Table of Contents

 

 

** **

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

** **

| **x** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934.** |
|-------|----------------------------------------------------------------------------------------------------------|

 

**For the quarterly period ended June 30, 2010**

 

**OR**

 

| **o** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
|-------|----------------------------------------------------------------------------------------------------------|

 

**For the transition periodfrom                to**

 

**Commission file number 001-33133**

 

**METABOLIX, INC.**

 

| **Delaware**                                                    | ** ** | **04-3158289**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |       | (I.R.S. Employer  Identification No.) |
|                                                            |       |                                  |
| **21 Erie Street  Cambridge, MA**                               | ** ** | **02139**                             |
| (Address of principal executive offices)                        |       | (Zip Code)                            |

 

**(617) 583-1700**

(Registrant’s telephone number, including area code)

 

 

(Former name, former address and former fiscal year, if changed sincelast report.)

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.  Yes x  No o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files). Yes o  No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.

 

| Large accelerated filer o                |   | Accelerated filer x         |
|-----------------------------------------------|--------|----------------------------------|
|                                          |   |                             |
| Non-accelerated filer o                       |   | Smaller reporting company o |
| (Do not check if a smaller reporting company) |   |                             |

 

Indicateby check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act).  Yes o  No x

 

Thenumber of shares outstanding of the registrant’s common stock as of July 26,2010 was 26,881,591.

 

 

 

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**Metabolix, Inc.**

**Form 10-Q**

**For the Quarter Ended June 30, 2010**

 

**Table of Contents**

 
| ** **                              | ** **                                                                                             | **Page** |
|-----------------------------------------|--------------------------------------------------------------------------------------------------------|----------|
| **Part I.  Financial Information** | 3                                                                                                      |
|                                    |                                                                                                   |     |
| Item                                    |                                                                                                   |     |
| 1.                                      | Consolidated  Financial Statements (Unaudited)                                                         | 3        |
|                                    | Consolidated Balance  Sheets at June 30, 2010, and December 31, 2009                         | 3        |
|                                    | Consolidated  Statements of Operations for the three and six months ended June 30,  2010 and 2009 | 4        |
|                                    | Consolidated  Statements of Cash Flows for the six months ended June 30, 2010 and 2009            | 5        |
|                                    | Notes to the  Consolidated Financial Statements                                                        | 6        |
| 2.                                      | Management’s  Discussion and Analysis of Financial Condition and Results of Operations            | 13       |
| 3.                                      | Quantitative  and Qualitative Disclosures About Market Risk                                            | 23       |
| 4.                                      | Controls and  Procedures                                                                               | 23       |
|                                    |                                                                                                   |     |
| **Part II. Other  Information**    | 24                                                                                                     |
|                                    |                                                                                                   |     |
| Item                                    |                                                                                                   |     |
| 1.                                      | Legal Proceedings                                                                                      | 24       |
| 1A.                                     | Risk Factors                                                                                           | 24       |
| 2.                                      | Unregistered  Sales of Equity Securities and Use of Proceeds                                           | 24       |
| 3.                                      | Defaults Upon  Senior Securities                                                                       | 24       |
| 4.                                      | (Removed and Reserved)                                                                                 | 24       |
| 5.                                      | Other Information                                                                                      | 24       |
| 6.                                      | Exhibits                                                                                               | 24       |
|                                    |                                                                                                   |     |
| **SIGNATURES**                          | 25                                                                                                     |

 

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**PART I. FINANCIAL INFORMATION**

 

**ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS.**

 

**METABOLIX, INC.**

**CONSOLIDATEDBALANCE SHEETS**

**UNAUDITED**

**(in thousands, except share and per share data)**

 
| ** **                                                                                                                                                                                                                                          | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                          | ** ** | **2010**          | ** ** | **2009**              | ** ** |
| **Assets**                                                                                                                                                                                                                                          |       |              |       |                  |       |
| Current Assets:                                                                                                                                                                                                                                     |       |              |       |                  |       |
| Cash and cash equivalents                                                                                                                                                                                                                           |       | $                 | 14,167     |                  | $          | 10,814 |   |
| Short-term investments                                                                                                                                                                                                                              |       | 62,958            |       | 81,388                |       |
| Accounts receivable (billed and  unbilled)                                                                                                                                                                                                          |       | 12                |       | 22                    |       |
| Due from related parties                                                                                                                                                                                                                            |       | 494               |       | 365                   |       |
| Prepaid expenses and other current  assets                                                                                                                                                                                                          |       | 814               |       | 764                   |       |
| Total current assets                                                                                                                                                                                                                                |       | 78,445            |       | 93,353                |       |
| Restricted cash                                                                                                                                                                                                                                     |       | 622               |       | 593                   |       |
| Property and equipment, net                                                                                                                                                                                                                         |       | 3,053             |       | 3,513                 |       |
| Other assets                                                                                                                                                                                                                                        |       | 95                |       | 95                    |       |
| Total assets                                                                                                                                                                                                                                        |       | $                 | 82,215     |                  | $          | 97,554 |   |
|                                                                                                                                                                                                                                                |       |              |       |                  |       |
| **Liabilities and  Stockholders’ Equity**                                                                                                                                                                                                      |       |              |       |                  |       |
| Current Liabilities:                                                                                                                                                                                                                                |       |              |       |                  |       |
| Accounts payable                                                                                                                                                                                                                                    |       | $                 | 5          |                  | $          | 626 |   |
| Accrued expenses                                                                                                                                                                                                                                    |       | 3,368             |       | 3,746                 |       |
| Current portion of deferred rent                                                                                                                                                                                                                    |       | 165               |       | 165                   |       |
| Short-term deferred revenue                                                                                                                                                                                                                         |       | 1,617             |       | 25                    |       |
| Total current liabilities                                                                                                                                                                                                                           |       | 5,155             |       | 4,562                 |       |
| Deferred rent                                                                                                                                                                                                                                       |       | 469               |       | 552                   |       |
| Long-term deferred revenue                                                                                                                                                                                                                          |       | 36,048            |       | 37,299                |       |
| Other long-term liabilities                                                                                                                                                                                                                         |       | 102               |       | 97                    |       |
| Total liabilities                                                                                                                                                                                                                                   |       | 41,774            |       | 42,510                |       |
| Commitments and contingencies  (Note 11)                                                                                                                                                                                                            |       |              |       |                  |       |
| Stockholders’ Equity:                                                                                                                                                                                                                          |       |              |       |                  |       |
| Preferred stock ($0.01 par value  per share): 5,000,000 shares authorized, no shares issued or outstanding                                                                                                                                          |       | —            |       | —                |       |
| Common stock ($0.01 par value per  share); 100,000,000 shares authorized at June 30, 2010 and  December 31, 2009; 26,872,015 and 26,514,076 shares issued and  outstanding at June 30, 2010 and December 31, 2009, respectively |       | 269               |       | 265                   |       |
| Additional paid-in capital                                                                                                                                                                                                                          |       | 227,582           |       | 222,831               |       |
| Accumulated other comprehensive  income                                                                                                                                                                                                             |       | 9                 |       | 22                    |       |
| Accumulated deficit                                                                                                                                                                                                                                 |       | (187,419          | )          | (168,074              | )          |
| Total stockholders’ equity                                                                                                                                                                                                                     |       | 40,441            |       | 55,044                |       |
| Total liabilities and  stockholders’ equity                                                                                                                                                                                                    |       | $                 | 82,215     |                  | $          | 97,554 |   |

 

*The accompanying notes are an integral part of theseinterim consolidated financial statements*

 

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**METABOLIX, INC.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**UNAUDITED**

**(in thousands, except share and per share data)**

 
| ** **                                                    | ** ** | **Three Months  Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------------------|------------|-------------------------|------------|----------------------|------------|
| ** **                                                    | ** ** | **June 30,**       | ** ** | **June 30,**    | ** ** |
| ** **                                                    | ** ** | **2010**                | ** ** | **2009**             | ** ** | **2010** | ** ** | **2009** | ** ** |
| Revenue:                                                      |       |                    |       |                 |       |   |   |   |   |
| Research and development revenue                              |       | $                       | 62         |                 | $          | 24 |   | $ | 212 |   | $ | 30 |   |
| License fee and royalty revenue  from related parties         |       | 42                      |       | 41                   |       | 72 |   | 66 |   |
| Grant revenue                                                 |       | 5                       |       | 283                  |       | 5 |   | 513 |   |
| Total revenue                                                 |       | 109                     |       | 348                  |       | 289 |   | 609 |   |
|                                                          |       |                    |       |                 |       |   |   |   |   |
| Operating expense:                                            |       |                    |       |                 |       |   |   |   |   |
| Research and development expenses,  including cost of revenue |       | 5,838                   |       | 6,323                |       | 12,006 |   | 12,331 |   |
| Selling, general, and  administrative expenses                |       | 3,848                   |       | 3,938                |       | 7,717 |   | 7,652 |   |
| Total operating expenses                                      |       | 9,686                   |       | 10,261               |       | 19,723 |   | 19,983 |   |
| Loss from operations                                          |       | (9,577                  | )          | (9,913               | )          | (19,434 | ) | (19,374 | ) |
|                                                          |       |                    |       |                 |       |   |   |   |   |
| Other income (expense):                                       |       |                    |       |                 |       |   |   |   |   |
| Interest income, net                                          |       | 34                      |       | 241                  |       | 89 |   | 593 |   |
| Net loss                                                      |       | $                       | (9,543     | )                    | $          | (9,672 | ) | $ | (19,345 | ) | $ | (18,781 | ) |
|                                                          |       |                    |       |                 |       |   |   |   |   |
| Net loss per share:                                           |       |                    |       |                 |       |   |   |   |   |
| Basic and Diluted                                             |       | $                       | (0.36      | )                    | $          | (0.42 | ) | $ | (0.73 | ) | $ | (0.82 | ) |
|                                                          |       |                    |       |                 |       |   |   |   |   |
| Number of shares used in per share  calculations:             |       |                    |       |                 |       |   |   |   |   |
| Basic and Diluted                                             |       | 26,780,612              |       | 22,995,026           |       | 26,659,441 |   | 22,985,297 |   |

 

*The accompanying notes are an integral part of theseinterim consolidated financial statements*

 

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**METABOLIX, INC.**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**UNAUDITED**

