The recent Forbes article on Metabolix (by George Bradt) was well written and had an excellent title but clearly did little to defeat the Short & Distort campaign against this stock. Unfortunately its main purpose wasn't to call attention to the new path that Metaboix is on; it was to help sell copies of “The New Leader’s Playbook” (a series of steps that may be taken to “evolve people, plans and practices to capitalize on changing circumstances”. When/if Eno succeeds at turning Metabolix around it may become the first example of a successful turnaround assisted by following the basic steps of the playbook (we can certainly look forward to another Forbes article when that happens :)
Last year Eno was forced to create a new playbook and in doing so he began a multiyear turn around that has the potential to take this from a one dollar stock to a twenty dollar stock (over the course of the next several years). Of course, he has to survive the short term in order to achieve significant growth over the long term. Only time will tell us if his new playbook is successful yet it certainly appears to have the potential.
The old playbook involved signing up a big partner (ADM), developing a breakthrough product (Mirel), creating a large manufacturing facility and then selling the heck out of that product. Unfortunately that process was hindered by years of delays; some caused by the construction process and many caused by the time it took for customers to evaluate their move from petroleum based materials to bio based materials. In the end, both price and time caused many companies to pass on the bio based option… The biodegradable product called Mirel has many many desirable attributes that make it a viable alternative to plastic, and it is an important product to the long term health of this planet, but the price currently makes it impractical for many thermal forming applications and therefore part of the old playbook.
The new playbook (started in February of 2012) involved finding a partner that already has a fermentation facility (no need to build a gia-normous one from the ground up), focus primarily on their most successful markets (i.e. the film market and the performance additive market) and provide new offerings to target high-valued applications.
Most of the new playbook can be found by reviewing last year’s earnings calls; here are a few quotes by Metabolix’s CEO Richard Eno:
“We believe the focused approach we are outlining will offer us near-term profitability plus considerable growth potential as we continue to build the business and gain economies of scale. Our launch strategy will be built around three primary areas. Each is large, offers high-valued opportunities and has market needs that align very well with the characteristics of our biopolymer products. The first two, film and plastic additives, will be receiving the majority of our business focus. As our third area we’ll be pursuing very specific customer opportunities with a biodegradation properties of PHAs offer exceptional value.”
“Films are the largest single processing application in the plastics industry representing approximately £100 billion per year of demand. Bio-based and biodegradable are compostable films are an evolving subset of this market showing substantial growth. This is approximately a £200million-a-year market growing in about 15% - 20% percent per year. Growth is driven by rapid technical advances across the entire value chain, consumer demand of a bio-based solution and in some cases, Government regulation banning non-biodegradable bags… We have a series of offerings in the film market which offer a range of performance depending on the specific customer requirements. In general, we have roughly comparable in performance to a petroleum-based film such as that produced by C4 Linear Low Density Polyethylene but our product is based in a renewable feedstock depending on grade either biodegradable or compostable. We also have seen opportunities to continue to expand our margins in this sector. Our initial products target the compostable bag market, but we see substantial room to utilize our film capabilities to pursue higher performance film applications such as: barrier film, protective wrap, agricultural multi film and high strength films. We have encouraging early results in each of these high-valued applications.”
“Our second focus area will be the use of our Mirel biopolymers as performance plastic additives. After evaluating our historical sales, we concluded that many customers were buying our Mirel products due to these unique property attributes above and beyond their classic biodegradation properties. These properties include and characteristics include, our products are miscible and compatible with a broad range of materials both bio-based and petroleum-based. Our products can positively impact a range of performance attributes typically demanded by plastics customers. This include impact strength, barrier properties such as for odor, heat distortion temperature, process ability, plasticization and in addition, we provide bio-based content which is increasingly in demand. In summary, we learn that we can do a lot of current petroleum-based polymer additives do but do it with a renewable differentiated material. Additives are widely used in the plastics industry as a tool to improve the performance of basic materials. The plastic additives market has a volume of about £25 billion with selling prices ranging from $1 to over $5 per pound depending on the properties being brought to bear. We’ll be initially pursuing the performance polymeric additives segment which reflects about £1.5 billion of annual demand with the tract of selling prices. As an example, last week we announced some very encouraging results where our Mirel biopolymers substantially improved the properties of PVC. PVC markets demand as much as £77 billion per year and a compounded product is typically formulated with about 20% - 40% performance additives. Our testing shows that our Mirel product has the potential to PVC impact resistance beyond that achievable with leading polymeric modifiers and at the same time serve as a non-migrating, non-(falle) plasticizer. This offers numerous value propositions including lower migration through the reduced use of (falle) plasticizers and the creation of tougher PVC compounds. In addition, our product is bio-based which is a further differentiator. In aggregate, these are very compelling properties and we are already seeing substantial interest. We were supported in this work by Alpha Gary, a leading compounder of PVC.”
“Finally, our third area of focus will be on supplying customers that are pursuing high-valued applications where biodegradation is key. These include products specifically designed for use in anaerobic digesters, for use in water treatment, marine applications and soil degradation. While our product is very differentiated and valuable in these applications the supply chains here tend to be embryonic and as a result development cycles can be longer. We will be very selective here and qualify our opportunities based on margin potential and development time.”
“It’s important to note that we are not walking away from the hundreds of opportunities we have seen over the years. We firmly believe as our technology moves down the cost-cure band the market and supply chains mature, we’ll be supplying many of these applications in addition to those I outlined today.”
“We believe our approach has the ability to generate margins in the near-term by offering substantial long-term growth opportunities as the cost structure continually improves.”
FYI, if you review last December’s press releases you’ll find that many of the plays from the new playbook are already taking shape. It may take a few more quarters to prove that Eno has a winning strategy but that didn't keep a few insiders from picking up shares on the open market and several more from adding shares via their 401k’s. Personally I've been buying dips on the open market and plan to hold the majority of my shares for at least five years with the expectations of significant gains.