ITEM 1.    BUSINESS

Overview

        Metabolix is an innovation-driven bioscience company focused on bringing environmentally friendly solutions to the plastics, chemicals and energy industries. We have core capabilities in microbial genetics, fermentation process engineering, chemical engineering, polymer science, plant genetics and botanical science, and we have assembled these capabilities in a way that has allowed us to integrate our biotechnology research with real world chemical engineering and industrial practice. In addition, we have created an extensive intellectual property portfolio to protect our innovations and, together with our technology, to serve as a valuable foundation for future industry collaborations.

        The markets for petroleum-based plastics, chemicals and fuels are among the largest in the global economy. Issues associated with the prolonged use of petroleum-based products include plastic waste management and pollution, limited fossil fuel availability and price volatility, and global warming and climate change. We believe that a substantial global market opportunity exists to develop and

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commercialize our technology to produce sustainable, renewable alternatives to petroleum-based products including advanced biopolymers, biobased industrial chemicals and bioenergy.

        Metabolix was formed to leverage the ability of natural systems to produce complex biopolymers from renewable resources. We have focused on a family of biopolymers found in nature called polyhydroxyalkanoates, or ("PHAs"), which occur naturally in living organisms and are chemically similar to polyesters. We have demonstrated the production of PHAs at the industrial scale to produce PHA biopolymers and biobased industrial chemicals, as well as proof-of-concept production of PHB, a subclass of PHA biopolymer, in agriculturally significant crop plants.

PHA Biopolymers Platform .

        Driven by consumer demand for more sustainable materials, improved performance of bioplastic resins and the availability of commodity plastics produced from biobased sources, the Freedonia Group predicts that global demand for biobased, biodegradable plastics will surpass 1.1 million tons per year by 2015. With our differentiated PHA bioplastic resins, we believe we are a leader in the development of bioplastic materials.

        From 2004 through 2011, we developed and began commercialization of our PHA biopolymers through a technology alliance and subsequent commercial alliance with a wholly-owned subsidiary of Archer Daniels Midland Company ("ADM"), one of the largest agricultural processors in the world. Under the commercial alliance, ADM was responsible for resin manufacturing, and Metabolix was primarily responsible for product development, compounding, marketing and sales. Through this alliance, the companies established a joint venture company, Telles, LLC ("Telles"), to commercialize PHA biopolymer products. ADM completed construction of the initial phase of its commercial manufacturing facility, which began production of biopolymers for the joint venture in 2010. Telles conducted significant product and commercial development activities with potential customers, marketed and sold product to customers under the tradenames Mirel™ and Mvera™, and developed a network of business partners and distributors before ADM terminated the commercial alliance early in 2012.

        In 2012, our objective was to advance business discussions with third parties with the goal of establishing a new commercial model for our PHA biopolymers, to work closely with our core customers to provide product from existing inventory during the transition phase and ensure ongoing development of PHA biopolymer products, to narrow our market development focus to high value market segments as the foundation to successfully build the business, and to establish a new manufacturing and supply chain properly sized to our business.

        After the termination of the Telles joint venture, we retained significant rights and assets associated with the PHA biopolymers business consistent with our intent to launch the business using a new commercial model, continuing business operations, marketing biopolymer products, and identifying alternate manufacturing capability. We hold exclusive rights to the Metabolix technology and intellectual property used in the joint venture. We acquired all of Telles's product inventory and compounding raw materials totaling more than 5 million pounds, all product certifications and all product trademarks including Mirel and Mvera, and we retained all co-funded pilot plant equipment in locations outside of the Commercial Manufacturing Facility in Clinton, Iowa. We have no obligations under the ledger account totaling $433 million which was funded by ADM to construct the Commercial Manufacturing Facility and to provide working capital to Telles.

        Through Telles, we learned extremely valuable information about how customers and brand owners are envisioning the use of PHA biopolymers in their products. Based on these interactions, we remain confident that Metabolix biopolymers provide an important solution to those wishing to reduce dependence on petroleum, reduce plastic waste in the environment, and utilize new solutions to meet sustainable packaging goals. We have demonstrated that our biopolymers, marketed under the Mirel

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and Mvera brands, share the physical properties of petroleum-based resins for performance and durability and can be processed using existing equipment and post-processing techniques. The difference is that Metabolix biopolymers display unique biodegradability properties. Mirel is certified to biodegrade in soil and water environments, as well as home composting and industrial composting facilities (in areas where such facilities are available). Mvera is a certified compostable film grade biopolymer intended for industrial composting.

        After termination of the ADM commercial alliance in early 2012, we restructured the biopolymers business, retaining a core team in our biopolymers group to provide continuity with technology, manufacturing process, and markets. During 2012, we established Metabolix GmbH, a subsidiary located in Cologne, Germany to serve as a focal point for our commercial activities in Europe. This cost effective location is intended to enable us to directly access the European market, which is the largest for bioplastics. We also took steps toward establishing a new commercial model for our PHA biopolymers business. We worked closely with our core customers to supply product from existing inventory as a bridge to new supply. We evaluated the potential applications for our biopolymer products and narrowed our market development focus to three high value market segments, as follows: (i) film and bag applications, (ii) performance additives, and (iii) functional biodegradation. In March 2012, we began directly booking product sales and shipping product from inventory to our customers. During the second half of the year, we developed, sampled and launched two new products: Mvera B5008, a compostable film grade, and I6001, a polymeric modifier for polyvinyl chloride ("PVC"). In addition, we signed an agreement for demonstration production with Antibioticos SA, a toll manufacturer, based in Leon, Spain.

