Martek looks to the future in bumper quarter

Related tags Dha Docosahexaenoic acid

Martek Biosciences continued to bend a steep growth curve in 1Q
2005, racking up operating profit of $11.1 million - a 363 percent
increase on the prior year period. But instead of resting on its
laurels and watching the cash roll in, the Columbia, MD-based
producer of docosahexaenoic acid (DHA) and arachidonic acid (ARA)
is investing in development and expanding beyond the infant formula

Sales for the quarter ended 31 January 2005 were up 187 percent, reaching $66.5 million compared to $35.6 for the same three months in 2004.

"Financially, Martek's first quarter of 2005 was a good one and the numbers speak for themselves,"​ said CEO Henry Linsert.

While 90 percent of product sales consisted of DHA and ARA supplied to its four main infant formula licensees - Mead Johnson, Abbott Laboratories, Nestle and Wyeth - Martek​ has also made its first foray into mainstream foods by signing a 15-year non-exclusive license and supply agreement with Kellogg.

The consumer foods products company expects to launch its first products containing Martek DHA and displaying the logo on its packaging in mid-2006.

Martek's gross profit margin for the quarter was 41 percent, another improvement over 1Q 2004, when a 38 percent margin was reported. Part of this increase is attributed by the company to the decreased cost of ARA supplied by third party manufacturer DSM, which has increased its US production of the nutritional oil. Martek says it has also improved its own DHA productivity.

Commensurate with the increase in revenues, total costs and expenses were up 170 percent from $35.6 to $55.4 million.

$0.8 million of this increase was due to research and development expenses, signaling the company's continued investment in its future. It has been looking at yet more ways to decrease production costs and has also incurred costs from clinical studies into the effects of DHA and its plant-based DHA research project in collaboration with SemBioSys.

Staffing levels are also swelling. Martek now has a total of 612 full-time employees, with 64 of the 71 new employees hired over the quarter working in production or R&D.

"Since fiscal 2003, the demand for the company's nutritional oils for use in infant formula products has continued to exceed production capacity,"​ said the company.

To help meet demand, last year it initiated a major expansion program at its facility in Kingstree, SC - an investment expected to yield a production capacity equivalent to around $500 million in the second half of 2005.

Expansion is also underway at the Belvidere, NJ facility, which began producing ARA in addition to DHA in April 2004. Belvidere now produces 40 percent of the company's ARA, a proportion that is expected to rise further over the next nine to 12 months.

As 1Q came to a close, the company announced that it had raised $81.4 million in a common stock sell-off, meaning it has capital to hand to continue increasing capacity as and when required.

"We have the advantage of time to scale up production and increase supply as demand goes up,"​ director of finance Kevin Connelly told at the time.

Food companies are adding nutritional oils to more of their products, such as yogurts, cereals, cheese and nutritional beverages in order to off-set a shortfall of DHA and ARA in the modern diet. Americans eat far less DHA and ARA than they did 50 years ago because consumer tastes have shifted away from foods in which they occur naturally, such as oily fish and organ meat.

Media reports have helped make consumers more aware of the need to include the right kinds of fats in the diet and the message is also reinforced by the FDA, which is tightening legislation that will make it compulsory for potentially cholesterol-raising trans-fatty acids to be listed on nutritional labels by 2006.

The new Dietary Guidelines for Americans published in January also recognize the evidence pointing to a link between omega-3 fatty acids such as DHA in the diet and a reduce risk of cardiovascular disease, but said that more research was needed in the area.

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