****UNITED STATES****

**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 March 31, 2008**                                                                                   |
| ** **                                                                                                                               |
| **OR**                                                                                                                                   |
| ** **                                                                                                                               |
| **o**                                                                                                                                    | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF                   THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                               |
| **For the transition period from                    to** |
| ** **                                                                                                                               |
| **Commission  file number 001-33133**                                                                                                    |

 

**METABOLIX, INC.**

 

| **Delaware**                    |       | **04-3158289**      |
|---------------------------------|------------|---------------------|
| (State or other jurisdiction of |       | (I.R.S. Employer    |
| incorporation or organization)  | ** ** | Identification No.) |

 

| **21 Erie Street**                             | ** ** |       |
|------------------------------------------------|------------|------------|
| **Cambridge, MA**                              | ** ** | **02139**  |
| (Address of principal executive offices)  | ** ** | (Zip Code) |

 

**(617) 583-1700**

(Registrant’s telephonenumber, 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 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  (Do not check if a smaller reporting company) |   | Smaller  reporting company o |

 

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

 

Thenumber of shares outstanding of the registrant’s common stock as of May 2,2008 was 22,727,338.

 

 

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**Metabolix, Inc.Form 10-QFor the Quarter Ended March 31, 2008**

 

**Table ofContents**

 
| ** **                             | **Page**   |
|----------------------------------------|------------|
| ** **                             |       |
| **Part I. Financial Information** |       |
|                                   |       |   |   |
| Item                                   | ** ** | ** ** |   |
| 1.                                     |       | Condensed  Consolidated Financial Statements (Unaudited) |   |
|                                   |       | Condensed Consolidated Balance Sheets at  March 31, 2008 and December 31, 2007 | 3 |
|                                   |       | Condensed Consolidated Statements of Operations for  the three months ended March 31, 2008 and 2007 | 4 |
|                                   |       | Condensed Consolidated Statements of Cash Flows for  the three months ended March 31, 2008 and 2007 | 5 |
|                                   |       | Notes to the Condensed 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 | 20 |
| 4.                                     |       | Controls and Procedures | 21 |
|                                   |       |   |   |
| **Part II.  Other Information**   |       |
|                                   |       |   |   |
| 1.                                     |       | Legal Proceedings | 21 |
| 1A.                                    |       | Risk Factors | 21 |
| 2.                                     |       | Unregistered  Sales of Equity Securities and Use of Proceeds | 22 |
| 3.                                     |       | Defaults  Upon Senior Securities | 22 |
| 4.                                     |       | Submission  of Matters to a Vote of Security Holders | 22 |
| 5.                                     |       | Other Information | 22 |
| 6.                                     |       | Exhibits | 22 |
| **SIGNATURES**                         | 23         |
|                                        |            |  |  |  |

 

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**PART I. FINANCIAL INFORMATION**

 

**ITEM 1.  CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

 

**METABOLIX,INC.CONDENSED CONSOLIDATED BALANCE SHEETS**

**UNAUDITED**

**(inthousands, except share and per share data)**

** **
| ** **                                                                                                                                                                                                                                            | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                            | ** ** | **2008**           | ** ** | **2007**              | ** ** |
| **Assets**                                                                                                                                                                                                                                            |       |               |       |                  |       |
| Current assets:                                                                                                                                                                                                                                       |       |               |       |                  |       |
| Cash and cash equivalents                                                                                                                                                                                                                             |       | $                  | 35,655     |                  | $          | 22,686 |   |
| Short-term investments                                                                                                                                                                                                                                |       | 69,176             |       | 86,640                |       |
| Accounts receivable                                                                                                                                                                                                                                   |       | 114                |       | 133                   |       |
| Due from related parties                                                                                                                                                                                                                              |       | 774                |       | 1,216                 |       |
| Unbilled receivable                                                                                                                                                                                                                                   |       | 149                |       | 198                   |       |
| Prepaid expenses and other current assets                                                                                                                                                                                                             |       | 578                |       | 673                   |       |
| Total current assets                                                                                                                                                                                                                                  |       | 106,446            |       | 111,546               |       |
| Restricted cash                                                                                                                                                                                                                                       |       | 498                |       | 498                   |       |
| Property and equipment, net                                                                                                                                                                                                                           |       | 6,412              |       | 6,890                 |       |
| Other assets                                                                                                                                                                                                                                          |       | 70                 |       | 70                    |       |
| Total assets                                                                                                                                                                                                                                          |       | $                  | 113,426    |                  | $          | 119,004 |   |
|                                                                                                                                                                                                                                                  |       |               |       |                  |       |
| **Liabilities and Stockholders’ Equity**                                                                                                                                                                                                         |       |               |       |                  |       |
| Current liabilities:                                                                                                                                                                                                                                  |       |               |       |                  |       |
| Accounts payable                                                                                                                                                                                                                                      |       | $                  | 148        |                  | $          | 299 |   |
| Accrued liabilities                                                                                                                                                                                                                                   |       | 3,447              |       | 4,195                 |       |
| Current portion of deferred rent                                                                                                                                                                                                                      |       | 165                |       | 165                   |       |
| Deferred revenue                                                                                                                                                                                                                                      |       | 75                 |       | —                |       |
| Total current liabilities                                                                                                                                                                                                                             |       | 3,835              |       | 4,659                 |       |
| Deferred rent and other long term  liabilities                                                                                                                                                                                                        |       | 923                |       | 963                   |       |
| Long-term deferred revenue                                                                                                                                                                                                                            |       | 26,360             |       | 24,180                |       |
| Total liabilities                                                                                                                                                                                                                                     |       | 31,118             |       | 29,802                |       |
|                                                                                                                                                                                                                                                  |       |               |       |                  |       |
| Commitments and contingencies (Note 11)                                                                                                                                                                                                               |       |               |       |                  |       |
|                                                                                                                                                                                                                                                  |       |               |       |                  |       |
| Stockholders’ Equity:                                                                                                                                                                                                                            |       |               |       |                  |       |
| Common stock ($0.01 par value per share); 100,000,000  shares authorized at March 31, 2008 and December 31, 2007;  22,646,993 and 22,576,111 shares issued and outstanding at March 31,  2008 and December 31, 2007, respectively |       | 226                |       | 226                   |       |
| Additional paid-in capital                                                                                                                                                                                                                            |       | 184,245            |       | 182,852               |       |
| Accumulated other comprehensive income.                                                                                                                                                                                                               |       | 397                |       | 236                   |       |
| Accumulated deficit                                                                                                                                                                                                                                   |       | (102,560           | )          | (94,112               | )          |
| Total stockholders’ equity                                                                                                                                                                                                                       |       | 82,308             |       | 89,202                |       |
| Total liabilities and stockholders’ equity                                                                                                                                                                                                       |       | $                  | 113,426    |                  | $          | 119,004 |   |

 

*Theaccompanying notes are an integral part of these consolidated financialstatements*

 

3

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**METABOLIX,INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

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

 
| ** **                                                    | ** ** | **Three months ended** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                    | ** ** | **March 31,**               | ** ** |
| ** **                                                    | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| Revenue:                                                      |       |                             |       |   |   |
| Research and development revenue                              |       | $                                | 68         |   | $ | — |   |
| License fee and royalty revenue from  related parties         |       | 35                               |       | 75 |   |
| Grant revenue                                                 |       | 301                              |       | 354 |   |
| Total revenue                                                 |       | 404                              |       | 429 |   |
| Operating expenses:                                           |       |                             |       |   |   |
| Research and development expenses, including  cost of revenue |       | 5,934                            |       | 3,808 |   |
| Selling, general, and administrative  expenses                |       | 4,097                            |       | 2,847 |   |
| Total operating expenses                                      |       | 10,031                           |       | 6,655 |   |
|                                                          |       |                             |       |   |   |
| Loss from operations                                          |       | (9,627                           | )          | (6,226 | ) |
|                                                          |       |                             |       |   |   |
| Other income:                                                 |       |                             |       |   |   |
| Interest income, net                                          |       | 1,179                            |       | 1,538 |   |
|                                                          |       |                             |       |   |   |
| Net loss                                                      |       | $                                | (8,448     | ) | $ | (4,688 | ) |
|                                                          |       |                             |       |   |   |
| Net loss per share:                                           |       |                             |       |   |   |
| Basic and Diluted                                             |       | $                                | (0.37      | ) | $ | (0.22 | ) |
|                                                          |       |                             |       |   |   |
| Number of shares used in per share  calculations:             |       |                             |       |   |   |
| Basic and Diluted                                             |       | 22,648,740                       |       | 21,430,893 |   |

 

*Theaccompanying notes are an integral part of these consolidated financialstatements*

 