        During 2013, we expect to continue to use existing inventory to continue to develop the market and to supply new and existing customers. We continue to explore alternative options to establish a new biopolymer manufacturing and supply chain properly sized to our business.

Biobased Industrial Chemicals Platform.

        The combined global market for conventional four-carbon ("C4") and three-carbon ("C3") industrial chemicals is estimated at more than $10 billion annually. C4 chemicals are used in applications ranging from high-performance engineering plastics to spandex. C3 chemicals have applications in paints, coatings, diapers and adhesives.

        We have developed technology for producing C4 and C3 chemicals from biobased sources, not the fossil feedstocks that are currently used to produce most industrial chemicals today. We believe that, by using renewable feedstocks in a patented microbial fermentation process, our technology platform will enable cost-effective production of biobased chemicals as "drop in" replacements for petroleum-based products.

        Our process for creating biobased industrial C4 and C3 chemicals involves engineering metabolic pathways into microbes that, in a fermentation process, produce specific PHA structures that serve as precursors for the chemicals. Through our PHA technology, we are able to control the microbe biology to achieve high concentrations of specific, naturally-occurring PHA that accumulate inside cells as they metabolize sugars. This intracellular accumulation of the biopolymers inside the microbes is a unique and differentiating aspect of our technology. When the fermentation is completed, we use a novel internally developed recovery process known as "FAST" (fast-acting, selective thermolysis) that converts the biopolymer to the target chemical using heat.

        During 2009, we completed all work under our U.S. Department of Commerce National Institute of Standards and Technology grant, a $2 million grant aimed at producing C4 chemicals from renewable sources. We were able to achieve all of the technical milestones outlined in this grant. In 2010, we continued to scale up our C4 chemicals technology and continued efforts on chemical recovery and purification. We made progress toward production of biobased gamma-butyrolactone

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("GBL") samples for shipment to potential customers and we expanded exploratory partnership discussions.

        In 2011, we entered into a joint development agreement with CJ CheilJedang ("CJ") to continue to advance and refine our production technology and assess investment options for the commercialization of biobased C4 chemicals via fermentation. During this collaboration, we developed a detailed market and economic analysis examining all aspects of an investment to commercialize biobased C4 chemicals.

        In the C4 program, we have produced GBL at industrial scale and demonstrated a chemical profile that meets or exceeds the existing industrial specifications. In 2012, we completed the preliminary design for a commercial scale plant to enable production of biobased GBL and, through an established conversion process, butanediol ("BDO"). This plan, which could be implemented under a potential future collaboration, includes specifications for all of the components of our fermentation and recovery process. In conjunction with our technical progress, we expect to continue discussions with industry leaders with the goal of forming the industry alliances necessary to successfully bring our biobased C4 industrial chemicals, including GBL and BDO, into commercial production.

        We believe that developing and commercializing biobased C3 chemicals could represent another attractive market for our technology. In 2011, we undertook a market analysis of the global market for acrylic acid, a C3 chemical, to assess the market participants, renewable technology competition, economics, intellectual property status, and end markets.

        In 2012, we continued scale up of fermentation and optimization of microbial strains to produce biobased C3 chemicals. We also successfully scaled up recovery of acrylic acid from dried biomass using the "FAST" process in our Cambridge laboratory. We also provided sample quantities of dried biomass for conversion to biobased acrylic acid for customer evaluation. We believe that strategic alliances will be required to commercialize C3 chemicals, and in 2013, we expect to continue to engage in partnership discussions.

Crops Platform.

        We are harnessing the renewable nature of plants to make bioplastics, renewable chemicals and bioenergy from crops. The focal point of our plant technology efforts is around polyhydroxybutyrate (PHB), the simplest member of the broad polyhydroxyalkanoate (PHA) family of biopolymers. While applications for PHAs have focused mainly on their use as biodegradable bioplastics, these polymers have a number of other unique features that will allow their use in other applications, such as the production of chemical intermediates and their use as value-added animal feeds. We are creating proprietary systems to produce PHB in high quantity in the leaves of biomass crops or seeds of oilseed crops for these multiple applications.

        Our work in crops highlights our leading edge capabilities and research targeting multi-gene expression and transformation of plants. Researchers at Metabolix have designed novel, multi-gene expression systems to increase production of PHB in plant tissue. The science behind this shift in metabolism is complex since the goal is to significantly increase production of PHB to be viable at industrial scale without impairing the ability of the plant to thrive in its natural environment. Using tobacco as a demonstration system for proof of concept, our researchers have published results demonstrating that production of high levels of PHB, up to 18% in leaves and 9% in the biomass of the entire tobacco plant, can be achieved. In addition to tobacco, we are developing different genetic engineering systems for different plant crops including switchgrass, oilseeds and sugarcane.

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Switchgrass, a high yielding, warm season, perennial grass that is indigenous to North America, holds promise as a crop to target for commercial PHB production. The renewable fuels industry is showing a high level of interest in switchgrass as an attractive biomass to energy crop for

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cellulose-derived production of ethanol and other biofuels. We are engineering switchgrass to produce PHB in the leaves of switchgrass for use either in bioplastics, or as a precursor to industrial chemicals.

