Mirel PHA production under way in Iowa

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The first commercial-scale plant to produce the long-awaited Mirel bioplastic resin has opened in Clinton, Iowa, and expects to begin shipping its corn-sugar-based polyhydroxyalkanoate resin sometime next month.

But neither Metabolix Inc. nor Archer Daniels Midland Co. — the two companies that have teamed up to bring PHA to commercial development — would speculate on when the plant might reach its full capacity of 110 million pounds annually.

“We have significant pent-up demand and as soon as we can get product in the hands of potential customers, we can get a lot of things moving,” said Metabolix President and CEO Richard Eno. “We expect product to be shipped to our core customers within the next month,” he said in a March 10 conference call to discuss the firm's fourth-quarter and 2009 earnings.

In 2009, Cambridge, Mass.-based Metabolix lost $38 million — bringing its total losses during the past two years to $74 million on $3 million in sales for the same period, much of that from government contracts. However, at the end of 2009, it had $92.2 million cash on hand, was debt-free and had just completed raising $29.1 million in funds for further development of its industrial chemicals and crop-based activities.

Eno declined to say whether the plant — which will be operated by Decatur, Ill.-based ADM and began operations March 8 — would be at full capacity this summer. But, he said, capacity utilization levels at Clinton are likely to remain relatively low for the next few quarters.

The plant, which cost nearly $400 million to build, is next to ADM's wet corn mill in Clinton. Its startup has been delayed several times over the past four years.

Telles, a joint venture between ADM and Metabolix, will handle the sales and marketing of Mirel.

Metabolix expects to receive approval shortly from the Food and Drug Administration to use Mirel in food-contact applications, according to Eno.

“Based on the progress of our application, we are planning on bringing injection molded products to food-contact application in quarter two, which will enable us to sell into applications such as cutlery and food-storage containers,” Eno said. “We expect to bring thermoforming and film products to food-contact markets in the second half of the year. This will enable us to service applications such as coffee lids, yogurt cups and film for use in storage bags.”

He estimated the global market for food-contact packaging applications, much of it for single-use products, to be $180 billion. But he was quick to add that Mirel's commercial success does not depend on food-contact packaging.

“We see more than enough non-food-contact application demand for Mirel to sell out,” he said of the Clinton plant's current 110 million-pound capacity.

Telles will focus on six key markets: packaging, compostable bags, business equipment, marine and aquatic applications, agriculture and horticulture, and consumer products such as cosmetics containers and gift cards.

“We believe that those six segments represent over 2 billion pounds of initial addressable demand. We are focused on a ramp-up of sales and driving toward a plant expansion,” Eno said. The Clinton plant can be expanded to four times its current size, he said.

“We expect the economies of expansion beyond 110 million pounds will reap substantial benefits from the Clinton infrastructure. We should also benefit from the application of the next-generation of technology, which will enhance capital efficiency.”

Two-thirds of the investment for the plant is for fermentation and recovery processes needed to produce PHA; the rest is for infrastructure, including utilities, electrical and cooling water services, maintenance facilities and site development, he said.

During the next year, the ADM Clinton plant team will work on product enhancements and applications, and implement new technologies — such as next-generation microbial systems and recovery techniques that are in the last stages of development.

PHA is made in a large-scale microbial-fermentation system that combines proprietary engineered microbes with sugar and other materials in a fermenter. The microbes digest the sugar and produce the bioplastics within their cells. Then the bioplastics are separated from the microbes and formulated into resins.

The resin is biodegradable when disposed in natural soil and water environments or in industrial composting facilities.

The Mirel resin is expected to sell at a premium price of $2.25-$2.75 per pound, because “it has a performance level and proposition that exceeds other bio-based plastics,” he said.

After the first sizable sale of Mirel is made, shipped to a customer and paid for, Telles will assume sales and marketing and research development costs — which Metabolix has been absorbing at a cost of roughly $5 million per quarter, he said. He expects that to occur sometime in the second half of 2010.

But Metabolix won't initially benefit financially from sales.

In a filing last year with the Securities and Exchange Commission, Metabolix said that no Telles profits will be distributed to Metabolix until ADM recovers the cost of constructing the Clinton plant and subsidizing any negative net cash flow of Telles.

“Even though Telles is a separate legal entity owned equally by us and ADM, ADM will disproportionately fund” the cost of the Clinton plant and “the working capital requirements of the joint venture,” the SEC filing said.

In addition, the filing said that “support payments” from ADM to Metabolix “will exceed the investments made by us to establish compounding operations for the joint venture. Therefore, under our agreement all profits, after payment of all royalties, reimbursements and fees, from Telles will first be distributed to ADM until ADM's costs” have been reimbursed.

Once ADM has recovered those amounts, profits will be distributed equally to the parties, according to the filing.

“2010 will be a transition year,” said Eno. “2011 is when a lot of projects” currently being developed by key customers in its pipeline will blossom into full-scale production.

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