**(in thousands)**

 
| ** **                                                               | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                               | ** ** | **June 30,**    | ** ** |
| ** **                                                               | ** ** | **2010**             | ** ** | **2009** | ** ** |
| **Cash flows from  operating activities**                                |       |                 |       |   |   |
| Net loss                                                                 |       | $                    | (19,345    | ) | $ | (18,781 | ) |
| Adjustments to reconcile net loss  to cash used in operating activities: |       |                 |       |   |   |
| Depreciation and amortization                                            |       | 813                  |       | 1,310 |   |
| Charge for 401(k) company  common stock match                       |       | 254                  |       | 279 |   |
| Stock-based compensation                                                 |       | 2,240                |       | 2,250 |   |
| Gain on sale of equipment                                                |       | —               |       | (70 | ) |
| Changes in operating assets and  liabilities:                            |       |                 |       |   |   |
| Receivables (billed and unbilled)                                        |       | 10                   |       | (71 | ) |
| Due from related party                                                   |       | —               |       | 226 |   |
| Prepaid expenses and other assets                                        |       | 95                   |       | (48 | ) |
| Accounts payable                                                         |       | (621                 | )          | (750 | ) |
| Accrued expenses                                                         |       | (407                 | )          | (215 | ) |
| Deferred rent                                                            |       | (83                  | )          | (83 | ) |
| Deferred revenue                                                         |       | 213                  |       | 3,336 |   |
| Net cash used in operating  activities                                   |       | (16,831              | )          | (12,617 | ) |
|                                                                     |       |                 |       |   |   |
| **Cash flows from  investing activities**                                |       |                 |       |   |   |
| Purchase of property and equipment                                       |       | (353                 | )          | (655 | ) |
| Change in restricted cash                                                |       | (29                  | )          | — |   |
| Proceeds from the sale of  equipment                                     |       | —               |       | 70 |   |
| Purchase of short-term investments                                       |       | (37,385              | )          | (63,590 | ) |
| Proceeds from the sale and  maturity of short-term investments           |       | 55,802               |       | 59,891 |   |
| Net cash provided by (used in)  investing activities                     |       | 18,035               |       | (4,284 | ) |
|                                                                     |       |                 |       |   |   |
| **Cash flows from  financing activities**                                |       |                 |       |   |   |
| Proceeds from options exercised                                          |       | 2,149                |       | 21 |   |
| Net cash provided by financing  activities                               |       | 2,149                |       | 21 |   |
|                                                                     |       |                 |       |   |   |
| Net increase (decrease) in cash  and cash equivalents                    |       | 3,353                |       | (16,880 | ) |
| Cash and cash equivalents at  beginning of period                        |       | 10,814               |       | 26,194 |   |
| Cash and cash equivalents at end  of period                              |       | $                    | 14,167     |   | $ | 9,314 |   |

 

*The accompanying notes are an integral part of theseinterim consolidated financial statements*

 

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**METABOLIX, INC.**

**NOTES TOTHE CONSOLIDATED FINANCIAL STATEMENTS**

**UNAUDITED**

 

*(All dollar amounts, except per share amounts, arestated in thousands)*

 

**1. BASIS OF PRESENTATION**

 

Theaccompanying consolidated financial statements are unaudited and have beenprepared by Metabolix, Inc. (the “Company”) in accordance with accountingprinciples generally accepted in the United States of America (“GAAP”) andpursuant to the rules and regulations of the U.S. Securities and ExchangeCommission (“SEC”). Certain information and footnote disclosures normallyincluded in the Company’s annual consolidated financial statements have beencondensed or omitted. The year-end consolidated balance sheet data was derivedfrom audited financial statements, but does not include all disclosuresrequired by GAAP. The consolidated financial statements, in the opinion ofmanagement, reflect all adjustments (consisting only of normal recurring adjustments)necessary for a fair statement of the financial position and results ofoperations for the interim periods ended June 30, 2010 and 2009.

 

Theresults of operations for the interim periods are not necessarily indicative ofthe results of operations to be expected for any future period or the entirefiscal year. These interim consolidated financial statements should be read inconjunction with the audited consolidated financial statements for the yearended December 31, 2009, which are contained in the Company’s AnnualReport on Form 10-K filed with the SEC.

 

**2. ACCOUNTING POLICIES**

 

Therehas been no material change in accounting policies since the Company’s fiscalyear ended December 31, 2009, as described in Note 2 to the consolidatedfinancial statements included in its Annual Report on Form 10-K for theyear then ended.

 

**3. RECENT ACCOUNTING PRONOUNCEMENTS**

 

Fromtime to time, new accounting pronouncements are issued by the FinancialAccounting Standards Board (FASB) or other standard setting bodies that areadopted by the Company as of the specified effective date. Unless otherwisediscussed, the Company’s management believes that the impact of recently issuedstandards that are not yet effective will not have a material impact on itsconsolidated financial position or results of operations upon adoption.

 

***Recently Adopted Accounting Standards***

 

Effective January 1, 2010, theCompany adopted a newly issued accounting standard which provides guidance forthe consolidation of variable interest entities and requires an enterprise todetermine whether its variable interest or interests give it a controllingfinancial interest in a variable interest entity. This amended consolidationguidance for variable interest entities replaces the existing quantitative approachfor identifying which enterprise should consolidate a variable interest entity,which was based on which enterprise is exposed to a majority of the risks andrewards, with a qualitative approach, based on which enterprise has both(1) the power to direct the economically significant activities of theentity and (2) the obligation to absorb losses of, or the right to receivebenefits from, the entity that could potentially be significant to the variableinterest entity. The Company evaluated the Telles joint venture as a variableinterest entity and determined that it is not required to consolidate Tellesunder this accounting standard. As a result, the adoption of this standard didnot have an impact on the Company’s financial position or results ofoperations. Determination about whether an enterprise should consolidate avariable interest entity is required to be evaluated continuously and changesto existing relationships or future transactions may result in the Companyconsolidating the Telles joint venture or other arrangements.

 

In January 2010, the Companyadopted a newly issued accounting standard which requires additional disclosureabout the amounts of and reasons for significant transfers in and out ofLevel 1 and Level 2 fair value measurements. This standard alsoclarifies existing disclosure requirements related to the level ofdisaggregation of 

 

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fair value measurements for eachclass of assets and liabilities and disclosures about inputs and valuationtechniques used to measure fair value for both recurring and nonrecurringLevel 2 and Level 3 measurements. As this newly issued accountingstandard only requires enhanced disclosure, the adoption of this standard didnot impact the Company’s financial position or results of operations. Inaddition, effective for interim and annual periods beginning afterDecember 15, 2010, this standard will require additional disclosure andrequire an entity to present disaggregated information about activity inLevel 3 fair value measurements on a gross basis, rather than as one netamount.

 

***Recently Issued Accounting Standards***

 

InApril 2010, the FASB issued Accounting Standards Update (ASU)No. 2010-17, Revenue Recognition — Milestone Method (ASU 2010-017).ASU 2010-017 provides guidance in applying the milestone method of revenuerecognition to research or development arrangements. Under this guidancemanagement may recognize revenue contingent upon the achievement of a milestonein its entirety, in the period in which the milestone is achieved, only if themilestone meets all the criteria within the guidance to be consideredsubstantive. This ASU is effective on a prospective basis for research anddevelopment milestones achieved in fiscal years, beginning on or afterJune 15, 2010. Early adoption is permitted; however, adoption of thisguidance as of a date other than January 1, 2011 will require the Companyto apply this guidance retrospectively effective as of January 1, 2010 andwill require disclosure of the effect of this guidance as applied to allpreviously reported interim periods in the fiscal year of adoption. As theCompany plans  to implement ASU No. 2010-17prospectively, the effect of this guidance will be limited to futuretransactions. The Company does not expect adoption of this standard to have amaterial impact on its financial position or results of operations as it has nomaterial research and development arrangements which will be accounted forunder the milestone method.

 

In October 2009, a newaccounting consensus was issued for multiple-deliverable revenue arrangements.This consensus amends existing revenue recognition accounting standards. Thisconsensus provides accounting principles and application guidance on whethermultiple deliverables exist, how the arrangement should be separated and theconsideration allocated. This guidance eliminates the requirement to establishthe fair value of undelivered products and services and instead provides forseparate revenue recognition based upon management’s estimate of the sellingprice for an undelivered item when there is no other means to determine thefair value of that undelivered item. Previously the existing accountingconsensus required that the fair value of the undelivered item be the price ofthe item either sold in a separate transaction between unrelated third partiesor the price charged for each item when the item is sold separately by thevendor. Under the existing accounting consensus, if the fair value of all ofthe elements in the arrangement was not determinable, then revenue was deferreduntil all of the items were delivered or fair value was determined. This newapproach is effective prospectively for revenue arrangements entered into ormaterially modified in fiscal years beginning on or after June 15, 2010.The Company is in the process of evaluating whether the adoption of thisstandard will have a material effect on its financial position, results ofoperations or cash flows.

 

**4. COMPREHENSIVE LOSS**

 

Comprehensiveloss is comprised of net loss and net unrealized gains or losses on marketablesecurities. Total comprehensive loss for the three and six months endedJune 30, 2010 and 2009 is as follows:

 
| ** **                                | ** ** | **Three Months  Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------|------------|-------------------------|------------|----------------------|------------|
| ** **                                | ** ** | **June 30,**       | ** ** | **June 30,**    | ** ** |
| ** **                                | ** ** | **2010**                | ** ** | **2009**             | ** ** | **2010** | ** ** | **2009** | ** ** |
| Net loss                                  |       | $                       | (9,543     | )                    | $          | (9,672 | ) | $ | (19,345 | ) | $ | (18,781 | ) |
| Other comprehensive income:               |       |                    |       |                 |       |   |   |   |   |
| Change in unrealized gain on  investments |       | —                  |       | (145                 | )          | (13 | ) | (311 | ) |
| Total other comprehensive income          |       | —                  |       | (145                 | )          | (13 | ) | (311 | ) |
| Comprehensive loss                        |       | $                       | (9,543     | )                    | $          | (9,817 | ) | $ | (19,358 | ) | $ | (19,092 | ) |

 

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**5. BASIC AND DILUTED NET LOSS PER SHARE**

 

Basicnet loss per share is computed by dividing net loss by the weighted-averagenumber of common shares outstanding, excluding the dilutive effects of commonstock equivalents. Common stock equivalents include stock options and warrants.Diluted net loss per share is computed by dividing net loss by theweighted-average number of dilutive common shares outstanding during theperiod. Diluted shares outstanding is calculated by adding to the weightedshares outstanding any potential (unissued) shares of common stock fromoutstanding stock options and warrants based on the treasury stock method. Inperiods when a net loss is reported, all common stock equivalents are excludedfrom the calculation because they would have an anti-dilutive effect, meaningthe loss per share would be reduced. Therefore, in periods when a loss isreported there is no difference in basic and dilutive loss per share.

