Metabolix is working on the development and commercialization of environmentally sustainable and economically attractive alternatives to petrochemical-based plastics, fuels and chemicals. The company has a key strategic alliance with Archer Daniel Midland Company (ADM - Analyst Report), one of the world’s largest agricultural products processors and industrial fermentors, for the development and commercialization of the company’s lead technology platform, Natural Plastic.

Food contact applications account for a major part of the company’s estimated demand (about 58%) for biodegradable plastics in 2010. Metabolix is currently conducting studies and is working on obtaining approval from the FDA. Though Metabolix is working on other projects, these programs are still in early stages of development.

It is difficult to value MBLX shares, given its little revenue and negative EPS. Based on our long-term earnings model, we do not see MBLX posting positive EPS over the next several years. We rate the shares a Hold with a price target of $11.50. The stock is currently trading at $10.51 suitable strategic partnerships for the oilseed and switchgrass programs and approval of Mirel for food contact applications could provide upside to the name.

Arpita Dutt contributed to this report.

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