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Camelina is an industrial oilseed crop that has been introduced to the high plain regions of Canada and parts of the United States. Due to the high oil content (~35%) of its seeds, its frost tolerance, short production cycle (60-90 days), and insect resistance, it is receiving considerable attention as a platform for the production of industrial products. We are conducting research to develop an advanced, genetically modified, camelina for co-production of bioplastics along with vegetable oil, biodiesel fuel, and/or oleochemicals. In 2010, we established Metabolix Oilseeds, Inc., a research company in Saskatchewan, Canada to further pursue our research with industrial oilseed crops.



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Sugarcane is a high yielding biomass crop that grows well in tropical climate zones including South America, Australia, parts of Asia, and select temperate regions in the U.S. Due to its high biomass production, it is a suitable target for co-production of bioplastics with sugar and lignocellulosic material that can be used for the production of liquid fuels. We are collaborating with the Australian Research Council to further pursue our research to maximize bioplastic production in the leaf tissue of sugarcane.

        In 2011, Metabolix was awarded a $6 million grant by the U.S. Department of Energy ("DOE") to engineer switchgrass producing 10 percent PHB, by weight, in the whole plant and to develop methods to thermally convert the PHB-containing biomass to crotonic acid and a higher density residual biomass fraction for production of bioenergy. Crotonic acid is a platform chemical that can be readily converted through simple, known chemical conversion steps to a range of commodity chemical intermediates including propylene, butanol and maleic anhydride.

        In 2012, Metabolix was awarded three new grants for leading-edge crop research targeting multi-gene expression and transformation of plants including important biofuel and food crops. Funding from these three grants is expected to total approximately $1.0 million and will run through 2014.

        In 2013, we expect to continue to advance research under our grants, focused on increasing PHB production in switchgrass and developing a thermal conversion process for crotonic acid. We may also seek to establish alliances with partners to commercially exploit this platform. We are in the process of capturing intellectual property gained in our work in crops and will be evaluating the possibilities of monetizing that intellectual property.

        We are developing an extensive portfolio of intellectual property covering our inventions in crop-based technology and have been awarded more than 30 patents in this area to date. In addition, Metabolix researchers and academic collaborators have published our research results in peer reviewed scientific journals.

Market Opportunity

        Our targeted markets of plastics, chemicals and energy offer substantial opportunity for innovation and value creation. These are all very large markets facing substantial pressures to reduce energy consumption, greenhouse gas emissions and the overall impact on the environment. The limited long-term availability of fossil fuels and volatile oil prices are driving the demand for more sustainable alternatives in plastics manufacturing, chemicals and energy.

The Plastics Market

        The world's annual consumption of plastic materials has increased from around 5 million tons in the 1950's to nearly 240 million metric tons today and is estimated to be $0.5 trillion in size. Durability and lightweight properties, as well as a number of applications from packaging to engineering-grade

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automotive materials, continue to drive this exponential growth in the plastics market. However, a majority of plastics are made from fossil feedstocks, including crude oil and natural gas. This reliance on fossil fuels ensures that plastic pricing is impacted by fluctuations in the cost of natural resources. A more concerning issue is that these fossil feedstock-based plastics do not biodegrade and congest landfills. According to the U.S. Environmental Protection Agency, an estimated 31 million tons of plastic entered the U.S. municipal solid waste stream in 2010. It is estimated that 20-25 percent of landfill weight is plastics. In addition, every year approximately 45,000 tons of plastic waste ends up in the world's oceans.

        While recycling estimates for certain products such as PET plastic water bottles fluctuates around 20 percent, only 8 percent of the total plastic waste generated in 2010 was recovered for recycling. Plastic water bottles are also the fastest growing form of municipal solid waste in the United States. More than 4 billion pounds of PET plastic bottles end up in landfills or as roadside litter. This puts a tremendous strain on overflowing landfills and introduces environmental concerns that were not present 50 years ago. These issues are driving increased consumer and business demand for biodegradable plastic alternatives. In addition, many plastic items, particularly single use items such as bottles and caps, cups, lids and straws, and grocery bags, become litter in the environment where they can become a significant problem. Plastic waste can create a significant monetary burden on state and local governments.

        According to the Freedonia Group, global demand for biobased and biodegradable plastics will more than triple to over 1.1 million tons by 2015. The Freedonia Group cites consumer preferences for more sustainable materials, improved performance of bioplastic resins and commodity plastics produced from biobased sources as the key factors driving this growth. According to the consulting firm, Industry Experts, the global bioplastics market was estimated at 264 thousand metric tons in 2007 and is expected to reach 1.9 million metric tons by 2017, growing by a compound annual growth rate ("CAGR") of 22 percent during that ten-year period.

        Market research institute Ceresana predicts that the global bioplastics market will reach revenues of more than $2.8 billion in 2018, reflecting average annual growth rates of 17.8 percent. According to Ceresana, Europe was responsible for about 48 percent of the market in 2010, followed by North America and Asia-Pacific. This is effectively four times the size of the market in 2007. Strong growth is also predicted for South America as a result of production increases in Brazil. In 2010, starch-based bioplastics accounted for the majority of bioplastic demand, followed by polylactic acid ("PLA"). Other biobased plastics, such as PHA/PHB, cellulose, polybutylene succinate ("PBS") and fossil fuel-based biodegradable plastics represented approximately 17 percent of global bioplastic demand. Ceresana expects non-biodegradable plastics made from renewable feedstocks to increase their market share from the eight percent seen in 2010 to more than 48 percent by 2018.