 

Thenumber of shares of potentially dilutive common stock related to options andwarrants that were excluded from the calculation of dilutive shares since theinclusion of such shares would be anti-dilutive for the three and six monthsended June 30, 2010 and 2009, respectively, are shown below:

 
| ** ** | ** ** | **Three Months  Ended** | ** ** | **Six Months Ended** | ** ** |
|------------|------------|-------------------------|------------|----------------------|------------|
| ** ** | ** ** | **June 30,**       | ** ** | **June 30,**    | ** ** |
| ** ** | ** ** | **2010**                | ** ** | **2009**             | ** ** | **2010** | ** ** | **2009** | ** ** |
| Options    |       | 3,176,000               |       | 3,032,506            |       | 3,176,000 |   | 3,032,506 |   |
| Warrants   |       | 4,086                   |       | 4,086                |       | 4,086 |   | 4,086 |   |
| Total      |       | 3,180,086               |       | 3,036,592            |       | 3,180,086 |   | 3,036,592 |   |

 

**6. STOCK-BASED COMPENSATION**

 

TheCompany recognized stock-based compensation expense, related to employee stockoption awards, of $1,111 and $2,215 for the three and six months endedJune 30, 2010, respectively. Stock-based compensation expense, related to employee stock optionawards, was $1,216 and $2,323 for the three and six months ended June 30,2009, respectively. At June 30, 2010, there was approximately $10,579 ofpre-tax stock-based compensation expense, net of estimated forfeitures, relatedto unvested awards not yet recognized which is expected to be recognized over aweighted average period of 2.6 years.

 

Asummary of option activity for the six months ended June 30, 2010 is asfollows:

 
| ** **                                                                                                     | ** ** | **Number of** | ** ** | **Weighted Average** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|---------------|------------|----------------------|------------|
| ** **                                                                                                     | ** ** | **Shares**    | ** ** | **Exercise Price**   | ** ** |
| Outstanding at December 31,  2009                                                                         |       | 3,138,829     |       | $                    | 11.04      |   |
| Granted                                                                                                        |       | 692,900       |       | 12.17                |       |
| Exercised                                                                                                      |       | (339,035      | )          | 6.77                 |       |
| Cancelled                                                                                                      |       | (316,694      | )          | 15.77                |       |
| Outstanding at June 30, 2010                                                                              |       | 3,176,000     |       | 11.27                |       |
|                                                                                                           |       |          |       |                 |       |
| Options exercisable at  June 30, 2010                                                                     |       | 1,641,778     |       |                 |       |
|                                                                                                           |       |          |       |                 |       |
| Weighted average grant date fair  value of options granted during the six months ended June 30, 2010 |       |          |       | $                    | 8.20       |   |

 

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Forthe six months ended June 30, 2010 and 2009, the Company determined thefair value of stock options using the Black-Scholes option pricing model withthe following assumptions for option grants, respectively:

 
| ** **                       | ** ** | **Six Months  Ended** | ** ** |
|----------------------------------|------------|-----------------------|------------|
| ** **                       | ** ** | **June 30,**     | ** ** |
| ** **                       | ** ** | **2010**              | ** ** | **2009** | ** ** |
| Expected  dividend yield         |       | —                |       | — |   |
| Risk-free  rate                  |       | 1.98% - 2.59%         |       | 1.67% - 2.56% |   |
| Expected  option term (in years) |       | 5.4 - 5.6             |       | 5.4 |   |
| Volatility                       |       | 80%                   |       | 81% |   |

 

**Non-employee Stock Option Awards**

 

Thecompensation expense related to non-employee stock options is generally recognizedover a period of four years. The grants generally vest quarterly and suchvesting is contingent upon future services provided by the consultants to theCompany. The Company recorded a non-employee stock-based compensation expenseof $19 and $25 for the three and six months ended June 30, 2010. TheCompany recorded non-employee related stock-based compensation expense of $15for the three months ended June 30, 2009 and recorded a benefit of $73 forthe six months ended June 30, 2009. Options remaining unvested fornon-employees are subject to remeasurement each reporting period prior tovesting in full. Since the fair market value of the options issued tonon-employees are subject to changes in the future, the compensation expenserecognized in each quarter may not be indicative of future compensationcharges.

 

**7. SIGNIFICANT COLLABORATION**

 

OnNovember 3, 2004, the Company signed an agreement with ADM PolymerCorporation (“ADM”), a subsidiary of Archer Daniels Midland Company, toestablish an alliance whereby the Company would provide technology, licensesand research and development services, and ADM would provide manufacturingservices and capital necessary to produce**polyhydroxyalkanoate(“PHA”) polymers on a commercial scale.

 

OnJuly 12, 2006, ADM exercised an option to enter into a commercial alliancefor further research, development, manufacture, use and sale of PHA polymers onthe terms and conditions set forth in the Commercial Alliance Agreement. Thefirst product of this alliance is a family of bioplastics branded under thename MirelTM.

 

TheCommercial Alliance Agreement specifies the terms and structure of therelationship between the Company and ADM. The primary function of thisagreement is to establish the activities and obligations of the Company and ADMby which the parties will commercialize Mirel. These activities include: theestablishment of a joint sales company, which has been named Telles, to marketand sell Mirel, the construction of a manufacturing facility capable of producing110 million pounds of material annually (the “Commercial ManufacturingFacility”), the licensing of technology to Telles and to ADM, and theconducting of various research, development, manufacturing, sales andmarketing, compounding and administrative services by the parties.

 

Tellesis a limited liability company, formed and equally owned by the Company andADM, and is intended to: (i) serve as the commercial entity to establishand develop the commercial market for Mirel, and conduct the marketing and salesin accordance with the goals of the commercial alliance, (ii) assist inthe coordination and integration of the manufacturing, compounding andmarketing activities, and (iii) administer and account for financialmatters on behalf of the parties. The Company and ADM each have 50% ownershipand voting interest in Telles.

 

Asummary of the key activities under this agreement is as follows: (i) ADMwill arrange for, finance the construction of, and own, a facility in which itwill manufacture Mirel under contract to Telles; (ii) the Company willeither arrange for and finance the acquisition or construction of a facility inwhich it will compound Mirel or it will arrange for third parties to compoundMirel; and (iii) the Company, acting in the name and on behalf of Telles,will establish the initial market for Mirel. The Company will also continue itsresearch and development efforts 

 

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to furtheradvance the technology and expand and enhance the commercial potential ofMirel. Subject to certain limitations, ADM will finance the working capitalrequirements of Telles.

 

TheCommercial Alliance Agreement called for Telles to pay the Company quarterlysupport payments of $1,575 each. The last of fourteen quarterly supportpayments was received as of June 30, 2009. All quarterly support paymentsreceived from ADM on behalf of Telles, totaling $22,050, have been recorded asdeferred revenue on the Company’s balance sheet.

 

Duringthe “Construction Phase” of the agreement all pre-commercial materialproduction expenses incurred by ADM and the Company are shared equally.Accordingly, from the execution of this agreement in July 2006 through June 30,2010, ADM has reimbursed the Company $8,862. All amounts received from ADM,prior to the “Commercial Phase,” relating to this agreement are recorded asdeferred revenue. The Company will continue to defer recognition of these andfuture payments received from ADM during the Construction Phase of theagreement.

 

TheConstruction Phase of the commercial alliance will end, and the CommercialPhase will begin, upon the achievement of a milestone referred to in theCommercial Alliance Agreement as “First Commercial Sale.” Achievement of thismilestone requires the sale by Telles to third parties of at least one millionpounds of Mirel manufactured at the Commercial Manufacturing Facility.Qualifying sales must meet certain criteria, including a minimum order size,product acceptance by the customers in accordance with the terms of theircontracts, and receipt of payment, in order for such sales to contributetowards the First Commercial Sale milestone.

 

Duringthe Commercial Phase of the agreement Telles will pay the Company royalties onsales of Mirel. In addition, if Telles engages the Company to perform certainservices, and the Company accepts the service arrangement, Telles willreimburse the Company for the cost of the services provided pursuant to theCommercial Alliance Agreement.

 

WhileTelles is a fifty-fifty joint venture, ADM has advanced a disproportionateshare of the financial capital needed to construct the Commercial ManufacturingFacility and to fund its activities. Therefore, under the agreement allprofits, after payment of all royalties, reimbursements and fees, from Telleswill first be distributed to ADM until ADM’s cost of constructing theCommercial Manufacturing Facility and any negative net cash flow of Tellesfunded by ADM have been returned. Once ADM has recovered such amounts, theprofits of Telles will be distributed in equal amounts to the parties.

 

TheCommercial Alliance Agreement provides for expansion of the operations ofTelles beyond the initial license of 110 million pound annual productionthrough an equally-owned joint venture. While certain principles of the jointventure have been agreed to, the detailed terms and conditions will not bedetermined until a later date.

 

Revenuerecognition for amounts deferred through June 30, 2010 is expected tocommence when the Commercial Phase of the alliance begins. The deferred amountswill be recognized on a straight line basis over the estimated period, ofapproximately ten years, in which the Company’s obligations are fulfilled inaccordance with the Commercial Alliance Agreement. A portion of the long-termdeferred revenue representing estimated amounts expected to be recognizedwithin the next twelve months has been moved to short-term in the Company’sbalance sheet at June 30, 2010. The Company also expects to receive paymentsfrom Telles for the compounding services it provides as well as royaltypayments. The compounding payments and royalty payments will be due to theCompany as Telles sells product to its customers. These payments will berecognized as revenue during the period in which they are earned.

 

TheCommercial Alliance Agreement and related agreements include detailedprovisions setting out the rights and obligations of the parties in the eventof a termination of the Commercial Alliance Agreement. These provisions includethe right for either party to terminate the Commercial Alliance Agreement upona material default of a material obligation by the other party after a noticeand cure period has expired. The parties are also permitted to terminate theCommercial Alliance Agreement if a change in circumstances that is notreasonably within the control of a party makes the anticipated financial returnfrom the project inadequate or too uncertain. The parties have specificobligations to fulfill in the event of termination or if they file forbankruptcy protection.

