(All dollar amounts are stated in thousands)

Forward Looking Statements

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

Although we believe that our expectations are based on reasonable assumptions within the limits of our knowledge of our business and operations, the forward-looking statements contained in this document are neither promises nor guarantees. Our business is subject to significant risk and uncertainties and there can be no assurance that our actual results will not differ materially from our expectations. These forward looking statements include, but are not limited to, statements concerning: future financial performance and position, management's strategy, plans and objectives for future operations, plans and objectives for product development and commercialization, plans and objectives for present and future research and development and results of such research and development, plans and objectives for manufacturing, the commercialization of environmentally sustainable, economically attractive alternatives to petroleum-based plastics, chemicals and energy, the commercialization of Mirel™ biobased plastic ("Mirel") through our alliance with Archer Daniels Midland Company ("ADM"), sales of Mirel as an alternative to petroleum-based plastics, the construction of the Commercial Manufacturing Facility, the production of Mirel at the Commercial Manufacturing Facility, the commercial success of Mirel, the feasibility of extractingMirel from plant crops, the commercial viability of plant-produced plastics,

recognition of revenue, and management's plans and expectations for revenue from government grants, research and development revenue, research and development expenses and capital and working capital requirements. Such forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated including, without limitation, the following risks: (1) we may not be successful at manufacturing biobased plastics on a commercial scale in a timely and economical manner,
(2) we may not be successful in the development of our products, including Mirel, (3) we depend on ADM for the construction of the Commercial Manufacturing Facility, (4) if ADM 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) we may not be able to develop manufacturing capacity sufficient to meet demand in an economical manner or at all, (6) we may not achieve market acceptance of our products, (7) we have limited marketing and sales experience and capabilities, which may make the commercialization of our products difficult, (8) we rely heavily on ADM and will rely heavily on future collaborative partners, (9) our success will be influenced by the price of petroleum relative to corn sugar (10) our future profitability is uncertain, and we have a limited operating history on which you can base your evaluation of our business, (11) we may need to secure additional funding and may be unable to raise additional capital on favorable terms or at all, (12) if we lose key personnel or are unable to attract and retain necessary talent, we may be unable to develop or commercialize our products, (13) confidentiality agreements with employees and others may not adequately prevent disclosure of our trade secrets and other proprietary information and may not adequately protect our intellectual property, which could limit our ability to compete, (14) patent protection for our products is important and uncertain, (15) a substantial portion of the technology used in our business is owned by or subject to retained rights of third parties, (16) third parties may claim we infringe their intellectual property, and we could suffer significant litigation or licensing expense as a result, (17) if we are unable to manage our growth effectively, our business could be adversely affected, (18) we may not be successful in identifying market needs for new technologies and developing new products to meet those needs, (19) Mirel may be, or may be perceived as being, harmful to human health or the environment, (20) we face and will face substantial competition in several different markets that may adversely affect our results of operations, (21) we are subject to significant foreign and domestic government regulations, including environmental and health and safety regulations, and compliance or failure to comply with these regulations could harm our business, (22) our government grants may subject us to government audits, which could materially harm our business and results of operations,
(23) we face risks associated with our international business, (24) each segment of our operations is currently conducted at a single location which makes us susceptible to disruptions, and (25) we may be subject to product liability claims based on products sold by us, our customers and/or our licensees.

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

Overview

We are a bioscience company that develops and plans to commercialize environmentally sustainable, economically attractive alternatives to petroleum-based plastics, chemicals and energy. Our strategy is to develop technology platforms that integrate advanced biotechnology with current industrial practice and to commercialize these platforms with industry leading strategic partners.