        The growth in plastic use has generally exceeded overall economic growth as plastics have entered new markets with new product applications based on their functionality and ability to meet user requirements. The market will continue to investigate and adopt more sustainable resin alternatives to produce plastic products from blow-molding, thermoforming, and film-grade and other manufacturing processes.

The Chemicals Market

        There are a large number of chemicals products which enable the manufacture of most industrial and consumer goods ranging from automobiles to food packaging. Major chemicals products include building block chemicals, such as ethylene and propylene, and specialty chemicals such as lubricating oil enhancers and pharmaceutical intermediates. The vast majority of chemicals produced today use non-renewable resources such as oil, natural gas or coal as their basic raw material.

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        Under the umbrella of the global chemicals market are conventional C4 and C3 industrial chemicals, with an estimated market of more than $10 billion annually.

        The C4 chemical market is estimated at approximately $3 billion, growing at approximately four percent annually. C4 chemical products are used in a wide range of applications including engineering plastics, fabrics and fibers, personal care products and in semiconductor manufacturing. Conventional C4 chemicals are produced almost entirely from fossil-based hydrocarbons such as natural gas, oil or coal. Today, there are only testing and sample quantities of biobased C4 chemicals on the market.

        Global demand for C3 chemicals is estimated at greater than $8 billion per year based on sales of nine billion pounds annually, and the global market is projected to grow at a rate of approximately five percent per year driven by increasing demand in Asia, including China and India. Conventional C3 chemicals, including crude acrylic acid, glacial acrylic acid and acrylates, are used in products such as superabsorbent polymers ("SAPs"), water treatment chemicals, coatings (decorative, automotive, and paper) and adhesives.

        Due to the volatility of fossil feedstocks and demand for renewable solutions from brand owners and consumers, the market is currently experiencing an increased demand for biobased chemicals. In fact the global biobased chemicals market is predicted to grow to more than $76 billion in 2015 from $36.9 billion in 2009, with a CAGR of 12.67 percent from 2010 to 2015.

        Escalating prices for both acrylic acid and its main feedstock propylene affect the economics of producing C3 chemicals, driving increased interest in new, renewable alternatives. These new processes aim to reduce or contain costs and to uncouple production from the volatility of petroleum markets.

        Regulatory mandates and government policies are driving market adoption of biobased C4 and C3 chemicals into the industrial chemical supply chain. Growing awareness among both manufacturers and consumers for products containing renewable content may also become an increasingly important factor in driving conversion to biobased chemicals over the long run.

Fuels and Bioenergy Markets

        The issues surrounding petroleum previously discussed have given rise to increasing demand for fuels produced from renewable sources. Certain states are considering legislation to capitalize on the environmental and energy security benefits of renewable fuels by requiring their use.

        In December 2007, President Bush signed into law H.R. 6, the "Energy Independence and Security Act," which includes a historic Renewable Fuels Standard ("RFS") calling for at least 36 billion gallons of ethanol to be used nationwide by 2022; an increase from the nine billion gallons of ethanol used in 2008. This long-term growth plan for ethanol is intended to spur its commercialization from cellulosic feedstocks such as switchgrass, crop residues, forestry waste, and many other materials from all regions of the country. Beginning in 2016, an increasing portion of renewable fuels must be advanced biofuels, starting at three billion gallons in 2016 and increasing to 21 billion gallons in 2022. The National Commission on Energy Policy estimates that the new RFS and the increased fuel efficiency standards in the law will reduce domestic oil use by more than four million barrels per day by 2030.

        While ethanol is typically produced from starch contained in grains such as corn and grain sorghum, it can also be produced from cellulose. Cellulose is the main component of plant cell walls and is the most common organic compound on earth. The production of ethanol from corn is a mature technology that is not likely to see significant reductions in production cost. The ability to produce ethanol from low-cost biomass will be an important factor in making it competitive as a gasoline additive.

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        According to Pike Research, the global production and consumption of biofuels will more than double in the next decade, from $82.7 billion in 2011 to $185.3 billion in 2021. With the increasing worldwide demand for fuels from renewable sources and the emerging demand for renewable plastics, chemicals and chemical intermediates, there is a long term opportunity to create an alternative to the petroleum model based on the co-production of renewable energy and chemicals from crops. The commercialization of renewable fuel and chemicals co-produced in proprietary crops could create renewable plastics, chemicals and biofuel with favorable economics.

Formation of Metabolix

        Metabolix was formed in 1992 to leverage the ability of natural systems to produce complex polymers from renewable resources as a means to serve the growing needs of society for plastic materials and chemicals without dependence on finite fossil resources.

        Polymers are found in nature in a wide range of organisms including microbes, plants and animals. Polyhydroxyalkanoates ("PHAs") also naturally occur within certain organisms, including microbes. These microbes use PHA to store energy and consume it for food when needed. It is this characteristic that gives our PHA biopolymers their biodegradability.