 

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**8. INCOME TAXES**

 

TheCompany follows the accounting guidance related to income taxes includingguidance which addresses accounting for uncertainty in income taxes. Thisguidance prescribes a threshold for the financial statement recognition andmeasurement of a tax position taken or expected to be taken in a tax return. Italso provides guidance on derecognition, classification, interest andpenalties, accounting in interim periods, disclosures and transitions. TheCompany had no amounts recorded for any unrecognized tax benefits as ofJune 30, 2010 or June 30, 2009.

 

Thetax years 2006 through 2009 remain open to examination by major taxingjurisdictions to which the Company is subject, which are primarily in the U.S.

 

TheCompany’s policy is to record estimated interest and penalties related touncertain tax positions in income tax expense. As of June 30, 2010, andDecember 31, 2009, the Company had no accrued interest or penaltiesrecorded related to uncertain tax positions.

 

AtDecember 31, 2009 the Company had net operating loss carryforwards (NOLs)for federal and state income tax purposes of $105,427 and $75,080,respectively. Included in the federal and state net operating losscarryforwards is approximately $18,935 of deduction related to the exercise ofstock options subsequent to the adoption of amended accounting guidance relatedto stock-based compensation. This amount represents an excess tax benefit asdefined under the amended accounting guidance related to stock-basedcompensation and has not been recorded as a deferred tax asset. The Company’sexisting federal and state net operating loss carryforwards began to expire in2010. The Company also had available research and development credits forfederal and state income tax purposes of approximately $3,947 and $2,447,respectively. The federal and state research and development credits will beginto expire in 2014 and 2016, respectively. As of December 31, 2009 theCompany also had available investment tax credits for state income tax purposesof $92 which also began to expire in 2010. Management of the Company hasevaluated the positive and negative evidence bearing upon the realizability ofits deferred tax assets, which are comprised principally of net operating losscarryforwards and research and development credits. Under the applicableaccounting standards, management has considered the Company’s history of lossesand concluded that it is more likely than not that the Company will notrecognize the benefits of federal and state deferred tax assets. Accordingly, afull valuation allowance has been established against the deferred tax assets.

 

Utilizationof the net operating loss and research and development credit carryforwards maybe subject to a substantial annual limitation under Section 382 of theInternal Revenue Code of 1986 due to ownership change limitations that haveoccurred previously or that could occur in the future. These ownership changesmay limit the amount of net operating loss and research and development creditcarryforwards that can be utilized annually to offset future taxable income andtax, respectively. The Company has not currently completed an evaluation ofownership changes through June 30, 2010 to assess whether utilization ofthe Company’s NOL or R&D credit carryforwards would be subject to an annuallimitation under Section 382 of the Internal Revenue Code of 1986. Tothe extent an ownership change occurs in the future, the net operating loss andcredit carryforwards may be subject to limitation.

 

**9. ACCRUED LIABILITIES**

 

Accruedliabilities consisted of the following at:

 
| ** **                         | ** ** | **June 30,  2010** | ** ** | **December 31, 2009** | ** ** |
|------------------------------------|------------|-------------------------|------------|---------------------------------|------------|
| Employee compensation and benefits |       | $                       | 1,826      |                            | $          | 2,505 |   |
| Material production cost           |       | 50                      |       | 279                             |       |
| Professional services              |       | 289                     |       | 193                             |       |
| Intellectual property              |       | 178                     |       | 188                             |       |
| Other                              |       | 1,025                   |       | 581                             |       |
| Total accrued expenses             |       | $                       | 3,368      |                            | $          | 3,746 |   |

 

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**10. SEGMENT INFORMATION**

 

TheCompany operates in one segment. There have been no changes in the segmentinformation since the fiscal year ended December 31, 2009, as described inNote 2 to the financial statements included in the Company’s Annual Report onForm 10-K for the year ended December 31, 2009.

 

**11. COMMITMENTS AND CONTINGENCIES**

 

**Legal Proceedings**

 

Fromtime to time, the Company may be subject to legal proceedings and claims in theordinary course of business. The Company is not currently aware of any suchproceedings or claims that it believes will have, individually or in theaggregate, a material adverse effect on the business, financial condition orresults of operations.

 

**12. FAIR VALUE MEASUREMENTS**

 

TheCompany has certain financial assets recorded at fair value which have beenclassified as Level 1, 2 or 3 within the fair value hierarchy as describedin the accounting standards for fair value measurements. Fair values determinedby Level 1 inputs utilize observable data such as quoted prices in activemarkets. Fair values determined by Level 2 inputs utilize data pointsother than quoted prices in active markets that are observable either directlyor indirectly. Fair values determined by Level 3 inputs utilizeunobservable data points in which there is little or no market data, whichrequire the reporting entity to develop its own assumptions.

 

TheCompany’s financial assets classified as Level 2 have been initiallyvalued at the transaction price and subsequently valued typically utilizingthird party pricing services. Because the Company’s investment portfolio mayinclude securities that do not always trade on a daily basis, the pricingservices use many observable market inputs to determine value includingreportable trades, benchmark yields and benchmarking of like securities. TheCompany validates the prices provided by the third party pricing services byreviewing their pricing methods and obtaining market values from other pricingsources. After completing the validation procedures, the Company did not adjustor override any fair value measurements provided by these pricing services asof June 30, 2010 or December 31, 2009.

 

Thetables below present information about the Company’s assets that are measuredat fair value on a recurring basis as of June 30, 2010 andDecember 31, 2009 and indicate the fair value hierarchy of the valuationtechniques utilized to determine such fair value. To conform prior year figuresto current year presentation, $8,116 of money market funds have beenreclassified from Level 2 to Level 1 as of December 31, 2009.

 

 

 

 
| ** **                       | ** ** | **Fair value  measurements at reporting date using**      | ** **  | ** **                               | ** ** |
|----------------------------------|------------|-----------------------------------------------------------|-------------|------------------------------------------|------------|
| ** **                       | ** ** | **Quoted prices in  active markets for  identical asset** | ** **  | **Significant other  observable inputs** | ** ** | **Significant  unobservable  inputs** | ** ** | **Balance as of** | ** ** |
| **Description**                  | ** ** | **(Level 1)**                                             | ** **  | **(Level 2)**                            | ** ** | **(Level 3)** | ** ** | **6/30/10** | ** ** |
| Cash equivalents:                |       |                                                      |        |                                     |       |   |   |   |   |
| Money market funds               |       | $                                                         | 9,601       |                                     | $          | — |   | $ | — |   | $ | 9,601 |   |
| Short-term investments:          |       |                                                      |        |                                     |       |   |   |   |   |
| Treasuries                       |       | —                                                    |        | 10,628                                   |       | — |   | 10,628 |   |
| Government-sponsored enterprises |       | —                                                    |        | 52,330                                   |       | — |   | 52,330 |   |
|                             |       | $                                                         |  9,601 |                                     | $          | 62,958 |   | $ | — |   | $ | 72,559 |   |

 

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| ** **                       | ** ** | **Fair value  measurements at reporting date using**       | ** ** | ** **                               | ** ** |
|----------------------------------|------------|------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                       | ** ** | **Quoted prices in  active markets for  identical assets** | ** ** | **Significant other  observable inputs** | ** ** | **Significant  unobservable  inputs** | ** ** | **Balance as of** | ** ** |
| **Description**                  | ** ** | **(Level 1)**                                              | ** ** | **(Level 2)**                            | ** ** | **(Level 3)** | ** ** | **12/31/09** | ** ** |
| Cash equivalents:                |       |                                                       |       |                                     |       |   |   |   |   |
| Money market funds               |       | $                                                          | 8,116      |                                     | $          | — |   | $ | — |   | $ | 8,116 |   |
| Government-sponsored enterprises |       | —                                                     |       | 1,490                                    |       | — |   | 1,490 |   |
| Short-term investments:          |       |                                                       |       |                                     |       |   |   |   |   |
| Treasuries                       |       | —                                                     |       | 8,939                                    |       | — |   | 8,939 |   |
| Government-sponsored enterprises |       | —                                                     |       | 72,449                                   |       | — |   | 72,449 |   |
|                             |       | $                                                          | 8,116      |                                     | $          | 82,878 |   | $ | — |   | $ | 90,994 |   |

 

**13. RELATED PARTIES**

 

TheCompany engaged in various transactions with Tepha, Inc., a related party,and recorded $42 and $72 of license and royalty revenue during the three andsix months ended June 30, 2010, respectively. During the three and sixmonths ended June 30, 2009 the company recorded license and royaltyrevenue from Tepha, Inc. of $41 and $66, respectively.  The Company had no outstanding receivablebalance due from Tepha as of June 30, 2010 or December 31, 2009. TheCompany also had various transactions with its alliance partner ADM, a relatedparty, during the three and six months ended June 30, 2010 and 2009. TheCompany had an outstanding receivable balance of $494 and $365 due from ADM atJune 30, 2010 and December 31, 2009, respectively. For moreinformation on the Company’s related party transactions, please see Note 8 tothe Company’s audited financial statements included in its Annual Report onForm 10-K for the year ended December 31, 2009.

 

**ITEM 2.****                            ****MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS.**

 

*(All dollar amounts are stated in thousands)*

 

**Forward Looking Statements**

 

Thisquarterly report on Form 10-Q contains “forward-looking statements” withinthe meaning of 27A of the Securities Act of 1933, as amended, andSection 21E of the Securities Exchange Act of 1934, as amended. In particular,statements contained in the Form 10-Q, including but not limited to,statements regarding our future results of operations and financial position,business strategy and plan prospects, projected revenue or costs and objectivesof management for future research, development or operations, areforward-looking statements. These statements relate to our future plans,objectives, expectations and intentions and may be identified by words such as “may,”“will,” “should,” “expects,” “plans,” “anticipate,” “intends,” “target,” “projects,”“contemplates,” “believe,” “estimates,” “predicts,” “potential,” and “continue,”or similar words.