Our first platform, which we are commercializing through Telles, a joint venture with Archer Daniels Midland Company ("ADM"), is a proprietary, large-scale microbial fermentation system for producing a versatile family of polymers known as polyhydroxyalkanoates, which we have branded under the name Mirel™. Through Telles, we intend to sell Mirel as environmentally friendly, but functionally equivalent, alternatives to petroleum-based plastics in a wide range of commercial applications, including packaging, compostable bags, consumer products including cosmetics and gift cards, business equipment, products used in agriculture and horticulture, and marine and water applications. Mirel will be produced in a commercial scale plant, or Commercial Manufacturing Facility, which is presently under construction by ADM in Clinton, Iowa. The Commercial Manufacturing Facility is designed to have a 110 million pound annual capacity. We expect that commercial quantities of Mirel from the Commercial Manufacturing Facility will be available for customers in the second quarter of 2009. ADM is currently in the process of reviewing the estimated capital cost and timeline for completion of the Commercial Manufacturing Facility and is also examining a variety of options to manage the capital cost and schedule. The Commercial Manufacturing Facility will produce biobased, sustainable and biodegradable Mirel plastic out of corn

sugar, an agriculturally-produced renewable resource. We are currently producing pre-commercial quantities of Mirel jointly with ADM at a small scale pre-commercial manufacturing facility.

Our second technology platform, which is in an early stage, is a biomass biorefinery system using plant crops to co-produce both bioplastics and bioenergy. For this system, we intend to extract polymer from the engineered plant crop, so that the remaining plant material can be used as a biomass feedstock for the production of bioenergy products including electricity and biofuel. We are engineering switchgrass to produce bioplastics in the leaf and stem of the plant. We have also collaborated with the Australian Cooperative Research Centre to do the same in sugarcane. In addition we have established a strategic research collaboration with the Donald Danforth Plant Science Center to develop an advanced industrial oilseed crop for co-production of bioplastics along with vegetable oil, biodiesel fuel, or oleochemicals. Switchgrass is a commercially and ecologically attractive non-food energy crop that is indigenous to North America. It is generally considered to be a leading candidate for cellulose-derived production of ethanol and other biofuels. Sugarcane is an established energy crop that is well suited for tropical regions of the world. We believe that using these crops to co-produce bioplastics with bioenergy products can offer superior economic value and productivity as compared to single product systems that produce them individually. We have been working on our biomass biorefinery platform using switchgrass for several years, and we believe that we are a scientific leader in this field. Our goal for this program is to have commercially viable plant varieties in pre-commercial field trials in three to four years. We may also seek to establish alliances with partners to commercially exploit this platform.

As demonstrated by our first two technology platforms, we take an integrated systems approach to our technology development. We are focused on developing entire production systems from gene to end product as opposed to developing specific technologies (for example, gene sequencing, shuffling or directed evolution) or singular aspects of a product's production (for example, providing a key enzyme, catalyst or ingredient). We believe this systems approach optimizes manufacturing productivity and, when commercialized, will enable us to capture more economic value from any platform we pursue. We have core capabilities in microbial genetics, fermentation process engineering, chemical engineering, polymer science, plant genetics and botanical science. We have assembled these capabilities in a way that has allowed us to integrate biotechnology with chemical engineering and industrial practice. We believe that our approach can be applied to chemicals and other products to help establish and grow environmentally sustainable plastics, chemicals and energy industries.

We intend to apply our core capabilities in microbial engineering and plant transformation to develop biological routes to other chemicals and chemical intermediates. In September 2007 the U.S. Department of Commerce's National Institute of Standards and Technology approved a $2 million award for us to develop a commercially viable process for producing biobased chemicals from renewable agricultural products. This award is funding our integrated bio-engineered chemicals program, which is beginning development of sustainable solutions for widely used four-carbon industrial chemicals.

To exploit our first technology platform, we are working with ADM to build the Commercial Manufacturing Facility in Clinton, Iowa. The bioplastics this facility will produce are highly versatile and range in properties from hard and strong to soft and flexible. These properties allow for a wide variety of commercial applications, offering an environmentally-friendly alternative to petroleum-derived synthetic materials which are not biodegradable. Through Telles we intend to initially position Mirel as a premium priced specialty material catering to customers who want to match the functionality of petroleum-based plastic, but add the dimension of environmental responsibility to their products and brands.

As of September 30, 2008, we had an accumulated deficit of $121,213 and total stockholders' equity was $66,399.