        Though PHA polymers are found in nature, their production in wild-type bacterial strains is inefficient and costly for commercial purposes. In 1981, Imperial Chemical Industries ("ICI") developed a controlled fermentation process using a wild-type bacterial strain to produce a PHA copolymer that they introduced under the trade name Biopol. While a handful of applications were developed for Biopol, the cost to produce the polymer using the naturally occurring bacterial strains that were available at the time was prohibitively high and its performance properties were limited. Commercialization was not possible, but the Biopol assets remained largely intact and were eventually sold to Monsanto, Inc.

        By the late 1980s, tools for genetic engineering had advanced significantly, and microbes were already being genetically designed to produce various products, such as protein drugs. At the Massachusetts Institute of Technology, Dr. Oliver Peoples, our Chief Scientific Officer, working in the lab of Dr. Anthony Sinskey, a member of our Board of Directors, identified the key genes required for the biosynthesis of our PHA biopolymers and invented and patented the first transgenic systems for their production. The use of genetically engineered production organisms, instead of wild-type strains, broadly expanded the number of compositions that could be made and enabled the tight level of control and high efficiency and productivity that are required for cost-effective industrial manufacturing.

        Metabolix was formed in 1992 to exploit these discoveries. In order to fully capture the opportunity, we acquired Monsanto's patent estate related to biobased plastics, which included the Biopol assets, in 2001. We have since fully developed an integrated manufacturing process using transgenic strains for fermentation and a proprietary recovery process. This integrated manufacturing process is available for use in commercial manufacturing going forward. We have also developed proprietary plastic formulation technology, and we are also developing our platform technology for co-producing plastics, chemicals and energy in crops such as switchgrass, oilseeds and sugarcane. In addition, we are applying our proprietary technologies to our industrial biobased chemicals platform.

Our Technology and Core Capabilities

        We believe we have one of the most advanced capabilities to perform metabolic pathway engineering in the world and that we are skilled in our ability to integrate the biotechnology we develop into large scale industrial production processes. We believe that we have unprecedented capabilities with respect to harnessing the metabolic pathways involved in the production of a wide range of bioplastic monomers and the ability to polymerize, accumulate and harvest these bioplastics

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from living cells. We believe that we are developing key capabilities in the areas of biopolymer product development and customer technical service support.

        We have demonstrated that our technology and core capabilities enable us to:

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design and engineer living organisms to perform a series of chemical reactions that convert a feedstock to an end product in a highly efficient and reliable manner;



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integrate that organism into a reliable, large scale industrial fermentation process;



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develop highly efficient recovery technology for the product;



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tailor our end product from that process to suit our customers' needs;



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develop new applications and commercial opportunities for these products;



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develop new formulations and compounds of these products; and



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provide sales and technical service support to our customers.

Product Development Process

Biology and Genetic Engineering

        While most biotechnology products today involve identifying a single gene to produce one protein, we have identified and chromosomally inserted a series of genes to produce several proteins and have done so in such a way that they are expressed to execute the right reactions at the right times. This work is at the forefront of a scientific discipline referred to as "Synthetic Biology" which has become the focus of intense research and design activities. There have been many new entrants, both academic and venture-backed start-up companies, in this general field primarily targeting biofuels, either advanced cellulosic ethanol or next generation technologies. We believe that we have advanced capabilities based on over 20 years of development taking early stage gene/pathway discovery through the entire value delivery chain to a commercially viable technology and business. In addition, we have developed core competencies in plant science, plant transformation and the development of advanced multigene expression technologies for introducing novel, multiple trait synthetic pathways into biomass plant crops.

Industrial Fermentation Process Engineering

        We have tightly integrated our fermentation scale-up research capabilities with our genetic engineering capabilities to create a feedback loop where data from fermentation experiments can readily influence microbial design and where microbial engineering approaches can guide the fermentation group to structure the optimal protocols (recipes) for running fermentations. Based on this technology we have demonstrated the ability to produce a range of different biopolymers on a common fermentation platform.

Chemical Process Engineering

        Another element of our product development process involves process chemistry and chemical engineering to separate the biopolymer from the biological cell material once fermentation is complete. We have a dedicated team that has developed a proprietary process for recovery of PHA biopolymer at the industrial scale. We have invented a recovery process that produces PHA biopolymer at a high level of purity without damaging the structure of the polymer and has operated effectively at a commercial scale in the manufacture of Mirel. We have successfully demonstrated our ability to efficiently isolate the range of polymers necessary to meet and expand our range of target applications. These polymers can be routinely produced free from cell debris and processed into resin pellets.

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        Our capabilities in fermentation and recovery for producing PHA biopolymer, including Mirel, have been successfully translated to the development of biobased industrial chemicals. We have demonstrated fermentation at pilot and industrial scale and recovered GBL using a proprietary thermolysis process in tonnage quantities. When fermentation is completed, our novel recovery process known as "FAST" (fast-acting, selective thermolysis) converts the biopolymers, poly-4-hydroxybutrate ("P4HB") for C4 chemicals, poly-3-hydroxyproprionate for C3 chemicals, directly to GBL and acrylic acid, respectively. The FAST recovery process is a proprietary, low-cost, energy-efficient approach to recover high-purity biobased chemicals directly from dried or whole fermentation broth. We believe our technology is differentiated and that it allows diversification of feedstock from existing fossil sources to renewable sources and this will offer cost advantages. For chemicals, we are tailoring products and purity levels to meet customer and market needs.

