There is a Credible Turnaround Story Hidden inside the Aspire Capital Deal

#MBLX #NASDAQ #Sharktraders

Summary

On October 7, 2015, MBLX presented new findings regarding using PHA biopolymers in polyvinyl chloride (PVC) and wood polymer composites, which seems to be a significant innovation in the industry.

A day later, Aspire Capital Fund, LLC agreed to buy $20 million worth of MBLX common stocks with some really unfavorable terms.

MBLX stock price increased over 100% since these new developments

We believe that there is significant upside to MBLX stock amid the new findings regarding using PHA biopolymers in PVC and wood polymer composites.

Company Overview

For over 23 years, Metabolix, Inc. (NASDAQ:MBLX) has been engaged in developing sustainable biomaterial solutions with a focus on microbial genetics, fermentation process engineering, chemical engineering, polymer science, plant genetics and botanical science.

Metabolix, Inc. mainly markets its products in three categories, biopolymers, bio-chemicals, and other crop-based technologies.

Under the biopolymer category, it offers I6001, I6003rp, Mirel a-PHA copolymer modifier, Mirel Micropowders and Mirel P1003, F1005 for injection molding products. In the bio-chemical category, Metabolix, Inc. markets Bio-based GBL/BDO and Bio-based Acrylic Acid. In addition, the company also co-produce renewable industrial chemicals that utilize crop-based technologies.

A Victim of the Great Recession

Price off High MBLX

Figure 1: Metabolix, Inc. Price Declined Around 98% Since 2008

Near the end of 2007, the stock price of Metabolix, Inc. was selling over $175 a piece. Compared to the current price of $3.17 per share on October 14, 2015, it declined by over 98% in the last eight years.

As the IPO was initiated at the height of the sub-prime bubble, the hysterical market overvalued the company. Once a star growth stock, Metabolix, Inc. has repeatedly failed to deliver the promised revenue growth. Its joint venture partner, Archer Daniels Midland Co., finally decided to quit the JV, Telles LLC, in January 2012 and Metabolix, Inc. was forced to pull out its bioplastics business and had to cut 3% of its workforce. Once ADM quit the JV, the company came to limelight for losing 45% of its market valuation within a day.

The fact is that Metabolix, Inc. capital expenditure to develop its markets was too high and it failed to meet a satisfactory minimum return on investment for a long time and investors were simply fed up.

However, that was a long time ago we should focus on where the company is moving from here as judging the company based on historical facts instead of new developments can prove to be counterproductive for investors.

Metabolix, Inc. Made New Headline for the Wrong Reason

On October 7, 2015, Metabolix, Inc. once again managed to draw media attention after it announced that it has entered into a $20 million common stock purchase agreement with the Chicago based investment fund, Aspire Capital Fund, LLC.

Under the agreement, Aspire Capital Fund, LLC would buy up to $20 million worth of Metabolix, Inc. common stocks over the next 30 months. As a result, by October 12, Metabolix, Inc. stock jumped from $1.82 prior to the announcement to $3.75, representing a 106% increase over the previous week.

Under the terms of the deal with Aspire Capital Fund, LLC, Metabolix, Inc. management would control the timing and amount of sales of common stock. Moreover, Aspire Capital Fund, LLC would not have any right to require any sale of shares by Metabolix Inc., but they would be obligated to buy its shares when they would ask.

The most interesting part of this agreement is that Aspire Capital Fund, LLC agreed not to short or even hedge the Metabolix, Inc. stocks and Metabolix, Inc. can terminate the contract anytime!

Why would an asset management fund would enter into such unfavorable agreement with a company that has lost 98% of its market valuation in the past eight years? Because, something really interesting is unfolding.

A Significant Innovation in the Industry

Although the media focused on the new source of funds, it overshadowed the real news.

A day before the agreement with Aspire Capital Fund, LLC, it presented new findings regarding using PHA biopolymers in polyvinyl chloride (PVC) and wood polymer composites.

Metabolix, Inc.’s Metabolix, Inc. of PVC, Mansoor Akhthar, will be making a technical presentation titled “Bio-based PHA Copolymers as Multifunctional Additives for Poly Vinyl Chloride Compound” at the Vinyltec 2015 conference in Akron, Ohio during October 13 to 15.

Our research indicates that he will be discussing how the PHA biopolymer technology would improve the performance characteristics of wood polymer composites in various PVC applications. Furthermore, these performance improvements would also also cut the cost in the process.

Max Senechal, Metabolix, Inc. ‘s vice president of strategy and commercial development, claimed this developed to be a “significant innovation in the industry.” “Our PHA biopolymers offer a range of processing and performance improvements while also delivering an economic benefit to PVC converters and brand owners,” he added.

Back to the Funding Issue

Expense and Cash MBLX

Figure 2: Metabolix, Inc. Quarterly Cash and Equivalents Compared to Its Total Expenses

Over the last 12-month period, Metabolix, Inc. has managed to keep a healthy buffer of liquidity compared to its total expenses, and for a good reason. If they want to develop specialty applications for the high performance PHA biopolymer materials and execute a new business strategy around this new material, they would need additional cash.

Although they had $22.71 million in cash and equivalents at the end of the last quarter, getting the option to have an additional $20 million makes a lot of sense.

Conclusion

We still do not have access to the presentation material of Mansoor Akhthar and cannot predict how these performance improvements would impact the bottom line of Metabolix, Inc.

As of today, Metabolix, Inc. has a lot of SELL ratings from a lot of credible analysts. However, we would like to draw attention of the readers to the potential game changing new innovation and the fact that a major asset management fund has backed the company with very unfavorable terms a day after they announced to make a presentation about it.

At this point, we can only assume from the Aspire Capital Fund, LLC deal that they just did not buy $20 million worth of common stocks, but also agreed to invest in a “turnaround story” from the Metabolix, Inc. management.

For what it’s worth, we would recommend to investors that they keep an eye on the Vinyltec 2015 conference and make up their own minds regarding the future prospects of Metabolix, Inc. in the coming months. As far as we are concerned, this new development would likely benefit Metabolix, Inc. investors in the long run.