Friday, July 22, 2016
Metabolix Takes Yet Another New Path
Biomaterials developer Metabolix, Inc. (MBLX: Nasdaq) has announced a major change in strategic direction. The company will now focus on its Yield10 Bioscience platform for improving crop yields. The biopolymer business will be wound down by first eliminating about 50% of the workforce and then selling the biopolymer assets. Following the restructuring Metabolix estimates approximately $5 million per year in cash resources will be required to support operations, a dramatic reduction from the current cash burn near $25 million.
The move follows a similar change in strategy two years ago when the company undertook what management described at the time as a “comprehensive strategic review.” At that time the biopolymer business came up the winner and crop yield improvement research was discontinued.
Now we have to wonder if the Yield10 Bioscience platform is sufficiently robust to serve as the foundation for a profitable operation.
Yield10 has given Metabolix fits for years. The company’s crop science efforts started originally as one of the commercial applications for Mirel PHA, the company’s brand of natural biopolymers called polyhydroxyalkanoates - PHAs for short. There was that 2014 strategic review that questioned the potential for commercial success. Then a year ago the crop science program was re-launched as Yield 10 Bioscience with an emphasis on yield enhancement of genetically modified corps. Metabolix has its eyes on a wide range of crops from switchgrass to corn to soybean.
Apparently management believes it has the financial resources to wander around a bit before getting serious about its markets. The company had $5.3 million in cash on its balance at the end of March 2016. The kitty was replenished in 2015 with a private placement of common stock that raised $14.7 million in new capital. There is also a separate common stock purchase agreement in place with a private equity fund that could bring in another $20 million over the next two years to support the most recent choice of strategic direction. If management can pinch the pennies down to a cash burn of $5 million, it would seem the company has some breathing room. With a bit of spendthrift history, management may have something to prove.
Perhaps the newly targeted GMO market can save the day. More than sixty genetically modified crops have been approved for sale in the U.S. Corn is at the top of the list with twenty different varieties. Acreage devoted to GMO crops increased steadily in the U.S. since the first seeds were approved in 1996. However, in 2015 for the first time total GMO acreage declined by 1%. Of course, this is not a large amount and low commodity prices rather than factors related specifically to GMO science were probably at the root of the reduction. However, the statistic makes it clear that the GMO market is not perpetually in a straight line higher.
Policy and regulatory authorities in the U.S. appear to be solidly in favor of industrial agriculture. However, with the exception of Brazil and Argentina, genetically modified crops have run into solid opposition by consumers in other markets, especially in Europe. As a consequence there are significant regulatory hurdles outside the U.S. to get seeds approved for sale or to import foods or feeds from GMO harvested crops.
The headwind is probably the trigger for recent consolidation in the GMO market, led by the tender offer of $43 per share for Syngenta AG (SYT: NYSE) by the China National Chemical Company after Monsanto’s (MON: NYSE) failed bid for Syngenta last year. The GMO industry is also likely to be impacted by the pending merger of DuPont and Dow Chemical (DOW: NYSE), two heavy weights in the GMO market. BASF had reported been interested in DuPont also and may be looking for another target if the Dow-DuPont deal goes through.
Perhaps if Metabolix leadership can finally figure out what they want to be when they grow up, they can join the party. Smaller companies typically fair well in a consolidating industry as medium-size players bulk up to win the attention of the larger, acquisitive leaders like BASF.
Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.