* Path to profitability unclear, analysts say
* Stock down 20 pct in past year; burning through cash
* State Farm, Fidelity, BlackRock large investors
By Ernest Scheyder
NEW YORK, April 8 (Reuters) - Metabolix Inc MBLX.O is betting biodegradable beach toys and agricultural mulch films will help it revolutionize the plastics industry, though the company’s weak financial history is starting to try Wall Street’s patience.
Metabolix uses polyhydroxyalkanoate chemicals, or PHAs, to make plastics that decompose naturally. PHAs are found in plant cells and are eaten by bacteria.
Rather than clogging a landfill, a plastic item made from PHAs will just become lunch for a microorganism, and you won’t have to worry about Flipper choking on that toy shovel your kid accidentally left at the beach.
The stock spiked 11 percent on its first day of trading in November 2006 as investors bet on the company’s petroleum-replacing technology.
Yet five years after going public, Metabolix has not made a profit and its stock is down 37 percent. Construction of a production facility in Iowa, to be co-owned with Archer Daniels Midland (ADM.N), has been delayed repeatedly, and some analysts don’t think the plant will bring in a profit for at least a decade.
“You’ve got to keep in mind that we’re selling a new, innovative plastic into a market that has been basically served by petroleum-based plastics for over 40 years,” Chief Executive Rick Eno told Reuters. “Our goal is to make products that are very attractive at a $30 per barrel cost of petroleum. The economics can work.”
What little bioplastic Metabolix currently produces is going to a handful of customers, and any revenue that comes in is earmarked for paying off the Iowa plant.
"The company is a classic case of over-promising and under-delivering," said JinMing Liu, an analyst with Ardour Capital Investments. (For a graphic on Metabolix, click on: r.reuters.com/jys88r )
Ardour was a co-underwriter for Metabolix’s 2006 initial public offering. Liu, who has a Ph.D. in neuroscience, has been following the stock since 2008. He now advises investors to sell the shares.
“Investors hope that one day ... this company will be the next blockbuster success,” Liu said. “I really don’t think this company deserves that status because it’s far away from that reality.”
Privately held State Farm Insurance is Metabolix’s largest shareholder. Other large holders include Fidelity and BlackRock (BLK.N). All three declined to comment for this article.
They and others have watched Metabolix’s stock slide 20 percent in the past year, and the company burned through a third of its cash pile in 2010. Its only current source of revenue comes from licensing deals, including one with BASF (BASFn.DE), and a Canadian government grant.
For those frustrated by the company’s financial metrics, Piper Jaffray analyst Michael Cox has one word of advice: patience.
“The pathway to profitability is still very blurred,” Cox said. “They’ve proven they have a good technology, but they need to prove they can sell this at a reasonable price and have decent volumes.”
Metabolix CEO Eno said the company charges a premium for its biodegradable plastic resins because of their uniqueness.
Farmers, for instance, are willing to pay more for an agricultural mulch film that can be tilled back into the soil at the end of the season, rather than arduously removed and shipped off to a landfill.
The science caught the attention of Target Corp (TGT.N), which used the plastic to make gift cards, and Newell Rubbermaid NWL.N, which makes biodegradable pens. Target has stopped using Metabolix’s plastics, while Newell Rubbermaid remains a customer, Eno said.
Target declined to comment.
“We’re looking for places where the natural biodegradation properties of our material bring value,” Eno said. “We look at the value and what it can bring, and sometimes it warrants a price premium over two times” compared with petroleum-based rival products.
But so far Metabolix only has a handful of customers, and the joint venture with ADM still needs to finish paying for the Iowa plant before Metabolix can collect a check.
Construction began in 2007 and is not complete. Minor piping work remains, Eno said.
Eno declined to provide current production at the plant, but said it should be producing 110 million pounds of bioplastic material by 2013.
Cox, the Piper Jaffray analyst, does not think the plant will be able to pay Metabolix royalties for at least a decade.
Outside bioplastics, Metabolix is researching ways to make industrial chemicals using the same technology for bioplastics. However, it does not plan to charge a premium for the renewable chemicals.
“Buyers won’t pay 10, 15 percent more for a renewable chemical if a petroleum-based chemical does the same thing,” said Eno, who joined Metabolix as chief executive in 2008 after a career at Chevron (CVX.N) and as an industry consultant.
The trick is to produce an industrial chemical from a renewable material that works seamlessly with existing chemical plants. Metabolix sent test samples of its bio-based chemicals to potential customers last month and is awaiting feedback.
That production delay has caused some analyst concern and prompted some eyebrow-raising reactions.
The company blocked Liu, the Ardour analyst, from asking questions on its latest earnings conference call.
“I was told my questions have been disruptive,” Liu said. As for having his access to the call restricted, he said, “I don’t think that’s the right way to handle that.”
Eno, the company’s CEO, declined to comment on why Liu was blocked from the call, but he said Liu and other analysts have “full access” to the company’s management and financial information.
Meanwhile, the stock was trading around $9.60 per share on Friday, below the $14 at which it went public in November 2006 and an all-time high of $27.83 reached roughly a year after the IPO.
“Metabolix is still a story stock. It’s not proven by fundamentals,” Piper Jaffray’s Cox said. “In a good market, that’s OK. In a market that’s trading sideways or not doing very well, those type of stocks tend to perform very poorly.” (Reporting by Ernest Scheyder; Editing by Tim Dobbyn)