UPDATE 1-Metabolix grasping for profits in renewable plastics

* Path to profitability unclear, analysts say

* Stock down 20 pct in past year; burning through cash

* State Farm, Fidelity, BlackRock large investors
(Adds closing stock price, second paragraph from bottom)

By Ernest Scheyder

NEW YORK, April 8 (Reuters) – Metabolix Inc (MBLX.O: Quote, Profile, Research) 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: Quote, Profile, Research), 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:
http://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: Quote, Profile, Research). 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: Quote, Profile, Research), 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.”

CHARGING A PREMIUM

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: Quote, Profile, Research),
which used the plastic to make gift cards, and Newell
Rubbermaid (NWL.N: Quote, Profile, Research), 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 profits 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: Quote, Profile, Research) 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 dropped 5.6 percent to close Friday at
$9.42. That is 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)

UPDATE 1-Metabolix grasping for profits in renewable plastics