 

Althoughwe believe that our expectations are based on reasonable assumptions within thelimits of our knowledge of our business and operations, the forward-lookingstatements contained in this document are neither promises nor guarantees. Ourbusiness is subject to significant risk and uncertainties and there can be noassurance that our actual results will not differ materially from ourexpectations. These forward looking statements include, but are not limited to,statements concerning: future financial performance and position, management’sstrategy, plans and objectives for future operations, plans and objectives forproduct development and commercialization, plans and objectives for present andfuture research and development and results of such research and development,plans and objectives for manufacturing, the commercialization ofenvironmentally sustainable, economically attractive alternatives topetroleum-based plastics, chemicals and energy, the commercialization of MirelTMbioplastic (“Mirel”) through our alliance with Archer Daniels Midland Company (“ADM”),sales of Mirel as an alternative to petroleum-based plastics, the construction,start-up and expansion of the Commercial Manufacturing Facility, the productionof Mirel at the Commercial Manufacturing Facility, the commercial success ofMirel, the feasibility of extractin*g*bioplastics from plant crops, the commercial viability of  bio-engineered chemicals and plant-producedplastics, recognition of revenue, and management’s plans and expectations forrevenue, expenses and capital and working capital requirements. Suchforward-looking statements are subject to a number of risks and uncertaintiesthat could cause actual results to differ materially from those anticipatedincluding, without limitation, the following 

 

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risks:(1) we may not be able to successfully manufacture Mirel at commercialscale in a timely or economical manner, (2) we may not be successful inthe development of plant crops for production of plastics or bio-engineeredchemicals, (3) if initial sales of Mirel are slower than anticipated, ourfinancial results will be negatively affected, (4) we may not be able todevelop manufacturing capacity sufficient to meet demand in an economicalmanner or at all, (5) we may not achieve market acceptance of ourproducts, (6) we may not be successful in the development of commercialformulations of Mirel, (7) we have limited marketing and sales experienceand capabilities, which may make the commercialization of our productsdifficult, (8) we rely heavily on ADM and may rely heavily on futurecollaborative partners, (9) our success will be influenced by the price ofpetroleum, the primary ingredient in conventional petroleum-based plastics,relative to corn sugar, the primary ingredient in Mirel, (10) our futureprofitability is uncertain, and we have a limited operating history on whichyou can base your evaluation of our business, (11) we may need to secureadditional funding and may be unable to raise additional capital on favorableterms or at all, (12) if we lose key personnel or are unable to attractand retain necessary talent, we may be unable to develop or commercialize ourproducts under development, (13) we may not be able to obtain rights tointellectual property developed by others using our information and technology,which could limit our ability to compete, (14) intellectual propertyprotection for our products is important and uncertain, (15) a substantialportion of the technology used in our business is owned by or subject toretained rights of third parties, (16) third parties may claim that weinfringe their intellectual property, and we could suffer significantlitigation or licensing expense as a result, (17) if we are unable tomanage our growth effectively, our business could be adversely affected,(18) we may not be successful in identifying market needs for newtechnologies and developing new products to meet those needs, (19) ourproducts are made using genetically-engineered systems and may be, or may beperceived as being, harmful to human health or the environment, (20) weface and will face substantial competition in several different markets thatmay adversely affect our results of operations, (21) we are subject tosignificant foreign and domestic government regulations, includingenvironmental and health and safety regulations, and compliance or failure tocomply with these regulations could harm our business, (22) we may nothave adequate insurance and may have substantial exposure to payment of productliability claims, (23) potential future acquisitions could be difficult tointegrate, divert the attention of key personnel, disrupt our business, dilutestockholder value and impair our financial results, and (24) each segmentof our operations is currently conducted at a single location, which makes ussusceptible to disasters or other disruptions.

 

Theforward-looking statements and risk factors presented in this document are madeonly as of the date hereof and we do not intend to update any of these riskfactors or to publicly announce the results of any revisions to any of ourforward-looking statements other than as required under the federal securitieslaws.

 

**Overview**

 

Weare an innovation-driven bioscience company which is focused on bringingenvironmentally friendly solutions to the plastics, chemicals and energyindustries. We have core capabilities in microbial genetics, fermentationprocess engineering, chemical engineering, polymer science, plant genetics andbotanical science, and we have assembled these capabilities in a way that hasallowed us to integrate biotechnology with chemical engineering and industrialpractice.

 

Ourfirst platform, which we are commercializing through Telles, LLC (Telles),a joint venture with Archer Daniels Midland Company, or ADM, is a proprietary,large-scale microbial fermentation system for producing a versatile family ofpolymers known as polyhydroxyalkanoates (PHA’s), which we have branded underthe name MirelTM. Through Telles, we intend to sell these bioplastics asbiobased and biodegradable, but functionally equivalent, alternatives topetroleum-based plastics. Mirel offers superior biodegradabilitycharacteristics and can be used in a wide range of commercial applications,including products used in agriculture and horticulture, compost and organicwaste diversion bags, marine and aquatic applications, consumer products,business equipment and durable goods, and general packaging materials. Mirel isnow being produced in a new commercial scale plant located in Clinton, Iowa(the Commercial Manufacturing Facility) designed for an annual capacity of110 million pounds. ADM completed construction of the initial phase of theCommercial Manufacturing Facility in 2009. The Commercial ManufacturingFacility produces biobased and biodegradable Mirel plastic using corn sugar, anabundant agriculturally-produced renewable resource.

 

Oursecond technology platform, which is in an early stage, is a biomassbiorefinery system using plant crops to co-produce both bioplastics andbioenergy. For this system, we intend to extract polymer from the engineered 

 

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plantcrop, so that the remaining plant material can be used as a biomass feedstockfor the production of bioenergy products including electricity and biofuel. Weare engineering switchgrass to produce bioplastics in the leaf and stem of theplant. We are also conducting research to develop an advanced industrialoilseed crop for co-production of bioplastics along with vegetable oil,biodiesel fuel, or oleochemicals. Switchgrass is a commercially and ecologicallyattractive, non-food energy crop that is indigenous to North America and isgenerally considered to be a leading candidate for cellulose-derived productionof ethanol and other biofuels. Sugarcane is an established energy crop that iswell suited for tropical regions of the world. We believe that using thesecrops to co-produce bioplastics with bioenergy products can offer superioreconomic value and productivity as compared to single product systems thatproduce them individually. We have been working on our biomass biorefineryplatform using switchgrass for several years, and we believe that we are ascientific leader in this field. Our goal for this program is to havecommercially viable plant varieties in pre-commercial field trials within twoyears. We may also seek to establish alliances with partners to commerciallyexploit this platform.

 

Asdemonstrated by our first two technology platforms, we take an integratedsystems approach to our technology development. We are focused on developingentire production systems from gene to end product as opposed to developingspecific technologies (for example, gene sequencing, shuffling or directedevolution) or singular aspects of a product’s production (for example,providing a key enzyme, catalyst or ingredient). We believe this systemsapproach optimizes manufacturing productivity and, when commercialized, willenable us to capture more economic value from any platform that we pursue.

 

Forour third platform we intend to apply our core capabilities in microbialengineering to develop biological routes to other chemicals and chemicalintermediates. During 2009 we completed all work under our U.S. Department ofCommerce National Institute of Standards and Technology grant, a$2 million grant aimed at producing four-carbon (“C4”) chemicals fromrenewable sources. C4 chemicals are a large family of chemicals enabling a widerange of end use applications, including engineering resins, urethanes,solvents, and personal care products. We were able to achieve all of thetechnical milestones outlined in this grant. Based on these accomplishments, webelieve we have the technical foundation for an attractive C4 chemicalsbusiness. After conducting a  review ofthe C4 external economic and competitive landscape we are prioritizing thespecialty C4 chemicals segment for commercialization, we are focused on scaleup development activities in 2010.

 

Toexploit our first technology platform, we plan to work closely with ADM tobring the Commercial Manufacturing Facility in Clinton, Iowa to fulloperations and capacity in advance of customer demand for Mirel. Thebiodegradable bioplastics that this facility is now producing are highlyversatile and range in properties from hard and strong to soft and flexible.These properties allow for a wide variety of commercial applications, offeringa biobased alternative to petroleum-derived synthetic materials which are notbiodegradable. Through Telles we are positioning Mirel as a premium pricedspecialty material catering to customers who want to match the functionality ofpetroleum-based plastic with the added dimension of environmentalresponsibility for their products and brands.

 

Asof June 30, 2010, we had an accumulated deficit of $187,419 and totalstockholders’ equity was $40,441.

 

**Collaborative Arrangements**

 

Ourstrategy for collaborative arrangements is to retain substantial participationin the future economic value of our technology while receiving current cashpayments to offset research and development costs and working capital needs. Bytheir nature, these agreements are complex and have multiple elements thatcover a variety of present and future activities.

 

In2004, we entered into the “Technology Alliance and Option Agreement” with ADMPolymer Corporation, or ADM Polymer, a subsidiary of ADM. The goal of theTechnology Alliance and Option Agreement was to demonstrate the capabilities ofour fermentation and recovery technologies at commercial scale and to prepare amaster plan and budget for the construction of a commercial facility with a110 million pound annual capacity. Upon achievement of such goals, ADMPolymer had the option to enter into a commercial alliance with us throughexecution of the “Commercial Alliance Agreement,” for further research,development, manufacture, use, and sale of bioplastics. In July 2006, ADMPolymer exercised its option under our Technology Alliance and Option 

 

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Agreementand entered into a Commercial Alliance Agreement with us. Upon entering intothe Commercial Alliance Agreement, the Technology Alliance and Option Agreementterminated pursuant to its terms.

 

TheCommercial Alliance Agreement called for Telles to pay the Company quarterlysupport payments of $1,575 each. The last of fourteen quarterly supportpayments was received as of June 30, 2009. All quarterly support paymentsreceived from ADM on behalf of Telles, totaling $22,050, have been recorded asdeferred revenue on the Company’s balance sheet and we will continue to deferrecognition of these payments received from ADM during the “Construction Phase”of our agreement. We expect to begin recognizing this deferred revenue at thetime of the achievement of a milestone referred to in the Commercial AllianceAgreement as the “First Commercial Sale.” The deferred revenue will berecognized on a straight line basis over a period of approximately ten years inwhich our contractual obligations are fulfilled in accordance with the terms ofthe Commercial Alliance Agreement. Achievement of the First Commercial Salerequires the sale by Telles to third parties of at least one million pounds ofMirel manufactured at the Commercial Manufacturing Facility. Qualifying salesmust meet certain criteria, including a minimum order size, product acceptanceby the customers in accordance with the terms of their contractsand receipt of payment, in order for such sales to contribute towards theFirst Commercial Sale milestone. A portion of the long-term deferred revenuerepresenting estimated amounts expected to be recognized within the next twelvemonths has been moved to short-term in the Company’s balance sheet at June 30,2010. We also expect to receive payments from Telles for the compoundingservices we provide as well as royalty payments. The compounding payments androyalty payments are due to us as Telles sells product to its customers. Thesepayments will be recognized as revenue during the period in which they areearned.