Collaborative Arrangements

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

We entered into our alliance with ADM in 2004. As of September 30, 2008, all payments received from ADM have been recorded as deferred revenue on our balance sheet. We expect that future payments from ADM, through at least the construction phase of the Commercial Alliance Agreement, including two remaining quarterly operating payments of $1,575 made on behalf of Telles and other payments, will be classified as deferred revenue as well. We expect to begin recognizing revenue at the time of the first commercial sale of Mirel. All amounts will be recognized proportionally over the period in which our commercial obligations are fulfilled in accordance with the terms of the Commercial Alliance Agreement.

We received the following payments from these arrangements to offset operating 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 $15,750 from ADM, on behalf of Telles, through September 30, 2008; and

† cumulative cost sharing payments from ADM for pre-commercial manufacturing plant construction and operations of $8,096.

During the commercial alliance phase, ADM will construct, finance, own and operate the Commercial Manufacturing Facility through a manufacturing agreement with Telles and we will provide or procure compounding services to convert the output from the Commercial Manufacturing Facility into forms that are suitable for various commercial applications.

Telles is a limited liability company, formed and equally owned by us and ADM, and is intended to: (i) serve as the commercial entity to establish and develop the commercial market for Mirel, 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. We and ADM each have 50% ownership and voting interest in Telles.

Even though Telles is a separate legal entity owned equally by us and ADM, ADM will disproportionately fund the activities of the joint venture. Specifically, the cost of the Commercial Manufacturing Facility, the working capital requirements of the joint venture and the support payments to us will exceed the investments made by us to establish compounding operations for the joint venture. In order to rebalance the respective investments made by the parties, a preferential distribution of cash flow will be used, whereby all profits, after payment of all royalties, reimbursements and fees, from the joint venture, will be distributed to ADM until ADM's disproportionate investment in the joint venture, and the costs of constructing the Commercial Manufacturing Facility, have been returned to ADM. Once ADM has recouped such amounts, the profits of the joint venture will be distributed in equal amounts to the parties. In order to track the disproportionate investments ADM has made, a Ledger Account has been established to record the respective investments made by the parties. As of September 30, 2008, the balance of the ADM Ledger Account was $229,862 and this balance is expected to increase as the construction of the Commercial Manufacturing Facility progresses and Telles becomes operational.

United States Government Contracts and Grants

As of September 30, 2008, expected gross proceeds of $1,627 remain to be received under our government contracts and grants, which include amounts for reimbursement to our subcontractors, as well as reimbursement for our employees' time, benefits and other expenses related to future performance under the various contracts.

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

                                                                                  Remaining amount
                                        Total          Total received         available under various
                       Funding        government           through           government contracts as of     Contract/Grant
Program Title           Agency          funds        September 30, 2008          September 30, 2008           Expiration

PHA Bioplastic
Packaging               SERDP
Materials              (1) (2)       $      1,005    $               785    $                        220      Feb. 2009

Integrated
Bio-Engineered        Department
Chemicals            of Commerce            2,000                    593                           1,407      Sept. 2009

Total                                $      3,005    $             1,378    $                      1,627

(2) Funding of this government contract beyond the United States government's current fiscal year is subject to annual congressional appropriations.

Critical Accounting Estimates and Judgments

The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition and stock-based compensation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The significant accounting policies used in preparation of these condensed consolidated financial statements for the three and nine months ended September 30, 2008 are consistent with those discussed in Note 3 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2007. The critical accounting policies and the significant judgments and estimates used in the preparation of our condensed consolidated financial statements for the three and nine months ended September 30, 2008 are consistent with those 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 of Financial Condition and Results of Operations-Critical Accounting Estimates and Judgments."

In the first quarter of 2008, due to an extended construction period and revised estimated completion date of the Commercial Manufacturing Facility, the Company determined it would extend the period of use of its pre-commercial manufacturing plant by six months to June 2009 from December 2008. In connection with this, the useful lives of the leasehold improvements connected to the pre-commercial manufacturing plant were increased by six months. This change in accounting estimate was adopted prospectively from January 1, 2008. The effect of the change in accounting estimate on the financial statements for the three and nine months ended September 30, 2008 is a decrease in loss from operations and net loss of $363 and $1,075, respectively. Loss per share decreased by $0.02 and $0.05 for the three and nine months ended September 30, 2008, respectively. The estimated annual impact of this change in accounting estimate for the year ended December 31, 2008 is a decrease in loss from operations and net loss of $1,422 and a decrease in loss per share of $0.06, based on the number of shares used in the earnings per share calculations for the nine months ended September 30, 2008.