4

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** **

**METABOLIX, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**UNAUDITED(in thousands)**

*** ***
| ** **                                                               | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                               | ** ** | **March 31,**               | ** ** |
| ** **                                                               | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| **Cash flows from operating activities**                                 |       |                             |       |   |   |
| Net loss                                                                 |       | $                                | (8,448     | ) | $ | (4,688 | ) |
| Adjustments to reconcile net loss to cash  used in operating activities: |       |                             |       |   |   |
| Depreciation                                                             |       | 896                              |       | 247 |   |
| Stock-based compensation                                                 |       | 1,081                            |       | 517 |   |
| Charge for 401(k) company common stock  match                       |       | 142                              |       | — |   |
| Changes in operating assets and  liabilities:                            |       |                             |       |   |   |
| Receivables (billed and unbilled)                                        |       | 68                               |       | (35 | ) |
| Due from related party                                                   |       | 122                              |       | 516 |   |
| Prepaid expenses and other assets                                        |       | 95                               |       | 29 |   |
| Accounts payable                                                         |       | (151                             | )          | (297 | ) |
| Accrued liabilities                                                      |       | (804                             | )          | 158 |   |
| Deferred rent and other long term  liabilities                           |       | (40                              | )          | (41 | ) |
| Deferred revenue                                                         |       | 2,575                            |       | 104 |   |
| Net cash used in operating activities                                    |       | (4,464                           | )          | (3,490 | ) |
|                                                                     |       |                             |       |   |   |
| **Cash flows from investing activities**                                 |       |                             |       |   |   |
| Purchase of property and equipment                                       |       | (379                             | )          | (530 | ) |
| Purchase of short-term investments                                       |       | (25,323                          | )          | (42,386 | ) |
| Proceeds from sale and maturity of  short-term investments               |       | 42,977                           |       | 41,020 |   |
| Net cash provided by (used in) investing  activities                     |       | 17,275                           |       | (1,896 | ) |
|                                                                     |       |                             |       |   |   |
| **Cash flows from financing activities**                                 |       |                             |       |   |   |
| Proceeds from exercise of options and  warrants.                         |       | 158                              |       | 65 |   |
| Net cash provided by financing activities                                |       | 158                              |       | 65 |   |
|                                                                     |       |                             |       |   |   |
| Net increase (decrease) in cash and cash  equivalents                    |       | 12,969                           |       | (5,321 | ) |
| Cash and cash equivalents at beginning of  period                        |       | 22,686                           |       | 25,182 |   |
| Cash and cash equivalents at end of period                               |       | $                                | 35,655     |   | $ | 19,861 |   |

 

*Theaccompanying notes are an integral part of these consolidated financialstatements*

 

5

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**METABOLIX,INC.NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**UNAUDITED**

** **

*(Alldollar amounts are stated in thousands.)*

* *

**1.  BASIS OF PRESENTATION**

 

The accompanying condensed consolidated financial statements areunaudited and have been prepared by Metabolix, Inc. (“the Company”) inaccordance with accounting principles generally accepted in the United Statesof America and pursuant to the instructions to Form 10-Q and Article 10of Regulation S-X. Certain information and footnote disclosures normallyincluded in the Company’s annual consolidated financial statements have beencondensed or omitted. The year-end condensed consolidated balance sheet datawas derived from audited financial statements, but does not include alldisclosures required by accounting principles generally accepted in the UnitedStates of America. The condensed consolidated financial statements, in theopinion of management, reflect all adjustments (consisting only of normalrecurring accruals) necessary for a fair statement of the financial positionand results of operations for the interim periods ended March 31, 2008 and2007.

 

The results of operations for the interim periods are not necessarilyindicative of the results of operations to be expected for any future period orthe entire fiscal year. These interim condensed consolidated financialstatements should be read in conjunction with the audited consolidatedfinancial statements for the year ended December 31, 2007, which arecontained in the Company’s Annual Report on Form 10-K filed with theSecurities and Exchange Commission.

 

**2. ACCOUNTING POLICIES**

** **

Except as indicated below, there have been no material changes inaccounting policies since the end of the fiscal year ended December 31,2007, as described in Note 3 to the consolidated financial statements includedin the Company’s Annual Report on Form 10-K for the year ended December 31,2007.

 

**Fair Value Measurements**

** **

TheCompany adopted the provisions of Financial Accounting Standards Board (“FASB”)Statement of Financial Accounting Standard (“SFAS”) No. 157, *Fair Value Measurements* (“SFAS No. 157”) on January 1,2008. As permitted by FASB Staff Position (“FSP”) No. SFAS 157-2, *Effective Date of FASB Statement No. 157* (“FSP No. SFAS157-2”), the Company elected to defer the adoption of SFAS No. 157 for allnonfinancial assets and nonfinancial liabilities, except those that arerecognized or disclosed at fair value in the financial statements on arecurring basis, until January 1, 2009. SFAS No. 157 establishes aframework for measuring fair value and expands financial statement disclosuresabout fair value measurements. There was no cumulative effect of adoptionrelated to SFAS No. 157 and the adoption did not have an impact on ourfinancial position, results of operations, or cash flows. The Company isstudying SFAS No. 157 with respect to nonfinancial assets and nonfinancialliabilities falling under the scope of FSP No. SFAS 157-2 and has not yetdetermined the expected impact on the financial position, results of operations,or cash flows. See Note 12 for a discussion of the Company’s adoption of SFAS No. 157.

 

TheCompany adopted the provisions of SFAS No. 159, *The FairValue Option for Financial Assets and Financial Liabilities, including anamendment of FASB Statement No. 115* (“SFAS No. 159”) on January 1,2008. SFAS No. 159 permits entities to choose, at specified electiondates, to measure eligible items at fair value (the “fair value option”). Underthis pronouncement, a business entity must report unrealized gains and losseson items for which the fair value option has been elected in earnings at eachsubsequent reporting period. We have not elected the fair value option for anyitems on our balance sheet.

 

**3. RECENT ACCOUNTING PRONOUNCEMENTS**

** **

In December 2007, theFASB issued SFAS No. 141(R), *Business Combinations*(“SFAS141(R)”), which replaces SFAS No. 141. This revised standard requiresassets, liabilities and non-controlling interests 

 

6

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acquired to be measured atfair value and requires that costs incurred to effect the acquisition berecognized separately from the business combination. In addition, thisstatement expands the scope to include all transactions and other events inwhich one entity obtains control over one or more businesses. This statement iseffective for all business combinations for which the acquisition date is on orafter the beginning of the first annual reporting period beginning on or after December 15,2008. 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.

 

In December 2007, theFASB issued SFAS No. 160, *Non-controlling Interestsin Consolidated Financial Statements, an Amendment of ARB No. 51*(“SFAS160”). This statement establishes accounting and reporting standards for thenon-controlling interest in a subsidiary and for the deconsolidation of asubsidiary. This statement is effective for fiscal years beginning on or after December 15,2008. 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.

 

In December 2007, the Emerging Issues Task Force (“EITF”) reacheda consensus on EITF Issue 07-01, *Accountingfor Collaborative Arrangements Related to the Development and Commercializationof Intellectual Property*(“EITF 07-01”).EITF 07-01 prescribes the accounting for collaborations. It requires certaintransactions between collaborators to be recorded in the income statement oneither a gross or net basis when certain characteristics exist in thecollaboration relationship. EITF 07-01 is effective for all of the Company’scollaborations existing after January 1, 2009. The Company is in theprocess of evaluating whether the adoption of this standard will have amaterial effect on its financial position, results of operations or cash flows.

 

In March 2008, the FASBissued SFAS No. 161, *Disclosures about DerivativeInstruments and Hedging Activities* (“SFAS 161”). SFAS 161 requirescompanies with derivative instruments to disclose information that shouldenable financial statement users to understand how and why a company usesderivative instruments, how derivative instruments and related hedged items areaccounted for under FASB Statement No. 133 *Accountingfor Derivative Instruments and Hedging Activities* and how derivativeinstruments and related hedged items affect a company’s financial position,financial performance and cash flows. SFAS 161 is effective for financialstatements issued for fiscal years beginning after November 15, 2008. TheCompany is in the process of evaluating whether the adoption of this standardwill have a material effect on its financial position, results of operations orcash flows.

 

**4. COMPREHENSIVE LOSS**

** **

Comprehensiveloss is comprised of net loss and net unrealized gains on marketablesecurities. Total comprehensive loss for the three months ended March 31,2008 and 2007 is as follows:

 
| ** **                               | ** ** | **Three months ended** | ** ** |
|------------------------------------------|------------|----------------------------------|------------|
| ** **                               | ** ** | **March 31,**               | ** ** |
| ** **                               | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| Net loss                                 |       | $                                | (8,448     | ) | $ | (4,688 | ) |
| Other comprehensive income:              |       |                             |       |   |   |
| Change in unrealized gain on investments |       | 161                              |       | 27 |   |
| Total other comprehensive income         |       | 161                              |       | 27 |   |
| Comprehensive loss                       |       | $                                | (8,287     | ) | $ | (4,661 | ) |

 

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

 

Basic net loss per share is computed by dividing net loss by theweighted-average number of shares of common stock outstanding and warrantsoutstanding that were previously issued for little or no consideration,excluding the dilutive effects of common stock equivalents. Common stockequivalents include stock options and certain warrants. Diluted net income pershare includes the dilutive effect of common stock equivalents under thetreasury stock method.