 

Wereceived the following payments from these arrangements to offset operatingcash needs:

 

· upfront payment of $3,000 from ADM in November 2004;

 

· milestone payments of $2,000 from ADM in May 2006;

 

· support payments of $22,050 from ADM, on behalf of Telles, throughJune 30, 2009;

 

· cumulative cost sharing payments from ADMfor pre-commercial manufacturing plant construction and operations made inaccordance with the Technology Alliance and Option Agreement of $1,209; and

 

· cumulative cost sharing payments from ADMfor pre-commercial manufacturing plant construction and operations made inaccordance with the Commercial Alliance Agreement of $8,862.

 

Duringthe commercial alliance, ADM is responsible for the construction, financing andoperation of the Commercial Manufacturing Facility which ADM Polymer owns,through a manufacturing agreement with Telles. We will provide or procurecompounding services to convert the output from the Commercial ManufacturingFacility into forms that are suitable for various commercial applications.

 

AlthoughTelles is a separate legal entity owned equally by us and ADM, ADM willdisproportionately fund the activities of the joint venture. Specifically, thecost of the Commercial Manufacturing Facility, the working capital requirementsof the joint venture and the support payments to us will exceed the investmentsmade by us to establish compounding operations for the joint venture. In orderto rebalance the respective investments made by the parties, a preferentialdistribution of cash flow will be used whereby all profits, after payment ofall royalties, reimbursements and fees, from the joint venture will bedistributed to ADM until ADM’s disproportionate investment in the jointventure, including the costs of constructing the Commercial ManufacturingFacility, have been returned to ADM. Once ADM has recouped such amounts, theprofits of the joint venture will be distributed in equal amounts to theparties. In order to track the disproportionate investments ADM has made, aLedger Account has been established to record the respective investments madeby the parties. As of June 30, 2010 the balance of the ADM Ledger Accountwas $388,099 and this balance is expected to increase as the remainingmanufacturing equipment and systems are brought online at the CommercialManufacturing Facility and until Telles achieves positive cash flow from itsoperations.

 

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**United States Government Grant**

 

Asof June 30, 2010, expected gross proceeds of $341 remain to be receivedunder our government grant, which includes amounts for reimbursement to oursubcontractors, as well as reimbursement for our employees’ time, benefits andother expenses related to future performance under the various contracts.

 

Thestatus of our United States government grant is as follows:

 
| ** **              | ** ** | ** **    | ** ** | **Total**      | ** ** | **Total received**      | ** ** | **Remaining amount**    | ** ** | ** **         | ** ** |
|-------------------------|------------|---------------|------------|----------------|------------|-------------------------|------------|-------------------------|------------|--------------------|------------|
| ** **              | ** ** | **Funding**   | ** ** | **Government** | ** ** | **through**             | ** ** | **available as of**     | ** ** | **Contract/Grant** | ** ** |
| **Program Title**       | ** ** | **Agency**    | ** ** | **Funds**      | ** ** | **June 30,  2010** | ** ** | **June 30,  2010** | ** ** | **Expiration**     | ** ** |
|                    |       |          |       |           |       |                    |       |                    |       |               |       |
| Blow Molded Bioproducts |       | Department of |       |           |       |                    |       |                    |       |               |       |
| From Renewable Plastics |       | Agriculture   |       | $              | 349        |                    | $          | 8                       |       | $                  | 341        |   | August 2011 |   |
| Total                   |       |          |       | $              | 349        |                    | $          | 8                       |       | $                  | 341        |   |   |   |

 

**Critical Accounting Estimates and Judgments**

 

Thediscussion and analysis of our financial condition and results of operationsare based upon our consolidated financial statements, which have been preparedin accordance with accounting principles generally accepted in the UnitedStates of America (“GAAP”) for interim financial information. The preparationof these financial statements requires us to make estimates and judgments thataffect the reported amounts of assets, liabilities, revenues and expenses, andrelated disclosure of contingent assets and liabilities. On an ongoing basis,we evaluate our estimates, including those related to revenue recognition andstock-based compensation. We base our estimates on historical experience and onvarious other assumptions that we believe to be reasonable under thecircumstances, the results of which form the basis for making judgments aboutthe carrying value of assets and liabilities that are not readily apparent fromother sources. Actual results may differ from these estimates. The significantaccounting policies used in preparation of these condensed consolidatedfinancial statements for the three and six months ended June 30, 2010are consistent with those discussed in Note 2 to the consolidated financialstatements in our Annual Report on Form 10-K for the year endedDecember 31, 2009. The critical accounting policies and the significantjudgments and estimates used in the preparation of our consolidated financialstatements for the three and six months ended June 30, 2010 are consistentwith those discussed in our Annual Report on Form 10-K for the year endedDecember 31, 2009 in the section captioned “Management’s Discussion and Analysisof Financial Condition and Results of Operations—Critical Accounting Estimatesand Judgments.”

 

**Results of Operations**

 

**Comparison of the Three MonthsEnded June 30, 2010 and 2009**

 

**Revenue**

 
| ** **                                            | ** ** | **Three Months  Ended** | ** ** | ** ** | ** ** |
|-------------------------------------------------------|------------|-------------------------|------------|------------|------------|
| ** **                                            | ** ** | **June 30,**       | ** ** | ** ** | ** ** |
| ** **                                            | ** ** | **2010**                | ** ** | **2009**   | ** ** | **Change** | ** ** |
| Research and development revenue                      |       | $                       | 62         |       | $          | 24 |   | $ | 38 |   |
| License fee and royalty revenue  from related parties |       | 42                      |       | 41         |       | 1 |   |
| Grant revenue                                         |       | 5                       |       | 283        |       | (278 | ) |
| Total revenue                                         |       | $                       | 109        |       | $          | 348 |   | $ | (239 | ) |

 

Totalrevenue was $109 and $348 for the three months ended June 30, 2010 and2009, respectively. During the three months ended June 30, 2010 werecognized $62 of research and development revenue compared to $24 for therespective period in 2009. Research and development revenue was derivedprimarily from the delivery of product samples to potential customers. Therewas $5 of grant revenue earned during the three months ended June 30, 2010because we had one active grant, the Blow Molded Bioproducts from RenewablePlastics grant. During the three months ended June 30, 2009 grant revenueprimarily consisted of revenue derived from the Integrated Bio-EngineeredChemicals grant, which was completed during the fourth quarter of 2009.

 

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Weexpect grant revenue to continue to be minimal in 2010, compared to 2009, as wecurrently have only the one grant described above with total remaining fundingof $341. In addition we expect research and development revenue to declineduring the remainder of 2010 as the sale of product produced at the CommercialManufacturing Facility is being recorded as revenue by Telles, not Metabolix.

 

**Expenses**

 
| ** **                                                    | ** ** | **Three Months  Ended** | ** ** | ** ** | ** ** |
|---------------------------------------------------------------|------------|-------------------------|------------|------------|------------|
| ** **                                                    | ** ** | **June 30,**       | ** ** | ** ** | ** ** |
| ** **                                                    | ** ** | **2010**                | ** ** | **2009**   | ** ** | **Change** | ** ** |
| Research and development expenses,  including cost of revenue |       | $                       | 5,838      |       | $          | 6,323 |   | $ | (485 | ) |
| Selling, general, and  administrative expenses                |       | 3,848                   |       | 3,938      |       | (90 | ) |
| Total operating expenses                                      |       | $                       | 9,686      |       | $          | 10,261 |   | $ | (575 | ) |

 

***Research and development expenses,including cost of revenue***

 

Researchand development expenses, including cost of revenue, were $5,838 and $6,323 forthe three months ended June 30, 2010 and 2009, respectively. The decreaseof $485 was primarily due to a decrease in material production costs and adecrease in depreciation expense, partially offset by an increase in employeecompensation and related benefit expenses. Material production costs decreasedfrom $1,103 to $580. The decrease of $523 was primarily the result of reducedactivity at our pre-commercial manufacturing facility due to the transitioningto the Commercial Manufacturing Facility. Depreciation expense decreased to $348 during the three months ended June 30,2010 from $644 as a result of reaching full depreciation on equipment andfacility improvements at the pre-commercial manufacturing facility at the end2009. Employee compensation and related benefit expenses increased to $3,262from $2,911. The increase of $351 was primarily attributable to annual salaryincreases and bonuses and an increase in stock-based compensation expenseresulting from annual employee stock option awards.

 

Weexpect to incur increased research and development expenses through theremainder of the Construction Phase of the ADM agreement for technologyimprovements and product development activities as we continue to develop,test, and refine product to meet the specification requirements of Tellescustomers. Upon commencement of the Commercial Phase of the ADM agreement,expenses relating to development of Mirel are expected to decreasesignificantly as these expenses will be transferred to Telles. Until then, wewill continue to bear these expenses. We also expect to incur increasedresearch and development expenses  inconnection with our other technology platforms.

 

***Selling, general, and administrativeexpenses***

 

Selling,general, and administrative expenses were $3,848 and $3,938 for the threemonths ended June 30, 2010 and 2009, respectively. Although selling,general, and administrative expenses were fairly consistent for the comparativethree month periods we expect to incur increased selling, general, andadministrative expenses through the Construction Phase of the ADM agreement aswe increase our market development activities for Mirel. Upon the commencementof the Commercial Phase of the agreement, selling, general, and administrativeexpenses are expected to decrease substantially as these Mirel related costswill be transferred to Telles. During the transition period between the initialstart-up of the Commercial Manufacturing Facility and the commencement of theCommercial Phase, we will continue to bear these expenses. We also expect toincur increased patent expenses in connection with protecting and enforcing ourintellectual property across all of our technology platforms.