Polymer Science and Product Development

        In the area of PHA biopolymers (Mirel and Mvera) our product development process involves tailoring the polymer to provide the product properties and meet the processing requirements for specific customer applications and then compounding that material for delivery to customers. Our product development team has considerable expertise in polymer science and to date has developed advanced formulation and processing technology for injection molding, blown and cast film, sheet, and thermoforming. We have also moved blow molding, non-wovens and foam applications beyond the proof of concept stage. We will continue to work with customers to optimize formulations to conform to their commercial specifications as commercialization of our PHA biopolymers expands.

        In sum, we have successfully integrated capabilities in biology, genetics, fermentation process engineering, chemical engineering and polymer science. We believe this integrated set of capabilities will be a source of competitive advantage. These same capabilities are being applied to our plant crop programs, where we intend to develop an industrial system to co-produce bioplastics or chemicals with cost advantaged biomass for bioenergy, and to our integrated bio-engineered chemicals program. We believe our capabilities can also be applied successfully to other biobased plastics, chemicals and energy projects.

Business Strategy

        Our goal is to be the leader in discovering, developing and commercializing economically attractive, environmentally sustainable alternatives to petroleum-based plastics, chemicals and energy. To achieve this goal, we are building a portfolio of programs that we believe will not only provide an attractive slate of commercial opportunities and create value for our business, but will also generate leading and competitive intellectual property positions in the field. Key elements of our strategy include:

        Creating a Product Portfolio of PHA Biopolymers —Our strategy is to establish our position in the market with premium priced products that address specialized segments that can be served competitively by the distinctive properties of biopolymers. Through several years of interaction with customers, we have developed formulations of our polymer suitable for injection molding, blown and cast film, sheet and thermoforming. There is the potential to refine these grades further and to tailor them for specific customer performance requirements and applications. In addition, our technology may allow us to develop new formulations and processing protocols to extend the use of Mirel and PHA polymers into blow molding, non-woven, foam and latex applications.

        Establishing a Supply Chain for our PHA Biopolymers Business —We continue to evaluate a number of manufacturing and supply options that would enable us to build capacity in conjunction with growing customer demand. We are considering options for small-scale, short-term toll manufacturing to scale up our improved technology and products, and intermediate-scale production to build the market for those

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products, with a long-term goal of establishing world-scale cost-effective manufacturing. Our commercial strategy is to build a presence in key markets that will enable us to base-load a future low-cost plant.

        Continuing Microbial Research and Process Development —We have identified opportunities to improve our production strains and our fermentation and recovery processes. We believe that significant reductions in the operating and capital cost to manufacture Mirel biopolymers can occur as we successfully exploit these opportunities. We also believe that our technology is robust and we expect to be able to successfully transfer our technology to commercial scale production on an ongoing basis.

        Managing Existing Inventory —We expect to work closely with core customers to provide them with access to existing inventory as new manufacturing and supply chain are established. We will also use some inventory to continue certain product development activities representing high value applications for our product. Use of purchased material from third parties for blending and property enhancement will allow us to leverage the value of our existing inventory as well as to further tailor products to meet customer needs.

        Market Positioning and Technical Support —We have refocused our technical and business development team to support existing customers and to educate and develop the prospective customer base for our Mirel and Mvera biopolymer products. This team is focused on positioning our biopolymers as premium priced, specialty materials that are environmentally attractive alternative to petroleum-based plastics and lower performance bioplastics. The focus of this effort is to build a pipeline of customers across a range of applications. It is our goal to establish customer relationships that will lead to a committed stream of demand for our biopolymers as we establish a new manufacturing supply chain.

        Extending Our Technology to Sustainable Production of Biobased Chemicals and Intermediates —We believe that our technical capabilities can be applied to produce important biobased commercial chemicals and chemical intermediates through biological conversion of sustainable feedstocks such as sugars. Through our integrated bio-engineered chemicals program, we have conducted research into the development of sustainable solutions for chemicals and intermediates, including widely used C4 and C3 industrial chemicals. Our unique FAST process enables very efficient recovery of targeted molecules based on our PHA technology. We are seeking to establish strategic partnerships or other collaborations to advance commercialization of these programs.

        Advancing Plant Crop Research —We believe that we are pioneering the technical process of introducing multigene traits into plant crops for the production of plastics and chemical intermediates directly in the plant. Our plant crop platform is currently in the research phase. We are in the process of capturing intellectual property gained in our work in crops and will be evaluating the possibilities of monetizing that intellectual property, while we continue work in plant crops under government grants.

        Partnering our Programs —As appropriate, we may seek to leverage our technology and establish strategic partnerships with one or more industry leading companies that can provide access to resources and infrastructure valuable for commercializing our plant crop and industrial chemicals platforms. These partnerships may take the form of large-scale strategic collaborations, or more limited collaborations with partners having complementary strengths, for example in biorefinery operations or marketing. We will also continue to seek funding through government grants or other government programs aimed at promoting development of biobased plastics and fuels.

        Furthering our Leading and Competitive Intellectual Property Position —We have built a patent estate around our platform technologies and a variety of inventions relevant to the commercialization of PHA biopolymers including Mirel and Mvera. We continue to extend this patent estate within our core business as well as within other commercial opportunities in the area of biobased plastics, chemicals

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and energy. We have licensed our technology, and where appropriate, we will continue to license our intellectual property to others in fields outside our areas of interest. Some of the areas in which we may seek to establish leading and competitive intellectual property include:

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intermediates and chemicals produced by microbial fermentation;



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plant varieties to co-produce plastics and energy (e.g., ethanol and biodiesel); and



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plant strains that optimize crop yields and processing traits for conversion to energy.