 

7

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The number of shares of potentially dilutive common stock related tooptions and warrants that were excluded from the calculation of dilutive sharessince the inclusion of such shares would be anti-dilutive for the three monthsended March 31, 2008 and 2007, respectively, are shown below:

 
| ** ** | ** ** | **Three months ended** | ** ** |
|------------|------------|----------------------------------|------------|
| ** ** | ** ** | **March 31,**               | ** ** |
| ** ** | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| Options    |       | 2,428,802                        |       | 2,698,910 |   |
| Warrants   |       | 69,343                           |       | 287,449 |   |
| Total      |       | 2,498,145                        |       | 2,986,359 |   |

** **

**6.STOCK-BASED COMPENSATION**

** **

On January 1, 2006, the Company adopted Statement of FinancialAccounting Standards No. 123(R), *Share-BasedPayment* (“SFAS No. 123(R)”). Under the provisions of SFAS No. 123(R),compensation cost recognized for the three months ended March 31, 2008 and2007 included compensation cost for all stock options granted to employeessubsequent to January 1, 2006, based on the grant date fair valueestimated in accordance with the provisions of SFAS No. 123(R) andwill be recognized over the vesting period of the applicable award on astraight-line basis. The effect of SFAS No. 123(R) for the threemonths ended March 31, 2008 was an increase in net loss of $1,226. Theincrease in basic and diluted net loss per share for the three months ended March 31,2008 was $0.05. For the three months ended March 31, 2007 the effect ofSFAS No. 123(R) was an increase in net loss of $398. The increase inbasic and diluted net loss per share for the three months ended March 31,2007 was $0.02. There is no expense recorded for options which were grantedprior to January 1, 2006 under the minimum value method if the exerciseprice was equal to the fair value of common stock and the measurement date wasfixed at the time of grant. The Company granted options to an officer of theCompany prior to January 1, 2006 that contained performance based vestingconditions which were met during the year ended December 31, 2006. Theresulting deferred compensation was recorded ratably over the remaining serviceperiod and $26 was recorded during the three months ended March 31, 2007.

 

A summary of option activity for the three months ended March 31,2008 and 2007 is as follows:

 
| ** **                                                                   | ** ** | **March 31,** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------|------------|
| ** **                                                                   | ** ** | **2008**           | ** ** | **2007** | ** ** |
| ** **                                                                   | ** ** | **Number**         | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Number** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
|                                                                         |       |               |       |   |   |   |   |   |   |
| Outstanding at beginning of period                                           |       | 2,151,784          |       | $ | 10.70 |   | 2,717,244 |   | $ | 4.60 |   |
| Granted                                                                      |       | 346,000            |       | 13.58 |   | 22,500 |   | 18.67 |   |
| Exercised                                                                    |       | (64,384            | )          | 2.46 |   | (31,459 | ) | 1.95 |   |
| Canceled                                                                     |       | (4,598             | )          | 1.65 |   | (9,375 | ) | 14.00 |   |
| Outstanding at end of period                                                 |       | 2,428,802          |       | 11.34 |   | 2,698,910 |   | 4.71 |   |
|                                                                         |       |               |       |   |   |   |   |   |   |
| Options exercisable as of  March 31,                               |       | 1,123,873          |       |   |   | 1,579,598 |   |   |   |
|                                                                         |       |               |       |   |   |   |   |   |   |
| Weighted average grant date fair value of  options granted during the period |       |               |       | $ | 7.98 |   |   |   | $ | 11.13 |   |

** **

**Non-employee Stock Option Awards**

** **

The compensation expense related to non-employee stock options isgenerally recognized over a period of four years. The grants generally vestquarterly and such vesting is contingent upon future services provided by theconsultants to the Company. The Company recorded a benefit of $145 relating toconsultant related stock-based compensation for the three months ended March 31,2008 and an expense of $93 for the three months ended March 31, 2007. Thebenefit recognized during the three months ended March 31, 2008 resultedfrom a reduction in the fair market value of the options outstanding duringthat period.  Options remaining unvestedfor non-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.

 

8

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**7. SIGNIFICANT COLLABORATIONS**

** **

**ADM Agreement**

** **

On November 3, 2004, the Company signed an agreement with ADMPolymer Corporation (“ADM”), a subsidiary of Archer Daniels Midland Company, toestablish an alliance whereby the Company would provide technology and licensesthereto and research and development services, and ADM would providemanufacturing services and capital necessary to produce**Mirel*TM* biobasedplastic on a commercial scale basis. This agreement was amended by theparties on September 8, 2005 to define certain cost sharing activitiesrelated to pilot manufacturing, to change certain milestones and to make otherminor modifications.

 

On July 12, 2006, ADM exercised an option (the “Option”) to enterinto a commercial alliance for further research, development, manufacture, useand sale of Mirel on the terms and conditions set forth in the CommercialAlliance Agreement.

 

***Commercial Alliance Agreement***

*** ***

The Commercial Alliance Agreement specifies the terms and structure ofthe relationship 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**biobasedplastic. These activities include: the establishment of a joint salescompany, which has been named Telles, to market and sell Mirel, theconstruction of a manufacturing facility capable of producing 110 millionpounds of material annually (the “Commercial Manufacturing Facility”), thelicensing of technology to Telles and to ADM, and the conducting of variousresearch, development, manufacturing, sales and marketing, compounding andadministrative services by the parties.

 

Telles is a limited liability company, formed and equally owned by theCompany and ADM, and is intended to: (i) serve as the commercial entity toestablish and develop the commercial market for Mirel, and conduct themarketing and sales in accordance with the goals of the commercial alliance, (ii) assistin the 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% equity andvoting interest in Telles.

 

A summary 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 biobased plastic under contract to Telles; (ii) the Companywill either arrange for and finance the acquisition or construction of afacility in which it will compound Mirel**biobased plastic or it will arrangefor third parties to compound  Mirel biobased plastic; (iii) theCompany, acting in the name and on behalf of Telles, will establish the initialmarket for Mirel. The Company will also continue its research and developmentefforts to further advance the technology and expand and enhance the commercialpotential of**Mirel. Subject to certain limitations, ADM will finance the working capitalrequirements of Telles.

 

Telles will make up to twelve payments of $1,575 per calendar quarterto the Company to support these activities during the construction of theCommercial Manufacturing Facility. In the event construction is completed andsale of commercial product commences prior to Telles making all twelve suchpayments, the quarterly payments will cease and Telles will pay the Company alump sum equal to the number of remaining unpaid payments multiplied by $250.Through March 31, 2008, support payments totaling $14,175 have been receivedby the Company and recorded as deferred revenue.

 

During the construction period of the Commercial Manufacturing Facilityall pre-commercial material production expenses incurred by ADM and the Companyare shared equally. Accordingly, from the execution of this agreement in July 2006through March 31, 2008, ADM has reimbursed the Company $5,203. At March 31,2008, net reimbursements of $774 were due from ADM. All amounts due or receivedfrom ADM relating to this agreement are recorded as deferred revenue.

 

Upon the commencement of commercial sales, Telles will pay the Companyroyalties on sales as well as reimburse it for the cost of services providedpursuant to the Commercial Alliance Agreement.

 

While Telles is a fifty-fifty joint venture, ADM will be advancing adisproportionate share of the financial capital needed to construct themanufacturing plant and to fund its activities. Therefore, a preferentialdistribution of cash flow will be used, whereby all profits (after payment ofall royalties, reimbursements and fees) from Telles will be distributed to ADMuntil ADM’s disproportionate investment 

 

9

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inthe alliance has been returned in full. Once ADM has recouped such amounts, theprofits of Telles will be distributed in equal amounts to the parties.

 

The Commercial Alliance Agreement provides for expansion of theoperations of Telles beyond the initial license of 110 million poundsannual production through an equally-owned joint venture. While certainprinciples of the joint venture have been agreed to, the detailed terms andconditions will not be determined until a later date.

 

Revenue recognition for amounts deferred through March 31, 2008 isexpected to commence approximately at the time of the first commercial sale of *Mirel*and the amounts will be recognized proportionatelyover the period that the final services are provided over the estimatedremaining term of the Commercial Alliance Agreement.

 

The Commercial Alliance Agreement and related agreements includedetailed provisions setting out the rights and obligations of the parties inthe event of a termination of the Commercial Alliance Agreement. Theseprovisions include the right for either party to terminate the CommercialAlliance Agreement upon a material default of a material obligation by theother party after a notice and cure period has expired. The parties are alsopermitted to terminate the Commercial Alliance Agreement if a change incircumstances that is not reasonably within the control of a party makes theanticipated financial return from the project inadequate or too uncertain.Finally, the parties have specific obligations to fulfill in the event oftermination or if they file for bankruptcy protection.

 

** 8. INCOME TAXES**

** **

TheCompany adopted the provisions of FASB Interpretation No. 48 (“FIN 48”) *Accounting for Uncertainty in Income Taxes, aninterpretation of FASB Statement No. 109*(“SFAS 109”)**on January 1, 2007. As a result of the implementation of FIN48, the Company recorded no adjustment for unrecognized income tax benefits. Atthe date of adoption of January 1, 2007, and also at March 31, 2008,the Company had no unrecognized tax benefits. The Company does not expect thetotal amount of unrecognized tax benefits to significantly increase in the nexttwelve months.