 

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**Other Income (Net)**

 
| ** **               | ** ** | **Three Months  Ended** | ** ** | ** ** | ** ** |
|--------------------------|------------|-------------------------|------------|------------|------------|
| ** **               | ** ** | **June 30,**       | ** ** | ** ** | ** ** |
| ** **               | ** ** | **2010**                | ** ** | **2009**   | ** ** | **Change** | ** ** |
| Total other income (net) |       | $                       | 34         |       | $          | 241 |   | $ | (207 | ) |
|                          |            |                         |            |            |            |  |  |  |  |  |

 

Otherincome (net) was $34 and $241 for the three months ended June 30, 2010 and2009, respectively. Other income (net) during both periods consisted ofinvestment income. The overall decrease of $207 was primarily due to a declinein investment income earned on our U.S. Treasury and government agency debtinvestments.

 

**Comparison of the Six Months EndedJune 30, 2010 and 2009**

 

**Revenue**

 
| ** **                                            | ** ** | **Six Months Ended** | ** ** | ** ** | ** ** |
|-------------------------------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                            | ** ** | **June 30,**    | ** ** | ** ** | ** ** |
| ** **                                            | ** ** | **2010**             | ** ** | **2009**   | ** ** | **Change** | ** ** |
| Research and development revenue                      |       | $                    | 212        |       | $          | 30 |   | $ | 182 |   |
| License fee and royalty revenue  from related parties |       | 72                   |       | 66         |       | 6 |   |
| Grant revenue                                         |       | 5                    |       | 513        |       | (508 | ) |
| Total revenue                                         |       | $                    | 289        |       | $          | 609 |   | $ | (320 | ) |

 

Totalrevenue was $289 and $609 for the six months ended June 30, 2010 and 2009,respectively. During the six months ended June 30, 2010 we recognized $212of research and development revenue compared to $30 for the respective periodin 2009. Research and development revenue was derived primarily from thedelivery of product samples to potential customers. There was  $5 of grant revenue earned during the sixmonths ended June 30, 2010 from our one active grant, the Blow MoldedBioproducts from Renewable Plastics grant. During the six months ended June 30,2009 grant revenue primarily consisted of revenue derived from the IntegratedBio-Engineered Chemicals grant, which was completed during the fourth quarterof 2009.

 

Weexpect grant revenue to continue to be minimal in 2010, compared to 2009, as wecurrently have the one outstanding grant described above with total remainingfunding of $341. In addition we expect research and development revenue todecline during the remainder of 2010 as the sale of product produced at theCommercial Manufacturing Facility is recorded as revenue by Telles, not Metabolix.

 

**Expenses**

 
| ** **                                                    | ** ** | **Six Months Ended** | ** ** | ** ** | ** ** |
|---------------------------------------------------------------|------------|----------------------|------------|------------|------------|
| ** **                                                    | ** ** | **June 30,**    | ** ** | ** ** | ** ** |
| ** **                                                    | ** ** | **2010**             | ** ** | **2009**   | ** ** | **Change** | ** ** |
| Research and development expenses,  including cost of revenue |       | $                    | 12,006     |       | $          | 12,331 |   | $ | (325 | ) |
| Selling, general, and  administrative expenses                |       | 7,717                |       | 7,652      |       | 65 |   |
| Total operating expenses                                      |       | $                    | 19,723     |       | $          | 19,983 |   | $ | (260 | ) |

 

***Research and development expenses,including cost of revenue***

 

Researchand development expenses, including cost of revenue, were $12,006 and $12,331for the six months ended June 30, 2010 and 2009, respectively. Thedecrease of $325 was primarily due to a decrease in material production costsand a decrease in depreciation expense, partially offset by an increase inemployee compensation and related benefit expenses. Material production costsdecreased to $1,595 from $2,153 for the six months ended June 30, 2010 and2009, respectively. The reduction of $558 was primarily the result of reducedactivity at our pre-commercial manufacturing facility due to the transitioningto the Commercial Manufacturing Facility.  Depreciation expense decreased to $755 during the six months ended June 30,2010 from $1,233 during the respective period in 2009 as a result of reachingfull depreciation on equipment and facility improvements at the pre-commercial 

 

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manufacturingfacility at the end 2009. Employee compensation and related benefit expensesincreased to $6,542 from $5,790. The increase of $752 was primarilyattributable to annual salary increases and bonuses and an increase instock-based compensation expense resulting from annual employee stock optionawards.

 

Weexpect to incur increased research and development expenses through theremainder of the Construction Phase of the ADM agreement for technologyimprovements and product development activities as we continue to develop,test, and refine product to meet the specification requirements of Telles customers.Upon commencement of the Commercial Phase of the ADM agreement, expensesrelating to development of Mirel are expected to decrease significantly asthese expenses will be transferred to Telles. Until then, we will continue tobear these expenses. We also expect to incur increased research and developmentexpenses in connection with our other technology platforms.

 

***Selling, general, and administrativeexpenses***

 

Selling,general, and administrative expenses were $7,717 and $7,652 for the six monthsended June 30, 2010 and 2009, respectively. Although selling, general, andadministrative expenses were fairly consistent for the comparative six monthperiods we expect to incur increased selling, general, and administrativeexpenses through the Construction Phase of the ADM agreement as we increase ourmarket development activities related to Mirel. Upon the commencement of theCommercial Phase of the agreement, selling, general, and administrativeexpenses are expected to decrease substantially as these Mirel related costswill be transferred to Telles. During the transition period between the initialstart-up of the Commercial Manufacturing Facility and the commencement of theCommercial Phase, we will continue to bear these expenses. We also expect toincur increased patent expenses in connection with protecting and enforcing ourintellectual property across all of our technology platforms.

 

**Other Income (Net)**

 
| ** **               | ** ** | **Six Months Ended** | ** ** | ** ** | ** ** |
|--------------------------|------------|----------------------|------------|------------|------------|
| ** **               | ** ** | **June 30,**    | ** ** | ** ** | ** ** |
| ** **               | ** ** | **2010**             | ** ** | **2009**   | ** ** | **Change** | ** ** |
| Total other income (net) |       | $                    | 89         |       | $          | 593 |   | $ | (504 | ) |
|                          |            |                      |            |            |            |  |  |  |  |  |

 

Otherincome (net) was $89 and $593 for the six months ended June 30, 2010 and2009, respectively. Other income (net) during both periods consisted ofinvestment income. The overall decrease of $504 was primarily due to a declinein investment income earned on our U.S. Treasury and government agency debtinvestments.

 

**Liquidity and Capital Resources**

 

Currently,we require cash to fund our working capital needs, to purchase capital assetsand to pay our operating lease obligations.

 

Theprimary sources of our liquidity have been:

 

· equity financing;

 

· our strategic alliance with ADM;

 

· government grants; and

 

· interest earned on cash and short-term investments.

 

Wehave incurred significant expenses relating to our research and developmentefforts. As a result, we have incurred net losses since our inception. As ofJune 30, 2010, we had an accumulated deficit of $187,419. Our totalunrestricted cash, cash equivalents and short-term investments as ofJune 30, 2010 were $77,125 as compared to $92,202 at December 31,2009. As of June 30, 2010, we had no outstanding debt.

 

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Ourcash and cash equivalents at June 30, 2010 were held for working capitalpurposes. We do not enter into investments for trading or speculative purposes.The primary objective of our investment activities is to preserve our capital.As of June 30, 2010 we had restricted cash of $622. Restricted cashconsists of $522 held in connection with the lease agreements for ourCambridge, Massachusetts facilities and $100 held in connection with ourcorporate credit card program. Short-term investments are made in accordancewith our corporate investment policy, as approved by our Board of Directors.Investments are limited to high quality corporate debt, U.S. Treasury bills andnotes, bank debt obligations, municipal debt obligations and asset-backedsecurities. The policy establishes maturity limits, concentration limits, andliquidity requirements. At June 30, 2010, we were in compliance with thispolicy.

 

Webelieve that our cash, cash equivalents and short-term investments and interestwe earn on these balances will be sufficient to meet our anticipated cashrequirements, including cash requirements with respect to the commercial launchof Mirel, for at least the next 24 months. If our available cash, cashequivalents, and short-term investments are insufficient to satisfy ourliquidity requirements, or if we develop additional products, we may need tosell additional equity or debt securities or obtain a credit facility. Inaddition, we may seek to raise additional capital when we believe marketconditions are favorable or when we otherwise believe it is prudent.The sale ofadditional equity and debt securities may result in dilution to ourstockholders. If we raise additional funds through the issuance of debtsecurities or preferred stock, these securities could have rights senior tothose of our common stock and could contain covenants that would restrict ouroperations. We may require additional capital beyond our current forecastedamounts. Any such required additional capital may not be available onreasonable terms, if at all. If we are unable to obtain additional financing, wemay be required to reduce the scope of, delay or eliminate some or all of ourplanned research, development and commercialization activities, which couldharm our business.

 

Netcash used in operating activities was $16,831 for the six months ended June 30,2010 compared to $12,617 for the respective period in 2009. The cash usedduring the six months ended June 30, 2010 primarily reflects the net lossfor the period partially offset by non-cash expenses, including stock-basedcompensation expense of $2,240, depreciation expense of  $813 and the Company’s 401(k) stockmatching contribution of $254. The increase in cash used in operatingactivities during the six months ended June 30, 2010 as compared to therespective period in 2009 was primarily due to the receipt of $3,150 inquarterly support payments from ADM during the six months ended June 30,2009. As of June 30, 2009 the last of these quarterly support payments wasreceived and recorded as deferred revenue. We received $89 in funds frominvestment income during the six months ended June 30, 2010 compared to$593 for the respective period in 2009.

 

Afterthe Commercial Phase of the ADM alliance begins, Telles will reimburse us forthe costs of services provided pursuant to the Commercial Alliance Agreement,including research and development, product development and sales andmarketing. During the transition period between the initial start-up of theCommercial Manufacturing Facility, which occurred in December 2009, andthe commencement of the Commercial Phase, we will continue to bear these costs.If there are difficulties, delays or other unforeseen issues with the ramp-upof the Commercial Manufacturing Facility or with the ramp-up of commercialsales, we will incur additional unreimbursed pilot manufacturing, productdevelopment, sales and marketing costs until the Commercial Phase of thealliance begins.

 

Netcash of $18,035 was provided by investing activities during the six monthsended June 30, 2010, compared to net cash of $4,284 used in investingactivities for the respective period in 2009. Net cash provided by investmentactivities for the six months ended June 30, 2010 included $55,802provided by the sale and maturity of short-term investments, partially offsetby $37,385 used to purchase short-term investments and $353 used to purchasecapital equipment.