        Building Governmental Awareness of Our Approach —Policy makers are seeking opportunities to reduce dependence on imported fossil fuel, decrease carbon dioxide emission, and address landfill and pollution issues. In recent years, we worked closely with several groups and individuals in the United States and Europe to address these issues. We intend to continue to pursue our governmental affairs initiatives to raise awareness of our solutions and enable legislation that can facilitate and accelerate the adoption of our products.

PHA Biopolymers Platform

Overview

        Following the termination of our commercial alliance with ADM early in 2012, we restructured the biopolymers business, retaining a core team in our biopolymers group to provide continuity with technology, manufacturing process, and markets. We worked closely with customers during this transition to understand their product needs and to match them to available inventory. In addition, we held constructive discussions with various potential manufacturing and commercialization partners for PHA biopolymers. Establishing a new manufacturing and supply chain for our PHA biopolymers business is a key focus for us. In 2013, we expect to continue to develop our customer base using existing inventory and to transition to new supply, while we continue to explore alternative options to establish a new biopolymer manufacturing and supply chain properly sized to our business.

Former Alliance with Archer Daniels Midland Company

        From 2004 through 2011, we developed and began commercialization of our PHA biopolymers through a technology alliance and subsequent commercial alliance with ADM Polymer Corporation, a wholly-owned subsidiary of ADM, one of the largest agricultural processors in the world. The Commercial Alliance Agreement between Metabolix and ADM Polymer specified the terms and structure of the alliance. The agreement governed the activities and obligations of the parties to commercialize PHA biopolymers, which have been marketed under the brand names Mirel™ and Mvera™. These activities included the establishment of a joint venture company, Telles, to market and sell PHA biopolymers, the construction of a manufacturing facility capable of producing 110 million pounds of material annually (the "Commercial Manufacturing Facility"), the licensing of technology to Telles and to ADM, and the conducting of various research, development, manufacturing, sales and marketing, compounding and administrative services by the parties.

        Telles was formed to: (i) serve as the commercial entity to establish and develop the commercial market for PHA biopolymers, and conduct the marketing and sales in accordance with the goals of the commercial alliance, (ii) assist in the coordination and integration of the manufacturing, compounding and marketing activities, and (iii) administer and account for financial matters on behalf of the parties. Metabolix and ADM each had a 50 percent ownership and voting interest in Telles.

        Under the Commercial Alliance Agreement ADM was permitted, under limited circumstances, to terminate the alliance if a change in circumstances that was not reasonably within the control of ADM made the anticipated financial return from the project inadequate or too uncertain. The agreement provided that, upon termination by ADM due to a change in circumstances, Metabolix would be

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permitted to continue to produce and sell PHA biopolymers, and ADM would be required to perform manufacturing services for the Company for a period of time following the termination (subject to certain payment obligations to ADM). On January 9, 2012, ADM notified us that it was terminating the commercial alliance effective February 8, 2012. ADM had undertaken a strategic review of its business investments and activities and made the decision to focus resources outside of Telles. As the basis for the decision, ADM indicated to us that the projected financial returns from the alliance were too uncertain.

        The Commercial Alliance Agreement with ADM limited the rights of both ADM and Metabolix to work with other parties or alone in developing or commercializing certain PHAs produced through fermentation. These exclusivity obligations ended upon termination of the alliance. Also, upon termination of the alliance, Metabolix intellectual property licenses to ADM Polymer and Telles ended, with Metabolix retaining all rights to its intellectual property. ADM retained its Commercial Manufacturing Facility located in Clinton, Iowa, previously used to produce PHA biopolymers for Telles.

        After termination of the Commercial Alliance Agreement, the parties entered into a Settlement Agreement in which the parties agreed to specific terms related to the winding up and dissolution of Telles. Under this Settlement Agreement, we purchased certain assets of the joint venture for $2,982,000 including Telles's entire inventory, exclusive and perpetual rights to all of Telles's trademarks, and all product registrations, certifications and approvals for Telles's PHA biopolymers. Pursuant to the Settlement Agreement, ADM relinquished any claims with respect to certain co-funded equipment previously acquired by Metabolix and situated at locations other than the Clinton, Iowa Commercial Manufacturing Facility, and Metabolix and Telles waived any rights to post-termination manufacturing and fermentation services under the Commercial Alliance Agreement.

Current Capabilities and Scope of our Operating Business in PHA Biopolymers

        In the first quarter of 2012, we restructured the biopolymers business, retaining a core team in our biopolymers group to provide continuity with the technology, manufacturing process and markets. This team has expertise in the key areas required to maintain and grow an operating business. We have established a subsidiary located in Cologne, Germany to serve as a focal point for commercial activities in Europe and have begun hiring additional staff for our sales and technical support team. We have continued to work closely with customers during this transition to understand their product needs and to match them to available inventory. After the completion of the Telles wind-up arrangements, we had more than 5 million pounds of inventory. Our current estimates indicate that we have adequate inventory to supply the needs of strategic customers as we transition to a new supply source.