 

The tax years 2004 through 2007 remain open to examination by majortaxing jurisdictions to which the Company is subject, which are primarily inthe US.

 

The Company’s policy is to record estimated interest and penaltiesrelated to uncertain tax positions in income tax expense. As of March 31,2008, the Company had no accrued interest or penalties recorded related touncertain tax positions.

 

At December 31, 2007 the Company had net operating losscarryforwards for federal and state income tax purposes of $33,620 and $23,822,respectively. The Company’s federal and state net operating loss carryforwardswill begin to expire in 2008. The Company also had available research anddevelopment credits for federal and state income tax purposes of $2,082 and$1,662 respectively. The federal and state research and development creditswill begin to expire in 2012 and 2015, respectively. As of December 31,2007 the Company also had available investment tax credits for state income taxpurposes of $124 which began to expire in 2008. 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.

 

Utilization of Net Operating Loss, or NOL, and Research &Development, or R&D, credit carryforwards may be subject to a substantialannual limitation due to ownership change limitations that have occurredpreviously or that could occur in the future as provided by Section 382and 383 of the Internal Revenue Code of 1986, as well as similar stateprovisions. These ownership changes may limit the amount of NOL and R&Dcredit carryforwards that can be utilized annually to offset future taxableincome and tax, respectively. In general, an ownership change, as defined by Section 382,results from transactions increasing the ownership of certain shareholders orpublic groups in the stock of a corporation by more than 50 percentagepoints over a three year period. Since the Company’s formation, the Company hasraised capital through the issuance of capital stock which, combined with thepurchasing shareholders’ subsequent disposition of those shares, may haveresulted in a change of control, as defined by Section 382, or could 

 

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resultin a change of control in the future upon subsequent disposition. The Companyhas not currently completed a study to assess whether there have been multiplechanges of control since the Company’s formation due to the significantcomplexity and cost associated with such study. If the Company has experienceda change in control at any time since the Company’s formation, utilization ofthe Company’s NOL or R&D credit carryforwards would be subject to an annuallimitation under Section 382 and 383. Any limitation may result inexpiration of a portion of the NOL or R&D credit carryforwards beforeutilization. Until a study is completed and any limitation known, no amountsare being presented as uncertain tax positions under FIN 48.

 

** 9. ACCRUED LIABILITIES**

** **

Accruedliabilities consisted of the following at:

 
| ** **                          | ** ** | **March 31, 2008** | ** ** | **December 31, 2007** | ** ** |
|-------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| Employee compensation and benefits  |       | $                            | 1,099      |                            | $          | 1,985 |   |
| Other                               |       | 962                          |       | 1,035                           |       |
| Pre-commercial manufacturing costs  |       | 737                          |       | 443                             |       |
| Professional services               |       | 371                          |       | 407                             |       |
| Contracted research and development |       | 278                          |       | 325                             |       |
| Total accrued expenses              |       | $                            | 3,447      |                            | $          | 4,195 |   |

** **

**10. SEGMENT INFORMATION**

** **

The Company operates in one segment. There have been no changes in thesegment information since the fiscal year ended December 31, 2007, asdescribed in Note 3 to the financial statements included in the Company’sAnnual Report on Form 10-K for the year ended December 31, 2007.

 

**11.COMMITMENTS AND CONTINGENCIES**

** **

**Legal Proceedings**

** **

 From time to time, the Companymay be subject to legal proceedings and claims in the ordinary course ofbusiness. The Company is not currently aware of any such proceedings or claimsthat it believes will have, individually or in the aggregate, a materialadverse effect on the business, financial condition or results of operations.

 

**License Agreement with Massachusetts Institute of Technology(“MIT”)**

** **

The Company’s exclusive license agreement with MIT requires the Companyto pay annual license fees of $25 and additional potential royalty payments toMIT based on a percentage of net sales of products or services covered bypatents that are subject to the license. As of March 31, 2008, and December 31,2007, the Company had accrued $2 for license fees and royalties attributable tothis agreement.

 

**Joint Research Agreement with The Cooperative Research Centre for SugarIndustry Innovation through Biotechnology**

** **

The Companyentered a joint research arrangement, known as the Cooperative Research Centrefor Sugar Industry Innovation through Biotechnology, with the Commonwealth ofAustralia and various other parties for the purpose of developing and gainingaccess to certain intellectual property. The Commonwealth of Australiaestablished the program to enhance the transfer of research outputs intocommercial or other outcomes of economic, environmental or social benefit toAustralia. The terms of the contract stipulate that the contract commenced on January 1,2007, and the Company’s funding obligation continues until July 1, 2010.In connection with this agreement Metabolix is obligated to provide funding inthe form of cash and in kind exchange. As of March 31, 2008 the cashportion of our obligation is $485 and the total amount of in kind contributionthe company is committed to is $1,404. The in kind exchange consists ofsalaries and overhead attributable to research associated with the jointresearch agreement. The cash and in kind contributions are recorded as researchand development expense as incurred, in the consolidated statement ofoperations.

 

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**12. FAIR VALUE MEASUREMENTS**

 

OnJanuary 1, 2008, the Company adopted Statement of Financial AccountingStandards No. 157, *Fair Value Measurements,*(SFAS No. 157) for financial assets and liabilities. In accordance withthe provisions of FASB Staff Position No. FAS 157-2, *EffectiveDate of FASB Statement No. 157*, the Company elected to deferthe adoption of SFAS No. 157 for all nonfinancial assets and nonfinancialliabilities, except those that are recognized or disclosed at fair value in thefinancial statements on a recurring basis until January 1, 2009. SFAS No. 157provides a framework for measuring fair value under U.S. GAAP and requiresexpanded disclosures regarding fair value measurements.  SFAS No. 157 defines fair value as theexchange price that would be received for an asset or paid to transfer aliability (an exit price) in the principal or most advantageous market for theasset or liability in an orderly transaction between market participants on themeasurement date. SFAS No. 157 also establishes a fair value hierarchywhich requires an entity to maximize the use of observable inputs, whereavailable, and minimize the use of unobservable inputs when measuring fairvalue. The standard describes three levels of inputs that may be used tomeasure fair value:

** **
| **Level 1** |   | Quoted prices in active  markets for identical assets or liabilities.                                                                                                                                                                                                                                      |
|-------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **  |   |                                                                                                                                                                                                                                                                                                       |
| **Level 2** |   | Observable inputs other  than Level 1 prices, such as quoted prices for similar assets or liabilities;  quoted prices in markets that are not active; or other inputs that are  observable or can be corroborated by observable market data for substantially  the full term of the assets or liabilities. |
| ** **  |   |                                                                                                                                                                                                                                                                                                       |
| **Level 3** |   | Unobservable inputs  that are supported by little or no market activity and that are significant  to the fair value of the assets or liabilities.                                                                                                                                                          |

 

The following table sets forth the financial assets (cash equivalentsand short-term investments) that were measured at fair value on a recurringbasis as of March 31, 2008 by level within the fair value hierarchy. TheCompany did not have any financial liabilities, nonfinancial assets, ornonfinancial liabilities that were measured or disclosed at fair value on arecurring basis as of March 31, 2008. As required by SFAS No. 157,assets measured at fair value are classified in their entirety based on thelowest level of input that is significant to the fair value measurement. Theassessment of the significance of a particular input to the fair valuemeasurement in its entirety requires judgment and considers factors specific tothe asset or liability.

 
| ** **                       | ** ** | **Fair Value Measurements at Reporting Date Using**                   | ** ** | ** **                                                         | ** ** |
|----------------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| **Description**                  | ** ** | **Quoted Prices in  Active Markets for  Identical Assets  (Level 1)** | ** ** | **Significant Other  Observable Inputs  (Level 2)** | ** ** | **Significant  Unobservable  Inputs  (Level 3)** | ** ** | **Balance as of  3/31/08** | ** ** |
| Cash equivalents:                |       |                                                                                                |       |                                                               |       |   |   |   |   |
| Treasuries                       |       | —                                                                                              |       | $                                                                  | 29,763     |   | — |   | $ | 29,763 |   |
| Short-term investments:          |       |                                                                                                |       |                                                               |       |   |   |   |   |
| Commercial paper                 |       | —                                                                                              |       | 43,329                                                             |       | — |   | 43,329 |   |
| Credit card backed securities    |       | —                                                                                              |       | 10,808                                                             |       | — |   | 10,808 |   |
| Government-sponsored enterprises |       | —                                                                                              |       | 7,455                                                              |       | — |   | 7,455 |   |
| Corporate bonds                  |       | —                                                                                              |       | 7,584                                                              |       | — |   | 7,584 |   |
| Total                            |       | —                                                                                              |       | $                                                                  | 98,939     |   | — |   | $ | 98,939 |   |

 

**13. CHANGE IN ACCOUNTING ESTIMATE**

 

In the first quarter of 2008, it was determined that the Company willextend the use of its pre-commercial manufacturing plant. In connection withthis, management determined that the useful lives of the leasehold improvementsconnected to this facility should be extended. The result of this extension isa decrease in depreciation expense of $348 and an increase of $0.02 in earningsper share for the three months ended March 31, 2008. This change inaccounting estimate was adopted prospectively from January 1, 2008.