 

Netcash of $2,149 and $21 was provided by financing activities for the six monthsended June 30, 2010 and 2009, respectively. The cash provided by financingactivities during the six months ended June 30, 2010 and 2009 was solelyattributable to the proceeds received from the exercise of stock options.

 

**Contractual Obligations**

 

Thefollowing table summarizes our contractual obligations at June 30, 2010and the effects such obligations are expected to have on our liquidity and cashflows in future periods:

 

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| ** **                  | ** ** | **Payments Due by  Period** | ** ** |
|-----------------------------|------------|-----------------------------|------------|
| ** **                  | ** ** | ** **                  | ** ** | **Less than** | ** ** | **2-3** | ** ** | **4-5** | ** ** | **More than** | ** ** |
| ** **                  | ** ** | **Total**                   | ** ** | **1 year** | ** ** | **years** | ** ** | **years** | ** ** | **5 years** | ** ** |
| Purchase obligations        |       | $                           | 165        |   | $ | 65 |   | 50 |   | 50 |   | $ | — |   |
| Operating lease obligations |       | 4,459                       |       | 1,345 |   | 2,290 |   | 824 |   | — |   |
| Total                       |       | $                           | 4,624      |   | $ | 1,410 |   | $ | 2,340 |   | $ | 874 |   | $ | — |   |
|                             |            |                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**Off-Balance Sheet Arrangements**

 

Asof June 30, 2010, we had no off-balance sheet arrangements as defined inItem 303(a)(4) of the Securities and Exchange Commission’sRegulation S-K.

 

**Related Party Transactions**

 

Weengaged in various transactions with Tepha, Inc., a related party, andrecorded $42 and $72 of license and royalty revenue during the three and sixmonths ended June 30, 2010, respectively. During the three and six monthsended June 30, 2009 we recorded license and royalty revenue from Tepha, Inc.of $41 and $66, respectively.  We had nooutstanding receivable balance due from Tepha as of June 30, 2010 orDecember 31, 2009. We also had various transactions with our alliancepartner ADM, a related party, during the three and six months endedJune 30, 2010 and 2009. We had an outstanding receivable balance of $494and $365 due from ADM at June 30, 2010 and December 31, 2009,respectively. For more information on our related party transactions,please see Note 8 to our audited financial statements included in our AnnualReport on Form 10-K for the year ended December 31, 2009.

 

**Recent Accounting Pronouncements**

 

Fromtime to time, new accounting pronouncements are issued by the FinancialAccounting Standards Board (FASB) or other standard setting bodies that areadopted by the Company as of the specified effective date. Unless otherwisediscussed, management believes that the impact of recently issued standardsthat are not yet effective will not have a material impact on our consolidatedfinancial position or results of operations upon adoption.

 

***Recently Adopted Accounting Standards***

 

Effective January 1, 2010, weadopted a newly issued accounting standard which provides guidance for theconsolidation of variable interest entities and requires an enterprise todetermine whether its variable interest or interests give it a controllingfinancial interest in a variable interest entity. This amended consolidationguidance for variable interest entities replaces the existing quantitativeapproach for identifying which enterprise should consolidate a variableinterest entity, which was based on which enterprise is exposed to a majorityof the risks and rewards, with a qualitative approach, based on whichenterprise has both (1) the power to direct the economically significantactivities of the entity and (2) the obligation to absorb losses of, orthe right to receive benefits from, the entity that could potentially besignificant to the variable interest entity. We evaluated the Telles jointventure as a variable interest entity and determined that we are not requiredto consolidate Telles under this accounting standard. As a result, the adoptionof this standard did not have an impact on our financial position or results ofoperations. Determination about whether an enterprise should consolidate a variableinterest entity is required to be evaluated continuously and changes toexisting relationships or future transactions may result our consolidating theTelles joint venture or other arrangements.

 

In January 2010, we adopted anewly issued accounting standard which requires additional disclosure about theamounts of and reasons for significant transfers in and out of Level 1 andLevel 2 fair value measurements. This standard also clarifies existingdisclosure requirements related to the level of disaggregation of fair valuemeasurements for each class of assets and liabilities and disclosures aboutinputs and valuation techniques used to measure fair value for both recurringand nonrecurring Level 2 and Level 3 measurements. As this newlyissued accounting standard only requires enhanced disclosure, the adoption ofthis standard did not impact our financial position or results of operations.In addition, effective for interim and annual periods beginning afterDecember 15, 2010, this standard will require additional disclosure andrequire an entity to present disaggregated information about activity inLevel 3 fair value measurements on a gross basis, rather than as one netamount.

 

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***Recently Issued Accounting Standards***

 

In April 2010, theFASB issued Accounting Standards Update (ASU) No. 2010-17, RevenueRecognition — Milestone Method (ASU 2010-017). ASU 2010-017 providesguidance in applying the milestone method of revenue recognition to research ordevelopment arrangements. Under this guidance management may recognize revenuecontingent upon the achievement of a milestone in its entirety, in the periodin which the milestone is achieved, only if the milestone meets all thecriteria within the guidance to be considered substantive. This ASU iseffective on a prospective basis for research and development milestonesachieved in fiscal years, beginning on or after June 15, 2010. Earlyadoption is permitted; however, adoption of this guidance as of a date otherthan January 1, 2011 will require us to apply this guidanceretrospectively effective as of January 1, 2010 and will requiredisclosure of the effect of this guidance as applied to all previously reportedinterim periods in the fiscal year of adoption. As we plan to implement ASUNo. 2010-17 prospectively, the effect of this guidance will be limited tofuture transactions. We do not expect adoption of this standard to have amaterial impact on our financial position or results of operations as we haveno material research and development arrangements which will be accounted forunder the milestone method.

 

In October 2009, anew accounting consensus was issued for multiple-deliverable revenuearrangements. This consensus amends existing revenue recognition accountingstandards. This consensus provides accounting principles and applicationguidance on whether multiple deliverables exist, how the arrangement should beseparated and the consideration allocated. This guidance eliminates therequirement to establish the fair value of undelivered products and servicesand instead provides for separate revenue recognition based upon management’sestimate of the selling price for an undelivered item when there is no othermeans to determine the fair value of that undelivered item. Previously theexisting accounting consensus required that the fair value of the undelivereditem be the price of the item either sold in a separate transaction betweenunrelated third parties or the price charged for each item when the item issold separately by the vendor. Under the existing accounting consensus, if thefair value of all of the elements in the arrangement was not determinable, thenrevenue was deferred until all of the items were delivered or fair value wasdetermined. This new approach is effective prospectively for revenuearrangements entered into or materially modified in fiscal years beginning onor after June 15, 2010. We are in the process of evaluating whether theadoption of this standard will have a material effect on our financialposition, results of operations or cash flows.

 

**ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET RISK.**

 

Therehave been no material changes in information regarding our exposure to marketrisk, as described in Item 7A of our Annual Report on Form 10-K for theyear ended December 31, 2009.

 

**ITEM 4. CONTROLS AND PROCEDURES.**

 

**Evaluation of Disclosure Controls and Procedures**

 

Ourmanagement (with the participation of our Principal Executive Officer andPrincipal Financial Officer) evaluated the effectiveness of our disclosurecontrols and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the “ExchangeAct”)), as of June 30, 2010. Disclosure controls and procedures aredesigned to ensure that information required to be disclosed by the Company inthe reports it files or submits under the Exchange Act is recorded, processed,summarized and reported on a timely basis and that such information isaccumulated and communicated to management, including the Principal ExecutiveOfficer and Principal Financial Officer, as appropriate, to allow timelydecisions regarding required disclosure. Based on this evaluation, ourPrincipal Executive Officer and Principal Financial Officer concluded thatthese disclosure controls and procedures are effective.

 

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**Changes in Internal Control over Financial Reporting**

 

Therewas no change in our internal control over financial reporting (as defined inRules 13a-15(f) and 15d-15(f) under the Exchange Act) during thequarter ended June 30, 2010 that has materially affected, or is reasonablylikely to materially affect, our internal control over financial reporting.

 

**PART II— OTHER INFORMATION**

 

**ITEM 1. LEGAL PROCEEDINGS.**

 

Fromtime to time, we may be subject to legal proceedings and claims in the ordinarycourse of business. We are not currently aware of any such proceedings orclaims that we believe will have, individually or in the aggregate, a materialadverse effect on the business, financial condition or the results ofoperations.

 

**ITEM 1A. RISK FACTORS.**

 

Therehave been no material changes in information regarding our risk factors asdescribed in Part 1, Item 1A of our Annual Report on Form 10-Kfor the year ended December 31, 2009.

 

**ITEM 2.  UNREGISTERED SALES OF EQUITYSECURITIES AND USE OF PROCEEDS.**

 

**Recent Sales of UnregisteredSecurities**

 

On April 16, 2010 the Companyissued 9,690 shares of common stock to participants in its Metabolix, Inc.401(k) Plan as a matching contribution. The issuance of these securitiesis exempt from registration pursuant to Section 3(a)(2) of theSecurities Act of 1933 as exempted securities.

 

**Issuer Purchases of Equity Securities**

 

Duringthe three months ended June 30, 2010, there were no repurchases made by usor on our behalf, or by any “affiliated purchasers,” of shares of our commonstock.

 

**ITEM 3.  DEFAULTSUPON SENIOR SECURITIES.**

 

None.

 

**ITEM 4. (REMOVED AND RESERVED).**

 

**ITEM 5. OTHER INFORMATION.**

 

None.

 

**ITEM 6. EXHIBITS.**

 

31.1                           CertificationPursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Actof 1934 of the Principal Executive Officer (furnished herewith).

 

31.2                           CertificationPursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Actof 1934 of the Principal Financial Officer (furnished herewith).

 

32.1                           Section 1350Certification (furnished herewith).

 

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

|                | METABOLIX, INC. |
|---------------------|----------------------|
|                |                 |   |
|                |                 |   |
| July 29,  2010 | By:                  | /s/  RICHARD P. ENO |
|                |                 | Richard  P. Eno |
|                |                 | *President and Chief Executive Officer* |
|                |                 | *(Principal Executive Officer)* |
|                |                 |   |
| July 29,  2010 | By:                  | /s/  JOSEPH D. HILL |
|                |                 | Joseph  D. Hill |
|                |                 | *Chief Financial Officer* |
|                |                 | *(Principal Financial and Accounting Officer)* |

 

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