Revenues soar at Martek
by 115 per cent in the third quarter, although profits were
dampened by a doubling of costs.
With the majority of formula makers now on board, Martek Biosciences is starting to see gains from its core infant nutrition ingredients, the microalgae-derived DHA and ARA oils.
Sales in the third quarter ended 31 July, 2003, rose 115 per cent to $29.1 million, largely due to higher sales of nutritional products to infant formula makers. For the nine month period, total revenues now stand at $76.1 million, more than double the $30.9 million achieved in the same period in 2002.
Over 90 per cent of Martek's third quarter revenue was generated by sales of docosahexaenoic acid (DHA) and arachidonic acid (ARA) to four of the company's infant formula licensees: Mead Johnson, Wyeth, Abbott Laboratories and Nestle. Supplemented term infant formulas manufactured by three of these companies were introduced in the US in 2002, and Nestle has announced plans to launch a supplemented formula in the US in the fall of 2003 under the Carnation brand.
Compared to 2002, net income for the third quarter 2003 showed a marked improvement. Martek earned $4.6 million, or -$0.16 per diluted share, compared to a net loss of $3.7 million or $0.16 per diluted share, in the Q3 2002. Similarly for the nine months, the company achieved net income of $9.8 million, or $0.37 per diluted share, compared to a net loss of $24.6 million or -$1.14 per diluted share in 2002. However, included in the 2002 nine months results was a $15.8 million charge for in-process research and development relating to the purchase of OmegaTech.
Costs for the third quarter almost doubled compared to the previous year, rising to $17,017 million from $8,538 million in 2002, while on a nine month basis costs have risen by a whole 114 per cent to $45,001 million compared to just $21,007 million for the same period in 2002.
This rise was explained in part by a 10 per cent increase in research and development expenditure in the third quarter 2003 compared to the Q3 2002. Martek says it has hired additional researchers and carried out development work to improve production efficiencies and evaluate new processes, although overall for the year to date R&D costs have fallen by 5 per cent compared to 2002.
Other operating expenses of $247,000 were also incurred in the third quarter 2003 due to start-up costs at the new fermentation facility at the Winchester, KY plant, as well as costs associated with the evaluation of additional production facilities for the company's nutritional oils.
Staff restructuring carried out in July 2002 reduced expenses somewhat during the third quarter, although selling and general costs have increased for the year to date by $3.5 million or 41 per cent over the same period in 2002.
But this could be soaked up by a 41 per cent gross profit margin for the first nine months, up from 32 per cent for 2002, primarily due to lower ARA costs from DSM Gist, Martek's third party manufacturer of ARA oil. The margin was also impacted by a slight reduction in DHA production costs compared to the Q3 2002 with increased output and efficiencies at the firm's Winchester, KY production plant and yield improvements from past development efforts.
The company produced cash flows from operations of $7.3 million in the third quarter of 2003, the result of $5 million in cash received under a license agreement with Nestle in June of 2003. On a year-to-date basis, Martek generated cash flows from operations of $11.3 million.
"The year is turning out as expected - high sales growth and increased quarterly profits," said Henry Linsert, chairman and chief executive officer of Martek. "With the FermPro asset acquisition, Martek can get ready for increased full year 2004 and 2005 demand."