 

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| **ITEM 2.** | ** ** | **MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND  RESULTS OF OPERATIONS** |
|-------------|------------|-------------------------------------------------------------------------------------------------|

 

*(All dollar amounts are stated in thousands)*

 

**ForwardLooking Statements**

 

This quarterly report on Form 10-Q contains “forward-lookingstatements” within the meaning of 27A of the Securities Act of 1933, asamended, and Section 21E of the Securities Exchange Act of 1934, asamended. In particular, statements contained in the Form 10-Q, includingbut not limited to, statements regarding our future results of operations andfinancial position, business strategy and plan prospects, projected revenue orcosts and objectives of management for future research, development oroperations, are forward-looking statements. These statements relate to ourfuture plans, objectives, expectations and intentions and may be identified bywords such as “may,” “will,” “should,” “expects,” “plans,” “anticipate,” “intends,”“target,” “projects,” “contemplates,” “believe,” “estimates,” “predicts,” “potential,”and “continue,” or similar words.

 

Although we believe that our expectations are based on reasonableassumptions within the bounds of our knowledge of our business and operations,the forward-looking statements contained in this document are neither promisesnor guarantees. Our business is subject to significant risk and uncertaintiesand there can be no assurance that our actual results will not differmaterially from our expectations. These forward looking statements include, butare not limited to, statements concerning: future financial performance andposition, management’s strategy, plans and objectives for future operations,plans and objectives for product development and commercialization, plans andobjectives for present and future research and development and results of suchresearch and development, plans and objectives for manufacturing, thecommercialization of environmentally sustainable, economically attractivealternatives to petroleum-based plastics, chemicals and energy, thecommercialization of MirelTM biobased plastic through our alliance with ArcherDaniels Midland Company, or ADM, sales of Mirel as an alternative topetroleum-based plastics, the construction of the Commercial ManufacturingFacility, the production of Mirel at the Commercial Manufacturing Facility, thecommercial success of Mirel, the feasibility of extractin*g* biobased plastic from plant crops, thecommercial viability of plant-produced plastics, recognition of revenue, andmanagement’s plans and expectations for revenue from government grants,research and development revenue, research and development expenses and capitaland working capital requirements. Such forward-looking statements are subjectto a number of risks and uncertainties that could cause actual results todiffer materially from those anticipated including, without limitation, thefollowing risks: (1) we may not be successful at manufacturing biobasedplastics on a commercial scale in a timely and economical manner, (2) wemay not be successful in the development of our products, including Mirel, (3) wedepend on ADM for the construction of the Commercial Manufacturing Facility, (4) ifADM does not build the Commercial Manufacturing Facility on time and on budget,our revenues and the distribution of profits, if any, to us will be delayed, (5) wemay not be able to develop manufacturing capacity sufficient to meet demand inan economical manner or at all, (6) we may not achieve market acceptanceof our products, (7) we have limited marketing and sales experience andcapabilities, which may make the commercialization of our products difficult, (8) werely heavily on ADM and will rely heavily on future collaborative partners, (9) oursuccess will be influenced by the price of petroleum, the primary ingredient inconventional petroleum-based plastics, relative to corn sugar, the primaryingredient in Mirel, (10) our future profitability is uncertain, and wehave a limited operating history on which you can base your evaluation of ourbusiness, (11) we may need to secure additional funding and may be unableto raise additional capital on favorable terms or at all, (12) if we losekey personnel or are unable to attract and retain necessary talent, we may beunable to develop or commercialize our products under development,(13) confidentiality agreements with employees and others may notadequately prevent disclosure of our trade secrets and other proprietaryinformation and may not adequately protect our intellectual property, whichcould limit our ability to compete, (14) patent protection for ourproducts is important and uncertain, (15) a substantial portion of thetechnology used in our business is owned by or subject to retained rights ofthird parties, (16) third parties may claim we infringe their intellectualproperty, and we could suffer significant litigation or licensing expense as aresult, (17) if we are unable to manage our growth effectively, ourbusiness could be adversely affected, (18) we may not be successful inidentifying market needs for new technologies and developing new products to meetthose needs, (19) Mirel is made using genetically modified products andmay be, or may be perceived as being, harmful to human health or theenvironment, (20) we face and will face substantial competition in severaldifferent markets that may adversely affect our results of operations,(21) we are subject to significant foreign and domestic 

 

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governmentregulations, including environmental and health and safety regulations, andcompliance or failure to comply with these regulations could harm our business,(22) our government grants may subject us to government audits, whichcould materially harm our business and results of operations, (23) we facerisks associated with our international business, (24) our pre-commercialmanufacturing recovery operations are currently conducted at a single locationwhich makes us susceptible to disasters, and (25) we may be subject toproduct liability claims based on products sold by us, our customers and/or ourlicensees.

 

The forward-looking statements and risks factors presented in thisdocument are made only as of the date hereof and we do not intend to update anyof these risk factors or to publicly announce the results of any revisions toany of our forward-looking statements other than as required under the federalsecurities laws.

 

**Overview**

 

We are a bioscience company that develops and plans to commercializeenvironmentally sustainable, economically attractive alternatives topetroleum-based plastics, chemicals and energy. Our strategy is to developtechnology platforms that integrate advanced biotechnology with currentindustrial practice and to commercialize these platforms with industry leadingstrategic partners.

 

Our first platform, which we are commercializing through Telles, ajoint 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, which we have branded under the nameMirelTM. Through Telles, we intend to sell these bioplastics as environmentallyfriendly, but functionally equivalent, alternatives to petroleum-based plasticsin a wide range of commercial applications, including packaging, consumergoods, consumer electronics, products used in agriculture and horticulture, andmarine and water applications. Mirel will be produced in a 110 millionpound annual capacity commercial scale plant, or Commercial ManufacturingFacility, which is presently under construction by ADM in Clinton, Iowa. Weexpect that commercial quantities of Mirel from the Commercial ManufacturingFacility will be available for customers in the second quarter of 2009. TheCommercial Manufacturing Facility will produce biobased, sustainable andbiodegradable Mirel plastic out of corn sugar, an agriculturally-producedrenewable resource. We are currently producing pre-commercial quantities ofMirel jointly with ADM at a small scale pre-commercial manufacturing facility.

 

Our second technology platform, which is in an early stage, is abiomass biorefinery system using plant crops to co-produce both bioplastics andbioenergy. For this system, we intend to extract polymer from the engineeredplant crop, 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 have also collaborated with the Australian Cooperative ResearchCentre to do the same in sugarcane, and we have recently established astrategic research collaboration with the Donald Danforth Plant Science Centerto develop an advanced industrial oilseed crop for co-production of bioplasticsalong with vegetable oil, biodiesel fuel, or oleochemicals. Switchgrass is acommercially and ecologically attractive non-food energy crop that isindigenous to North America. It is generally considered to be a leadingcandidate for cellulose-derived production of ethanol and other biofuels. Sugarcaneis an established energy crop that is well suited for tropical regions of theworld. We believe that using these crops to co-produce bioplastics withbioenergy products can offer superior economic value and productivity ascompared to single product systems that produce them individually. We have beenworking on our biomass biorefinery platform using switchgrass for severalyears, and we believe that we are a scientific leader in this field. Our goalfor this program is to have commercially viable plant varieties inpre-commercial field trials in three to four years. We may also seek toestablish alliances with partners to commercially exploit this platform.

 

As demonstrated by our first two technology platforms, we take anintegrated systems approach to our technology development. We are focused ondeveloping entire production systems from gene to end product as opposed todeveloping specific technologies (for example, gene sequencing, shuffling ordirected evolution) 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 we pursue. We havecore capabilities in microbial genetics, fermentation process engineering,chemical engineering, polymer science, plant genetics and botanical science. Wehave assembled these capabilities in a way that has 

 

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allowedus to integrate biotechnology with chemical engineering and industrialpractice. We believe that our approach can be applied to chemicals and otherproducts to help establish and grow environmentally sustainable plastics,chemicals and energy industries.

 

We intend to apply our core capabilities in microbial engineering andplant transformation to develop biological routes to other chemicals andchemical intermediates. In September 2007 the U.S. Department of Commerce’sNational Institute of Standards and Technology approved a $2 million awardfor us to develop a commercially viable process for producing biobasedchemicals from renewable agricultural products. This award will fund ourintegrated bio-engineered chemicals program, which is beginning development ofsustainable solutions for widely used four-carbon industrial chemicals.

 

To exploit our first technology platform, we are working with ADM tobuild the Commercial Manufacturing Facility in Clinton, Iowa. The bioplasticsthat this facility will produce are highly versatile and range in propertiesfrom hard and strong to soft and flexible. These properties allow for a widevariety of commercial applications, offering an environmentally-friendlyalternative to petroleum-derived synthetic materials which are notbiodegradable. Through Telles we intend to initially position Mirel as apremium priced specialty material catering to customers who want to match thefunctionality of petroleum-based plastic, but add the dimension ofenvironmental responsibility to their products and brands.