        We plan to continue to build our supply chain. During 2012 we signed an agreement for demonstration production with Antibióticos SA, a toll manufacturer based in Leon, Spain. Under this agreement, technology transfer to Antibióticos is essentially complete. However, we are aware that Antibióticos is in a process of financial restructuring, and our ability to obtain biopolymer product from Antibióticos will depend on the outcome of that restructuring. Through our engagement with Tianjin GreenBio as a PHA supplier, we believe that we will have the potential to develop and commercialize additional PHA biopolymer products. In addition, we have initiated a feasibility study to define our priorities for a low-cost manufacturing site for long-term commercial scale production of biopolymers and potentially biobased chemicals.

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        We believe we are well positioned to launch the PHA biopolymers business under a new commercial model based on several key factors with the objective of creating a high margin, high growth business opportunity.

        Mirel biopolymers were produced successfully at industrial scale for two years under the joint venture with ADM. The product was produced at very high quality and in a targeted range of grades suited to different customer uses. Going forward, we see the potential to deploy our latest technology into industrial production at an initial scale that is well matched to customer demand, and to develop plans to grow capacity in tandem with the growth outlook for our markets. In addition, we marketed Mirel biopolymers for more than two years on behalf of Telles and demonstrated market acceptance and the brand value proposition with over 50 customers. We have a highly differentiated technology resulting in a premium product with the proven ability to price at over $2.25 per pound and higher, depending on the application and market. Going forward, we anticipate our marketing and product development activities initially focusing on three areas to provide high value material to customers in key markets (i) film and bag applications (ii) performance additives and (iii) functional biodegradation.

The Value Proposition of Mirel Biopolymers

        We believe Mirel biopolymers offer the broadest potential range of properties and processing options compared to today's existing bioplastics. We believe Mirel's unique combination of being both biobased and biodegradable while having comparable functional properties to petroleum-based polymers stands alone in the bioplastics marketplace. We are positioning Mirel biopolymers as a specialty material that can serve conventional plastic functional needs (which petroleum-based polymers may satisfy), deliver new functionality that can be leveraged to reduce system costs (e.g. new end-of-life solutions based on broad biodegradability) in addition to satisfying consumer preference for environmental responsibility (which petroleum-based polymers cannot address). Consequently, we expect to price Mirel at a premium as a specialty product as compared to the price of large volume commodity polymers, but comparable to a number of specialty polymers. Our strategy is to enter the market with premium priced products that address specialized segments that can be served competitively by the distinctive properties of Mirel biopolymers. Mirel biopolymers can be produced in pellet form (for further processing and re-sale as finished goods or components by customers), in densified form and as a blend with other biodegradable materials, and we may also provide Mirel biopolymers in other forms as may be determined by our customers.

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        We believe that the principal advantages of Mirel biopolymers will be the ability to use renewable feedstocks and the biodegradability properties of the materials combined with their performance when compared to alternative products. We believe Mirel biopolymers are unique compared with other biodegradable (both petroleum and renewable resource based) plastics when evaluated based on the following factors:

        Biodegradability —Mirel biopolymers will biodegrade due to the action of microbial agents in a wide variety of conditions, including home and industrial compost systems, soil, anaerobic environments such as those found in anaerobic digesters and septic systems, and marine and fresh water environments. The rate and extent of Mirel's biodegradability will depend on the size and shape of the articles made from it as well as the specific end-of-life environment. However, like all bioplastics and organic matter, Mirel biopolymers are not designed to biodegrade in conventional, non-active landfills. Many plastics marketed as biodegradable only degrade in a controlled municipal industrial compost facility.

        Biobased Feedstocks —Because fossil feedstocks are the primary raw material for the plastics industry, prices of conventional polymers can be adversely affected by fossil fuel supply disruptions and price volatility. Mirel biopolymers are produced using a biobased feedstock, which may lead to a more predictable cost structure when compared to petroleum-based plastic. Biobased feedstocks recycle carbon through photosynthesis, which removes carbon dioxide from the atmosphere. Conversely, the use of fossil feedstock results in release of carbon that has been sequestered underground for millions of years increasing atmospheric carbon dioxide that acts as a greenhouse gas ("GHG"). Producing Mirel biopolymers based on renewable resources therefore sequesters carbon dioxide in addition to reducing reliance on finite petroleum resources. If the polymer is ultimately biodegraded at end-of-life this carbon dioxide is recycled once again creating a GHG neutral cycle. The overall GHG balance for production of Mirel is dependent on the source of process energy (heat and power). Using renewable energy sources in addition to the feedstock can in certain circumstances result in net reduction of GHG emissions.

        Performance Enhancement —Mirel biopolymers can improve the properties and performance of other polymer materials including PVC and PLA.

        Property Range —Similar to petroleum-based plastic, Mirel biopolymers possesses a particularly broad range of functional properties, varying from hard and stiff to soft and flexible.

        Processability —Mirel biopolymers can be processed in many types of existing conventional polymer conversion equipment that are currently being used for petroleum-based plastic with minimal adjustments.

        Upper Service Temperature —Mirel biopolymers will withstand temperatures in excess of 100 ^o C, i.e., the boiling point of water, an important threshold. Some formulations of Mirel biopolymers can withstand temperatures up to 130 ^o C.

        Resistance to Hydrolysis —While Mirel biopolymers will biodegrade in marine and fresh water environments, they are resistant to reacting with cold or hot water over the intended life span of the product.