Metabolix - Wait On Sidelines

Metabolix Inc. (MBLX) is a biotechnology company focused on the development and commercialization of environmentally sustainable, economically attractive alternatives to petrochemical-based plastics, fuels and chemicals. While we are excited about the prospects of Mirel (Metabolix's first product), we expect a delay in the company's commercialization plans as construction work at the Clinton facility was impacted by a harsh Midwest winter. The construction timing is currently being re-evaluated and we believe that product availability from the Clinton plant is likely to be pushed out to the first quarter of 2009. We believe investor focus will remain on these issues and recommend waiting on the sidelines until we gain more visibility.

We believe that the commencement of commercial production will be delayed by a few months - we expect an announcement in this regard shortly. Meanwhile, the company is yet to receive FDA approval for the use of Mirel in food contact applications. Food contact applications account for a major part of the company's estimated demand (about 64%) for biodegradable plastics in 2010. Metabolix is currently conducting studies and is working on obtaining approval from the FDA. Though Metabolix is working on other projects including a second technology platform which is being developed for the co-production of Natural Plastic and biomass feedstock, these programs are still in early stages of development.

As such, investor focus is likely to remain on Mirel-related issues in the coming quarters. The stock has gone down significantly over the past few months - we recommend waiting on the sidelines until we gain more visibility on the ongoing issues related to the Clinton facility and FDA approval for food contact applications. It is difficult to value MBLX shares, given its little revenue and negative EPS. Based on our long-term earnings model, we do not see MBLX posting positive EPS over the next several years. We rate the shares a Hold with a price target of $15. The stock is currently trading at $13.48 a suitable strategic partnership for the switchgrass program and approval of Mirel for food contact applications could provide upside to the name.

HDIX Is Fairly Valued

In January 2008, HDIX negotiated a new exclusive co-branding agreement with Rite Aid, which should help second half 2008 volumes. Management adjusted its full year 2007 financial guidance.