 

As of March 31, 2008, we had an accumulateddeficit of $102,560 and total stockholders’ equity was $82,308.

 

**Collaborative Arrangements**

 

Our strategy for collaborative arrangements is to retain substantialparticipation in the future economic value of our technology while receivingcurrent cash payments to offset research and development costs and workingcapital needs. By their nature, these agreements are complex and have multipleelements that cover a variety of present and future activities. In addition,certain elements of these agreements are intrinsically difficult to separateand treat as separate units for accounting purposes. Consequently, we expect todefer recognizing most, if not all, of the payments we receive from partners asrevenue until future years.

 

We entered into our alliance with ADM in 2004. As of March 31,2008, all payments received from ADM have been recorded as deferred revenue onour balance sheet. We expect that future payments from ADM, through at leastthe construction phase of the Commercial Alliance Agreement, includingquarterly operating payments of $1,575 made on behalf of Telles and otherpayments, will be classified as deferred revenue as well. We expect to beginrecognizing revenue at the time of the first commercial sale of Mirel biobasedplastic. All amounts will be recognized proportionally over the period in whichour commercial obligations are fulfilled in accordance with the terms of theCommercial Alliance Agreement.

 

We received the following payments from these arrangements to offsetoperating cash needs:

 

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

 

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

 

·          support payments of $14,175 from ADM, on behalf of Telles, throughMarch 31 2008; and

 

·          cumulative cost sharing payments from ADM for pre-commercialmanufacturing plant construction and operations of $6,411.

 

During the Commercial Alliance Phase, ADM will construct, finance, ownand operate the Commercial Manufacturing Facility through a manufacturingagreement with Telles and we will provide or procure compounding services toconvert the output from the Commercial Manufacturing Facility into forms thatare suitable for various commercial applications.

 

Telles is a limited liability company, formed and equally owned by usand ADM, and is intended to: (i) serve as the commercial entity toestablish and develop the commercial market for Mirel, and 

 

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conductthe marketing and sales in accordance with the goals of the commercialalliance, (ii) assist in the coordination and integration of themanufacturing, compounding and marketing activities, and (iii) administerand account for financial matters on behalf of the parties. The Company and ADMeach have 50% equity and voting interest in Telles.

 

Even though Telles is a separate legal entity owned equally by us andADM, ADM will disproportionately fund the activities of the joint venture.Specifically, the cost of the Commercial Manufacturing Facility, the workingcapital requirements of the joint venture and the support payments to us willexceed the investments made by us to establish compounding operations for thejoint venture. In order to rebalance the respective investments made by theparties, a preferential distribution of cash flow will be used, whereby allprofits, after payment of all royalties, reimbursements and fees, from thejoint venture, will be distributed to ADM until ADM’s disproportionateinvestment in the joint venture, and the costs of constructing the CommercialManufacturing Facility, have been returned to ADM. Once ADM has recouped suchamounts, the profits of the joint venture will be distributed in equal amountsto the parties. In order to track the disproportionate investments ADM hasmade, a Ledger Account has been established to record the respectiveinvestments made by the parties. As of March 31, 2008, the balance of theADM Ledger Account was $139,698 and this balance is expected to increase as theconstruction of the Commercial Manufacturing Facility progresses and Tellesbecomes operational.

 

**United States Government Contracts and Grants**

 

Asof March 31, 2008, expected gross proceeds of $2,358 remain to be receivedunder our various government contracts and grants, which include amounts forreimbursement to our subcontractors, as well as reimbursement for our employees’time, benefits and other expenses related to future performance under thevarious contracts.

 

The status of our United States government contracts and grants is asfollows:

 
| **Program Title**                        | ** ** | **Funding  Agency**       | ** ** | **Total  government  funds** | ** ** | **Total received  through  March 31, 2008** | ** ** | **Remaining amount  available under various  government contracts as  of March 31, 2008** | ** ** | **Contract/Grant  Expiration** | ** ** |
|-----------------------------------------------|------------|---------------------------|------------|------------------------------|------------|------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| PHA Bioplastic Packaging Materials            |       | SERDP (1)(2)              |       | $                            | 1,005      |                                                       | $          | 501                                                                                                                               |       | $                              | 504        |   | Aug. 2008 |   |
|                                          |       |                      |       |                         |       |                                                       |       |                                                                                                                              |       |                           |       |
| Blow Molded Bioproducts from Natural  Plastic |       | Department of Agriculture |       | 80                           |       | 68                                                         |       | 12                                                                                                                                |       | Dec. 2007                 |       |
|                                          |       |                      |       |                         |       |                                                       |       |                                                                                                                              |       |                           |       |
| Integrated Bio-Engineered Chemicals           |       | Department of Commerce    |       | 2,000                        |       | 158                                                        |       | $                                                                                                                                 | 1,842      |                           | Sept. 2009 |   |
|                                          |       |                      |       |                         |       |                                                       |       |                                                                                                                              |       |                           |       |
| Total                                         |       |                      |       | $                            | 3,085      |                                                       | $          | 727                                                                                                                               |       | $                              | 2,358      |   |   |   |

 

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(1)       Strategic Environmental Research andDevelopment Program.

 

(2)       Funding of these government contracts andgrants beyond the United States government’s current fiscal year is subject toannual congressional appropriations.

 

**Critical Accounting Estimates and Judgments**

 

Thediscussion and analysis of our financial condition and results of operationsare based upon our condensed consolidated financial statements, which have beenprepared in accordance with accounting principles generally accepted in theU.S. for interim financial information. The preparation of these financialstatements requires us to make estimates and judgments that affect the reportedamounts of assets, liabilities, revenues and expenses, and related disclosureof contingent assets and liabilities. On an ongoing basis, we evaluate ourestimates, including those related to revenue recognition and stock-based compensation.We base our estimates on historical experience and on various other assumptionsthat we believe to be reasonable under the circumstances, the results of whichform the basis for making judgments about the carrying values of assets andliabilities that are not readily apparent from other sources. Actual resultsmay differ from these estimates. The significant accounting policies used inpreparation of these 

 

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condensedconsolidated financial statements for the three months ended March 31,2008 are consistent with those discussed in Note 3 to the consolidatedfinancial statements in our Annual Report on Form 10-K for the year ended December 31,2007. The critical accounting policies and the significant judgments andestimates used in the preparation of our condensed consolidated financialstatements for the three months ended March 31, 2007 are consistent withthose discussed in our Annual Report on Form 10-K for the year ended December 31,2007 in the section captioned “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations—Critical Accounting Estimates andJudgments.”

 

**Results of Operations**

 

**Comparison of the Three MonthsEnded March 31, 2008 and 2007**

 

**Revenue**

 
| ** **                                            | ** ** | **Three Months ended  March 31,** | ** ** | ** ** | ** ** |
|-------------------------------------------------------|------------|--------------------------------------------------|------------|------------|------------|
| ** **                                            | ** ** | **2008**                                         | ** ** | **2007**   | ** ** | **Change** | ** ** |
| Research and development revenue                      |       | $                                                | 68         |       | $          | — |   | $ | 68 |   |
| License fee and royalty revenue from  related parties |       | 35                                               |       | 75         |       | (40 | ) |
| Grant revenue                                         |       | 301                                              |       | 354        |       | (53 | ) |
| Total revenue                                         |       | $                                                | 404        |       | $          | 429 |   | $ | (25 | ) |

 

Total revenueswere $404 and $429 for the three months ended March 31, 2008 and 2007,respectively. During the first three months of 2008 we recognized revenue fromresearch and development services and delivery of sample product produced fromresearch services. License fee and royalty revenue from related partiesdecreased as a result of the receipt of a $50 milestone payment during thefirst three months of 2007, partially offset by an increase of $10 in royaltyrevenues from a related party during the first three months of 2008. Grantrevenue decreased mainly as a result of the completion of the Department ofEnergy program in the second quarter of 2007. This was partially offset by anew grant from the Department of Commerce. We expect revenues from governmentgrants to fluctuate due to the availability of funding from the government.

 

**Expenses**

 
| ** **                                                                                      | ** ** | **Three Months ended  March 31,** | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|------------|------------|
| ** **                                                                                      | ** ** | **2008**                                         | ** ** | **2007**   | ** ** | **Change** | ** ** |
| Research and development expenses, including cost of revenue |       | $                                                | 5,934      |       | $          | 3,808 |   | $ | 2,126 |   |
| Selling, general, and administrative  expenses                                                  |       | 4,097                                            |       | 2,847      |       | 1,250 |   |
| Total operating expenses                                                                        |       | $                                                | 10,031     |       | $          | 6,655 |   | $ | 3,376 |   |

 

***Research and development expenses***

 

Research and development expenses were $5,934and $3,808 for the three months ended March 31, 2008 and 2007,respectively.  The increase of $2,126 wasprimarily due to the expansion of product development activities associatedwith developing new product grades and formulations for prospective customers,increased pre-commercial manufacturing of Mirel to support market developmentactivities, and increases in research and development personnel for polymerscience and engineering to support our collaborative agreement with ADM.Employee payroll and benefits related expenses for the three months ended March 31,2008 were $2,175 as compared to $1,389 for the respective period in 2007. Included in payroll and benefits isstock-based compensation expense, which increased to $225 for the three monthsended March 31, 2008 as compared to $80 for the respective period in 2007.The expenses related to pre-commercial manufacturing increased to $1,944 forthe three months ended March 31, 2008 as compared to $1,210 for therespective period last year. Depreciation expense increased to $572 for thethree months ended March 31, 2008 as compared to $208 in the respectiveperiod in 2007. The increase in depreciation is primarily attributable toincreased leasehold improvements in our pre-commercial manufacturing facility.