Results of Operations



Comparison of the Three Months Ended September 30, 2008 and 2007



Revenue



                                                     Three Months ended
                                                       September 30,
                                                     2008          2007         Change
Research and development revenue                  $       27    $       73    $      (46 )
License fee and royalty revenue from related
parties                                                   25            25             0
Grant revenue                                            299            82           217
Total revenue                                     $      351    $      180    $      171

Total revenue was $351 and $180 for the three months ended September 30, 2008 and 2007, respectively. During the three months ended September 30, 2008 we recognized $27 of research and development revenue compared to $73 for the respective period in 2007. Research and development revenue is derived from research and development services and delivery of sample product produced from research and development services. Grant revenue increased mainly as a result of an increase of activity relating to the Department of Commerce and Strategic Environmental Research Development Program grants. This was partially offset by the completion of the Department of Energy program grant during the second quarter of 2007.

We expect revenues from government grants to fluctuate due to the availability of funding from the government.

Expenses



                                                     Three Months ended
                                                       September 30,
                                                     2008          2007         Change
Research and development expenses, including
cost of revenue                                   $     6,571    $   5,695    $      876
Selling, general, and administrative expenses           4,048        4,267          (219 )
Total operating expenses                          $    10,619    $   9,962    $      657

Research and development expenses

Research and Development expenses were $6,571 and $5,695 for the three months ended September 30, 2008 and 2007, respectively. The increase of $876 was primarily due to the expansion of product development activities associated with developing new product grades and formulations for prospective customers and increases in research and development personnel to support our microbial and plant research programs. Employee payroll and benefits related expenses for the three months ended September 30, 2008 were $2,576 compared to $1,851 for the respective period in 2007. Payroll and benefits primarily increased as a result of increased headcount. Expenses related to product development services were $519 and $425 for the three months ended September 30, 2008 and 2007, respectively. Product development services primarily consist of outside testing and services and sponsored research. Depreciation expense increased to $789 for the three months ended September 30, 2008 from $243 for the respective period in 2007. The increase in depreciation is primarily derived from increased leasehold improvements in our pre-commercial manufacturing facility and increases in equipment to support our microbial and plant research.

We expect to incur higher research and development expenses in future periods for pre-commercial manufacturing and product development activities as we continue to develop, test and refine product to meet the specification requirements of our customers. We expect that our personnel related costs will increase to support our microbial and plant research programs.

Selling, general, and administrative expenses

Selling, general, and administrative expenses were $4,048 and $4,267 for the three months ended September 30, 2008 and 2007, respectively. The decrease of $219 was primarily due to a decrease in employee and benefits related expenses. Payroll and benefits related expenses decreased to $2,087 from $2,408 for the three months ended September 30, 2008 and 2007, respectively. Included in payroll and benefits is stock-based compensation expense, which decreased to $729 for the three months ended

September 30, 2008 compared to $1,295 for the respective period in 2007. Stock-based compensation expense decreased mainly as a result of the completion in May 2008 of the vesting period for options granted to our board of directors and an officer of the company. The decrease in stock-based compensation expense was partially offset by increased expenses relating to the expansion of our facilities, growth in administrative structure to support the growth of the company and increased sales and marketing activities to prepare for the commercialization of Mirel.

We expect that selling, general, and administrative expenses will increase through the construction period of the ADM agreement due to increasing payroll and expanding infrastructure to support sales and marketing efforts for commercializing Mirel. Upon the commencement of the commercial phase of the agreement, selling, general, and administrative expenses are expected to decrease as the cost of sales and marketing efforts will be transferred to Telles.

Other Income (Net)

Other income (net) consists of investment income of $540 and $1,484 for the three months ended September 30, 2008 and 2007, respectively. The decrease of $944 was due to a decrease in interest rates during the quarter, a shift towards more conservative investments with lower interest rates, and a decrease in the average cash and short-term investments held during the comparative three month periods.

Results of Operations



Comparison of the Nine Months Ended September 30, 2008 and 2007



Revenue



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