 

We expect to incur increasing research anddevelopment expenses in future periods for pre-commercial manufacturing andproduct development activities as we continue to develop, test and refine 

 

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product to meet the specification requirements ofour customers. We expect that our personnel related costs will increase tosupport our microbial and plant research programs.

 

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

 

Selling, general, and administrative expenseswere $4,097 and $2,847 for the three months ended March 31, 2008 and 2007,respectively. The increase of $1,250 was primarily due to increased sales andmarketing costs associated with building our sales and marketing infrastructurefor the commercialization of Mirel. Employee payroll and benefits related expensesincreased to $2,233 for the three months ended March 31, 2008 as comparedto $1,196 for the respective period in 2007. Included in payroll and benefitsis stock-based compensation expense, which increased to $856 for the threemonths ended March 31, 2008 as compared to $437 during the respectiveperiod in 2007.

 

We expect that selling, general, andadministrative expenses will continue to increase due to increasing payroll,expanding infrastructure and increasing consulting and investor relations expenses.

 

**Other Income (Net)**

 
| ** **               | ** ** | **Three Months ended  March 31,** | ** ** | ** ** | ** ** |
|--------------------------|------------|--------------------------------------------------|------------|------------|------------|
| ** **               | ** ** | **2008**                                         | ** ** | **2007**   | ** ** | **Change** | ** ** |
| Total other income (net) |       | $                                                | 1,179      |       | $          | 1,538 |   | $ | (359 | ) |
|                          |            |                                                  |            |            |            |  |  |  |  |  |

 

Other income (net) consists of investmentincome of $1,179 and $1,538 for the three months ended March 31, 2008 and2007, respectively. The decrease of $359 was due to a decrease in interestrates during the quarter, as well as a decrease in cash and short-terminvestments held during the comparative three month periods.

 

**Liquidity and CapitalResources**

 

Currently, we require cash to fund our working capital needs, topurchase capital assets and to pay our operating lease obligations.

 

        Wefund our cash requirements primarily through the following methods:

 

· our strategicalliance with ADM;

 

· governmentgrants;

 

· equityfinancing; and

 

· interest earnedon cash and short-term investments.

 

Currently our products are in the pre-commercial stage of developmentand large-scale commercial sales have not begun. In addition, we have incurredsignificant expenses relating to our research and development efforts. As aresult, we have incurred net losses since our inception. As of March 31,2008, we had an accumulated deficit of $102,560. Our total unrestricted cash,cash equivalents and short-term investments as of March 31, 2008 were$104,831 as compared to $109,326 at December 31, 2007. As of March 31,2008, we had no outstanding debt.

 

Our cash and cash equivalents at March 31, 2008 were held forworking capital purposes. We do not enter into investments for trading orspeculative purposes. The primary objective of our investment activities is topreserve our capital. Restricted cash of $498 was held at March 31, 2008in connection with the lease agreement for our facility in Cambridge,Massachusetts. Short-term investments are made in accordance with our corporateinvestment policy, as approved by our Board of Directors. Investments arelimited to high quality corporate debt, U.S. Treasury bills and notes, bank debtobligations, municipal debt obligations and asset-backed securities. The policyestablishes maturity limits, concentration limits, and liquidity requirements.At March 31, 2008, we were in compliance with this policy.

 

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We believe that our cash, cash equivalents and short-term securities,the interest we earn on these balances, as well as cash expected from our ADMalliance will be sufficient to meet our anticipated cash requirements,including cash requirements with respect to the commercial launch of Mirel forat least the next 24 months. If our available cash, cash equivalents, andshort-term marketable securities are insufficient to satisfy our liquidityrequirements, or if we develop additional products, we may need to selladditional equity or debt securities or obtain a credit facility. The sale ofadditional equity and debt securities may result in additional 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 currently forecastedamounts. Any such required additional capital may not be available onreasonable terms, if at all. If we are unable to obtain additional financing,we may be required to reduce the scope of, delay, or eliminate some or all ofour planned research, development and commercialization activities, which couldharm our business.

 

Net cash used in operating activities was $4,464 and $3,490 for thethree months ended March 31, 2008 and 2007, respectively. The net cashused during the first three months of 2008 primarily reflects the net loss forthe period offset by an increase in deferred revenue of $2,575, and non-cashexpenses including stock-based compensation expense of $1,081, 401(k) companycommon stock matching expense of $142 and depreciation expense of $896. Theincrease in deferred revenue was due to an increase in pre-commercial plantconstruction and operations that are subject to our cost sharing collaborativearrangement with ADM and continued support payments from ADM, made on behalf ofTelles.

 

Net cash of $17,275 was provided by investing activities during thethree months ended March 31, 2008, compared to net cash of $1,896 used ininvesting activities for the respective period in 2007. Cash provided byinvesting activities in 2008 represents net cash of $17,654 provided from thepurchase,  maturity and sale ofinvestments offset by a cash outflow of $379 used for the purchase of propertyand equipment. Property and equipment purchases for 2008 mainly consisted ofequipment for research and development purposes. Net cash flows from investing activitiesmay fluctuate from period to period due to the timing of our capitalexpenditures and other investments.

 

Net cash provided from financing activities was $158 and $65 for thethree months ended March 31, 2008 and 2007 respectively. The cash providedfrom financing activities in 2008 was solely attributable to the proceeds fromthe exercise of stock options.

 

**Contractual Obligations**

 

The following table summarizes our contractual obligations at March 31,2008 and the effects such obligations are expected to have on our liquidity andcash flows in our future periods:

 
| ** **                  | ** ** | **Payment Due by Period** | ** ** |
|-----------------------------|------------|------------------------------------------|------------|
| ** **                  | ** ** | ** **                               | ** ** | **Less Than** | ** ** | **2-3** | ** ** | **4-5** | ** ** | **More Than** | ** ** |
| ** **                  | ** ** | **Total**                                | ** ** | **1 year** | ** ** | **Years** | ** ** | **Years** | ** ** | **5 years** | ** ** |
| Operating lease obligations |       | $                                        | 6,795      |   | $ | 1,166 |   | $ | 2,344 |   | $ | 2,214 |   | $ | 1,071 |   |
| Purchase obligations        |       | 780                                      |       | 119 |   | 561 |   | 50 |   | 50 |   |
| Total                       |       | $                                        | 7,575      |   | $ | 1,285 |   | $ | 2,905 |   | $ | 2,264 |   | $ | 1,121 |   |

 

We entered into ajoint research agreement, known as the Cooperative Research Centre for SugarIndustry Innovation through Biotechnology, with the Commonwealth of Australiaand various other parties for the purpose of developing and gaining access tocertain intellectual property. The Commonwealth of Australia established theprogram to enhance the transfer of research outputs into commercial or otheroutcomes of economic, environmental or social benefit to Australia.  The terms of the contract stipulate that thecontract commenced on January 1, 2007, and our funding commitmentcontinues until July 1, 2010. In connection with this agreement we are obligatedto provide funding in the form of cash and in kind exchange. As of March 31,2008, the cash portion of our obligation is $485 and the total amount of inkind contribution we are committed to is $1,404. The in kind contributionconsists of salaries and overhead attributable to research associated with thejoint research agreement.

 

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**Off-Balance Sheet Arrangements**

 

As of March 31, 2008, we had no off-balance sheet arrangements asdefined in Item 303(a) (4) of the Securities and Exchange Commission’sRegulation S-K.

 

**Related Party Transactions**

 

We have recorded license and royalty revenue from Tepha, Inc., arelated party, during the three months ended March 31, 2008 and 2007 of$35 and $75 respectively. As of March 31, 2008 we had no outstandingreceivable balance due from Tepha. We had an outstanding receivable balance duefrom Tepha of $122 as of December 31, 2007. We also had varioustransactions with our alliance partner ADM, a related party, during the threemonths ended March 31, 2008 and 2007. We had an outstanding receivablebalance of $774 and $1,093 due from ADM at March 31, 2008 and December 31,2007 respectively.  For more informationon our related party transactions, please see Note 10 to our audited financialstatements included in our Annual Report on Form 10-K for the year ended December 31,2007.

 

**Recent Accounting Pronouncements**

 

In December 2007, the Financial Accounting Standards Board (“FASB”)issued Statement of Financial Accounting Standards (“SFAS”) No. 141(R), *Business Combinations* (“SFAS 141(R)”), which replaces SFAS No. 141.This revised standard requires assets, liabilities and non-controllinginterests acquired to be measured at fair value and requires that costsincurred to effect the acquisition be recognized separately from the businesscombination. In addition, this statement expands the scope to include alltransactions and other events in which one entity obtains control over one ormore businesses. This statement is effective for all business combinations forwhich the acquisition date is on or after the beginning of the first annualreporting period beginning on or after December 15, 2008. We are in theprocess of evaluating whether the adoption of this standard will have amaterial effect on its financial position, results of operations or cash flows.

 

In December 2007, theFASB issued SFAS No. 160, *Non-controlling Interestsin Consolidated Financial Statements, an Amendment of ARB No. 51*(“SFAS160”). This statement establishes accounting and reporting standards for thenon-controlling interest in a subsidiary and for the deconsolidation of asubsidiary. This statement is effective for fiscal years beginning on or after December 15,2008. We are in the process of evaluating whether the adoption of this standardwill have a material effect on its financial position, results of operations orcash flows.

 

In December 2007, the Emerging Issues Task Force (“EITF”) reacheda consensus on EITF Issue 07-01, *Accountingfor Collaborative Arrangements Related to the Development and Commercializationof Intellectual Property*(“EITF 07-01”).EITF 07-01 prescribes the accounting for collaborations. It requirescertain transactions between collaborators to be recorded in the income statementon either a gross or net basis when certain characteristics exist in thecollaboration relationship. EITF 07-01 is effective for all of the Company’scollaborations existing after January 1, 2009. We are in the process ofevaluating whether the adoption of this standard will have a material effect onits financial position, results of operations or cash flows.

 

In March 2008, the FASBissued SFAS No. 161, *Disclosures aboutDerivative Instruments and Hedging Activities* (“SFAS 161”). SFAS 161requires companies with derivative instruments to disclose information thatshould enable financial statement users to understand how and why a companyuses derivative instruments, how derivative instruments and related hedgeditems are accounted for under FASB Statement No. 133 *Accountingfor Derivative Instruments and Hedging Activities* and how derivativeinstruments and related hedged items affect a company’s financial position,financial performance and cash flows. SFAS 161 is effective for financialstatements issued for fiscal years beginning after November 15, 2008. Weare in the process of evaluating whether the adoption of this standard willhave a material effect on its financial position, results of operations or cashflows.

 

**ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

There have been no material changes in information regarding ourexposure to market risk, as described in Item 7A of our Annual Report on Form 10-Kfor the year ended December 31, 2007.

 

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**ITEM 4.********CONTROLS AND PROCEDURES**

 

**Evaluation of Disclosure Controlsand Procedures**

 

Our management (with theparticipation of our Chief Executive Officer and Chief Financial Officer)evaluated the effectiveness of our disclosure controls and procedures (asdefined in Rules 13a-15(e) and 15d-15(e) under the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”)), as of March 31,2008. Disclosure controls and procedures are designed to ensure thatinformation required to be disclosed by the Company in the reports it files orsubmits under the Exchange Act is recorded, processed, summarized and reportedon a timely basis and that such information is accumulated and communicated tomanagement, including the Chief Executive Officer and Chief Financial Officer,as appropriate, to allow timely decisions regarding required disclosure. Basedon this evaluation, our Chief Executive Officer and Chief Financial Officerconcluded that these disclosure controls and procedures are effective anddesigned to ensure that the information required to be disclosed in our reportsfiled or submitted under the Exchange Act is recorded, processed, summarizedand reported within the requisite time periods.

 

**Changes in Internal Control overFinancial Reporting**

 

 There was no change in our internal controlover financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) underthe Exchange Act) during the quarter ended March 31, 2008 that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

 

**PART II – OTHERINFORMATION**

 

**ITEM 1. LEGAL PROCEEDINGS**

 

From time to time, we may be subject to legal proceedings and claims inthe ordinary course of business. We are not currently aware of any such proceedingsor claims that we believe will have, individually or in the aggregate, amaterial adverse effect on the business, financial condition or the results ofoperations.

 

**ITEM 1A. RISK FACTORS**

 

Except as indicated below, there have been nomaterial changes in information regarding our risk factors as described in Item1A of our Annual Report on Form 10-K for the year ended December 31,2007.

 

**If ADM does not successfully build the CommercialManufacturing Facility on time and on budget, our revenues and the distributionof profits, if any, to us will be delayed.**

 

The cost of planning, designing, constructing and operating theCommercial Manufacturing Facility being developed to serve the alliance withADM, and the cost of ancillary facilities and services related to theproduction of Mirel by Telles, will be very significant. ADM will be advancinga disproportionate share of the financial capital needed for such activitiesand, therefore, under our agreement all profits, after payment of allroyalties, reimbursements and fees, from Telles will first be distributed toADM until ADM’s disproportionate investment in Telles has been returned. Weexpect that commercial quantities of Mirel from the Commercial ManufacturingFacility will be available for customers in the second quarter of 2009.  If there are difficulties, delays or otherunforeseen issues with the construction and start-up of the CommercialManufacturing Facility, the cost of such activities will almost certainlyincrease, we may incur unreimbursed sales and marketing costs until commercialsales from the Commercial Manufacturing Facility begin, and the revenue fromsales, if any, of Mirel and the distribution of profits, if any, to us will bedelayed.

 

**If we lose key personnel or are unable to attract and retainnecessary talent, we may be unable to develop or commercialize our productsunder development.**

 

We are highly dependent on our key technical and scientific personnel,including Dr. Oliver Peoples, our Chief Scientific Officer. Dr. Peoplespossesses unique information related to our research and technology. Dr. Peoplesis one of our founders and has led and directed all of our scientific researchand 

 

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developmentprograms. Dr. Peoples has such particular knowledge in the research,development and intellectual property aspects in connection with our technologyplatforms, that in the case of the loss of his services we may be unable toreadily find a suitable replacement with comparable knowledge and experiencenecessary to further our research and development programs.  The loss of key personnel with know-howrelated to our manufacturing technology also may adversely impact theachievement of our objectives. Our success depends largely upon the continuedservice of our management and scientific staff and our ability to attract,retain and motivate highly skilled technical, scientific, management, andmarketing and sales personnel. Because of the unique talents and experience ofmany of our scientific, engineering and technical staff, competition for ourpersonnel is intense. The loss of key personnel or our inability to hire andretain personnel who have required expertise and skills could materiallyadversely affect our research and development efforts and our business.

 

**ITEM 2. UNREGISTERED SALES OFEQUITY SECURITIES AND USE OF PROCEEDS**

 

**Recent Sales of Unregistered Securities**

 

On February 10, 2008, the Company issued6,498 shares of common stock to participants in its Metabolix, Inc. 401(k) Planas a matching contribution. The issuance of these securities is exempt fromregistration pursuant to Section 3(a)(2) of the Securities Act of1933 as exempted securities.

 

**Use of Proceeds from Registered Securities**

 

There has been no material change in theplanned use of proceeds from our initial public offering as described in ourAnnual Report on Form 10-K for the year ended December 31, 2007.

 

**Issuer Purchases of Equity Securities**

 

During the quarter ended March 31, 2008,there were no repurchases made by us or on our behalf, or by any “affiliatedpurchasers,” of shares of our common stock.

 

**ITEM 3. DEFALTS UPON SENIORSECURITIES**

 

None.

 

**ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

None.

 

**ITEM 5. OTHER INFORMATION**

 

Our policy governing transactions in our securities by our directors,officers, and employees permits our officers, directors, employees, andentities affiliated with our directors to enter into trading plans complyingwith Rule 10b5-l under the Exchange Act , as amended. We have been advisedthat during the quarter ended March 31, 2008, Edward M Muller, a Directorof the Company, Aninda Katragadda, our Director of Finance and CorporateController, and two other Company employees entered into trading plans inaccordance with Rule 10b5-l and our policy governing transactions in oursecurities. We undertake no obligation to update or revise the informationprovided herein, including for revision or termination of an establishedtrading plan.

 

**ITEM 6. EXHIBITS**

 
| 31.1 |   | Certification  Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act  of 1934 of the Principal Executive Officer (furnished herewith). |
|------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.2 |   | Certification  Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act  of 1934 of the Principal Financial Officer (furnished herewith). |
| 32.1 |   | Section 1350  Certification (furnished herewith).                                                                                                         |

 

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**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
|               | METABOLIX,  INC. |
|--------------------|------------------|
|               |             |   |
|               |             |   |
| May 8  , 2008 | By:              | /s/  RICHARD P. ENO |
|               |             | Richard  P. Eno |
| * *           |             | *President and Chief Executive Officer* |
| * *           | * *         | *(Principal Executive Officer)* |
|               |             |   |
| May 8,  2008  | By:              | /s/  JOSEPH D. HILL |
|               |             | Joseph  D. Hill |
| * *           | * *         | *Vice President and Chief Financial Officer* |
| * *           | * *         | *(Principal Financial Officer)* |

 

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